Ask the legal expert ... about IRS crackdowns

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Attorney John Durso, Ungaretti & Harris LLP
Attorney John Durso, Ungaretti & Harris LLP

Rumor has it that the IRS is going to be “cracking down” on providers in our area, but I don't know what that means or what I should be most concerned about.  Any advice for keeping the IRS and its auditors at bay?

A tax-exempt senior living provider can avoid IRS scrutiny by focusing on some key compliance basics.  

First, in order to maintain exemption as a charitable organization, your organization's services should be geared toward a charitable purpose, such as meeting the housing and healthcare needs of the elderly. Moreover, rates charged to residents for services should be affordable in the community. Your organization also should have a charity care policy and provide measurable financial assistance to residents who are unable to pay.

Second, you should monitor your organization's sources of financial support to ensure compliance with the IRS requirements; large amounts of investment income may skew compliance with the necessary financial tests, for example. Further, any supporting organizations within the system should operate to serve only the entities they are organized to support (rather than engaging in operations outside of your system).

Third, you should ensure that all compensation arrangements within your organization are commercially reasonable and at fair market value. Executive compensation should be well documented and supported by third-party data (if not an outside valuation, then compensation analyses from similarly situated entities).  

Finally, your organization should have a robust conflict of interest policy and ensure that all directors, officers and other applicable parties disclose potential conflicts at least annually.