Phila hfma may 26 2011 s mariani

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Phila hfma may 26 2011 s mariani

  1. 1. A CLOSER LOOK Healthcare Tax Update BY SCOTT J. MARIANI, JD ,PARTNER PRACTICE LEADER, HEALTHCARE SERVICES GROUP MAY 26, 2011 1WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  2. 2. Part IExtension of President Bush Tax Cuts 2WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  3. 3. EXPIRING FEDERAL TAX PROVISIONS EFFECTIVEDECEMBER 31, 2010 – EXTENDED TO 2013  Individual Income Tax Rates • Starting in 2013, the marginal Federal Individual Income tax rates for the top two brackets rise from 33% and 35% back to the year 2000 levels of 36% and 39.6%; respectively. 3 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  4. 4. EXPIRING FEDERAL TAX PROVISIONS EFFECTIVEDECEMBER 31, 2010 – EXTENDED TO 2013  Dividend Tax Rate • Starting in 2013 qualified dividends are no longer taxed at a rate of 15% and return to being taxed as ordinary income. 4 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  5. 5. EXPIRING FEDERAL TAX PROVISIONS EFFECTIVEDECEMBER 31, 2010 – EXTENDED TO 2013  Capital Gains Tax Rate • Starting in 2013 long term capital gains tax rate increases from 15% to 20%. 5 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  6. 6. EXPIRING FEDERAL TAX PROVISIONS EFFECTIVEDECEMBER 31, 2010 – EXTENDED TO 2013  Child Tax Credit • Starting in 2013 the child tax credit for eligible households returns to $500 per child from $1,000. 6 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  7. 7. EXPIRING FEDERAL TAX PROVISIONS EFFECTIVEDECEMBER 31, 2010 – EXTENDED TO 2013  Dependent Care Tax Credit • Starting in 2013 the dollar amount limit for creditable expenses is reduced from $3,000 to $2,400 ($6,000 to $4,800 for 2 or more children), thus reducing the credit. 7 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  8. 8. EXPIRING FEDERAL TAX PROVISIONS EFFECTIVEDECEMBER 31, 2010 – EXTENDED TO 2013  Effective December 31, 2012 there are 64 additional Federal tax provisions due to expire.  Stay tuned, Presidential election in November, 2012. 8 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  9. 9. YEAR 2013 TAX INCREASE EXAMPLE Married filing joint $500K ordinary wages, $100K dividends from US Corporation and $100K of stock capital gains. Ordinary wages – 35% to 36/39.6% Dividend income - marginal rate - 15% to 39.6% LT Capital Gains 15% to 20% FIT approximately $175K to $221K 9WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  10. 10. Part IIForm 990, Return Of An Organization Exempt From Income Tax 10WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  11. 11. FORM 990-EZ – TRANSITIONAL RELIEF May file 990-EZ for: If gross receipts are: And if assets are:2008 Form (generally <$1,000,000 <$2,500,000filed in 2009)2009 Form (generally <$500,000 <$1,250,000filed in 20102010 and later Forms <$200,000 <$500,000 11WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  12. 12. 2010 FORM 990, PART XI Reconciliation of Net Assets 12WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  13. 13. 2010 FORM 990, SCHEDULESNew narrative parts have been added to Schedules E, G, K, L and R. No longer utilize Schedule O for these schedules. 13WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  14. 14. FORM 990Who’s looking at your Form 990 and why? IRS State taxing authority Employees – current & former Newspapers Competitors Unions The General Public; including donors www.guidestar.org 14WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  15. 15. JEOPARDY! NFP ORGANIZATIONS Base compensation: $1,423,685 Bonus and incentive compensation: $3,514,305 Other compensation: $ 171,175 Total Form W-2 Box 5, Medicare wages: $5,109,165 15WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  16. 16. JEOPARDY! NFP ORGANIZATIONS Deferred compensation: $94,844 Nontaxable benefits: $21,339 Total Compensation: $5,225,348 16WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  17. 17. JEOPARDY! NFP ORGANIZATIONSPerquisites First class or charter travel Travel for companions Health or social club dues or initiation fees Personal services Who is the commissioner of the PGA Tour?Source 2009 Form 990 PGA Tour, Inc.; GuideStar 17WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  18. 18. JEOPARDY! NFP ORGANIZATIONS Base compensation: $2,900,000 Bonus and incentive compensation: $6,550,000 Other compensation: $309,000 Total Form W-2 Box 5, Medicare wages: $9,759,000 18WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  19. 19. JEOPARDY! NFP ORGANIZATIONS Deferred compensation: $0 Nontaxable benefits: $65,000 Total Compensation: $9,824,000 19WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  20. 