tax issues in higher education duke university may 24, 2007 donald “dee” e. rich, jr. partner

Tax Issues in Higher EducationTax Issues in Higher EducationDuke UniversityDuke UniversityMay 24, 2007May 24, 2007

Donald “Dee” E. Rich, Jr.Donald “Dee” E. Rich, Jr.PartnerPartnerKPMG LLPKPMG LLP

2 © 2005 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Printed in the U.S.A.

FOR INTERNAL USE ONLY.

NOTICENOTICE

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OFPERSON OR ENTITY FOR THE PURPOSE OF

(I) AVOIDING PENALTIES THAT MAY BE IMPOSED (I) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR ON ANY TAXPAYER OR

(II) PROMOTING, MARKETING OR RECOMMENDING (II) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.HEREIN.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.



Overview Overview

Pension Protection Act of 2006Pension Protection Act of 2006Tax Increase Prevention and Reconciliation Act of Tax Increase Prevention and Reconciliation Act of 20052005Form 990 ChangesForm 990 ChangesCongressional OversightCongressional Oversight

NCAA hearingsNCAA hearingsCommunity BenefitCommunity BenefitHigher Education Higher Education

Executive Compensation and Fringe BenefitsExecutive Compensation and Fringe BenefitsUnrelated Business IncomeUnrelated Business Income



Pension Protection Act of 2006Pension Protection Act of 2006




First significant charitable reform legislation in yearsFirst significant charitable reform legislation in years

Senate passed House bill without changes to Senate Senate passed House bill without changes to Senate billbill

Therefore, scarce interpretation since no conference Therefore, scarce interpretation since no conference committee reportcommittee report

Signed into law on August 17, 2006Signed into law on August 17, 2006

Effective implementation dates of July 25, 2006 and Effective implementation dates of July 25, 2006 and August 17, 2006 for specific provisionsAugust 17, 2006 for specific provisions

A number of charitable giving provisions sunset and A number of charitable giving provisions sunset and are only effective for two years until 2007are only effective for two years until 2007




Components of ActComponents of Act

Supporting Organization ProvisionsSupporting Organization Provisions

Reform Provisions AddressingReform Provisions AddressingDisclosureDisclosure

EnforcementEnforcement

Overstatements of donor deductionsOverstatements of donor deductions

Charitable Giving IncentivesCharitable Giving Incentives

Other ProvisionsOther ProvisionsIncome from Controlled SubsidiariesIncome from Controlled Subsidiaries

Donor Advised Fund reformsDonor Advised Fund reforms

Private Foundation Net Investment Income Tax base broadenedPrivate Foundation Net Investment Income Tax base broadened




Supporting Organization (“SO”) ProvisionsSupporting Organization (“SO”) Provisions

Type 1, Type 2, Type 3 distinctions on Schedule AType 1, Type 2, Type 3 distinctions on Schedule AType 1 – Operated, supervised or controlled by, typically Type 1 – Operated, supervised or controlled by, typically parent/subsidiary relationshipparent/subsidiary relationshipType 2 – Supervised or controlled in connection with, least common Type 2 – Supervised or controlled in connection with, least common brother-sister relationshipbrother-sister relationshipType 3 – Operated in connection with, loosest level of connectionType 3 – Operated in connection with, loosest level of connection

Private Foundations – Grants not qualified distributions if made to Private Foundations – Grants not qualified distributions if made to Type 3 that is not “functionally integrated”Type 3 that is not “functionally integrated”

Theme of SO reforms – SOs cannot be controlled or should not Theme of SO reforms – SOs cannot be controlled or should not be influenced by related parties (disqualified persons) with be influenced by related parties (disqualified persons) with

respect to grants and/or investments.respect to grants and/or investments.




