Health Care Update - PPT - Final - August 25 2022

Welcome future tax
leaders
Health care update
August 25, 2022

Disclaimer
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Page 2 Welcome future tax leaders

Presenters
Heather Meade Jeff Shade

Partner Senior Manager
Ernst & Young LLP Ernst & Young LLP
Washington, DC Chicago, IL
heather.meade@ey.com jeff.shade@ey.com
+1 202 467 8414 +1 212 773 8056
Justin Lowe Joanna Zhong

Senior Manager Manager
Ernst & Young LLP Ernst & Young LLP
Washington, DC New York, NY
justin.lowe@ey.com joanna.zhong1@ey.com
+1 202 327 7392 +1 212 773 6170

Objectives
• After successful completion of this course, participants should be able to:

• Identify the most likely timing for legislation that could impact health systems
based on the legislative calendar
• Identify the applicable effective dates for selected Accounting Standards Updates
(ASUs)
• Identify the steps needed to meet federal independent audit requirements
• Explain the concept of environmental, social and governance (ESG) reporting
• Prepare for, and respond to, media scrutiny of community benefit spending
• Identify the potential impact of the COVID-19 pandemic on Form 990
community benefit reporting
• Apply the final 512(a)(6) and 4960 regulations

Agenda
• Legislative update
• Accounting update
• ASUs
• Compliance Audit updates
• ESG reporting
• Tax update
• Media scrutiny and community benefit reporting
• Applying the final 512(a)(6) and 4960 regulations

Legislative update

Congress and election forecasts
Senate Current ratio Toss-up or “lean” seats
0 10 20 30 40 50 60 0 1 2 3 4 5 6
Up for reelection in 2022: Retiring: Toss-up D or Lean D: Toss-up R or Lean R:

• 21 Republicans • Roy Blunt (R-MO) • Mark Kelly (D-AZ) • Penn. open seat (Toomey)
• 14 Democrats • Richard Burr (R-NC) • Raphael Warnock (D-GA) • Ron Johnson (R-WI)
• James Inhofe (R-OK) • Catherine Cortez Masto (D-NV) • Marco Rubio (R-FL)
• Pat Leahy (D-VT) • Maggie Hassan (D-NH) • North Carolina open seat (Burr)
• Rob Portman (R-OH) • Ohio open seat (Portman)
• Richard Shelby (R-AL)
• Pat Toomey (R-PA)
House Current ratio Toss-up, “lean” or lean to • 3 currently R seats lean

other party seats D; 10 currently D seats
lean or
likely R
• More Democrats in toss-
up or less than ‘likely’
0 50 100 150 200 250 0 5 10 15 20 25 30 35 40 45 races
Five vacancies: Presidents typically lose seats in first midterm:

• Rep. Jim Hagedorn (R-MN); special election August 9 • Trump lost 40 House seats and gained 2 Senate seats in 2018.
• Rep. Don Young (R-AK); special election August 16 • Obama lost 63 House seats and 6 Senate seats in 2010.
• Rep. Tom Reed (R-NY); special election August 23 • Bush gained 8 House seats and 2 Senate seats in 2002.
• Rep. Antonio Delgado (D-NY); special election August 23 • Clinton lost 54 House seats and 8 Senate seats in 1994.
• Rep. Jackie Walorski (R-IN) in fatal auto accident August 3
Source: Cook Political Report

2022 elections: Senate
Senate — Up for re-election Storylines

Republicans (21) Sitting Senators in tough races
Blunt, Roy (R-MO) (retiring) Moran, Jerry (R-KS)
Boozman, John (R-AR) Murkowski, Lisa (R-AK) • Nevada — Catherine Cortez Masto (D) vs. Adam
Burr, Richard (R-NC)* (retiring) Paul, Rand (R-KY) Laxalt (R), whose father, grandfather were Senators
Crapo, Mike (R-ID)* Portman, Rob (R-OH)* (retiring) • Wisconsin — Ron Johnson (R); Lt. Gov. Mandela
Grassley, Chuck (R-IA)* Rubio, Marco (R-FL)
Barnes likely Democratic challenger (August 9
Hoeven, John (R-ND) Scott, Tim (R-SC)*
Inhofe, James (R-OK) (resigning) Shelby, Richard (R-AL) (retiring)
primary)
Johnson, Ron (R-WI) Thune, John (R-SD)*
Kennedy, John (R-LA) Toomey, Patrick (R-PA)* (retiring)
2020 all over again
Lankford, James (R-OK)* Young, Todd (R-IN)* • Georgia — Raphael Warnock (D) running even with
Lee, Mike (R-UT) former NFL star Herschel Walker (R)
• Arizona — Mark Kelly (D) up again as 2020 was
Democrats (14)
special election (predecessor Sen. McSally was
Bennet, Michael (D-CO)* Cortez Masto, Catherine* (D-NV)
appointed to seat held by Sen. McCain); vs. Blake
Blumenthal, Richard (D-CT) Duckworth, Tammy (D-IL)
Masters (R)
Padilla, Alex (D-CA)
Hassan, Maggie (D-NH)* Open seats
Kelly, Mark (D-AZ)
• Pennsylvania — Pat Toomey (R) retiring;
Leahy, Pat (D-VT) (retiring)
Murray, Patty (D-WA)
Lt. Gov. Fetterman (D) vs. Dr. Mehmet Oz (R)
Schatz, Brian (D-HI) • Ohio — Rob Portman (R) retiring;
Schumer, Chuck (D-NY) Rep. Tim Ryan (D) vs. J.D. Vance (R)
Van Hollen, Chris (D-MD)
Warnock, Raphael (D-GA)
• North Carolina — Richard Burr (R) retiring; Cheri
Wyden, Ron* (D-OR) Beasley (D) vs. Rep. Ted Budd (R)
No race Democrat Republican *Senate Finance Committee member

2022 elections: House
All members are up for re- 35 Democrats retiring, lost primary, or running 24 GOP retiring, lost primary,
election. New presidents usually for other office in parentheses () other office
lose seats in the first midterm. Kirkpatrick, AZ Lowenthal, CA Reed, NY
Bustos, IL Murphy, S., FL Hice, GA (GA Sec. of State)
• Number of potentially
Ryan, OH (Senate) Roybal-Allard, CA Brooks, AL (Senate)
competitive congressional
Crist, FL (Governor) Sires, NJ Zeldin, NY (Governor)
districts is likely small:
Demings, FL (Senate) Rush, IL Brady, TX
• 19 Democrats and Kind, WI Lawrence, MI Budd, NC (Senate)
17 Republicans won in Lamb, PA (Senate) Perlmutter, CO Hartzler, MO (Senate)
2020 w/ margin of victory Bass, CA (Mayor) Langevin, RI Long, MO (Senate)
under 5% Yarmuth, KY Budget Chair McNerney, CA Gonzalez, OH
• 7 Democrats in districts Price, NC Cooper, TN Kinzinger, IL
won by President Trump in Doyle, PA Rice, NY Gohmert, TX (TX Att. Gen.)
the 2020 election Brown, MD (MD Att. Gen.) Deutch, FL Hollingsworth, IN
• 9 Republicans in districts Speier, CA Kahele, HI (Governor) Katko, NY
won by President Biden Butterfield, NC Bourdeaux, GA (primary) Keller, PA

