The document provides an update on healthcare industry tax regulations and practices as of 2014, including IRS updates and implications of the Affordable Care Act. It covers key changes in tax compliance, tax-exempt status for organizations, and employer responsibilities regarding health insurance coverage. Recommendations for healthcare organizations include reviewing current tax-exempt plans and vendor forms to ensure compliance with new regulations.

1. Healthcare Industry
Tax Update 2014
Rules, Regulations, Changes,
Best Practices and Recommendations

2. 2
Introduction
Scott J. Mariani, JD, Tax Partner
Practice Leader
Healthcare Services Group
smariani@withum.com
465 South Street, Suite 200
Morristown, NJ 07960
(973) 532-8835
withum.com

3. 3
Agenda
IRS Update
IRS Exempt Organizations Update
Affordable Care Act
Schedule H and Community Benefit
Foreign Reporting
Executive Compensation

4. 4
IRS Update
Part One

5. 5
For a historical perspective, in 1986, the top 1% of earners
reported 11% of all income and paid 26% of the income
taxes; the lower-earning 50% made 17% of the income and
paid 6% of the nation's individual income tax bill.
IRS Update
Breakdown of Income and Taxes Paid by Category
Income Category 2011 AGI % of All Income % of Income Taxes Paid
Top 1% Over $388,905 18.7% 35.1%
Top 5% Over $167, 728 33.9% 56.5%
Top 10% Over $120,136 45.4% 68.3%
Top 25% Over $70,492 67.8% 85.6%
Top 50% Over $34,823 88.5% 97.1%
Bottom 50% Under $34,823 11.5% 2.9%

6. 6
IRS tea party/patriot issue.April 2013
Resignation of Acting IRS
Commissioner Steven Miller.April 2013
Government shutdown.October 2013
IRS budget decrease of $526 million, or 4.4%
compared to the previous year’s enacted level.January 2014
“Gross mismanagement” by Office of Chief
Counsel staff in NY and LI is alleged.
March 2014
Problems at the IRS

7. 7
Are subject to FICA. SUPREME COURT CASE
Severance Payments
United States v. Quality Stores, Inc.
U.S., No. 12-1408, 3/25/14.
 Supreme Court decision; 8-0; March 25, 2014.
 Medical resident FICA issue.

8. 8
 IRC Section 125 plans a/k/a cafeteria plans.
 IRS Notice 2013-71.
 Further Modification of Use-or-Lose Rule.
1. Expenses incurred by 12/31; or
2. Expenses incurred during the period of up to 2
months and 15 days immediately following the end
of the plan year; or
3. Carryover of $500 to the immediately following
plan year.
Flexible Spending Accounts

9. 9
Accounts Payable – New Form W-9
New Form W-9; Request for Taxpayer Identification
Number and Certification.
Disregarded entity; shown on line 2 not on line 1.
Limited liability company.
Exempt payee code (if any).
Exemption from FATCA reporting code (if any).

10. 10
Accounts Payable – New Form W-9
10

11. 11
Senate Finance Committee report “Cost Recovery and
Accounting Discussion Draft”; released November 21, 2013.
 AICPA Coalition Letter; January 17, 2014.
Cash Versus Accrual
Taxable income
is recognized
when received
(cash basis)
versus when
services are
rendered
(accrual basis).
Annual gross
receipts
threshold of
$10 million.
Personal
service
corporations
and
professional
firms; e.g.
physician
practices.

12. 12
Revenue Ruling 2013-17;
effective September 16th.
Same-sex couples legally married in a
jurisdiction that recognizes their marriage
are now recognized as married for federal
tax purposes; regardless of jurisdiction in
which they reside.
Terms included in the IRC that refer to marital
status will include an individual married to a
person of the same sex, if the couple is lawfully
married under state law and such a marriage is
between individuals of the same sex.
Defense of Marriage Act (“DOMA”)

13. 13
Income tax.
Estate and gift taxes.
Federal tax provisions:
• Filing status.
• Exemptions.
• Standard deduction.
• Employee benefits.
• IRA contributions.
• Earned income tax credit.
• Child tax credit.
DOMA Applicability

14. 14
Additional procedures and guidance forthcoming:
• Refund claims for payroll taxes paid on previously-taxed
health insurance and fringe benefits.
• Cafeteria plans.
• Qualified retirement plans and other tax-favored
arrangements.
FAQs on IRS website.
IRS Publication #555.
DOMA - Additional Guidance

15. 15
02 Review your existing IRC Section 125 plan and
consider revising the plan.
01 Review your current arrangements with respect to
severance, including written agreements, where applicable.
Recommendations
 Do you have a Form W-9 for every vendor?
 Review your “non-1099 required” vendors.
 Consider a process to obtain an updated Form W-9 for all
vendors.
 Consider voluntary disclosure options if issues are
identified.
03 Review your accounts payable function.

