Law of Tax-Exempt Healthcare Organizations, + Website

THOMAS K. HYATT is a Partnerand the Chair of Dentons US LLP'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 for Healthcare Organizations seminar sponsored by the American Health Lawyers Association (AHLA), and past chair of AHLA's Tax and Finance practice group. BRUCE R. HOPKINS is a senior partner with the firm Polsinelli PC and an adjunct professor at the University of Kansas School of Law. He is also the author of more than twenty-eight books, including The Law of Tax-Exempt Organizations, Tenth Edition; Tax-Exempt Organizations and Constitutional Law: Nonprofit Law as Shaped by the U.S. Supreme Court; Nonprofit Law Made Easy; and Private Foundations: Tax Law and Compliance, Fourth Edition, as well as the monthly newsletter Bruce R. Hopkins' Nonprofit Counsel, all published by Wiley.

• Preface xvAbout the Authors xviiBook Citations xxiPart One Introduction to The Law of Tax-Exempt Healthcare Organizations1 Tax-Exempt Healthcare Organizations—An Overview 31.1 Constitutional Law Perspective 51.2 Defining Tax-Exempt Organizations 61.3 Rationales for Tax Exemption 91.4 Categories of Tax-Exempt Healthcare Organizations 131.5 Charitable Healthcare Organizations 141.6 The Law of Charitable Trusts 161.7 Relief of Poverty 161.8 Promotion of Health 191.9 Social Welfare Organizations 202 Advantages and Disadvantages of Tax Exemption 232.1 Source of Tax Exemption 232.2 Advantages of Tax Exemption 272.3 Disadvantages of Tax Exemption 302.4 Alternatives to Tax-Exempt Status 322.5 No Contract, Third-Party Beneficiaries, Right of Action, or Charitable Trust 342.6 Small Employer Insurance Tax Credit 373 Criticisms of Tax Exemption 393.1 Criticisms in General 403.2 Criticisms of Tax Exemption for Healthcare Organizations 433.3 Commerciality Doctrine 56Part Two Fundamental Exempt Organization Principles Applied to Healthcare Organizations4 Private Inurement, Private Benefit, and Excess Benefit Transactions 714.1 Essence of Private Inurement 724.2 Requisite Insider 774.3 Physicians as Insiders 844.4 Private Inurement—Scope and Types 864.5 Private Inurement Per Se 1044.6 Essence of Private Benefit 1074.7 Private Inurement and Private Benefit Distinguished 1134.8 A Case Study 1134.9 Excess Benefit Transactions 1165 Public Charities and Private Foundations 1375.1 Public Institutions 1385.2 Publicly Supported Organizations—Donative Entities 1435.3 Publicly Supported Organizations—Service Provider Organizations 1505.4 Comparative Analysis of the Two Categories of Publicly Supported Charities as Applied to Healthcare Organizations 1555.5 Supporting Organizations 1565.6 Recognition of Change in Public Charity Status 1725.7 Relationships Created for Avoidance Purposes 1725.8 Income Attribution Rules 1735.9 Reliance by Grantors and Contributors 1735.10 Private Foundation Rules 1756 Community Benefit 1796.1 Community Benefit and Operation for Charitable Purposes 1796.2 The Traditional Community Benefit Standard 1806.3 The New Community Benefit Standard 1837 Lobbying and Political Activities 1937.1 Legislative Activities Limitation 1937.2 Business Expense Deduction Rules and Lobbying 2057.3 Federal Disclosure of Lobbying 2067.4 Political Activities Limitation 2097.5 Business Expense Deduction Rules and Political Activities 2187.6 Internet Activities 2197.7 Public Policy Advocacy Activities 2227.8 Political Activities of Social Welfare Organizations 2237.9 Constitutional Law Considerations 225Part Three Tax Status of Healthcare Provider and Supplier Organizations8 Hospitals 2298.1 Federal Tax Law Definition of Hospital 2298.2 Private Charitable Hospitals 2348.3 Public Hospitals 2388.4 Religious Hospitals 2388.5 Proprietary Hospitals 2409 Managed Care Organizations 2439.1 Introduction 2439.2 Health Maintenance Organizations 2459.3 Commercial-Type Insurance Providers 2799.4 Preferred Provider Organizations 2879.5 Recent Developments 28910 Home Health Agencies 29310.1 