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Home > Community Health
The Law of Tax-Exempt Healthcare Organizations, + Website, 4th Edition
The Law of Tax-Exempt Healthcare Organizations, + Website, 4th Edition
The Law of Tax-Exempt Healthcare Organizations, + Website, 4th Edition
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A complete and up-to-date legal resource for tax-exempt healthcare organizations and their advisors, The Law of Tax-Exempt Healthcare Organizations, + Website, 4th Edition, equips you with a comprehensive, one-volume source of detailed information on federal law covering tax-exempt healthcare organizations. This practical, down-to-earth book tackles complex legal issues by providing you with plain-English explanations and the appropriate legal citations for further research.

  • Revised with new discussions on healthcare reform, the Affordable Care Act, IRS initiatives, executive compensation, commercial activity by tax-exempt organizations, political campaign activity, charitable reforms, governance, restrictions on supporting organizations, intermediate sanctions, and much more
  • Provides detailed documentation and citations, including references to regulations, rulings, cases, and tax literature
  • Includes an exhaustive index allowing for quick and easy reference
  • Offers annual supplements to keep readers apprised of the latest developments affecting tax-exempt healthcare organizations Written by leading experts in the fields of healthcare and nonprofit law, this comprehensive and vital resource has been completely revised and updated to present a clear view of complicated legal and tax issues.

Table of Contents


About the Authors

Book Citations

PART ONE: Introduction to The Law of Tax-Exempt Healthcare Organizations

Tax-Exempt Healthcare Organizations—An Overview

1.1 Constitutional Law Perspective

1.2 Defining Tax-Exempt Organizations

1.3 Rationales for Tax Exemption

1.4 Categories of Tax-Exempt Healthcare Organizations

1.5 Charitable Healthcare Organizations

1.6 The Law of Charitable Trusts

1.7 Relief of Poverty

1.8 Promotion of Health

1.9 Social Welfare Organizations

Advantages and Disadvantages of Tax Exemption

2.1 Source of Tax Exemption

2.2 Advantages of Tax Exemption

2.3 Disadvantages of Tax Exemption

2.4 Alternatives to Tax-Exempt Status

2.5 No Contract, Third-Party Beneficiaries, Right of Action, or Charitable Trust

2.6 Small Employer Insurance Tax Credit

Criticisms of Tax Exemption

3.1 Criticisms in General

3.2 Criticisms of Tax Exemption for Healthcare Organizations

3.3 Commerciality Doctrine

PART TWO: Fundamental Exempt Organization Principles Applied to Healthcare Organizations

