Lapas attēli
PDF
ePub
[ocr errors]
[ocr errors]

1. To change the 1-year rule for discharge of an execute fe p bility for payment of estate taxes in section 2204 to 9 ms 12 discharge (a) to cover the decedent's income and gift taxes that the discharge of the executor will also discharge any on the date of the decedent's death holds property include, a from personal liability for these same taxes, provided the fiduciary relationship and the property subject to the relatio on the estate tax return and,

2. To clarify the rules with regard to securing exte281020 estate tax clearly to indicate that an extension will be gre available to the executor are not sufficient to pay the

cause.

[ocr errors]

If this committee determines that fiscal considerat.ons are i acceleration of the payment of estate tax should be enzimet tax revision, we urge that each of these elements of accepted. Absent their inclusion our membership wat in opposing acceleration.

The most frequent criticism made by beneficiaries r time required to complete administration and make estate assets. A contributing factor to the delay in the settlement of the decedent's tax liabilities L1 L come tax as well as for estate tax.

Item 1, containing the suggested liberalization. the liability of an executor for a decedent's taxe z rules to a fiduciary, usually a trustee, holding prop gross estate, relates solely to personal liability and will permit a more prompt distribution of prope same time preserving the right of the Intern taxes owed by a decedent against any person 16"** tribution. Similar changes were suggested by Bar Association in 1968.

The change in the 1-year rule for discharg bility to 9 months is eminently reasonable. E return within 9 months of death, the Treasur the burden of completing the audit within 1

In the unusual case, where even the currer factory, the auditing agent will do what he section 2204 letter be temporarily withdraw. The administration's new proposal do ng it proposes that section 2204 be modifier executor to secure a discharge from TMEL it fails to deal with the decedent's lineWe have discussed this omission and-Treasury and have been advised tha and to gift tax would present "admin@T Service, because audits of three types of! ith this just und gif

We are unimpr expanded to cover The new propo point out that al bill that contain time for auditing We believe it enacted the leg mandate be ex section 2204. The

15

[ocr errors][merged small]

of the after limitaresolve s as to disputed

to retain ire to see tion 2204

oncern because

es for the estate king the legisladditional revenue

e sales required to

after appointment ortly before the paywould require estate ons prior to maturity ps at a loss.

x was proposed by the rived from the proposal ced for fiscal 1971. More the light of this fact we any retroactive effect is decedents dying after enal 1971 but the loss in that ig which additional revenue

oactive effect with respect to If there is to be retroactivity s made after March 31, 1970 of nt dying after March 31, 1970, that all sales of property made erty included in the gross estate be long term transactions. sic fairness, and any estate that is ate tax, particularly one as to which should be entitled to sell promptly he sale is a short term or a long term

NTS ON DRAFT BILL

ars" and "preceeding calendar quarters" are s revised. The definitions in subsections (c) (1) I purposes to chapter 12 as is done in section calendar quarter."

erfectly clear subsections (c) (1) and (2) should ds "Wherever used in this title in connection with apter 12," at the beginning of each subsection.

The Foundation is funded by the Office of Economic Opportunity. For program year ending August 31, 1970, the Foundation received a grant of $1,762,968. Projected funding for next year is $2,415,000. Much of this money will go into covering construction costs of a permanent health care facility. At the present time, no fee is charged the patients for services rendered. Reimbursement for such services comes from Titles XVIII and XIX of the Social Security Act as well as reimbursement from the Office of Economic Opportunity.

The permanent health center is expected to be ready for occupancy in 1971. The facilities of the new center are designed to serve the 110,000 residents of the Cardozo area. The permanent facilities will include two emergency rooms, sixteen consultation rooms, thirty-two examining rooms, a pharmacy, a physical therapy room, and various administration offices. This center will also have facilities to be used for training medical and paramedical personnel who will act as part of medical care teams. Neither the temporary health center nor the permanent health center will have facilities to provide for in-patient care.

C. TAX STATUS OF FOUNDATION

The Community-Group Health Foundation, Inc. is a District of Columbia nonprofit corporation organized and operated exclusively for charitable purposes. On July 25, 1968, the Internal Revenue Service ruled that the Foundation was exempt from federal income tax under $501 (c) (3) of the Code. It also ruled that contributions to the Foundation were deductible in computing federal income, estate and gift taxes.

The Community-Group Health Foundation has not applied for a ruling that it is a "hospital" within the meaning of § 170(b) (1) (A) (iii). Given the clarity of the regulations on the point of treating out-patient clinics as hospitals, such a ruling was thought to be unnecessary-until the IRS excise tax ruling of July 30, 1970.

