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Tax News & Views: Health Care Edition
September 2021 | Vol. 12 No. 84
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.
- Electronic Filing Reminder
- IRS rejects tax-exempt status of research management software provider
- Did you know?
- Additional Resources
- Subscribe and Archives
Electronic Filing Reminder
As tax filing deadlines approach, we wanted to provide a reminder of electronic filing requirements under the Taxpayer First Act (H.R. 3151) that was signed into law on July 1, 2019. The law includes mandatory electronic filing for all tax-exempt organizations. The e-filing requirements are effective for the Forms 990 series (990, 990-T, 990-EZ, 990-N, 990-PF) for the organization’s first tax year beginning after the enactment of the legislation and provided limited exceptions for small organizations and for Form 990-T filers. The IRS has released updated guidance on the various forms and requirements, summarized below:
- Form 990 and 990-PF Filers: Electronic filing is required for tax years ending after July 31, 2020 and later.
- Form 990-EZ: Electronic filing is required for tax years ending July 31, 2021 and later.
- Form 990-T: Electronic filing is required for calendar year 2020 filings and future Forms 990-T with a due date on or after April 15, 2021 (a limited exception applies for 2020 Form 990-T returns submitted on paper that are postmarked on or before March 15, 2021).
- Form 4720: Electronic filing is required by any private foundation filing a 2020 or future year form with a due date on or after July 15, 2021. Organizations other than private foundations that are required to file the Form 4720 are encouraged, but not required, to file Form 4720 electronically.
- Foreign filings: Foreign forms attached to the Form 990-T (Forms 926, 5471, 8865, etc.) are also required to be electronically filed with the Form 990-T. Organizations should work with software providers to make sure that these forms are transmitted with its tax return for electronic filing which may include entering these forms directly into the software rather than attaching forms in the software.
- State filings: Certain states have also required electronic filings of certain forms. Each state has its own requirements for electronic filing and organizations should review electronic filing requirements for states for which it has a filing obligation.
Organizations should discuss electronic filing requirements and capabilities with their software provider. The IRS has maintained a list of approved vendors. In addition, the IRS released proposed regulations on the electronic filing requirements of these returns.
Supreme Court Rules on Donor Disclosure Case
In Private Letter Ruling 202129017, the IRS determined that an organization formed to provide research accessible to everyone by providing affordable research tools does not qualify as an organization exempt from tax under IRC section 501(c)(3). The organization’s two main activities were to design, develop, and distribute a free web-based research management software, and to promote STEM education by providing students with workshops and activities that would utilize the software tool developed by the organization. All activities of the organization were focused on the promotion of scientific research and discovery. Specifically, the organization would enable scientific researchers to expand the scope and efficacy of their research by providing tools that did not previously exist. The affordability and ease of use of the software would make health research available to everyone from large academic labs to college students. The software could also be used for testing of commercial products, even though not developed for this purpose. The organization also anticipated that more individuals would join the STEM industry, if the individuals were provided better research tools. Primary funding of the organization would be through fees for a “professional” version of the software. Additional sources of revenue could be derived from consulting services and donations to the organization. However, the organization would also provide a “freemium” option (where most users won’t pay for the software) to students and other individuals as well. The users of the software would have complete personal data ownership and not be required to publish any findings from their research.
The IRS ruled that the organization was not organized and operated exclusively for an exempt purpose. The IRS stated that the purpose clause to make research accessible to everyone by providing affordable research tools are broader than a section 501(c)(3) purpose and therefore failed the organizational test. The IRS stated that the organization also was not operated exclusively for a tax-exempt purpose as the organization had a substantial nonexempt commercial purpose of providing a research management tool for the public at large and not exclusively for a scientific purpose. To qualify as a scientific research organization, the organization must:
- Engage in scientific research,
- The scientific research must not include activities that are incidental to commercial or industrial operations, and
- Must be undertaken in the public’s interest.
The IRS ruled that the organization did not meet any of the three prongs to be considered a scientific research organization as the IRS argued that the organization’s activities were routine product development (similar to commercial activities) and the activities did not directly benefit the public.
Did you know?
TE/GE memo provides updates to procedures
The IRS Tax-Exempt and Government Entities (“TE/GE”) released guidance clarification regarding procedures used in the determination process. In interim guidance (TEGE-07-0821-0016) the IRS updated the procedures for communications with taxpayers authorized representatives. The IRS will contact an authorized represented listed, if the IRS has a valid Form 2848, Power of Attorney and Declaration of Representative, to discuss issues or items in the application, to follow-up on Letters 1312 requesting additional information and to otherwise discuss determinations such as for a potential adverse case. In a separate memorandum (TEGE-07-0821-0019) the IRS clarified that the IRS specialist reviewing determinations must coordinate with specialist in the TEGE Division Counsel, when an applicant seeks classification or reclassification of a public charity status of an educational organization, under IRC Sections 509(a)(1) and 170(b)(1)(A)(ii), and the applicant’s primary function is not the presentation of formal instruction.
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.
John W. Sadoff, Jr
Property tax appeal strategies and potential opportunities – the path
The pace of change affecting businesses over the past 18 months is unprecedented. Property tax relief may be available to taxpayers who proactively develop plans to drive equitable assessment of their property. Participants will identify ways to quantify potential property tax opportunities and examine best practices for working with assessors to manage their property taxes in a changing landscape.
Tax accounting update: Year-end preparations and continuing challenges
As the world emerges from the pandemic, big changes bringing new challenges for companies may be on the horizon: hybrid working as teams are starting to return to the office, and significant changes to tax legislation are being proposed. As planning for year-end 2021 begins, join the webcast for insights on relevant financial reporting matters – what’s new, and how to best prepare as year-end approaches. Participants will learn about important developments and explore their potential effects on financial reporting for income taxes.
Inbound tax reform update, including SHIELD/Pillar Two and Section 163(n)
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IRS update: Recent developments and emerging issues
The IRS has indicated it is hiring thousands of agents as it gears up for a significant increase in the number of audits of large multinational taxpayers and high-income individuals. How can you prepare for this upcoming surge in enforcement, and what actions should you take to respond to tax controversy challenges that may be on the horizon? Participants will discover recent developments in the IRS hiring initiatives and examinations of large multinational taxpayers and high- income individuals.
Cross-border M&A in an evolving environment
As deal activity continues to soar and global tax landscapes continue to change, organizations need to be nimble to drive value in cross-border M&A transactions. Participants will gain insights on how tax can drive value in cross-border M&A in an evolving environment.