Form 990 updates March 22 2018 Disclaimer EY

Form 990 updates March 22, 2018

Disclaimer ► EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client‑serving member firm of Ernst & Young Global Limited operating in the US. ► This presentation is © 2018 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. ► Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. ► This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances. ► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 1 Form 990 updates

Presenters ► Jean Schuster Executive Director, Ernst & Young LLP Boston, MA ► Kathy Moseley Senior Manager, Ernst & Young LLP Fort Worth, TX ► Aerrial Orr Manager, Ernst & Young LLP Atlanta, GA ► Cynthia Perez Senior, Ernst & Young LLP Miami, FL Page 2 Form 990 updates

Agenda ► ► ► ► Form 990 overview 2016 Form 990 – significant changes 2017 Form 990 – significant changes Common Form 990 errors and misconceptions IRS Form 990 frequently asked questions Administrative developments Coming attractions and tax reform provisions affecting EOs Page 3 Form 990 updates

Form 990 overview Page 4 Form 990 updates

Form 990 overview ► Form 990 is an Internal Revenue Service (IRS) information return — not an income tax return: ► ► ► Most Section 501(c) organizations must file applicable Form 990 series returns and/or related forms: ► ► First developed by IRS for tax year 1941 Substantially redesigned for tax year 2008 Except for churches and associations/conventions of churches The primary purpose of Form 990 is to: ► Page 5 Provide information about an organization’s activities and demonstrate that the organization is operating for tax-exempt purposes Form 990 updates

Form 990 overview ► Form 990 is publicly disclosable: ► ► Audience: IRS, state regulators, press, donors, constituents, researchers, watchdog groups, Congress Forms 990 must be made available to the public (e. g. , on the internet), and the organization must provide copies if requested for three years after the filing date. Page 6 Form 990 updates

Form 990 overview Determining which form to file Form All tax-exempt organizations (except private foundations and black lung benefit trusts) may file 990 Gross receipts below $200 k and total assets below $500 k 990 -EZ Average annual gross receipts at or below $50 k (for past three years) 990 -N For private foundations 990 -PF To report unrelated business taxable income ► ► ► 990 -T Organizations having transactions with controlled entities may not file Form 990 -EZ Private foundations and supporting organizations may not file Form 990 -N Sponsoring organizations of donor-advised funds must file Form 990, not Form 990 -EZ Exempt organizations file Form 990 -T if annual gross unrelated business income is $1, 000 or more See https: //www. irs. gov/charities-non-profits/annual-reporting-and-filing Page 7 Form 990 updates

Form 990 overview Non-filing penalties ► ► ► Internal Revenue Code (IRC) Section 6652(c): Failure to file complete or accurate return by filing deadline may result in penalties. IRS may abate penalties if filer shows reasonable cause for late, incomplete or inaccurate filing. Organization’s tax exemption is automatically revoked if it fails to file a Form 990 -series return for three consecutive years: ► Page 8 Organization would need to apply for reinstatement of tax exemption. Form 990 updates

Polling question ► The number of Forms 990 and 990 EZ filed in 1990 was: a) b) c) d) Page 9 458, 100 359, 700 346, 600 495, 000 Form 990 updates

2016 Form 990 – significant changes Page 10 Form 990 updates

2016 Form 990 – significant changes ► Extension of Time to File: ► ► For tax years beginning after December 31, 2015, organizations may file a Form 8868 to request an automatic six-month filing extension, which replaces the automatic three-month extension and the additional, discretionary three-month extension Failure-to-File penalties: ► Annual gross receipts threshold amounts increased for 2016: ► ► Organizations with annual gross receipts exceeding $1. 02 m are subject to a penalty of $100 for each day failure continues (with a maximum penalty for any one return of $51, 000) Part IV, Checklist of Required Schedules, line 14 a: ► Page 11 The filing organization should answer yes and file Schedule F if it had independent contractors outside the United States during the tax year Form 990 updates

