South Florida Hospital News
Monday July 22, 2019
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February 2019 - Volume 15 - Issue 8

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IRS Tax Issues for Tax-Exempt Healthcare Organizations

The Internal Revenue Service (IRS) December 2017 Tax Cuts and Jobs Act created a number of new tax laws applicable to Internal Revenue Code Section 501(c)(3) tax-exempt organizations, including hospitals and medical centers, physician entities, nursing homes and other tax-exempt healthcare entities. The effective date of these new tax laws is an entity’s first year beginning after December 31, 2017; for example as follows:

• January 1, 2018 – December 31, 2018 for calendar year end entities;
• July 1, 2018 – June 30, 2019 for June 30th fiscal year end entities; and
• October 1, 2018 – September 30, 2019 for September 30th fiscal year end entities.
 
An exception to the above relates to qualified transportation benefits and parking which is effective for all organizations starting January 1, 2018.
 
A number of these new tax laws for Internal Revenue Code Section 501(c)(3) tax-exempt organizations include the following:
• A 21% Federal excise tax on excess compensation >$1 million
• A 21% Federal excise tax on excess parachute payments
• Unrelated business taxable income (and potential 21% Federal tax) for certain types of qualified transportation benefits and costs associated with certain types of employee parking arrangements
 
Any Federal excise taxes attributable to excess compensation >$1million and/or excess parachute payments are due to the IRS on or before the 15th day of the fifth month following the close of an organization’s year. The information and taxes due will be reported annually on a Form 4720.
 
Any unrelated business income taxes due attributable to qualified transportation benefits and/or parking are due to the IRS on or before the 15th day of the fifth month following the close of an organization’s year. The information and taxes due will be reported annually on a Form 990-T. Moreover, quarterly estimated tax payments may need to be made to the IRS prospectively in order to eliminate any underpayment of estimated tax and interest being assessed.
 
Throughout 2018, tax-exempt organizations and their tax advisers waited for further interpretation and guidance from the IRS relating to these new tax rules. In December of 2018, the IRS released the following Notices:
• Notice 2019-09 relating to excise tax on compensation >$1mllion and excess parachute payments
• Notice 2018-99 relating to parking expenses and taxable fringe benefits
• Notice 2018-100 relating to underpayment relief
 
Withum Recommendation
Outlined above are only some of the new tax rules and regulations and major highlights as a result of the 2017 Tax Cuts and Jobs Act. All Internal Revenue Code Section 501(c)(3) tax-exempt organizations should form an internal working group, prepare a written timeline and workplan and perform a gap analysis for tax compliance purposes with these new rules and regulations. Thereafter, remediation efforts and changes should be implemented by taxpayers.

For more information, contact Scott J. Mariani, JD, Partner and Healthcare Practice Leader, WithumSmith+Brown, CPAs, at (973) 868-8124 or smariani@withum.com or visit www.withum.com.

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