Welch, VT (Senate) Schrader, OR (primary) Taylor, TX
Johnson, E. B., TX Newman, IL (primary) Upton, MI
Suozzi, NY (Governor) Levin, MI (primary) Gibbs, OH
DeFazio, OR T&I Chair Cawthorn, NC (primary)
Jacobs, NY
Rice, SC (primary)
Palazzo, MS (primary)
Davis, IL (primary)
Mullin, OK (Senate)
Meijer, MI (primary)
Source: House Press Gallery

Timeline
August 7 — August 9 — August 12 — September 6 — September 30 — November 8 — December —

Senate passed POTUS signs House vote on Congress returns Expiration of Midterm Year-end tax
Inflation CHIPS bill Senate-passed from August government election day, bill possible
Reduction Act IRA recess funding, FY2022 with lame-duck
reconciliation session to
instructions follow
August Sept Oct Nov Dec
Inflation Reduction Act of 2022
~$750b revenue $433b spending $300b deficit reduction
Prescription drug pricing reform

($288b) ACA
Energy Security, Premium
15% Corporate Deficit
Climate Change Subsidies
Minimum Tax ($258b) Reduction ($300b)
IRS Enforcement Stock buyback ($369b) Extension
($124b) excise tax ($74b) ($64b)

Inflation Reduction Act of 2022
Tax Climate Health
• Corporate alternative minimum tax (AMT): • Clean energy tax credits: extension of section • Medicare prescription
15% minimum tax on adjusted financial 45 production tax credit for electricity from drug negotiation: allow
statement income for corporations with profits in renewable resources, section 48 investment tax Medicare to negotiate the
excess of $1b credit, biodiesel and alternative fuels credits price of some
• Corporations eligible to claim NOLs and tax extended through 2024; then transition to prescription drug prices,
credits against AMT and eligible to claim a tax technology-neutral credits along with other policies
credit against the regular corporate tax for • Extensions of 45Q carbon oxide sequestration aimed to tamp down
AMT paid in prior years, to extent the regular credit, 48C advanced energy property credit, drug costs
tax liability in any year exceeds 15% of the credits for energy efficient homes • ACA subsidies: extend
corporation’s adjusted financial statement • New credits for nuclear power, hydrogen, enhanced ACA subsidies
income sustainable aviation fuel for three years, through
• MACRS depreciation for tangible assets, plus • EV credits for new, used, and commercial 2025
amortization deductions for qualified wireless vehicles with income and MSRP limitations
spectrum, reduces adjusted financial statement • More than $20b to support climate-smart
income for purposes of computing the tax
agriculture practices
• 1% stock buyback excise tax: essentially same
• $27b clean energy technology accelerator
as House BBBA, but effective after 2022
• $6b for a new Advanced Industrial Facilities
• IRS enforcement: investing $80b over the next
Deployment Program to reduce emissions
10 years for enforcement, compliance

Inflation Reduction Act scorecard
In Out
Health Tax Tax
Five-year carried interest holding GILTI changes
15% Corporate alternative • 15% rate and country by country
Medicare Rx negotiation — $288b period
minimum tax calculation to align with OECD-
• Providing for lower prices for • On adjusted financial statement led global tax deal
certain high-priced single source income for corps. with profits NIIT expansion
drugs >$1b • Expand 3.8% tax to pass-through
• Excise tax penalties to compel businesses for individuals BEAT changes
• MACRS depreciation for
manufacturers to lower prices earning $400,000/year; joint • Narrowing scope of BEAT to
tangible assets, plus amortization
for some wireless spectrum, filers earning more than payments made to related parties
$500,000; trusts, estates w/low ETRs, expanding
reduces adjusted financial
statement income definition of a BEAT payment
ARPA ACA premium credits
• Extension of American Rescue High-income surtax 163(n) interest limitation
Plan Act expansion of premium Stock buyback excise tax • Surcharge of 5% on income over • For domestic corporations that
tax credits for health insurance $10m, plus an additional 3% are part of an international
affordability Increased IRS funding over $25m reporting group
Climate
Clean energy incentives then clean fuel production credit
• Electricity credits • Sec. 40B sustainable aviation fuel credit
• Sec. 45 PTC through 2024, then emissions-based PTC • Manufacturing
• Sec. 48 ITC through 2024, then emissions-based ITC • Revival of Section 48C qualified advanced energy property credit
• Extension of 45Q carbon oxide sequestration credit • Advanced Manufacturing Production Credit
• Sec. 45U nuclear PTC • Building/home credits
• Sec. 45V hydrogen credit • EV credits offered for new, used and commercial vehicles with income and
• Fuels credits MSRP limitations
• Incentives for biodiesel, renewable diesel alternative fuels through 2024

IRA direct pay and transferability
Direct pay
• Allows election to be treated as having made a payment of tax equal to the value of the credit they would otherwise be eligible
for. Rather than opting to carry forward credits to years when their credits can offset their tax liability, taxpayers can elect to
treat the amount of credit as a payment of tax.
• Eligible credits
• Section 48 ITC • Section 45Y clean electricity production credit
• Section 45 PTC • Section 48D clean electricity investment credit
• Section 45Q credit for carbon capture and sequestration • Section 45Z clean fuel production credit
• Section 30C alternative fuel vehicle refueling property credit
• Section 48C advanced energy project credit
• Section 45U zero-emission nuclear power production credit
• Section 45V clean hydrogen production credit
• Section 45X advanced manufacturing production credit
Transferability
• If taxpayer elects to transfer all (or any portion specified of an eligible credit) to another taxpayer that
is not related, the transferee shall be treated as the taxpayer for purposes of the credit
• Eligible credits
• Section 30C alternative fuel vehicle refueling property • Section 45Y clean electricity production credit
• Section 45(a) renewable electricity production credit • Section 48 energy investment credit
• Section 45Q credit for carbon oxide sequestration determined • Section 48C advanced energy project credit
• Section 45U zero-emission nuclear power production credit • Section 48D clean electricity investment credit
• Section 45V clean hydrogen production credit
• Section 45X advanced manufacturing production credit

President signs $280b CHIPS & Science Act (H.R. 4346) on
August 9
• More than $52b in grants and incentives for companies building

semiconductor fabrication plants in the US
• Multiyear 25% investment tax credit for semiconductor plants ($24b)
• $102 billion over five years for the National Science Foundation (NSF),
Commerce Department and the National Institutes of Standards and
Technology to increase investments in R&D
• $20 billion for a technology, innovation and partnerships directorate at the
NSF, including a series of new university technology centers
• Directs that the research focus should be broad, aiming at sectors such as
robotics technology, high-performance computing, semiconductors,
artificial intelligence, quantum information science, disaster prevention and
mitigation, biotechnology and cybersecurity
• Also focuses on STEM education from pre-K through high school,
directing the NSF to invest in elementary education programs focused on
science and technology

Polling Question 1
Q
What day is federal election day 2022?
A Tuesday, November 1
B Tuesday, November 8
C Wednesday, October 12

Tax policy

Evolution of Democratic tax increase aspirations
28% corporate 39.6% top 15% minimum 21% GILTI rate,

Biden FY2022 tax rate; excess individual rate; 39.6% top cap tax, CbC
End stepped up
budget interest NIIT pass- gains rate; end companies calculation;
basis
(May 2021) deduction through carried interest w/book income Replace BEAT;
limitation expansion >$2b End FDII
Ways & Means 26.5% corporate 39.6% top 25% top cap 16.5625%
Build Back tax rate; excess individual rate; gains rate; 5- 3% surcharge Mega-IRA, GILTI rate, CbC
Better Act interest NIIT pass- year carried on those income other retirement calculation;
(September deduction through interest holding over $5m changes Changes to
2021) limitation expansion period BEAT, FDII
Corporate, individual rate

