capital improvement projects, hosting mammography screening events, and providing access to clinically based education materials. It also shared health information with a data warehousing initiative formed by its affiliate.
The IRS concluded that the organization was not operated primarily for the promotion of social welfare, since the overwhelming majority of its activities related to providing healthcare plans to its paying subscribers. The number of its subscribers who were low‐income and qualified for subsidies was minor in relation to its subscriber populations as a whole. In addition, its social welfare activities represented a minor component of its overall activities. The IRS stated that to qualify for tax exemption as a social welfare organization, an organization's activities must primarily benefit the community rather than its own members.
The IRS also determined that the organization did not qualify for tax exemption as an integral part of its affiliated medical school. Even though the medical school controlled its operations, and its administrative functions were intermingled with it, the HMO did not provide any necessary or indispensable services exclusively to the medical school. In addition, the organization continued to arrange for healthcare services to be delivered by providers and facilities outside of its health system, and thereby failed to qualify as an integral part of the medical school.
NOTES
1 145.1 EO Update, October 13, 2017.
2 145.2 “Audit Technique Guide—Other 501(c)(3) Organizations,” https://www.irs.gov/pub/irs-tege/atg_hmo.pdf.
3 149 Priv. Ltr. Rul. 201538027.
4 150 See § 24.24.
5 151 See IRC § 501(c)(29).
6 152 Priv. Ltr. Rul. 201451033.
CHAPTER THIRTEEN Other Provider and Supplier Organizations
1 § 13.3 Qualified Nonprofit Health Insurance Issuers
2 § 13.5 Accountable Care Organizations
3 *§ 13.6 Cannabis‐Related Services Organizations
§ 13.3 QUALIFIED NONPROFIT HEALTH INSURANCE ISSUERS
p. 336. Insert following last paragraph of the section:
Subsequently, the IRS issued final regulations regarding applying for recognition as a tax‐exempt qualified nonprofit health insurance issuer (QNHII)79.1 These regulations became effective on January 29, 2015. The final regulations provide that the Commissioner of the IRS has authority to prescribe application procedures that must be followed by QNHIIs seeking recognition of tax‐exempt status. The regulations underscore the statutory application of notice rules to QNHIIs, requiring them to apply for recognition of exempt status and confirming that this is the only path for treating such organizations as described as tax‐exempt under this section of the Code.79.2 Accordingly, QNHIIs cannot rely on self‐declaring their exempt status.
The final regulations authorize the Commissioner to recognize QNHIIs as tax‐exempt effective at a date prior to the date of its application if the application is properly and timely submitted and the QNHII's prior purposes and activities are consistent with the requirements for exemption for such organizations. However, if the IRS requires a QNHII to alter its activities or make substantive amendments to its enabling instrument, the IRS will recognize exemption effective only as of the date specified in the determination letter or ruling. In any event, an organization may not be recognized as tax‐exempt as a QNHII before the later of its formation or March 23, 2010.79.3
A QNHII that has commenced operations and that intends to file an application with the IRS for recognition of exemption should begin filing Form 990 and indicate on its return that it has not yet received a determination letter. In addition to the general information required on Form 990, QNHIIs must report requested information regarding their required reserves.
The IRS published a revenue procedure containing more detailed provisions for requesting recognition of exemption shortly after the final regulations were issued.79.4 Under this procedure, a QNHII seeking recognition of exemption must submit a letter application, rather than a form, along with the appropriate user fee. Requirements for a substantially completed letter application are set forth in the revenue procedure.
§ 13.5 ACCOUNTABLE CARE ORGANIZATIONS
p. 351. Insert footnote at the end of the final sentence:
113For a discussion of ACO tax exemption that includes activities outside of the Medicare Shared Savings Program, see Griffith and Livingston, “Bringing Hospital Tax Exemption into the Modern Era: Why ACO Activities Should Be Tax‐Exempt,” AHLA Connections 36 (July 2015).
p. 351. Insert following existing text:
In 2016, the Internal Revenue Service released a ruling114 in connection with a final adverse determination as to an application for recognition of tax‐exempt status by a nonprofit corporation operating as an accountable care organization. The organization sought IRS recognition of its tax‐exempt status as a charitable organization and as a supporting organization public charity.
The organization was created as a nonprofit corporation for charitable, scientific, or educational purposes, and specifically to promote and support the interests and purposes of a healthcare system parent corporation. The system parent was itself a charitable organization and a publicly supported public charity.
The organization was formed as an ACO to achieve clinical care integration, coordination, and accountability among physicians practicing throughout the healthcare system. The ACO does not participate in the Medicare Shared Savings Program (“MSSP”).
The ACO does not engage in the direct delivery of medical care or provide health services. All of its time and resources are dedicated to the furtherance of the “Triple Aim” reform goals of the Affordable Care Act (i.e., reducing individual healthcare costs, improving patient access and quality of care, and improving population health and patient experience).
The ACO formed a clinically integrated network of healthcare providers through participation agreements