2016 Form 990 – significant changes ► Part VII, Section A ► ► Page 12 The instructions were revised to clarify that the filing organization should report employees of a professional employer organization (PEO) who provide services to the filing organization as the filing organization’s own employees if they are also common law employees of the filing organization under state law. Otherwise, the filing organization should report the compensation paid to the PEO as payments to a management company reportable in Section B. Form 990 updates

2016 Form 990 – significant changes ► Schedule A ► In Part I, Reason for Public Charity Status, an additional line has been added to reflect the designation of a new type of public charity, an agricultural research organization ► Schedule A impact ► ► Schedule R impact ► Page 13 May impact supported organizations listed in Schedule A, Part I, line 12 g May impact disclosure of public charity status in Schedule R, Part IV for related entities Form 990 updates

2016 Form 990 – significant changes ► Schedule H, Part V, Section B ► Community Health Needs Assessment (CHNA) ► Line 5 (CHNA) was revised to reflect requirements in the final section 501(r) regulations ► If the organization checked “Yes, ” summarize, in general terms: ► ► Page 14 How and over what time period such input was provided (for example, whether through meetings, focus groups, interviews, surveys or written comments, and between what dates) The names of any organizations providing input; and describe the medically underserved, lowincome or minority populations being represented by organizations or individuals that provided input A CHNA report does not need to name or otherwise identify any specific individual providing input on CHNA In the event hospital facility solicits, but cannot obtain, input from source required by line 5, hospital facility’s CHNA report also must describe hospital facility’s efforts to solicit input from such source Form 990 updates

2016 Form 990 – significant changes ► Schedule H, Part V, Section B ► Financial assistance policy (FAP) ► Line 16 ► ► Line 16 g (about notification) instructions were revised as follows: ► Page 15 Formerly read “included measures to publicize the policy within the community. . ” and updated to “was widely publicized within the community served by the hospital facility” to reflect requirements in the final section 501(r) regulations Check this box if: ► Individuals were notified about the FAP by being offered a paper copy of the plain-language summary of the FAP ► By receiving a conspicuous written notice about the FAP on their billing statements ► And via conspicuous public displays or other measures reasonably calculated to attract patients’ attention Form 990 updates

2016 Form 990 – significant changes ► Schedule H, Part V, Section B ► Financial assistance policy ► Line 16 i (translated documents) instructions were revised as follows: ► Page 16 Check this box if the FAP, FAP application form and plain language summary of the FAP were translated into the primary language(s) spoken by limited English proficient (LEP) populations, such as by translating these documents into the language(s) spoken by each LEP language group that constitutes the lesser of 1, 000 individuals or 5% of the community served by the hospital facility or the population likely to be affected or encountered by the hospital facility. Form 990 updates

2016 Form 990 – significant changes ► Schedule H, Part V, Section B ► Billing and Collections ► Lines 18 c and 19 c (collections) ► Lines 18 c and 19 c describe an “extraordinary collection action” (ECA) that was added to the final section 501(r) regulations. ► ► Lines 20 a-d (collections) ► Lines 20 a-d are revised to more closely reflect the reasonable efforts requirements in the final section 501(r) regulations. ► ► Page 17 “Deferring, denying, or requiring a payment before providing medically necessary care due to nonpayment of a previous bill for care covered under the hospital facility’s FAP” Accept and review application for financial assistance within application period Notify individuals regarding basis for decision and ways to apply for more generous assistance Form 990 updates

2016 Form 990 – significant changes ► Schedule L ► Page 18 Schedule L instructions clarified that to the extent a substantial contributor, family member of a substantial contributor, or 35% controlled entity of a substantial contributor from Schedule B is required to be reported as an interested person on Schedule L, that substantial contributor should be reported by category (e. g. , substantial contributor, family member of substantial contributor) rather than by name, to preserve confidentiality. Form 990 updates

Polling question ► In what city was the first St. Patrick’s Day parade/celebration? a) b) c) d) Page 19 Boston New York Philadelphia Washington, DC Form 990 updates