Freestanding Home Health Agencies 29310.2 Hospital-Based Home Health Agencies 29910.3 Private Duty Nursing Companies 30011 Homes for the Aged 30311.1 Introduction 30311.2 Overview of Tax Exemption for Homes for the Aged 30311.3 Specific Types of Healthcare Facilities for the Aged 30711.4 Other Considerations 31012 Tax-Exempt Physician Organizations 31312.1 Tax-Exempt Clinics 31312.2 Teaching Hospital Faculty Organizations 31913 Other Provider and Supplier Organizations 32513.1 Blue Cross and Blue Shield Associations 32513.2 High-Risk Individuals Healthcare Coverage Organizations 33513.3 Qualified Health Insurance Issuers 33613.4 Health Insurance Exchanges 33713.5 Accountable Care Organizations 339Part Four Tax Status of Health-Related Organizations14 Development Foundations 35514.1 Basic Concepts 35514.2 Other Considerations 36114.3 Case Study 36214.4 A Potential Alternative 36315 Title-Holding Companies 36515.1 Single-Parent Title-Holding Companies 36615.2 Multi-Parent Title-Holding Companies 36915.3 Unrelated Business Considerations 37116 For-Profit Subsidiaries 37316.1 Establishing a Subsidiary 37416.2 Financial Considerations 37816.3 Attribution of Subsidiary’s Activities to Exempt Parent 38316.4 Asset Accumulations 38716.5 Effect of For-Profit Subsidiaries on Public Charity Status 38816.6 Subsidiaries in Partnerships 39017 Exempt and Nonexempt Cooperatives 39317.1 Cooperative Hospital Service Organizations 39317.2 Subchapter T Cooperatives 40318 Business Leagues 40518.1 Business Leagues in General 40518.2 Healthcare Trade Associations 41218.3 Certification Organizations and Peer Review Boards 41318.4 Legislative Activities of Business Leagues 41719 Other Health-Related Organizations 43119.1 Physician Referral Services 43119.2 Nurse Registries 43219.3 Charitable Risk Pools 43519.4 Hospital Management Services Organizations 43619.5 Regional Health Information Organizations 442Part Five Organizational Issues20 Healthcare Provider Reorganizations 44720.1 Some Basics about Reorganizations 44720.2 Parent Holding Corporations 44921 Mergers and Conversions 45721.1 Mergers and Consolidations between Exempt Healthcare Organizations 45721.2 Mergers and Consolidations between Exempt and Nonexempt Healthcare Organizations 46021.3 Conversion from Exempt to Nonexempt Status 46121.4 Conversion from Nonexempt to Exempt Status 47221.5 Joint Operating Agreements 47622 Partnerships and Joint Ventures 48522.1 Tax Law Fundamentals 48522.2 Tax-Exempt Healthcare Entities in Partnerships 49022.3 Partnerships and Tax Exemption 49322.4 Limited Liability Companies as Exempt Organizations 49622.5 Information Reporting 49922.6 Joint Ventures 50022.7 Partnerships, Joint Ventures, and Private Inurement 50322.8 Partnerships, Joint Ventures, and Per Se Private Inurement 50422.9 Whole-Hospital Joint Ventures 50522.10 Provider-Sponsored Organization Joint Ventures 52422.11 Ancillary Services Joint Ventures 52422.12 Single-Member Limited Liability Companies 54323 Integrated Delivery Systems 54723.1 Introduction 54723.2 Tax Status of IDS Organizations 54823.3 Physician Practice Acquisitions 570Part Six Operational Issues24 Tax Treatment of Unrelated Business Activities 57524.1 Introduction 57724.2 Definition of Trade or Business 57924.3 Definition of Regularly Carried On 58824.4 Definition of Substantially Related 59224.5 Application of Substantially Related Test to Healthcare Organizations 59924.6 Definition of Patient 60424.7 Gift Shops, Cafeterias, and Coffee Shops 60624.8 Fitness Centers 60824.9 Parking Facilities 60924.10 Temporary Residential Facilities 61024.11 Pharmacy, Medical Supplies, and Services Sales 61124.12 Laboratory Testing Services 61424.13 Medical Research 61724.14 Medical Office Buildings 62224.15 Transactions between Related Organizations 62324.16 Services for Small Hospitals 62624.17 Corporate Sponsorships 62724.18 Other Exceptions to Unrelated Income Taxation 63024.19 Internet Activities 64124.20 Revenue