16. 16
IRS Exempt Organizations Update
Part Two
16

17. 17
IRS EO Reorganization April 2013
Tea Party/Patriot
Issue and
Applications for
Tax-Exemption.
IRC Section
501(c)(4) social
welfare
organization.
IRC Section
501(c)(27)
political
organization.
Lois Lerner,
IRS Exempt
Organizations (“EO”)
Director retired in
April of 2013.
Tamera Ripperda,
named IRS EO Director,
December 2013. From
Large Business and
International Division.
INVESTIGATION
STILL
ONGOING
NEW
DIRECTOR

18. 18
The IRS Exempt Organizations
group will not publish a 2013
Annual Report & 2014 Work Plan
this year.
IRS EO Group

19. 19
IRS Forms 1023 and 1024
Significant period of time from the date of taxpayer
filing, IRS receipt, review and issuance of IRS
determination letter in most instances.
Applications for Tax-Exemption.
IRS TE/GE expects a “significant” decrease in the IRS’
backlog of 80,000 applications by the end of 2014;
announced in February of 2014.
Streamlined IRC Section 501(c)(3) exemption process
starting in the summer of 2014; Form 1023-EZ; Federal
Register 3/31/2014.

20. 20
 Instructions to the Form 990; Appendix D: Public
Inspection of Returns.
 Application for Recognition of Exemption and three most
recently filed Forms 990 and 990-T.
Form 990 Public Inspection
Amended
Forms 990
and 990-T.
 3 years from the date of filing.
 Provide copy of the amended
Form 990 to each voting
member of the governing
body prior to filing?

21. 21
02
Use Form
4506-A
Request for Public
Inspection or Copy of
Exempt or Political
Organization IRS Form
Form 990 Public Inspection
• Request made
in person.
 Unusual
Circumstances.
• Request made
in writing.
01
Guidestar.org
03
Through the
organization
Available Via:

22. 22
Form 13909
22

23. 23
Form 13909
23

24. 24
 Pension Protection Act of 2006; failure to file Form 990, 990-
EZ or 990-N for three consecutive years results in automatic
revocation of tax-exempt status.
 Notice 2011-43 and Notice 2011-44.
 Revenue Procedure 2014-11; Streamlined Retroactive
Reinstatement Process.
 Reasonable cause depends on whether the new Form
1023/1024 is filed not later than 15 months after the later of the
date of IRS revocation letter or the date on which the IRS
posted the entity’s name on the Revocation List.
Revocation of Tax-Exempt Status

25. 25
The bill would strike
“professional football
leagues” from the
Internal Revenue Code,
a phrase that has been
in place since 1966.
Revocation of Tax-Exempt Status
Properly Reducing
Overexemptions for
Sports Act (H.R. 3965),
which would prevent
professional sports
organizations with
annual revenues of more
than $10 million from
claiming an IRC Section
501(c)(6) tax exemption;
introduced January 29,
2014.
WOULD BE
AFFECTED
NFL earns about
$9B in revenue
annually.

26. 26
Charitable contributions limitation.
Elimination of Rebuttable Presumption of
Reasonableness.
Excise Tax on Excess Tax-Exempt
Organization Executive Compensation.
Unrelated Business Income Tax.
The Tax Reform Act of 2014 - Proposed

27. 27
DESIGNATE
• A contact
person to
handle all
Form 990
requests.
MAINTAIN
• Both a
“taxpayer”
copy and a
“public
disclosure”
copy of the
Forms 990 for
each of your
tax-exempt
organizations
annually.
ADOPT
• A written
Form 990
public
disclosure
policy.
Recommendations
27

28. 28
Affordable Care Act
Part Three
28

29. 29
Tax Provisions and Revenue Generators
2013 2014 2018
 Additional
Medicare Tax.
 Net Investment
Income Tax.
 Medical Device
Excise Tax.
 Patient-
Centered
Outcomes
Research Fee.
 Transitional
Reinsurance
Fee.
 Health
Insurance
Provider Fee.
 Cadillac Tax.

