Health Care
Industry Updates – 2008
- IRS Releases Final Redesigned Form 990
- Another Major Step in Redesign of Form 990
- IRS Compliance Checks for Issuers and Borrowers of Tax Exempt Bonds
IRS Releases Final Redesigned Form 990
On December 20, 2007, the Exempt Organization Division of the IRS released the redesigned Form 990, Return of Organization Exempt from Income Tax. The redesign of Form 990 is based on three guiding principles:
- Enhancing transparency
- Promoting tax compliance
- Minimizing the burden on the filing organization
The 2008 Form 990 and background materials about the Form 990 redesign are available. The final form retains the redesigned draft's format of a core form and a series of schedules. The new form will be used for the 2008 tax year (returns filed in 2009). The IRS plans to release the related instructions in early calendar year 2008.
Significant changes from current reporting standards include:
- A summary of activity and financial information. This summary will also include two year comparison data.
- More opportunities for explanations. As Forms 990 need to be electronically filed, the current form had limited space to explain its activities. However, the IRS still will not accommodate pdf attachments.
- Expanded questions related to governance, management and disclosures.
- Additional disclosures on compensation paid to former officers, directors, trustees or highly compensated employees, individuals paid more than $150,000, and individuals compensated by unrelated organizations for services provided to the filing organization.
- Clarification that compensation reporting should be based on a calendar year and tie to the individual's Form W-2.
- For 2008, hospitals will need to report information on each facility.
- Starting in 2009, hospitals will need to report the following additional information:
- Charity care and other community benefits. This reporting follows the community reporting benefit model develop by the Catholic Health Association and VHA, Inc.
- Community building activities
- Bad debt, Medicare and collection activities
- Management companies and joint ventures
- NOTE: the proposed billing and revenue reporting by patient category has been dropped from the final version. The IRS noted "universal opposition" to this reporting.
- For 2008, organizations with tax exempt bonds outstanding will only need to complete Part I, which is basic information on each outstanding issue.
- Starting in 2009, organizations will need to report more information on the use of proceeds, private business use and arbitrage. This delay will allow organizations additional time to pull together the required information.
- Exemption from the new form for certain small organizations – gross receipts less than $1.0 million or total assets less than $2.5 million. For the next two years, filing threshold requirements will gradually decrease.
Another Major Step in Redesign of Form 990
As discussed in our January 2008 Tax Alert, the IRS has redesigned Form 990. On April 7, the agency took another major step in the redesign process by releasing draft instructions related to the redesigned form.
The draft instructions are 331 pages in length and contain substantial detail. The draft instructions contain a number of tools designed to make it easier for organizations to answer Form 990 questions and to promote more uniform reporting, including:
- A glossary of terms
- A sequencing list to help organizations determine the order in which to fill out part of the form
- A compensation table to help charities determine how and where to report items of compensation
- Illustrative examples
We will be offering a three-part Webinar series on the new form. Please save the following dates:
- June 3 - Overview of redesigned Form 990 – Designed for those who desire a high level overview of the changes and how they impact health care entities.
- June 12 - Core form including specific schedules – Designed for those who are more deeply involved in the gathering and presentation of information on Form 990.
- June 26 – Review of health care specific schedules – Designed for those who are more deeply involved in the gathering and presentation of information on Form 990.
The IRS is seeking public comments on the draft instructions. The comment period is open until June 1, 2008. We will be reviewing the instructions and submitting comments to the IRS in cooperation with our not-for-profit practice group.
IRS Compliance Checks for Issuers and Borrowers of Tax Exempt Bonds
As reported in Moss Adams' June 2006 Industry Update, the IRS launched an initiative to evaluate post-issuance compliance with tax-exempt debt obligations. In August the IRS sent out more than 200 tax-exempt bond financing compliance check questionnaires to 501(c)(3) organizations that reported tax-exempt liabilities on their Form 990.
The compliance check notices included a cover letter describing the program and a questionnaire covering:
- Record retention requirements
- Qualified use of bond-financed property requirements
- Arbitrage yield restriction and rebate requirements
- Debt management policies and procedures
- Awareness of voluntary compliance and educational resources
The IRS' acting director of the Tax Exempt Bonds office recommends that issuers and borrowers perform their own compliance checks. It remains important for organizations to identify and remediate bond compliance issues before receiving an IRS notice.
Health Care Publications Contacts
Arizona
Tony Maki
480-444-3424
New Mexico
Brandon Fryar
505-830-6200
Northern California
Marci Pierce
415-677-8205
Oregon/Southwest Washington
Tony Andrade
503-242-1447
Southern California
DeVon Wiens
949-221-4000
Washington
Don Hansen
425-259-7227
Service Spotlight