House-passed increases dropped 15% minimum 15% GILTI rate,
Mega-IRA, 5% surcharge
BBBA tax, CbC
Excess other retirement on income over
NIIT pass- companies calculation;
(November interest changes; stock $10m, plus 3%
through w/book income Changes to
2021) deduction buyback tax over $25m
expansion >$1b BEAT, FDII
limitation
Inflation 15% minimum

Reduction
tax, Five-year
Act Increased IRS
companies carried interest
(July 27) enforcement
w/book income holding period
>$1b
Note: NIIT = Net Investment Income Tax; GILTI = Global Intangible Low-Tax Income; CbC = Country-by-Country; BEAT = Base Erosion and Anti-Abuse Tax; FDII =
Foreign-Derived Intangible Income

Select year-end 2021 and other tax changes could put pressure on a
tax bill
TCJA cliffs Revenue/extension
Section 174 5-year amortization of R&D expenditures for TYBA 2021 ~$125b/4-year delay1
Section 163(j) 30% of ATI limit calculated w/depreciation & amortization after 2021 ~$10b/year2
Bonus depreciation — 100% expensing phased down in 20% increments after 2022 $190b through 20303
2021 extenders Revenue/extension

Expanded Child Tax Credit, including monthly payments $185b/1 year1
Section 45 credit for electricity produced from certain renewable resources $1.7b/1 year4
Section 25C nonbusiness energy property credit $400m/1 year4
Section 45L energy-efficient new-home credit $276m/1 year4
Incentives for alternative fuel and alternative fuel mixtures $279m/1 year4
Credit for qualified fuel cell motor vehicles $6m/1 year4
Alternative fuel vehicle refueling property $167m/1 year4
Credit for two-wheeled plug-in electric vehicles $2m/1 year4
Second generation biofuel producer credit $16m/1 year4
Credit for health insurance costs (health coverage tax credit) $42m/1 year4
Credit for production of Indian coal $39m/1 year4
Indian employment credit $67m/1 year4
Mine rescue team training credit $1m/1 year4
Treatment of premiums for qualified mortgage insurance as qualified residence interest $207m/1 year4
Three-year recovery period for racehorses No revenue effect4
Accelerated depreciation for business property on an Indian reservation $32m/1 year4
Charitable contributions deductible by non-itemizers $2.9b/1 year4
Temporary increase in limit on cover over of rum excise tax revenues $676m/5 years5
American Samoa economic development credit $8m/1 year4
2022 extenders Revenue/extension

Incentives for biodiesel and renewable diesel $14b/5-year extension1
Short-line railroad track maintenance credit (expiration of 50% rate) TBD
1. JCX-46-21 4. JCX-24-20
2. Extrapolation from JCX-67-17 5. JCX-4-18
3. Center on Budget & Policy Priorities

Expiration/change dates of various tax provisions
Provision 2021 2022 2023 2024 2025 2026 2027

Interest deduction based on EBITDA EBIT
R&D expensing Five-year amortization
Some tax extenders
Phased down in 20%
100% expensing
increments
GILTI deduction at 50% 37.5%
FDII deduction at 37.5% 21.875%
12.5%/
BEAT rate: 10%/11% for banks/dealers
13.5%
TCJA individual rate cuts, other provisions
20% pass-through deduction
Tax extenders: CFC look-through rule,
Work Opportunity Tax Credit (WOTC)
Expansion of the scope of IRC
Section 162(m) deduction limits
TCJA disallowance of excess business loss
In effect Not in effect

Notes: EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization; TCJA – Tax Cuts and Jobs Act of 2017

Budget

Annual federal budget deficit, 2021 to 2032
$ in trillions
3.0
$2.8
2.5
$2.3
$2.1
2.0 $1.9
$1.7 $1.7
1.5 $1.4 $1.4
$1.3
$1.0 $1.0 $1.1
1.0
0.5
0.0
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Fiscal years; $ in trillions
Federal deficit 2.8 1.0 1.0 1.1 1.3 1.4 1.4 1.7 1.7 1.9 2.1 2.3
Gross domestic product (GDP) 22.4 24.7 26.2 27.3 28.3 29.3 30.3 31.5 32.7 34 35.3 36.7
Federal deficit as % of GDP 12.4% 4.2% 3.8% 3.9% 4.7% 4.7% 4.6% 5.5% 5.0% 5.6% 5.9% 6.1%
Note: Figures may not sum due to rounding.

Source: “The Budget and Economic Outlook: 2022 to 2032,” Congressional Budget Office (CBO), May 2022.

Accounting update

Accounting Standards
Updates (ASUs)

Effective date reminders — selected ASUs
• ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities

• Makes certain updates to better align risk management activities and financial reporting, simplify certain
hedge accounting guidance and modify related disclosure requirements
• Public business entities (PBEs) were required to adopt in fiscal years beginning after December 15, 2018,
and interim periods within those fiscal years
• ASU 2019-10 deferred adoption for all other entities until fiscal years beginning after
December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021
• ASU 2018-14, Disclosure Framework — Changes to the Disclosure Requirements for Defined
Benefit Plans
• Modifies disclosure requirements for employer sponsors of defined benefit pension and other
postretirement plans
• Effective for:
• PBEs for fiscal years ending after December 15, 2020
• All other entities for fiscal years ending after December 15, 2021
• Early adoption is permitted, and amendments should be applied on a retrospective basis

• ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract
• Aligns guidance on capitalizing implementation costs incurred in a cloud computing arrangement (hosting
arrangement) that is a service contract with those requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software
• Effective for:
• PBEs for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years
• All other entities for annual reporting periods beginning after December 15, 2020, and interim periods within annual
periods beginning after December 15, 2021
• Early adoption is permitted, and amendments should be applied either retrospectively or prospectively to all
implementation costs incurred after the date of adoption
• ASU 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed
Nonfinancial Assets
• Provides certain presentation and disclosure requirements for contributed nonfinancial assets
• Effective for NFP entities for annual periods beginning after June 15, 2021, and interim periods within
annual periods beginning after June 15, 2022
• Early adoption is permitted

• ASU 2021-03, Accounting Alternative for Evaluating Triggering Events

• Provides an accounting alternative for private companies and not-for-profit entities to perform the
goodwill impairment triggering event evaluation as of the end of the reporting period
• Effective on a prospective basis for fiscal years beginning after December 15, 2019
• Early adoption is permitted for both interim and annual financial statements that have not yet been issued, or made
available for issuance, as of March 30, 2021
• ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about
Government Assistance
• Provides disclosure requirements for entities that account for government assistance by analogizing to a
grant or contribution model (i.e., IAS 20, ASC 958-605)
• Excludes NFPs and employee benefit plans
• Effective for annual reporting periods beginning after December 15, 2021
• Early adoption is expected to be permitted

Polling Question 2
Q
ASU 2020-07 on presentation and
disclosure requirements for not-for-profit
entities receiving contributions of
nonfinancial assets is effective for annual
periods beginning after
what date?
A June 15, 2021
B December 15, 2021
C June 15, 2022
D December 15, 2022

Compliance audit updates

Federal independent audit requirements
• Entities (both nonfederal and commercial) that expend federal funds are
subject to independent audit requirements if certain thresholds are met.
• The Provider Relief Fund program is identified as Assistance Listing
#93.498, Provider Relief Fund and American Rescue Plan (ARP) Rural
Distribution.
• Independent auditor report submissions are generally due the earlier of 30
calendar days after the receipt of the auditor’s report or nine months after the
end of their fiscal year.

