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501(c)(3) is a federal tax designation

a nonprofit healthcare coalition with a 501(c)(3) designation is exempt from federal taxes; exempt organizations must engage in activities that have the following purposes: charitable, religious, educational, scientific, literary, testing for public safety...


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Contrary to popular belief, taking a healthcare coalition nonprofit is not one and the same as taking it 501(c)(3). Becoming a nonprofit corporation is a state action that makes the coalition a legal entity, whereas obtaining a 501(c)(3) designation from the Internal Revenue Service (IRS), is a federal thing.

no nonprofit, no 501(c)(3)

a healthcare coalition must first be a nonprofit corporation in its state before it can apply for a 501(c)(3) designation

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Like for-profit corporations, nonprofit corporations, need banking, accounting and insurance services, and may need to engage legal services if the situation warrants. That said, incorporating provides important benefits for the healthcare coalition... 

learn more about taking your healthcare coalition nonprofit

why go 501(c)(3)?

the 501(c)(3) designation opens the door for the coalition to engage in fundraising and attract donors

Taking a nonprofit healthcare coalition 501(c)(3) provides the following benefits:

  • Exemption from federal and/or state corporate income taxes
  • Potentially higher thresholds before incurring federal and/or state unemployment tax liabilities
  • Ability to apply for grants and other public or private allocations available only to IRS-recognized, 501(c)(3) organizations
  • Individuals may deduct contributions from their taxes
  • Possible exemption from state sales and property taxes (varies by state)
  • Discounts on U.S. Postal bulk-mail rates and other services
  • The public legitimacy of IRS recognition

sure-fire ways to lose 501(c)(3) status

the 501(c)(3) designation has strict requirement and four definite prohibitions

 

Incurement/Private benefit

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.

Lobbying

Lobbying is an activity designed to influence legislation. If its lobbying activities are substantial, a 501(c)(3) may risk losing its tax-exempt status. The IRS uses two tests to determine whether lobbying is substantial: the substantial part test and the expenditure test.

Political activity

Political campaign activity involves directly or indirectly participating or intervening in any political campaign on behalf of or in opposition to any candidate for elective office. The prohibition of political campaign activity is absolute. Any violation may result in the loss of tax-exempt status and the imposition of excise taxes.

Excessive unrelated business income (UBI)

If a nonprofit, tax-exempt organization regularly carries on a trade or business that is not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business.

no new governing documents

the 501(c)(3) designation does not add a new layer to governance, but it may add required provisions to the coalition's bylaws and policies

Healthcare Coalition Governing Documents

Healthcare coalitions that establish independent nonprofit corporations must concern themselves with living by the requirements of their corporate charter. For coalitions using third-party fiduciary agents, governance starts with their bylaws.

Learn more about healthcare coalition governance