2017 Form 990 – significant changes Page 20 Form 990 updates

2017 Form 990 – significant changes ► What’s new? ► Disaster tax relief was enacted for those impacted by Hurricane Harvey, Irma or Maria ► An employee retention credit related to these disasters is available for affected tax-exempt organizations and reportable on Form 990 -T ► The credit is equal to up to 40% of wages paid by the employer to eligible employees (capped at $6, 000 per employee) beginning on the date the employer’s place of business became inoperable due to the hurricane and ending on the earlier of: ► The date the business resumes “significant operations” Or ► Page 21 December 31, 2017 Form 990 updates

2017 Form 990 – significant changes ► North American Industry Classification System (NAICS) codes: ► ► Private delivery services: ► ► An updated NAICS Census Chart is referenced in the instructions: NAICS 2017 Census Chart; the previous census chart was dated 2012 Instructions no longer list private delivery services for Form 990 filing, but rather reference a website that lists permissible private delivery services: irs. gov/pds Failure-to-File penalties: ► Annual gross receipts threshold amounts increased for 2017: ► Page 22 Organizations with annual gross receipts exceeding $1. 03 m are subject to a penalty of $100 for each day failure continues (with a maximum penalty for any one return of $51, 000) Form 990 updates

2017 Form 990 – significant changes ► How to get forms and publications: ► ► Information in the instructions on how to order IRS forms, instructions and publications by mail has been removed Revenue Procedure references: ► Page 23 Various Revenue Procedure references were updated through the instructions to the 990 and schedules Form 990 updates

2017 Form 990 – significant changes ► Qualified conservation contribution ► ► The definition of a “qualified organization” for the purposes of a qualified conservation contribution replaces “ 501(c)(3)” to reflect public charity requirement for a qualified organization, or “ 509(a)(1)” The organization must report any qualified conservation contributions in: ► ► Page 24 Form 990, Part VIII Schedule A Schedule B Schedule M Form 990 updates

2017 Form 990 – significant changes ► Schedule H, Part I, line 7 ► Page 25 The instructions have been expanded to clarify that bad debt should not be included in the line 7 amounts and that bad debt will be reported in Part III � ✔ Form 990 updates

2017 Form 990 – significant changes ► Schedule H, Part V, Section B ► CHNA ► Page 26 The instructions were revised to reflect the Section 501(r) requirement that the CHNA should include prioritized descriptions of significant health needs in the community. If the prioritized descriptions of the significant health needs are not included in the CHNA, then organization must explain how it plans to prioritize the health needs identified in Part V, Section C. Form 990 updates

2017 Form 990 – significant changes ► Schedule H, Part V, Section B, lines 13 - 16 ► Financial assistance policy ► The instructions were revised to reflect the Section 501(r) requirements that the financial assistance policy must apply to all emergency and other medically necessary care provided ► ► Page 27 By the hospital facility In the hospital facility by a partnership in which the hospital owns a capital or profits interest, unless the provision of care by that partnership is an unrelated trade or business Form 990 updates

2017 Form 990 – significant changes ► Schedule R ► The instructions include a revised example illustrating common control of a related organization. ► The instructions were also updated to include the specific code section discussing supporting organizations in Example 8. Page 28 Form 990 updates

Polling question ► The changes to the 2017 Form 990 and instructions are: ► ► Page 29 Pervasive Minor and mostly for hospitals Nonexistent Normal Form 990 updates

Common Form 990 errors and misconceptions Page 30 Form 990 updates

Common Form 990 errors and misconceptions ► Error: Not filing required schedules or parts of schedules: ► ► ► For example, not filing Schedule L if organization reports a loan or receivable from or payable to any officer, director, trustee, key employee, highest compensated employee or disqualified person Error: Not reporting business transactions with substantial contributors on Schedule L, Part IV Error: Not describing the review process for Form 990 in Schedule O Page 31 Form 990 updates

Common Form 990 errors and misconceptions ► Error: Professional fundraising fees reported in Part I, line 16 a fail to include the portion of the amount in Part IX, column (A), line 6 that comprises fees for professional fundraising services paid to officers, directors, trustees, key employees and disqualified persons: ► Page 32 In addition to fees reported in Part IX, column (A), line 11 e Form 990 updates

