Advisory Committee on Tax Exempt and Government Entities (ACT ...

More documents

Recommendations

Info

The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance Issuesrequirement. The origin of the specific concern was that it was not uncommon in the1950s, 1960s and 1970s for hospitals to be owned by a small group of communityphysicians; and a number of these hospitals came to seek tax exemption but operatedso as to serve the private interests of their founders. 189 Thus, the requirement wasimposed to show that the hospital would be operated for charitable purposes.Over the years, the IRS has imposed additional governance-type requirements onhealth care organizations as a condition of exemption, in each case trying to distinguishthose that not only promote health but also are organized and operated for charitablepurposes from those that serve private purposes. The most common requirement hasrelated to an independent board. The IRS has been particularly leery of physiciancontrolledhealth care organizations, 190 especially where the physicians determine theirown compensation. 191 Courts, however, have been more lenient in awarding exemptionto physician-controlled practice entities, at least where compensation safeguards are inplace. Thus, the courts have granted exemption to faculty practice plans controlled byphysicians despite the IRS’s view to the contrary. 192 In the context of integrateddelivery systems, the IRS has limited physician representation on the board of directorsto a stricter 20 percent. 193189See, e.g., Harding Hospital, Inc. v. Comm’r, 505 F.2d 1068 (6 th Cir. 1974); Kenner v. Comm’r, 33 TCM 1239 (1974); SonoraCommunity Hosp. v. Comm’r, 397 F.2d 814 (9 th Cir. 1968) (mem.), aff’g 46 TC 519 (1966); Lowry Hospital Ass’n v. Comm’r, 66 TC850 (1976); Maynard Hosp., Inc. v. Comm’r, 52 TC 1006 (1969). See also the non-qualifying hospital example in Rev. Rul. 69-545,1969-2 C.B. 117.190In fact, there have been practitioners who encouraged for-profit physician groups to consider tax exemption for their grouppractices. See, e.g., Konrad Friedmann, Tax Exempt Status for Medical Clinics: A Complex, Rewarding Option, HealthSpan,July/August 1990, at 11 reprinted in 3 Exempt Org. Tax Rev. 1233 (1991).191See, e.g., Rev. Rul. 69-266, 1969-1 C.B. 151 (clinic created and controlled by physicians not exempt as does not differsignificantly from private practice of medicine for profit); Lorain Ave. Clinic v. Comm’r, 31 TC 141 (1958); Fort Scott Clinic and Hosp.,Corp. v. Broderick, 99 F. Supp. 515 (D. Kan. 1951); Labrenz Found. v. Comm’r, 33 TCM 1374 (1974).192See, e.g., the three initial cases involving academic physician practice plans: B.H.W. Anesthesia Found., Inc. v. Comm’r, 72 TC681 (1979), nonacq., 1980-2 CB 2; University of Mass. Medical School Group Practice v. Comm’r, 74 TC 1299 (1980), acq., 1980-2C.B. 2; University of Md. Physicians, P.A. v. Comm’r, 41 TCM 732 (1981). See also, Akron Clinic Found. v U.S., 64-1 USTC 9233(ND Ohio 1964)(clinic).193In the early 1990s, the IRS was confronted with the establishment of integrated delivery systems that included the creation ofnetworks comprised of one or more hospitals and one or more groups of employed or captive physicians. Ultimately, the IRS ruledfavorably but it took the aggressive step of limiting physician control of the combined entity to 20 percent of the board. See, e.g.,Charles F. Kaiser & T.J. Sullivan, Integrated Delivery Systems and Health Care Update, Exempt Org. Continuing Prof. Educ. Tech.Instruction Program for FY 1996 384; Charles F. Kaiser et al., Integrated Delivery Systems and Joint Venture Dissolutions Update,Exempt Org. Continuing Prof. Educ. Tech. Instruction Program for FY 1995 153; Charles F. Kaiser & John Francis Reilly, IntegratedDelivery Systems, Exempt Org. Continuing Prof. Educ. Tech. Instruction Program for FY 1994 212; IRS Officials Alert Hospitals toCurrent Concerns, 7 Exempt Org. Tax Rev. 713 (1993). For a short period, the IRS included all financially interested persons withinits 20 percent maximum,( Rockford