Healthcare Business Operations: Non-Profit Regulations for the Rehab Industry

by admin on April 10, 2017 No comments

By: Shobha Lizaso

There has been a growing trend in the substance abuse rehabilitation industry to provide services through a non-profit, tax-exempt organization. Unfortunately, there is also a growing trend relating to IRS audits of non-profits. An audit by the IRS can yield many negative outcomes, including the revocation of a treatment center’s tax exempt status and fines imposed on the organization and/or its Directors when the non-profit fails to operate within the rules applicable to 501(c)3 non-profit organizations.

A non-profit may be able to fly under the IRS’s radar for a few years, but as the years pass, the chances that non-profit non-compliance will be caught by the IRS grows exponentially.  To protect your non-profit, please follow some of these basic rules:

  • Avoid competition with for-profit entities: The IRS does not want non-profits competing with for-profits in the marketplace. For example, there are non-profit rehabilitation centers that have lost their non-profit status due to having the same rates, service audience, and operating hours as a for-profit substance abuse rehabilitation company.  A non-profit should make sure that its fees are lower than market rate, that it serves the general public (not just referrals from a source), and operates to fill the gaps that for-profit substance abuse rehabilitation centers neglect.
  • Deliver a public benefit: A substance abuse rehabilitation non-profit needs to have operations that directly benefit the public and cannot financially benefit any individual, Board Member, or company. A substantial private benefit to anyone will nullify the rehabilitation center’s tax-exempt status even if the non-profit is providing a benefit to the public.
  • Related-party transactions: A non-profit may not privately benefit anyone who has decision making authority within the non-profit. Any transaction that benefits a director, officer, member, etc., could raise a flag to the IRS that the organization is acting for the benefit of individuals rather than the public. A non-profit must have a Conflict of Interest Policy in place to provide guidance for these transactions. Also, payments to any decision maker within the non-profit must be voted on and well documented. Very important: NEVER USE THE NON-PROFIT SOLELY AS A REFERRAL TO OR FROM A FOR-PROFIT ENTITY THAT HAS COMMON DIRECTORS, OFFICERS, OR MEMBERS unless you seek the counsel of an attorney to appropriately structure the relationships between the entities. Non-profits that work with for-profits are high on the IRS audit list.
  • Adhere to the Public support requirements: Public charities generally receive a greater portion of their financial support from the general public or governmental units, and have greater interaction with the public.  Contributions to charitable organizations may be deducted up to 50% of adjusted gross income computed without regard to net operating loss carrybacks.  At least 33% of a public charity’s annual support must come in the form of small donations from members of the general public. The IRS, however, will not require an organization to prove this 33% in its first five years. After five years, if a nonprofit does not meet this 33% benchmark the IRS will automatically convert the public charity into a private foundation. Contributions to private foundations are limited to 30 % of adjusted gross income computed without regard to net operating loss carrybacks.
  • Keep in line with the non-profit’s mission and articles of incorporation: If a non-profit changes or expands the scope of their mission or purpose, the organization must notify the IRS of such changes. Significant changes to the organizing documents must be reported to the IRS.
  • Avoid the activities that jeopardize the tax-exempt status of the organization: The non-profit must not make contributions to a political campaign and it may not engage in substantial political lobbying. The non-profit cannot distribute profits to the Directors, Officers, or Members. The non-profit must pay income tax on profits that are not directly related to the scope of the non-profit’s mission or purpose, and it cannot receive substantial profits from such unrelated activities.

With IRS enforcement actions on the rise, it is very important to get the operational details of the non-profit reviewed by an attorney. An attorney can perform an audit to identify areas of risk so that the substance abuse rehabilitation organization can continue to help people turn their lives around.

Day to day healthcare business operations can cover a lot of things. For example, the contracts of your staff, handling sensitive patient information, hiring a physician, moving into a new facility, licenses, marketing and so much more can all be on your agenda before the day is half way through. Add to that the fact that you have to generate money and you certainly have a lot on your plate. We understand this and will help you eliminate a lot of questions and mistakes by offering elite legal counsel for all these matters and more. Here’s what we bring to the table:

  • Have a team with a presence: Whatever the situation is, whether you are dealing with the government, an insurance agency or another medical company, you want to know that your attorney is well experienced and established in this field and you will be taken seriously.
  • Protect your business: There are going to be so many things that occur over the years that can have a positive or negative impact on your business. Whatever the case, having an experienced legal team to watch your back will minimize your risk and help you to grow as a company.
  • Be prepared: As you look to improve, expand and make yourself the best possible company you can be, make sure that you are prepared from a legal aspect. This includes following every rule and regulation out there, your contracts and licenses are up-to-date and you are aware of any changes in policy that may impact your company.

Whenever your healthcare business operations require legal assistance, keep us in mind as we have helped hundreds of businesses find answers to important questions. Our experienced team is ready to help you with anything you need to ensure that you are well prepared and get a favorable outcome for your case.

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