30. 30
Large employers that DO
NOT offer coverage to at
least 95% of full-time
employees must:
pay a penalty if
any full-time
employee
receives premium
assistance
through a
marketplace.
Penalty is equal to:
$2,000
x
Total Full-Time
Employees in
excess of 30.
Employer Shared Responsibility

31. 31
Large employers that
DO offer coverage to
at least 95% of
full-time employees that:
IS NOT affordable,
or
DOES NOT meet
minimum value
requirements must
pay a penalty.
Penalty is equal to:
lesser of $3,000 for each
full-time employee
receiving premium
assistance or cost
sharing reduction through
a marketplace or $2,000
per full-time employee in
excess of 30.
Employer Shared Responsibility

32. 32
Employer Shared Responsibility
If the employee share
of the premium is in
excess of 9.5% of
their household
income, coverage is
not “affordable”.
If health plan doesn’t
cover at least 60% of
total allowed costs of
benefits provided
under the plan, it is
not providing
“minimum value”.
PREMIUM IN EXCESS OF
9.5%OF HOUSEHOLD INCOME

33. 33
Employer Shared Responsibility
Full-time
employee
Averages, for a
calendar month, at
least 30 hours of
service per week or
has worked at least
130 hours of service
during the month.
Full-time
equivalent
Total number of
hours of service for
all non full-time
employees for the
month divided by
120.

34. 34
Employer Penalties
For those with 50+ Full-Time
Do you offer
coverage?
Does the plan
provide minimum
value? Plan pays
60% of claims.
Is the coverage
affordable?
Yes
Yes
Yes
No $2,000 per FT
(minus first 30)
$3,000 per FT
Receiving tax credit/subsidy
No
No
Employer “Safe Harbor”
Coverage would be considered “affordable” if the
premium contribution for single coverage does not
exceed 9.5% of an employee’s W-2, box 1 wages.
$3,000 per FT
Receiving tax credit/subsidy
No Penalty

35. 35
CONTROLLED GROUPS
Employer Shared Responsibility
Large
employer
status is
determined
on basis of
entire
controlled
group.
Penalties
are
determined
on a
separate
basis.
Only one 30
employee
exclusion
allowed per
controlled
group.

36. 36
Final regulations 2/10/2014.
Transitional relief for:
• Mid-sized employers (50-99 FTEs) have an additional
one year to January 1, 2016 to comply.
• Large employers (100 or more FTEs) only required
to offer to 70% of full-time employees.
What Has Been Delayed

37. 37
Generally incorporate
reporting requirements
outlined in the
proposed rules.
Provide limited options for
streamlined reporting of
employer offer of coverage in
specific circumstances.
Generally requires employers
and insurers to collect Social
Security numbers for primary
insured, covered spouses and
dependents to report minimum
essential coverage.
Highlights of Final Regulations
Sections 6055 and 6056

38. 38
Information to be reported under IRC Section 6055:
• The name and tax payer identification number (TIN) of each individual
enrolled;
• The name and address of the primary insured who submits the application
for coverage;
• Months during which the individual is enrolled in minimum essential
coverage.
For coverage offered in 2015, information returns must be provided to
individuals by February 1, 2016, and to the IRS by March 31, 2016.
Reporting via Form 1095-C employee statement and Form 1094-C
employer transmittal (6055/6056 combined).
Section 6055 General Rules

39. 39
• Birth date of dependent may be reported if employer made a “reasonable
effort” to obtain the TIN.
• Three efforts must be made to obtain the TIN to avoid filing.
Taxpayer Identification Numbers (TINs): Must report TIN of
the primary insured and each individual covered under the policy
and the months that the individuals were covered.
Penalties.
• Employee consent and other requirements apply.
Electronic filing permitted.
• Third party may be designated to file on behalf of the employer.
Reports filed by employing entity for self-funded plans.
Complexities of Section 6055 Reporting

40. 40
 General reporting method:
• Number of full-time employees, by month;
• For each full-time employee, months when coverage was
available for each full-time employee, the employee’s share of
the lowest-cost monthly premium for self-only coverage;
• Additional information, some by indicator code.
 For coverage offered in 2015, information returns must be
provided to individuals by February 1, 2016, and to the
IRS by March 31, 2016.
 Reporting via Form 1095-C employee statement and
Form1094-C employer transmittal (6055/6056 combined).
Section 6056 General Rules

41. 41
Requires you and each member of
your family to either:
Individual Shared ResponsibilityONE
Have minimum
essential
coverage, or TWO
Have an
exemption
from the
responsibility
to have
minimum
essential
coverage, or
THREE
Make a shared
responsibility
payment when
you file your
2014 Federal
income tax
return in 2015.