20. JEOPARDY! NFP ORGANIZATIONSPerquisites First class or charter travel Travel for companions Tax indemnification and gross-up payments Housing allowance or residence for personal use Who is the commissioner of the NFL?Source 2009 Form 990 NFL Management Council; GuideStar 20WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  21. 21. JEOPARDY! NFP ORGANIZATIONS Base compensation: $3,000,000 Bonus and incentive compensation: $8,500,000 Other compensation: $312,102 Total Form W-2 Box 5, Medicare wages: $11,812,102 21WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  22. 22. JEOPARDY! NFP ORGANIZATIONS Deferred compensation: $0 Nontaxable benefits: $19,014 Total Compensation: $11,831,116 22WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  23. 23. JEOPARDY! NFP ORGANIZATIONSPerquisites First class or charter travelHighest paid I/C for services Steve A. Fehr, Legal Counsel, $606,351 Who is the head of the MLB player’s union?Source 2009 Form 990 Major League Baseball Players Association; GuideStar 23WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  24. 24. COMPENSATION AND FORM 990 “It is very important to reconcile from total gross compensation to Form W-2, Box 5, Medicare wages.” 24WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  25. 25. STATEMENT OF FACT"The IRS EO division will never stop looking at NFP executive compensation and benefits." 25WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  26. 26. SCHEDULE H, PART I, COMMUNITY BENEFIT Community Benefit 1. AHA versus CHA model (excludes bad debt at cost and Medicare shortfall) 2. Schedule H, Part III reports bad debt and Medicare shortfall. Also asks for why you feel bad debt and Medicare shortfall should be treated as community benefit. 3. Costs not charges 4. Senate Finance Committee – 5% Test 26WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  27. 27. SCHEDULE H, PART I, COMMUNITY BENEFIT 5. Categories of Community Benefit a. Charity care and Medicaid shortfall b. Community Health Programs and Services c. Health Professions Education d. Subsidized Health Services e. Research f. Cash and in-kind contributions 27WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  28. 28. SCHEDULE H, PART I, COMMUNITY BENEFIT1. What are we seeing? a. Charity care, Medicaid short fall and medical residency programs are “big drivers”. b. CB percentages ranging from 2% - 15.2%. c. Majority in the 6 – 9% range 28WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  29. 29. 2009 FORM 990, SCHEDULE H - REGIONALINFO AtlantiCare Regional Medical Center Net community benefit costs: $48,199,394 Community benefit percentage: 8.95% 29 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  30. 30. 2009 FORM 990, SCHEDULE H - REGIONALINFO Capital Health System Net community benefit costs: $27,984,615 Community benefit percentage: 6.25% 30 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  31. 31. 2009 FORM 990, SCHEDULE H - REGIONALINFO Cooper Health System Net community benefit costs: $66,199,022 Community benefit percentage: 9.36% 31 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  32. 32. 2009 FORM 990, SCHEDULE H - REGIONALINFO Kennedy University Hospital Net community benefit costs: $28,198,629 Community benefit percentage: 6.4% 32 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  33. 33. 2009 FORM 990, SCHEDULE H - REGIONALINFO South Jersey Health System Net community benefit costs: $39,088,468 Community benefit percentage: 11.98% 33 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  34. 34. 2009 FORM 990, SCHEDULE H - REGIONALINFO Virtua West Jersey Hospital - Camden Net community benefit costs: $53,219,949 Community benefit percentage: 9.43% 34 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  35. 35. 2009 FORM 990, SCHEDULE H - REGIONALINFO Virtua Memorial Hospital Net community benefit costs: $22,964,428 Community benefit percentage: 8.15% 35 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  36. 36. 2009 FORM 990, SCHEDULE H – NATIONALINFO Robert Wood Johnson University Hospital, New Jersey Net community benefit costs: $57,429,074 Community benefit percentage: 8.57% Revenue less expenses: $32,800,937 36 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  37. 37. 2009 FORM 990, SCHEDULE H – NATIONALINFO The New York and Presbyterian Hospital, New York Net community benefit costs: $454,879,634 Community benefit percentage: 14.68% Revenue less expenses: $152,846,986 37 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  38. 38. 2009 FORM 990, SCHEDULE H – NATIONALINFO North Shore University Hospital - Manhasset, New York Net community benefit costs: $128,059,114 Community benefit percentage: 9.33% Revenue less expenses: $87,174,848 38 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  39. 