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Federal and Louisiana Taxes

Monthly Archives: February 2012

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 – January 2011

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

Robert Bowsher

Robert T. Bowsher
robert.bowsher@bswllp.com

Lance Kinchen

Lance J. Kinchen
lance.kinchen@bswllp.com

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“Act”). The Act temporarily extends tax cuts that were set to expire at the end of 2010 under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) and the Job and Growth Tax Relief Reconciliation Act of 2003 (“JGTRRA”). The following is a brief summary of some of the Act’s main provisions.

Individual Income Tax Rates. One of the biggest benefits resulting from the new Act is that the individual income tax rates or brackets will remain unchanged through the end of 2012. Prior to the new Act, the 25%, 28%, 33% and 35% individual income tax brackets were set to expire at the end of 2010. Without the Act, the individual income tax brackets would have been 28%, 31%, 36% and 39.6% in 2011. The Act extends the 25%, 28%, 33% and 35% individual income tax brackets for an additional two (2) years, through 2012. The Act also maintains the 10% bracket for low income taxpayers for an additional two (2) years, through 2012.

Capital Gains and Dividends. The Act extends for those taxpayers in the 25% individual income tax bracket and above, the long-term capital gains and dividend tax rates at 15%. Without the new Act, the rates for long-term capital gains would have increased to a maximum of 20% and dividends would have been subject to the ordinary income tax rates. The new Act also retains the long-term capital gains and dividend rates for taxpayers below the 25% bracket at 0%.

Itemized Deduction Limitation. For the past several years, the amount of itemized deductions that a taxpayer may claim has been reduced to the extent that the taxpayer’s adjusted gross income is above a certain amount. The first year in which there were no limitations on itemized deduction in 2010. The Act extends the repeal of the itemized deduction limitation for an additional two (2) years, through 2012.

AMT Relief. The Act increases the AMT exemption amount for 2010 from $33,750 to $47,450 for non-married individuals and from $45,000 to $72,450 for married individuals filing jointly. The Act increases the AMT exemption amount for 2011 to $48,450 for non-married individuals and $74,450 for married individuals filing jointly.

Temporary Extension of Estate Tax Relief. After December 31, 2010, the Bush era estate tax reduction was scheduled to expire and return to the exemption amounts and the rates in effect in 2001. This result was apparently not acceptable to anyone and the resulting tax relief Act makes significant changes to the estate tax provisions of the Internal Revenue Code, which will now be in effect until January 1, 2013.

(a) The applicable credit amount, which is the amount an individual can pass free of estate tax to his heirs, which was scheduled to be $1.0 million in 2011 with a maximum tax rate of 55% was changed for decedents dying after December 31, 2009 to be $5.0 million with a maximum tax rate of 35%.

(b) After December 31, 2010, the gift tax exclusion amount for an individual’s lifetime gifts will be raised from $1.0 million to $5.0 million. Additionally, the applicable credit for estate tax purposes and the exclusion amount for gift tax purposes will again become a unified credit for taxable transfers both during an individual’s lifetime and also at death.

(c) The Act did away with, in general, the carryover basis for heirs of decedent’s dying in 2010, providing a return to a step up in basis to the fair market value of the decedent’s property at the date of death.

(d) For decedents dying in 2010, the executor of such estates may elect out of the new estate tax and stepped up basis provisions and have the old provisions apply. For estates having net assets in excess of $5.0 million, the executor may want to elect out of the new tax provisions to avoid paying estate taxes but then the assets of the estate will have a carryover basis to the heirs, not a stepped up basis. Under rules to be issued by the Treasury, the executors of such estates will have nine (9) months from enactment of the Act to elect out.

(e) The Act introduces a new benefit for married decedents dying after December 31, 2010. In situations where the first spouse to die does not use all of the deceased spouse’s applicable credit amount of $5.0 million, the unused portion is available for use by the surviving spouse as an addition to such surviving spouse’s own applicable exclusion amount of $5.0 million. For example, if the first spouse to die only has a taxable estate of $3.0 million, the surviving spouse may use the predeceased spouse’s carryover amount of $2.0 million with such surviving spouse’s own $5.0 million exclusion for taxable transfers of $7.0 million made during life or at death.