Federal independent audit requirements — nonfederal entities
• Nonfederal entities (e.g., state and local governments, institutions of higher

education, Indian tribes, not-for-profit organizations) that expend $750,000
or more in federal awards are subject to certain compliance audit
requirements.
• Nonfederal entities:
• Prepare a Schedule of Expenditures of Federal Awards (SEFA).
• Have a compliance audit conducted in accordance with the Single Audit Act
Amendments of 1996 and the requirements of Title 2 Code of Federal
Regulations (CFR) Part 200 — Uniform Administrative Requirements, Cost
Principles and Audit Requirements of Federal Awards (i.e., the Uniform
Guidance).
• Auditors use the OMB Compliance Supplement to identify compliance requirements to
be tested for each program.
• Submit SEFAs and independent auditor reports electronically to the Federal Audit
Clearinghouse via a Data Collection Form.

HHS independent audit requirements — commercial organizations
• Commercial organizations (i.e., for-profit entities) that expend $750,000 or more in

Department of Health and Human Services (HHS) awards are subject to an
independent audit in accordance with 45 CFR 75.501.
• For commercial organizations:
• The following options are available to meet the independent audit requirement:
• A financial audit of HHS awards conducted in accordance with Government Auditing Standards
• A single audit or program-specific audit performed in accordance with the Uniform Guidance
• Generally, commercial organizations will report federal award amounts on a “Schedule of
[insert caption describing account used by the recipient in the financial statements] of US
Department of Health and Human Services Awards” (the Schedule).
• Reports must be submitted electronically to PRFAudits@hrsa.gov.
• The AIPCA Governmental Audit Quality Center (GAQC) released a Practice Aid in
March 2022.

SEFA and schedule reporting of Provider Relief Funds
• SEFA (nonfederal entities) and Schedule (commercial organizations)

reporting of PRF awards is based on the PRF report(s) required to be
submitted to HRSA’s PRF Reporting Portal
PRF Payment received period SEFA and Schedule

reporting (payments received that exceed PRF portal reporting reporting by fiscal
period 202 $10,000 in the aggregate) Period of availability time period year-end (FYE)
July 1.2021 through
April 10, 2020, through June 30, January 1, 2020, through FYEs of June 30, 2021,
1 September 30, 2021 (with a
2020 June 30, 2021 through June 29, 2022
60-day grace period)
FYEs of December 31,
July 1, 2020, through December January 1, 2020, through January 1, 2022, through
2 2021, through June 29,
31,2020 December 31, 2021 March 31, 2022
2022
January 1, 2021, through June 30, January 1, 2020, through July 1.2022 through FYEs of June 30, 2022,
3
2021 June 30, 2022 September 30, 2022 through June 29, 2023
FYEs of December 31,
July 1, 2021, through December January 1, 2020, through January 1, 2023, through
4 2022, through June 29,
31,2021 December 31, 2022 March 31, 2023
2023
January 1, 2022, through June 30, January 1, 2020, through July 1.2023 through

5 Guidance not yet available
2022 June 30, 2023 September 30, 2023

Polling Question 3
Q
A December 31, 2021, fiscal year-end
entity should include PRF awards related
to which PRF reporting period(s) on their
fiscal 2021 SEFA/
Schedule? (Select one)
A Reporting period 1 only
B Reporting period 2 only
C Both reporting periods 1 and 2
D All PRF award expenditures
E None

Environmental, social and
governance (ESG) matters

What is ESG reporting?
• Generally, voluntary disclosure of ESG information

• E.g., Sustainability or CSR reports
• Communications about ESG matters occurs through a variety of channels,
including:
• Press releases, websites, social media, investor presentations, SEC filings,
submissions to rating agencies
• This reporting typically discusses material risks and opportunities related to
ESG matters and the entity’s strategies related to those matters
• May include certain metrics, such as:
• Greenhouse gas (GHG) emissions, energy consumption and water usage
• Historically, ESG reporting has largely been outside the scope of
responsibility of “corporate finance”

Stakeholder expectations have historically driven ESG reporting
Employees
Millennials are three times more likely to seek employment with a company
because of its stance on social and/or environmental issues
Customers
~One-fourth of
More than 150 members with $4t of purchasing power are using the CDP every dollar of
supply chain program to request ESG information from 15,000 suppliers 86% of
assets under management
millennials
worldwide are interested in sustainable
in the US was invested in
socially responsible1
investing
strategies
in 2018
Consumers
57% of consumers are willing to change their purchasing habits to help reduce
negative environmental impact 88% of
millennials review
the ESG impact
of their holdings
Investors
• 98% of investors surveyed by EY teams evaluate ESG performance based
on corporate disclosures
• Certain investments firms have positioned climate risk as a central tenet of
their investment strategy with a transformational purpose stating “climate
risk is investment risk” Conscientious investor
• Investors filed at least 140 climate–related shareholder proposals at US
companies during the 2020 proxy season, and view the climate crisis with
growing urgency
1 “
Trends on the sustainability reporting practices of S&P 500 index companies,” Governance and Accountability Institute, Inc., 2020.
2
“What investors expect from the 2020 proxy season,” EY Center for Board Matters, ey.com, https://www.ey.com/en_us/board-matters/what-investors-expect-from-the-2020-proxy-season,
February 5, 2021.
3
“Edelman Trust Barometer 2020,” Edelman website, www.edelman.com/sites/g/files/aatuss191/files/2020-01/2020 Edelman Trust Barometer Global Report_LIVE.pdf, accessed February 9, 2021.

Regulatory developments: SEC climate change disclosure
Proposed disclosure requirements
Disclosures outside the audited financial statements Disclosures inside the audited financial statements
(Regulation S-K) (Regulation S-X)
• Separately captioned section of a registration statement or annual report • Would be required to be disclosed in a note to the audited financial
• Climate-related risks that have had or are reasonably likely to have a statements
material impact on a registrant’s business and consolidated financial • Impact of climate-related events (e.g., severe weather events) and
statements over the short, medium or long term transition activities on the line items of a registrant’s consolidated
• If a registrant has adopted a climate transition plan, disclosure about the financial statements unless the impact on an absolute value basis is less
plan and related progress than 1%
• If a registrant uses analytical tools (e.g., climate scenario analysis) to assess • Aggregate amount of climate-related costs incurred that are both
the resilience of its business, disclosure about those tools including the expensed and capitalized, unless the aggregate is less than 1%
assumptions and projected financial impacts • Impact of climate-related events and transition activities on financial
• Board oversight of climate-related risks, targets and goals including estimates and assumptions used in preparing the financial statements
relevant experience
• Processes for identifying, assessing, and managing climate-related risks
• Quantitative disclosures about greenhouse gas (GHG) emissions — Scope
1 and 2 for all registrants and Scope 3, if material or if a target or goal
includes Scope 3 emissions (smaller reporting companies exempt)
• Climate-related targets or goals and related progress
Assurance requirements
• Scope 1 and Scope 2 emissions would first be subject to limited assurance and later reasonable assurance
• Assurance providers would need to be independent and have significant experience in measuring, analyzing, reporting or attesting to GHG emissions
• Registrant would make certain disclosures about assurance provider qualifications
• SEC did not specify attestation standards that would need to be used but did provide criteria for acceptable standards
• Obtaining voluntary assurance on GHG emissions before it is required or on emissions reported voluntarily (e.g., Scope 3 when not required) would trigger
registrant disclosure including the provider, the nature of the engagement and any relationships that might impair independence

