Tax News & Views: Health Care Edition

Busy Season Tax Reminders

As the spring filing season is upon us, here is a list of tax compliance considerations. This is not a comprehensive list but provides some areas to consider (in no particular order) for the upcoming filing season.

Unrelated Business Income Siloing

In December 2020, IRS issued final regulations for the IRC section 512(a)(6) unrelated business taxable income rules regarding the tracking of income and losses for separate activities. The final regulations adopt many of the same provisions of the proposed regulations. The final regulations are effective for taxable years beginning on or after December 2, 2020, date of publication to federal register. Until the effective date of the final regulations, an organization may still rely on Notice 2018-67, the proposed regulations or a reasonable, good-faith interpretation of the statute. A summary of the final regulations can be found in Tax News & Views: Health Care Edition, Jan / Feb 2021.

Excise Tax on Executive Compensation

In January 2021, IRS issued final regulations for IRC section 4960, excise tax on excess executive compensation. The final regulations adopt similar provisions as the proposed regulations, which includes certain exceptions from consideration as a covered employee. Applicable tax-exempt organizations are required to track covered employees each year starting after December 31, 2016 and should maintain a list that identifies its covered employees for each and every year. The excise tax on executive compensation is paid on any compensation paid to a covered employee in excess of $1 million or on any excess parachute payment. The final regulations are applicable to taxable years that begin after December 31, 2021. Until such time, an organization may rely on Notice 2019-09, the proposed regulations or a reasonable, good-faith interpretation of the statute. A summary of the final regulations can be found in Tax News & Views: Health Care Edition, March 2021.

COVID Relief Tax Laws

Tax-exempt organizations may be impacted by numerous provisions that have been enacted in the various COVID relief tax laws that were included in the Coronavirus Aid, Relief and Economic Security Act (CARES Act), Consolidated Appropriations Act, 2021 (CAA 2021) and American Rescue Plan Act (ARP). These include provisions on the Payment Protection Program loans, Economic Injury Disaster Loans (EIDL), net operating loss carryback, enhanced charitable contribution deductions, and certain payroll tax implications such as Employee Retention Credit and deferral of payment of certain taxes. Tax-exempt organizations should analyze any impact from provisions within these laws. A Deloitte developed summary of provisions within the various laws can be found at the links below:

• CARES Act
• Consolidated Appropriations Act, 2021
• American Rescue Plan Act

Electronic Filing Requirements

The Taxpayers First Act, enacted on July 1, 2019, required tax- exempt organizations to electronically file certain tax returns for tax years beginning after July 1, 2019. Taxpayers with tax years ending on or after July 31, 2020 are required to electronically file their Form 990, or Form 990-PF. The IRS has also provided that the 2020 Form 990-Ts are required to be electronically filed (see Did You Know Article, below, for more details). Additionally, Forms 4720 (Return of Certain Excise Tax Under Chapters 41 and 42 of the Internal Revenue Code), Form 1024-A (Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue), Form 2848 (Power of Attorney and Declaration of Representative) and Form 8821 (Tax Information Authorization) are all migrating to be filed electronically. Organizations should evaluate software providers in order to comply with increasing electronic filing requirements. Additionally, organizations should consider any state unrelated business income electronic filing requirements, in addition to federal electronic filing requirements.

Net Operating Losses

The CARES Act provided a five-year carryback provision for Net Operating Losses arising from taxable years beginning after December 31, 2017 and before January 1, 2021. Additional clarifications in a chief counsel advice memorandum provided that a loss from an individual unrelated business income silo can be carried back to offset aggregate taxable income in years prior to the enactment of the unrelated business income siloing rules under IRC section 512(a)(6). Any losses generated from years when IRC section 512(a)(6) applies and are carried forward are required to remain in their individual siloes. Tax-exempt organizations should evaluate whether they may be able to carry back any Net Operating Losses to prior periods.

Did you know?

Electronic Filing of Form 990-T
The Internal Revenue Service provided an exempt organization update on the electronic filing of the Form 990-T, Exempt Organization Business Income Tax Return. Tax-exempt organizations that are required to file a 2020 Form 990-T with due dates on or after April 15, 2021 must file these forms electronically, and not on paper. A limited exception applied to paper filed 2020 Form 990-Ts that were postmarked on or before March 15, 2021. The IRS stated that it is still accepting paper copies of the 2019 Form 990-T.

TIGTA issues report on IRS examination on unrelated business income
The Treasury Inspector General for Tax Administration (“TIGTA”) released a report on March 1, 2021 on Internal Revenue Service examinations of unrelated business income issues for tax-exempt organizations. The review was part of the fiscal year 2021 Annual Audit Plan and covered the fiscal years 2016 through 2019. The TIGTA provided the following recommendations to the Tax-exempt/Government Entity Division of the IRS:

• Clarify the EO Examination functions’ guidance to require examiners to address UBI and include evidence of UBI identification efforts in the case files.
• Restore unrelated business income references to the Internal Revenue Manual to reinforce importance to exempt status of organization.
• Require that examiners request any missing Forms 990-T and inform taxpayers of potential risks if they do not comply with filing requirements of the Form 990-T.
• Evaluate claim threshold sent to the field to minimize the impact on limited resources and analyze case circumstances to prevent unnecessary cases.
• Include unrelated business income tax issues in future compliance projects to identify issues that prevent taxpayers from being compliant with reporting requirements.
• Update the desk guide to require experienced senior exempt organization classifiers to review claims involving a net operating loss prior to accepting the claim as filed and document the claim review in the case file.
• Implement safeguards to ensure the accuracy of the closing records system to avoid material errors that affects reports based on the closing record system.
• Replace Internal Revenue Manual sections that provide instructions on the Form 5599, TE/GE Examined Closing Record, and clarify differences on how examiners should complete this process for appealed examinations.

American Rescue Plan Act
President Biden signed the American Rescue Plan into law on March 11, 2021. A summary of the law can be found in Tax News and Views, March 10, 2021.

Additional Resources

Deloitte Center for Health Solutions
The source for health care insights: The Deloitte Center for Health Solutions (DCHS) is the research division of Deloitte’s Life Sciences and Health Care practice. The goal of DCHS is to inform stakeholders across the health care system about emerging trends, challenges, and opportunities.

Health Care Current
Weekly insights to keep you informed and ahead. This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

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