39. 2009 FORM 990, SCHEDULE H – NATIONALINFO The Cleveland Clinic Foundation, Ohio Net community benefit costs: $486,070,980 Community benefit percentage: 14.45% Revenue less expenses: $274,420,332 39 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  40. 40. 2009 FORM 990, SCHEDULE H – NATIONALINFO Mayo Clinic, Minnesota Net community benefit costs: $761,338,867 Community benefit percentage: 29.23% Revenue less expenses: ($25,984,493) 40 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  41. 41. 2009 FORM 990, SCHEDULE H - OBSERVATION "Not all institutions are applying the current rules uniformly. There are many gray areas and not bright line criteria for inclusions and exclusions." 41 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  42. 42. 2009 FORM 990, SCHEDULE H - CONSIDERATION Mandatory review by IRS of every hospitals schedule H once every three years. What do your schedule H workpapers look like? IRS – Will not take exam form. 42 WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  43. 43. HOSPITAL – TAX EXEMPTION Community Benefit Standard, Rev. Rul.69-545 Charity Care Standard, Rev.Rul.56-185 43WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  44. 44. GROUP EXEMPTION RULINGS The IRS does not like them. Original draft of new Form 990 prohibited them. IRS review and approval time is extremely slow, approximately 12-14 months. Results in 2 separate Forms 990. 44WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  45. 45. GROUP EXEMPTION RULINGSEntities must give up their own separate tax- exempt status and IRS determination letter; may have to re-apply for tax-exempt status if the organization wants to file its own separate Form 990 again prospectively. 45WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  46. 46. GROUP EXEMPTION RULINGS Part VII of core Form 990 BOTs gets very long and redundant, utilize schedule O. Combined Schedule H, including community benefit percentage, except for Part V. 46WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  47. 47. GROUP EXEMPTION RULINGS Reduction in disclosure of Top 5 highest paid employees after your officers and key employees. New entities do not need to file a Form 1023, Application for Tax-Exemption. Annual group exemption letter update to IRS 90 days prior to end of year. 47WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  48. 48. Part IIPatient Protection and Affordable Care Act (PPACA) March 2010 48WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  49. 49. HOSPITAL REQUIREMENTS - PPACA New IRC Section 501(r) as part of the PPACA. Four new hospital requirements. Effective date, tax years beginning after March 23, 2010 (July 1, 2010 through June 30, 2011). 49WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  50. 50. HOSPITAL REQUIREMENTS - PPACA IRS guidance still forthcoming. “2010 Schedule H too burdensome,” April 20, 2011 AHA, HFMA, and VHA letter to the IRS. Exception: mandatory CHNA (July 1, 2012 through June 30, 2013). 50WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  51. 51. HOSPITAL REQUIREMENTS - PPACA Facility by facility basis, multiple hospitals, one Federal tax id #. Attach your audited financial statements to your hospital Form 990. Mandatory review by the IRS of every Schedule H once every 3 years. 51WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  52. 52. 1. COMMUNITY HEALTH-NEEDS ASSESSMENT Each hospital must have conducted either a community health-needs assessment (“CHNA”) in the taxable year or in either of the two taxable years immediately preceding the taxable year. Applicable to 6/30/2013 Forms 990. 52WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  53. 53. 1. COMMUNITY HEALTH-NEEDS ASSESSMENT Each hospital • adopt an implementation strategy for meeting the community health needs identified in the assessment; • the CHNA must take into account input from a broad cross section of the community served by the hospital, including those with special knowledge of or expertise in public health; and • the CHNA must be made available to the general public. 53WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  54. 54. 2. FINANCIAL ASSISTANCE POLICY (“FAP”) Each hospital must adopt and make widely available a written FAP: • First: ► Eligibility criteria for financial assistance and whether such assistance includes free or discounted care; ► The basis for calculating amounts charged to patients; ► The method for applying for financial assistance; and 54WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  55. 55. 