Tax News & Views: Health Care Edition

Fiscal Year 2024 Budget Blueprint Released

On March 9, 2023, the Treasury Department released the General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals (“Green Book”), which provides the Treasury Department’s explanations of the revenue provisions in the President’s budget blueprint proposal (“budget blueprint”). The Green Book addresses tax increases targeting multinational corporations and other large businesses, the fossil fuel industry, and high-income and high-net worth individuals that was proposed in previous budget packages to pay for tax relief for lower- and middle-class individuals and an array of spending priorities, help ensure the solvency of Social Security and Medicare, and reduce the deficit.

The Green Book included many tax provisions that could impact tax-exempt organizations and/or their affiliate organizations, including a couple of interest noted here:

• Corporate rate increase: The budget blueprint again includes an increase in the corporate tax rate from 21 percent to 28 percent, but notably would make this increase retroactive to taxable years beginning after December 31, 2022.
• Private foundation issues: The budget blueprint also renews proposals from last year that would limit the use of donor advised funds to avoid a private foundation payout and a new provision that would exclude payments to disqualified persons from counting toward the private foundation payout requirement.
• Economic and community development provisions: Green Book includes various provisions aimed at revitalizing economically distressed communities, including a provision to make the new markets tax credit permanent. The new markets tax credit was last extended by the Consolidated Appropriations Act, 2021 (P.L. 116-260) at $5 billion each calendar year 2020 through 2025. The administration’s proposal would extend the credit permanently with a new allocation for each calendar year after 2025 at $5 billion, indexed for inflation after 2026.

It is important to note that the Green Book is not proposed or actual legislation, and it is uncertain at this time how likely it is that any of the specific provisions may be enacted, especially give the disparate tax legislative agendas of Democrats and Republicans in Congress.

Tax-Year 2022 Forms & Instructions Released

Tax-exempt organization tax forms and instructions are now available for tax-year 2022, including:

• Form 990, Return of Organization Exempt From Income Tax, and corresponding Schedules A-R;
• Form 990-EZ, Short Form Return of Organization Exempt From Income Tax;
• Form 990-PF, Return of Private Foundation;
• Form 990-T, Exempt Organization Business Income Tax Return, and Schedule A, Unrelated Business Taxable Income From an Unrelated Trade or Business; and
• Form 4720, Return of Certain Excise Taxes.

On the whole, the 2022 forms are very similar to the 2021 forms, though all include some relatively minor changes to formatting. The ‘What’s New’ section of the instructions for each tax form highlights new updates that may affect the reporting on each form for the tax year.

The Form 990-T and instructions had a couple updates of note. First, Form 990-T, Page 1, Item G has been updated with a checkbox for state colleges and universities that are not also recognized as exempt under section 501(c)(3). Additionally, the North American Industrial Classification System (NAICS) updates its business activity codes every 5 years, with the most recent update taking effect for 2022. Tax-exempt organizations filing Form 990-T should use the 2022 NAICS codes for applying the UBI siloing provisions under Internal Revenue Code (“IRC”) section 512(a)(6).

Form 4720 instructions added some additional sections to clarify reporting on the Form 4720 for certain taxpayers. Notably, the Form 4720 instructions are updated to provide clarity for persons required to file Form 4720 to report their ratable share of the section 4960 excise tax on excess executive compensation (reported on Form 4720, Part I) in the same year they are a disqualified person or organization manager who must report and pay an excise tax under IRC Chapters 41 or 42 with respect to the same organization. In that case, persons are required to file separate Forms 4720  –  one to report the ratable share of excess executive compensation on Form 4720, Part I, and a second Form 4720 to report any excise taxes under Chapters 41 or 42 reported on Form 4720, Part II (e.g. self- dealing excise tax). The Form 4720 instructions also now explicitly state that organizations filing Form 4720 to report activity or transactions on Schedule A (self-dealing transactions under section 4941), Schedule I (excess benefit transactions under section 4958), or Schedule L (prohibited benefits distributed by donor advised funds under section 4967), should leave Form 4720, Part I, Lines 1-14 blank and enter a zero on line 15 and the organization should not make any entries in Form 4720, Part II. This should help ensure that Forms 4720 are appropriately processed by the IRS upon receipt.

