Nonprofit Law Prof Blog

Route 231, LLC v. Comm’r – 4th Circuit Affirms Allocation of 97% of Tax Credits Generated by Conservation Donations to 1% Partner Was Disguised Sale

In Route 231, LLC v. Comm'r, __ F.3d _ (4^th Cir. 2016), the 4^th Circuit affirmed that Tax Court’s holding that a partnership’s transfer to a 1% partner of 97% of state tax credits generated by donations of conservation easements and land was a taxable disguised sale under IRC § 707. The 1% partner had contributed $3.8 million to the partnership and the partnership had treated the transaction as a capital contribution followed by an allocation of tax credits to the 1% partner. As in Route 231, LLC v Comm'r, T.C. Memo. 2014-30, the 4^th Circuit found Virginia Historic Tax Credit Fund 2001 LP v. Comm'r, 639 F.3d 129 (4th Cir. 2011), to be on point and noted that IRC § 707 “prevents use of the partnership provisions to render nontaxable what would in substance have been a taxable exchange if it had not been ‘run through’ the partnership.” 

            The 4^th Circuit rejected the partnership’s attempt to distinguish Virginia Historic on the ground that Virginia Historic involved sham partnerships that ceased to exist as soon as the credits were transferred, while Route 231 was a valid partnership with economic substance and the 1% partner remained a bona fide partner in that partnership. The 4^th Circuit found that argument “misse[d] the mark” because IRC § 707 “applies by its plain terms to designated transactions between otherwise valid ongoing partnerships and their legitimate partners.” In other words, the disguised sales rules look to the bona fides of a particular transaction rather than the status of the participants to that transaction.

            The 4^th Circuit also affirmed the Tax Court’s holding that the disguised sale occurred in 2005 and, thus, the partnership had to report the $3.8 million as income on its 2005  federal tax return. The partnership sought to treat the $3.8 million as reportable income in 2006 because the IRS had not sought to have the income included on the partnership’s 2006 tax return and any changes to that return were barred by the statute of limitations. The 4^th Circuit found none of the partnership’s arguments on the applicable tax year to be meritorious. The court seemed to find particularly annoying that the partnership had made an affirmative representation on its 2005 federal tax return that it received the $3.8 million in 2005. In holding that the partnership was bound by its representation on its 2005 return, the court explained:

"'[T]he duty of consistency not only reflects basic fairness, but also shows a proper regard for the administration of justice and the dignity of the law. The law should not be such a[n] idiot that it cannot prevent a taxpayer from changing the historical facts from year to year in order to escape a fair share of the burdens of maintaining our government. Our tax system depends upon self assessment and honesty, rather than upon hiding of the pea or forgetful [equivocation].'" (citation omitted)

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law

Non-Profit Hospitals in New Jersey May be Required to Make Payments

Under legislation that has passed both the New Jersey House and Senate, nonprofit hospitals with certain for-profit operations would keep their property tax exemptions but would be required to pay their host municipality. The legislation requires a payment of $2.50 per day per bed or $250/day for satellite facilities. The legislation awaits Governor Christie’s signature, but it is not clear if he will sign. See the bill text here and here, and additional information from the New Jersey center on nonprofits here. This development follows a recent decision by the New Jersey tax court revoking property tax exemption for a non-profit hospital due to the many for-profit uses of the hospital’s property.

RC (hat tip, Evelyn Brody).

Request for Proposals - ACTEC Foundation 2017-2018 Academic Symposium

The Legal Education Committee of the American College of Trust and Estate Counsel requests proposals for a $20,000 grant to host an academic symposium on trust and estate law during the 2017-18 academic year.

The ACTEC Foundation Symposium is intended to be the premier academic symposium on trust and estate law in the United States. The goals of the symposium are to stimulate development of scholarly work in trust and estate law, bridge the gap between the academic community and practitioners, provide opportunities for junior academics to present papers and interact with more senior academics, provide an opportunity for trust and estate professors to interact with each other, involve academics from other disciplines in discussions of trust and estate topics, and strengthen ACTEC’s image as the leading organization for trust and estate lawyers, both practitioners and academics.

The grant associated with this RFP is contingent on approval by the ACTEC Foundation.