Charitable Giving IncentivesCharitable Giving Incentives

Generally provisions sunset at the end of 2007Generally provisions sunset at the end of 2007

Incentives to encourage contributions of these items:Incentives to encourage contributions of these items:Tax-free distributions from Individual Retirement Accounts Tax-free distributions from Individual Retirement Accounts (“IRA”) for charitable purposes(“IRA”) for charitable purposes

Food and book inventoryFood and book inventory

Real property for conservation purposesReal property for conservation purposes

Basis adjustment to stock of S Corporations Basis adjustment to stock of S Corporations




General ReformsGeneral Reforms

Mechanisms to correct overstatement of donor deductions for Mechanisms to correct overstatement of donor deductions for contributionscontributions

Historic propertiesHistoric properties

Recapture of tax benefit on property not used in tax-exempt useRecapture of tax benefit on property not used in tax-exempt use

Limitations of deductions for contributions of clothing and Limitations of deductions for contributions of clothing and household itemshousehold items

TaxidermyTaxidermy

Appraisal reformAppraisal reform

Enforcement InitiativesEnforcement InitiativesIntermediate Sanctions and other penalty excise taxes doubledIntermediate Sanctions and other penalty excise taxes doubled




Disclosure Reforms - TransparencyDisclosure Reforms - Transparency

Form 990-T Unrelated Business Income Tax Return now Form 990-T Unrelated Business Income Tax Return now open for public inspection, effective for returns filed after open for public inspection, effective for returns filed after 8/17/068/17/06

Coordination with State officialsCoordination with State officials

Organizations with < $25,000 in assets not previously Organizations with < $25,000 in assets not previously required to file Form 990, must now make annual notification required to file Form 990, must now make annual notification to the Treasuryto the Treasury

Failure of < $25,000 organizations to make annual Failure of < $25,000 organizations to make annual notification for 3 consecutive years will result in revocation of notification for 3 consecutive years will result in revocation of tax-exempt statustax-exempt status




Unrelated Business Income TaxUnrelated Business Income Tax

Income from Controlled Subsidiaries (IRC section 512(b)(13) Income from Controlled Subsidiaries (IRC section 512(b)(13) ProvisionsProvisions

Excess over fair market value (“FMV”) now taxableExcess over fair market value (“FMV”) now taxable

FMV defined by transfer pricing rules under IRC section 482, arm’s FMV defined by transfer pricing rules under IRC section 482, arm’s length pricinglength pricing

““Qualified specified payment” also subject to an additional 20% taxQualified specified payment” also subject to an additional 20% tax

Payments received or accrued after December 31, 2005 and Payments received or accrued after December 31, 2005 and before January 1, 2008before January 1, 2008

Provision sunsets after 2007Provision sunsets after 2007

Form 990-T open for public inspectionForm 990-T open for public inspection



Tax Increase Prevention and Reconciliation Act of 2005

Tax Increase Prevention and Reconciliation Act of 2005



Tax Increase Prevention and Reconciliation Act of 2005Tax Increase Prevention and Reconciliation Act of 2005

Excise Tax on Prohibited Tax Shelter TransactionsExcise Tax on Prohibited Tax Shelter Transactions

What constitutes a “prohibited tax shelter?”What constitutes a “prohibited tax shelter?”Notice 2006-65, dated July 11, 2006, provided some IRS Notice 2006-65, dated July 11, 2006, provided some IRS clarification.clarification.LILO and SILO transactionsLILO and SILO transactionsTax on entity at greater of net income or 75% of proceeds from Tax on entity at greater of net income or 75% of proceeds from transactiontransactionTax on entity manager of $20,000Tax on entity manager of $20,000Disclosure of all parties involvedDisclosure of all parties involved

Consider alternative investmentsConsider alternative investmentsEffective for taxable years ending after May 17, 2006Effective for taxable years ending after May 17, 2006



TransactionsTransactions§516 of TIPRA: “Tax Involvement of Accommodation Parties in §516 of TIPRA: “Tax Involvement of Accommodation Parties in Tax Shelter Transactions”Tax Shelter Transactions”Prohibited tax shelter transactionProhibited tax shelter transaction

““Listed transaction” under §6707A(c)(2).Listed transaction” under §6707A(c)(2).““Prohibited reportable transaction”: reportable transaction under Prohibited reportable transaction”: reportable transaction under §6707A(c)(1) that is:§6707A(c)(1) that is:

Confidential transaction.Confidential transaction.Transaction with contractual protection.Transaction with contractual protection.