Private Inurement, Private Benefit, and Excess Benefit Transactions

4.1 Essence of Private Inurement

4.2 Requisite Insider

4.3 Physicians as Insiders

4.4 Private Inurement—Scope and Types

4.5 Private Inurement Per Se

4.6 Essence of Private Benefit

4.7 Private Inurement and Private Benefit Distinguished

4.8 A Case Study

4.9 Excess Benefit Transactions

Public Charities and Private Foundations

5.1 Public Institutions

5.2 Publicly Supported Organizations; Donative Entities

5.3 Publicly Supported Organizations—Service Provider Organizations

5.4 Comparative Analysis of the Two Categories of Publicly Supported Charities as Applied to Healthcare Organizations

5.5 Supporting Organizations

5.6 Recognition of Change in Public Charity Status

5.7 Relationships Created for Avoidance Purposes

5.8 Income Attribution Rules

5.9 Reliance by Grantors and Contributors

5.10 Private Foundation Rules

Community Benefit

6.1 Community Benefit and Operation for Charitable Purposes

6.2 The Traditional Community Benefit Standard

6.3 The New Community Benefit Standard

Lobbying and Political Activities

7.1 Legislative Activities Limitation

7.2 Business Expense Deduction Rules and Lobbying

7.3 Federal Disclosure of Lobbying

7.4 Political Activities Limitation

7.5 Business Expense Deduction Rules and Political Activities

7.6 Internet Activities

7.7 Public Policy Advocacy Activities

7.8 Political Activities of Social Welfare Organizations

7.9 Constitutional Law Considerations

PART THREE: Tax Status of Healthcare Provider and Supplier Organizations


8.1 Federal Tax Law Definition of Hospital

8.2 Private Charitable Hospitals

8.3 Public Hospitals

8.4 Religious Hospitals

8.5 Proprietary Hospitals

Managed Care Organizations

9.1 Introduction

9.2 Health Maintenance Organizations

9.3 Commercial-Type Insurance Providers

9.4 Preferred Provider Organizations

9.5 Recent Developments

Home Health Agencies

10.1 Freestanding Home Health Agencies

10.2 Hospital-Based Home Health Agencies

10.3 Private Duty Nursing Companies

Homes for the Aged

11.1 Introduction

11.2 Overview of Tax Exemption for Homes for the Aged

11.3 Specific Types of Healthcare Facilities for the Aged

11.4 Other Considerations

Tax-Exempt Physician Organizations

12.1 Tax-Exempt Clinics

12.2 Teaching Hospital Faculty Organizations

Other Provider and Supplier Organizations

13.1 Blue Cross and Blue Shield Associations

13.2 High-Risk Individuals Healthcare Coverage Organizations

13.3 Qualified Health Insurance Issuers

13.4 Health Insurance Exchanges

13.5 Accountable Care Organizations

PART FOUR: Tax Status of Health-Related Organizations

Development Foundations

14.1 Basic Concepts

14.2 Other Considerations

14.3 Case Study

14.4 A Potential Alternative

Title-Holding Companies

15.1 Single-Parent Title-Holding Companies

15.2 Multi-Parent Title-Holding Companies

15.3 Unrelated Business Considerations

For-Profit Subsidiaries

16.1 Establishing a Subsidiary

16.2 Financial Considerations

16.3 Attribution of Subsidiary’s Activities to Exempt Parent

16.4 Asset Accumulations

16.5 Effect of For-Profit Subsidiaries on Public Charity Status

16.6 Subsidiaries in Partnerships

Exempt and Nonexempt Cooperatives

17.1 Cooperative Hospital Service Organizations

17.2 Subchapter T Cooperatives

Business Leagues

18.1 Business Leagues in General

18.2 Healthcare Trade Associations

18.3 Certification Organizations and Peer Review Boards

18.4 Legislative Activities of Business Leagues

Other Health-Related Organizations

19.1 Physician Referral Services

19.2 Nurse Registries

19.3 Charitable Risk Pools

19.4 Hospital Management Services Organizations

19.5 Regional Health Information Organizations

PART FIVE: Organizational Issues

Healthcare Provider Reorganizations

20.1 Some Basics about Reorganizations

20.2 Parent Holding Corporations

Mergers and Conversions

21.1 Mergers and Consolidations between Exempt Healthcare Organizations

21.2 Mergers and Consolidations between Exempt and Nonexempt Healthcare Organizations

21.3 Conversion from Exempt to Nonexempt Status

21.4 Conversion from Nonexempt to Exempt Status

21.5 Joint Operating Agreements

Partnerships and Joint Ventures

22.1 Tax Law Fundamentals

22.2 Tax-Exempt Healthcare Entities in Partnerships

22.3 Partnerships and Tax Exemption

22.4 Limited Liability Companies as Exempt Organizations

22.5 Information Reporting

22.6 Joint Ventures

22.7 Partnerships, Joint Ventures, and Private Inurement

22.8 Partnerships, Joint Ventures, and Per Se Private Inurement

22.9 Whole-Hospital Joint Ventures

22.10 Provider-Sponsored Organization Joint Ventures

22.11 Ancillary Services Joint Ventures

22.12 Single-Member Limited Liability Companies

Integrated Delivery Systems

23.1 Introduction

23.2 Tax Status of IDS Organizations

23.3 Physician Practice Acquisitions

PART SIX Operational Issues

Tax Treatment of Unrelated Business Activities

24.1 Introduction

24.2 Definition of Trade or Business

24.3 Definition of Regularly Carried On

24.4 Definition of Substantially Related

24.5 Application of Substantially Related Test to Healthcare Organizations

24.6 Definition of Patient

24.7 Gift Shops, Cafeterias, and Coffee Shops

24.8 Fitness Centers

24.9 Parking Facilities

24.10 Temporary Residential Facilities

24.11 Pharmacy, Medical Supplies, and Services Sales

24.12 Laboratory Testing Services

