Special report on taxation. New IRS revenue procedure clarifies tax classification of limited liability companies

Although its rules are complex, the publication of Revenue Procedure 95-10 will substantially facilitate the use of LLCs in those states with statutes that permit significant flexibility in the structuring of LLCs. Previously, the only way to assure that LLCs in those states would be classified as partnerships for income tax purposes was to obtain a private letter ruling from the IRS, often resulting in lengthy delays. The new revenue procedure should provide sufficient guidance in the vast majority of cases to allow tax counsel to determine the appropriate treatment for tax purposes without having to seek an IRS private letter ruling.     

Special report on taxation. IRS issues stricter guidelines for audits of tax-exempt hospitals

The new audit guidelines serve as yet another reminder to tax-exempt hospitals that great care must be taken in structuring and documenting business arrangements with physicians and executives so as to withstand scrutiny by the IRS with regard to exempt status. Since increased census and utilization, and enhancement of the hospital's financial position, are no longer acceptable justifications for such activities as physician recruitment incentives (being suggestive of payment for referrals), it is important that hospitals make an effort to ensure that board minutes, recruitment policies, internal memoranda, and other documentation set forth the reasons--other than the benefits to the institution's bottom line--for having entered into such transactions. Hospitals must establish and document a community need for each physician recruited. Hospitals that actively recruit should be armed with studies evaluating recruiting needs in each clinical area, based on objective criteria, taking into consideration managed care contracting needs and the provision of services to the poor and needy. Finally, hospitals should re-examine all joint ventures and other business relationships with physicians to determine whether such arrangements resulted from arm's length negotiation, involve fair market value for goods and services, and conform, insofar as possible, with the Medicare fraud and abuse safe harbor regulations. Under GCM 39862 and the new guidelines, "aggressive" arrangements may not only create exposure under fraud and abuse laws, but could jeopardize the provider's tax-exempt status as well.     

Special report on labor and employment. Supreme Court upholds NLRB bargaining units rule

Providers should expect the number of union organizing campaigns to rise quickly in the wake of the Supreme Court's decision in AHA v. NLRB. Despite this increased activity, providers that offer good working conditions and maintain open lines of communication between employees and management, and that understand their legal rights in connection with such situations, will be much more likely to be effective in responding to union organizing activities.     

Special report on taxation. Prepare for impending legislation that could threaten your tax-exempt status!

With impending federal action, and the likelihood of "copycat" legislation at the state and local levels if a federal statue is adopted, nonprofit hospitals need to ensure that they will be in compliance if a mandatory charity care bill were to become law. Such facilities should take the initiative now, by clearly articulating their charity care policies and by describing their other undercompensated or uncompensated activities that are maintained in order to benefit their communities. They should also ensure that all of their activities that could be counted as charity care or community benefit are fully documented and quantified. Financial consultants and counsel may be helpful in this process. Exempt facilities also should, of course, closely monitor the progress of the bills discussed above. Most importantly, they should continue to test their charity care and community benefit statistics on a regular basis to determine if their facilities meet the thresholds specified in the bills as they proceed through Congress.     

In the Michigan Court of Appeals: People vs. Jack Kevorkian

HELD: There is no right to euthanasia within the constitutional right of privacy. Recognition of such a right to euthanasia would impermissibly expand the right of privacy and thus place the issue outside the arenas of public debate and legislative action. Such a holding would also involve the judiciary in deciding questions that are simply beyond its capacity. There is no principled basis for the court to legalize euthanasia.     

In the matter of Christine B. Biersach. In the Ohio Court of Appeals

HOLDING: Before withdrawal of tube feeding may be permitted, a guardian must establish, by clear and convincing evidence, the treating and consulting physicians' education, training, and experience; the physician's history and experience with the patient; the fact that the physician personally examined the patient; and the opinions required by statute. Each physician should also testify to his opinion that the other physician in the matter is qualified, by reason of advanced education or training, limited practice, experience, or certification as a specialist, to make the findings and provide the opinions about the patient which are required by the statute. The consulting physician's opinion should be more than a conclusory adoption of the attending physician's opinion. Rather, it should be independently stated and, ideally, should include the reasons upon which it is based.