These provisions are only a temporary fix to the estate and gift tax issues and all of these provisions sunset after December 31, 2012, when the old law of 2001 once again is scheduled to come back into effect at an applicable credit amount of $1.0 million and a maximum tax rate of 55%.

Payroll Tax Cut. The Act reduces only the employee portion of the social security tax from 6.2% to 4.2% for 2011. Under current law, employees pay 6.2% in social security tax in all wages earned up to $106,800 (in 2011). Self-employed individuals pay 12.4% social security self-employment taxes on all of their self-employment income up to the same threshold. The Act provides that self-employed individuals will only pay 10.4% on self-employed income up to the threshold amount for 2011.

100% Bonus Depreciation. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Congress allowed businesses, beginning January 1, 2008 through December 31, 2009, to take an additional depreciation deduction allowance equal to 50% of the cost of the depreciable property placed in service in those years. Under the Small Business Jobs Act of 2010, this temporary increase in the depreciation deduction allowance was extended through December 31, 2010. The Act now extends and temporarily increases this bonus depreciation provision for investments in new business equipment. For qualified property acquired after September 8, 2010 and before January 1, 2012, and which is placed in service by the taxpayer before January 1, 2012 (before January 1, 2013 for certain longer-lived and transportation property), the Act provides for 100% bonus depreciation. For qualified property placed in service after December 31, 2011 and through December 31, 2012 (before January 1, 2013 for certain longer-lived and transportation property), the Act provides for 50% bonus depreciation.

Section 179 Deduction. Under current law, a taxpayer may elect to deduct the cost of certain property placed in service for the year rather than depreciate those costs over time. The 2003 tax cuts temporarily increased the maximum dollar amount that may be deducted from $25,000 to $100,000. The tax cuts also increased the phase-out amount from $200,000 to $400,000. In 2007, the tax cuts temporarily increased these thresholds to $125,000 and $500,000, respectively, indexed for inflation. These amounts have been further increased and extended several times on a temporary basis, including most recently as part of the Small Business Jobs Act which increased the thresholds to $500,000, with the $500,000 amount reduced by the amount by which the cost of the qualifying property placed into service in that year exceeds 2,000,000 for the taxable years beginning in 2010 and 2011. The Act extends the 2007 maximum amount for taxable years beginning in 2012, to $125,000 and phase-out thresholds to $500,000, respectively, indexed for inflation.

Gulf Opportunity Zone Extensions.

(a) The Act extends for two (2) years an additional depreciation deduction equal to 50% of the cost of new property investments made in the Gulf Opportunity Zone. The Act makes qualifying expenditures in 2011 eligible provided the property is placed in service by December 31, 2011.

(b) The Act extends for an additional two years the increased rehabilitation credit for qualified expenditures in the Gulf Opportunity Zone. The Gulf Opportunity Zone Act of 2005 increased the rehabilitation credit from 10% to 13% of qualified expenditures for any qualified rehabilitated building other than a certified historic structure, and from 20% to 26% of qualified expenditures for any certified historic structure located in the Gulf Opportunity Zone. The extension applies to qualified rehabilitation expenditures with respect to such buildings or structures incurred before January 1, 2012.

(c) The Gulf Opportunity Zone Act of 2005 provided an additional allocation of low-income housing tax credits to the Gulf Opportunity Zone in an amount equal to the product of $18.00 multiplied by the portion of the State population which is in the Gulf Opportunity Zone. The additional allocations were made in calendar years 2006, 2007 and 2008, and required that the properties be placed in service before January 1, 2011. The Act extends that placed-in-service deadline for one year to December 31, 2011.

(d) Under previous law, Gulf Opportunity Zone bonds were authorized to help rebuild areas devastated by Hurricane Katrina and must be issued by December 31, 2010. The Act provides one additional year to issue Gulf Opportunity Zone bonds, through December 31, 2011.