Subsequently listed transactionSubsequently listed transactionTransaction that is listed after tax-exempt entity becomes party to Transaction that is listed after tax-exempt entity becomes party to transaction.transaction.Does not include transaction that was prohibited reportable Does not include transaction that was prohibited reportable transaction at time tax-exempt entity became party to transaction.transaction at time tax-exempt entity became party to transaction.




General ApplicationGeneral ApplicationTax-exempt organizations described in §501(c) or §501(d).Tax-exempt organizations described in §501(c) or §501(d).Entities described in §170(c) (other than the U.S.)Entities described in §170(c) (other than the U.S.)Indian tribal governments (within meaning of §7701(a)(40)).Indian tribal governments (within meaning of §7701(a)(40)).Entities described in §4979(e)(1)-(3) (generally includes §401(a) Entities described in §4979(e)(1)-(3) (generally includes §401(a) qualified pension trusts and §403(a) & (b) plans.qualified pension trusts and §403(a) & (b) plans.§529 qualified tuition programs.§529 qualified tuition programs.§457(b) deferred compensation plans maintained by employers §457(b) deferred compensation plans maintained by employers described in §457(e)(1)(A) (state, political subdivision, or agency described in §457(e)(1)(A) (state, political subdivision, or agency or instrumentality thereof).or instrumentality thereof).Arrangements described in §4973 (generally includes §408 Arrangements described in §4973 (generally includes §408 IRAs, §220 Archer medical savings accounts, §530 Coverdell IRAs, §220 Archer medical savings accounts, §530 Coverdell education savings accounts, and §223 health savings accounts).education savings accounts, and §223 health savings accounts).




Effective DatesEffective Dates§4965 generally effective for taxable years ending after May §4965 generally effective for taxable years ending after May 17, 2006 with respect to transactions before, on, or after this 17, 2006 with respect to transactions before, on, or after this date.date.No excise tax applied with respect to income or proceeds No excise tax applied with respect to income or proceeds properly allocable to any period ending on or before August properly allocable to any period ending on or before August 15, 2006.15, 2006.Tax on entities that “knowingly” entered into prohibited tax Tax on entities that “knowingly” entered into prohibited tax shelter transaction does not apply to any prohibited tax shelter transaction does not apply to any prohibited tax shelter transaction to which the tax-exempt entity became a shelter transaction to which the tax-exempt entity became a party on or before May 17, 2006.party on or before May 17, 2006.New disclosure and penalty provisions generally apply to New disclosure and penalty provisions generally apply to disclosures due after May 17, 2006.disclosures due after May 17, 2006.




2005 Form 990 Changes2005 Form 990 Changes




FocusFocus

Board composition and independenceBoard composition and independence

Compensation paid to current and former officers, key Compensation paid to current and former officers, key employees and directors/trusteesemployees and directors/trustees

Foreign activitiesForeign activities



IRC section 6033(a)(1): Every organization exempt from taxation IRC section 6033(a)(1): Every organization exempt from taxation under §501(a) shall file an annual return, stating specifically the under §501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal other information for the purpose of carrying out the internal revenue laws as the Secretary by forms or regulations prescribe revenue laws as the Secretary by forms or regulations prescribe

IRC section 6033(b):IRC section 6033(b): Every organization described in §501(c)(3) Every organization described in §501(c)(3) shall furnish annually information, at such time and in such shall furnish annually information, at such time and in such manner as the Secretary by forms or regulations may prescribe, manner as the Secretary by forms or regulations may prescribe, setting forth [among others]:setting forth [among others]:

The names and addresses of its foundation managers and highly The names and addresses of its foundation managers and highly compensated employees.compensated employees.The compensation and other payments made during the year to The compensation and other payments made during the year to each such individual.each such individual.




