Tax & Finance Issues:

Healthcare System Mergers, Acquisitions & Joint Ventures

Copyright 1996-97 William L. Manning except as otherwise noted. All rights reserved. No copyright claimed to original government works. Updated by Bill Manning on 7/06/97

About This Page

This page is dedicated to the tax issues arising in mergers, acquisitions and joint ventures by and among health systems. Most, although not all, health systems are governed by tax-exempt nonprofit parent corporations. Although mergers, acquisitions and joint ventures by and among such entities are treated (from a legal perspective) in much the same manner as fundamental transactions among for-profit corporations, nonprofit health care systems present unique legal challenges.

This page highlights some of these challenges, focusing on the tax and financing issues. Although I have provided links to sources from various states, the visitor to this page should note that many of the legal issues are governed by state law which often varies by state.

Please feel free to comment on or contribute material here by e-mailing me at wmanning@netreach.net

IRS and 501(c)(3) Issues

• IRS Releases Regulations and Guidance Affecting Tax-exempt Organizations, Vol. 14, No. 2, Health Law Update from McDermott, Will & Emery, 2-07-97 (regulations relating to use of tax-exempt bond-financed property, liquidations of taxable corporations into tax-exempt organizations, intermediate sanctions, the substantiation and disclosure requirements for charitable contributions, and check-the-box rules.)
• Transfer of Assets By Nonprofit Public Benefit Corporations to For-Profit Subsidiaries, Public Law Research Institute Report, James K. Lynch, Fall 1994. Created as a research project of the Public Law research Institute at Hastings College of The Law.
• Intermediate sanctions law puts individuals at risk, by William H. Maruca and Russell G. Roll, by Hospital News On-Line.
• For-Profit and Non-Profit Organizations: Is it Time To Start Taxing "Like" Entities Alike?, Student Paper by Felicia A. Gojmerac, Widener University School of Law, Copyright 1993.

Independent Contractor Issues

• Contractor Disputes Can Be Appealed Before Audit Is Complete, 97 LWUSA 391. from Lawyer's Weekly."If an IRS auditor believes that a worker should be treated as an employee rather than an independent contractor, the company will be able to take this issue directly to the IRS appeals office without waiting for the rest of the audit to be completed, under a "pilot program" that the IRS is reinstating.
• IRS Issues New Forms To Use in 'Independent Contractor' Disputes, and issues instructions for the forms. (from Lawyers Weekly).
• Tax Administration: Issues in Classifying Workers as Employees or Independent Contractors. GAO Testimony, GAO/T-GGD-96-130. June 20, 1996.
• TAX TIPS: The Consequences of Misclassifying Employees, (NYLJ) 10/21/96

State Tax Issues

• Taxability of Home used by Hospital Administrator - South Dakota Att'y Gen. Opinion No. 89-25, August 21, 1989

Tools & Links

• Provisions of US Tax Laws Affecting Not-for-Profit Organizations. Summary and discussion of US taxation regime governing not-for-profit sector, from the International Center for Not-for-profit Law (1995).

Recently In The News

• Supreme Court Says New York Hospital Tax Law Supersedes ERISA, Reuters 6-4-97.
• Court Finds Hershey Med Exempt From Taxes, Hosp. Ass'n PA, 2-21-97.
• Symposium Analyzes Impact of Community Benefits Legislation on Hospitals in California, PRNewswire, 2-03-97.
• Intermediate Sanctions Against Excess Benefits Transactions Hospital Ass'n. of Pennsylvania, 9-7-96.
• IRS Rules On HMO Conversion To For-Profit Status, Reuters, 6-21-96
• Joint Ventures Between For-Profit And Not-For-Profit Popular, Reuters, 5-21-96
• IRS Classifies More Physicians As Employees, Reuters, 12-1-95

FASB & Financial Statements

• Analyzing and Recasting Financial Statements, by George D. Abraham, CBC (Institute of Certified Business Counselors, Inc.)
• Analysis of FASB 116; Accounting for Contributions Received and Contributions Made
• Analysis of FASB 117; Financial Statements of Non-Profit Organizations

Tools & Links

• State-of-the-Art in Finance and Financial Management, American College of Physician Executives.
• A Fiscal Management Primer, American College of Physician Executives.
• A Special Topics Primer The Financing of Medical Projects, American College of Physician Executives, May 1996.
• State-of-The-Art in Special Topics Financing Health Care Projects, American College of Physician Executives.
• CPA Non-Profit Resource Center

Recently In The News

• High Court To Hear Teaching Hospitals' Reimbursement Dispute, Reuters, 6-4-97.
• Arizona Law Enables Public Scrutiny Of Nonprofit Hospital Sales, Reuters, 4-15-97.
• Baylor University Sale Assets To Go To Public Health, Reuters, 3-27-97.
• Court Finds Hershey Med Exempt From Taxes, Hosp. Ass'n PA, 2-21-97.
• HCFA Changes Medicare Interest Expense Policy, Reuters, 8-29-96

• SEC LAW.com, (Law & Compliance Center) by Mark J. Astarita, Esq., Includes "Introduction to the Securities Laws", By Mark J. Astarita, Esq.
• Introduction to the Blue Sky Laws, By Mark J. Astarita, Esq. (from SEC LAW.com).
• IGNet
• HHS OIG Special Fraud Alerts
• HCFA
• GPO Access search the Federal Register, U.S. Code, Congressional bills and other government pubs.
• State Statutes by Topic
• Modern Healthcare Magazine
• HFMA - Healthcare Financial Management Association, a professional association for financial professionals in the healthcare field.
• NVST Mergers & Acquisitions - Venture Capital Meta Site - Excellent resource, albeit not uniquely related to health care. Be sure to access the site's NVST Academy page, chock full of glossaries, checklists and other useful explanatory items in M&A and venture capital transactions.
• Nonprofit Times Magazine, an on-line monthly.
• Nonprofit Resources.

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