On December 13, 2007, the IRS released the 2008 Exempt Organization Implementing Guidelines. The Guidelines report on the IRS’s Exempt Organizations program FY 2007 accomplishments and describe the program’s plan for the upcoming year.
The Guidelines contain several items relevant to tax-exempt hospitals:
- Form 990. The Guidelines list the draft revised Form 990 as a FY 2007 accomplishment and notes that the IRS will continue to work on the redesign in FY 2008. The IRS states it is currently revising Form 990 based on comments to the draft revisions and that it expects to release the final revised Form 990 and instructions during the first quarter of FY 2008. The Guidelines note that the IRS intends to make revised Form 990 available for filing in 2009.
- Executive Compensation. The Guidelines report on the previous Executive Compensation Compliance Project that reviewed the compensation practices of a broad spectrum of exempt organizations and note that a report on Phases I and II was issued on March 1, 2007, finding significant reporting errors and omissions. (See our previous Client Bulletin on this report.) Because many organizations reported that they had made loans to officers, the IRS initiated Phase III of the Executive Compensation Compliance Project, which involves 200 compliance checks and 50 additional single issue examinations focusing on loans to officers, directors and trustees. The Guidelines state that in FY 2008, the IRS intends to continue Phase III of the Executive Compensation Compliance Project and continue executive compensation examinations initiated in the Hospital Compliance Project.
- Hospital Compliance Initiative. Noted as a FY 2007 accomplishment is the previous exempt hospital community benefit standard review and interim report released on July 19, 2007. The Guidelines reiterate the interim report’s conclusion that the review showed that hospitals are inconsistent in how they report community benefit, particularly uncompensated care. The Guidelines explain that this project led to the addition of a separate hospital schedule to the revised Form 990 to increase consistency and transparency in reporting. The Guidelines state that the IRS will be reporting further on this project in FY 2008.
- Business Ventures Initiative. The Guidelines announce an entirely new initiative regarding the “increasing numbers of tax-exempt organizations [that] are operating business franchises and engaging in business ventures with for-profit organizations, purportedly for the purposes of furthering their mission or of earning revenue to finance their exempt activities.” The IRS states that in FY 2008, it will examine a sample of exempt organizations that operate franchises or business ventures with a view to answering questions such as: (1) Is the franchise or venture part of the organization’s overall mission or is it an unrelated trade or business, the income from which should be reported on Form 990-T? (2) Does the scope of the franchise have an impact on the organization’s exempt status? (3) Does the franchise pay reasonable compensation and properly report and withhold employment taxes? This is not specifically identified as a hospital initiative, but given the use of joint ventures in the health care industry, exempt hospitals will want keep an eye on how the IRS proceeds in this area.