Treasury Regulation section 1.6033-2(a)(1): Every Treasury Regulation section 1.6033-2(a)(1): Every organization exempt from taxation under §501(a) shall organization exempt from taxation under §501(a) shall file an annual information return specifically setting file an annual information return specifically setting forth its items of gross income, gross receipts and forth its items of gross income, gross receipts and disbursements, and such other information as may be disbursements, and such other information as may be prescribed in the instructions issued with respect to prescribed in the instructions issued with respect to the return.the return.




Treasury Regulation section 1.6033-2(a)(2)(ii)Treasury Regulation section 1.6033-2(a)(2)(ii)

Information required to be furnished includes:Information required to be furnished includes:Names and addresses of:Names and addresses of:

Officers, directors, or trustees (or persons having similar Officers, directors, or trustees (or persons having similar responsibilities or powers).responsibilities or powers).For private foundations: names and addresses of foundation For private foundations: names and addresses of foundation managers.managers.For §501(c)(3) organizations:For §501(c)(3) organizations:

Five most highly compensated employees.Five most highly compensated employees.Five independent contractors providing professional services.Five independent contractors providing professional services.

Compensation and other payments made during the annual Compensation and other payments made during the annual accounting period (or during the calendar year ending within accounting period (or during the calendar year ending within such period) includible in the gross income of each such such period) includible in the gross income of each such individual.individual.




2005 Form 990 Part II2005 Form 990 Part II



2005 Form 990 Part V-A2005 Form 990 Part V-A



Ann. 2001-33, 2001-17 IRB 1137Ann. 2001-33, 2001-17 IRB 1137

Until the IRS notifies otherwise, by an Announcement published in the Internal Until the IRS notifies otherwise, by an Announcement published in the Internal Revenue Bulletin, organizations that pay other persons, such as management Revenue Bulletin, organizations that pay other persons, such as management services companies, for the services of officers, directors, trustees, or key services companies, for the services of officers, directors, trustees, or key employees/foundation managers, will be deemed to have reasonable cause for employees/foundation managers, will be deemed to have reasonable cause for purposes of the penalty under section 6652(c)(1)(a)(ii) of the Internal Revenue Code purposes of the penalty under section 6652(c)(1)(a)(ii) of the Internal Revenue Code for the failure to provide the information required by the relevant portions of Parts IV, for the failure to provide the information required by the relevant portions of Parts IV, V or VIII of the forms, if:V or VIII of the forms, if:

1. Where the form asks for the name of officers, directors, trustees, or key 1. Where the form asks for the name of officers, directors, trustees, or key employees/foundation managers, the reporting organization enters the name of the person employees/foundation managers, the reporting organization enters the name of the person (e.g., management services company) that performs those services under contracts and (e.g., management services company) that performs those services under contracts and services that it performs;services that it performs;

2. Where the form asks for the address of officers, directors, trustees or key 2. Where the form asks for the address of officers, directors, trustees or key employees/foundation managers, the reporting organization enters the address where the employees/foundation managers, the reporting organization enters the address where the IRS can contact such person (management services company);IRS can contact such person (management services company);

3. Where the form asks for compensation paid to officers, directors, trustees or key 3. Where the form asks for compensation paid to officers, directors, trustees or key employees/foundation managers, the reporting organization enters the amount paid to the employees/foundation managers, the reporting organization enters the amount paid to the person (management services company) for the services listed in response to inquiry 1, person (management services company) for the services listed in response to inquiry 1, above.above.