2. FINANCIAL ASSISTANCE POLICY (“FAP”) ► For hospitals that do not have a separate billing and collections policy, a statement of the collection-related actions the hospital may take in connection with non- payment; ► How the hospital will widely publicize the policy within the community it serves. 55WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  56. 56. 2. FINANCIAL ASSISTANCE POLICY (“FAP”) • Second: ► Each hospital must commit to provide non-discriminatory emergency care, regardless of whether the individual is eligible for financial assistance under the hospital’s FAP. 56WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  57. 57. 3. LIMITATION ON PATIENT CHARGES Each hospital must limit the charges for emergency or other medically necessary care provided to patients eligible for financial assistance under its FAP to not more than the lowest amounts charged to patients who currently have insurance covering such care. Each hospital is also prohibited from using gross charges. 57WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  58. 58. 4. LIMITATION ON COLLECTION EFFORTS A hospital may not carry out “extraordinary collection actions” until it has made “reasonable efforts” to determine whether a patient is eligible for assistance under the hospital’s FAP. 58WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  59. 59. 4. LIMITATION ON COLLECTION EFFORTS The definition of “reasonable efforts” is to be determined by subsequent regulation, although presumably the latter would include notification to patients of the written financial policy upon admission, in the bill, and by subsequent telephone calls. 59WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  60. 60. SCHEDULE H, PART V, FACILITY INFORMATION Section A, Hospital Facilities, by total revenue Section B, Facility Policies and Practices (for each facility listed in Part V, Section A) 1.Community health needs assessment, questions 1-7 2.Financial assistance policy, questions 8-13 60WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  61. 61. SCHEDULE H, PART V, FACILITY INFORMATION Section B (continued) 3. Billing and collections, questions 14-17 4. Emergency medical care, question 18 5. Charges for medical care policy, questions 19-21 Section C, Non-hospital facilities, by total revenue 61WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  62. 62. MAJOR TAX PROVISIONS - 2012 Certain businesses must begin reporting the value of health care benefits on employees’ Form W-2 statements. New Form 1099 tax information reporting is required for businesses making in excess of $600 over the course of a calendar year to corporations. Repealed April 2011. 62WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  63. 63. 2012 FORM W-2 HEALTH CARE REPORTINGIRS provides interim guidance - April 2011New reporting has no tax ramifications."To provide useful and comparable consumer information to employees." 63WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  64. 64. 2012 FORM W-2 HEALTH CARE REPORTING Aggregate cost of employer sponsored health care coverage. Aggregate cost exclusions. ER sponsored health care coverage exclusions. 64WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  65. 65. 2012 FORM W-2 HEALTH CARE REPORTING Relief for small employers (less than 250 Forms W-2 in the prior year) Terminated employees 65WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  66. 66. MAJOR TAX PROVISIONS - 2013 A new 0.9% surtax will be added to the 1.45% Hospital Insurance (Medicare) payroll taxes paid by individuals earning more than $200,000 per year ($250,000 for joint filers). Subject to payroll withholding. New IRS Code Section 1411 imposes a 3.8% tax on unearned income of individuals earning more than $200,000 per year ($250,000 for joint filers). Contributions to health care FSA’s limited to $2,500 as of 1/1/2013. 66WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  67. 67. MAJOR TAX PROVISIONS - 2014 U.S. citizens and legal residents are required to maintain “minimum essential coverage”. Penalty is the greater of $95 or 1% of the taxpayer’s income over the threshold amount of income required for income tax return filing. 2015 - $325 or 2% 2016 - $695 or 2.5% 67WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  68. 68. MAJOR TAX PROVISIONS - 2018 A 40% excise tax on high-cost health insurance plans goes into effect. The tax, paid by insurers or self-insured firms, is on the amount in excess of $10,200 for individuals and $27,500 for families. Health cost adjustment percentage – between 2010 and 2018. Excise tax is not tax deductible. Excise tax passed to the consumers. 68WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  69. 