42. 42
Minimum Essential Coverage
Health insurance coverage provided by your employer,
Health insurance purchased through the Health Insurance
Marketplace in the area where you live, where you may qualify for
financial assistance,
Coverage provided under a government-sponsored program for
which you are eligible (including Medicare, Medicaid, and health care
programs for veterans),
Health insurance purchased directly from an insurance company,
and
Other health insurance coverage that is recognized by the Department
of Health & Human Services as minimum essential coverage.

43. 43
Has no affordable coverage
options because the minimum
amount you must pay for the
annual premiums is more
than eight percent of your
household income,
Has a gap in coverage for
less than three consecutive
months, or
Qualifies for an exemption for
one of several other reasons,
including having a hardship
that prevents you from
obtaining coverage, or
belonging to a group explicitly
exempt from the requirement.
Exemptions – some are
obtained only through the
Marketplace, some only from
the IRS and some from either
the Marketplace or IRS.
An individual may be exempt if he/she:

44. 44
For 2014, the annual payment amount is:
Making a Payment – 2014 Year
The greater of:
1%
of your household
income that is
above the tax
return filing
threshold for your
filing status, or
Your family's flat
dollar amount, which
is:
But capped at
the cost of the
national average
premium for a
bronze level
health plan
available
through the
Marketplace in
2014.
$95 per adult
and $47.50
per child,
limited to a
family
maximum of
$285

45. 45
Because $497 is greater than $285 (and is less than
the national average premium for bronze level
coverage for 2014), John and Mary’s shared
responsibility payment is $497 for 2014, or $41.41
per month for each month the family is uninsured
(1/12 of $497 equals $41.41).
SCENARIO
Married couple
with 2 children,
$70,000 income
and their filing
threshold is
$20,300.
Example - 2014
To determine their payment using the income formula,
$70,000 (2014 household income).
MINUS
$20,300 (filing threshold).
$49,700 (the result).
One percent of $49,700 equals $497
John and Mary’s flat dollar amount is $285, or
$95 per adult and $47.50 per child. The total
of $285 is the flat dollar amount in 2014.

46. 46
2.5%2.0%
Making a payment – 2015 and 2016
The income
percentage increases
to 2 percent of
household income and
the flat dollar amount
increases to $325 per
adult ($162.50 per child
under 18).
These figures increase
to 2.5 percent of
household income and
$695 per adult
($347.50 per child
under 18). After 2016,
these figures increase
with inflation.
20162015

47. 47
 Tax-exempt hospitals must attach their
audited financial statements to their Form
990 annually.
 IRS mandatory review of every hospital’s
Schedule H once every 3 years. Treasury
thereafter prepares a report to Congress.
 New Internal Revenue Code (“IRC”) Section
501(r).
 IRS Notices 2014-2 and 3; December 2013.
 To date the IRS has not finalized the IRC
Section 501(r) Regulations; end of 2014.
Affordable Care Act; March 23, 2010

48. 48
Effective for tax years beginning after March 23, 2012
Internal Revenue Code Section 501(r)(3)
Community Health Needs Assessment (“CHNA”)
Section 501(r)(3) July of 2011 April of 2013
Each hospital
facility must
conduct a CHNA
once every three
years and prepare
and update a
written
implementation
strategy annually.
IRS Notice
2011-52 issued.
IRS released
proposed
regulations.
Adopt and make widely available.

49. 49
Section 501(r)(3) Proposed Regulations
“Participates in a hospital facility which is structured as
a flow through entity (LLC or partnership).”
“Making your CHNA widely available.”
“New hospital facilities.”

50. 50
Section 501(r)(3) Proposed Regulations
“Collaboration with other hospital facilities; separate
written reports per each hospital facility.”
An exception to
the separate
report
requirement was
acknowledged
by the IRS.
A joint report may be
permitted in
situations where the
involved hospital
facilities each define
their communities
identically and
conduct a joint CHNA
process.
The report
clearly identifies
all the hospital
facilities.

