Tuesday & Wednesday, January 28‐29, 2020 Hya� Regency Columbus, Columbus, Ohio Workshop D Unique Tax Issues in the Healthcare and Non-Profit Entities Tuesday, January 28, 2020 1:45 p.m. to 2:45 p.m.
Biographical Information Jeffrey L. Stansberry, CPA, MT - Tax Manager, OhioHealth 80 E. Broad St, Columbus, OH 43215 jeffrey.stansberry@ohiohealth.com (614) 544-4336 Fax (614) 544-4470 Jeff started his career in public accounting and was at GBQ Partners for over four years. He then transitioned into industry and was at BISYS/Citi for over six years. After being in public and industry for nearly two decades, he decided to shift his focus into the tax-exempt sector. For over three years, Jeff has led up the tax department at OhioHealth, central Ohio’s largest healthcare system. Jeff is responsible for leading OhioHealth’s annual federal, state, and local tax compliance process while providing oversight and communication to the entire system of over 20,000 employees. Jeff is a graduate of The Ohio State University with a BS in Business Administration (Honor Classes) and received a Master’s in Taxation from Capital University Law School. Christopher J. Swift, Partner, Baker Hostetler LLP 1900 East 9th Street, Suite 3200, Cleveland, OH 44114-3482 cswift@bakerlaw.com 216.861.7461 Chris Swift is a healthcare and tax lawyer who counsels the healthcare industry and other businesses by guiding them through governmental, tax and regulatory issues. He keeps non-profit organizations tax-exempt, assists all taxpayers in reducing state and local taxes and finds tax and regulatory incentives to grow companies. He currently serves both as a National Co-Leader of the firm’s Healthcare Industry Team and as Coordinator of the Cleveland office’s Tax, Personal Planning and Employee Benefits Group. He served as a member of the firm’s Policy Committee, 2004 through 2009. Chris has lectured on state and local taxes to several organizations, including the Cleveland Metropolitan Bar Association, the Columbus Bar Association and the Committee on State Taxation. In 1988, he was the Chair of the Cleveland Bar Association’s State and Local Tax Institute. In 1990-91, he served as Chair of the Cleveland Bar Association’s General Tax Committee. Chris has also served as Chair of the 2008 Cleveland Tax Institute and the CMBA’s 1998 Health Law Institute. Chris is a member of the American, Ohio and Cleveland Metropolitan Bar Associations, as well as the American Health Lawyers Association. Since 1997, Chris has been listed annually in the Best Lawyers in America. He was named by Best Lawyers as “2010 Cleveland Tax Lawyer of the Year” and “2011 Cleveland Health Care Lawyer of the Year.” Both honors are bestowed upon only one lawyer per specialty in each community. Chris has been named an “Ohio Super Lawyer” for the past ten years. Stephen M. Palmer, CPA, Senior Manager, SALT Plante Moran, 250 S. High St., Ste. 100, Columbus, OH 43215 614-222-9137 Fax: 248.327.8537 Stephen.Palmer@plantemoran.com Stephen spent more than 6 years at the Ohio Department of Taxation primarily involved in auditing various Ohio taxes. The Ohio tax auditing experience crossed multiple industries and included pass- through entity tax, sales and use tax, the former Ohio franchise and personal property taxes, income tax, and withholding tax. For more than ten years, Stephen has provided value added service to clients in the private sector. His experience includes multi-state taxation in the manufacturing, distribution, healthcare, and service industries. Value-added services include audit resolution, nexus reviews, sales and use tax studies, voluntary disclosure representation, tax planning, and tax structuring, and due diligence. Additionally, Stephen frequently writes state and local tax alerts and presents at various tax conferences. Stephen is a graduate of Cedarville University, is a member of the Ohio Society of CPAs, and is a member of the tax committees for the Ohio Chamber of Commerce, the Ohio Manufacturer’s Association, and the Ohio Society of CPAs.
