On May 16, 2012, the Oversight Subcommittee of the House of Representatives Committee on Ways and Means, led by Congressman Charles W. Boustany Jr., MD (R-LA), heard testimony from representatives of tax-exempt hospitals, universities and charitable institutions on the current state of compliance and reporting requirements for tax-exempt organizations. The hearing was the first in a series examining compliance issues facing non-profit organizations.
The Committee examined, among other issues, the IRS’s compliance initiative for universities, reporting requirements for tax-exempt hospitals, efforts to implement corporate governance standards for non-profit organizations and the redesigned Form 990. A full description of the hearing is available here.
Speaking to recent changes in the reporting requirements for universities, Joanne M. Destefano, Vice President for Finance and Chief Financial Officer of Cornell University, discussed the growing costs of compliance and proposed that the IRS eliminate a new requirement that income related to partnership investments be reported based on Schedule K-1 information. Ms. Destefano noted that organizations have historically reported partnership information on Form 990, which is an information-based return, in a manner that is consistent with the financial data contained in an organization’s books and records. She argued that the shift to reporting based on Schedule K-1 information, which is a tax-based reporting form, will likely create a number of inconsistencies in how the information is reported on Form 990 and impose a substantial administrative burden on many institutions that receive a large number of Schedules K-1 related to their partnership investments.
Michael J. Regier, Senior Vice President of Legal and Corporate Affairs for VHA Inc., a Texas-based alliance of non-profit and non-acute healthcare organizations, discussed the impact of recent legislation on tax-exempt hospitals, particularly with regard to the Affordable Care Act. Among other things, the Act imposes new reporting and disclosure requirements under Section 9007(a), mandates an IRS review of each hospital’s community benefit activities every three years and requires tax-exempt hospitals to prepare and publicize a community health needs assessment and implement financial assistance and emergency care policies.
Discussing governance and compliance issues, Diana L. Aviv, President and CEO of Independent Sector, emphasized the important role that tax policy plays in encouraging charitable giving, which has dramatically declined in recent years, and encouraged members of Congress to keep this in mind when considering comprehensive tax reform. Ms. Aviv also discussed the progress that has been made to enhance good governance and compliance standards under the Pension Protection Act of 2006 and through the redesigned Form 990. Ms. Aviv discussed recent changes to the Form, including (i) mandatory revocation of exempt status for organizations that fail to file an appropriate Form 990 for three consecutive years, (ii) expanded compensation reporting and (iii) additional required information concerning the organization’s purpose, governance and potential conflicts of interest.
Ms. Aviv also proposed additional changes to Form 990 to more efficiently facilitate good governance and compliance, including revising Part VIII to clarify that government pay-for-service contracts qualify as government contributions and to include additional lines for reporting income received from Medicaid and Medicare, disclosing whether audited financial statements are publicly available and expanding mandatory electronic filing to include more organizations.
A video of the entire 90 minute hearing is available on the House Ways and Means Committee website.