Purchase Solution

Tax Implications for Profit-Making Entities

Not what you're looking for?

Ask Custom Question

An exempt hospital receives all of the shares of stock of Compute, Inc., a retail computer chain, as a gift from a wealthy donor. Because the chain is very profitable and its CEO has offered to continue to manage it, the hospital has decided to operate the chain rather than sell the stock. All of the chain's profits will be used in carrying out the exempt mission of the hospital.

Advise the hospital on whether better Federal income tax consequences can be achieved by operating the chain as a subsidiary or as a division of the hospital corporation.

Purchase this Solution
Solution Summary

This is a discussion of the problems that could occur when a tax exempt hospital takes ownership of a profit making company, and also a summary of the remedies for those problems.

Solution Preview

Tax exempt organizations are regulated by Section 501(c) (3) of the Internal Revenue Code. Exempt purposes include "charitable, religious, educational, scientific, literary, and testing for public safety" (IRS, 2016), which would apply to the hospital in question, particularly if it is being run by a religious group or organization.

The business that was a gift to the hospital, Compute, Inc, is a profit making entity. However, it is possible for a non-profit and tax exempt organization to create a subsidiary entity of the profit making company, and still maintain its tax exempt status. A pdf paper published by the Internal Revenue Service ...

Solution provided by:
Roberta Brown, MBA
Education
  • MEd, Grand Canyon University
  • MBA, University of Phoenix
Recent Feedback
  • "Thank you. GJ"
  • "thank you! there was a lot of information in this outline and to reduce it to a summary was difficult. I appreciate your time, effort, and attention to the details."
  • "This is a perfect example of what is considered as scholarly work and great presentation. Thanks I can finally say expert "YESSSSSSSSSSSS" "
  • "Thank you so much, Roberta, great response to help me fulfill this assignment."
  • "Thank you"
Purchase this Solution
Free BrainMass Quizzes
Lean your Process

This quiz will help you understand the basic concepts of Lean.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

View More Free Quizzes
Related BrainMass Solutions

  • Comparitive Summary of Financial Health Enviroments

    These directors and managers are only responsible to the owners of the hospital for making profit. For-profit, or investor owned, entities are also subject to paying taxes at the local, state, and federal level as well.

  • Government and Not-For-Profit Businesses

    The main difference between for-profit businesses and not-for-profit entities is in their basic objectives. A "not for profit" organization is the one which is founded on the grounds other than running a profit making business.

  • Comparitive Financial Environments of Healthcare Entities

    Not-for-Profit: - Funding comes primarily through public contributions, payment for services ( Medicaid, Medicare, insurance companies) tax funds, public support, and provision of services.

  • LLC profit and losses - selling interest in LLC

    What would be the tax consequences for Tony if Zach became a partner by making a capital contribution and as a result Tonyâ's interest in the partnership profit and loss was reduced to 20%?

  • Reporting Guidance for Profit and Not-For-Profit Organizations

    Another important feature in for profit entities is the computation and payment of income tax. Although there are certain NPOs who may pay tax on certain types of income, for the most part, NPOs are tax free entities.

  • Types of legal entities used for operating a business

    Legal business forms include: Sole proprietorships Partnerships Joint Ventures Limited liability companies Corporations Trusts Estates Non for profit entities Private foundations What types of business entities does the U.S. tax system

  • Taking Inventory for Personal Use

    On the tax return for all types of entities, the cost of goods sold lists a line that specifically reads, "purchases less personal use."

  • Adam Smith tax maxims - profit and non profit entities

    The 625 word solution describes Adam Smith's four tax maxims and how they realte to our problem. The solution suggests that the differences between for profit and not for profit entities may be narrower than we think.

  • Four Types of Business Entities-Advantages & Disadvantages

    Less tax to partnership compared to corporations because no tax is levied before profit is distributed to the partners (there is dividend tax in case of corporations and no such tax for partnership). b.

View More Related Solutions