Memorial Health Services Corp. of Rockford, Illinois. See, e.g., Paul Streckfus, Another IDSRuling Released by IRS National Office, 9 Exempt Org. Tax Rev. 992 (1994); Integrated Delivery System, System Joining Clinic,Hospital, Managed Care Entities Wins Exemption, 3 Health L. Rep. (BNA) 498 (1994), although it later relented, including within the20 percent only physicians selling assets to, or providing professional services in conjunction with, the integrated delivery systemand characterizing the 20 percent limit as a “safe harbor” applicable to organizations without a track record. See, e.g., Charles F.Kaiser & T.J. Sullivan, Integrated Delivery Systems and Health Care Update, Exempt Org. Continuing Prof. Educ. Tech. InstructionProgram for FY 1996 384, 390-91. In one case that may be aberrational, the IRS applied the 20 percent limitation to a for-profitphysician hospital organization (PHO). See Participation in PHO Will Not Jeopardize Tax-Exempt Status, 10 Exempt Org. Tax Rev.1323 (1994); Burda, “IRS Gives Nod to PHO, But Physicians Say No,” Modern Healthcare 3 (Oct. 24, 1994); 4 Health L. Rep. (BNA)151 (1995).ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 86
The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance IssuesThe IRS also tightened the control requirements for joint ventures between exempthospitals and for-profit persons. 194 In Revenue Ruling 98-15, 195 the IRS consideredwhether a tax-exempt entity that operated a hospital jeopardized its exemption when ittransferred its hospital assets into a joint venture entity owned equally by it and by a forprofitentity (known as a “whole hospital” joint venture). In the “good” fact pattern theexempt entity maintained governance control over the joint venture entity (the exemptentity chose a majority of the joint venture governing board and each of those boardmembers were independent community leaders); maintained control over the day-todayoperations of the joint venture entity; conflicts of interest were minimized (theofficers, directors and key employees of the hospital were independent of the for-profitentity and none of the hospital officers, directors or key employees involved in thedecision to form the joint venture was promised employment or offered otherinducements); and safeguards were in place intended to assure that the joint venturewould operate to further charitable purposes and not just to maximize profits. Bycontrast, in the “bad” fact pattern, the IRS found that the hospital failed to establish itwould be operated exclusively for exempt purposes, and therefore no longer qualifiedfor exemption, where the hospital chose only half of the governing board members(each of whom was an independent community leader); the chief executive officer andchief financial officer for the joint venture previously work for the for-profit entity; the jointventure engaged a subsidiary of the for-profit entity to serve as manager pursuant to acontract that could be renewed indefinitely at the manager’s discretion; and there wereno assurances that the joint venture would serve charitable purposes over maximizingprofits .In Revenue Ruling 2004-51, 196 the IRS set a somewhat more relaxed control standardin the context of an “ancillary” joint venture (i.e., a joint venture that is not a substantialpart of the exempt entity’s charitable activities). In this ruling, a university entered into a50-50 joint venture with a for-profit entity specializing in conducting interactive videotraining programs limited to offer teaching training seminars at off-campus locationsusing interactive video technology. The IRS found that the university was engaged inan activity substantially related to its exempt purposes, and the inurement and privatebenefit prohibitions were not implicated where the exempt organization and for-profitentity each appointed half of the joint venture governing board. Safeguards showingsufficient control by the university to ensure that the joint venture operates for its exempt194For a general discussion about IRS’s evolving view