We appreciate the observation in your March 20 editorial (p. 49) that the Internal Revenue Service "had it right the first time" concerning the agency's position on the tax status of physician-hospital organizations.
Our position has been and remains that most PHOs are taxable under the rationale of revenue ruling 86-98, 1986-2 C.B. 75. Therefore, I must take issue with your suggestion that the IRS "flip-flopped" after complaints by tax attorneys. We haven't changed our position on PHOs, although a favorable determination letter has been issued to one operated jointly by a tax-exempt university medical center and its related tax-exempt faculty practice plans.
Careful study of that letter shows the applicant is entitled to exemption but that it bears little resemblance to a typical PHO. Unfortunately, this is an all-too-common instance of ascribing undue significance to an isolated private-letter ruling or determination that should be considered limited to its specific-and in this case, relatively unique-facts.
JAMES J. McGOVERN
Employee plansand exempt organizations
Internal Revenue Service