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Legal Insights and Perspectives for the Healthcare Industry

Congress did not address federal taxation of Provider Relief Fund Payments when the CARES Act became law on March 27, 2020. In this LawFlash, our tax team analyzes the Internal Revenue Service’s recently published answers  to frequently asked questions regarding taxation of these payments to healthcare providers.

Noting the upcoming July 15 deadline for both first and second quarter 2020 estimated tax payments, the authors underscore that providers will need to assess the impact of these funds on those estimates and prepare to make remittances accordingly.

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In this LawFlash, our Tax and Employee Benefits and Executive Compensation teams describe proposed regulations recently released by the Internal Revenue Service implementing Internal Revenue Code Section 4960. Section 4960 imposes a 21% excise tax on certain executive compensation paid to employees of tax-exempt organizations, including nonprofit hospital systems. The proposed regulations address important questions concerning the applicability of Section 4960. Those interested in submitting comments on the proposed regulations have until August 10, 2020 to do so.

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Chairman of the Senate Finance Committee, Senator Chuck Grassley, sent a letter on February 19 to the Internal Revenue Service (IRS) asking questions regarding IRS efforts to enforce Section 501(r) as it applies to tax-exempt hospitals. Section 501(r) requires a hospital to meet the following requirements in order to be tax-exempt: (1) conduct a community health assessment; (2) establish a financial assistance policy; (3) have limitations on charges for emergency or necessary medical care provided to individuals covered under a financial assistance policy; and (4) not engage in extraordinary billing and collection actions before determining if someone qualifies for its financial assistance policy. Mr. Grassley cited as reason for his concerns of noncompliance a 2017 article with statistics that large tax-exempt hospitals have decreased amounts of free charity care, while increasing total revenue.