RFPs are due by Monday, May 2, 2016, and will be considered by the Symposium Subcommittee of the Legal Education Committee at ACTEC’s Summer Meeting in Boston in June 2016. Please submit RFPs (RFP content and guidelines are set forth below) to Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law, and Co-Chair, ACTEC Legal Education Committee, nancy.mclaughlin@law.utah.edu. Electronic submissions are welcomed (subject line of email should read “ACTEC Symposium RFP”)

I. RFP Content

The RFP should provide the following information.

A. Theme. The theme of the symposium should be related to trust and estate law, defined to include any topic related to the gratuitous transfer of property (e.g., probate law, trust law, elder law, transfer tax law). A broad theme permits a wide range of papers and is more likely to be successful. Past themes have included Trust Law in the 21^st Century (Cardozo 2005); Inheritance Law in the 21^st Century (UCLA 2008); Philanthropy Law in the 21^st Century (Chicago-Kent 2009); The Uniform Probate Code: Remaking of American Succession Law (Michigan 2011); and The Role of Federal Law in Private Wealth Transfer (Vanderbilt 2014). The theme of the most recent symposium, which took place at Boston College Law School in October 2015, was The Centennial of the Estate Tax: Perspectives and Recommendations (articles will be published in the Boston College Law Review May 2016 symposium edition).

In connection with identifying a theme for the symposium, the RFP should indicate the types of topics that might be presented. Actual topics may depend, in part, on paper proposals but it will be helpful for the RFP to illustrate the scope of the theme.

B. Host Law School and Faculty Member(s). The proposal should identify the law school that will host the symposium and one or two faculty members at the host school who agree to manage the logistics of the symposium. The faculty member(s) proposing the symposium will need to make all the arrangements with the law school, the law review or journal, and the speakers.

C. Publication. Symposium papers must be published so the exchange of ideas can be shared beyond those who are able to attend the symposium. An important part of the RFP is a commitment, to the extent possible, from a law review at the host school to publish the papers as a symposium issue. The law review can be either the primary journal or a secondary journal at the host law school. The Legal Education Committee is aware of the difficulty of obtaining a commitment from a journal board to publish papers in an issue that will be managed by another board and is open to whatever strategies may work.

II. Guidelines for the Symposium

The Legal Education Committee has developed guidelines for the symposia and the host faculty should plan to follow these guidelines, with discretion with respect to details. Guidelines regarding various aspects of the symposia will be provided to the grant recipient, but the key items the proposed host should be aware of before submitting an RFP are set forth below.

A. Call for Papers. After the host law school is selected, the faculty member managing the symposium will issue a call for papers. The faculty member may want to secure commitments for papers from a few speakers first, and the call for papers need not be for all papers, but the call for papers should be used to determine a substantial number of the presenters. The Legal Education Committee can assist in circulating the call for papers, to help make the process as wide a call as possible.

The faculty member managing the symposium, in consultation with the Symposium Subcommittee (consisting of several members of the Legal Education Committee), will choose the presenters based, in general, on the following criteria:

Connection to the theme  

Interesting, innovative research 

Importance of research 

Junior scholars/senior scholars/a mix  

Gender balance/diversity

In addition to the papers, a luncheon speaker and commentators should be selected. These presenters may, but need not, come from the group that submitted paper proposals. Depending on the theme and the topics of the papers, it may be appropriate to ask one or two practitioners to be commentators or the luncheon speaker.

B. Budget. The budget for past symposia has provided the speakers and commentators with travel (ground transportation to and from airports, air travel or mileage for driving, and hotel for one or two nights, as needed by the speaker). Speakers have been invited to a dinner Thursday evening and on Friday breakfast and lunch are provided to all attendees. Speakers have not been reimbursed for other expenses, such as meals en route to the symposium. There are some additional costs for publicity and materials (ACTEC helps with production and distribution of publicity).

The Foundation will transfer the grant to the host school, and the host school will be responsible for managing the grant, paying expenses for the symposium, and filing a report with the Foundation after the symposium. In the past, the grant has been sufficient to cover all expenses.

First 2016 Issue of Nonprofit Advocacy Matters Previews Challenges for Year

The first issue of 2016 of the National Council of Nonprofits’ Nonprofit Advocacy Matters previews legal and policy issues expected to take center stage in 2016.  Key topics include the expanding efforts to impose PILOTs by local governments, challenges to state charity property tax exemptions, pressures created by state fiscal weakness, regulations threatening the independence of the nonprofit sector in various ways, and reform of government-nonprofit contracting and grant-making. 

