Tax News & Views: Health Care Edition
March 2017 | Vol. 12 No. 34
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 Ruling Revoked Regarding non-NRSA Stipends
- 2016 Form 990, Schedules, and Instructions Released
- Did you know?
- Additional Resources
- Subscribe and Archives
IRS Ruling Revoked Regarding non-NRSA Stipends
In accordance with the findings of Revenue Ruling 83-89, the IRS does not regard research and research training related activities sponsored by institutional National Research Service Awards (NRSA) awards as constituting the performance of services under Section 117(c), and therefore, are not wages for purposes of § 3101, 3111 and 3121(a) related to taxation for social security. In PLR 200607017, the IRS found that non-NRSA grants used to pay research fellows under terms nearly identical to NRSA terms were not wages for purposes of social security and FICA taxation.
On February 6, 2017, the IRS released PLR 201705001 which revokes PLR 200607017. In PLR 201705001 that IRS rules that “[a]mounts paid to research fellows under non-NRSA grants that are compensatory in nature constitute a payment for services, are “wages” for employment tax purposes, and are subject to social security taxation under § 3101, 3111 and 3121(a).”
All organizations should review their payroll systems to determine how the organization is treating compensatory type payments to individuals under non-NRSA grants. Please reach out to your Deloitte contacts if the organization is excluding these individuals from the taxation of social security.
2016 Form 990, Schedules, and Instructions Released
The Internal Revenue Service (IRS) has released the 2016 Form 990, Return of Organization Exempt From Income Tax, schedules, and instructions. The Form 990 is used by tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations to provide the IRS with information regarding the organization’s activities for the tax year.
Health care organization should pay specific attention to the changes in the Schedule H form and instructions for 2016 which were updated to capture the Section 501(r) treasury regulations that are effective for all organizations for tax years beginning after December 29, 2015. Changes for Schedule H include clarifications of what should be included in the narrative disclosures and changes to the form to capture the requirements of the Section 501(r) treasury regulations. In addition, the schedule L instructions were updated to clarify the correct presentation of transactions with substantial contributors in order to protect the confidentiality of the substantial contributor.
Please see below for a complete list significant changes to the 2016 Form 990 and schedules.
Form 990, Return of Organization Exempt From Income Tax
- The general instructions in Section H, “Failure-to-File Penalties,” are adjusted for inflation annually under Internal Revenue Code (IRC) Section 6652(c)(1)(A). Organizations with annual gross receipts exceeding $1,020,000 are subject to a penalty of $100 for each day failure continues (with a maximum penalty for any one return of $51,000). The amounts noted reflect the inflation adjustment for 2016.
- The instructions for Part IV, “Checklist of Required Schedules,” Line 14a-14b have been expanded to include independent contractors outside of the United States as an item to include in determining whether a Schedule F is required.
- The instructions for Part VII, “Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors,” updated the instructions for employees leasing companies and professional employee organizations to include professional employer organizations that perform some or all of the federal employment tax withholding, reporting, and payment functions related to workers performing services for the organization. Organizations should now treat employees of a professional employer organization as the organization’s own employees if such persons are common law employees of the filing organization under state law.
Schedule A, Public Charity Status and Public Support
- Part I, “Reason for Public Charity Status,” a new line (Line 9) has been added for an agricultural research organization described in section 170(b)(1)(A)(ix) operated in conjunction with a land-grant college or university or a non-land grant college of agriculture.
- Part V, “Type III Non-Functionally Integrated 509(a)(3) Supporting Organization,” added a requirement to explain Part VI if the organization satisfied the Integral Part Test as a qualifying trust on November 20, 1970.
- Part V, “Type III Non-Functionally Integrated 509(a)(3) Supporting Organization,” Section E added a requirement for nonfunctionally integrated supporting organizations to provide an explanation in part VI as to reasonable cause for failure to meet the distribution requirements for years prior to 2016 and generally to describe any remaining under distributions for either prior years or for 2016.
Schedule C, Political Campaign and Lobbying Activities
- The instruction for Part II-A, “Lobbying Activity,” Lines 1a and 1b have been updated to include reference to Regulations section 56.4911-6(b).
Schedule H, Hospitals
- The instructions for Part V, “Facility Information,” Section B, Line 1(i) asking about items included in the hospital facility’s Community Health Needs Assessment (CHNA) was modified from “Information gaps that limit the hospital’s ability to assess the community’s health needs” to “The impact of any actions taken to address the significant health needs identified in the hospital facility’s prior CHNA(s).”
- The instructions for Part V, “Facility Information,” Section B, Line 5 were updated to require that hospital facilities answering this line “yes” summarize how and over what time period such input from persons who represent the broad interests of the community served was provided, the names of any organizations providing input, and describe the medically underserved, low-income, or minority populations being represented by organizations or individuals that provided input. The CHNA report does not need to name or otherwise identify any specific individual providing input on the CHNA. In the event a hospital facility solicits but can’t obtain input from a source required by line 5, the hospital facility’s CHNA report also must describe the hospital facility’s efforts to solicit input from source.
- Part V, “Facility Information,” Section B, Line 16 regarding the financial assistance policy (FAP) was updated to ask whether the FAP was widely publicized rather than whether it included measures to publicize the FAP.
- Part V, “Facility Information,” Section B, Line 16g changed from “Notice of availability of the FAP was conspicuously displayed throughout the hospital facility” to “Individuals were notified about the FAP by being offered a paper copy of the plain language summary of the FAP, by receiving a conspicuous written notice about the FAP on their billing statements, and via conspicuous public displays or other measures reasonable calculated to attract patients’ attention.”
- Part V, “Facility Information,” Section B, Line 16i was added and states “The FAP, FAP application form, and plain language summary of the FAP were translated into the primary language(s) spoken by [limited English proficiency] populations.”