Common Form 990 errors and misconceptions ► Error: Incorrectly counting total governing body members and total independent governing body members ► Error: Failing to report or fully report compensation from related organizations in Part VII and/or Schedule J Error: Misreporting revenue in “miscellaneous revenue” and expenses in “other expenses” instead of on the appropriate lines of Parts VIII and IX ► Page 33 Form 990 updates

Common Form 990 errors and misconceptions ► Error: Misreporting program-related investments: ► Form 990, Part X, line 13 ► ► Page 34 In general, program-related investments are uncommon. Examples of program-related investments include scholarship loans and lowinterest loans to charitable organizations, indigents or victims of a disaster. Form 990 updates

Common Form 990 errors and misconceptions ► Error: Reporting temporarily restricted and permanently restricted assets as reconciling items in Part XI: ► Page 35 This activity should be reported in Parts VIII and IX of the Form 990 updates

Common Form 990 errors and misconceptions ► ► ► Misconception: There is always a right answer Misconception: The IRS reviews every single line of every single Form 990 Misconception: Form 990 financial information must always conform with generally accepted accounting principles (GAAP)/audited financial statements: ► Compensation reporting in Part VII ► Donated services/use of facilities reported as revenue in Part VIII and Form 990, Schedule A ► Reporting revenue on a net rather than gross basis in Part VIII ► Reporting only realized items in Part VIII and unrealized in Part XI Page 36 Form 990 updates

Common Form 990 errors and misconceptions ► Misconception: The original return is not subject to public disclosure after it is amended ► Misconception: Colleges/hospitals cannot complete Schedule A, Part II if they check the 170(b)(1)(A)(ii) or (A)(iii) box in Schedule A, Part I: ► ► A Form 990 filer cannot qualify for the greater than $5, 000 or 2% of contributions threshold for reporting contributors on Schedule B unless it completes Schedule A, Part II Misconception: The various parts of Schedule A only need to be completed based on the box marked on Part I for a group return ► Page 37 The applicable sections of Schedule A for each member of the group need to be completed regardless of the box checked on Part I Form 990 updates

Common Form 990 errors and misconceptions ► Misconception: The definition of “joint venture” for purposes of Part VI, line 16 is the same as the definition of “joint venture” for other parts of Form 990. ► Misconception: Only Form W-2, Box 5 compensation is reported as “reportable compensation” in Part VII, Section A. ► Misconception: Businesses do not need to be listed as independent contractors in Part VII, Section B because the filing organization does not issue Forms 1099 to them. Page 38 Form 990 updates

Polling question ► Incorrectly counting total governing body members and total independent governing body members is not a common error when preparing Form 990. a) True b) False Page 39 Form 990 updates

IRS Form 990 frequently asked questions Page 40 Form 990 updates

Form 990 FAQs Attachments – IRS filing tips ► Question: Form 990 General Instructions state, in Section J, that only certain types of attachments are permitted. Why are these permitted but others are not? ► Answer: The Form 990 was redesigned, in part, to promote uniform reporting and to provide a structured format for attaching information to the form. Schedule O was designed to be the mechanism for reporting any information that does not fit on the core form or the other schedules. Only the following additional documents may be included as attachments to the form: ► ► Name change amendment to organizing document, as required by item B in the Form 990 heading ► List of subordinate organizations included in a group return, as required by the instructions to item H in the Form 990 heading ► Letters regarding termination of tax-exempt status, as required by Schedule N ► Articles of merger or dissolution, resolutions and plans of liquidation or merger, as required by Schedule N ► Reasonable cause explanation for a delinquent return ► A copy of the most recent audited financial statements of a hospital organization that files Schedule H (Form 990), Hospitals ► Per Schedule H, Part V, line 10 b instructions the implementation strategy can also be attached An incoming e-filed return will be rejected if it includes attachments other than those permitted by the e-file system specifications. Page 41 Form 990 updates

