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IRS Focuses on Tax Exempt Health Care Organizations

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					VOLUME 3, ISSUE 12                                                                                  DECEMBER 2008




IRS Focuses on Tax Exempt Health Care Organizations

By Monica Langfeldt                     So what are some of the surprises      policy? Does the organization pre-
Health Care and Tax Attorney            in store for filers of the new Form    pare an annual community benefit
Miller Nash LLP
                                        990?                                   report? And if so, is it made avail-
                                        For starters, does your organiza-      able to the public?
                                        tion realize that Schedule J will      Some additional hot issues worth
                                        require all organizations to report    watching include FIN 48 footnote,
                                        any payment of traveling expens-       joint ventures, especially between
                                        es for board members’ spouses          for-profit and tax-exempt entities,
                                        as well as reporting it on either a    political activities/lobbying (of
                                        Form 1099 or a W-2 as compensa-        special importance, since this is an
                                        tion or income to the board mem-       election year), bonds, governance
                                        bers? It doesn’t end there; the        (board compensation, governance
                                        IRS also wants to know about any       policies, and compensation ap-
                                        gross-up amounts, first-class or       proval process), and compensation
                                        charter travel, and athletic or so-    (including benefits and perqui-
                                        cial club membership dues paid on      sites), excess benefit, loans, and
                                        behalf of officers, board members,     grants or assistance to insiders, as
                                        and selected individuals affiliated    well as charity care and commu-
                                        with the organization. In essence,     nity benefit.
As all of you are aware (if not, you    the new Schedule J asks all those      If you are not yet familiar with the
should be), the IRS has redesigned      questions regarding details that       redesigned Form 990, you can ac-
Form 990 to include a number of         organizations may not want the         cess the form and instructions at
additional reporting requirements       public to know about—but just in       http://www.irs.gov/charities/
that will impact tax exempt health      case you forgot, the entire Form       article/0,,id=185561,00.html.
care organizations. The new form        990 is open to the public, either      The basis for the changes imposed
has been available for some time        when requested directly or by ac-      by the IRS seems to be rooted in
now, but many organizations may         cessing www.guidestar.org, which       concerns that some health care or-
not have focused on the new Form        publishes the forms after they are     ganizations may not be living up to
990 as closely as they should have.     filed with the IRS.                    their obligations to provide charity
Luckily, calendar year filers have      Schedule H is another item of in-      care, community benefit and oth-
until May 15, 2009, to submit their     terest to health care organizations,   erwise use tax-exempt assets in
returns. When organizations final-      because it must be completed by        furtherance of their charitable pur-
ly get around to looking at the new     all hospitals that file Form 990.      pose. In addition, Senator Chuck
Form 990, however, they will re-        On Schedule H, the IRS focuses         Grassley of Iowa is in hot pursuit
alize that all the questions actually   on questions such as: Does the         of tax-exempt organizations that
pertain to the 2008 tax year.           organization have a charity care       because of uncommon practices,

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end up in the national press. On         aged. My advice is to do every-        made available to implement and
October 14, the Wall Street Jour-        thing possible to avoid an audit by    operate the policies, they are use-
nal published an article regarding       the IRS, because even if the IRS       less. If any policy is violated, it is
some nonprofit hospital systems          does not assess any additional tax-    especially important to take prompt
that are closing inner-city facili-      es or find any violations, the time    and appropriate action, both to de-
ties while spending billions on          and expense of responding to the       ter future violations and to foster
suburban expansions. Thankfully,         audit is often astronomical.           a sense of unity. Therefore it is
no Washington State hospital was         What can you do to protect your        equally important that any such
mentioned. I expect that each of         health care organization? Make         policy be taken seriously enough
the hospital systems mentioned in        sure that you have established and     to be integrated into your organiza-
the article will receive a letter from   adhered to the following policies:     tion’s overall compliance program.
the Senate Finance Committee,            executive compensation, conflicts      Finally, no compliance program
on which Senator Grassley is the         of interest, investments, fundrais-    will ever become successful unless
ranking member.                          ing, document retention and de-        it comes from the top and is consis-
It is important to keep in mind that     struction, ethics, and whistleblow-    tently practiced at ALL levels.
any organization whose gover-            er. If your organization proactively
nance and compliance is taken se-        addresses each of these policies, it   Monica Langfeldt is a health care
riously is an organization that (1)      may be able to persuade the IRS to     and tax attorney and partner at
is less likely to be audited by the      limit any adverse tax consequenc-      Miller Nash LLP, a multispecialty
IRS and (2) if audited, will proba-      es. Remember, the policies them-       law firm with offices in Seattle
bly be assessed less in taxes, inter-    selves are only guidelines, and        and Vancouver Washington, and
est, and penalties because it has the    unless there is education of staff     Portland and Central Oregon.
prerequisite policies in place, and      and officers, as well as sufficient    Ms. Langfeldt can be reached at
the abuse is not flagrant or encour-     resources, authority, and access       monica.langfeldt@millernash.com.




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