Friday, March 19, 2010
Now that I've had a day to cogitate (love that word!) on the Provena case, here are a few final thoughts about things.
Thursday, March 18, 2010
Well, I now have the opinion (you can find it here), I have read it, and it is . . . complicated. Here’s why. The Illinois Supreme Court consists of 7 justices; two of the 7 justices recused themselves in this case, meaning that only 5 participated in the final opinion. All 5 agreed that Provena should not get the tax exemption; however, two of the justices agreed only on a technical procedural basis: these two felt that Provena had failed to prove its case because the property that was exempt was owned by Provena Hospitals (Provena Covenant’s parent), but the evidence on charitable use all related to Provena Covenant (the subsidiary). Accordingly, two of the justices concurred only because they believed the record contained no information regarding the charitable activities of the actual owner of the property. Or put another way, they believed that the record all contained evidence of charitable use by the wrong party.
So, I can say definitively that Provena lost. But that's all I can say. Because only three of the five justices considering the case agreed on the substantive analysis of what constitutes “charitable use” (e.g., is charity care required, and if so, how much), the case does not actually resolve this issue for the future – as one of the concurring/dissenting justices pointed out (page 37 of the slip opinion), the plurality’s views on the substantive tests for charitable use are not entitled to stare decisis (e.g., are not entitled to be viewed as controlling precedent for future cases), because a majority of the court (e.g., four justices) did not agree on the substantive test. [I should note that all 5 justices agreed that Provena could not claim exemption as a religious organization, an argument I’m not going to discuss here].
Provena Hospitals asserts that assessment of its charitable endeavors should also take into account subsidies it provides for ambulance service, its support of the crisis nursery, donations made to other not-for-profit entities, volunteer initiatives it undertakes, and support it provides for graduate medical education, behavioral health services, and emergency services training. This contention is problematic for several reasons. First, while all of these activities unquestionably benefit the community, community benefit is not the test. Under Illinois law, the issue is whether the property at issue is used exclusively for a charitable purpose. (Slip opinion at 26, emphasis added).
Conditioning charitable status on whether an activity helps relieve the burdens on government is appropriate. After all, each tax dollar lost to a charitable exemption is one less dollar affected governmental bodies will have to meet their obligations directly. If a charitable institution wishes to avail itself of funds which would otherwise flow into a public treasury, it is only fitting that the institution provide some compensatory benefit in exchange. While Illinois law has never required that there be a direct, dollar-for-dollar correlation between the value of the tax exemption and the value of the goods or services provided by the charity, it is a sine qua non of charitable status that those seeking a charitable exemption be able to demonstrate that their activities will help alleviate some financial burden incurred by the affected taxing bodies in performing their governmental functions. (Slip opinion at 20).
Similarly, in Medical Center Hospital of Vermont, Inc. v. City of Burlington, 152 Vt. 611, 566 A.2d 1352 (1989), the Vermont Supreme Court, in rejecting the taxing authority’s argument that the amount of free care dispensed must exceed revenues, concluded there was nothing in any Vermont case that required an institution to dispense any free care to qualify as charitable for purposes of the charitable property tax exemption. (Slip opinion at 35)
“[I]t does not follow that an institution must present evidence of a particular level of charitable care because there is no such threshold level contained in the statute. And we refuse to create one.” Wexford, 474 Mich. at 220, 713 S.W.2d at 748. (Slip opinion at 34).
I don't yet have a copy of the opinion, but the Chicago Tribune just posted this story, which states that Provena lost, and more importantly, that it lost on the substantive issue: the court apparently ruled that Provena failed to provide sufficient charity care to be tax-exempt.
Again, stay tuned. I'll post my own summary and views on the opinion after I get a chance to review it, either later today or early tomorrow.
Reports are that the Illinois Supreme Court's decision in the Provena Covenant Hospital tax exemption case will be released later this morning. Stay tuned - I'll post a summary of the decision as soon as I get my hands on it and have a chance to read it.
