Analysis

Tax News & Views: Health Care Edition

January/February 2016 | Vol. 12 No. 22

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.

Treasury issues final regulations for supporting organizations with distribution requirements

On December 21, 2015, the Department of Treasury (“Treasury”) issued final regulations regarding the distribution requirement for non-functionally integrated (“NFI”) Type III supporting organizations.

Background

An organization described in Internal Revenue Code (“IRC”) section 501(c)(3) is classified as either a private foundation or a public charity. To be classified as a public charity, an organization must be described in section 509(a)(1), (2), or (3). Organizations described in section 509(a)(3) are known as “supporting organizations.” Supporting organizations achieve their public charity status by supporting one or more organizations described in section 509(a)(1) or (2), which in this context are referred to as “supported organizations.”

The Pension Protection Act of 2006 (“PPA”) imposed new requirements on supporting organizations. Specifically, Section 1241(d)(1) of the PPA directed Treasury to promulgate regulations under section 509 that establish a new distribution requirement for Type III supporting organizations that are not “functionally integrated” to ensure that a “significant amount” is paid to supported organizations.

In 2009, Treasury issued proposed regulations setting forth the requirements to qualify as a Type III supporting organization under the PPA. On December 28, 2012, Treasury issued final and temporary regulations (T.D. 9605) regarding the requirements of a Type III supporting organization. The section of the regulations that was issued as “temporary” dealt with the distribution requirement for NFI Type III supporting organizations.

Specifically, the 2012 temporary regulations:

  1. Defined the distributable amount as equal to the greater of 1) 85% of the supporting organization’s adjusted net income or 2) its minimum asset amount, for the immediately preceding taxable year,
  2. Defined minimum asset amount as 3.5% of the excess aggregate fair market value of the supporting organization’s non-exempt-use assets over the acquisition indebtedness with respect to such nonexempt use assets,
  3. Provided that the determination of the aggregate fair market value of an NFI Type III supporting organization’s non-exempt-use assets would be made using the valuation methods generally applicable to private foundations under §53.4942(a)-2(c), and
  4. Provided that, consistent with the private foundation rules, the “non-exempt use” assets of a supporting organization do not include certain investment assets described in §53.4942(a)-2(c)(2) or assets used (or held for use) to carry out the exempt purposes of the supported organization(s) (as determined by applying the principles described in §53.4942(a)-2(c)(3)).
Final regulations issued in 2015

In December 2015, Treasury issued final regulations which adopted the 2012 proposed regulations without change, except to (1) conform the provision regarding the valuation of non-exempt-use assets to the section 4942 regulation provision that it cross-references (§53.4942(a)-2(c)(2)), and (2) replace references in §1.509(a)-4 to the temporary regulations with references to these final regulations. The effective date of the final regulations is December 21, 2015.

IRS extends due dates for 2015 Forms 1094-B, 1095-B, 1094-C, and 1095-C

As a result of the Patient Protection and Affordable Care Act of 2010 (“ACA”), employers and health insurers are required to provide certain information to the Internal Revenue Service (“IRS”) and covered individuals regarding health insurance coverage for calendar year 2015.

Internal revenue code (“IRC”) section 6056 requires applicable large employers, generally employers with at least 50 full-time employees, to report to the IRS information about the health care coverage, if any, they offered to full-time employees. IRC section 6055 requires anyone that provides minimum essential health insurance coverage during a calendar year to disclosure certain information.

Notice 2016-4 extends the due dates for furnishing (to individuals) and filing (with the IRS) Forms 1095-C, Employer-Provided Health Insurance Offer and Coverage, and Forms 1095-B, Health Coverage, as well as their associated transmittal forms. The extensions apply without any action on the part of affected taxpayers. The following chart shows the original and extended due dates:

Original and new extended due dates

IRS issues revenue procedures for 2016

The Internal Revenue Service (IRS) has updated various revenue procedures that affect exempt organizations for 2016.