24.13 Medical Research

24.14 Medical Office Buildings

24.15 Transactions between Related Organizations

24.16 Services for Small Hospitals

24.17 Corporate Sponsorships

24.18 Other Exceptions to Unrelated Income Taxation

24.19 Internet Activities

24.20 Revenue from Controlled Organizations

24.21 Unrelated Debt-Financed Income

24.22 Specific Deduction

24.23 Computation of Unrelated Business Taxable Income

24.24 The Commerciality Doctrine

Physician Recruitment and Retention

25.1 Introduction

25.2 The IRS Position

25.3 The OIG Position

25.4 Guidelines for Analyzing Recruitment and Retention Techniques

25.5 Specific Recruitment and Retention Techniques

25.6 Hermann Hospital Closing Agreement

25.7 Physician Recruitment Revenue Ruling

Charity Care

26.1 Introduction

26.2 The Financial Ability Standard

26.3 The Community Benefit Standard

26.4 The Emergency Room Exception

26.5 Legal Challenges to Hospital Charity Care Practices

26.6 Definitional and Reporting Issues

26.7 IRS Compliance Check and Form 990 Redesign

26.8 Federal Legislative Initiatives

26.9 Charity Care and National Health Reform

26.10 Additional Statutory Requirements for Hospitals

§ 26.11 The Constitutionality of the Affordable Care Act

Worker Classification and Employment Taxes

27.1 Federal Employment Taxes

27.2 Employees and Independent Contractors Distinguished

27.3 The Common-Law Factors

27.4 Safe Harbors

27.5 Classification of Healthcare Workers

27.6 Coordinated Issue Papers

27.7 Medical Residents and the Student Exception

Compensation and Employee Benefits

28.1 The Reasonable Compensation Standard

28.2 Hospital–Physician Compensation Arrangements

28.3 Executive Compensation

28.4 Board Compensation

28.5 Overview of Employee Benefits Law

28.6 Deferred Compensation in General

Medicare and Medicaid Fraud and Abuse and Its Effect on Exemption

29.1 The Conflict and Confluence of Tax Policy and Health Policy

29.2 Fraud and Abuse Violations as a Basis for Revocation of Exemption

29.3 Hospital Incentives to Physicians

Tax-Exempt Bond Financing

30.1 Overview of Qualified 501(c)(3) Bonds

30.2 Overview of the Qualified 501(c)(3) Bond Issuance Process

30.3 Disqualification of Tax-Exempt Bonds

30.4 Internal Revenue Service Developments

Fundraising Regulation

31.1 State Law Regulation

31.2 Federal Law Regulation

Rural Healthcare Organizations

32.1 Introduction

32.2 Application of the Substantial Private Benefit Prohibition

32.3 Application of Unrelated Business Income Rules

32.4 Physician Recruitment and Retention in Rural Areas


33.1 Introduction

33.2 Overview of Common Law and Statutory Duties of Officers and Directors

33.3 Good Governance Practices

33.4 Conflicts of Interest

33.5 Board Oversight of Executive Compensation

33.6 Government Oversight of Executive Compensation

33.7 Federal Legislative Initiatives

33.8 State Regulatory Enforcement of Corporate Responsibility Obligations

PART SEVEN Obtaining and Maintaining Exempt Status for Healthcare Organizations

Exemption and Public Charity Recognition Processes

34.1 Exemption Recognition Process

34.2 Application Disclosure Requirements

34.3 Special Requirements for Charitable Healthcare Organizations

34.4 Special Requirements for Health Insurance Issuers

34.5 Public Charity Status

34.6 Group Exemption

34.7 Integral Part Doctrine

34.8 Procedure Where Determination Is Adverse

Maintenance of Tax-Exempt Status and Avoidance of Penalties

35.1 Material Changes

35.2 Changes in Form

35.3 Annual Reporting Requirements

35.4 Redesigned Annual Information Return

35.5 Disclosure Requirements

35.6 IRS Disclosure to State Officials

35.7 Form 990 and Community Benefit

35.8 Reporting of Non-cash Gifts in General

IRS Audits of Healthcare Organizations

36.1 IRS Audits in General

36.2 Audit Procedures

36.3 Hospital Audit Guidelines

36.4 IRS Compliance Check Projects

36.5 Revocation of Exemption and Closing Agreements

About the Companion Website


About the Authors

Thomas K. Hyatt is a partner and the chair of Dentons US LLP's Health Care practice. He focuses on corporate and tax-exempt organization issues for healthcare providers. He represents organizations including public and private hospitals, multi-hospital systems, integrated delivery systems, academic medical centers, home health agencies, health maintenance organizations, continuing care retirement communities, provider associations, physician clinics, faculty practice plans, physician-hospital organizations, and shared services organizations. Tom is the Chair Emeritus and serves on the faculty of the annual Tax Issues for Healthcare Organizations seminar sponsored by the American Health Lawyers Association (AHLA), and past chair of AHLA's Tax and Finance practice group.

Bruce R. Hopkins is a senior partner with the firm Polsinelli PC and an adjunct professor at the University of Kansas School of Law. He is also the author of more than twenty-eight books, including The Law of Tax-Exempt Organizations, Tenth Edition; Tax-Exempt Organizations and Constitutional Law: Nonprofit Law as Shaped by the U.S. Supreme Court; Nonprofit Law Made Easy; and Private Foundations: Tax Law and Compliance, Fourth Edition, as well as the monthly newsletter Bruce R. Hopkins' Nonprofit Counsel.

Publication Date: June 2013
Number of Pages: 1045
ISBN 13: 978-1-118-53285-0
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