Wednesday, March 17, 2010
The Washington Post reports that four senators (Sens. Charles E. Grassley (Iowa), Tom Coburn (Okla.), Jon Kyl (Ariz.) and John Cornyn (Tex.)) have sent a letter to the Boys and Girls Clubs of America asking about the organizations' expenses for salaries and travel. The organization, which reported a $13 million loss on its 2008 Form 990, paid chief executive officer, Roxanne Spillett, nearly $1 million in current and deferred compensation. According to The Nonprofit Quarterly, the Senators may hold up a bill that would give the organization $425 million in federal funding unless they get more information about the expenses.
An interesting article in the Christian Science Monitor questions whether the US Olympic Committee should enjoy tax-exempt status under 501(c)(3). What struck me about this commentary is how similar the points made here are to those made by reformers for college athletics: that the programs are no longer "amateur" athletics at all, but rather big time entertainment fueled in large part by TV revenues. I also was particularly interested in the authors' comment that USOC gets little in the way of individual donations, since I have long championed a test for tax exemption that would require an organization to show that it was "substantially" funded by donations (Mark Hall, now at Wake Forest, and I proposed one-third of annual revenues from donations) in order to be tax-exempt.
Tuesday, March 16, 2010
Europe-- Countries Amending Laws to Comply with European Court of Justice Decision on Cross-Border Donations
European counries have been amending their tax laws in order to comply with the ECJ decisions in cross-border giving cases. For an analysis of the decision, see http://www.iccsl.org/search/show.cfm?id=3179. Changes in the laws of various countries are being tracked by the European Foundation Centre.
Members of the Knesset introduced legislation to reclassify associations (Amutot) as non-public institutions for tax law purposes. The amendment will jeopardize access by such entities to other foreign funding if it goes into effect. The amendment is under attack by Israeli NPOs, and ICCSL is currently analyzing the legislation on behalf of Israeli NPOs. The proposed amendment can be found at Israel_draft_legislation_16_2_on_foreign_political_entity_funding.pdf. The current Law on Amutot is also available in the ICCSL Documentation Center.
This story in the Fort Worth Star-Telegram is yet another example of why I'm beginning to like the idea of repealing all tax exemptions for churches, perhaps coupled with a deduction for money actually spent on poor relief or other community services (see yesterday's post here).
The American Hospital Association doesn't like the new Schedule H to form 990, because it . . . well, because it does pretty much exactly what the IRS intended. According the AHA, the Schedule H is fatally flawed because it bases its reporting on EIN's rather than on a system-wide basis. As a result, individual hospitals with individual EIN's report . . . wait for it . . . INDIVIDUALLY! Which according to the AHA means that certain system-wide expenses are "missed" by the 990. In addition, the AHA complains, as usual, that bad debts (e.g., when a hospital bills a poor patient, hounds them with debt collection proceedings and then discovers that, praise be, they really ARE poor!) and Medicare shortfalls (e.g., the difference between what a hospital claims it costs for care vs. government reimbursement - never mind that Medicare reimbursement rates are designed to make care more efficient and squeeze out waste) aren't included in community benefit, nor are "community-building" expenses such as physical improvements in the neighborhood, economic development and workforce development. Which begs the question why hospitals aren't spending their economic development money on, say, care for the poor.
Monday, March 15, 2010
This article at NextGov recounts the bugs and glitches the IRS is experiencing with TREES, the IRS's Tax Exempt and Government Entities Reporting and Electronic Examination System that was first used in April 2008. Apparently, the IRS still doesn't have the software working correctly, despite a number of attempts and upgrades, and no money is available during the current fiscal year for further work. The system cost $18.7 million so far, but more dollars will be needed to get all its functions and features working.
Kansas House Bill 2549 would require churches and religious non-profit organizations such as Catholic Charities to pay the state’s 5.3 percent sales tax. As you might guess, this has caused churches, particularly the Catholic Church, to go into hyperventiliation (see story here) with the Bishops of Kansas' four Catholic Dioceses warning that the provision will "seriously undermine the ability of religious groups to serve Kansas' most vulnerable citizens in these very difficult times."