JRB

Don’t Let the Headlines Mislead You on the Reported Endorsement of Hillary Clinton by “Planned Parenthood”

Across the country this morning, millions awoke to news source headlines proclaiming that presidential hopeful Hillary Clinton is receiving the endorsement of “Planned Parenthood.”  The prime exhibit is the headline for the story appearing in today’s New York Times.  The print edition reads, “Planned Parenthood Gives First Primary Endorsement in Its 100 Years to Clinton,” and the online version of the Times story reads, “Planned Parenthood, in Its First Primary Endorsement, Backs Hillary Clinton.“ The story in the latter version opens with these words: “Planned Parenthood, which has become an ideological minefield in the 2016 presidential election, said Thursday that it would endorse Hillary Clinton — its first endorsement in a presidential primary in the nonprofit’s 100-year existence.”  Stories in some other major news sources lead with similar language. See, for example, the stories published by ABC News and CNN. 

Although its headline is also misleading, the story appearing in the Washington Post actually begins with what appears to be the accurate factual account: “The political arm of Planned Parenthood will endorse Hillary Clinton in New Hampshire on Sunday, a Clinton campaign official confirmed.”  And therein lies the critical distinction.   As the New York Times piece eventually reports, the endorsement is being “technically made through the nonprofit’s advocacy arm, the Planned Parenthood Action Fund.” 

“Technically made,” indeed.   As exempt organization lawyers are well aware, the identity of the entity that supports or opposes a United States presidential candidate matters greatly.  Planned Parenthood Federation of America, Inc. – the health care service-provider at the center of recent controversies over whether it should receive federal funds in the wake of allegations that it has profited from transactions in fetal tissue – is a tax-exempt charitable organization described in section 501(c)(3) of the Internal Revenue Code.  As such, to comply with the requirements for federal income tax exemption, Planned Parenthood must “not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”  Planned Parenthood’s political affiliate is not bound by the section 501(c)(3) limitations.

The reporting of the Clinton endorsement highlights the degree to which, in the minds of many, including journalists, these rules are just “technical” distinctions.  But the distinctions are of enormous importance.  Consider the pastor of a local church who wants to express a political voice on politics.  The pastor is free to do so in appropriate contexts, without having his viewpoint attributed to the legal entity which is the church.  Cecile Richards may do the same, individually or on behalf of a political action organization, without having her statements attributed to the charity.

Of course, the reporting of the Clinton endorsement raises the issue that the Planned Parenthood brand is now being used to influence a presidential election, reportedly the first time it has ever been so employed during the primary election stage.  The manner in which major media outlets are reporting the endorsement tends to magnify the impact of this brand on the endorsement itself.  But a similar point may be made whenever a prominent personality associated with a tax-exempt charity endorses or opposes a candidate.  Such a person is free under current law to identify herself by reference to her position with the charity, as long as she is not speaking on behalf of the charity.  In each case, a charity’s reputational capital has to some extent been appropriated, either by referring to the charity’s name, or by using a similar-sounding name.

JRB

IRS Withdraws Controversial Proposed Regulations on Reporting Donations and Donor Identity Information

Accounting Today reports that the Internal Revenue Service has withdrawn its proposed regulations permitting charitable donees to substantiate contributions of $250 or more by reporting them directly to the agency under section 170(f)(8)(D) of the Internal Revenue Code.  The proposed regulations proved controversial because the optional method for reporting donations called for disclosing donors’ taxpayer identification numbers (which typically are their social security numbers).  The notice of withdrawal is available here.

Additional Coverage: The Chronicle of Philanthropy

JRB

National Taxpayer Advocate Report Criticizes Form 1023-EZ Review by IRS

National Taxpayer Advocate Nina Olson has submitted her 2015 Annual Report to Congress, required by section 7803(c)(2)(B)(ii) of the Internal Revenue Code.  One section of the report (see pages 36-44) scathingly criticizes the review of Forms 1023-EZ  (or lack thereof) by the Internal Revenue Service.  The following paragraph from the Executive Summary of the report details key findings:

TE/GE’s Exempt Organization (EO) function approves 95 percent of applications submitted on Form 1023-EZ. EO’s own pre-determination review program shows that EO approves applications much less frequently — 77 percent of the time — when it reviews documents or basic information from the applicants, rather than relying only on the attestations contained in the form. EO rejects some applications simply because the applicant was not eligible to use Form 1023-EZ, but the pre-determination review also showed that almost 20 percent of Form 1023-EZ applicants, despite their attestations to the contrary, did not qualify for exempt status as a matter of law. These results are consistent with TAS’s analysis of a representative sample of Form 1023-EZ applicants that obtained exempt status, which showed that 37 percent of the organizations in the sample did not satisfy the legal requirements for exempt status. Often, a deficiency in the applicant’s organizing documents that prevented qualification as an Internal Revenue Code § 501(c)(3) organization could have easily been corrected had the applicant been advised of it.