The Community-Group Health Foundation is not a "private foundation" within the meaning of § 509 of the Code. It regards itself as an organization described in § 509 (a) (1) by reason of its status as a hospital under § 170(b) (1) (A) (iii). IRS Forms 4653 (Notification Regarding Foundation Status) will shortly be filed (or at this writing, has been filed) indicating to the Internal Revenue Service its classification under § 509 (a) (1).

On April 30, 1969, the Community-Group Health Foundation, Inc. applied for exemption from communications tax imposed under § 4251 by reason of being a "nonprofit hospital" within the meaning of § 4253 (h). On July 31, 1970, the Internal Revenue Service issued a private ruling letter to the Foundation holding that the term "nonprofit hospital" used in § 4253 (h) does not mean a hospital established and operated primarily as an out-patient clinic. The Internal Revenue Service cited as the basis for the ruling the legislative history of § 4253 (h).1 It stated that the references in such history to the fact that private nonprofit hospitals will receive the same tax exemption as a state or local government hospital meant that the Congress (in enacting § 4253 (h)) wanted only those hospitals which would be in the same class as government hospitals to be exempt from the telephone tax. The Internal Revenue Service, by inference, suggests that the government hospitals are organizations which do not principally provide medical care through out-patient facilities (or exclusively), but which provide care through both in-patient and out-patient facilities. The Internal Revenue Service's ruling did not take cognizance of the fact that the language of § 4253 (h) was identical to the descriptive language contained in § 170(b) (1) (A) (iii) (referring to § 503 (b)) for years prior to 1970. It did note the fact that exemption language for communications tax, after the Tax Reform Act of 1969, now directly relates to an organization described in § 170(b) (1) (A) (iii). The ruling did not refer to or distinguish the fact that the regulations under § 170(b) (1) (A) (iii) clearly allow an out-patient clinic to qualify as a hospital. Other than its reference to inconclusive legislative history of the exemption provided “nonprofit hospitals" under $4253 (h), there was no citation of authority by the Internal Revenue Service for the position that an out-patient clinic was not a "nonprofit hospital."

The final paragraph of the Internal Revenue Service ruling states their conclusion:

1 H. Rep. 1285 (February 15, 1966), S. Rep. 1010 (March 2, 1966), 89th Cong., 2d Sess.

The exemption from the communications tax under § 4253 (h) of the Code is limited to 'nonprofit hospitals'. For purposes of such exemption, an organization must be organized and operated as a charitable organization for purposes of providing a hospital for the sick and its primary function is providing hospital care. The exemption does not extend to an organization established and operated primarily as an out-patient clinic.

The entire ruling of the Internal Revenue Service is attached to this submission for the information of the Committee on Ways and Means.

D. DISCUSSION OF FEDERAL TAX TREATMENT OF HOSPITALS

Section 4253 (h) of the Internal Revenue Code, relating to exemptions from tax under communication services, provides that no tax shall be imposed under § 4251 on any amount paid by a nonprofit hospital for communication services furnished to such organization. Prior to its amendment to the Tax Reform Act of 1969, § 4253(h) provided that the term “nonprofit hospital" meant a "hospital referred to in § 503(b) (5) which is exempt from tax under § 501 (a)." Section 503(b) (5) of the Code did not use the term "nonprofit hospital" but referred to an organization, the principal purpose of which was to provide medical or hospital care. Section 503(b) (5) was repealed under the Tax Reform Act of 1969 and the hospital exemption under § 4253 (h) now provides:

(h) Nonprofit Hospitals. No tax shall be imposed under section 4251 on any amount paid by a nonprofit hospital for services furnished to such organization. For purposes of this subsection, the term 'nonprofit hospital' means a hospital referred to in section 170(b) (1) (A) (iii) which is exempt from tax under section 501 (a).

The Internal Revenue Service has never promulgated any regulations under $503(b) to elaborate on the term used in the exemption provision, notwithstanding that § 503(b) dates back to 1950. Nor has the Internal Revenue Service ever promulgated any regulations under § 4253 (h), although that provision was enacted in 1966. However, regulations were published in 1958 to deal with and define the term "hospital" contained in § 170(b) (1) (A) (iii).” That section deals with percentage limitations on the amount of deductions for contributions made to hospitals allowed individual donors.

