Friday, August 16, 2019
My research assistants scour many sources to find information of relevance to those who study and practice nonprofit and nonprofit tax law. I usually discard items that, IMHO, have no validity and therefore do not edify the conversation. But some assertions are so terribly wrong as to be instructive. And when those conversations appear in otherwise reputable and usually informative venue, I draw attention to the conversation if only to make a different point. And since Fridays are usually the slowest day, its also the best day to step back and ruminate. So anyway, Forbes Magazine published a piece yesterday entitled "Equal Treatment Under the Law: Isn't it Time For Fairness". The gist of the op/ed piece is that if nonprofit hospitals get tax exemption [loosely] based on the provision of indigent care, so too should physicians when they render uncompensated services for indigent patients (the subsidiary assertion is that many physicians don't bother submitting bills to Medicare administrators because the medicare rates are just not worth the administrative hassle. The penultimate complaint is that so long as nonprofit hospitals are tax exempt, physicians who provide pro bono services should receive [an apparently] similar tax benefit.
Countless physicians have contributed billions of dollars of uncompensated care over their careers and still do. One physician estimated recently that he had “written off over $8 million of free care to the uninsured” over his 26-year career – but he is “still liable” for the results of those free treatments. Where is the tax break for him or his countless other physician colleagues who give or have given free care? A number of physicians over the years have told us that they see Medicaid patients but never submit a bill. “The payment isn’t worth the paperwork, etc,” is the common refrain. If non-profit hospitals can receive substantial tax breaks despite making huge profits, why can’t all physicians (at least those in solo or small practices) be eligible for the same? After all, they need it far more than those billion-dollar non-profit hospitals and it would help sustain many marginally sustainable practices. More physician resources mean better patient care and more face/contact time with their chosen physicians. That works for everybody!
This is a Forbes piece, don't forget. I hardly know where to begin. First, there is the general proposition that the charitable contribution is generally not available for the value of services contributed to individuals (or even organizations contributions to which are deductible). Second, and more fundamentally is that a tax deduction -- at least in high theory -- is based on income having been taxed to a recipient who then uses the income in a tax favored manner indicating the income was not used for personal consumption. In other words, income that was initially taxed on the premise it would be used for personal consumption is backed out of the taxpayer's tax based when the assumption proves false. Of course, theory and practice are not identical. For many reasons beside high theory, deductions are allowed for certain spending that results in personal consumption.
Anyway, the physicians -- no more than attorneys who engage in pro bono services -- should not get a deduction for uncompensated services precisely because there was no proper antecedent. No income from the transaction was ever taxed (under the assumption it would be used for future personal consumption) and so no deduction is warranted based on the antecedent assumption having been proven false. Now, there might be a different argument is the writer is just complaining that the donation of services ought to generate a charitable contribution. That might be a good argument to have, setting aside administrative burdens of compliance. But I am surprised that Forbes would have printed a piece so at odds with tax common sense.
Darryll K. Jones