Grey Area Anatomy: Tax Exemptions for Nonprofit Hospitals

I.  Introduction

A key battle over America’s healthcare future is being fought in one of the most unlikeliest of places: Urbana, Illinois.  Scheduled for argument in front of the Illinois Supreme Court in mid-2009, Provena Covenant Medical Center v. Department of Revenue is poised to set the bar regarding the tax exempt status of nonprofit hospitals.[1] Nonprofit hospitals, such as Provena, account for near sixty percent of the hospitals in the U.S., while the others are either for-profit or government-owned.[2] Oddly, these nonprofit hospitals are actually faring better than their for-profit counterparts. Seventy-seven percent of the 2033 U.S. nonprofit hospitals are “in the black”, while sixty-one percent of for-profit hospitals are profitable.[3] One of the reasons for such high success rates is the ability of non-profit hospitals to receive significant tax exemptions. The Congressional Budget Office reported in 2006 that nonprofit hospitals receive an estimated $12.6 billion in annual tax … Read the rest

Undocumented Taxation: More Illegal Immigrants Likely to File Returns

The historic case of James v. United States held that illegal gains constitute income that must be reported, despite any legal obligation which might arise to make restitution. [1] However, a whole different tax question arises for collecting legally earned income from residents illegally in the country. While the issue may not be clear to the millions of immigrants illegally residing in the country, the issue is clear to the Internal Revenue Service. “Everybody is a citizen for tax purposes,” remarks one Baltimore tax-preparer. [2]

This year, illegal immigrants have been sending in federal tax returns in what will likely be record numbers, despite concerns of immigration raids and the ability of the IRS to identify illegal immigrants through these returns. [2] While illegal immigrants are not issued Social Security numbers, they are allowed to file through individual taxpayer identification numbers issued by the Internal Revenue Service. [3] There have

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Posted in Tax

Anatomy of a Tax Protester

I. Introduction

To a certain extent, most everyone becomes a
tax protestor of sorts come tax season.  The goal in filling out one's
tax return is to ensure that one receives every penny back that can
possibly be justified — not that one pays the appropriate amount of
tax given one's circumstances.  And yet, most of us do indeed pay. 
Among those that do not pay in full can be found at least two distinct
categories of shirkers: the tax evader, and the tax protestor.  The tax
evader is content to freeride off of the compliance of the rest of
society, choosing not to pay taxes but not without tacit reliance on a
system that requires taxation.  The tax protestor, on the other hand,
eschews taxation as a matter of course, proclaiming his distaste for
this or any system of taxation by not taking part therein.  While the
net effect … Read the rest

Posted in Tax

Will Congress Kill the “Death” Tax?

Estate and gift taxes have been a thorn in the side of the affluent for ages, while serving as an efficient stream of revenue for the federal government. Gift and estate taxes are two different types of taxes. Gift taxes apply to lifetime transfers of assets, while assets transferred at death are subject to estate taxes. [1] The Federal estate tax is levied “on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.” [2] The current status of the estate tax is governed by the Federal Economic Growth and Tax Reconciliation Act of 2001 (“EGTRRA”). [3] Under EGTRRA, the estate tax has a ceiling of 45% of an individual’s estate in 2007 through 2009, a ceiling of 35% in 2009 and is fully repealed by 2011. [4] However, a sunset provision means that if Congress does not reenact the relevant … Read the rest

Posted in Tax

IRS Study Confirms the Obvious

I. Introduction

Tax exempt organizations, by design, do not
have to answer to shareholders.  The executives of these organizations
do not feel the same pressures as do executives of taxable, for-profit
organizations to run the entities in the most streamlined
shareholder-interest-maximizing manner.  Instead, the taxpaying public
(who arguably subsidizes the activities of the tax-exempt sector)
relies on detailed government regulation, the vast majority of which is
found in the Internal Revenue Code, to ensure that the tax exempt arena
neither becomes a black hole for this country's resources nor a
playground for the very wealthy.  As part of this monitoring charge,
the IRS recently completed a three-year investigation into the
compensation of executives of tax-exempt corporations.[1]  This article
discusses the objectives and methodology of this investigation, its
findings and its minimal impact.

II. Analysis

The Executive Compensation Compliance Project (aka "The Project")
was initiated in response to a budgetary reorganization

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Posted in Tax

Can Bush’s Health Insurance Tax Proposal Help Solve American Healthcare Woes?

