Tax News & Views: Health Care Edition

TIGTA Review provides TEGE Statistics

The Treasury Inspector General for Tax Administration (“TIGTA”) published Fiscal Year 2019 Statistical Trends Review of the Tax Exempt and Government Entities Division on May 3, 2021. The report is a compilation of the statistical information and trend analysis of the Tax Exempt and Government Entities Division (“TEGE”) for fiscal years 2015 to 2019. The review provides details of TEGE in aggregate and for each of the four functions within TEGE (Employee Plans, Exempt Organizations/Government Entities, Compliance Planning and Classification, and Shared Services). We will highlight some statistics provided within the review.

The staffing and budget of the TEGE Division fell from fiscal year 2015 to fiscal year 2019. The budget decreased from $242.5 million to $220 million and staffing levels from 1,744 staff to 1,535 staff during this time period.

In fiscal year 2019, the exempt organization division received 97,936 determination requests and processed 101,880 requests. On average from fiscal year 2015 to 2019, the exempt organization division approved approximately 93% of all closed applications and less than 1% of applications were denied each year. The remaining applications were closed for various other reasons. For newly created social welfare organizations that are exempt under IRC section 501(c)(4), the organizations are required to provide the IRS a notification that the organization is established to operate as a social welfare organization no later than 60 days after the date the organization is created. In fiscal year 2019, 3,084 notifications were received, and 688 organizations were assessed penalties for untimely notification filings.

The IRS received more than 1.3 million information returns in fiscal year 2019 and of those returns approximately 214,000 were filed on paper and 1.1 million returns were filed electronically. The number of unrelated business income tax returns (Form 990-T) filed during tax years 2015 through 2018 ranged from 167,000 to 205,000 returns. The filing of the excise tax return (Form 4720) increased from 1,750 forms in calendar year 2015 to 1,919 in calendar year 2019. This corresponded to an increase in the amount of excise taxes paid during this time from $11.9 million to $139.8 million. The report stated that the likely cause of this increase was due to IRC section 4960 which subjects tax-exempt organizations to an excise tax on remuneration over $1 million and excess parachute payments paid to covered employees.

From an examination standpoint, total examination closures decreased from fiscal year 2015 to fiscal year 2019 from 6,392 to 3,675. The total no change cases during that period ranged from 19% in fiscal year 2016 to 13% in fiscal year 2019. The total compliance checks from fiscal year 2015 to fiscal year 2019 increased from 1,887 in fiscal year 2015 to 3,116 in fiscal year 2019. The tax-exempt hospital reviews, which occurs for each hospital facility once every three years ranged from 1,193 to 750 a year from fiscal year 2015 to fiscal year 2019. The amount of reviews that lead to examinations ranged from 264 to 7 during that timeframe. The compliance of hospital with the requirements of IRC section 501(r) have improved over time and the number of reviews that have led to examinations have decreased.

VA Therapy organization application rejected

The Internal Revenue Service released Private Letter Ruling 202118022 where it determined that an organization did not qualify for tax-exempt status under IRC section 501(c)(3). The organization was established to treat veterans, members of military services, public safety-first responders and/or civilians with certain ailments. The organization would provide funding for any eligible individual to receive therapy treatment at an organization that was solely owned by the founder and board member of the organization. The primary criteria for determination of eligibility of individuals would be if the individual’s insurance did not cover the insurance or only provided partial coverage. The therapy treatment described in the ruling was not the type of therapy generally covered by insurance, Medicare, Medicaid and the VA, since the treatment had not been approved by the FDA. The organization’s founder’s separate taxable business was the only business that provided these services within the state. The IRS requested additional information from the organization which the organization did not provide.

The Internal Revenue Service ruled that the organization failed to meet the operational test under Treasury Regulation 1.501(c) (3)-1(a)(1). The reasons for failure to meet the operational test are that the organization provided support for services that would not typically be covered by insurance, Medicare and Medicaid, so substantially all individuals seeking the treatment would qualify for the services and the services were only offered by the business owned by the founder of the organization. The IRS argued that the organization operated for a substantial private purpose for the benefit of a for-profit organization owned by the founder. The IRS determined that the organization did not lessen the burdens of government because, as required by this provision, the government must consider the activity to be its burden. The fact that the government has a policy or program to promote a particular outcome does not mean that the government has assumed burden to engage in that activity. The IRS determined that the organization did not met the requirements for exemption under IRC section 501(c)(3).

Did you know?

Health Savings Account Increase
Revenue Procedure 2021-25 was issued to provide 2022 inflations adjustments for Health Savings Accounts. The annual limitation for deductions for an individual with self-only coverage under a high deductible plan increases to $3,650 for 2022. The limitation for deduction for family coverage under a high deductible health plan is $7,300. The determination as a high deductible health plan for calendar year 2022 requires the health plan to have an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses do not exceed $7,050 for self-only coverage or $14,100 for family coverage.

Flexible Savings Account modifications
The Internal Revenue Service released Notice 2021-15, which provides clarification of the application of section 214 of the Taxpayer Certainty and Disaster Relief Act of 2020, recently enacted as Division EE of the Consolidated Appropriations Act, 2021 (“The Act”). The new provisions provide temporary special rules for health flexible spending arrangements (“health FSAs”) and dependent care assistance programs for cafeteria plans. The Act provided rules in regard to the following:

• Flexibility with respect to carryovers of unused amounts from 2020 and 2021 plan years,
• Extension of the permissible period for incurring claim for plan years ending in 2020 and 2021,
• Special rule for post-termination reimbursements from health FSAs during plan years 2020 and 2021,
• Special claim period and carryover rule for dependent care assistance programs when a dependent “ages out” during the COVID-19 public health emergency, and
• Allowance of certain mid-year election changes for health FSAs and dependent care assistance programs for plan years ending in 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 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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