A Texas hospital system paid the Internal Revenue Service only $300 in excise taxes for allegedly illegally participating in political campaigns.
Elmer Ellis, 63, the longtime president and chief executive officer of 13-hospital East Texas Medical Center Regional Healthcare System, Tyler, and past chairman of the Texas Hospital Association, did not contest the assessment of excise taxes on expenses incurred to fund the association's political action committee when Ellis served as THA chairman in 2000 and 2001.
Michael Thomas, East Texas vice president of strategic planning and marketing, confirmed that Ellis and the Texas system were the parties described in an IRS technical advice memorandum issued earlier this month (Nov. 22, p. 6). In the memorandum, the agency described a system CEO who also served as a state hospital chairman who inappropriately sought to increase contributions to the association's PAC through payroll deductions.
Thomas said Ellis and East Texas were careful in communicating the availability of the payroll deduction program to its employees. He said the system structured its program based on guidance from a 1989 IRS private letter ruling that indicated payroll deductions could be used to fund PACs under certain circumstances. He said East Texas worked with the IRS' Dallas office during an audit and both sought further guidance from the national IRS office.
"We thought we were in compliance with that 1989 private letter ruling," Thomas said. "This is a very gray area. We were not doing anything that we thought crossed the line. It's always been our full intent to be in full compliance with the IRS."
Ellis did not return calls seeking comment last week. He has been with East Texas since 1968 and was named president and CEO in 1985.
Thomas said Ellis believes it's important for not-for-profit hospitals to support PACs. "We're in an industry where 75% or more of our revenue comes from government sources, and we need the ability to access the political process to protect the industry and keep it viable," Thomas said. He said Ellis never exerted pressure on employees to contribute to the PAC.
THA spokeswoman Amanda Engler said the association was not contacted by the IRS in its investigation, but that the THA does offer payroll deductions to fund its PAC and was aware that a Texas system had been audited. "We suspected it was East Texas and Mr. Ellis," she said. "There are 12 to 15 hospitals and systems around the state that use payroll deduction. (THA) employees also can donate through payroll deduction. We are reviewing the IRS memorandum and what it means for us."
Engler said THA's legal counsel would seek further guidance and review the association's practices. Because of the holiday break she said she could not determine the amount of money raised by the PAC or the amount contributed by East Texas employees.