Climate disclosure proposal: process implications
The proposed disclosures would be included in registration statements and annual reports and the registrant would
need to have appropriate DCPs over the information. Disclosures inside the audited financial statements would be
subject to audit and ICFR
Disclosure controls and procedures (DCPs)

Board oversight and expertise Risk management
Analytical tools including scenario analysis GHG emissions metrics
Targets and goals Voluntary assurance disclosures

Internal control over
Transition plan financial reporting (ICFR)
Impact of climate-related
Climate-related
events and transition on
expenditures
financial statements
Estimates and assumptions
Preparations to consider:
• Evaluate existing board oversight and risk management over climate-related risks to determine whether any
changes might be appropriate in advance of reporting on these processes
• Take inventory of existing climate-related risk disclosures to assess reporting gaps
• Evaluate current systems, processes, and controls to determine what changes would need to be made to DCPs
and ICFR
• Consider assurance requirements compared to current practice

Climate disclosure proposal: phase-in periods for proposed
disclosures and assurance
Registrant type Compliance date
All disclosures, except Scope 3 GHG emission Assurance on Scope 1 and 2

for Scope 3 disclosures emission disclosures
Fiscal year 2023 (filed in Fiscal year 2024 (filed in Limited Assurance — 2024
Large accelerated filer
2024) 2025) Reasonable assurance — 2026
Fiscal year 2024 (filed in Fiscal year 2025 (filed in Limited Assurance — 2025
Accelerated filer
2025) 2026) Reasonable assurance — 2027
Fiscal year 2024 (filed in Fiscal year 2025 (filed in

Non-accelerated filer Exempt
2025) 2026)
Smaller reporting Fiscal year 2025 (filed in
Exempt Exempt
company 2026)

Polling Question 4
Q
Which facet of ESG will be most relevant
for your organization?
A Environmental and sustainability matters
Social topics, such as human capital and

B health equity
Governance matters (e.g., cybersecurity

C and enterprise risk management)
D Not applicable (EY professional)

Tax update

Continuing scrutiny of
tax-exempt hospitals

Tax risk = reputational risk = financial risk
The distinction between taxable and tax-exempt health systems is

1 becoming increasingly blurred.
The “halo effect” of tax-exempt status has diminished, and reputational

2 risk has increased because of scrutiny from legislators, the media and
others.
Third-party organizations are analyzing Form 990 and other data and

3 making statements about whether tax-exempt health systems are
providing their “fair share” of benefits.
Federal, state and local governments are actively seeking new sources of
4 revenue and re-evaluating “tax breaks.”

Recent media scrutiny of tax-exempt hospitals
“
A July 2022 study by the Tax Policy Center (Urban Institute & Brookings Institution) reveals that most
public charities benefit little from federal tax exemption because they don’t generate income; however,
as a group, IRC Section 501(c)(3) hospitals benefit significantly from federal tax exemption as they earn
substantial income that would otherwise be taxed. (“How Much Do Tax-Exempt Organizations Benefit
from Tax Exemption?”)1
Nathan Born and Adam Looney, July 2022, Tax Policy Center
“
According to a July 2022 Wall Street Journal article, a recent analysis of charity care provided by
hospitals found that tax-exempt hospitals provide less charity care than for-profits do; representatives
from various hospital systems and industry groups explain their perspectives on the analysis.
(“Big Hospitals Provide Skimpy Charity Care — Despite Billions in Tax Breaks”) 2
Anna Wilde Mathews, Tom McGinty and Melanie Evans, July 25, 2022, The Wall Street Journal
“
The Lown Institute releases a ranking of “fair share spending” and lists those with “fair share deficits”
and “fair share surpluses." (“2022, Fair Share Spending — Lown Institute Hospital Index,” April 12,
2022)3
1 www.taxpolicycenter.org/publications/how-much-do-tax-exempt-organizations-benefit-tax-exemption/full
2 www.wsj.com/articles/nonprofit-hospitals-vs-for-profit-charity-care-spending-11657936777?mod=hp_lead_pos5
3 lownhospitalsindex.org/2022-fair-share-spending/

How to address increasing scrutiny
• Reporting community benefit on Form 990,

and particularly Schedule H, is a key way for
tax-exempt hospitals to demonstrate the
value that they provide to their communities.
• Similar information can be presented in
community benefit reports and other
community outreach materials.
• In light of this increasing scrutiny, the tax
and finance functions should work closely
with community and government relations
functions.
• Public-facing documents should paint a full
and accurate picture of the hospital’s
activities.

Taking COVID-19 into
account when preparing
IRS Form 990 and
reporting community
benefit

Key items from Schedule H, Part I
• Regulator, public and media focus is more on Part I rather than on Parts II
(community building) and III (bad debt/Medicare/collection practices).
• Line 6: Did the organization prepare a community benefit report during the tax year?
If so, did it make it public?
• Not required, but helpful
• Line 7a: Financial assistance at cost
• Line 7b: Medicaid
• Line 7c: Costs of other means-tested government programs
• Line 7e: Community health improvement services and community benefit operations
• Line 7f: Health professions education
• Line 7g: Subsidized health services
• Line 7h: Research
• Line 7i: Cash and in-kind contributions

Polling Question 5
Q
The IRS expects a specific minimum
community benefit expense percentage on
Schedule H.
A True
B False

COVID-19 Form 990 reporting considerations: Schedule H
• Community health improvement services

• Activities or programs, subsidized by the health care organization, carried out for the purpose of
improving community health:
• Must be intended to meet a demonstrated and documented health need (can be documented in community
health needs assessment (CHNA), public health agency report or publication of community group)
• Cannot generate inpatient or outpatient revenue
• May be offered for free or at a nominal cost
• COVID-19-related services that might qualify as community health improvement services:
• Community health education on COVID-19
• Providing COVID-19-related information and/or referral service (e.g., hotline)
• COVID-19 testing services provided on a community-wide basis
• COVID-19 vaccination services provided on a community-wide basis
• COVID-19-related support groups
• Coordinating the work of volunteers serving COVID-19-related needs
• Coordinating with public health agencies to combat COVID-19 in the community
• Providing transportation services for low-income individuals to receive COVID-19-related services
• Providing safe, socially distanced housing for low-income individuals

• Subsidized health services

• Clinical services provided to meet an identified community need despite a
financial loss to the organization
• If the organization no longer offered the service:
• The service would be unavailable in the community
• The community’s capability to provide the service would be below the
community’s need
• The service would become the responsibility of the government or another tax-
exempt organization
• Financial loss: measured after removing losses associated with bad debt,
financial assistance, Medicaid, or other means-tested government programs:
• Excluded for purposes of determining which services are subsidized health
services and when measuring losses generated by subsidized health services

• Subsidized health services can be:

• Inpatient; common examples are:
• Psychiatric units
• Burn units
• Neonatal intensive care
• Substance abuse treatment
• Organ transplant services
• Outpatient; common examples are:
• Emergency and trauma services
• Home health programs
• Services performed at physician clinics and skilled nursing facilities as long as they meet the requirements on the prior
page
• COVID-19-related services that might qualify as subsidized health services:
• Emergency and trauma services
• Behavioral/mental health
• Home health
• COVID-19-dedicated clinic or unit
• Certain physicians’ clinics

• Other considerations
• Vaccination costs:
• Financial assistance?
• Community health improvement services?
• Cost-to-charge ratio (for calculating cost of community benefit):
• If Schedule H, Worksheet 2 is used to determine ratio, filer must subtract non-patient care expense from
total operating expense:
• May use “other operating revenue” as a proxy for non-patient care expenses
• “Other operating revenue” may include PRF payments
• Not required if organization uses accurate cost accounting system
• Examples of costs not to report as community benefit:
• Cost of services provided to patients who are not eligible for financial assistance (unless services are
provided as part of a community health improvement service or a subsidized health service)
• Lost revenue/opportunity costs
• Volunteer time

• Schedule H instructions require certain payments that offset total community benefit expense to
be reported as offsetting revenue in column (d) of the community benefit reporting table (Part I,
line 7).
• Includes any revenue generated by community benefit activity, including reimbursement for services
provided to patients.
• Also includes grants restricted for, and used to provide, community benefit.
• Example 1: an organization receives a restricted grant from an unrelated organization that must be used by the
organization to provide financial assistance. The amount of the restricted grant is reportable as direct offsetting revenue
on line 7a, column (d).
• Example 2: an organization receives an unrestricted grant from an unrelated organization and decides to use the grant to
increase the amount of financial assistance it provides. The amount of the unrestricted grant isn’t reportable as direct
offsetting revenue on line 7a, column (d).
• Does not include grants not restricted for community benefit, as defined in Schedule H instructions.
• Even if they are restricted for some other purpose (e.g., COVID-19-related expenses).
• Does the hospital have discretion to use or not use the funds for community benefit, as defined in Schedule H?
• No Schedule H instructions or other IRS guidance address whether or how to report government payments
used to cover or offset COVID-19-related expenses as offsetting revenue on Schedule H.
• Provides 990 filers flexibility to make a reasonable interpretation of instruction.

• Restricted grant reporting

• PRF payments:
• Offset COVID-19-related health care expenses
• May be used in some situations to offset lost revenue
• Are some or all PRF payments reportable as offsetting revenue for Schedule H purposes?
• Payments to offset lost revenue or non-community benefit are not required to be reported as
offsetting revenue.
• Payments used to offset community benefit costs?
• There is no clear answer — not addressed in Schedule H instructions or other guidance.
• Reporting position may be affected not only by tax technical considerations (e.g., interpretation of Schedule H
instructions) but by emerging best practices, hospital policy, desire for transparency, and expectations of the
public.
• FEMA payments:
• Reimbursement for certain emergency protective measures taken to respond to COVID-19,
after review and approval by FEMA
• Likely reportable as offsetting revenue to the extent that FEMA approves reimbursement of
specific community benefit expenses

Polling Question 6
Q
True/false: There is specific guidance
from the IRS on how to report Provider
Relief Fund payments on Form 990,
Schedule H.
A True
B False
Not applicable (EY professional, faculty,

C other)

Section 501(r)
implications for
community benefit
reporting

Some expenses associated with 501(r) requirements may be
community benefits
• Financial assistance to individuals who
cannot afford to pay some or all of the
cost of their medical care
• Conducting a CHNA and preparing and
publicizing a CHNA report
• Developing an implementation strategy
(and associated implementation actions)
• Making the community aware of the
financial assistance policy:
• Translations
• Notifying the community
• Other translation and interpreter
services

Section 501(r) CHNA regulations expanded the definition of a
community health need
• Section 1.501(r)-3(b)(4) of the final regulations significantly expanded what
is considered a community health need by stating that such needs could
include “requisites for the improvement or maintenance of health, both in
the community at large and in particular parts of the community (such as
particular neighborhoods or populations experiencing health disparities).”
• It goes on to provide examples of community health needs, including “the
need to address financial and other barriers to accessing care, preventing
illness, helping to ensure adequate nutrition or to address social, behavioral
and environmental factors that influence health in the community.”
• If these needs are identified during a hospital facility’s CHNA process,
expenses associated with the hospital’s attempts to address the needs can be
reported as community health improvement services on Form 990,
Schedule H.

Tax reform key items

Polling Question 7
Q
On which area of tax reform is the IRS
expecting to release additional guidance?
Section 4960 excess compensation excise

A tax
Section 4968 university investment income

B excise tax
Section 512(a)(6) unrelated business

C taxable income (UBTI) expense allocation

Section 512(a)(6) final
regulations: overview

Section 512(a)(6)
• The Tax Cuts and Jobs Act (TCJA) added Section 512(a)(6) to the Internal
Revenue Code, effective for tax years beginning after December 31, 2017.
• The statute provides:
• “Special rule for organization with more than one unrelated trade or business. In
the case of any organization with more than one unrelated trade or business:
A. Unrelated business taxable income, including for purposes of determining any net
operating loss deduction, shall be computed separately with respect to each such trade
or business and without regard to [the specific $1,000 deduction].
B. The unrelated business taxable income of such organization shall be the sum of the
unrelated business taxable income so computed with respect to each such trade or
business, less a specific [$1,000] deduction.
C. For purposes of subparagraph (B), unrelated business taxable income with respect to
any such trade or business shall not be less than zero.”

Final regulations interpreting Section 512(a)(6)
• Final regulations apply to tax years beginning on or after December 2, 2020.

• Overview of the final regulations:
• General rule: a tax-exempt organization must use 1 of 20 two-digit North American Industry
Classification System (NAICS) codes to identify each of its separate unrelated trades or
businesses
• Manual is available here:
North American Industry Classification System (NAICS) US Census Bureau
• Each NAICS code is one “silo” but may include multiple unrelated activities
• “Activities in the nature of investments” are a single, separate silo. This includes:
• Qualifying partnership interests (QPIs)
• Qualifying S corporation interests (QSIs)
• Debt-financed property (whether held directly or through partnerships)
• Transition rule: a directly held partnership interest that isn’t a QPI and was acquired prior to
August 21, 2018, may be treated as a single silo until the first tax year beginning after
December 2, 2020.

General rule: NAICS codes
• General rule: exempt organizations identify their separate unrelated trades or

businesses using the NAICS.
• Codes used are the two-digit NAICS codes for the underlying business
activity, whether conducted directly by the organization or indirectly (e.g.,
through a partnership).
• 20 two-digit codes in total
• A two-digit code can be assigned to no more than one UBTI silo and is only
reported once.
• The code cannot be used for activities that are substantially related to the
organization’s exempt function (e.g., a university cannot choose the code for
educational services to describe all of its unrelated trade or business
activities).

Two-digit NAICS codes
• 11: Agriculture, forestry, fishing and technical services

hunting • 55: Management of companies and
• 21: Mining, quarrying, and oil and gas enterprises
extraction • 56: Administrative and support
• 22: Utilities • 61: Educational services
• 23: Construction • 62: Health care and social assistance
• 31–33: Manufacturing • 71: Arts, entertainment and recreation
• 42: Wholesale trade • 72: Accommodation and food services
• 44–45: Retail trade • 81: Other services (except public
• 48–49: Transportation and warehousing administration)
• 51: Information • 92: Public administration
• 52: Finance and insurance
• 53: Real estate and rental and leasing
• 54: Professional, scientific and

NAICS codes applied
A hospital organization has three wholly-owned facilities, each of which

1 has a lab and pharmacy that generate unrelated business taxable income.
It is also a 49% partner in a partnership operating an urgent care center

2 that it treats as an unrelated trade or business.
3 How many silos?

