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Tax News & Views: Health Care Edition
August 2020 | Vol. 12 No. 72
Tax News & Views: Health Care Edition is a timely news summary bulletin authored by the Health Care Industry Group, Deloitte Tax LLP. The newsletter contains highlights from the latest tax developments in health care on Capitol Hill, at the White House, at the Internal Revenue Service, at the Treasury Department and in the courts. It is a valuable resource for tax and other professionals involved in the tax-exempt health care providers and health plans sectors, helping them remain current on tax developments that stand to have an impact on their businesses.
- IRS releases Chief Council Advice for several Unrelated Business Income Provisions
- Employee Retention Credit FAQs
- Did you know?
- Additional Resources
- Subscribe and Archives
IRS releases Chief Council Advice for several Unrelated Business Income Provisions
The Internal Revenue Service (“IRS”) posted two Chief Counsel Advice Memorandums on the calculations of unrelated business taxable income. Memorandum AM 2020-008 describes a tax-exempt organizations ability to carryback net operating losses (“NOL”) as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provides that any NOL generated in a taxable year beginning after December 31, 2017, and before January 1, 2021 (“CARES Act NOL”) may be carried back to the five preceding taxable years. For the calculation of unrelated business taxable income in taxable years beginning after December 31, 2017, IRC section 512(a)(6) requires an exempt organization with more than one unrelated trade or business to calculate its NOL separately for each separate trade or business (the so-called UBI siloing rules). Therefore, there may be net operating losses generated during the time period that is governed by UBI siloing rules and carried back into years that UBI siloing rules do not apply.
An exempt organization with CARES Act NOLs can carry back these NOLs against the aggregate UBTI in a taxable year beginning before January 1, 2018. A tax-exempt organization may carry back NOLs for any silo that generates a loss and the organization does not need to have an aggregate NOL in order to carry back a NOL. For example, a calendar year exempt organization had two unrelated trades or businesses (Silo A and B). In 2019, Silo A had income of $100,000 and Silo B had a loss of $50,000. The $50,000 of loss from Silo B, can be carried back to a pre-2018 tax year.
For years beginning after December 31, 2017, the use of any remaining CARES Act NOLs after carry back must continue to be siloed and cannot be used to offset income from other silos. For example, a calendar year exempt organization had two trades or businesses (Silo A and B). In 2018, Silo A had income of $100,000 and Silo B had a loss of $50,000. Tax Year 2017 was the first year the organization had unrelated business income and it had net income of $40,000. The $50,000 of 2018 NOL carryback from Silo B can fully offset the $40,000 of income from 2017. The remaining $10,000 of NOL is limited to offset any future income from Silo B in tax years 2019 and later.
The IRS also released chief counsel advice memorandum on whether charitable contributions under IRC section 170 are allowed as a deduction against unrelated business income, or if these deductions should be disallowed. The IRS stated that the charitable contribution deduction should not be disallowed since the charitable contribution deduction is not allocable to tax-exempt income but arises from the charitable intent of the donor to voluntarily transfer money or property without receiving any benefit in return.
Employee Retention Credit FAQs
The IRS updated FAQs for the Employee Retention Credit on the eligibility of the credit for certain tax-exempt organizations. FAQ #34 was updated to provide an example of a hospital organization that was deemed as an essential business. Within this example, a government order was issued to allow for emergency department, intensive care, and other services for conditions requiring urgent medical care, but elective and non-urgent medical care was not deemed to be an essential business. The suspension of the business for non-urgent and elective care, is a partial suspension due to a government order. The organization is therefore eligible for the Employee Retention Credit due to this partial suspension.
The IRS also updated FAQ #46 to provide that all gross receipts of a tax-exempt organization are included to determine a significant decline in gross receipts. This includes both exempt function revenues and unrelated business revenues. The total gross receipts of a tax-exempt organization are considered when determining whether the 2020 gross receipts are less than 50 percent of the gross receipts from the same calendar quarter in 2019.
Did you know?
FAQ released on Provider Relief Fund Payments
The IRS released two FAQs on Taxation of Provider Relief Payments. The CARES Act, the Paycheck Protection Program and Health Care Enhancement Act appropriated a combined $175 billion for a Provider Relief Fund. The FAQs stated that these payments do not qualify as disaster relief payments under IRC section 139 and are includible in gross income under IRC section 61. The FAQ also stated that the funds are generally exempt from federal income tax under IRC section 501(a). However, the payment may be subject to unrelated business income tax if the payment reimburses the provider for expenses or lost revenue attributable to an unrelated trade or business.
Extension of Community Health Needs Assessment Requirements
The Internal Revenue Service published Notice 2020-56, which provides an extension of time to conduct Community Health Needs Assessment requirements. The Notice extends deadline to December 31, 2020 for hospitals to conduct a community health needs assessment or adopt an implementation strategy that were due to be completed on or after April 1, 2020 and before December 31, 2020. This is a further postponement from Notice 2020-23 that postponed Community Health Needs Assessment requirements until July 15, 2020.
IRS releases Exempt Organization Newsletter
The IRS released an electronic newsletter with updates for exempt organizations. This included a July 1, 2020 change in user fee for miscellaneous determinations per Revenue Procedure 2020-5, electronic filing mandate. The IRS also stated it will send out an educational letter (Letter 6194) to organizations that paper filed Form 990 or 990-PF prior to 2019 to remind them of the mandatory form 990 series e-filing requirements. Organizations will not need to reply to this letter.
Deloitte Launches US Legal Business Services
Deloitte is expanding its services to include an US Legal Business Services practice. This practice will provide a broad-based suite of legal management consulting and technology-enable legal managed services for corporate legal departments. Please see the news release and website that describes the services Deloitte is able to provide in more detail.
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.
Health Care Current (retired January 2020)
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.
John W. Sadoff, Jr
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