Form 990 FAQs Attachments – IRS filing tips ► Note: A reasonable cause explanation for a late-filed return should be made in a separate attachment, rather than in Schedule O, because such explanation would be publicly disclosed if included in Schedule O. ► The documents are permitted as attachments, outside of Schedule O, because these documents are either separate documents that can only be provided by attaching a photocopy or a PDF file or they must be provided separately so that they can be processed by the IRS (e. g. , list of group return affiliates or reasonable cause explanation for a delinquent return). Page 42 Form 990 updates

Form 990 FAQs Governance – IRS filing tips ► Question: If the filing organization is controlled by an organization with a conflicts-of-interest policy, whistle-blower policy, and document retention and destruction policy, should the filing organization answer yes or no to Part VI, questions 12 a, 13 and 14? ► Answer: Because these questions ask whether the filing organization has these policies, answer yes only if the filing organization’s governing body has adopted the policies of the controlling organization or other such policies. Otherwise, answer no. The filing organization can explain in Schedule O how it is governed or otherwise affected by the policies of its parent. Page 43 Form 990 updates

Form 990 FAQs Governance – IRS filing tips ► Question: Can an organization answer yes to the question about having a policy if a committee of the board, rather than the board itself, adopted the policy and was authorized to do so? ► Answer: Yes. The organization may answer yes to any question in Section B of Part VI, Form 990 that asks whether the organization has a particular policy if the organization’s governing body (or a committee of the board, if the board delegated authority to that committee is to adopt the policy) adopted the policy by the end of its tax year. Page 44 Form 990 updates

Form 990 FAQs Compensation – IRS filing tips ► Question: How should an organization list in Part VII, Form 990 a person who is a current officer or director for part of the year and a former officer or director for the rest of the year – as current, former or both? What about persons who are key employees or highest compensated employees for only part of the year? Page 45 Form 990 updates

Form 990 FAQs Compensation – IRS filing tips Answer: ► The filer should list in Part VII, Section A, Form 990 any person who was a current officer or director at any time during the tax year, even if the person is not an officer or director at the end of the year. ► All of that person’s compensation from the organization should be listed in Part VII, Section A, whether received as a current officer or director, a former officer or director, or in another capacity (e. g. , independent contractor). ► A current key employee or highest compensated employee is a person who was a key employee or highest compensated employee for the calendar year ending with or within the organization’s tax year, even if he or she is not an employee of the organization at the end of that year. ► A former officer, director, trustee, key employee or highest compensated employee should be listed in Part VII, Section A only if such person is not listed in Part VII, Section A in any other capacity. Page 46 Form 990 updates

Form 990 FAQs Schedule F – IRS filing tips ► ► Question: Does an organization report expenses on Schedule F, Form 990 if it sends board members to board meetings or to attend and speak at seminars and conferences outside the United States? Answer: Yes. If the organization exceeds the $10, 000 revenue or expense threshold, it will need to report these activities in Part I of Schedule F, listing the region(s) in which the activities are conducted, the type of activities conducted in each region and its total expenditures in each region. However, it will not need to report any of its board members as agents in column (c) if all of them serve the organization as volunteers. Page 47 Form 990 updates

Form 990 FAQs Schedule R – IRS filing tips ► Question: Schedule R, Part V, Form 990 requires reporting of transactions between the filing organization and its related organizations. Do all transactions between the filing organization and its related organizations have to be reported? Page 48 Form 990 updates

Form 990 FAQs Schedule R – IRS filing tips Answer: ► No. Schedule R, Part V, line 1 requires checkbox reporting of whether the organization was engaged in certain kinds of transactions with any related organizations. The following transactions must be reported in greater detail in line 2: ► ► ► Page 49 All transactions described in line 1 a, which include all receipts or accruals of interest, annuities, royalties or rent from a controlled entity under Section 512(b)(13), regardless of amount Transactions described in lines 1(b) through 1(r) with controlled entities if the amounts involved during the tax year between the filing organization and a particular controlled entity exceed $50, 000 Section 501(c)(3) organizations’ transactions with related tax-exempt organizations not described in Section 501(c)(3) (including Section 527 political organizations) if the total amounts related to those transactions exceed $50, 000 during the tax year Form 990 updates