The report recommends revising Form 1023-EZ generally to require applicants to submit to the IRS their organizing documents, a description of their actual or contemplated activities, and relevant financial information.  The report further urges the IRS to determine exempt status only after reviewing the application and the recommended supporting materials.

Additional Coverage: Tax Notes Today (Electronic Cite: 2016 TNT 4-6)

JRB

Illinois Appellate Court Declares Hospital Tax Exemption Law Unconstitutional

As many of you may recall, in March 2010 the Illinois Supreme Court upheld a ruling by the Illinois Department of Revenue denying a charitable property tax exemption to what was then Provena Covenant Hospital in Urbana, IL (now Presence hospital).   For prior blog posts about that decision, see here and here.   After the court decision, the Illinois Legislature in 2012 enacted a new statute to define eligibility for charitable property tax exemption (for a blog post about that statute, see here).  In essence, this new statute permitted hospitals to get a tax exemption if the amount they spent on specified community benefits (such as charity care for the uninsured, although the list of qualifying expenditures was very broad) at least equaled the value of the tax exemption.

The city of Urbana, where another large nonprofit hospital (Carle Hospital) is located, however, was not happy with the statutory fix, which would have resulted in their losing over $1 million a year in tax revenue from Carle's exempt status.  Urbana and other local taxing districts affected by the new law challenged it in court, and today (Wednesday, January 6) the Illinois 4th District Court of Appeals held the new statute unconstitutional on its face.  You can find the opinion here.

The Illinois Supreme Court previously had smacked down the Legislature for expanding the definition of charity for property tax exemption purposes in Eden Retirement Center v. Department of Revenue.  The court's view is that the outer limits of charitable exemption are set by the Illinois Constitution; accordingly, the Legislature can narrow the definition of charity for tax purposes, but it cannot enlarge that definition beyond what the courts have established as the constitutional requirements for charitable exemption.  Or put another way, what is "charitable" for Illinois property tax purposes is ultimately a matter for the Illinois Supreme Court to decide, not the legislature.

The 4th District found that the new hospital exemption statute went beyond the constitutional limits on exemption.   Specifically, the Illinois Supreme Court previously had held that the constitution requires that exempt property be used "primarily" for charitable purposes.  But the hospital exemption statute did not require exempt property to meet the "primary use" requirement.   Indeed, the statute permitted a hospital to keep its exemption by simply paying another recognized charity an amount equal to the value of the hospital's exemption.   As the court noted, in essence this permitted a hospital to "buy" exempt status without regard to the charitable use of the hospital's own property.  And since charitable use is a constitutional requirement, this approach made the statute unconstitutional on its face.

At the time the statute was passed, I had serious questions about its constitutionality.   Although the court's analysis took a different tack than my own, it seems those concerns were justified.  This case, however, is clearly headed to the Illinois Supreme Court.  It will be very interesting to see whether the court delivers yet another smackdown to the Illinois Legislature, which is pretty much batting .000 on recent major legislation (its pension "reform" law having been declared unconstitutional in a strongly-worded opinion by the Illinois Supreme Court last year).

In the meantime, the appellate opinion isn't going to have much effect, I suspect.  It may result in a "hold" on processing a few hospital exemption applications or renewals pending the inevitable appeal (I can't imagine that this case won't be heard by the Illinois Supreme Court), but it is likely that everyone - both taxing districts and hospitals - will simply operate under the current status quo until the matter is finally resolved.  If the Illinois Supreme Court upholds the appellate opinion, however, then things are going to get very, very interesting for nonprofit hospitals in Illinois, many of whom may face loss of exemption as a result.