on joint ventures between tax-exempt and for-profit entities, see, e.g.,MICHAEL I. SANDERS, JOINT VENTURES INVOLVING TAX-EXEMPT ORGANIZATIONS (2007); McDermott Will & Emery IRS Revenue RulingApproves Tax-Exempt Organization Participation in Ancillary Joint Ventures,”http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/6f1f3160-b371-4660-9e2f-eda902fd1494.cfm (May 13,2004).195Rev. Rul. 98-15, 1998-1 C.B. 718. See also Redlands Surgical Services v. Commissioner, 113 T.C. 47 (1999), aff’d per curiam,242 F. 3d 904 (9th Cir. 2001), finding that participation in an ambulatory surgical center joint venture did not qualify for exemptionbecause control by the for-profit venture partners constituted substantial private benefit; St. David’s Health Care System, Inc. v.United States, 2002-1 USTC 50,452 (W.D. Tex. 2002), rev’d and remanded, 349 F.3d. 232 (5th Cir. 2003), St. David’s Health CareSystem v. United States of America, Civil Action No. A-01-CA-46 JN, reported at 2004 TNT 46-4, (W.D. Tex), where a federaldistrict court jury ultimately determined that the exempt entity had maintained sufficient control over the whole hospital joint venturewith a for-profit hospital company to assure that the joint venture was operated for charitable purposes, despite the Fifth Circuit’ssuggestion that it would be difficult to make such a determination.196Rev. Rul. 2004-51, 2004-1 C.B. 974.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 87
Page 5:
ADVISORY COMMITTEE ON TAX EXEMPT AN
Page 9 and 10:
MEMBER BIOGRAPHIESGOVERNMENT ENTITI
Page 11 and 12:
GENERAL REPORTOF THEADVISORY COMMIT
Page 13:
General Report of the Advis
Page 18:
Improving the Employee Plans Compli
Page 23 and 24:
Page 25 and 26:
Page 27 and 28:
Page 29 and 30:
Page 31 and 32:
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68:
Page 69 and 70:
Page 71 and 72:
EXHIBIT DSubmission Type:(insert fr
Page 73 and 74:
EXHIBIT D (CONTINUED)18. Descriptio
Page 75 and 76:
EXHIBIT D (CONTINUED)VCP CHECKLISTT
Page 77 and 78:
EXHIBIT D (CONTINUED)23. Have you i
Page 79 and 80:
EXHIBIT D (CONTINUED)Instructions f
Page 81 and 82:
EXHIBIT D (CONTINUED)23. Under Exam
Page 83 and 84:
ADVISORY COMMITTEE ONTAX EXEMPT AND
Page 85:
The Appropriate Role Of The Interna
Page 88 and 89:
Page 90 and 91:
Page 92 and 93:
Page 94 and 95:
Page 96 and 97:
Page 98 and 99:
Page 100 and 101:
Page 102 and 103:
Page 104 and 105:
Page 106 and 107:
Page 108 and 109:
Page 110 and 111:
Page 112 and 113:
Page 114 and 115:
Page 116 and 117:
Page 118 and 119:
Page 120 and 121:
Page 122 and 123: The Appropriate Role Of The Interna
Page 201: The Streamlined Closing Agreement F
Page 204 and 205: The Streamlined Closing Agreement F
Page 217: ADVISORY COMMITTEE ONTAX EXEMPT AND
Page 220 and 221: PROTECTING PLAN BENEFITS:IMPROVING
Page 222 and 223:
PROTECTING PLAN BENEFITS:IMPROVING
Page 224 and 225:
Page 226 and 227:
Page 228 and 229:
Page 230 and 231:
Page 232 and 233:
Page 234 and 235:
Page 236 and 237:
Page 238 and 239:
Page 240 and 241:
Page 242 and 243:
Page 244 and 245:
Page 246 and 247:
Page 248 and 249:
Page 250 and 251:
Page 252 and 253:
Page 254 and 255:
Page 256 and 257:
Page 259 and 260:
Page 261 and 262:
Page 263 and 264:
Page 265 and 266:
Page 267:
Page 271 and 272:
Tax Treatment Of Cellular Telephone
Page 273 and 274:
Page 275 and 276:
Page 277 and 278:
Page 279 and 280:
IRC, 2007-CODE-VOL, SEC. 280F. LIMI
Page 281 and 282:
PENIRC S 274 Page 1 of 12IIRC, 2007
Page 283 and 284:
PENIRC S 274 Page 3 of 12relationsh
Page 285:
Employee Cell Phones Page 1 of 1Emp
Page 289 and 290:
15. Special Rules for Various Types
Page 292:
Withholding RequirementsACCOUNTING
Page 299:
Page 303 and 304:
Governmental Relationship and Commu
Page 305 and 306:
Page 307 and 308:
Page 309 and 310:
Page 311 and 312:
Page 313 and 314:
Page 315 and 316:
Page 317 and 318:
Page 319 and 320:
Page 321 and 322:
Page 323 and 324:
Page 325 and 326:
Page 327 and 328:
show all

Advisory Committee on Tax Exempt and Government Entities (ACT ...

Create successful ePaper yourself

Delete template?

Save as template?