Polling Question 8
Q
How many NAICS two-digit codes apply
to your organization’s unrelated trade or
business activities?
A More than five
B Three to five
C One to two
We don’t have any unrelated trade or

D business activity
E Does not apply (EY, faculty, other)

Investment activities
• Qualifying investment activities are treated as a single unrelated trade or

business; NAICS code rules do not apply.
• In general, qualifying investment activities are:
• QPIs
• QSIs
• Debt-financed property

• QPIs: a tax-exempt organization’s interest in a directly held partnership is a

QPI if the tax-exempt organization meets either 1) the “de minimis test” or
2) the “participation test” (previously referred to as the “control test” under
the proposed regulations).
• De minimis test: the tax-exempt organization must own not more than 2% of
the capital and profits interests in the partnership.
• Participation test:
• The tax-exempt organization must hold no more than 20% of the capital interest
in the partnership.
• Must not “significantly participate” in the partnership.
• For purposes of the participation test’s percentage limit, include interests
held by the organization’s supporting organizations (excluding some Type
IIIs) and its controlled entities (as defined in Section 512(b)(13)(D)).
• These tests are only available for limited partnership interests.

• “Significant participation” is determined based upon four factors, two that

pertain to the organization’s power to act and two that pertain to the rights of
individuals within the organization to act:
1. The organization, by itself, may require the partnership to perform, or may
prevent the partnership from performing (other than through a unanimous voting
requirement or through minority consent rights), any act that significantly affects
the operations of the partnership.
2. Any of the organization’s officers, directors, trustees, or employees have rights to
participate in the management of the partnership at any time.
3. Any of the organization’s officers, directors, trustees, or employees have rights to
conduct the partnership’s business at any time.
4. The organization, by itself, has the power to appoint or remove any of the
partnership’s officers or employees or a majority of directors.

Investment activities: the look-through rule
• If an organization’s directly held partnership interest isn’t a QPI, it can test

whether partnership interests held through that partnership (indirectly held
partnership interests) meet either the de minimis or participation tests, with
certain modifications.
• For the de minimis test, determine the organization’s percentage interest in
the indirectly held partnership.
• E.g., an organization holds 50% of the capital interests in a feeder fund, which in
turn holds 4% of the capital and profits interests of a lower-tier partnership. That
lower-tier partnership interest is a QPI with respect to the organization.
• For the participation test, the “organization” that must meet the requirements
is the entity holding the partnership interest.
• E.g., an organization owns 50% of the capital interests in a feeder fund, which
owns 15% of a partnership and the feeder fund does not significantly participate
in the partnership. That partnership is a QPI with respect to the organization.

Polling Question 9
Q
Which of the following best describes how Section 512(a)(6) applies
to your organization’s partnership investments?
We expect that all of our investments will We will need to further review our
A meet the de minimis test
D investments to determine whether they
meet either test
We expect that all of our investments will
B meet the participation test E Does not apply (EY, faculty, other)
We expect that some of our investments

meet neither the de minimis test nor the
C participation test, and would need to be
reported as separate unrelated trades or
businesses under the final regulations

Section 4960
final regulations:
overview of the tax

Section 4960 overview
By the numbers
For tax years beginning after
December 31, 2017,
Excess
Section 4960 imposes a 21%* remuneration
>$1m
excise tax on remuneration in
excess of $1m paid for a tax
year and any “excess
parachute payments” paid to
“covered employees” of any Parachute Separation pay
payments >3x “base amount”
applicable tax-exempt
organization (ATEO) or
related organization.
*Cross-reference to corporate Excise tax 21%

income tax rate

Section 4960 guidance timeline
December 22, 2017 December 31, 2018 January 19, 2021

Enacted as part of TCJA Notice 2019-09 released Final regulations published
2017 2018 2021
2018 2020 2022
January 1, 2018 June 11, 2020 January 1, 2022

Effective date (calendar-year Proposed regulations Final regulations apply
taxpayers) published

Section 4960 annual compliance process
• Identify your ATEOs and any related organizations.

• Identify the common-law employees of your ATEOs.
• Determine the remuneration paid to those common-law employees from the
ATEOs and all related organizations.
• For each ATEO, identify the five common-law employees with the highest
remuneration for the year and add any new ones to its cumulative covered
employee list.
• Determine whether any covered employees (added this year or on the list
from a prior year) received excess remuneration or an excess parachute
payment.
• If so:
• Determine the ATEO and related entities, if any, responsible for filing Form 4720
and paying the tax.
• File Form 4720 for each entity and pay the tax for each entity.

Section 4960
final regulations:
identifying and tracking
covered employees

Start with identifying common-law employees
• The test has many factors, but there are three broad questions to ask:
• Behavioral: does the organization control or have the right to control what the
worker does and how the worker does his or her job?
• Financial: does the organization control the business aspects of the worker’s job
(e.g., how paid, whether expenses are reimbursed, who provides equipment)?
• Type of relationship: does the organization have a written contract with the
person or provide benefits (e.g., pension plan, insurance, vacation pay)? Will the
relationship continue and is the work performed a key aspect of the business?
• Officers are presumed to be common-law employees unless they provide
only minor services and receive no compensation (directly or indirectly) for
their officer services.
• This does not necessarily track who issues the individual’s W-2 or handles
payroll.

Covered employees are a subset of common-law employees
Identifying common-law employees may not be easy:

Payroll services Section 3504 Section 3401(d)(1) Section 3121(s) common
provider Reporting agent reporting agent statutory employer paymaster
Form 941 Employer’s Employer’s Agent’s name and Statutory employer’s Common paymaster’s
name and Employer name and EIN EIN plus Schedule R name and EIN name and EIN
Identification Number
(EIN)
Form W-2 Employer’s Employer’s Agent’s Statutory employer’s Common paymaster’s
name and EIN name and EIN name and EIN name and EIN name and EIN
Liability for Employer Employer Agent and employer Statutory employer Common paymaster and
unpaid taxes jointly and severally concurrent employer
liable jointly and severally
liable
Section 4960 Employer Employer Employer Employer Employer
excise taxes
A “covered employee” is a common-law employee who:

• Is one of the five highest-compensated employees of the ATEO for the tax year
or
• Was a covered employee of the ATEO (or any predecessor) for any preceding tax year beginning
after December 31, 2016

Identifying covered employees
• Five highest-compensated employees for a given tax year are determined

based on “remuneration,” which is covered in the next section.
• All remuneration from related organizations is taken into account.
• Remuneration is generally determined using the calendar year ending with or
within the ATEO’s tax year.
• The five highest-compensated employees for the year are added to the
ATEO’s list of covered employees (be mindful of exceptions, covered later).
• Once added to the list, the individual stays on the list forever, even if the
employment relationship ends.