Final Regulations on Electronic Filing Requirements

The Internal Revenue Service and Treasury Department issued final regulations (T.D. 9972) on electronic filing of various tax forms, effective February 23, 2023. These final regulations incorporate the updates to e-File requirements made by the Taxpayer First Act and apply for returns required to be filed in 2024 for taxable years ending on or after December 31, 2023. Under these final regulations and the Taxpayer First Act, most tax-exempt organization returns are required to be electronically filed. The Taxpayer First Act, enacted on July 1, 2019, requires tax-exempt organizations to electronically file certain tax returns for tax years beginning after July 1, 2019. Forms 990, 990-PF, 990-EZ, and 990-T are required to be filed electronically for all filers. For Form 4720, electronic filing is required for private foundations. However, taxpayers other than private foundations may not be required to e-File Form 4720. Section 301.6011-12 of the final regulations indicate that for taxpayers other than private foundations, Form 4720 must be e-Filed if the taxpayer filing Form 4720 is required to file at least 10 returns (e.g. information returns, income tax returns, employment tax returns, excise tax returns) during the calendar year. Such taxpayers may avail certain exclusions detailed in the regulations and the Commissioner has the ability to exempt these returns from the e-File requirements through certain measures if desired.

Organizations should continue to evaluate software providers in order to comply with the electronic filing requirements. In addition to the federal electronic filing requirements, organizations should consider any state unrelated business income return electronic filing requirements.

Announcement 2021-18 Effective for Tax Year 2022 for Reporting compensation paid to management companies on Form 990 series annual returns

IRS Announcement 2021-18, issued in 2021, revokes Announcement 2001-33 that provided tax-exempt organizations with reasonable cause for purposes of relief from the penalty imposed under § 6652(c)(1)(A)(ii) of the Internal Revenue Code if they reported compensation on their annual information returns in the manner described in Announcement 2001-33 instead of in accordance with Form 990 series instructions and is now effective for taxable years beginning on or after January 1, 2022. Announcement 2001- 33 allowed tax-exempt organizations that pay a management company directly for services provided by an officer, director, trustee, or key employee to report the amount paid directly to the management company on their annual tax return instead of reporting the compensation paid to each officer, director, trustee, or key employee who performed the services for the tax-exempt organization. The new Announcement 2021-18 instructs affected tax-exempt organizations to follow the specific instructions to the Form 990, Form 990-EZ, and Form 990-PF and asserts that having all tax-exempt organizations report compensation in accordance with the specific Form 990 series instructions will improve transparency and compliance by making it easier for the public and the IRS to understand financial operations, including compensation arrangements. This update is highlighted in the ‘What’s New’ section of the 990-series tax-year 2022 forms.

Did you know?

New IRS Technical Guide on Tax Exemption
The IRS periodically releases Exempt Organizations Technical Guides (TG) which offer technical information to help IRS agents work cases involving specific types of exempt organizations, but these guides also provide insight for exempt organizations as well. The IRS recently published TG 3-3 Exempt Purpose, Charitable IRC 501(c)(3), revised March 17, 2023.

Proposed Legislation For Charitable Giving
We continue to see various legislation proposed from Congress around charitable giving. While unclear if such proposed legislation will become law, supporters of such legislation generally argue the bills would incentivize charitable giving and support communities who need assistance. Examples of recent proposed legislation include:

• The Charitable Act (S.566), introduced in the Senate on February 23, 2023, if passed would modify and extend the deduction for charitable contributions for individuals not itemizing deduction for tax years beginning after December 31, 2022.
• The VSO Equal Tax Treatment (VETT) Act (H.R. 1432; S. 677), introduced in the House & Senate on March 7, 2023, if passed would provide for the deductibility of certain charitable contributions to certain organizations for members of the Armed Forces.

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 Forward blog
Connect to the forces of change across life sciences and health care today. Explore our latest leadership insights to stay ahead of industry trends and key issues on health care, medtech, and biopharma.

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