Home Health & Hospice Week

Heads up if you want to keep your tax-exempt status.

Nonprofit home health agencies and hospices, beware: The Internal Revenue Service is now two steps closer to yanking your tax-exempt status.

What's new: On Feb. 2, the IRS unveiled a lengthy new guidance for tax-exempt organizations. Though only "proposed" at this point, the document--"Good Governance Practices for 501(c)(3) Organiza-tions"--will likely find its way to the official guidance, pending a comment period, notes Jack Siegel, president of Charity Governance Consulting in Chicago.

The IRS intends to recommend the set of voluntary guidelines, or "good governance practices," to managers of tax-exempt organizations to help them maintain regulatory compliance, explains David Flynn, an attorney with Duane Morris in Philadelphia.

In addition, February kicks off a new era for the IRS. Starting this month, the agency now has its own Whistleblower Division, armed with a new rule that gives the office muscle. Signed into law on Dec. 20, 2006, the Tax Relief and Health Care Act of 2006 amended the Internal Revenue Code to provide major new incentives for private citizens to blow the whistle on tax evaders.

Read the Writing on the Wall

The IRS tax-exempt guidance is a sign of tightening scrutiny for not-for-profit home health agencies and hospices, says the National Association for Home Care & Hospice in a recent bulletin to members.

What's at stake: Without necessary oversight and controls, nonprofit HHAs and hospices are at risk for audits, notes attorney Bernadette Broccolo in the Chi-cago office of McDermott, Will & Emery. That, in turn, puts them at risk for costly legal proceedings, bills for tax underpayments and the loss of their tax-exempt status.

Momentum for greater federal oversight of nonprofit's tax status has been building.

History lesson: Back in April 2005, Sen. Chuck Grassley (R-IA), then chair of the U.S. Senate Finance Committee, proposed several bills concerning nonprofit oversight and charitable tax credits for various gifts and contributions.

Calling charities "tax loopholes," he cited several tax problems involving charitable giving and said that oversight should be applied to transactions which may be inappropriately exploiting charities' tax-exempt status and which may be unfairly enriching individuals and corporations, reports the Hospice & Palliative Nurses Foundation.

Also significant is the IRS' move this summer to survey more than 550 tax-exempt hospitals to determine whether they were flouting standards of tax-exempt status. The IRS sent "compliance check questionnaires" to the hospitals. They asked for detailed information about billing practices and compensation for top executives, as well as data about care provided to uninsured patients and levels of charity care.

Blow the Audit Alarm Whistle

Room for audits: The IRS lists about 7,000 entities as nonprofit hospitals and health care organizations. In the last 10 years, it has audited 375 of them.

"Our audit rates are too low," said Mark Everson, the Commissioner of Internal Revenue, in the New York Times.

Warning: If you're not diligent about protecting your tax-exempt status, you probably won't have to wait for an IRS staffer to yell "tax evasion." Given recent changes to the tax code, a whistleblower might be more than willing to set off the alarm.

Incentive: Under the amended tax code, a whistleblower supplies information that the IRS did not already have and provides assistance during the course of the investigation. The IRS must now award the whistleblower at least 15 percent of the amount collected with authority to award up to 30 percent of the collected proceeds.