John Colombo

 

IRS Concludes Church Audit Procedures Apply to Employment Tax Inquiries

In Memorandum SBSE-04-1215-0085, the Small Business/Self-Employed Division of the IRS has determined that the church audit procedures set forth in section 7611 of the Internal Revenue Code apply to church employment tax inquiries.  Under Code section 7611, the IRS may begin a church tax inquiry only by satisfying statutory “reasonable belief requirements” and “notice requirements.” 

The former is satisfied “if an appropriate high-level Treasury official reasonably believes (on the basis of facts and circumstances recorded in writing) that the church … may not be exempt, by reason of its status as a church, from tax under section 501(a), or … may be carrying on an unrelated trade or business (within the meaning of section 513) or otherwise engaged in activities subject to taxation ….”  

The latter is satisfied “if, before beginning such inquiry, the Secretary [of the Treasury] provides written notice to the church of the beginning of such inquiry.” The notice must explain “the concerns which gave rise to such inquiry,” “the general subject matter of such inquiry,” and “the applicable … administrative and constitutional provisions with respect to such inquiry (including the right to a conference with the Secretary before any examination of church records), and … provisions of this title which authorize such inquiry or which may be otherwise involved in such inquiry.” 

Code section 7611 also restricts the scope of church examinations and limits the period for conducting them.

Prior to the guidance in the recent memorandum, IRS examiners were instructed that Code section 7611 audit procedures do not apply to employment tax inquiries.  But now examiners are instructed as follows:

Examiners should not initiate any examinations on a church. If for some reason an employment tax examiner encounters a church employment tax issue, the examiner should immediately contact the Program Manager, Exam, Programs and Review (EPR) in TE/GE Exempt Organizations Examinations.

This new guidance is effective upon issuance (12/17/2015).

JRB

Former Field Museum Employee Enters Embezzlement Plea

The Chicago Tribune reports that Caryn Benson, a former data records supervisor for Chicago’s Field Museum, has admitted in federal court to embezzling in excess of $400,000 from the Museum.  In the plea agreement that she has entered, Benson admits to having embezzled approximately $33,014 of the Museum’s funds in 2014, as well as $376,986 in funds between June 2003 and January 1, 2014.  The government contends that the total amount embezzled exceeds $900,000.  For purposes of sentencing, the plea agreement provides that “[e]ach party is free to present evidence and argument to the Court on this issue [i.e., the actual amount embezzled]” and that the defendant will pay restitution in an amount ultimately determined by the court.  

 

According to the Tribune piece, Chief Marketing Officer for the Museum, Ray DeThorne, believes that $903,000 was embezzled, an amount “confirmed in the Field’s own audit and in one conducted by the museum’s insurance company before it made restitution to the museum, less a $10,000 deductible.”  DeThorne is also quoted as saying that the Museum “has since put into place much stricter oversight over cash transactions.”  

 

JRB

Gemperle v. Comm’r—Tax Court Denies Deduction for Façade Easement Donation for Failure to Include Appraisal In Tax Return Filing

In Gemperle v. Comm’r, T.C. Memo. 2016-1, the Tax Court sustained the IRS’s disallowance of deductions claimed with regard to the donation of a façade easement because the taxpayers, a married couple who represented themselves in Tax Court, failed to include a qualified appraisal of the easement with the return they filed for the year of the contribution. The court also held that the taxpayers were liable for 20% penalties for disregard of rules and regulations or, alternatively, 40% penalties for making gross valuation misstatements on their jointly filed income tax returns.

Background

In 2007, the Gemperles granted a façade easement on their historic residence in the Lakewood/Balmoral neighborhood of Chicago to the Landmarks Preservation Council of Illinois (Landmarks). The house, which was built in 1898, is located in a registered historic district and listed on the National Register of Historic Places. The taxpayers obtained an appraisal of the easement from an appraiser included on a list of appraisers Landmarks furnished. The appraiser estimated that the easement had a value of $108,000 and the taxpayers claimed deductions in that amount on their 2007 and 2008 income tax returns. The taxpayers also made a cash contribution to Landmarks of $10,800 (10% of the estimated value of the easement).