Rev. Proc. 2016-1 provides revised procedures for letter rulings, information letters and determination letters affecting exempt organizations.

Rev. Proc. 2016-2 provides revised rules for technical advice memos.

Rev. Proc. 2016-3 provides a revised list of areas of the Internal Revenue Code (IRC) under the jurisdiction of the Associate Chief Counsel relating to issues on which the IRS will not issue letter rulings or determination letters.

Rev. Proc. 2016-4 contains the IRS’ general procedures for employee plan and exempt organization letter ruling requests. Revised procedures are provided for furnishing ruling letters and information letters on matters related to sections of the IRC currently under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division.

Rev. Proc. 2016-5 updates and merges Rev. Proc. 2015-5 and Rev. Proc. 2015-9 into one annual revenue procedure and provides the procedures for issuing determination letters on the exempt status of organizations under section 501 and 521 of the Internal Revenue Code.

Rev. Proc. 2016-8 provides the new user fee schedule as it pertains to requests for letter rulings, determination letters, etc., on matters under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division.

Rev. Proc. 2016-10 provides updated procedures for issuing determination letters on private foundation status under IRC section 509(a), operating foundation status under section 4942(j)(3), and exempt operating foundation status under section 4940(d)(2), of organizations exempt from Federal income tax under section 501(c)(3). This revenue procedure also applies to the issuance of determination letters on the foundation status under section 509(a)(3) of nonexempt charitable trusts described in section 4947(a)(1).

Did you know?

President signs Protecting Americans from Tax Hikes Act

On December 18, 2015 President Obama signed into law the Protecting Americans from Tax Hikes Act (a component of H.R. 2029) that includes, among other provisions, the following:

  • A permanent extension of several business, individual, and charitable giving incentives (“extenders”) that expired on December 31, 2014;
  • A renewal of a handful of extender provisions for five years; and
  • An extension through 2016 of many other tax deductions, credits and incentives.
IRS withdraws proposed regulations regarding substantiation of charitable contributions

In September 2015, the IRS and Treasury issued proposed regulations (REG-138344-13) addressing charitable contribution substantiation for donors. The proposed regulations described an alternative reporting method to the contemporaneous written acknowledgement requirement for substantiating charitable contribution deductions of $250 or more. The alternative reporting method would have required done organizations to collect donors’ names, addresses and tax identification numbers.

Treasury and the IRS received numerous comments from the public on the proposed regulations. Many commenters expressed concerns regarding the collection of tax identification numbers. In response to such comments, the IRS and Treasury withdrew the proposed regulations on January 7, 2016.

Additional Resources

Deloitte Center for Health Solutions

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

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.

2015 Health Care Providers Industry Outlook;  Interview with Mitchell Morris, MD

Mitch Morris, M.D., vice chairman and US/Global Health Care Providers leader, Deloitte Consulting LLP, weighs in on the evolution of value based care, aggressive industry consolidation and the role of the consumer.

This edition

  • Treasury issues final regulations for supporting organizations with distribution requirements
  • IRS extends due dates for 2015 Forms 1094-B, 1095-B, 1094-C, and 1095-C
  • IRS issues revenue procedures for 2016

Did you know?

  • President signs Protecting Americans from Tax Hikes Act
  • IRS withdraws proposed regulations regarding substantiation of charitable contributions

Subscribe  and Archives

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Contacts

Stephen Allen
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Fran Bedard
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Lori Boyce
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Jeff Frank
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jdfrank@deloitte.com
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William Homer
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whomer@deloitte.com
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Christine Kawecki
Jericho
ckawecki@deloitte.com
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Diana McCutchen
Costa Mesa
djmccutchen@deloitte.com
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Joan McMahon
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Kristina Rasmussen
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Mary Rauschenberg
Chicago and Washington National Tax
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Steve Rovner 
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John W. Sadoff, Jr
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Jim Sowar 
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Yvette Woods
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