Under § 170(b) (1) (A) (iii), prior to its amendment by the Tax Reform Act of 1969, an organization rendering hospital care was regarded as an "extra 10% organization" in the computation of the limitations on an individual's adjusted gross income. Section 170(b) (1) (A) (iii) defined "hospital" as a "hospital referred to in section 503(b).” Thus in 1969, the operative provision describing the term “hospital” under § 4253(h) and the term “hospital” under § 170(b) (1) (A) (iii) were identical. The identical language provided described the exempted organization as "a hospital referred to in § 503 (b) (5).”

The Tax Reform Act of 1969 amended § 170(b) (1) (A)(iii) and § 4253 (h), effective January 1, 1970 with respect to the definition of "hospital" contained therein. Section 4253(h) now provides that the term "nonprofit hospital" means a nonprofit hospital described in § 170(b) (1) (A) (iii). Section 170(b) (1) (A) (iii) now provides with respect to the definition of “hospital":

An organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and during the calendar year in which the contribution is made such organization is committed to expend such contribution for such research before January 1 of the fifth calendar year which begins after the date such contribution is made.

The redefinition contained in § 170(b) (1) (A) (iii) can be traced directly to the definition of the term hospital contained under the Income Tax Regulations under § 170, which were in effect at the time of enactment of the Tax Reform Act. Under Regulations § 1.170-2(b) (4) (i), the term hospital means an organization the principal purposes or functions of which are the providing of hospital or medical care. The regulations further provide:

A rehabilitation institution or an out-patient clinic may qualify as a hospital if its principal purposes or functions are the providing of hospital or medical care. (Emphasis supplied)

2 T. D. 6285, C. B. 1958-1, 127, 135.

3 Tax Reform Act, sec. 101 (j) (27) amending IRC § 4253(h) and sec, 201(a) (1) (B) amending IRC § 170(b) (1) (A) (iii).

These regulations were promulgated to define "hospital" where § 170 referred, in the same fashion as § 4253 (h), to a "hospital referred to in section 503 (b)." The principle of the regulation, as contained in § 170(b) (1) (A) (iii), is that an organization which is an out-patient clinic providing medical or hospital care is a "nonprofit hospital" for purposes of § 170(b) (1) (A) (dealing with charitable contribution deductions). The operative provision under prior law for the income tax deduction for charitable contributions to a hospital used the identical language contained in the telephone tax exemption. Under this identical language, the regulations clearly allow the qualifications of an out-patient clinic as a nonprofit hospital. Under the current law, with § 4253(h) referring directly to § 170 (b) (1) (A) (iii), the matter is even clearer since the exemption from telephone tax now directly refers to a hospital described in § 170 (rather than one described in § 503). Since the § 170 regulations allow an out-patient clinic to be a hospital, the disallowance of hospital classification to an out-patient clinic under § 4253 (h) seems absurd. But, that is the official position of the Internal Revenue Service. For classification as an "extra 30% organization" under § 170(b) (1) (A) (iii) an organization rendering hospital or medical care to the sick or injured need only utilize out-patient facilities. For classification under § 4253 (h), an organization rendering hospital or medical care to the sick or injured must utilize in-patient facilities.

The Internal Revenue Service in prior years has issued revenue rulings dealing with the relevant considerations which govern classification of an organization as a hospital for purposes of income tax exemption and charitable contribution deductions. The basic ruling governing qualifications of an organization as a nonprofit hospital is Revenue Ruling 56–185 (C. B. 1956–1, 202). The conditions stated in this revenue ruling for classification as a hospital were the following:

1. It must be organized and operated as a nonprofit charitable organization for purposes of operating a hospital for the care of the sick.

2. It must be operated to the extent of its financial ability for those not able to pay for services rendered and not exclusively for those who are able and expected to pay.

3. It must not restrict the use of its facilities to a particular group of physicians and surgeons such as a medical partnership or association to the exclusion of other qualified doctors.

4. Its net earnings must not inure directly or indirectly for the benefit of any private shareholder or individual.

This revenue ruling did not require that a facility have "in-patient" facilities to have the appropriate classification, nor did it exclude from qualification as a hospital an organization which had exclusively out-patient or emergency facilities.

