On October 24, 2014, the Internal Revenue Service (IRS) released Notice 2014-67, which provides guidance for determining whether a state or local governmental entity or an organization described by Section 501(c)(3) of the Internal Revenue Code that benefits from tax-exempt bond financing will be considered to have private business use of its bond-financed facilities as a result of its participation in the Medicare Shared Savings Program (MSSP) through an Accountable Care Organization (ACO).
Use of tax-exempt bond-financed property by an ACO that participates in an MSSP will not result in impermissible private business use of the property as long as:
- The terms of MSSP participation by the exempt organization are set in advance in a written agreement negotiated at arm's length;
- CMS accepted the ACO into the MSSP;
- The tax-exempt organization's share of economic benefits derived from the ACO are proportional to its benefits or contributions. If the organization receives an ownership interest in the ACO, that interest must be proportional and equal in value to its capital contributions to the ACO, and all ACO returns of capital, allocations, and distributions must be made in proportion to its ownership interests;
- The tax-exempt organization's share of the ACO's losses, including its share of MSSP losses, do not exceed the share of ACO economic benefits to which the organization is entitled;
- All contracts and transactions entered into by the tax-exempt organization with the ACO and the ACO's participants, and by the ACO with the ACO's participants and any other parties, are at fair market value; and
- Bond-financed property is not contributed or transferred to the ACO unless the ACO is an entity that is a governmental person, or in the case of qualified 501(c)(3) bonds, either is a governmental person or a Section 501(c)(3) organization.
In addition, the guidance expands the permitted productivity rewards and types of permissible arrangements described by Revenue Procedure 97-13 that do not result in private business use.
Notice 2014-67 is available at: http://www.irs.gov/pub/irs-drop/n-14-67.pdf. The IRS has requested comments on the guidance by January 22, 2015.