The Patient Protection and Affordable Care Act of 2010 includes a set of sweeping changes applicable to charitable hospitals exempt under Section 503(c)(3) of the Internal Revenue Code. The Act (a) imposes new eligibility requirements for 501(c)(3) hospitals, coupled with an excise tax for failures to meet certain of those requirements; (b) requires mandatory IRS review of the hospitals’ entitlement to exemption; (c) sets forth new reporting requirements on the hospitals involving community health needs assessments and audited financial statements; and (d) imposes further reporting requirements on the Secretary of the Treasury regarding charity care levels. Most of the changes in the Act are scheduled to go into effect for tax years beginning after March 23, 2010, the date of enactment. Read more…
von Briesen Health Law Blog
March 31, 2010
March 18, 2010
Illinois Supreme Court Affirms Provena Loss of Tax Exemption
The Illinois Supreme Court today decided that Provena Covenant Medical Center was not eligible for a property tax exemption under Illinois state law due to an insufficient showing of charity care. The decision marks the end of the road for a back-and-forth battle dating back to 2002, when Champaign County tax officials concluded that Provena did not qualify as a charitable institution under Illinois property tax exemption statutes due to an insufficient level of charity care. That decision was affirmed by the Illinois Department of Revenue, but then overturned by an Illinois district court in 2007. An Illinois appellate court reinstated the denial of the exemption in 2008, and that decision was affirmed by the Illinois Supreme Court today.
While the Provena decision has been closely watched around the country, it is important to note that the case involves an Illinois statute that differs significantly from the exemption for nonprofit hospitals in Wisconsin. Section 70.11(4m) of the Wisconsin statutes does not refer to “charitable institutions” nor does it require any specific amount of charity care. Charity care and other benevolent activities may be relevant under another exemption relating to benevolent associations, but these activities do not provide the standard by which hospital eligibility is determined under section 70.11(4m).
Nevertheless, the Provena case must still be considered against the backdrop of a larger movement for quantifiable benchmarks and greater accountability as to charity care by nonprofit hospitals. This movement is most visible at the federal level in connection with the community benefit standard applicable to exemption from federal income tax, as evidenced by the newly revised IRS Form 990 and increasing aggressiveness by key congressional leaders in Washington. The battle lines have also been drawn at the state and local level, though, as budgetary constraints trigger renewed scrutiny of the benefits provided by nonprofit hospitals in exchange for their tax exemptions.
December 23, 2009
Year End IRS Advice
The IRS has created a guidance document for leaders in nonprofit organizations. Although long and a bit technical, it is a good “one source” reference for a nonprofits’ operations, reporting and tax filing requirements, including what may jeopardize recognition of the nonprofits’ tax exempt status. For your organization or for those nonprofits you serve, review and discussion of the booklet may be a good New Year’s discussion topic, or at least worth sending this document out to the board. We have provided a link so you can download a copy of the document here.
December 10, 2009
IRS Develops Examination Materials to Study Exempt Organization Governance
As noted in a previous post, the IRS has developed a two-page check sheet to be used by IRS Exempt Organizations agents to gather data about the governance practices and the related internal controls of tax-exempt organizations under examination. The check sheet contains several questions from the governance section of the revised Form 990. The data will be included in a long-term study that the IRS hopes will create a better understanding of the relationship between governance practices and tax compliance. The check sheet and other governance-related materials are now available on the IRS website.
November 24, 2009
Health Information Exchange Denied 501(c)(3) Status
A recently released IRS private letter ruling denied tax exemption for a health information data exchange. A group of insurers and large employers formed an organization designed to aggregate and share health care data with the goal of improving healthcare quality and efficiency. The organization planned to gather, manage and process data on providers and the providers’ performance as to quality benchmarks, but did not require that this information be shared with the public. The IRS found that the organization’s benefits flowed primarily to its members and not to the general public. Further, the organization’s activities were similar to a “commercial business” in providing health care data analysis and distribution only to the organization’s members. It appears that the major flaw in the organization’s proposed operations was distribution of the data it gathered and analyzed was limited to its members, which were both employers and health plans. The organization functioned primarily to benefit its members and not the general public, and therefore, the organization was both operating for a non-exempt purpose and conferring a substantial private benefit on its members.
September 9, 2009
IRS Announces Increase In User Fees For Exempt Organization Applications Effective January 2010
The IRS announced that user fees will increase for all exempt organization applications postmarked after Jan 3, 2010. The increases involve IRS Forms 1023, 1024, and 1028 and are as follows:
- $400 for organizations whose gross receipts are $10,000 or less annually over a 4-year period
- $850 for organizations whose gross receipts exceed $10,000 annually over a 4-year period
- $3,000 for group exemption letters.
