Tax News & Views: Health Care Edition

Analysis

Tax News & Views: Health Care Edition

September 2020 | Vol. 12 No. 73

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.

Filing Season Considerations

As the fall filing season approaches, here is a list of ten tax compliance considerations. This is not a comprehensive list but provides some areas to consider (in no particular order) for the upcoming fall filing season.

1. Unrelated Business Income Siloing
In April 2020, IRS issued proposed regulations for the IRC section 512(a)(6) unrelated business taxable income rules regarding the tracking of income and losses for separate activities. The proposed regulations reduce the NAICS codes for identification of a separate trade or business from six to two digits and provided additional information on how to treat partnership and S corporation investments. Tax-exempt organizations should review these rules and make any required changes prior to filing their 2019 Form 990-T.

2. Tracking Covered Employees
In June 2020, IRS issued proposed regulations for IRC section 4960, excise tax on excess executive compensation. The proposed regulations provide exceptions for certain individuals from inclusion as covered employees. Tax-exempt organizations are required to track the top five highest compensated employees each year starting after December 31, 2016 in order to maintain a listing of covered employees. Tax-exempt organizations should be maintaining a list that identifies its list of covered employees for each and every year.

3. CARES Act Provisions
Tax-exempt organizations may be impacted by numerous provisions by the Coronavirus Aid, Relief and Economic Security Act (“CARES Act“). The CARES Act included provisions on the Payment Protection Program loans, Economic Injury Disaster Loans (“EIDL”), net operating loss carryback, enhanced charitable contribution deductions, and certain payroll tax implications such as Employee Retention Credit and deferral of payment of certain taxes. Some of these items are explained further below. Deloitte has developed summary of provisions of the CARES Act. Tax-exempt organizations should analyze any impact from provisions of the CARES Act.

4. Net Operating Losses
The CARES Act provided a five-year carryback provision for Net Operating Losses arising from taxable years beginning after December 31, 2017 and before January 1, 2021. Additional clarifications in a chief counsel advice memorandum provided that a loss from an individual unrelated business income silo can be carried back to offset taxable income in years prior to the enactment of the unrelated business income siloing rules under IRC section 512(a)(6). Any losses carried forward to years for which IRC section 512(a)(6) applies are required to remain in their individual siloes. Tax-exempt organizations should evaluate whether they may be able to carry back any Net Operating Losses to prior periods.

5. Amended Form 990-Ts for Parking
In December 2019, the increase in unrelated business income for qualified transportation fringe benefits under IRC section 512(a)(7) (“parking tax”) was retroactively repealed to January 1, 2018. Typically, organizations have the later of three years from the date of the original return was filed or two years from the time the tax was paid to file an amended return. The IRS provided instructions on how to file an amended return to claim refunds of tax associated with the repeal of the parking tax. Tax-exempt organizations should consider the need to file amended returns prior to the close of the statute of limitations.

6. Payroll Tax Considerations
CARES Act provided some relief for organizations in terms of payment of payroll taxes and certain credits against payroll taxes. The Family First Coronavirus Response Act provided payroll tax credits associated with providing certain leave programs to employees. The CARES Act enacted the Employee Retention Credit for tax- exempt organizations that met certain requirements. It also allowed certain organizations to defer payroll taxes paid from March 27, 2020 to December 31, 2020 until December 31, 2021 (first 50%) and December 31, 2022 (remaining amount). Tax-exempt organizations should determine if any of these provisions apply to them and whether additional analysis is needed to take any of the credits or if the organizations wishes to defer the employer’s portion of payroll taxes.

7. Community Health Needs Assessment Extension
Notice 2020-56 provided an extension of time to conduct a Community Health Needs Assessment and adopt an Implementation Strategy. The Notice extended the deadline to December 31, 2020 for hospitals to conduct a community health needs assessment or adopt an implementation strategy that were previously due to be completed on or after April 1, 2020 and before December 31, 2020. Tax-exempt hospitals that face the requirement to conduct a community health needs assessment or adopt of the implementation strategy during this time frame, should be aware of the new deadlines for completion.

8. Electronic Filing Requirements
The Taxpayers First Act, enacted on July 1, 2019, required tax-exempt organizations to electronically file certain tax returns for tax years beginning after July 1, 2019. Taxpayers with tax years ending after July 31, 2020 are required to electronically file their Form 990, or Form 990-PF. The IRS issued a news release expressing its plans to have the Form 990-T and Form 4720 ready for electronic filing in 2021 for the 2020 tax year. Organizations should consider preparing for electronic filing mandate.

9. New electronic filing requirements for application of tax- exemption
Revenue Procedure 2020-8 requires charitable organizations to electronically file the Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. This requirement began on January 31, 2020. Organizations now must use Pay.gov to complete, pay and file their Form 1023.

10. Notice for proposed regulations for Group Exemption
The Internal Revenue Service released Notice 2020-36 that proposed updates to Revenue Procedure 80-27, regarding the group exemption letter program. The proposed updates may affect organizations that file for a new group exemption letter or organizations that add new subordinate entities to an existing group exemption. The Notice suggested certain grandfathering rules for organizations that have already obtained a group exemption ruling. Additionally, the Notice suggests that the annual list of members included in the group exemption be required to be provided to the IRS 30 days prior to the end of the organization’s tax year. The IRS is currently not accepting any group ruling request until it issues the final Revenue Procedure adopting proposed rules.

Tax News & Views: Health Care Edition September 2020

Did you know?

Final Regulations for Charitable Contributions for State or Local Tax Credits
The Internal Revenue Service released final regulations on charitable contributions that are made in exchange for a state or local tax credits. The final regulations are based on the proposed regulations issued in December 2019. The final regulations provided a safe harbor for individuals and business entities, as well as clarify the definition of quid pro quo.

 

Legislative Updates
Stay apprised of the latest in legislative updates with the Capitol Hill Briefing edition of Tax News and Views that are published by the Deloitte Tax Policy Group.

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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.

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.

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Contacts

Rachel Becker
Milwaukee
rbecker@deloitte.com 
+1 414 977 2567

Jim Sowar 
Cincinnati
jsowar@deloitte.com
+1 513 784 7242

Fran Bedard
Nashville
fbedard@deloitte.com 
+1 615 259 1811

Alicia Janisch
Detroit
ajanisch@deloitte.com
+1 313 324 1442

Jeff Frank
Indianapolis
jdfrank@deloitte.com
+1 317 656 6921

Christine Kawecki
New York and Boston
ckawecki@deloitte.com
+1 516 918 7138

John W. Sadoff, Jr
Costa Mesa
jsadoff@deloitte.com
+1 714 913 1281

Kristina Rasmussen
Minneapolis
krasmussen@deloitte.com
+1 612 397 4178

Joan McMahon
San Francisco
jmcmahon@deloitte.com
+1 415 783 5568

Steve Rovner 
Tampa
srovner@deloitte.com
+1 813 273 8355

Mary Rauschenberg
Chicago and Washington National Tax
mrauschenberg@deloitte.com 
+1 312 486 9544

 

 

 

 

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