IRS Website FAQs - 2005 Form 990IRS Website FAQs - 2005 Form 990

How much effort must the filing organization undertake to obtain the How much effort must the filing organization undertake to obtain the information requested in Lines 75b and 75c?information requested in Lines 75b and 75c?The filing organization must make a reasonable effort to obtain the information and The filing organization must make a reasonable effort to obtain the information and provide accurate information on its return. E.g., distribute questionnaire annually to provide accurate information on its return. E.g., distribute questionnaire annually to each officer, director, trustee, and key employee listed in Part V; and each highest each officer, director, trustee, and key employee listed in Part V; and each highest compensated employee, professional and other independent contractor listed in compensated employee, professional and other independent contractor listed in Schedule A. Questionnaire should require name, title, date, and signature. Schedule A. Questionnaire should require name, title, date, and signature. For purposes of line 75b, the questionnaire should contain the family and business For purposes of line 75b, the questionnaire should contain the family and business definitions set out in the Line 51 instructions.definitions set out in the Line 51 instructions.

Does Part V-A require names of all board members or only board Does Part V-A require names of all board members or only board officers? Also, does it require home addresses of board officers? Also, does it require home addresses of board members/officers?members/officers?

Names of all board members must be listed. In addition, corporate officers, Names of all board members must be listed. In addition, corporate officers, trustees (if any), and key employees must be named. Address provided for each trustees (if any), and key employees must be named. Address provided for each person should be address at which person prefers to be contacted. Organization's person should be address at which person prefers to be contacted. Organization's address may be used if the organization will promptly send any communications to address may be used if the organization will promptly send any communications to the person contacted.the person contacted.



Relationships - DefinitionsRelationships - Definitions

Family relationships: includes an individual’s spouse, Family relationships: includes an individual’s spouse, ancestors, children, grandchildren, great-ancestors, children, grandchildren, great-grandchildren, siblings (by whole or half blood), and grandchildren, siblings (by whole or half blood), and the spouses of children, grandchildren, great-the spouses of children, grandchildren, great-grandchildren, and siblings.grandchildren, and siblings.Business relationships: employment and contractual Business relationships: employment and contractual relationships, and common ownership of a business relationships, and common ownership of a business where any officers, directors, or trustees, individually where any officers, directors, or trustees, individually or together possess more than a 35% ownership or together possess more than a 35% ownership interest in common. Ownership means voting power interest in common. Ownership means voting power in a corporation, profit interest in a partnership, or in a corporation, profit interest in a partnership, or beneficial interest in a trust.beneficial interest in a trust.



Compensation from Related OrganizationsCompensation from Related Organizations



2005 Form 990 Part V-B (Former Officers et al)2005 Form 990 Part V-B (Former Officers et al)



2005 Form 990 Part V-B Instructions (Former Officers et al)2005 Form 990 Part V-B Instructions (Former Officers et al)



2005 Form 990 Schedule A Part I2005 Form 990 Schedule A Part I



2005 Schedule A Instructions2005 Schedule A Instructions



CPE Text for FY 2002CPE Text for FY 2002

The instructions to Part V of Form 990 construe compensation more broadly than other parts of the Code.In the case of deferred compensation, the focus is on the time that the EO pays or becomes obligated (or potentially obligated) to pay it as well as the time that the employee or independent contractor receives a disbursement.In the event that the Form 990 instructions require overreporting of actual compensation (e.g., the reporting of deferred compensation in both the year earned and the year paid), an EO can attach a statement to its Form 990 explaining how the compensation as reported is overstated. EOs are welcome to explain the entire compensation package for an individual.The Service recognizes that precise actuarial cost figures may not be readily available for defined benefit plans and other plans, and allows reasonable estimates. Although many EOs hire an actuary to determine the estimate, it is not required that an EO do so in order for its estimate to be reasonable. Reasonable estimates based on available facts are acceptable, but the refusal to estimate merely because of difficulty is not. Where the Code or regulations allow or require a specific valuation procedure for a fringe benefit (e.g., for vehicles, planes, employer-provided meals, employer parking), that valuation procedure is also allowed or required for Form 990 purposes.



