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The IRS has issued guidelines on doctor recruitment incentives that can be properly offered by exempt hospitals, in a revenue ruling praised by representatives of the exempt organization community. The ruling also addresses related intermediate sanctions issues affecting exempt organizations. The IRS ruling uses five hypothetical situations to illustrate the parameters of acceptable incentives in recruiting physicians.

The Church of Scientology's tax exemption, granted in 1993 after a long battle with the IRS, remains a controversial decision. The controversy has been fueled by media speculation regarding undisclosed documents relevant to the decision and a 1991 meeting between the Church and the IRS. However, several experts say the IRS's concession seems reasonable. Scientologists say their training practices are similar to other religions, but skeptics say Scientology charges fees improper for a legitimate church.

Officials with the IRS Employee Plans and Exempt Organizations Division report that audits of universities, joint operating agreements between nonprofit and for-profit hospitals and IRC section 403(b) plans are likely to increase in 1997. Audits of 403(b) plans can be initiated independent of the Coordinated Examination Program. Hospital compensation agreements and joint ventures will be closely examined. College unrelated business taxable income activities will receive attention, as will educational travel tours and payments to nonresident aliens.

Sen. Daniel Patrick Moynihan's stadium bond bill would prevent the use of tax-exempt bonds to finance sport facilities construction. The bill's effective date of June 14, 1996 hampered stadium bond issues, including the Rose Bowl renovation bonds. The bill's date provision and public policy implications are opposed by the public finance community and bond industry, despite Moynihan's subsequent decision to add a transitional relief amendment. Moynihan also admitted that his bill or similar ones will not be passed.

Tax officials, speaking at the May 1996 ABA Tax Section's Exempt Organizations meeting, described preparation of tax exempt organizations' guidance. Treasury's Catherine Livingston discussed guidance on accounting methods, self-dealing, unrelated business income tax, and physician recruitment, along with entity classification and nonresident alien withholding regulations. IRS official Marcus Owens discussed physician representation on health facility boards, intermediate sanctions, audits, and charitable gambling operations. Bond audit closing agreements were also discussed.

Tax officials, speaking at an April 1996 exempt organizations tax conference, discussed the Coordinated Examination Program (CEP), exempt bond audits, nonprofit health care, and the impact of pending legislation and tax reform on exempt organizations. Treasury's Catherine E. Livingston discussed the proposed intermediate sanctions bill. IRS's Marcus Owens and Debra Kaweki described CEP audits of nonprofit health care and educational organizations and planned bond audit guidance. The national sales tax and flat tax bills and the rise of for-profit health care providers, were also discussed.

The most significant Supreme Court tax decisions in 1995 involved the excludibility of personal injury and punitive damages, including those received in age discrimination suits. Other rulings covered state sales tax, state taxation on an Indian tribe, and procedural issues in a refund suit. Several IRS regulations were ruled invalid, including regulations on timber accounting and reserve strengthening, although regulations on bad debt reserves and fuel credits were upheld. Approximately 24 Tax Court decisions were reversed on appeal during 1995, although many reversals were on factual grounds rather than IRC misinterpretations. A Third Circuit ruling in the Allied-Signal case favored environmental groups.

Litigation surrounding taxes during 1994 covered a wide variety of topics. State's were given permission to use worldwide combined reporting by the Supreme Court and the retroactivity of many federal taxes was reaffirmed by the court. Issues that were litigated but remain unsettled due to conflicting decisions include the taxation of personal injury damages, transferee liability, and the allowance of late-filed tax claims in bankruptcy.

Issues concerning tax policy regarding exempt organizations are examined. Topics include the selection of Federal Election Commission acting general counsel Lois Lerner as IRS Exempt Organizations Rulings and Agreements Director, possible changes regarding tax policy for private foundations as a means to increase government revenue,there and IRS guidance on corporate naming rights.

Issues concerning intermediate sanctions against disqualified persons who benefit from excess benefit transactions with IRC section 501(c)(3) or (c)(4) organizations are examined, focusing on comments regarding the issue made at a public hearing during the week of Jul 30, 2001. Topics include background to sanctioins imposed under IRC section 4958; and testimony on initial-contract rule, financial protection of exempt organizations, and apprenticeship plans.

Issues related to plans by Redlands Surgical Services, Inc. to petition for a US 9th Circuit Court of Appeals rehearing and perhaps file for a US Supreme Court hearing if the first effort fails are examined, focusing on the details of the 9th Circuit's agreement with the Tax Court's 83-page opinion against Redlands and case law implications. The US Tax Court ruled that Redlands could not claim tax exempt status when it entered a joint venture with a for-profit entity.

Issues related to the management of the IRS Tax Exempt and Government Entities (TE/GE) Division are examined, focusing on progress made by the agency unit dealing with tax exempt bonds. Topics include education for bond issuers, consistency of bond enforcement program, and guidance from the IRS Associate Chief Counself for the TE/GE division.

The authors discuss the tax conference focusing on tax-exempt organization issues which was held Mar. 9 and 10 by Organization Management Inc. Statements made by IRS officials are included.

Witnesses at an IRS hearing on proposed arbitrage regulations argued against regulations that would treat prepaid contracts for commodities, especially natural gas commodities, as investment property. Topics include the legal background to the proposed regulations, statements made by representatives of the National Asociation of Bond Lawyers, statements made by investors in utilities, and concerns the regulations are not aligned with traditional concepts of arbitrage.