69. Part IVIRS Employment Tax Initiative 69WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  70. 70. IRS EMPLOYMENT TAX INITIATIVE Announced in 2009 6,000 U.S. taxpayers over 3 years Originally 10-15% NFP organizations Revised to 25% NFP organizations Started in March 2010 70WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  71. 71. EMPLOYMENT TAX ISSUES Form W-2 and Form 1099 to the same individual Worker misclassification Improper treatment of fringe benefits Review of travel/entertainment expenses – corporate credit cards FICA exempt individuals Back-up withholding tax; no Forms 1099/W-9 71WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  72. 72. EMPLOYMENT TAX ISSUES Excess Benefit Transactions: 1. IRC Section 4958 – Intermediate Sanctions a. Enacted in 1996, TBOR-2 b. Alternative to revocation of tax-exempt status 2. Applies to certain transactions between IRC 501(c)(3) and IRC Section 501(c)(4) organizations and a “disqualified person.” 3. Generally, a non-FMV transaction. 72WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  73. 73. IRS EMPLOYMENT TAX INITIATIVE –ACTION STEPS1. Perform a self-assessment2. Consider voluntary compliance filing with the IRS3. Be proactive as part of your organization’s overall tax compliance program 73WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  74. 74. SELF-ASSESSMENT; EMPLOYMENT TAXES1. A review of all senior management fringe benefits for imputation on Form W-2; including a review of the company corporate credit card, meals and entertainment and back-up documentation.2. A comparison of all employee social security numbers to the accounts payable paid file and Forms 1099 issued. 74WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  75. 75. SELF-ASSESSMENT; EMPLOYMENT TAXES3. A review of all individuals who were paid as an independent contractor for proper worker classification determination between employee or independent contractor.4. A written policy and procedure should be prepared with respect to worker determination between employee or independent contractor.5. A review to ensure that a completed Form W- 9 is on file for all vendors and independent contractors. 75WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  76. 76. SELF-ASSESSMENT; EMPLOYMENT TAXES6. A review of all “non-1099 required” vendors to determine if a Form 1099 should have been issued under current IRS rules and regulations.7. A written accounts payable policy should be prepared applicable to all vendors, including obtaining a completed Form W-9 and determining whether or not a Form 1099 is required prior to processing payment. 76WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  77. 77. Part VAccountable Care Organizations 77WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  78. 78. ACCOUNTABLE CARE ORGANIZATIONS("ACOS") IRS Notice 2011-20 issued March 31, 2011 Soliciting comments until May 31, 2011 Private inurement and private benefit Unrelated business income ("UBI") 78WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  79. 79. ACCOUNTABLE CARE ORGANIZATIONS("ACOS")Whether IRC Section 501(c)(3) hospitals and other tax-exempt healthcare organizations participating in the Medicare Shared Savings Program (“MSSP”) through an ACO may be impacted by current limitations placed on such organizations under the IRS. Case-by- case basis, based on all the facts and circumstances. 79WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  80. 80. PARTICIPATION IN AN ACOA tax-exempt hospitals participation in an ACO may include:1. membership in a nonprofit corporation;2. ownership of shares in a corporation;3. ownership of an interest in a partnership or an LLC; and4. contractual arrangements with the ACO and/or its other participants. 80WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  81. 81. CMS REGULATION AND OVERSIGHTA tax-exempt hospitals participation in an ACO will not result in private inurement or private benefit if the following factors are met:1. The terms of the tax-exempt hospitals participation in the MSSP through the ACO (including its share of MSSP payments or losses and expenses) are set forth in advance in a written agreement negotiated at arms length.2. CMS has accepted the ACO into and has not terminated the ACO from the MSSP. 81WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  82. 82. CMS REGULATION AND OVERSIGHT3. The tax-exempt hospitals share of economic benefits derived from the ACO (including its share of MSSP payments) is proportional to the benefits or contributions the hospital provides to the ACO.4. The ownership interest received by the tax- exempt hospital, if any, is proportional and equal in value to its capital contributions to the ACO. All ACO returns of capital, allocations, and distributions are made in proportion to such ownership interest. 82WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  83. 83. CMS REGULATION AND OVERSIGHT5. The tax-exempt hospitals share of the ACOs losses (including its share of MSSP losses) does not exceed the share of ACO economic benefits to which the hospital is entitled.6. All contracts and transactions entered into by the tax-exempt hospital with the ACO and the ACOs participants, and by the ACO with the ACOs participants and any other parties, are at fair market value. 83WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  84. 84. UNRELATED BUSINESS INCOME TAXWhether the participation of a tax-exempt hospital in an ACO and its share of the activities generating the MSSP payments are substantially related to the performance of the tax-exempt hospitals charitable purposes? 84WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  85. 85. UNRELATED BUSINESS INCOME TAX IRS, absent any private inurement or private benefit, and as long as the ACO meets all of the eligibility requirements established by CMS for participation in the MSSP, it expects that any MSSP payments received by the tax- exempt hospital from an ACO would derive from activities that are substantially related to the performance of the charitable purpose of "lessening the burdens of government." 85WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  86. 86. NON-MSSP ACTIVITIES OF THE ACO ACO conducts activities outside of MSSP (such as entering into and operating under shared savings arrangements with other types of health insurance payors). Unlikely lessens the burdens of government. 86WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  87. 87. NON-MSSP ACTIVITIES OF THE ACO IRS views any negotiation with private health insurers on behalf of unrelated parties as generally not a charitable activity, regardless of whether such an agreement involves a program aimed at achieving cost savings in healthcare delivery. 87WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  88. 88. NON-MSSP ACTIVITIES OF THE ACO Certain non-MSSP activities may further or be substantially related to an exempt purpose of the tax-exempt hospital. An example would be an ACO participating in shared savings arrangements with Medicaid, which may further the charitable purpose of relieving the poor or underprivileged. 88WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  89. 89. Part VINonprofit Health Insurance Insurers 89WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  90. 90. NONPROFIT HEALTH INSURANCE INSURERS PPACA requires DHHS to establish a Consumer Operated and Oriented Plan ("CO-OP") program to foster the creation of qualified non profit health insurance issuers to offer qualified health plans in individual and small group markets. The CO-OP program is intended to make grants or loans to qualified nonprofit health insurance issuers. 90WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  91. 91. NONPROFIT HEALTH INSURANCE INSURERS New IRC Section 501(c)(29) as part of the PPACA IRS Notice 2011-23 issued March 11, 2011 Soliciting comments until May 27, 2011 91WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  92. 92. WHAT IS A NONPROFIT HEALTH INSURANCEISSUER?An organization: That is organized as a nonprofit, member corporation under state law. Which substantially all of the activities of which consist of the issuance of qualified health plans in the individual and small group markets in each state in which it is licensed to issue such plans; and That meets various additional requirements as follows. 92WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  93. 93. QUALIFICATION CONDITIONS The organization must have received a grant or loan under the CO-OP program and be in compliance with the requirements of PPACA §1322 and the terms of its loan or grant under the CO-OP program. The organization must have given notice to the secretary of the Treasury in the manner prescribed by (not yet issued) regulations that it is applying for recognition of its exempt status as an organization described in IRC Section 501(c)(29); 93WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  94. 94. QUALIFICATION CONDITIONS No part of the organizations net earnings can inure to the benefit of any private shareholder or individual , except as provided in narrow exceptions listed in PPACA § 1322 (c)(4) (which requires the issuer’s profits to be used to lower premiums, improve benefits, or for other programs intended to improve the quality of health care delivered to the organization’s members). 94WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  95. 