2006 Form 990 Part II Officers’ Compensation2006 Form 990 Part II Officers’ Compensation



2006 Form 990 New Part XI2006 Form 990 New Part XI



2006 Form 990 Schedule A Part IV2006 Form 990 Schedule A Part IV



Congressional HearingsCongressional Hearings



Congressional ActivitiesCongressional Activities

House Ways and Means Committee Chairman Thomas House Ways and Means Committee Chairman Thomas sent a letter on October 2, 2005 to the NCAA requesting sent a letter on October 2, 2005 to the NCAA requesting information about the organization’s exempt purpose information about the organization’s exempt purpose and tax-exempt status. Chairman Thomas requested and tax-exempt status. Chairman Thomas requested detailed information about the following topics:detailed information about the following topics:

The organization’s educational missionThe organization’s educational mission

The organization’s revenues and expendituresThe organization’s revenues and expenditures




Senate Finance Committee Chairman Grassley sent a Senate Finance Committee Chairman Grassley sent a letter on December 29, 2005 to the Red Cross requesting letter on December 29, 2005 to the Red Cross requesting information about the following topics:information about the following topics:

The organization’s board governance The organization’s board governance

Its response to tsunami/Katrina disaster relief Its response to tsunami/Katrina disaster relief

Compensation of its president and other officersCompensation of its president and other officers

The organization’s IRS filingsThe organization’s IRS filings




The Subcommittee on Oversight of the Committee on Ways and The Subcommittee on Oversight of the Committee on Ways and Means held a hearing on May 25, 2006 on charities and employment Means held a hearing on May 25, 2006 on charities and employment tax compliance. Issues considered by the Subcommittee included: tax compliance. Issues considered by the Subcommittee included:

What is the IRS doing to determine that charities comply with their What is the IRS doing to determine that charities comply with their payroll tax obligations? payroll tax obligations? Is the IRS effectively using its regulatory authority over charities to Is the IRS effectively using its regulatory authority over charities to determine that they pay their taxes? determine that they pay their taxes? Is it appropriate for charities with substantial tax debt to maintain Is it appropriate for charities with substantial tax debt to maintain their tax-exempt status? their tax-exempt status? Are there tax-exempt organizations with significant tax debt that Are there tax-exempt organizations with significant tax debt that receive other benefits from the federal government, such as receive other benefits from the federal government, such as grants? grants?

TE/GE Commissioner Miller testified that the IRS plans to launch a TE/GE Commissioner Miller testified that the IRS plans to launch a pilot program to select taxpayers for examination in the near future.pilot program to select taxpayers for examination in the near future.




Senate Finance Committee holds hearing on September 13, 2006 on Senate Finance Committee holds hearing on September 13, 2006 on nonprofit hospitals, charitable care, and community benefit nonprofit hospitals, charitable care, and community benefit standards. Testimony was heard from the following individuals:standards. Testimony was heard from the following individuals:

The Honorable Phill Kline, Attorney General, State of Kansas, Topeka, KS The Honorable Phill Kline, Attorney General, State of Kansas, Topeka, KS Sister Carol Keehan, DC, President and CEO of Catholic Health Association, Sister Carol Keehan, DC, President and CEO of Catholic Health Association, Washington, DCWashington, DCKevin E. Lofton, Chairman-elect of the American Hospital Association, Kevin E. Lofton, Chairman-elect of the American Hospital Association, President and CEO of Catholic Health Initiatives, Denver, ColoradoPresident and CEO of Catholic Health Initiatives, Denver, ColoradoScott A. Duke, CEO of the Glendive Medical Center, Glendive, MontanaScott A. Duke, CEO of the Glendive Medical Center, Glendive, MontanaDr. Nancy M. Kane, Professor of Management, Department of Health Policy Dr. Nancy M. Kane, Professor of Management, Department of Health Policy and Management, Harvard School of Public Health, Boston, MAand Management, Harvard School of Public Health, Boston, MARaymond A. Hartz, Executive Director of the Legal Aid Society of Eastern Raymond A. Hartz, Executive Director of the Legal Aid Society of Eastern Virginia, Norfolk, VirginiaVirginia, Norfolk, Virginia

Chairman Grassley commended CHA for providing “real leadership in Chairman Grassley commended CHA for providing “real leadership in establishing best practices for measurements and reporting for establishing best practices for measurements and reporting for community benefits.” community benefits.”