Issues concerning IRS resolution of abuses by the Bishop Estate, a charity that benefits the Kamehameha School in Hawaii, are examined. Topics include the excessive private benefits received by the trustees, the IRS requirement for the Bishop Estate to publish its closing agreement so that it may guide other nonprofits, and reorganization of the nonprofit.

Issues concerning joint ventures between nonprofit hospitals and for-profit entities are examined, focusing on the different responses the IRS and state attorneys general may have to the transactions. Attorneys general are concerned nonprofits do not invest more than 50% of their assets in a single joint venture; the IRS is concerned with issues related to unrelated business income.

The IRS announced in November 1999 appointments within the Tax Exempt and Government Entities Division. Carol Gold became director of Employee Plans, Steve Miller became director of Exempt Organizations, and Ed Weiler became director of Government Entities. The backgrounds of each appointee are presented.

Law professors from around the country met on Oct 28 and 29, 1999, at New York University to discuss taxation issues for private foundations. Topics included the history of private foundation tax law, the relationship between private foundations and public charities, donor-advised funds and other alternatives to private foundation status.

The Tax Court decided in July 1999 in favor of the IRS in Redlands Surgical Services, Inc. v. Commissioner. Redlands Surgical Services, Inc. (RSS) applied for tax exempt status but was rejected due to its partnership with a for-profit organization, Redlands-SCA Surgery Centers, Inc. (SCA Centers). A complicated arrangement existed among Redlands Health Systems, Inc., RSS, and SCA Centers. The court ruled activities of RSS more than incidentally benefited the private interests of SCA Centers.

An advisory bulletin issued by the Dept of Health and Human Services Office of Inspector General (OIG) regarding gainsharing by physicians conflicts with an IRS private letter ruling. Gainsharing refers to the practice of compensating physicians for their role in increasing a hospital's productivity. The OIG stated the arrangements violated federal law. The IRS ruling on a particular arrangement stated the arrangement was legal and did not affect the hospital's tax-exempt status.

IRS Exempt Organizations Division Director Marcus S. Owens sent four memorandums to IRS field agents between Oct 1996 and Apr 1999 outlining procedures for imposing intermediate sanctions on nonprofit institutions. Sanctions are applied to institutions allowing inappropriate benefits to officers. The memorandums state field agents must first contact the National Office for technical advice before assigning sanctions. The procedure is meant to ensure consistency of practice.

A nonprofit hospital announced it would release a Jul 1999 IRS letter ruling approving the hospital's plans to recruit physicians. The letter ruling stated the hospital would not violate its IRC section 501(c)(3) status because it needed physicians to implement its medical care plans and because it did not offer unreasonable compensation.

Tax-exempt organizations must abide by new public disclosure rules under IRC section 6104 starting on Jun 8, 1999. The new rules require organizations to mail Forms 990, 1023, and 1024 to anyone who asks for them. Public disclosure rules can also be met by electronic dissemination. The new procedures may enable law professors and IRS agents to verify nonprofit compliance.

Final IRS regulations for bond issuers who wish to appeal IRS adverse determinations will be available by June 1999, according to and IRS official who spoke at the Apr 30, 1999, ABA Tax Section Meeting. Audits are often made on bonds found not to be tax exempt. Officials at the meeting also discussed private bond regulations and IRS reorganizations meant to improve customer service for issues regarding tax-exempt bonds.

Consumers Union, which publishes "Consumer Reports", and Community Catalyst, an organization dedicated to monitoring health care reorganization, has requested clarification from the IRS on Rev. Rul. 98-15, 1998-12 IRB 6. The ruling outlines regulations for hospital joint ventures between for-profits and nonprofits. The organizations' concern is that charitable assets are protected during joint ventures.

The Tax Court ruled in Sierra Club Inc. v. Commissioner that Sierra Club's royalty payments for use of its member lists are not taxable income. The Tax Court did not agree with the IRS contention the Sierra Club had engaged in significant activity involving the royalties and thus deserved to be taxed. The Sierra Club had hired an independent company to market the membership list. The Tax Court ruling came in the aftermath of an appeal by the IRS to the US 9th Circuit Court of Appeals, which remanded the question to the Tax Court.

IRS Exempt Organizations Director Marcus S. Owens and Rep Charles B. Rangel spoke on Mar 5, 1999, at the Organization Management Inc's 35th Annual Nonprofit Legal and Tax conference. Owens indicated tax-exempt organizations will receive substantial help once the structural reorganization of the IRS Exempt Organizations division is complete. The Division will issue plain-language publications for nonprofit sectors. The IRS will also issue regulations regarding advertising income that tax-exempt organizations may generate from Web sites. Rep Rangel stated that he supported tax deductions for charitable contributions and opposed any simplification of the tax code that eliminated such deductions.

An official from the IRS Office of Chief Counsel for the Delaware-Maryland district offered advice on royalty agreements between exempt organizations and for-profit institutions at a conference on Jan 7, 1999. Most royalty agreements concern mailing lists rented from nonprofits to for-profits and arrangements under which for-profits can use the names and logos of nonprofits. Income generated for the nonprofits by such agreements can be unrelated business income. The IRS official advised nonprofits not to undertake administrative costs that should be undertaken by for-profits, and activities such as writing advertising copy and printing materials should be performed by for-profit organizations.

Witnesses at a Jan 6, 1999, IRS hearing on tax policies for prepaid tuition plans urged IRS officials to clarify the terms of the policies. Witnesses asked that "contributions" be specifically defined, since administrative fees may increase the fair market value of an account. Witnesses asked that eligibility requirements and the meaning of "academic year" be clarified. Witnesses also stated tax policies as they exist in 1999 may penalize students who choose to live off-campus in order to decrease expenses.