95. QUALIFICATION CONDITIONS No substantial part of the organizations activities can consist of attempting to influence legislation, and the organization cannot participate in, or intervene in, any political campaign. 95WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  96. 96. QUALIFICATION CONDITIONS Qualified nonprofit health insurance issuers will be required to file an annual information return and provide certain specified information, including the amount of reserves required by each state in which the organization is licensed to issue qualified health plans and the amount of reserves on hand. 96WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  97. 97. NONPROFIT HEALTH INSURANCE INSURERS May apply to IRS for tax-exempt status Failure to apply or if tax-exempt status is revoked may result in taxation as an insurance company The IRS is currently not accepting applications for recognition as a tax-exempt organization, Form 1023 Traditional IRC section 501(c)(3) principles apply 97WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  98. 98. Part VII Foreign reporting Form 90-22.1, Report of Foreign Bank and Financial Accounts 98WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  99. 99. WHO MUST FILEA U.S. person must file a FBAR if that person has a financial interest in, signature authority or other authority over any financial account in a foreign country and the aggregate value of these account(s) exceeds $10,000 at any time during the calendar year. 99WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  100. 100. FINANCIAL INTEREST DEFINED Financial interest includes accounts for which the U.S. person is the owner of record or has legal title, whether the account is maintained on his or her own benefit or for the benefit of others including non-United States persons. 100WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  101. 101. FINANCIAL INTEREST DEFINED Financial interest also includes accounts where the owner of record or holder of legal title is a person acting as an agent, nominee, or in some other capacity on behalf of a U.S. person. Financial interest in an account also includes a corporation in which a U.S. person directly or indirectly owns more than 50 percent of the total value of the shares of stock. 101WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  102. 102. SIGNATURE AUTHORITY DEFINEDA U.S. person has account authority over an account if that person can control the disposition of money or other property in the account by delivery of a document containing his/her signature to the bank or other person with whom the account is maintained. 102WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  103. 103. TYPICAL FORM 90-22.1 FILERS The owner of the foreign captive (e.g. hospital) Certain officers of the owner (e.g. hospital CEO and CFO) 103WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  104. 104. OTHER CONSIDERATIONS The owner of the captive may have other filing requirements, Forms 5471 and 926 Form 990, schedule F, Statement of Activities Outside the U.S. Form 990, schedule R, Related Organizations Primary activity: Financial vehicle, not insurance Individuals who file Form 90-22.1 also must disclose on their Form 1040, schedule B 104WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  105. 105. DUE DATE AND RECORDKEEPINGFiled with U.S. Treasury on or before June 30th. FBAR records should be maintained 5 years from June 30th. 105WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  106. 106. Part VIIIOther IRS EO Issues 106WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  107. 107. OTHER IRS EO ISSUES Proposed regulations - disclosure to State officials regarding tax-exempt organizations. 990-N e-postcard and automatic revocation. Elimination of advanced ruling process for 501(c)(3) public charities. Draft executive order could expand donor disclosures. Cell phone legislation. 107WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  108. 108. OTHER IRS EO ISSUES2011 EO Work Plan:  Executive Compensation.  Supporting Organizations.  Medical resident FICA.  Gaming Non-Filer Project. 108WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  109. 109. OTHER IRS EO ISSUES2011 EO Work Plan (continued):  Governance Check Sheet, Form 14114.  Controlling Organizations.  Charitable Spending.  Colleges and Universities. 109WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com
  110. 110. THANK YOU!Scott J. Mariani, JD, PartnerWithumSmith+Brown, PC465 South StreetSuite 200Morristown, NJ 07960973-532-8835smariani@withum.com 110WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH withum.com

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