Health Care Law Revision Bill Emerges, Fizzles in Senate

• Published date: 01 August 2017
• Date: 01 August 2017
• DOI: http://doi.org/10.1002/npc.30359

Bruce R. Hopkins’ NONPROFIT COUNSEL

7

August 2017

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

the common business interests of an industry or trade.

Rather, its purpose is to benefit its members’ business

interests. Its membership “consists of vetted profession-

als from different types of businesses which are not in

competition with one another.” There is no common

business interest here other than a desire to increase the

business prospects of its members.

The organization also failed to qualify as an exempt

chamber of commerce because its membership is not

open to all businesses in its community but only to one

business per category. [14.2(a), 14.3] ◆

COURT RULES IRS CAN’T

CHARGE PTIN USER FEES

The US District Court for the District of Columbia, on

June 1, ruled that, while the IRS may require the use of

preparer tax identification numbers (PTINs), the agency

lacks the authority to charge user fees under the Inde-

pendent Offices Appropriations Act of 1952 for these

numbers (Steele v. United States). The IRS announced,

on June 5, that the PTIN regime has been suspended

while it, working with the Department of Justice, is con-

sidering how to proceed.

The act enables a government agency to prescribe

regulations establishing a charge for a “service or thing

of value” provided by the agency. The IRS took the

position that a PTIN has value because, without it, a tax-

return preparer cannot be compensated for services ren-

dered. But the court, noting that the IRS does not have

the authority to regulate tax-return preparers (Loving v.

IRS (summarized in the April 2014 issue)), stated that

the IRS “cannot impose a licensing regime with eligibility

requirements on such people.” The IRS cannot charge

these user fees “because this would be equivalent to

imposing a regulatory licensing scheme and the IRS does

not have such regulatory authority.”

“Therefore,” wrote the court, “it appears … that the

IRS is attempting to grant a benefit that it is not allowed to

grant, and charge fees for granting such a benefit.” [5.7(a)]

Commentary: This is the fourth time in four years that

the IRS has been tagged for operating outside the scope

of its jurisdiction or authority, the other two instances

being Ridgely v. Lew (summarized in the October 2014

issue) and Loving v. Internal Revenue Service (district

court and court of appeals, the latter opinion summa-

rized in the April 2014 issue). ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

• The IRS revoked the tax-exempt status of an organiza-

tion previously recognized as a charitable entity, princi-

pally because its primary activity has been the regular

conduct of bingo and pull-tab games (Priv. Ltr. Rul.

201722029). Its grantmaking activities were minimal.

Oddly, there was no utilization of the commensurate

test. Also, private benefit was found because of exces-

sive rent paid to the gaming hall landlord. Inasmuch as

the owner of the hall is the father of the organization’s

founder and president, the private inurement doctrine

should have been applied. [4.7, 20.5(a)]

• The IRS considered the case of an organization quali-

fied as a tax-exempt cooperative (an IRC § 501(c)(12)

entity). It has been engaging in nonexempt functions

by means of subsidiaries. It wishes to consolidate its

operations in a single legal entity. This consolidation

will cause this cooperative to cease qualifying for

exemption. The IRS ruled that, if the cooperative’s

nonmember income will exceed 15 percent of its total

income following the proposed restructuring, the liq-

uidation rules (Reg. § 1.337(d)-4(a)(1)) will not apply

with respect to liquidation of one of its subsidiaries

(Priv. Ltr. Rul. 201725017). The IRS also ruled that if,

after completion of the restructuring, the cooperative’s

status changes to that of an exempt cooperative solely

by meeting the annual 85 percent member-income

test, the cooperative will not be considered to have

had a principal purpose of avoiding application of the

change-in-status rules under the anti-abuse rule (Reg.

§ 1.337(d)-4(a)(3)(iii)) and the cooperative’s return to

exempt status will qualify for the exemption from these

rules (Reg. § 1.337(d)-4(a)(3)(i)(E)). [19.5(b), 30.8] ◆

HEALTH CARE LAW REVISION

BILL EMERGES, FIZZLES

IN SENATE

The proposed Better Care Reconciliation Act of 2017

(H.R. 1628) was unveiled for senators’ review on June

22. This legislation, designed to replace the Patient

Protection and Affordable Care Act, is generally structur-

ally in alignment with the bill that earlier passed in the

House (summarized in the May and June 2017 issues).

The 142-page measure would repeal the individual

and employer mandates, repeal most of the taxes

enacted as part of the Affordable Care Act (including

the tax on net investment income), revise the refund-

able tax credits proposals (designed to assist individuals

in obtaining health insurance), and reduce the scope of

and make structural changes in the Medicaid program.

The Congressional Budget Office reported, on June

26, that enactment of this legislation would reduce the

cumulative federal deficit over 2017–2026 by $321 bil-

lion and would increase the number of individuals who

are uninsured by 22 million in 2026 as compared to

coverage under current law.