Senate Finance Committee Chairman Grassley sent a Senate Finance Committee Chairman Grassley sent a letter on March 8, 2006 to American Hospital Association letter on March 8, 2006 to American Hospital Association requesting additional information on three legislative requesting additional information on three legislative proposals relating to potential nonprofit hospital reform. proposals relating to potential nonprofit hospital reform. In particular, the letter requests information about the In particular, the letter requests information about the AHA’s position concerning:AHA’s position concerning:

Discounts to uninsured individuals Discounts to uninsured individuals The definition of community benefit The definition of community benefit Recommendations to strengthen the transparency, Recommendations to strengthen the transparency, governance, and accountability of nonprofit governance, and accountability of nonprofit hospitalshospitals




Senate Finance Committee Chairman Grassley sent a letter on Senate Finance Committee Chairman Grassley sent a letter on March 8, 2006 to Catholic Healthcare Association requesting the March 8, 2006 to Catholic Healthcare Association requesting the following information:following information:

The organization’s nonprofit hospital members The organization’s nonprofit hospital members The “best practices” being used by CHA members with The “best practices” being used by CHA members with respect to community benefit and charity care respect to community benefit and charity care Other topics of interest included investments in joint ventures, Other topics of interest included investments in joint ventures, taxable subsidiaries, venture-capital funds and financial taxable subsidiaries, venture-capital funds and financial arrangements, contracts for health care, management and arrangements, contracts for health care, management and administrative services, executive compensation, travel and administrative services, executive compensation, travel and expense reimbursement, billing and debt collection practicesexpense reimbursement, billing and debt collection practices—particularly for the uninsured, use of tax-exempt bond —particularly for the uninsured, use of tax-exempt bond proceeds, conflicts of interest and other governance issues, proceeds, conflicts of interest and other governance issues, and accounting, reporting, public disclosure, and general and accounting, reporting, public disclosure, and general transparency issuestransparency issues



Congressional Activities Congressional Activities

Changing of the Guard on Capital HillChanging of the Guard on Capital Hill

Impact on Congressional OversightImpact on Congressional Oversight

Technical Corrections relative to recent legislationTechnical Corrections relative to recent legislation

Change in Tone?Change in Tone?



Executive Compensation and Fringe Benefits

Executive Compensation and Fringe Benefits



Executive Compensation and Fringe BenefitsExecutive Compensation and Fringe Benefits

GAO Study of Non-Profit Hospital Executive GAO Study of Non-Profit Hospital Executive Compensation released in September 2006Compensation released in September 2006

What corporate governance structure do selected hospital What corporate governance structure do selected hospital systems report as having in place over executive compensation?systems report as having in place over executive compensation?

What is the basis for the compensation and benefits earned by, What is the basis for the compensation and benefits earned by, awarded to, or paid to the executives as reported by selected awarded to, or paid to the executives as reported by selected hospital systems? hospital systems?

What internal controls do selected hospital systems report as What internal controls do selected hospital systems report as having in place over the approval, payment, and monitoring of having in place over the approval, payment, and monitoring of executive travel and entertainment expenses, gifts, and other executive travel and entertainment expenses, gifts, and other perquisites?perquisites?