Conclusion. The Act contains numerous other provisions that may apply to your specific situation. We recommend that you consult your individual tax advisor to determine what provisions of the Act may affect your individual or business tax returns. Pursuant to IRS Circular 230 and IRS regulations, we inform you that, unless specifically indicated otherwise, any tax advice contained in this communication, including attachments, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter addressed herein.

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IRS Requirements for A Community Health Needs Assessment for Tax Exempt Hospitals August 2011

IRS Requirements for A Community Health Needs Assessment for Tax Exempt Hospitals

Robert Bowsher

Robert T. Bowsher
robert.bowsher@bswllp.com

The Internal Revenue Service recently issued Notice 2011-52, which provides information and solicits further comment on the new community healthcare needs assessment (“CHNA”) required for tax exempt hospitals. CHNAs are required by §501(r) of the Internal Revenue Code (“Code”), which was enacted by the Affordable Care Act, and apply to hospitals exempt under §501(c)(3) of the Code. This new notice discusses guidelines and implementation of the CHNA and addresses taxpayers’ previous comments to IRS’s previous Notice 2010-39. The IRS anticipates that these guidelines will be incorporated into the regulations to be proposed under §501(r).

Section 501(r) provides that a hospital will not be exempt under §501(c)(3) unless it meets the CHNA requirements. A CHNA must be conducted every three (3) years and the hospital must have adopted an implementation strategy to remedy the needs set forth in the CHNA. Section 501(r)(3)(B) requires that a CHNA take into account input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health. The CHNA is also required to be made widely available to the public. These requirements are effective for tax years beginning after March 23, 2012. Accordingly, for hospitals using a calendar year, these requirements become effective on January 1, 2013.

Notice 2011-52 sets forth tentative conclusions of the IRS in certain specific areas. This is a brief summary of the Notice and is not intended to be comprehensive. The actual Notice should be consulted for more detail.

1. WHAT ORGANIZATIONS MUST COMPLY WITH THE CHNA REQUIREMENT?

The IRS indicates that currently the only exempt organizations having to comply with the CHNA requirements are organizations operating state-licensed hospital facilities. These rules would apply to any exempt organization which operates a state-licensed hospital facility directly, or indirectly through a disregarded entity or a joint venture, limited liability company or other entity treated as a partnership for federal income tax purposes.

The Notice mentions that a number of commenters suggested that the CHNA requirements should not apply to hospitals which are part of the government, or a governmental unit or a hospital service district which would otherwise be tax exempt as a government or political subdivision under §115 of the Code notwithstanding the hospital’s tax exempt classification under §501(c)(3). The IRS takes the position that §501(r) applies to all hospitals exempt under §501(c)(3), whether or not they may be owned governments or political subdivisions. Accordingly, the IRS intends to apply the CHNA requirements to every hospital that is been recognized as an organization under §501(c)(3).

2. WHERE AN ORGANIZATION OWNS MULTIPLE HOSPITAL FACILITIES.

An exempt organization owning more than one hospital must meet the CHNA requirement separately with respect to each hospital facility and the organization will not be considered tax exempt with respect to any hospital for which the CHNA requirements are not met. From the Notice, it is clear that the IRS has not determined on how this penalty can be applied to non-compliant hospital facilities owned by organizations exempt under §501(c)(3) which own other hospitals that are CHNA compliant.

3. DEFINING A CHNA.

A CHNA is a written report including the following information:

(a) A description of the community served by the hospital facility and how the community was determined.

(b) A description of the process and methods used to conduct the assessment. If the hospital collaborates with other organizations in developing the CHNA; the report should identify all of such organizations.

(c) A description of how the hospital considered input from persons who represent the board interests of the community served by the hospital. This includes how and when the hospital consulted these people, whether though interviews, surveys, focus groups or meetings. The report must identify any individual providing input who has special knowledge by name, title, affiliation and qualifications.

(d) A prioritization of the community needs and the basis for prioritizing such needs.

