A clever idea for a skilled care tax break. But there might be one little problem ....
Our new tax law gives some of the largest companies in America a substantial tax break. The American Health Care Association wouldn't mind snapping off a similar reduction for many of its members.
Toward that goal, it has come up with a very clever idea. The organization has honed in on Internal Revenue Code 199A, which addresses the deduction of “qualified business income” of pass-through entities.
Most skilled care facilities are for-profit businesses that are owned or operated by individuals or pass-through entities such as limited liability companies and partnerships, the organization noted in a document it shared with the Treasury Department.
AHCA President and CEO Mark Parkinson recently told McKnight's the organization has received a favorable response to its white paper, which he said “makes a very strong argument that our members should be eligible for these tax benefits.”
Skilled nursing facilities employ more than 1.8 million people, according to the document. Because of their roles as employers and because of the need for their services, AHCA said, it is “vitally important that the job-creating taxpayers who derive income from the ownership and/or operation of SNFs and assisted living communities achieve the maximum tax savings possible under IRC 199A.”
But for that to happen, the Treasury Department would need to rule that skilled nursing facilities “are not engaged in a [‘specified service trade or business'] within the meaning of IRC 199A.”
I'll leave it up to the attorneys to parse out the subtle nuances here. But from a layman's perspective, it sure looks like this approach is going to encounter some very strong headwinds.
For with all due respect, to argue that skilled care facilities are not basically in the business of providing healthcare is well, a bit of a stretch. Look, I get where the association is coming from. For to admit as much would be to automatically lose the possible tax break. But whole thing reminds me of the Chico Marx line in Duck Soup: Who you gonna believe, me or your own eyes?
If they had surgical suites and emergency departments, many skilled care settings today could pass for small hospitals. Job creation is a side benefit of skilled care, not its primary purpose.
So to recap, an organization with healthcare in its name is trying to convince the government that the skilled care operators it represents are not-so-much in the business of providing health services.
This revelation may come as quite a surprise to many people without skin in the game. Including, I imagine, most hospital discharge planners.
Still, I wish AHCA all the best here. Stranger things have happened. And by any objective measure, we appear to be living in some strange times indeed.
John O'Connor is McKnight's Editorial Director.