51. 51
• Attached to the Form 990; or
• Provide on the Form 990 the webpage
address(es) on which they are available along
with, or as part of, the CHNA.
• In addition, the Form 990 must annually describe
the actions taken to address the CHNA significant
health needs or state why none were taken and
the reasons why.
“Implementation strategy.”
Section 501(r)(3) Proposed Regulations

52. 52
Section 501(r)(3) Proposed Regulations
• Code Section 4959 imposes a $50K excise tax
per facility per year; reported on Form 990-T.
• Revocation of tax-exempt status is an option.
• Errors or omissions that are neither willful or
egregious will be excused if the hospital facility
corrects provides disclosure that is reasonable
and appropriate.
• Based upon facts and circumstances on a case by
case basis.
• IRS intends to issue a Revenue Procedure.
“Non-compliance with Code Section 501(r).”

53. 53
Code Section 501(r)(4)
Compliance with Code Section 501(r)(4)
Financial
assistance
policy (“FAP”)
and
emergency
medical care
policy;
A plain
language
summary of
the FAP; and
A FAP
application
form and
instructions.

54. 54
Code Section 501(r)(4)
The FAP must contain:
• Eligibility criteria for financial assistance, and whether the
assistance includes free or discounted care;
• The basis for calculating amounts charged to patients;
• The method for applying for financial assistance;
• The actions the hospital may take in the event of
nonpayment if the hospital does not have a separate
billing and collections policy; and
• Measures taken to widely publicize the FAP within the
community served by the hospital facility.

55. 55
• Limit amounts charged for medically necessary healthcare
services and emergency medical care for FAP-eligible
individuals.
• Prohibits the use of gross charges.
• A hospital facility must choose and retain 1 of the following:
Code Section 501(r)(5)
Amounts Generally Billed (“AGB”)
Look Back
Method
• Medicare fee-for-service only; or
• Medicare fee-for-service and all
private health insurers.
Prospective
Method
• Medicare fee-for-service only.
• Part A and Part B.

56. 56
Code Section 501(r)(5)
Amounts Generally Billed (“AGB”)
 Acceptable AGB methods
to consider.
 One average percentage
for all ER and other
medically necessary care
provided by the hospital.
 Separate categories of
care (I/P; O/P; different
departments).
 Separate items or
services.
Total Claims paid to hospital
total gross charges of claims
x 100
AGB PERCENTAGE
Calculations:
DIVIDED BY
Gross charges x AGB%
AGB
EQUALS

57. 57
Code Section 501(r)(5)
AGB Example
CALCULATE THE AGB
ER / medically necessary
service charge = $10,000
$10,000 x 30%
Gross charges x AGB%;
AGB for the ER / medically
necessary service is
$3,000
Total claims paid to hospital
Total gross charges of claims x 100
$300 million / $1.0 billion
$300 = $200 private
insurers; $80 Medicare and
$20 individuals
AGB Percentage = 30%
CALCULATE AGB PERCENTAGE
DIVIDED BY

58. 58
A hospital facility must make reasonable
efforts to determine whether an individual is
FAP-eligible prior to engaging in an ECA.
Code Section 501(r)(6)
Notification Period
• This period begins on the
date care is provided
and ends on the 120th
day after the hospital
provides the individual
with the first billing
statement for care.
Application Period
• A hospital must accept
and process FAP
applications until the end
of the 240th day after the
hospital provides the
individual with the first
billing statement for care.
Extraordinary Collection Actions (“ECA”)

59. 59
Code Section 501(r)(6)
Placing liens and/or foreclosing on real
property;
Attaching or seizing a bank account or
garnishing an individual’s wages; and
Commencing a civil action or causing an
individual’s arrest.
An ECA includes any action that requires a
legal or judicial process, including:

60. 60
Recommendations
60
Form an internal working group for ACA and/or IRC
Section 501(r) compliance.
Perform an IRC Section 501(r) readiness assessment.
Review your FAP and billing and collection policies.
Perform an AGB analysis.
Review your written agreements and arrangements with
outside entities, e.g. collection agencies.

