The availability of exempt status for Illinois hospitals has been a hot button issue after an Illinois Supreme Court ruling in 2010 denying Provena Covenant Medical Center in Urbana exempt status. Revocation of status for that hospital and others has been grounded in the fact that those hospitals provide an insufficient amount of charitable medical care.
In May, the Illinois Legislature reached a solution to eliminate the uncertainty in this area. The bill includes a very broad definition of what charitable medical care is, and also defines how much charitable care every hospital must provide. The bill also details a specific formula for what the hospitals must do to qualify for tax breaks--basically provide an amount of charitable care equal to their estimated annual tax liability. The state stood to gain an estimated $241 million in tax revenue from denying hospitals tax breaks, but the bill provided a middle ground that has the potential of saving hospitals from making those payments. Governor Pat Quinn has not yet signed the bill, but said publically that he intended to do so.
With the scrutiny of charitable tax exempt status under the microscope, here are a few reminders to make sure that your organization is not compromising its status:
1) Keep complete and accurate records.
2) Ensure a substantial amount of your revenue is from activities related to your exempt purpose and from public and governmental support.
3) Avoid engaging in activity that will substantially benefit the private interest of an individual or an organization.
4) Avoid excessive unrelated business income.
5) In this election year, keep in mind that certain political campaign activity--direct or indirect--may result in loss of exempt status or imposition of excise taxes.
By Megan Mulherin, CPA, Supervising Senior Accountant, mmulherin@legacycpas.com