Form 990 preparation tips ► Use tools in Form 990 instructions: ► ► ► ► ► Sequencing list Compensation charts Glossary Appendices Highlight accomplishments Use Form 990 governance questions to manage risk Understand compensation reporting thresholds Determine which schedules to file – read instructions When in doubt, consult Page 50 Form 990 updates

Polling question ► How did the city of Cork, Ireland, get its name? a) b) c) d) Page 51 It makes the corks for beer bottles After the King’s name. . . Cork The cork is another name for marshes None of the above. It’s just its name Form 990 updates

Administrative developments Page 52 Form 990 updates

IRS Form 990 data-driven approach to exam selection ► IRS Exempt Organizations (EO) Examinations is taking a more focused, datadriven approach to exam selection. ► ► Greater reliance on Form 990 data Less emphasis on subsector compliance projects More single issue and limited issue correspondence examinations The IRS is in the process of using a “case selection modeling technique” that uses a master search query to flag Forms 990, 990 -PF and 990 -EZ returns for audit (field examinations, limited scope, single issue and correspondence examinations). ► ► Page 53 The master search query uses electronic data transcribed from Forms 990, 990 -PF and 990 -EZ. The IRS has developed over 200 condition codes/search queries that are aggregated into the master search query. The queries are intended to identify noncompliant or potentially noncompliant organizations for examination. There have been approximately 85% change rate on over 200 closed data-driven examinations as of September 30, 2016. Form 990 updates

FY 18 IRS work plan ► FY 18 rulings and agreements ► ► Page 54 IRS will implement additional revisions to Form 1023 -EZ, including: ► Adding a required activity description section ► New questions on gross receipts, asset thresholds and foundation classification IRS plans to implement enhancements to the submission platform of Form 8976, Notice of Intent to Operate Under 501(c)(4), to reduce the number of rejections due to nonpayment of the user fee Form 990 updates

FY 18 IRS work plan ► FY 18 compliance program ► Page 55 Compliance strategies ► Supporting organizations: will examine entities that state they are supporting organizations and filed the Form 990 -N ► Previous for-profit entities: will examine organizations that operated as for‑profit entities prior to their conversion to IRC section 501(c)(3) organizations ► Private benefit and inurement: will examine organizations which show indicators of potential private benefit or inurement to individuals or private entities Form 990 updates

FY 18 IRS work plan ► FY 18 compliance program (Cont’d) ► Data-driven approaches ► Models: will continue to improve Form 990, 990 -EZ, and 990 -PF compliance models and test the newly developed model for Form 5227, Split Interest Trust Information Return ► ► Page 56 Models identify returns filed by exempt organizations and government entities with the highest risk of employment tax noncompliance Private foundations: will continue to examine private foundations based on potential anomalies found on their Form 990 -PF filings Form 990 updates

FY 18 IRS work plan ► FY 18 compliance program (Cont’d) ► Page 57 Referrals, claims and other casework: ► Referrals: will continue to pursue referrals received from sources within and outside the IRS that allege noncompliance by an exempt organization ► Claims: will continue to address requests for refunds or credits of overpayments of amounts already assessed and paid, including tax, penalties, and interest or an adjustment of tax paid or credit not previously reported or allowed ► Post-determination compliance: will examine entities that filed and received exemption using the Form 1023 -EZ. In addition, EO will examine entities that were granted exemption through the streamlined review of their Form 1023 ► Statistical sample: will examine returns filed by exempt organizations to ensure comprehensive compliance coverage of this universe Form 990 updates

FY 18 IRS work plan ► FY 18 compliance program (Cont’d) ► Page 58 EO examinations will continue to use compliance checks to determine whether an entity is adhering to record-keeping and information reporting requirements. Compliance checks include: ► Combined Annual Wage Reporting (CAWR) employment tax: tax-exempt employers that had discrepancies between Form W-2 and Form 941/944 ► CAWR – Federal Unemployment Tax Act (FUTA): exempt organizations that are required to, but fail to file Form 940 ► Form 990 -T non-filer: IRC section 501(c)(7) organizations that reported investment income on Form 990/990 -EZ but did not file Form 990 -T ► Financial assistance policy: tax-exempt hospital organizations that did not comply with IRC section 501(r)(4) Form 990 updates

