It was standing room only as more than 100 lawyers from health plans, hospitals and area law firms attended the Health Law Institute (HLI) program “Tax-Exempt Entities, Politics and the IRS” on Wednesday, December 13 at Hamline's Law School. The program featured a Chicago-based representative from the Internal Revenue Service Renee Wells. The program also featured an expert panel with attorneys from Dorsey & Whitney, Faegre & Benson and Gray Plant Mooty.
Ivy Bernhardson, general counsel at Hazelden, said the program was “interesting and timely because I need to stay completely up to date on tax exempt benefits.” Dorsey & Whitney Neal Peterson attorney said the program was “fantastic and timely because this issue will be at the forefront of state legislatures and the U.S. Congress. It couldn’t be more topical.” Practicing attorney Michelle Wernimont concurred: “I found it very helpful and informative. The panelists clearly were experts. I’m very glad I came,” she said.
IRS Area Manager Renee Wells began the program by explaining the factors the IRS considers when determining whether or not an entity should qualify for tax-exempt status, according to Community Benefit Standard established by IRS Ruling 69-545. Ms. Wells explained that the overriding principles include whether an entity is operated to serve a “public rather than a private interest” and if it is organized and operated “exclusively in furtherance of a charitable purpose.” She acknowledged that “the whole area of community benefit is somewhat amorphous,” comparing it to the wind: “You can’t touch it and it tends to move around, but. . . the wind is blowing toward requiring greater commitment to charity” among healthcare organizations with tax-exempt status.
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IRS Area Manager Renee Wells (top left) engages the audience.
Panelist Paul Torgerson, an attorney with Dorsey & Whitney, followed Ms. Wells’ presentation. He discussed recent court cases related to IRS Ruling 69-545 and said there is a “clash between the standard that has been observed by hospitals for the past 30 years and a growing concern that more needs to be done” relative to providing indigent care. He referred to the American Hospital Association (AHA) “Guidance on Reporting Community Benefit” and the Catholic Health Association’s (CHA) “Instructions for Hospital Community Benefit Report,” noting that AHA “takes the view that two additional items should impact tax-exempt eligibility: the uncompensated costs of running Medicare and bad debt tied to providing charity care.” (Note: both documents are available at www.hamline.edu/law/health.)
Another panelist, Gray Plant Mooty attorney Jennifer Reedstrom Bishop, described the application of the Community Benefit standard to non-hospitals, including nursing homes, physician organizations and HMOs. She said that Senator Chuck Grassley’s work on the issue is “up in the air” because he’s leaving Congress. “So now we need to wait and see where things land,” she said.
The final panelist, Myron Frans from Faegre & Benson, cited several cases in Illinois in which courts have ruled on the question “how much do you have to provide to qualify for writeoffs? The answer is still not clear.” He also noted that interpretation of the Community Standard appears to vary from state to state but in all cases tangible evidence, such as testimony and documents, should be gathered to help organizations prove that they’re meeting criteria.