- Part V, “Facility Information,” Section B, Line 18c was added regarding actions permitted against an individual under the hospital facility’s policies before making reasonable efforts to determine the individual’s eligibility under the FAP. It reads “Deferring, denying or requiring a payment before providing medically necessary care due to nonpayment of a previous bill for care covered under the hospital facility’s FAP.”
- The instructions for Part V, “Facility Information,” Section B, Line 19 clarify that actions taken against an individual include actions to obtain payment for the care against any other individual who has accepted or is required to accept responsibility for the individual’s hospital bill for the care. Further, actions taken by the hospital facility include actions of any purchaser of the individual’s debt, any debt collection agency or other party to which the hospital facility has referred the individual’s debt, or any substantially-related entity.
- Part V, “Facility Information,” Section B, Line 19c was added regarding actions taken during the year against an individual before making reasonable efforts to determine the individual’s eligibility under the FAP. It reads “Deferring, denying or requiring a payment before providing medically necessary care due to nonpayment of a previous bill for care covered under the hospital facility’s FAP.”
- Part V, “Facility Information,” Section B, Line 20 check boxes were updated. The question asks “Indicate which efforts the hospital facility or other authorized party made before initiating any of the actions listed (where or not checked) in line 19 (check all that apply).” The new options are: “(a) Provided a written notice about upcoming ECAs (extraordinary collection actions) and a plain language summary of the FAP at least 30 days before initiating those ECAs, (b) Made a reasonable effort to orally notify individuals about the FAP and FAP application process, (c) Processed incomplete and complete FAP applications, [and] (d) Made presumptive eligibility determinations.”
- Part V, “Facility Information,” Section B, Line 22 check boxes were updated. The question asks “Indicate how the hospital facility determined, during the tax year, the maximum amounts that can be charged to FAP-eligible individuals for emergency or other medically necessary care.” The new options are: “(a) The hospital facility used a look-back method on claims allowed by Medicare fee-for-service during a prior 12 month period, (b) The hospital facility used a look-back method on claims allowed by Medicare fee-for-service and all private health insurers that pay claims to hospital during a prior 12 month period, (c) The hospital facility used a look-back method on claims allowed by Medicaid, alone or in combination with Medicare fee-for-service and all private health insurers that pay claims to hospital during a prior 12 month period, [and] (d) The hospital facility used a prospective Medicare or Medicaid method.”
- The instructions for Part VI, “Supplemental Information,” clarifies that Rev. Proc. 2015-21, 2015-13 I.R.B. 817, Section 7 requires that certain information be disclosed on an organization’s Form 990 regarding certain failures to meet the requirements of IRC Section 501(r). That information should be include on Part VI, as applicable.
Schedule L, Transactions with Interested Persons
- The instructions for Schedule L, Part I, “Excess Benefit Transactions,” Part II, “Loans to and/or From Interested Persons”, and Part IV, “Business Transactions Involving Interested Persons” clarify the correct presentation of transactions with substantial contributors in order to protect the confidentiality of the substantial contributor. However, the instructions also clarify that if the person also has another reason for being an interested person, the organization should report using the other reason. For example if a person is both a substantial contributor and the spouse of a director, the person should be reported as the spouse of a director.
Form 990-T, Exempt Organization Business Income Tax Return
- Part III, “Tax Computation,” Line 39 has been added to assess the tax on non-compliant hospital facility income which is effective or tax years beginning after December 29, 2015.
- The instructions for Form 990-T added that the exclusion from unrelated business taxable income for qualified specified payments under IRC Section 512(b)(13)(E) has been made permanent.
Form 8868, Application for Automatic Extension of Time to File an Exempt Organization Return
- There is now an automatic 6-month extension of time to file instead of the previous 3-month automatic extension and subsequent request for an additional 3-month extension.
Did you know?
IRS Releases Updated Pub 598
The IRS has released Publication 598: Tax on Unrelated Business Income of Exempt Organizations, revised January 2017. This publication explains which organizations are subject to tax on unrelated business income, the requirements for filing a tax return, what unrelated business income is, and how to figure unrelated business taxable income. Any additional developments affecting Publication 598 published after its release will be posted to www.irs.gov/pub598.
Deloitte released 2017 Global Life Sciences & Health Care Outlooks
The DTTL Global Life Sciences & Health Care Industry practice is pleased to share the 2017 global health care outlook and the 2017 global life sciences outlook. These sector outlooks examine the current state of each sector, explore the trends and issues impacting the sector, and suggest considerations for sector stakeholders to meet these challenges. Explore each sector outlook for more information.
- 2017 Global Health Care Outlook: Making Progress Against Persistent Challenges: 2017 will be a year of rising demand and associated spending fueled by an aging population; the growing prevalence of chronic diseases and comorbidities; development of costly clinical innovations; increasing patient awareness, knowledge, and expectations; and continued economic uncertainty despite regional pockets of recovery.
The report looks into the current state of the global health care sector; explores trends and issues impacting the sector particularly in the areas of cost, innovation, care delivery, operations and regulatory compliance; and suggests considerations for stakeholders as they seek to deliver cost-effective, high-value health care.
- 2017 Global Life Sciences Outlook: Thriving in Today’s Uncertain Market: Life sciences companies have always operated in a world of uncertainty. Issues around cost and pricing, clinical and operational innovation, customer and consumer engagement, and regulatory compliance have existed for decades. In addition, new and evolving technology advancements have primed the life sciences sector for disruption.
Each year brings changes and challenges, and 2017 is likely to follow suit. The report talks about the imperativeness of leaders in the life sciences space to understand the trends and shifts happening around them, and in international markets, and prepares them to thrive in today’s uncertain market.
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.
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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