Executive Compensation and Fringe BenefitsExecutive Compensation and Fringe Benefits

GAO Study of Non-Profit Hospital Executive GAO Study of Non-Profit Hospital Executive Compensation released in September 2006Compensation released in September 2006Grassley’s comment on report that Non-profit Grassley’s comment on report that Non-profit executive compensation not that different from the executive compensation not that different from the taxable communitytaxable community



Fringe Benefits, In GeneralFringe Benefits, In General

Qualified Employee DiscountsQualified Employee Discounts

No-Additional Cost ServicesNo-Additional Cost Services

De Minimis Fringe BenefitsDe Minimis Fringe Benefits

Working Condition Fringe BenefitsWorking Condition Fringe Benefits

Other IRC section 132 Fringe Benefits Other IRC section 132 Fringe Benefits

Qualified Transportation (transit pass, commuter Qualified Transportation (transit pass, commuter vehicle, parking)vehicle, parking)

Moving Expense ReimbursementMoving Expense Reimbursement



IRC section 127 Educational Assistance

Programs, IRC section 132(d), and IRC section 117(d)

IRC section 127 Educational Assistance

Programs, IRC section 132(d), and IRC section 117(d)



Spousal TravelSpousal Travel



Free or Discounted Athletic or Theater Tickets

Free or Discounted Athletic or Theater Tickets



Eating facilities and Dining Rooms

Eating facilities and Dining Rooms



Athletic Facilities Athletic Facilities



Club MembershipsClub Memberships



Free or Subsidized Housing and President’s Residence

Free or Subsidized Housing and President’s Residence



Transportation Automobiles and Airplanes

Transportation Automobiles and Airplanes



Cell PhonesCell Phones



Professional Dues, Publications, and Conferences

Professional Dues, Publications, and Conferences



Travel and Entertainment Expense ReimbursementsTravel and Entertainment

Expense Reimbursements



Gifts and AwardsGifts and Awards



Unrelated Business Income - OverviewUnrelated Business Income - Overview

In generalIn general

Exclusions from taxationExclusions from taxation

Activities conducted by educational Activities conducted by educational institutions that may generate unrelated institutions that may generate unrelated business incomebusiness income

Questions and answersQuestions and answers



Unrelated Business Income, In GeneralUnrelated Business Income, In General

Not substantially related to Not substantially related to charitable purposescharitable purposes

Trade or BusinessTrade or Business

Regularly Carried onRegularly Carried on



Unrelated Business Income – Exclusions from TaxationUnrelated Business Income – Exclusions from Taxation

ExclusionsExclusions

Passive IncomePassive IncomeInterest and DividendsInterest and Dividends

RoyaltiesRoyalties

AnnuitiesAnnuities

Rental of Real PropertyRental of Real Property

Gains and Losses on InvestmentsGains and Losses on Investments

Convenience ExceptionConvenience Exception

Volunteer Labor Volunteer Labor

If not excluded, then activity may lack profit motive.If not excluded, then activity may lack profit motive.



Unrelated Business Income – Other ProvisionsUnrelated Business Income – Other Provisions

Income from Controlled OrganizationsIncome from Controlled Organizations

Unrelated Debt-Financed IncomeUnrelated Debt-Financed Income

Allowable Deductions – Proximate and Allowable Deductions – Proximate and PrimaryPrimary



Advertising IncomeAdvertising Income



Corporate Sponsorship Payments

Corporate Sponsorship Payments



Athletic EventsTelevision and Broadcast Rights

Athletic EventsTelevision and Broadcast Rights



Internet Fundraising and Advertising Issues

Internet Fundraising and Advertising Issues



Participation in PartnershipsParticipation in Partnerships



Hotel and Restaurant OperationsHotel and Restaurant Operations



Rental ActivityOperation of Parking Lots

Rental ActivityOperation of Parking Lots



Rental ActivityProfessional Entertainment

Events

Rental ActivityProfessional Entertainment

Events



Rental ActivityUse of Recreational Facilities by

the General Public

Rental ActivityUse of Recreational Facilities by

the General Public



Rental ActivitySummer Sports Camps

Rental ActivitySummer Sports Camps



Questions and AnswersQuestions and Answers



Thank you!

Contact Info:

Dee Rich(336) 433 7071

[email protected]

Thank you!

Contact Info:

Dee Rich(336) 433 7071

[email protected]

tax issues in higher education duke university may 24, 2007 donald “dee” e. rich, jr. partner

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