Also, the IRS noted that “Cyber Assistant,” a Web-based software program designed to help Code Sec. 501(c)(3) applicants properly complete the Form 1023 application, will become available sometime in 2010. When Cyber Assistant becomes available, the user fees will change again as follows:
- $200 for organizations using Cyber Assistant (regardless of size) to prepare their Form 1023
- $850 for all other organizations not using Cyber Assistant (regardless of size) to prepare their Form 1023.
Detailed information is available on the IRS web site.
July 31, 2009
IRS Training Materials on Tax-Exempt Governance Available on IRS Website
As part of its continuing professional education program for Internal Revenue Service employees, the IRS recently conducted a series of internal training sessions on governance for tax-exempt organizations. The materials are available on the IRS website. The training materials include a combination of outlines and PowerPoint presentations explaining why the IRS is focused on nonprofit governance, emphasizing recommended governance measures and policies, and discussing the role of IRS employees as it relates to their review of governance issues. The IRS clearly intends to carry out a long-term study of nonprofit governance; the materials state that the IRS’ next steps regarding governance are to:
- Develop an examination check sheet regarding various governance topics to explore the link between good or bad governance and compliance with tax laws;
- Incorporate Form 990 questions and responses into compliance initiatives; and
- Continue training of both IRS employees and tax-exempt organizations.
If you have any questions regarding adopting or implementing the governance practices encouraged by the IRS, please contact our health law attorneys.
July 16, 2009
Hospital System’s Property Declared Not Exempt
Waukesha Circuit Court Judge Michael Bohren issued a decision earlier this month concluding that ProHealth Care, Inc. is not entitled to a tax exemption for its Pewaukee facilities, which provide administrative support for ProHealth’s non-profit affiliates Waukesha Memorial Hospital and Oconomowoc Memorial Hospital. The principal stumbling block to the health system’s exemption claim was that ProHealth’s Pewaukee operations also provide support to a taxable affiliate, Waukesha Health System, and ProHealth failed to establish that this support was only inconsequential or incidental. Judge Bohren analyzed the support of both exempt and non-exempt affiliates as a “dual use,” part of which involved a commercial purpose, such that the property was taxable. Judge Bohren’s decision did not attempt to apply a partial exemption analysis, however, even though ProHealth submitted evidence comparing the revenues, employees, and services attributable to Waukesha Health System against those attributable to the exempt hospitals.
While Judge Bohren’s ruling is instructive, it is not a binding precedent since it is only at the trial court level. ProHealth has stated that it does not intend to appeal the decision.
June 24, 2009
Commissioner of IRS Tax-Exempt and Government Entities Section Gives Speech on Issues in Nonprofit Governance
On June 23, 2009, IRS TE/GE Commissioner Sarah Hall Ingram gave a speech entitled “Nonprofit Governance – The View From the IRS.” The text of the speech is available at the IRS web site. Ms. Ingram noted that the IRS is concerned with transparency in tax-exempt organizations, especially concerning the use and safeguarding of tax-exempt assets. The IRS has identified important governance topics on its web site and governance questions are embedded in Part VI of the new Form 990. Ms. Ingram also spoke about the IRS’ newly formed Review of Organizations Unit and the Exempt Organizations Compliance Area, which allows the IRS to greatly expand the use of compliance checks.
June 2, 2009
Senate Finance Committee Proposes Legislation Mandating Charity Care Guidelines for Tax-Exempt Hospitals
The Senate Finance committee, led by Chuck Grassley (R-Iowa) and Max Baucus (D-Montana), is proposing a new enforcement mechanism for tax-exempt hospitals under which hospitals would have to provide certain levels of community benefit. For example, a tax-exempt hospital would be required to provide charity care equal to an as-yet unspecified percentage of its patient revenue. Also, under the proposal, tax-exempt hospitals could not refuse to provide service based on a patient’s ability to pay and would have to follow certain procedures before instituting collection actions against patients. If the tax-exempt hospital violates the charity care standards, the government could impose excise taxes or ultimately revoke its tax-exempt status. See the full text of the Finance committee’s proposed health system savings and revenue options here. The proposed requirements for tax-exempt hospitals begin on page 31 of the document.
The American Hospital Association opposes the one-size-fits-all standard and in a May 28, 2009 bulletin, urged hospital leaders to contact their senators to oppose the proposed charity standards. The AHA’s bulletin is available here (available to AHA members only).