The Law of Tax–Exempt Healthcare Organizations, 2018 Supplement

THOMAS K. HYATT (Washington DC) is a Partner and the Chair of SNR Denton's Health Care practice. He focuses on corporate and tax-exempt organization issues for health care providers. He represents organizations including public and private hospitals, multi-hospital systems, integrated delivery systems, academic medical centers, home health agencies, health maintenance organizations, continuing care retirement communities, provider associations, physician clinics, faculty practice plans, physician-hospital organizations and shared services organizations. Tom is the Chair Emeritus and serves on the faculty of the annual Tax Issues in Healthcare Organizations seminar sponsored by the American Health Lawyers Association (AHLA), and past Chair of AHLA's Tax and Finance practice. BRUCE R. HOPKINS (Kansas City MO) is a senior partner with the firm Polsinelli Shughart PC. He is also the author of more than 35 books, including The Law of Tax-Exempt Organizations, 10e, The Law of Fundraising, 4e, Nonprofit Law for Colleges and Universities, Nonprofit Governance, and Nonprofit Law Made Easy, as well as the monthly newsletter Bruce R. Hopkins' Nonprofit Counsel, all published by Wiley. Hopkins earned his Juris Doctorate and Master of Laws degrees at the George Washington University. He has practiced law for 40 years and is a member of the District of Columbia and Missouri bars. Hopkins received the 2007 Outstanding Nonprofit Lawyer Award (Vanguard Lifetime Achievement Award) from the American Bar Association, Section of Business Law, and Committee on Nonprofit Corporations. He is listed in The Best Lawyers in America, Nonprofit Organizations/Charities Law, 2007-2008.

Preface ix


About the Authors xi


Book Citations xv


1 Tax-Exempt Healthcare Organizations—An Overview 1


1.2 Defining Tax-Exempt Organizations 1


1.5 Charitable Healthcare Organizations 1


1.10 ABLE Programs 2


3 Public Charities and Private Foundations (New) 5


3.3 Commerciality Doctrine 5


4 Private Inurement, Private Benefit, and Excess Benefit Transactions 7


4.4 Private Inurement—Scope and Types 7


4.6 Essence of Private Benefit 8


4.9 Excess Benefit Transactions 10


5 Public Charities and Private Foundations 11


5.1 Public Institutions 11


5.6 Recognition of Change in Public Charity Status 11


7 Lobbying and Political Activities 13


7.1 Legislative Activities Limitation 13


7.4 Political Activities Limitation 14


7.5 Business Expense Deduction Rules and Political Activities 16


7.7 Public Policy Advocacy Activities 16


7.8 Political Activities of Social Welfare Organizations 169


9 Managed Care Organizations 19


9.3 Commercial-Type Insurance Providers 19


9.5 Recent Developments 19


13 Other Provider and Supplier Organizations 23


13.3 Qualified Nonprofit Health Insurance Issuers 23


13.5 Accountable Care Organizations 24


16 For-Profit Subsidiaries 29


16.3 Attribution of Subsidiary’s Activities to Exempt Parent 29


17 Exempt and Nonexempt Cooperatives 31


17.1 Cooperative Hospital Service Organizations 31


18 Business Leagues 33


18.1 Business Leagues in General 33


18.2 Healthcare Trade Associations 34


19 Other Health-Related Organizations 35


19.4 Hospital Management Services Organizations 35


19.5 Regional Health Information Organizations 36


20 Healthcare Provider Reorganizations 37


20.1 Some Basics about Reorganizations 37


21 Mergers and Conversions 39


21.4 Conversion from Nonexempt to Exempt Status 39


22 Partnerships and Joint Ventures (New) 41


22.9 Whole-Hospital Joint Ventures 41


24 Tax Treatment of Unrelated Business Activities 43


24.2 Definition of Trade or Business 43


24.3 Definition of Regularly Carried On 45


24.5 Application of Substantially Related Test to Healthcare Organizations 46


24.11 Pharmacy, Medical Supplies, and Service Sales 47


24.12 Laboratory Testing Services 47


24.13 Medical Research 48


24.18 Other Exceptions to Unrelated Income Taxation 49


24.20 Revenue from Controlled Organizations 51


24.21 Unrelated Debt-Financed Income 51


24.23 Computation of Unrelated Business Taxable Income 51


25 Physician Recruitment and Retention 53


25.5 Specific Recruitment and Retention Techniques 53


26 Charity Care 55


26.6 Definitional and Reporting Issues 55


26.9 Charity Care and National Health Reform 56


26.10 Additional Statutory Requirements for Hospitals 56


27 Worker Classification and Employment Taxes 73


27.7 Medical Residents and the Student Exception 73


28 Compensation and Employee Benefits 75


28.3 Executive Compensation 75


28.5 Overview of Employee Benefits Law 75


28.6 Deferred Compensation in General 76


30 Tax-Exempt Bond Financing 81


30.3 Disqualification of Tax-Exempt Bonds 81


31 Fundraising Regulation 91


31.2 Federal Law Regulation 91


33 Governance 93


33.4A IRS Ruling Policy 93


34 Exemption and Public Charity Recognition Processes 97


34.1 Exemption Recognition Process 97


34.5 Public Charity Status 107


34.6 Group Exemption 107


34.7A Notice Requirements for Social Welfare Organizations (New) 107


34.8 Procedure Where Determination Is Adverse 109


34.9 Constitutional Law Aspects of Process 110


35 Maintenance of Tax-Exempt Status and Avoidance of Penalties 111


35.1 Material Changes 111


35.2A Modification of Tax Exemption (New) 113


35.4 Redesigned Annual Information Return 113


35.5 Disclosure Requirements 114


35.6 IRS Disclosure to State Officials 114


36 IRS Audits of Healthcare Organizations 115


36.2 Audit Procedures 115


Cumulative Table of Cases 121


Cumulative Table of IRS Revenue Rulings 131


Cumulative Table of IRS Revenue Procedures 135


Cumulative Table of IRS Private Letter Rulings 137


Cumulative Table of IRS Technical Advice Memoranda 143


Table of Chief Counsel Advice Memoranda 145


Cumulative Table of IRS General Counsel Memoranda 147


Table of Tax Reform Legislation 149


Cumulative Index 155