After two long years of hemming and hawing, the Internal Revenue Service last week released a proposed set of regulations outlining how it will apply its intermediate sanctions law.
And the regulations might have been worth the wait, said tax experts, who at first blush consider them balanced and thorough.
"There is enough detail, enough real world examples, to help people work through analyses (of their dealings)," said T.J. Sullivan, a tax attorney with Gardner Carton & Douglas in Washington and a former IRS official. "I'm surprised at how good they are."
Intermediate sanctions are excise taxes that give the IRS a way to punish individuals at tax-exempt organizations without revoking the companies' tax exemption.
The sanctions are aimed at prohibited "private inurement" activities, whereby private individuals benefit from the earnings of a tax-exempt organization. They were made law in 1996.
The proposed regulations explain how to figure out who is a "disqualified person." Under the intermediate sanctions law, a disqualified person is a private individual who can influence the affairs of the tax-exempt organization.
"There had been a presumption that physicians would be disqualified persons," Sullivan said. "The regulations say physicians would not be disqualified unless they are exercising substantial influence over the organization's affairs."
For example, physicians in a provider-sponsored organization are considered insiders, Sullivan said.
The regulations can be applied to all deals inked on or after Sept. 14, 1995. They also can be used on agreements that were substantially altered on or after that date, said Thomas Hyatt, a tax attorney with Ober Kaler Grimes & Shriver in Washington. "That could be controversial," Hyatt said.
One thing the regulations did not do, Sullivan said, was change the standards the IRS uses to determine whether an organization's tax exemption deserves to be yanked.
The proposed regulations will be published in the Federal Register Aug. 4, followed by a 90-day public comment period.
