S U P R A S P I N A T U S

According to an IRS press release:

The Internal Revenue Service today released for comment and discussion a draft Form 990, the annual return required to be filed by tax-exempt organizations to report information about their operations. The IRS hopes to have the form ready for use for the 2008 filing year (returns filed in 2009).

. . .

The redesign of Form 990 is based on three guiding principles:

• Enhancing transparency to provide the IRS and the public with a realistic picture of the organization;
• Promoting compliance by accurately reflecting the organization's operations so the IRS may efficiently assess the risk of noncompliance; and
• Minimizing the burden on filing organizations.

Over at NYSBA's General Practice blog Len Sienko has picked up on a new IRS process to obtain EINs.

Taxpayers can now request an Employer Identification Number (EIN) online through IRS.gov and get it within minutes. The EIN is immediately recognized by IRS systems, so your clients can begin using it right away for most business purposes.

Link to the IRS source from Len's site here.

Apparently third parties (such as attorneys) can use this process as well. The IRS provides specific guidance for how this would work:

If a third party designee is completing the online application on behalf of the taxpayer, the taxpayer must authorize the third party to apply for and receive the EIN on his or her behalf, according to the process below:

1. The taxpayer must sign a completed Form SS-4 (Application for Employer Identification Number), including the third party designee section, prior to the third party making the online application. A copy of the signed Form SS-4 must be retained in the third party's files.

2. The taxpayer must read and sign a statement that he/she understands that he/she is authorizing the third party to apply for and receive the EIN on his or her behalf, and to answer questions about completion of the form. A copy of the signed statement must be retained in the third party's files.

3. The assigned EIN will be disclosed to the third party upon successful completion of the online application.

4. The taxpayer will receive a computer-generated notice from the IRS stating that the EIN was assigned

New York facilities that financed capital improvements through the issuance of municipal bonds are getting a rude awakening this month. DOH promulgated a regulation (10 NYCRR 400.24) in March 2007 that increased the monthly fee it charges hospitals and nursing homes to inspect, regulate, supervise and audit bond financed projects. The fee increased from .2% to .3% per year at the same time that DOH expanded the number of projects on which it could assess this fee. Previously, the fee was assessed only on projects funded through DASNY and that were not insured by FHA. With the passage of Public Authorities Law Section 2976-a in May 2002, DOH can now assess this fee on all DASNY projects as well as projects funded through an IDA since the effective date of the statute. DOH is working on getting letters out to facilities that have not previously been paying the fee to let them know they now have to pay it. The good news for nursing homes is that facilities can include these fees in the capital component of the Medicaid rate and they should be able to recover most of the charges, eventually.

Here is an excerpt from the IRS Press Release:

The IRS issued an updated version of Form 990, the return that charities and other tax-exempt organizations are required to file annually, and provided transition relief so that small exempt organizations will have time to adjust to the new form..

The final form released today retains the redesigned draft’s format of a core form and a series of schedules. In response to public comments, the new core form allows an organization to describe its exempt accomplishments and mission up-front and provides more opportunities throughout the form for the organization to explain its activities. Other major changes were made to the form’s summary page, governance section, and various schedules, including those relating to executive compensation, related organizations, foreign activities, hospitals, non-cash contributions and tax exempt bonds. A checklist of schedules was also added.

The new form will be used for the 2008 tax year (returns filed in 2009). The IRS plans to release the related instructions in early 2008.

The IRS also announced a graduated transition period for smaller organizations. These organizations will be allowed to file the Form 990-EZ instead of the Form 990. For the 2008 tax year (returns filed in 2009), organizations with gross receipts over $1.0 million or total assets over $2.5 million will be required to file the Form 990. For the 2009 tax year (returns filed in 2010), organizations with gross receipts over $500,000 or total assets over $1.25 million will be required to file the Form 990. The filing thresholds will be set permanently at $200,000 gross receipts and $500,000 total assets beginning with the 2010 tax year. Also, starting with the 2010 tax year, the IRS will increase the filing threshold for organizations required to file Form 990-N (the e-postcard) from $25,000 to $50,000.

The IRS also announced a phase-in of the form’s new hospital and tax exempt bond schedules. Certain identifying information will be required for the 2008 tax year, with completion of the entire schedules required for the 2009 tax year. In response to the nonprofit sector's safety and security concerns regarding disclosure of certain foreign workers and volunteers, the IRS revised the form to permit reporting of foreign activities by region, rather than by country, until other safeguards may be implemented to protect the privacy interests of such persons.

Today's Albany Times Union has an interesting article about a new fundraising mechanism aimed at hospitals borrowing money from the Dorm Authority or a local IDA:

The state is charging a fee for loans to health care facilities from the state Dormitory Authority or a local Industrial Development Agency. While the amount is not large, about a third of 1 percent, the charge will cost hospitals millions over a loan's lifetime.

For instance, St. Peter's Hospital, which received about $235 million from bonds financed by the Albany IDA last year, will face charges of almost $700,000 a year until the loan is paid off.

. . .

Any money borrowed through the state or Dormitory Authority or local IDAs after March of last year would face the charge.

Hospitals use these facilities to borrow money because they save on various taxes associated with the improvement projects. Before 2007, only money borrowed through the Dormitory Authority faced the charge, and it was smaller -- one-fifth of 1 percent.

. . .

Claudia Hutton, a spokeswoman for the state Health Department, said the money would be used to plug holes in the state's general fund. The law allowing this charge was first passed in 2002, she said. Before 2007, she said, only hospitals that lacked federal mortgage insurance were being charged.

"Isn't it more fair to have everybody pay?" she asked.

Read the full TU article (time limited) here.