The IRS challenged the deductions claimed with regard to the easement donation, arguing, among other things, that:

(i) the taxpayers' appraisal was not a “qualified appraisal” as required by IRC § 170(f)(11)(A) and (C);

(ii) the façade easement was not “granted in perpetuity” and its conservation purpose was not “protected in perpetuity” as required by IRC §§ 170(h)(2)(C) and 170(h)(5)(A);

(iii) the taxpayers failed to include a completed “appraisal summary” (IRS Form 8283) with their 2007 return as required by Treas. Reg. § 1.170A-13(c)(2)(i)(B) and (4);

(iv) the taxpayers failed to include a copy of a qualified appraisal or photographs of the house with their 2007 return as required by IRC § 170(h)(4)(B)(iii); and

(v) the taxpayers failed to prove that the façade easement reduced the value of their residence by $108,000.

Because the Tax Court found that the taxpayers failed to include a copy of a qualified appraisal with their 2007 return, and that omission was fatal to the claimed deductions, it did not address the IRS’s alternative grounds for denying the deductions.

In 2006, in response to reports of abuse, Congress added new requirements to § 170(h) with regard to donations of façade easements on buildings located in registered historic districts, including the requirements that the full qualified appraisal and photographs of the entire exterior of the building must be filed with the return filed for the year of the contribution.

Penalties

The Tax Court found the Gemperles liable for 20% penalties for “disregard of rules or regulations” under IRC § 6662(a) and (b)(1), explaining that the requirement that the full qualified appraisal be included with the tax return filed for the year of the contribution is stated not only in the Internal Revenue Code but also in the instructions for the IRS Form 8283. The court explained that the Form 8283 “itself warned [the taxpayers] that an appraisal is generally required for donated property over $5,000 and directed them to the Form 8283 instructions,” and “[the taxpayers] were at least careless, if not reckless, in ignoring the warning that an appraisal was required.” The taxpayers also failed to qualify for the reasonable clause exception (IRC § 6664(c)(1)) or the exception for adequate disclosure of a position contrary to a rule or regulation (Treas. Reg. § 1.6662-3(a)).

The Tax Court further found that the Gemperles were, in the alternative, liable for 40% penalties under IRC § 6662(h) for making gross valuation misstatements on their 2007 and 2008 returns with regard to the easement. The gross valuation misstatement penalty is imposed if the value asserted on a return is more than 200% of the value determined by the court to be the correct value. The IRS offered expert testimony that the easement had a value of between $0 and $35,000, while the Gemperles failed to provide expert testimony that the value of the easement was greater than $35,000 (the Gemperles failed to make their “alleged qualified appraiser” available for cross-examination and the Tax Court thus found her appraisals to be inadmissible hearsay evidence). Accordingly, the Tax Court accepted $35,000 as the "correct" value of the easement for purposes of determining liability for the gross valuation misstatement penalty, and since the $108,000 value the Gemperles claimed for the easement on their 2007 and 2008 returns was more than two times (200% of) $35,000, the Gemperles were liable for the penalty with regard to both returns.

The gross valuation misstatement penalty is a strict liability penalty (no reasonable cause exception applies) with regard to façade easement deductions claimed on returns filed after July 25, 2006.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law

NJ Bill Would Maintain Property Tax Exemption of Nonprofit Hospitals

The Philadelphia Inquirer reports that a bill passed by the Budget Committee of the New Jersey Senate and referred to the State and Local Government Committee of the New Jersey General Assembly would maintain property tax exemption for New Jersey nonprofit hospitals – for a price.  Says the story:

The bill comes in response to a June tax court ruling that found that Morristown Medical Center in Morris County failed to qualify for the exemption from tax years 2006 to 2008.

The court found that the nonprofit hospital "operated and used its property for a profit-making purpose," violating a legal standard used to determine whether it owed property taxes.

For example, in addition to employing its own physicians, Morristown Medical Center contracted with for-profit doctors that used the hospital's facilities and who directly charged patients. The court said it was impossible to delineate between the hospital's nonprofit and for-profit operations.

The property tax exemption for nonprofit hospitals granted by the bill reportedly would extend to hospitals with on-site for-profit medical providers.  But there is a catch.  According to the Inquirer, the bill would also generally require hospitals to pay an annual community service fee to local governments:

[Nonprofit hospitals would] also pay an annual community fee, most of which would go to municipalities and 5 percent to counties. Acute care hospitals would pay $2.50 per day for each licensed bed, while satellite emergency care facilities would pay $250 per day.

The fees could generate up to $21 million for municipalities and counties by one estimate.  The bill is reported to limit the use of this revenue for “public safety or to reduce municipal and county property taxes.”

JRB