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An overview by Covington, Taxand USA
The U.S. Court of Appeals for the Fifth Circuit has recently upheld a ruling that denies tax-exempt status to non-profit healthcare firm, Memorial Hermann Accountable Care Organization (MHACO), finding that its activities mainly benefit commercial payors rather than the public as part of the 501(c)(4) code.
The decision favours a “substantial non-exempt purpose” test over the more lenient “primary purpose” test, meaning any significant non-social welfare activities may disqualify an organisation from tax-exempt status. This ruling may lead to stricter IRS oversight of 501(c)(4) organisations involved in lobbying, political activities, and member-specific services, raising questions about permissible levels of non-exempt activity and VAT obligations.
Susan Leahy and Pooja Shah Kothari from Covington, Taxand Global Member, USA, have published a more detailed analysis of this ruling and its implications here.
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