Nonprofit Federal Tax Considerations for Investing in Innovation
AHLA thanks the leaders of the Tax and Finance Practice Group for contributing this feature article.
- October 01, 2022
- Gerald M. Griffith , Jones Day
- Catherine E. Livingston , Open Society Foundations
- Mary Katherine Hickey , Jones Day
Nonprofit health systems qualifying as tax-exempt under section 501(c)(3) of the Internal Revenue Code (I.R.C.) have become interested in starting or investing in companies that develop health care innovations like scientific discoveries, novel therapies or care models, or new technologies. Health systems are interested in these investments for a variety of reasons, including discovering innovations to fill specific needs in their health care delivery or to improve health care more broadly; expanding access to valuable innovations; and using their strategic expertise in the health care arena to enhance financial return on their investments. An “investment” can take many forms: putting capital into a new company as a majority or minority investor; participating in a fund that invests in health care start-ups; or providing funding and technical assistance to a new company formed by employees or affiliates of the health system or formed around intellectual property licensed by the health system.
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