61. 61
Schedule H and
Community Benefit
Part Four
61

62. 62
Why is community benefit important?
Supports Federal, state and local tax-exempt status.
Community Benefit
Federal
• Exempt from
corporate
income tax.
• Issue tax-
exempt debt.
• Receive
charitable
contributions
and government
grants.
State
• Exempt from
corporate
income tax.
• Exempt from
sales and use
tax.
Local
• Exempt from
property (real
estate) taxes
(Provena
Medical Center
and UPMC).

63. 63
Schedule H and Community Benefit
63

64. 64
Schedule H and Community Benefit
64

65. 65
• Community benefit definitions and reports.
• Costs, not charges.
• Senate Finance Committee – 5% Test.
• Community benefit, inclusions/exclusions.
FORM 990 – Schedule H
Total
benefits to
the
community
American
Hospital
Association
(“AHA”).
IRS definition
– Catholic
Health
Association
(“CHA”).

66. 66
Categories of Community Benefit
Schedule H, Part I, Community Benefit
Financial
Assistance
at Cost.
Medicaid and
other means
tested
programs.
Community
Health
Improvement
Services and
Community
Benefit
Operations.
Health
Professions
Education.
Subsidized
Health
Services.
Research.
Cash and
in-kind
contributions.

67. 67
• Two separate reports; based upon 1st and 2nd year
filings of Form 990, Schedule H (2009 and 2010).
• AHA released the reports in February of 2012 and
April of 2013; www.aha.org.
• AHA Schedule H project.
AHA Schedule H Project
Community
benefit – IRS
definition.
Total benefits
to the
community.

68. 68
AHA project, 2009 and 2010 Form 990, Schedule H, Part I
2009 2010
Small hospitals 7.3% 7.3%
Medium hospitals 8.0% 7.5%
Large hospitals 9.8% 9.2%
Hospital systems 9.3% 8.1%
Overall Average 8.4% 8.2%
AHA Schedule H Project

69. 69
Schedule H and Community Benefit
69

70. 70
Schedule H and Community Benefit
70

71. 71
Schedule H and Community Benefit
71

72. 72
Schedule H and Community Benefit
72

73. 73
Schedule H and Community Benefit
73

74. 74
Hospital Example
TAX-EXEMPT VERSUS TAXABLE.
Federal corporate income tax $32,464,058
State corporate income tax $ 9,137,517
Local – property (real estate) taxes – est. $10,000,000
State sales / use taxes – est. $ 2,100,000
Total $53,701,575
Less: Schedule H net CB costs: ($19,191,878)
Differential $34,509,697

75. 75
Recommendations
Grant to a FQHC or other organizations which provide care to
the indigent and/or Medicaid populations or general purpose
community benefit grant. Alternatively, a grant to an unrelated
tax-exempt hospital?
Community Benefit
Quantitative - #’s
and %’s
• Form 990, Schedule H
Qualitative –
written community
benefit statement
• Form 990, Schedule O

76. 76
• Financial assistance does not include self-pay or prompt
pay discounts.
• Restricted grants include as direct offsetting revenue.
Part I:
• Requires a state license number for each hospital facility
listed.
Part V, Section A:
• Requires the organization to provide the URL for a
community health needs assessment that is posted to the
hospital facility’s website or other website.
Part V, Section B, Line 5a and 5b:
2013 Form 990, Schedule H Changes

77. 77
Recommendations
77
01.
Benchmark your hospital to
its peers, both nationally and
regionally.
02.
Calculate your net
community benefit costs and
% using methods other than
CHA, including AHA and
state reporting and disclose
in Form 990 Schedule O.
03.
Consider a written
community benefit
statement to include with
your annual Form 990.
04.
Ensure key individuals are
aware of your net
community benefit costs and
%; including senior
management; Board
members and others.

