The Internal Revenue Service is auditing the 4-year-old joint venture between Columbia/HCA Healthcare Corp. and a not-for-profit foundation that owns five hospitals in Denver.
The IRS began its audit last summer of the Columbia-HealthOne joint venture, said Jeff Prescott, a spokesman for Nashville-based Columbia.
Prescott said the IRS is auditing the joint venture's taxable income for 1995 and 1996. He said it's unclear when the audit will be completed.
Columbia formed the 50-50 joint venture in 1995 with the former not-for-profit HealthOne hospital system.
IRS officials wouldn't comment on the audit.
Prescott said Columbia has no information that the audit is related to a recent IRS revenue ruling on joint ventures.
Last year, the IRS issued a ruling that in joint ventures between for-profit and not-for-profit hospitals, the not-for-profit partner needs to have majority control to maintain its tax-exempt status (March 9, 1998, p. 3).
The ruling has already cost Columbia one of its joint venture partners.
Arlington (Va.) Health Foundation blamed the possible loss of its tax exemption for its decision last month to call off the 3-year-old joint venture with Columbia (Feb. 1, p. 8).
Columbia has at least 11 joint ventures with not-for-profit hospitals around the country.
As for the Denver joint venture, Prescott said an IRS audit is routine for Columbia. "They pick . . . some of our business units every year and audit them," he said. "They picked that one."
Tax attorneys said it's not unusual for large companies such as Columbia to have parts of their businesses audited each year by the IRS. "They're big, they have a lot of issues," said Elizabeth Mills, a healthcare tax attorney with McDermott, Will & Emery in Chicago.
Thomas Hyatt, a healthcare tax attorney with Ober Kaler Grimes & Shriver in Washington, agreed. "It wouldn't surprise me to see . . . the (IRS) do multiple audits of an organization that size or for any organization that has been high-profile," he said.
HealthOne, Columbia's not-for-profit partner, isn't worried by the joint venture's audit. "We've had no indication from the IRS that we should have any reason to be concerned," said Mary Anstine, HealthOne's president and chief executive officer.
HealthOne, a research and education organization, has been operating as a not-for-profit under the tax-exempt status of the former HealthOne hospital system.
HealthOne had asked the IRS to issue a private letter ruling affirming its tax-exempt status, but it got a no-ruling letter instead (June 29, 1997, p. 52). The IRS declined to make a determination.