EPA Unveils Environmental Compliance
Tool for Colleges and Universities

The Environmental Protection Agency unveiled a new compliance assistance center targeted at colleges and universities. Under an agreement with the National Association of College and University Business Officers, the EPA will provide an initial $65,000 towards the project and up to $350,000 over the next five years. The compliance center is designed to help college and university environmental managers better understand the range of environmental issues they face and to improve their compliance. For more information, visit the EPA website.

Ohio Supreme Court Denies Property
Tax Exemption for Church Print Shop

In a 4-3 decision, the Ohio Supreme Court denied a property tax exemption for a church-owned print shop. See First Baptist Church of Milford v. Comm’r (2006), 110 Ohio St.3d 496.

The case involved a nonprofit corporation that prints Bibles for free distribution as well as other materials for sale. First Baptist Church of Milford controls the print shop, which occupies a building owned by the church. During the years in question, between 3% and 12% of the print shop’s revenue was derived from printing materials for sale. The church sought tax exemption for the building under R.C. 5709.12(B), as property used “exclusively for charitable purposes.”

The Ohio Tax Commissioner denied the claimed tax exemption, arguing that the building was not used exclusively for charitable purposes. The church appealed this determination to the Board of Tax Appeals, which affirmed the decision of the Tax Commissioner. In reviewing the case, the Supreme Court held that the charitable exemption from property taxes requires that “charitable use and ownership” coincide. As a result, the court refused to grant a charitable property tax exemption to the church when the charitable use of the property was actually conducted by another corporation.

Illinois Revokes Property Tax
Exemption of Hospital

The Illinois Department of Revenue affirmed a decision of the Champaign County Board of Review and denied property tax exemption for a 120-bed acute care hospital owned by Provena Covenant Medical Center.

The hospital applied for a charitable property tax exemption for its hospital in 2002. Under Illinois law, the charitable property tax exemption requires that the property be “actually and exclusively” used by charitable institutions for charitable purposes and not with a view to profit. The Department interprets this standard to require that the hospital’s “primary” purpose be to provide charity care; the facts, however, established that the hospital expended only 0.7% of its revenue ($832,000) on charitable activities, while its property tax exemption was valued at more than $1.1 million.

The Department also dismissed the hospital’s arguments that its provision of emergency services should be considered charity, noting that the hospital outsourced its emergency room functions to a for-profit corporation. The Department also flatly rejected the hospital’s arguments that Medicare and Medicaid shortfalls be considered charity. Finally, the Department criticized the hospital’s charity care policies, both in form and operation. Ultimately, the Department noted that over 97% of the hospital’s revenues came from patient charges. Based on this finding, the Department characterized the use of this property as for the exchange of services for payment, which was not a charitable activity. The hospital is pursuing an appeal of this decision.

Although the decision turns on questions of Illinois law, the underlying principles are applicable to nonprofit hospitals that have received or are seeking charitable property tax exemptions throughout the United States and these hospitals should follow the developments in this case very closely.

IRS Struggling to Implement PPA Provisions;
Issues Transitional Guidance

The IRS acknowledged that it is struggling to implement all of the mandates imposed on it by the recently enacted Pension Protection Act. As noted previously in the Nonprofit Advocate, the PPA included charitable giving incentives (such as allowing donations of IRAs), charitable reform (affecting donor-advised funds and supporting organizations), as well as reporting changes (requiring small organizations to file annual reports with the IRS). Many of these changes will also necessitate corresponding changes in information returns filed by these organizations.

The IRS has, however, issued transition guidance on the new qualified appraiser standards in the PPA. See Notice 2006-96, 2006-46 IRB ___.

The PPA amended section 170 of the Internal Revenue Code to require that taxpayers obtain a “qualified appraisal” by a “qualified appraiser” for non-cash charitable contributions of more than $5,000 made after August 17, 2006. Under the new law, a qualified appraiser is a person who has earned an appraisal designation from a recognized professional organization or has otherwise met minimum education and experience requirements, demonstrates verifiable experience in appraising the type of property that is being appraised and satisfies various other requirements.

The IRS is defining a “qualified appraisal” as one performed by a qualified appraiser pursuant to the generally accepted appraisal standards. The IRS further clarifies that an appraisal designation must be met on the basis of “demonstrated competency” in appraising the type of property being appraised and must be accompanied by a declaration to this effect. The IRS also issued transition rules on when an appraiser is deemed to satisfy the minimum education and experience requirements for various types of property.

The IRS is requesting comments on these proposed regulations by January 17, 2007.

“Community Benefit” Update

The Senate Finance Committee appears to be planning to introduce legislation on the “community benefit standard” in the coming year

The Catholic Healthcare Association released a template that nonprofit hospitals may attach to the their Forms 990 to report community benefit. The template is available on the CHA website.

The American Hospital Association, meanwhile, criticized the IRS community benefit question as not being specific enough. The AHA noted that the questionnaire failed to ask hospitals to disclose whether responses on uncompensated care were based on cost or charge or whether fees charged were below the costs of service. The AHA also noted that the “yes” or “no” format used in several sections of the questionnaire could permit hospitals to provide provision answers, further distorting their responses.

Also in October, the Montana Attorney General has requested 12 Montana hospitals submit information about their charity care and community benefit practices to ‘ensure that hospitals are properly carrying out their charitable missions.” The state questionnaire is based on Form 13790, the IRS’s community benefit questionnaire.

IRS Provides Transition Relief for
Payors of Tax-Exempt Interest
The IRS has provided transition relief to certain payors of tax-exempt interest. See Notice 2006-93, 2006-44 IRB ___. The Tax Increase Prevent and Reconciliation Act amended section 6409 of the Internal Revenue Code by requiring payors of state and municipal bond tax-exempt interest to report payments of such interest made after December 31, 2005 to the IRS. The notice permits payors to report payments of tax-exempt interest made in 2006 on Form 1099-INT and waives the obligation to file electronic information returns. The IRS also indicated that it would waive penalties for the failure to report payments of tax-exempt interest under section 6409 for 2006. The IRS also granted transition relief under the backup withholding rules for payments made before March 31, 2007.

IRS Revises Process for Issuers to Appeal
Proposed Adverse Determinations on Tax-Exempt Bonds

The IRS revised the process for issuers to appeal a proposed adverse determination that bonds do not qualify for the exclusion of interest from gross income provided by section 103 of the Internal Revenue Code. See Revenue Procedure 2006-40, 2006-42 IRB 694. The new revenue procedure modifies and supersedes the old appeals program (in Rev. Proc. 99-35).