(e) A description of the existing healthcare facilities and other resources within the community available to meet the community health needs identified in the CHNA.

4. WHEN AND HOW IS A CHNA “CONDUCTED”.

A CHNA must be conducted in every third taxable year. The IRS considers a CHNA as being conducted in the taxable year that the written report of its findings is made widely available to the public. A CHNA must identify and assess the health needs of, and take into account input from persons who represent the broad interests of the community served by the specific hospital facility. The organization may utilize information collected by other organizations, such as public health agencies or non-profit organizations. The organization may conduct a CHNA in collaboration with other organizations, including for profit and governmental hospitals and state and local agencies, such as public health departments.

5. COMMUNITY SERVED BY A HOSPITAL FACILITY.

The IRS expects that a hospital’s community will be defined by geographic location (e.g., a particular city, county, or metropolitan region). But the definition of a hospital’s community may also take into account target populations served (e.g., children, women, or the aged) and/or the hospital’s principal functions (e.g., focus on a particular specialty area or targeted disease).

However, the IRS indicates that the community may not be defined in a manner that circumvents the requirement to assess the health needs of the community served by a hospital facility by excluding, for example, medically underserved populations, low income persons, minority groups or those with chronic disease needs.

6. WHO REPRESENTS THE BROAD INTERESTS OF THE COMMUNITY?

A hospital must take into account input from persons who represent the broad interests of the community served by the hospital. The IRS intends to provide that a CHNA must, at a minimum, take into account input from:

(a) Persons with special knowledge of or expertise in public health.

(b) Federal, tribal, regional, state or local health or other departments or agencies, with current data or other information relevant to the health needs of the community served by the hospital.

(c) Leaders, representatives or members of medically underserved, low income and minority populations and populations with chronic disease needs in the community. The hospital, of course, may consult other persons located in and/or serving the community. These people may have certain knowledge or expertise, such as healthcare consumer advocates or academic experts.

7. MAKING THE CHNA WIDELY AVAILABLE TO THE PUBLIC.

Section 501(r) requires that the CHNA be made “widely available to the public”. This requirement can be met by posting the CHNA on the hospitals’ website or the hospital’s organization website, or another website, to which any individual requesting a copy can be directed. The CHNA not only must be posted on a website, but the document must be easily accessible and be easily downloaded from the website. Any CHNA must be available until the subsequent CHNA has been posted in its place.

8. CHNA IMPLEMENTATION STRATEGY.

In addition to the needs report, the hospital must adopt an “implementation strategy” to meet the community health needs identified through the CHNA. The IRS intends to define an “implementation strategy” as a written plan for a hospital facility that addresses each of the community health needs identified through a CHNA for such facility. This written plan must:

(a) describe how the hospital plans to meet the health need; or

(b) identifies the health need as one the hospital does not intend to meet and explains why the hospital does not intend to meet the health need.

The implementation strategy must be tailored to the particular hospital facility and can also outline any planned collaboration with other healthcare organization departments or agencies in meeting the health need. The hospital’s implementation strategy shall be attached to the hospital’s annual Form 990. But a government hospital or hospital service district remains relieved of the obligation to file Form 990s.

9. WHEN AND HOW IS AN IMPLEMENTATION STRATEGY ADOPTED.

The IRS intends to provide that a hospital must adopt an implementation strategy by the end of the same year in which it conducts the CHNA. The IRS intends to consider an implementation strategy as being adopted on the date the implementation strategy is approved by an authorized governing body of the hospital organization. An authorized governing body is generally the board of directors or board of trustees of the hospital organization, but may also be a committee of the governing body provided that under state law, the committee has the authority to act on behalf of the governing body.

10. EXCISE TAX.

Section 4959 imposes a $50,000 excise tax on a hospital organization that fails to meet the CHNA requirements for any taxable year including failing to meet the CHNA requirements for any facility of a hospital organization owning multiple facilities.

Pursuant to IRS Circular 230 and IRS regulations, any federal tax advice contained in this article is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed under the Internal Revenue Code.