Thursday, August 12, 2010
The District 1 Court of Appeals of Wisconsin just released an opinion denying a property tax exemption to an outpatient clinic run by a subsidiary hospital of Covenant Healthcare, the same entity that owns Provena Covenant Hospital in Illinois. Provena, as readers may recall, had its exempt status revoked by the Illinois Department of Revenue, an action recently upheld by the Illinois Supreme Court (see prior blog posts here and here). It appears Covenant has taken it on the chin again.
The Wisconsin case, however, was not based on lack of charity care. Instead, the Wisconsin appeals court held that the outpatient clinic essentially was nothing more than a building housing doctors' offices, which under Wisconsin law cannot be exempt. Wisconsin Statutes § 70.11(4m), provides an exemption from property taxes for nonprofit hospitals, but specifically excludes doctors offices:
NONPROFIT HOSPITALS. (a) Real property owned and used and personal property used exclusively for the purposes of any hospital of 10 beds or more devoted primarily to the diagnosis, treatment or care of the sick, injured, or disabled, which hospital is owned and operated by a corporation, ... no part of the net earnings of which inures to the benefit of any shareholder, member, director or officer, and which hospital is not operated principally for the benefit of or principally as an adjunct of the private practice of a doctor or group of doctors. This exemption does not apply to property used for commercial purposes, as a health and fitness center or as a doctor’s office.
According to the court, the clinic at issue "(1) did not provide inpatient services; (2) provided the doctors with a space to do paperwork; and (3) saw most patients by appointment, during business hours." That led the court to conclude that the clinic was used as a doctors' office, not an extension of a hospital.
Though the opinion is based on a unique state law, it follows the recent trend of state departments of revenue and at least some state courts (e.g., Illinois) in getting tougher on tax exemptions for nonprofit healthcare organizations. Given the current economic climate and resulting financial pressures on states and local communities, I suspect we'll see more of this trend in the near future.
Wednesday, August 11, 2010
From the IRS EO Update:
"The IRS will offer its popular workshop for Small and Mid-Sized Organizations in cooperation with Lawrence Technological University in Southfield, MI (Detroit) on September 22 and 23, 2010.
Each one-day workshop, presented by experienced Exempt Organizations specialists, will explain what 501(c)(3) organizations must do to keep their tax-exempt status and comply with tax obligations.
Workshops will also be offered in Raleigh, NC (October 19) and Wilmington (October 20) in cooperation with a consortium of North Carolina academic institutions." For more information, see the IRS Calendar of Events.
Tuesday, August 10, 2010
This story from the San Francisco Chronicle notes that one of the largest single contributions to the campaign for a November ballot measure to suspend California's greenhouse gas reduction law, some $498,000, has come from an obscure, Missouri-based conservative organization that ended 2009 with just $109. The head of the Adam Smith Foundation, which states its purpose is to promote "conservative principles and individual liberties in Missouri," said that aggressively limiting greenhouse gas emission regulations in California could eventually push Congress to take similar actions. According to the story, the organization's head, John Elliott "would not disclose the names of the people who gave his foundation the money to make the campaign contribution. He said the money came from about 10 individuals and described them as 'an alliance of like-minded individuals who had this issue as an interest.' He said the money did not come from a corporation or an industry group.
OK. So is all this legal from a tax perspective?
Well, probably. 501(c)(4) organizations, or "social welfare" organizations as those of us who practice in or write about the area call them, differ from 501(c)(3) charities. The main difference is this: charities under 501(c)(3) can get tax-deductible contributions; 501(c)(4)'s cannot. Perhaps as a result of the deductibility of contributions to 501(c)(3)'s, those organizations are subject to limits on how much lobbying they can engage in (the statute says that "no substantial part" of a (c)(3)'s activities can be lobbying; while the this test is itself fuzzy, I'd be pretty comfortable saying that an organization whose major activity over the past 4 years was providing half a million dollars to win a ballot proposition has a "substantial part" of its activities in the lobbying arena).
But (c)(4)'s are not subject to the same restriction. The IRS tells us that "To be tax-exempt as a social welfare organization described in Internal Revenue Code (IRC) section 501(c)(4), an organization must not be organized for profit and must be operated exclusively to promote social welfare. . . .
The SF Chronicle story indicates that opponents of Prop 23 have asked the Justice Department to investigate the matter; well, OK - but it seems pretty clear to me that the Adam Smith Foundation is square with the tax laws.
Monday, August 9, 2010
Everyone has read the stories about thousands of small exempt organizations that could lose exempt status because of the failure to file a Form 990 (or more likely, the Electronic Notice Form 990-N or E-Postcard, which literally asks for only 8 items of information from charities with gross receipts of $25,000 or less). The IRS has announced a program that gives these organizations one last chance to file, until October 15, 2010. The IRS also posted a list of the names and last know address of the organizations in danger of losing exemption because of their failure to file.
The filing requirement was part of the 2006 Pension Protection Act; prior to the PPA, small exempt organizations (e.g., those with annual gross receipts of $25,000 or less) were not required to file any kind of tax return. The PPA included a provision requiring even these small exempt organizations to provide what I call a "notice of existence" to the IRS (the E-Postcard); if an organization fails to file its required return for three consecutive years, it will automatically lose its exempt status.