Originally published November 11, 2005
The IRS Tax Exempt and Government Entities ("TE/GE") Division just released its "FY 2006 Exempt Organizations (EO) Implementing Guidelines." Most notable for tax-exempt hospitals, the Director of EO Examinations announced, coincident with the release of the Implementing Guidelines, that one examination initiative may consist of sending letters to about 600 nonprofit hospitals inquiring about their executive compensation practices and about how they believe they satisfy the community benefit standard supporting their qualification for section 501(c)(3) status. These are described as "compliance check letters" (not "examination letters") so that, at least initially, the requests for information and documentation should be somewhat general and limited in scope.
One other compliance initiative that will be of particular interest to tax-exempt hospitals is a stated expectation of the TE/GE Division to coordinate with the Tax-Exempt Bond Division's examinations of bond issues for the benefit of section 501(c)(3) organizations (i.e., the EO Division would assist the Tax-Exempt Bond Division in the context of audits in which potential issues relating to the tax-exempt status of bonds are identified; by checking to assure that the subject transactions do not violate the private benefit rules). Presumably, the EO Division would also help to identify situations that may involve sophisticated UBIT analysis that could result in excess private business use of bond-financed facilities, resulting in jeopardy to the tax-exempt status of the bonds.
For more information or if you have a question about this Alert, please contact David Flynn or Philip Lebowitz of the Health Law Practice Group or the attorney in the firm with whom you are regularly in contact.
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