Healthcare Industry & Nonprofit Entities Unique Tax Issues Jeffrey Stansberry ‐ OhioHealth Christopher Swift ‐ Baker Hostetler Stephen Palmer ‐ Plante Moran
Agenda TAX REFORM SALES AND USE COMMERCIAL PROPERTY TAX IMPORTANT RISK TAX ACTIVITY TAX EXEMPTIONS CONSIDERATIONS 2
Basis for Federal Income Tax Exemption • Section 501(c)(3) requires that the corporation be “organized and operated exclusively for religious, charitable, scientific . . . Or educational purposes” and that “no part of the net earnings of which inures to the benefit of any private shareholder or individual.” 3
Choice of Entity • Chapter 1702 of the Ohio Revised Code (Ohio Nonprofit Corporation Law) • Some nonprofits are unincorporated associations, trusts, limited liability companies, partnerships, or disregarded entities • Section 501 of the Internal Revenue Code ‒ While many nonprofits are tax‐exempt for federal income tax purposes under Section 501(c)(3), there are many subsections like Section 501(c)(4) ‒ Some nonprofits are taxable ‒ Some for‐profit corporations are tax‐exempt 4
Choice of Entity • Different Rules for Different Taxes ‒ Federal Income Tax ‒ FUTA/SUTA • Reimbursing Employer Status ‒ Ohio Sales & Use Tax ‒ Ohio Real Property Tax ‒ Ohio Commercial Activity Tax 5
Tax Reform – Excise Tax on Compensation • Section 4960 imposes a 21 percent excise tax on the compensation of certain highly compensated employees of tax‐exempt organizations (effective 1/1/2018) • IRS issued Notice 2019‐09 – Interim Guidance under Section 4960 of the IRC. It is almost 100 pages long and includes close to 40 Q&As • Defined terms ‒ Applicable tax‐exempt organizations ‒ Covered Employees ‒ Excess Compensation ‒ Excess Parachute payment 6
Tax Reform – Excise Tax on Compensation > $1M (Form 4720) • For each legal entity, the five highest compensated “common law” employees for the tax year, or any prior year • Deferred comp considered once it vests • Does not include remuneration paid to licensed medical professionals for performance of medical services • The excise tax is paid by the organization • Tax years beginning 1/1/18 or later (FY19 comp for FY filers) • Calendar filers ‐ initial due date 5/15/19 with payment with a 6 month extension Fiscal year end filers ‐ initial due date 4 ½ months (or 15 th day of 5 th month) after • fiscal year end with payment with a 6 month extension • Guidance available through draft 4720 and instructions • Further regulatory guidance expected • No estimated tax payments and overpayments are automatically refunded by IRS 7
Tax Reform – Excise Tax on Compensation > $1M (Form 4720) • Wages as defined under Section 3401(a) ‐ W‐2, BOX 1 • Plus: Annual earnings on vested portion of SERP balance • Plus: Section 457(b) Contributions • Plus: Earnings on Section 457(b) accounts • Plus: Any imputed interest not already included in W‐2, Box 1 (i.e. split‐ dollar life insurance) • Plus: Other amounts vested during the period • Less: Roth contributions included in the W‐2, Box 1 above • Less: Group term‐life insurance included in the W‐2, Box 1 above 8
Tax Reform – Segmentation of UBI by Trade or Business Activity (Form 990‐T) • Organizations with one or more trade or business (T/B) subject to UBIT must calculate the tax separately for each T/B • Tax years beginning 1/1/18 and later • Calendar filers ‐ initial due date 5/15/19 with payment (with a 6 month extension) Fiscal year end filers ‐ initial due date 4 ½ months (or 15 th day of 5 th • month) after fiscal year end with payment (with a 6 month extension) • Notice 2018‐67 provides interim guidance with further guidance expected. 9
Tax Reform – UBIT taxation of fringe benefits • Early Christmas present – the so‐called “Parking Tax” was repealed as of December 20, 2019 and made retroactive to the enactment of the tax. • As a reminder, this was a tax applied to certain qualifying expenses of nonprofit entities. • Recommendation is to hold off on taking any action on claiming refunds (i.e. filing amended returns to claim a refund of the tax) to see if the IRS will issue a streamlined procedure for requesting refunds. 10
Tax Reform – Private Foundation Excise Tax • Simplification of excise tax rate to 1.39% • Effective for tax years beginning after the December 20, 2019 • Eliminates potential penalty for certain charitable giving and alleviates the need to track, monitor, and maintain charitable distributions for that purpose 11
Impact of External Change • Federal and State Health Care Policy ‒ EMTALA and other Safety Net Acts applicable to for‐profit providers ‒ Affordable Care Act ‒ Expansion of Medicaid ‒ Schedule H of Form 990 • Correlation of Value of Tax Benefits to Level of Charitable Care ‒ Percentage of Charitable Care is decreasing • How Much is Enough? 12
Ohio Nonprofit Corporation Definition • Ohio Rev. Code 1702.01(C) defines “Nonprofit Corporation” as a “corporation that is formed otherwise than for the pecuniary gain or profit of, and whose net earnings or any part of them is not distributable to, its members . . . .” 13
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