Tax-Exempt Organization

Technical topics regarding tax preparation.
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27-Sep-2022 3:31pm
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Nebraska
The client is an association health plan made up of members of various municipalities and political subdivisions formed as an "Interlocal Entity" under State Law but has not incorporated as a Non-Profit. The entity was formed to provide lower costs for health insurance, and the only "income" the entity will receive is in the form of premium payments from members, which will be paid to the insurer along with miscellaneous "administration fees" which could pay for some employees down the line and other various expenses. Because the entity was not originally created as a Non-Profit organization under state law, they would like to know what options are available to be a tax-exempt organization. Has anyone dealt with this situation?

I have performed some research and found various types of organizations that could be classified as such as 501(c)(4) Mutual Benefit Organization or possibly a 501(c)(6) Business League. However, I think the best approach is to exclude the income under Section 115 as it performs "an essential government function," and all of its "income" will accrue to political subdivisions which are tax exempt. I have found some applicable PLRs and Revenue Rulings to exclude the income under section 115.

Does anyone have any experience in this situation and are willing to provide their thoughts or analysis?
 

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