An entity that is operated for some public purpose, rather than to pursue and accumulate profits. Certain types of profits are permitted, but they must be used for the benefit of the organization. Congress has established specific standards under which nonprofit organizations may seek tax-exempt status. Compare
for-profit.
A 2006 report by the Congressional Budget Office estimated that in 2002 nonprofit hospitals benefited from $2.5 billion in tax savings that resulted from their corporate tax exemption, plus an additional $1.8 billion in reduced interest expenses from issuing tax-exempt debt securities. The reduced borrowing cost results from the lower interest rate that is acceptable to investors who are not required to pay personal income taxes on interest income derived from tax-exempt securities. The result was that nonprofit hospitals enjoyed a significantly lower cost of capital compared to their for-profit competitors. One study indicated that in 2006 for-profit hospitals had a cost of capital of 12.9%, while nonprofit hospitals had a cost of capital of only 10.8%. The financial advantage accorded these nonprofit organizations results from the expectation they will provide community benefits, including charity care, health screening, health education programs, and emergency room services. More than half of community hospitals providing short-term care are nonprofit, while the remaining institutions were approximately evenly split between for-profit and government-owned hospitals.