Analysis

Tax News & Views: Health Care Edition

October 2015 | Vol. 12 No. 20

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.

Proposed regulations address charitable contribution substantiation for donors

The Internal Revenue Service (IRS) and Department of Treasury recently released proposed regulations (REG-138344-13) addressing charitable contribution substantiation for donors. The proposed regulations implement an exception to the contemporaneous written acknowledgement requirement for substantiating charitable contribution deductions of $250 or more. The proposed regulations explain how and when donee organizations may file information returns that report the required information regarding contributions.

Under current law, a taxpayer who claims a deduction for any charitable contribution of $250 or more must obtain substantiation in the form of a contemporaneous written acknowledgment from the donee organization. Although the substantiation need not be in any particular form, current law requires that it include the following information: (1) the amount of cash and a description of any property other than cash contributed; (2) whether any goods and services were provided by the donee organization in consideration for the contribution; and (3) a description and good faith estimate of the value of any goods and services provided by the donee organization or a statement that such goods and services consist solely of intangible religious benefits.

The proposed regulations establish an alternative framework for donee reporting that is intended to provide for timely reporting while also minimizing reporting burdens on donees and protecting donor privacy. Under the proposed regulations, the IRS will develop an optional information return specifically for donee reporting. Donee organizations who choose to report may file the return in lieu of providing the contemporaneous written acknowledgement. Donees who choose to report will be required to provide a copy of the information return to the donor. The return must include all the information described above, as well as the donor’s name, address, and tax identification number. The information return would be filed with the IRS by February 28 of the year following the year in which the contribution is made. The donee organization would be required to provide a copy to the donor at the same time. If the donor receives a copy, the donor would be relieved of the obligation to obtain any other form of contemporaneous written acknowledgement.

Taxpayers may provide comments on the proposed regulations to the IRS by December 17, 2015.

Guidance issued regarding mission-related investments by private foundations

The IRS released Notice 2015-62, “Investments Made for Charitable Purposes,” on September 28, 2015. The notice provides guidance to private foundations on the application of the “jeopardizing investment” rules under Internal Revenue Code (IRC) Section 4944 to investments that are made for charitable purposes, but are not program-related investments (PRIs) as defined in IRC Section 4944(c) and the regulations thereunder. In general, Section 4944 imposes an excise tax on a private foundation that invests “any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes.” The regulations require that a private foundation’s managers exercise ordinary business care and follow prudent investment standards when making investment decisions. Section 4944(c) provides a specific exception for PRIs, which are defined as investments, that have a primary charitable purpose and that have no significant purpose for the production of income or the appreciation of property.

Prior to Notice 2015-62, questions have arisen about whether an investment made by a private foundation that furthers its charitable purposes, but is not a PRI because a significant purpose of the investment is the production of income or the appreciation of property, is subject to tax under Section 4944. These types of investments are often called mission-related investments, because they not only serve the private foundation’s charitable mission, but also may generate investment income or appreciation. Therefore, they do not rise to the level of a PRI.

The notice provides that when exercising ordinary business care and prudence in deciding whether to make an investment, foundation managers may consider all relevant facts and circumstances, including the relationship between a particular investment and the foundation’s charitable purposes. Foundation managers are not required to select only investments that offer the highest rates of return, the lowest risks, or the greatest liquidity so long as the foundation managers exercise the requisite ordinary business care and prudence under the facts and circumstances prevailing at the time of the investment in making investment decisions that support, and do not jeopardize, the furtherance of the private foundation’s charitable purposes. The notice states that a private foundation will not be subject to the excise tax if foundation managers who have exercised ordinary business care and prudence make an investment (such as a mission-related investment) that furthers the foundation’s charitable purposes at an expected rate of return that is less than what the foundation might obtain from an investment that is unrelated to its charitable purposes.

Updated procedures for exemption application processing

The Director of the IRS Exempt Organizations Rulings & Agreements unit recently released a memorandum updating the procedures that the Exempt Organizations (EO) Determinations Unit uses to make determinations of exemptions. EO Determinations is responsible for processing exemption applications and making determinations of exempt status. If additional information is needed before making a determination, the EO specialist will contact the taxpayer. Prior to the new memorandum, EO Determinations gave a 21-day response time frame for an organization to respond to an initial additional information request. An organization also could receive a standard 14-day extension to provide its response. If a response did not arrive, EO Determinations placed the case in a suspense status and sent a letter to the organization stating it had 90 days to supply the requested information or EO Determinations would officially close the case without making a determination. If a response did not arrive within that 90-day period, EO Determinations closed the case and did not refund the user fee to the taxpayer.

Under the updated procedures, there will no longer be a suspense period. Organizations will now have 28 calendar days to respond to a request for additional information. EO Determinations will request the additional information via a written letter to the taxpayer and will also contact the organization via phone on the date the letter is mailed. If the organization requests an extension prior to the response due date, an extension of 14 days may be allowed. If the organization does not respond by the due date, EO Determinations will close the case and will not refund the user fee. If the organization later wants to pursue its exemption, it will need to submit a new application package and user fee payment.

Organizations filing exemption applications should be mindful of the new IRS due dates for responding to requests for additional information. For additional guidance, refer to IRS memorandum TEGE-07-0915-0022.

Did you know?

New IRS resource helps employers understand the health care law

The new “ACA Information Center for Applicable Large Employers” page on IRS.gov features information and resources for employers of all sizes on how the health care law may affect them if they fit the definition of an applicable large employer. The new web page provides information regarding detailed information about tax provisions, including information reporting requirements for employers; questions and answers; and forms, instructions, publications, health care tax tips, flyers, and videos.

Final forms and instructions released for Employer ACA forms

As a result of the Patient Protection and Affordable Care Act of 2010 (ACA), employers and health insurers will be required to provide information to the IRS and covered individuals regarding health insurance coverage. The IRS recently released final forms and instructions for the 2015 Form 1095-C and Form 1094-C, which are used by 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. Final forms and instructions were also released for the 2015 Form 1095-B and Form 1094-B that must be filed by anyone that provides minimum essential health insurance coverage. The 2015 forms will be due in early 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.

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  • Proposed regulations address charitable contribution substantiation for donors
  • Guidance issued regarding mission-related investments by private foundations
  • Updated procedures for exemption application processing

Did you know?

  • New IRS resource helps employers understand the health care law
  • Final forms and instructions released for Employer ACA forms
October 2015

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Joan McMahon
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Kristina Rasmussen
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Mary Rauschenberg
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Steve Rovner 
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John W. Sadoff, Jr
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Yvette Woods
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