78. 78
Foreign Reporting
Part Five
78

79. 79
THE IRS MEANS BUSINESS!
 August of 2011; San Francisco man pleads guilty to
hiding $13 million at UBS AG in Switzerland and
agrees to pay $6.8 million FBAR penalty.
 Financial Crimes Enforcement Unit.
 FinCEN Report 114 supersedes the Form 90-22.1.
 Individuals who file FinCEN Report 114 must also
disclose on their Form 1040, Schedule B, Part III.
Foreign Bank Account

80. 80
 A U.S. person must file a FinCEN Report 114 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.
 Filed with U.S. Treasury on or before June 30th.
FBAR records should be maintained 5 years from
June 30th.
 Mandatory electronic filing of the FinCEN Report 114.
Who Must File and Due Date

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Certain
entities/owners
of a foreign captive
(e.g. hospital).
Certain officers of
the owner (e.g.
hospital CEO and
CFO) with signature
authority.
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.
Foreign Bank Account

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 Deadline is July 1, 2014; 30% withholding tax.
 Foreign captive insurance companies.
 Determination of a foreign financial institution
(“FFI”) or a non-financial foreign entity (“NFFE”).
 Most hospital foreign captive insurance
companies will be NFFE.
 Form W-8BEN-E, Certificate of Status of
Beneficial Owner for US Tax Withholding and
Reporting (Entities).
Foreign Account Tax Compliance Act
(“FATCA”)

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Review your captive insurance company as part of your
healthcare system.
Review your captive insurance company bank
accounts for signature authority.
Confirm that your captive is a NFFE and complete
Form W-8BEN-E.
Does your organization have any other foreign
investments or foreign bank accounts?
Consider voluntary disclosure options if potential issues
are identified.
Recommendations
83

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Executive Compensation
Part Six
84

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"The IRS EO division will never stop
looking at NFP executive
compensation and benefits."
Mariani
Statement of Opinion

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2004 Executive compensation compliance project.
2006
Tax exempt hospital community benefit
questionnaire, Form 13790.
2008 Colleges and universities compliance initiative.
2009 IRS governance check sheet, Form 14114.
2010-2012 Employment tax initiative.
2013 Colleges and universities compliance study.
IRS EO and Executive Compensation

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Who’s looking at your Form 990?
Public Disclosure
IRS
State
taxing
authority
Employees
current &
former
Newspapers Competitors
Unions
The
general
public;
including donors
Accountants,
lawyers and
others
www.guidestar.org

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Executive Compensation
88

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Executive Compensation
89

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Reasonable Compensation
Treas. Reg. 53.4958-4(b)(1)(ii)(A)
Reasonable compensation is the amount
ordinarily paid for like services by like
enterprises (whether tax-exempt or taxable)
under like circumstances.

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Total Compensation
Form 990, Schedule J, Column E
Total compensation includes all compensation items,
whether taxable or not. Items include salary, bonus,
deferred compensation (whether or not funded), payments
to welfare benefit plans (medical, dental, life), and taxable
and non taxable benefits and de minimis fringe benefits.

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 Arrangement approved by the governing body or a committee of
the governing body composed entirely of individuals who do not
have a conflict of interest with respect to the arrangement;
 Governing body or committee obtained and relied on appropriate
data as to comparability (internally or externally developed); and
 Governing body or the committee adequately documents the
basis for its determination by the later of the next meeting of the
authorized body or 60 days after final approval by the authorized
body.
 Burden of proof, IRS vs. tax-exempt organization.
Rebuttable Presumption of Reasonableness

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IRC
Section
4958
Effective for
transactions
post
September
14, 1995.
An
enforcement
mechanism
rather then
revocation of
tax-exempt
status.
Intermediate Sanctions

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• An IRC Section 501(c)(3) or (c)(4) tax-
exempt organization.
• A disqualified person.
• An excess benefit transaction:
Intermediate Sanctions Criteria
ONE
A non-FMV
transaction
(including
reasonable
compensation).
TWO Prohibited
revenue
sharing
transactions.
THREE
Prohibited
transactions
involving
SO's.

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 The individual must return the amount of the excess
benefit (with interest) to the tax-exempt organization and
pay an excise tax to the IRS.
 Potential excise tax due IRS for organization managers
who knowingly approved the transaction knowing it was an
excess benefit transaction.
 Disclosure on Form 990, Supplemental Schedule L.
 Reasonable Cause.
 Automatic Excess Benefit Transactions.
Excess Benefit - Excise Taxes

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01
•Review your
compensation
committee.
03
•Ensure the organization
satisfies the RPOR
factors.
02
•Inclusion of all items for
purposes of “total
compensation”
of each key
person.
04
•Obtain a
reasonableness opinion.
Recommendations
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ReportingDocumentationProcessReasonableness
We are in a challenging Political and Regulatory Environment!
Your organization does not want to be the newspaper story!
Avoiding Intermediate Sanctions
It’s All About

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Questions & Answers
THANK YOU!
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