The IRS has issued final regulations implementing the intermediate sanctions law. Section 4958 of the Internal Revenue Code authorizes penalties on tax-exempt organizations and its managers that authorize or engage in an "excess benefit transaction." The IRS published proposed regulations in 2005. The final regulations are important because they provide the factors the IRS will use in determining whether to revoke the tax-exempt status of an organization that participates in an excess benefit transaction. A key factor is whether the organization has a compliance program in place to detect and prevent an excess benefit transaction and whether it took appropriate corrective action.

In two new cases, the New York Court of Appeals clarifies the rules on the exemption from property tax of properties used for charitable purposes.

The cases are Adult Home at Erie Station, Inc. v. Assessor of Middletown, and Regional Economic Community Action Program, Inc. v. Bernaski. Both are treated in a combined opinion reported at 10 N.Y.3d 205, 856 N.Y.S.2d 515 (March 13, 2008).

Adult Home at Erie Station (AHESI) concerned an adult home where about 30% of the occupants were poor but did not have government benefits as their sole source of income. These "contract residents" paid for their residence themselves, but paid at a below-market rate. The city proposed, in essence, that only SSI recipients are "poor enough to be objects of charity." The Court of Appeals disagreed, holding that "people whose expenses for housing and medical care leave them with no more than $2,000 in assets and $50 in disposable income" - - referring to the contract residents - - "are poor by any reasonable definition." Given prior precedent that providing housing to poor people at below market rates is "plainly a 'charitable' purpose," the court found that AHESI's property should be exempt.

Regional Economic Community Action Program (RECAP), in comparison, is a social work organization "devoted to combating homelessness, substance abuse and other social ills among low-income participants." RECAP operates a "community re-entry program" designed to transition participants back into productive community residency. RECAP received rents comparable to rents charged by private landlords. The City did not contest that RECAP's purpose of helping the homeless, alcoholics, and drug addicts was a charitable purpose. It did, however, claim that because the programs were not carried out on the exempt property itself (the properties at issue were merely residences, with the program activities undertaken elsewhere), the properties should not be exempt. The Court of Appeals relied on Matter of St. Luke's for the prospect that residential use of a property which is "reasonably incident" to the "major purpose" of the exempt organization will not disqualify the property from exemption. "Providing an acceptable place for people to live while they participate in social work programs advances the goal of keeping them in the programs and thus of helping them overcome their troubles."

The slip opinion is published at the Court of Appeals website here.

The New York Times is reporting today that budget negotiations extending yesterday into the late evening include a significant reduction in state aid to hospitals.

The deal reached Tuesday night includes cuts in aid to hospitals that will probably be in excess of $200 million over the next 18 months, when federal matching funds are included, legislative leaders said.

The reduction in aid is a significant portion of the $1 billion that was trimmed from the budget overall in yesterday's session.

The full NYT piece is here.

Section Member Frank Serbaroli, with the New York office of Greenberg Traurig, writes a regular "Expert Analysis" column for the New York Law Journal. The latest article, "Practical Advice When a Facility Considers Bankruptcy Protection," appears in the January 27, 2009 edition:

While any business bankruptcy can be complicated, the bankruptcy of a health care facility is more so. For example, a hospital is not just another business like a supermarket or department store. It is first and foremost a critically important community resource, offering potentially life-saving medical care 24 hours a day, seven days a week, regardless of the circumstances of the illness or accident, or the patient's ability to pay. In certain localities, a hospital may in fact be the only provider of medical care, serving as both an acute-care facility and as the community's doctor. A hospital is also frequently the largest employer in the area it serves, and its closure could severely harm not just the local health care infrastructure but the local economy.

Link to the reprint of the article posted on the Greenberg Traurig website.

From the IRS website:

Internal Revenue Service officials released the final report on its tax-exempt hospital project. The project aimed to help the IRS and public better understand how nonprofit hospitals benefit their communities, the basis for their federal tax exemption. The project also delved into executive compensation practices of nonprofit hospitals. The final report is based on the responses to questionnaires the IRS received from almost 500 hospitals.

The executive summary is here. Among the key findings as described in the summary:

Nearly all hospitals in the study reported complying with important elements of the rebuttable presumption procedure available to establish compensation of certain persons. The results did not vary materially by demographic. The examinations confirmed widespread use by the examined hospitals of comparability data and independent personnel to review and establish executive compensation amounts.

The full report is here. (Be patient - - it runs to 191 pages.)

Section Member Frank Serbaroli, with the New York office of Greenberg Traurig, writes a regular "Expert Analysis" column for the New York Law Journal. The latest article, "Insurers, Hospitals Face Audits For Health Care Reform Act Surcharges," appears in the September 30, 2009 edition:

In its continuing efforts to maximize revenue collection, New York State has been aggressively auditing insurers to determine if they have accurately paid statutory surcharges on bills for medical services provided to patients by licensed facilities such as hospitals, clinics, ambulatory surgery centers, and other providers. These surcharges were mandated by the Health Care Reform Act of 1996 (HCRA), and they apply not just to traditional health insurers and managed care plans, but to all insurers that provide coverage for medical services provided in health care facilities.

Link to the reprint on the Greenberg Traurig website.

Section Member Frank Serbaroli, with the New York office of Greenberg Traurig, writes a regular "Expert Analysis" column for the New York Law Journal. The latest article, "Personal Liability of Hospital Board Members, Executives for Unpaid Taxes," appears in the March 21, 2010 edition:

When a hospital faces severe financial problems, it may be tempted to delay payment of its employees’ federal withholding taxes, and to use that money to pay suppliers and vendors, or to meet other urgent financial needs. However, this temptation must be resisted since there are civil and even criminal consequences for non-payment of withholding taxes.

Link to the reprint posted on the Greenberg Traurig website.