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Tax exempt organizations such as associations, charities, and nonprofit organizations play an indispensable role in fostering social welfare and economic stability.
These organizations often have a legal connection to leading community-based initiatives through requirements set by federal and state laws that tie their tax-exempt status, in large part, to the requirement that they operate exclusively for charitable, educational, or other purposes that benefit the public, rather than private interests.
Key legal frameworks and connections include the IRS requirements for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, as well as the public benefit requirements of the Indiana Nonprofit Corporation Act.
For nonprofit, tax-exempt hospitals, the community-based health initiatives often must be completed through Community Health Needs Assessments, which require them to develop and implement strategies to address identified health needs in their service areas by providing things like free or subsidized health services, health education programs, disease prevention initiatives and partnering with community organizations.
Additionally, nonprofits are governed by boards with fiduciary duties to advance the organization’s charitable mission, which often includes addressing community-based initiatives.
And while nonprofits are often better positioned to partner with federal, state, or private grant-making organizations to fund community-based programs, legal agreements in such partnerships frequently specify deliverables and accountability measures.
By meeting these legal requirements, nonprofits contribute to the broader well-being of the communities they serve, reinforcing their charitable missions while maintaining tax-exempt status.
Tax-exempt organizations are uniquely positioned to address pressing societal issues that for-profit businesses or governmental agencies may lack the capacity or focus to tackle. Charities and nonprofits provide essential services such as housing for the homeless, food for the hungry, healthcare for those who are uninsured or underinsured, disaster relief, and education programs for underserved populations. For example, food banks and shelters supported by nonprofit organizations ensure that vulnerable populations receive basic necessities, while charities working in education provide scholarships and tutoring programs that help break the cycle of poverty.
While these initiatives offer immense societal value, they also come with financial implications.
There is a cost of investment for community-based programs, which often require significant resources, including funding, personnel, and infrastructure.
For example, a hospital investing in a housing project might need millions of dollars in upfront costs. Similarly, ongoing outreach programs require sustained funding to maintain staff, supplies, and operations.
Despite the high initial costs, many of these initiatives lead to long-term savings by reducing the overall demand for costly emergency care and/or by reducing the burden on government resources.
Nonprofits face challenges such as limited resources, rising costs of operations including staffing and supplies, and increasing scrutiny from regulators and the public. To overcome these challenges, organizations must adopt innovative approaches including:
• Collaborative models where they partner with other nonprofits, businesses and government agencies to pool resources and expertise;
• Data driven strategies leveraging data analytics to identify the most pressing community needs and measure the outcomes of initiatives; and
• Advocacy for policy change while working to influence policies that align funding with community priorities.
Although such programs come with challenges, they also offer opportunities for long-term savings, enhanced public trust, and greater alignment with the mission of improving the communities served.
These organizations, granted exemption from certain taxes due to their public service mission, provide a wide range of benefits that extend far beyond the communities they directly serve.
From addressing societal challenges to driving economic growth, these entities exemplify the profound value of prioritizing the public good.
Nonprofit organizations employ workers across the state by providing jobs in fields such as healthcare, education, social services, technology, and the arts. These jobs generate income for families and stimulate local economies, creating a ripple effect that benefits entire communities.
The social and economic benefits of tax exempt organizations are profound and far-reaching.
By addressing critical needs, creating jobs, fostering innovation, and strengthening communities, these organizations play a vital role in shaping a more equitable and prosperous society. Their tax-exempt status is not merely a financial privilege, but a recognition of the immense value they provide to society as a whole.
Moreover, the associated requirements of tax-exempt status (including the disclosure of much information via annual tax return filings that are generally available to the public) help ensure that such organizations remain accountable to the public at large—and to those who “invest” in their programming through gifts and grants that are essentially subsidized by tax-preferred treatment.
Supporting and investing in these organizations is not only an ethical imperative but also a strategic decision that benefits everyone.•
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F. Brooke Dunn is a government and regulatory affairs counsel at Faegre Drinker’s Indianapolis office who works with nonprofit organizations and governmental entities on issues related to governance, financing, tax-exempt status, public reporting, entity formation, and fundraising and charitable giving. Opinions expressed are those of the author.
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