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Tax Status
The Internal Revenue Service categorizes nonprofits and for-profits differently. While for-profits must pay taxes and cannot accept tax deductible donations, many nonprofits are fully tax-exempt, paying no federal income taxes and no state or local income, sales or property taxes. Most can accept tax-deductible donations and all must use their assets for the nonprofit purposes identified in their incorporation papers. Nonprofits are commonly organized under sections 501(c)(3) or 501(c)(4) of the federal tax code.
Although Blue Cross and Blue Shield plans pay federal taxes, they get reduced rates under section 501(m) of the federal tax code. (For more about the Blue Cross tax designation, click here.) In addition, nonprofits are often limited in their ability to lobby. For-profits are not restricted in their lobbying activity and are not required to organize or use their assets for any prescribed purpose.
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