Wednesday, November 27, 2013
About 80% of Continuing Care Retirement Communities (CCRCs) in the U.S. operate as 501(c)(3) tax-exempt organizations. Over time, what were once fairly humble establishments with strong church or fraternal organization ties, have expanded to serve the needs and interests of their clientele. In some instances, the facilities and amenities are now distinctly "high end," operating with lighter affiliations to religion or other charitable groups. Increasingly, for-profit management companies are hired to provide the day-to-day services.
Understanding the reasons to exempt CCRCs from federal income taxes takes a bit of history. For example, in 1972, the IRS issued Revenue Ruling 72-124, noting that providing for the "special needs of the aged has long been recognized as a charitable purpose" for Federal tax purposes. As such, a CCRC was viewed as relieving the distress of aged persons by providing for the primary needs of such individuals for housing, health care, and financial security. Thus, a CCRC could be treated as tax exempt under Section 501(c)(3) of the Code as an entity organized and operated exclusively for charitable purposes.
State and local tax authorities, however, may employ a more exacting standard on CCRCs in order to qualify for charitable tax exemptions, including property tax exemptions. For a thoughtful analysis of the different standards, see "The Commerciality Doctrine as Applied to the Charitable Tax Exemption for Homes for the Aged - State and Local Perspectives," by Professor David Brennan (Kentucky Law), published in Fordham Law Review in 2007, and still very relevant.