from Controlled Organizations 64424.21 Unrelated Debt-Financed Income 64824.22 Specific Deduction 65224.23 Computation of Unrelated Business Taxable Income 65324.24 The Commerciality Doctrine 65525 Physician Recruitment and Retention 65725.1 Introduction 65725.2 The IRS Position 66025.3 The OIG Position 66125.4 Guidelines for Analyzing Recruitment and Retention Techniques 66225.5 Specific Recruitment and Retention Techniques 66325.6 Hermann Hospital Closing Agreement 67925.7 Physician Recruitment Revenue Ruling 69226 Charity Care 71126.1 Introduction 71226.2 The Financial Ability Standard 71226.3 The Community Benefit Standard 71326.4 The Emergency Room Exception 71626.5 Legal Challenges to Hospital Charity Care Practices 71726.6 Definitional and Reporting Issues 71926.7 IRS Compliance Check and Form 990 Redesign 72526.8 Federal Legislative Initiatives 72726.9 Charity Care and National Health Reform 73126.10 Additional Statutory Requirements for Hospitals 73226.11 The Constitutionality of the Affordable Care Act 74927 Worker Classification and Employment Taxes 75727.1 Federal Employment Taxes 75827.2 Employees and Independent Contractors Distinguished 75927.3 The Common-Law Factors 76127.4 Safe Harbors 76227.5 Classification of Healthcare Workers 76427.6 Coordinated Issue Papers 76827.7 Medical Residents and the Student Exception 77428 Compensation and Employee Benefits 77728.1 The Reasonable Compensation Standard 77828.2 Hospital–Physician Compensation Arrangements 78128.3 Executive Compensation 78428.4 Board Compensation 79128.5 Overview of Employee Benefits Law 79228.6 Deferred Compensation in General 79629 Medicare and Medicaid Fraud and Abuse and Its Effect on Exemption 80329.1 The Conflict and Confluence of Tax Policy and Health Policy 80329.2 Fraud and Abuse Violations as a Basis for Revocation of Exemption 80829.3 Hospital Incentives to Physicians 81130 Tax-Exempt Bond Financing 81330.1 Overview of Qualified 501(c)(3) Bonds 81430.2 Overview of the Qualified 501(c)(3) Bond Issuance Process 82430.3 Disqualification of Tax-Exempt Bonds 82630.4 Internal Revenue Service Developments 83131 Fundraising Regulation 83531.1 State Law Regulation 83631.2 Federal Law Regulation 84832 Rural Healthcare Organizations 87332.1 Introduction 87332.2 Application of the Substantial Private Benefit Prohibition 87432.3 Application of Unrelated Business Income Rules 87432.4 Physician Recruitment and Retention in Rural Areas 87733 Governance 87933.1 Introduction 88033.2 Overview of Common Law and Statutory Duties of Officers and Directors 88033.3 Good Governance Practices 89133.4 Conflicts of Interest 89733.5 Board Oversight of Executive Compensation 90033.6 Government Oversight of Executive Compensation 90133.7 Federal Legislative Initiatives 90633.8 State Regulatory Enforcement of Corporate Responsibility Obligations 907Part Seven Obtaining and Maintaining Exempt Status for Healthcare Organizations34 Exemption and Public Charity Recognition Processes 91334.1 Exemption Recognition Process 91634.2 Application Disclosure Requirements 92834.3 Special Requirements for Charitable Healthcare Organizations 93034.4 Special Requirements for Health Insurance Issuers 93734.5 Public Charity Status 93734.6 Group Exemption 93934.7 Integral Part Doctrine 94434.8 Procedure Where Determination Is Adverse 94935 Maintenance of Tax-Exempt Status and Avoidance of Penalties 95335.1 Material Changes 95435.2 Changes in Form 95635.3 Annual Reporting Requirements 95835.4 Redesigned Annual Information Return 96535.5 Disclosure Requirements 97935.6 IRS Disclosure to State Officials 98635.7 Form 990 and Community Benefit 98835.8 Reporting of Noncash Gifts in General 98836 IRS Audits of Healthcare Organizations 100336.1 IRS Audits in General 100336.2 Audit Procedures 100736.3 Hospital Audit Guidelines 101136.4 IRS Compliance Check Projects 102236.5 Revocation of Exemption and Closing Agreements 1037About the Companion Website 1043Index 1045