The Internal Revenue Service last week issued proposed regulations clarifying the requirements for tax-exempt status and the imposition of intermediate sanctions.
In its 20-page proposal, the IRS for the first time links tax-exempt status of not-for-profit organizations to violations involving excess benefit transactions. The proposal puts not-for-profit facilities and organizations on notice. Roughly one-third of U.S. nursing homes are not-for-profits.
Legal experts note that until the release of this proposal the IRS had gone after only transaction participants, such as board members, officers or other persons who privately benefited from excess benefit transactions or approved them.
The proposed rule change stipulates that in certain situations not-for-profit organizations can lose their tax-exempt status for the actions of board members and officers.
The IRS has said it would consider the size and scope of the organization’s regular activities as well as whether good-faith effort was made to fix excess benefit transactions before the IRS finds out.