Identifying the amount (not timing) of remuneration paid to
common-law employees
• “Remuneration” generally means “wages” as defined in Section 3401(a),
but:
• Subtract Roth contributions
• Add amounts included in employee’s income under Section 457(f)
• Include remuneration paid by any related organization
• Remuneration does not include amounts paid to a licensed medical
professional for medical services:
• This includes services that are integral to providing such medical services, such
as administrative tasks like creating patient records.
• Teaching or research services are not medical services, unless they relate directly
to the diagnosis, cure, mitigation, treatment or prevention of disease or affect a
structure or function of the body.

Timing of remuneration
• In general, the present value of all remuneration is treated as paid when it is

no longer subject to a “substantial risk of forfeiture” (i.e., upon “vesting).
• This is the rule for all “supplemental wages,” including bonuses, taxable fringe
benefits, and all deferred compensation (regardless whether Section 457(f)
applies).
• For amounts paid within 90 days after vesting, the employer may treat the entire
amount to be paid as the present value.
• “Regular wages” (basically, salary) are included in remuneration when actually
or constructively paid.
• Any vested subsequent earnings on deferred amounts (net of any losses) are
treated as paid annually, even if payment does not actually occur until a later
year.

Common “remuneration” issues
1 Bonuses
2 Payroll period straddling the end of the year
3 Group-term life insurance
4 Section 457(b) plans
5 Earnings on deferred compensation
6 Split-dollar life insurance

Covered-employee exceptions for certain volunteers
Limited-hours exception Non-exempt funds exception

Neither the ATEO nor any related ATEO paid Neither the ATEO nor any related ATEO nor any taxable
Remuneration
remuneration or granted a legally binding right related organization controlled by the ATEO or by one
to non-vested remuneration to the individual for or more related ATEOs paid remuneration or granted a
services performed as an ATEO employee legally binding right to non-vested remuneration to the
during the current year individual for services performed as an ATEO employee
during the current year and the preceding year
Hours/days the individual works as an Hours/days the individual works as an employee for the
Hours of service
employee for the ATEO and related ATEOs are ATEO and related ATEOs are 50% or less of total
10% or less (100-hour safe harbor) of total hours/days the individual works for the ATEO and all
hours/days the individual works for the ATEO related organizations for the current year and the
and all related organizations for the current preceding year
year
No related organization that paid remuneration or granted

Related orgs.
a legally binding right to non-vested remuneration to the

individual during the current and preceding year provided
paid services to the ATEO, any related ATEO, or any
taxable related organization controlled by the ATEO or
related ATEOs during the current and preceding year

One other exception with a different purpose: limited services
exception
• In general, this prevents an individual who performs small amounts of
services for multiple ATEOs from becoming a covered employee of all of
those ATEOs.
• With respect to an ATEO, an employee is not added to the covered employee
list if all of the following are met:
• Remuneration requirement: the ATEO did not pay 10% or more of the
employee’s total remuneration for services to the ATEO and all related
organizations for the year.
• Related organization requirement: the ATEO had at least one related ATEO and
one of the following conditions applies:
• A related ATEO paid at least 10% of the total remuneration paid by the ATEO and all
related organizations
• No related ATEO paid at least 10% of the total remuneration paid by the ATEO and all
related organizations and the ATEO paid less remuneration than at least one related
ATEO.

Polling Question 10
Q
How many covered employees does your
system have?
A Fewer than five
B Exactly five
C More than five
D I don’t know
E Does not apply (EY, faculty, other)

Section 4960
final regulations:
determining and paying the
tax

What payments trigger the tax?
• Excess compensation
• Excess compensation means a covered employee is paid remuneration over $1
million for a calendar year from an ATEO and all related organizations combined.
• Excess parachute payments
• A “parachute payment” is the aggregate present value of all payments contingent
on involuntary separation from employment.
• Only “excess parachute payments” made by or on behalf of an ATEO are subject
to tax under Section 4960.
• Parachute payments made by related organizations are taken into account when
determining the total amount of excess parachute payments.

Excess parachute payments
• The employee’s annualized compensation over the five-year period ending prior to the
Base amount
date of separation from employment
Excess parachute • If the employee is entitled to a parachute payment, then the entire amount of the payment
payment in excess of the base amount is considered an “excess parachute payment” that is subject
to the excise tax
Amount over threshold
Payments
contingent on Excess parachute
involuntary payment amount
separation from
employment
3x base amount (i.e., potential
threshold parachute
payments)
Base amount

Reporting and paying the excise tax
• Each common-law employer who paid a portion of the taxable payments

must file its own Form 4720.
• Reporting is required on an entity-by-entity basis.
• No quarterly estimates are required.
• The due date is generally the 15th day of the 5th month after the end of the
organization’s tax year, but Form 8868 may be filed to request an automatic
6-month extension for filing Form 4720.
• Payments must be made by 15th day of 5th month after end of tax year, as the
due date cannot be extended for payments.
• Each entity liable for a portion of the tax must file a separate extension
request.

Questions?

You should now be able to:
Understand the legislative calendar and the most likely timing for
1 legislation that could impact health systems
Report Provider Relief Fund distributions according to current

2 accounting guidance
Identify the potential impact of the COVID-19 pandemic on Form 990

3 reporting

Thank you for joining us today!

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Health Care Update - PPT - Final - August 25 2022

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Welcome future tax

August 25, 2022

Page 2 Welcome future tax leaders

Heather Meade Jeff Shade

Justin Lowe Joanna Zhong

Page 3 Welcome future tax leaders

• After successful completion of this course, participants should be able to:

Page 4 Welcome future tax leaders

Page 5 Welcome future tax leaders

Page 6 Welcome future tax leaders

Senate Current ratio Toss-up or “lean” seats

Up for reelection in 2022: Retiring: Toss-up D or Lean D: Toss-up R or Lean R:

House Current ratio Toss-up, “lean” or lean to • 3 currently R seats lean

Five vacancies: Presidents typically lose seats in first midterm:

Source: Cook Political Report

Page 7 Welcome future tax leaders

Senate — Up for re-election Storylines

No race Democrat Republican *Senate Finance Committee member

Page 8 Welcome future tax leaders

won by President Biden Butterfield, NC Bourdeaux, GA (primary) Keller, PA

Source: House Press Gallery

Page 9 Welcome future tax leaders

August 7 — August 9 — August 12 — September 6 — September 30 — November 8 — December —

August Sept Oct Nov Dec

Inflation Reduction Act of 2022

~$750b revenue $433b spending $300b deficit reduction

Prescription drug pricing reform

Page 10 Welcome future tax leaders

Tax Climate Health

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Page 13 Welcome future tax leaders

• More than $52b in grants and incentives for companies building

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Page 16 Welcome future tax leaders

28% corporate 39.6% top 15% minimum 21% GILTI rate,

Corporate, individual rate

Inflation 15% minimum

Page 17 Welcome future tax leaders

2021 extenders Revenue/extension

2022 extenders Revenue/extension

Page 18 Welcome future tax leaders

Provision 2021 2022 2023 2024 2025 2026 2027

In effect Not in effect

Page 19 Welcome future tax leaders

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Note: Figures may not sum due to rounding.

Page 21 Welcome future tax leaders

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• ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities

Page 24 Welcome future tax leaders

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• ASU 2021-03, Accounting Alternative for Evaluating Triggering Events

Page 26 Welcome future tax leaders

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• Nonfederal entities (e.g., state and local governments, institutions of higher

Page 30 Welcome future tax leaders

• Commercial organizations (i.e., for-profit entities) that expend $750,000 or more in

Page 31 Welcome future tax leaders