501(r) examination activity ► The IRS has identified 501(r) compliance as an “emerging issue” for exam focus. ► IRS has trained agents to conduct 501(r) reviews, compliance checks and field exams. ACA Review Group reviews approximately 1, 000 exempt hospitals each year as part of community benefit and 501(r) compliance reviews. ► ► ► Reviews hospitals’ Form 990, Schedule H ► Reviews hospitals’ web sites and other publicly available data ► Refers for examination hospitals that appear to be noncompliant IRS has opened more than 400 Section 501(r) exams of hospital organizations, over 200 of which have closed. Page 59 Form 990 updates

501(r) examination activity 501(r) audit techniques ► IRS 501(r) audit techniques training module: a guide and basic road map, not a comprehensive audit manual for agents ► Request policies, billing statements, board minutes Review websites to determine if FAP, FAP application and plain language summary are posted Use answers provided on hospital’s Schedule H as a starting point for information document request (IDR) questions Arrange for on-site tour of all FAP-related signage and publications in the facility, and interviews with those responsible for 501(r) compliance If 501(r) violation is detected, determine whether error is minor, whether to assess penalties and if so what penalties to assess ► ► Page 60 Form 990 updates

Polling question ► The approach that the IRS is taking to approach examinations: a) b) c) d) Page 61 Is more focused Is more data-driven Uses over 200 developed condition codes/search queries All of the above Form 990 updates

Coming attractions and tax reform Page 62 Form 990 updates

Key tax reform provisions affecting EOs ► Excise tax on executive compensation ► A 21% excise tax on ► ► ► Remuneration over $1 m paid to a covered employee (other than an excess parachute payment) Excess parachute payments paid to a covered employee Fringe benefit expenses as unrelated business taxable income (UBTI) ► Fringe benefits subject to the rule: ► ► ► Page 63 Expenses for commuter highway vehicle transportation, transit passes and qualified parking Increase UBTI if the benefits are excludable from employee income under 132(f) On-premises athletic facility expenses increase UBTI if facility is primarily for benefit of highly compensated employees Form 990 updates

Key tax reform provisions affecting EOs ► ► The corporate alternative minimum tax (AMT) has been repealed UBTI calculated separately for each trade or business ► Net operating losses (NOLs) of a particular business could offset future income from that business, but not from other businesses. ► However, NOLs arising in a tax year beginning before January 1, 2018, that are carried forward to a tax year beginning after such date are not subject to provision and can be applied to UBTI generally. ► Excise tax on private college and university investment ► Page 64 An “applicable educational institution” is subject to a 1. 4% excise tax on its net investment income. Form 990 updates

Financial reporting of net assets ► In August 2016, Accounting Standards Update (ASU) 2016 -14, Not‑for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities was released ► ► The new reporting is effective fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. The Financial Accounting Standards Board’s intentions with the release of ASU 2016 -14 are to: ► Improve the financial statement of tax exempt organizations ► Provide more useful information to donors and other financial statements users Page 65 Form 990 updates

Financial reporting of net assets ► There are several issues that ASU 2016 -14 should make immediate improvements to: ► ► ► Complexity in net asset classification Clarity of information regarding liquidity and availability of cash Transparency in reporting of financial performance measures Consistency in reporting expenses by function and nature Utility of the statement of cash flows This will impact how every tax-exempt organization reports net assets for financial statement purposes ► There will now only be two classes of net assets: ► ► ► Page 66 Net assets without donor restrictions Net assets with donor restrictions New footnote disclosures will be required that discuss the nature and timing of the restrictions Form 990 updates

Polling question ► Which two rivers in the United States are died green every year on St. Patrick’s Day (March 17)? a) b) c) d) Page 67 Chicago and San Antonio American and Colorado Green and Tennessee Snake and the Ohio Form 990 updates

Questions Page 68 Form 990 updates

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