Perhaps the most hot button issue in domestic politics these days is the growing healthcare problem in the United States. In 2004, nearly “46 million Americans, or 15.7 percent of the population, were without health insurance.” [1] While the majority of Americans receive healthcare insurance through their employers, the issue has been exacerbated by rising healthcare costs, limited coverage, “an increasing reliance on part-time and contract workers who are not eligible for coverage,” and “small employers [who] cannot afford to offer health benefits.” [2] Further, even the insured are being asked to make larger contributions for their coverage, forcing many to remain uninsured because they cannot afford these contributions. [3] During his State of the Union Address on January 23, 2007, President Bush sought to tackle the issue by proposing to tax healthcare benefits but to also offer a $15,000 standard deduction or $7,500 deduction for those filling single. [4] … Read the rest

Posted in Tax

Defeating the Purpose of the Tax Penalty – An Exercise in Underdeterrence

I. Introduction

The IRS has, in the opinion of this
author, a (not so) popular reputation for coming down on taxpayers
hard,inconsistently and infrequently.  Given this perception and
perhaps this reality of relative infrequence of consequence on
taxpayers engaging in funny business, it makes sense that the Internal
Revene Code be given some other teeth to guard against such
shenanigans.  In general, the tooth of choice is the threat of heavy
monetary penalties.  Unfortunately, a recent tax decision coming out of
a Texas federal district court could mark the beginnings of a shift
against the imposition of penalties on tax evaders — a shift that
could embolden an already scarily bold nation of tax-shirkers.

II. Analysis

The case, Klamath Strategic Investment Fund, LLC v. U.S.,
reads for the most part like your run of the mill tax shelter case.[1] 
Two attorneys, faced with the receipt of some substantial income

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Posted in Tax

The IRS Private Debt Collection Program’s Early Trials and Tribulations

I. Introduction

Empowered by the American Jobs Act of 2004,
the IRS recently implemented a private debt collection program designed
to "reduce the growing number of uncollected tax liabilities while
allowing the Service to better focus on more complex tax cases and
issues."[1]  The plan was criticized early on for paying the private
collectors as much as 24% of the recovered liabilities in return for
their collection efforts, which amount was thought could result in
improper collection practices on the part of the private
collectors.[2]  While the plan hasn't been in action long enough to
render judgment on whether these concerns are warranted, another
problem has reared its head: the program isn't making money.  It may
not so much as break even.[3]  This article addresses concerns of abuse
and well as profitability in the short and long term.

II. Analysis

The
legislation under which the collection program was implemented
specifies

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Posted in Tax

The Unlawful Internet Gambling Act and the Tax Revenue the United States Government Could Have Had

I. Introduction

Many
people who gamble on-line will tell you that October 13, 2006 truly was
an unlucky day. On that Friday, President Bush signed into law the
Unlawful Internet Gambling act.[1]. The bill makes it illegal for banks
and credit card companies to transact with online gambling
companies.[2] By preventing banks from allowing deposits into gambling
sites, the bill hopes to prevent people from partaking in on-line
gambling. The question many people have is why the United States would
outlaw internet gambling when it could have regulated the industry and
benefited from the tax revenue it would have received?

II. Analysis

The
first thing taught on the first day of an Income Tax class is that tax
base times rate equals revenue (tax base x rate = revenue). Congress
can increase tax revenue in one of two ways; increase the tax rate or
increase the tax base. Increasing the

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Merck owes the IRS big bucks – for taking advantage of the international tax market?

I. Introduction

There are two things in life that are certain: death and taxes. 
Corporations have successfully cheated the former by achieving
perpetual life.  And, from their births, it seems like corporations
have also been doing their darndest to avoid the latter.  Offshore
affiliates have become a popular corporate technique for avoiding
income tax.[1]  Recently, Merck has been investigated for putting its
own unique spin on the traditional offshore affiliate.

II. Analysis

In 1993, Merck in conjunction with a British bank entered into a
Bermuda partnership whose assets were substantially comprised of the
soon-to-be-valuable patents behind cholesterol-lowering medications
Zocor and Mevacor.[2]  In creatinig this partnership, Merck engaged in
a practice called "inversion:" a method of reorganization wherein a
domestic corporation reorganizes itself to become a subsidiary of a
foreign parent entity, thereby rendering any profits generated by the
foreign business operations outside of the reach of the federal income
tax.[3] 

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Posted in Tax