A top Internal Revenue Service official disclosed last week that the agency has created a referral relationship with the Justice Department regarding tax-exempt healthcare organizations that may engage in criminal tax violations.
The dialogue between the IRS and the Justice Department was initiated by the latter, which asked the IRS why it wasn't getting any criminal referrals from the agency's ongoing audit program of tax-exempt organizations, said Marcus Owens, director of the IRS' exempt organizations technical division.
Owens spoke last week at a healthcare tax conference in Washington sponsored by the American Academy of Hospital Attorneys.
Owens heads the IRS' coordinated examination program of tax-exempt organizations. Launched in October 1991, the program is an audit of not-for-profit organizations, including many hospitals. Over the four years of the program, the IRS has uncovered numerous tax irregularities at the audited tax-exempt organizations but until recently hasn't established a formal relationship with the Justice Department to pass along that information.
Owens said the department has expressed interest in topics ranging from compensation deals with physicians and hospital executives to improperly submitted Form 990s-the annual tax filings submitted by tax-exempt organizations.
Form 990s, which are available to the public, contain sensitive information such as executive compensation and loans to insiders.
Owens also said the department is "exploring" the possibility that incomplete Form 990s may represent fraudulent tax returns punishable by criminal penalties such as fines and imprisonment.
Meanwhile, Owens also provided an update of the audit program.
Of 86 ongoing audits, 40 involve not-for-profit hospitals or hospital systems.
Some 30 audits have been closed, Owens said. Of those, 10 involved hospitals or hospital systems.
Each of the closed audits has resulted in some action against the organization, Owens said. The actions ranged from a simple recalculation of unrelated business income to a tax payment from one unnamed organization of $100 million.
Also, the audits have resulted in the proposed revocation of the tax-exempt status of a former operator of a Miami hospital (Oct. 31, 1994, p. 2).
In a related matter, the IRS has unveiled a special amnesty program for tax-exempt organizations that have abused their authority to offer tax-sheltered annuities to their employees.
During the IRS' coordinated audit program, the agency began uncovering violations of Section 403(b) of the tax code, which allows tax-exempt employers to offer such annuities to their workers.
IRS officials have said the violations include exceeding allowable contributions to plans, offering plans to non-employed physicians and giving executives more lucrative plans than other employees (Oct. 31, 1994, p. 58).
Under the new Tax Sheltered Annuity Voluntary Correction Program, tax-exempt employers can turn themselves in to the IRS. Under the program, an employer agrees to correct any problems, pays a correction fee not to exceed $10,000 and pays a negotiated monetary penalty. In exchange, the IRS will give written assurance that the agency won't attempt to revoke the organization's tax exemption.
The amnesty expires on Oct. 31, 1996.