Revenue Ruling 56-185 was superseded late last year by Revenue Ruling 69-545 (IRB 1969-44, 10). Through the use of examples, the Internal Revenue Service described the type of organization which would be classified as a "nonprofit hospital” and exempt from tax as a charitable organization and the type of organization which would not qualify for such benefits. While the basic thrust of the ruling was to set forth a test which did not require the rendition of free care to patients to obtain tax exempt status as a charitable organization, there was no inference or suggestion that an organization which provided out-patient facilities only could not be classified as a hospital. In addition, the consideration of the distinction between an out-patient clinic as a hospital and a facility whose primary purpose is to maintain in-patient facilities (and out-patient and emergency facilities) has never been construed by ruling or in any case under the income tax exemption or charitable contribution provisions. Prior to the Internal Revenue Service's ruling of July 31, 1970 to the Community-Group Health Foundation, there has never been any suggestion that a "nonprofit hospital" for any federal tax purpose had to be one which provided in-patient facilities in the care and treatment of sick or injured persons.

We are at a loss to suggest any valid administrative or legislative purpose served by such distinction. The Congress has encouraged medical care for the needy by charitable organizations by providing a multitude of benefits. If there was any difference in the operative language there might be some justification for the distinction. But with identical language, and a clear statement in the pertinent regulations, there can be no justification for this discriminatory treatment.

E. CONCLUSION

The federal excise tax on communication services does not apply in the case of a nonprofit hospital described in § 170 (b) (1) (A) (iii). We do not believe that the Congress distinguishes between a hospital providing an out-patient facility and a hospital providing an in-patient facility for federal tax purposes. It is therefore requested that the Ways and Means Committee clarify the treatment of nonprofit hospitals by making more explicit the exemption from the communication services tax granted to organizations providing hospital and medical care, regardless of the use of in-patient or out-patient facilities utilized to provide such

care.

EXHIBIT (A)

DEPARTMENT OF THE TREASURY,

INTERNAL REVENUE SERVICE,
Washington, D.C., July 31, 1970.

COMMUNITY GROUP HEALTH FOUNDATION, INC.,
Washington, D.C.

GENTLEMEN: We have a letter from Mr. William J. Lehrfeld requesting a ruling whether the Community-Group Health Foundation, Inc., qualifies as a nonprofit hospital exempt from communications tax under section 4253 (h) of the Internal Revenue Code, with respect to proposed payments for communication services.

As a result of a conference held in this office on June 6, 1969, Mr. Lehrfeld submitted additional information in a letter dated July 15, 1969, as well as related documents on the issue involved.

The evidence shows that the Foundation was granted exemption from Federal income tax under section 501 (a) of the Internal Revenue Code with reference to organizations described in section 501 (c) (3) thereof. This exemption relates only to income tax and does not automatically assure an exemption from other Federal taxes.

The information available indicates that the purposes of the Community-Group Health Foundation, Inc. is to provide an out-patient medical, dental, and general health care service center for low-income residents of the Upper Cardozo area of Washington, D.C. This health care center will be operated in the nature of an out-patient clinic. The Foundation does not plan to have any in-patient facilities to house and maintain patients, nor will there be any type of nonambulatory care. It will be staffed in the normal fashion of doctors, dentists, nurses, technicians, and other health care specialists. The general aim of the Foundation and its staff will be to provide a family oriented comprehensive medical and dental care which will include treatment for episodes of illnesses as well as preventive medicine, and diagnostic studies of persons, both as patients and as members of the family who are not then patients but who will be the objects of study by various members of the medical team. The hours of operation of the clinic will be from 9 a.m. to 7 p.m., Mondays, Wednesdays, and Friday; from 9 a.m. to 5 p.m. on Tuesdays and Thursdays; and 9 a.m. to 1 p.m. on Saturdays. The information shows no scheduled operating hours for Sunday.

The proposed temporary facilities of the Foundation will consist of examination rooms, diagnostic rooms, treatment rooms, dental operatories, as well as conference rooms, administration offices, and a pharmacy. It is contemplated that the facilities will include two emergency rooms where emergency medical or dental care will be available to persons who come in off the street. These temporary facilities will be in use for approximately two years while construction is in process for a permanent health care service center.

The permanent health center is expected to be ready for occupancy in 1971. The facilities of the new center are designed to serve the 110,000 residents of the Cardozo area. Such facilities will include two emergency rooms, sixteen consultation rooms, thirty-two examining rooms, a pharmacy, a physical therapy room, and various administration offices. This center will also have facilities to be used for training medical and paramedical personnel who will act as part of medical care teams. It is stated that neither the temporary health center nor the permanent health center will have facilities to provide for in-patient care.

Section 4253 (h) of the Code, relating to exemptions from tax on communications, provides that no tax shall be imposed under section 4251 on any amount

« iepriekšējāTurpināt »