AHLA. G. A Team Approach to TEAM Audits. Lori A. Boyce Director - Tax Deloitte Tax LLP Farmington Hills, MI

Transcription

1 AHLA G. A Team Approach to TEAM Audits Lori A. Boyce Director - Tax Deloitte Tax LLP Farmington Hills, MI Beth Gdowik Tax Director Trinity Health Farmington Hills, MI Gerald M. Griffith Jones Day Chicago, IL Tax Issues for Health Care Organizations October 20-22, 2013

2 A Team Approach to TEAM Audits Lori Boyce Deloitte Tax, LLP Detroit, MI (313) Beth Gdowik CHE/Trinity Health Livonia, MI (734) Gerald Griffith Jones Day Chicago, IL (312) Agenda Assembling the Team Managing the Process Hot IRS audit issues for non-profit health care Worker classification and other opportunities Non-tax ripple effects related to IRS audits Settlement approach Post exam activities 1 1

3 Assembling the Team Getting the team together/forming internal committees Internal support is critical Resources from various business units will be needed to gather information in a timely manner get leadership behind you Manage leadership s expectations of risk/exposure, potential scope and resource commitment required Keep them informed throughout the process Understand what success would look like 2 Assembling the Team Communication from leadership and expectation of timely cooperation Line up your internal resources to assist with information gathering and IDR response drafting If multi-hospital system need to identify point person at each business unit to coordinate information gathering for that unit Set up distribution lists and central repository for TEAM collaboration as well as record of all communications with the IRS 3 2

4 Assembling the Team Set settlement authority and be clear up front internally who will need to sign off Select your advisors and get them on board quickly Consider relevant experience, references, team orientation and relationships Engagement letters and privilege Consider issuing litigation hold 4 Managing the Process Internal Revenue Service Scope of exam and point of contact established Getting to know the IRS team Polling colleagues at other hospitals/systems and developing a rapport with the agents/ manager Scope and number of IDRs Process and timing for exchange of new IDRs and responses to old including time to respond to each IDR Regular cadence for communication to clarify IDR s, address minor issues, set expectations of timing of audit, areas of focus etc. and to receive/ deliver IDRs 5 3

5 Managing the Process Internal Revenue Service (continued) Monthly formal meetings with IRS and advisors to address bigger issues Keep detailed privileged minutes of meetings and provide to the IRS (not privileged) as appropriate For pre-existing privileged documents, communicating limits of relevance and privilege and willingness to consider alternatives to address IRS questions 6 Managing the Process Day to day IRS exam taxpayer leadership team Roles / collaborative effort Weekly strategy calls First identify potential exposure areas and efforts to mitigate risk Review IDRs and planned approach; assign responsibility for drafting response, setting due dates Collaborative review of sensitive IDR responses 7 4

6 Managing the Process Exchange of IDRs with the IRS (electronic IDRs) Tips for IDR response Generally respond directly on IDR (highlighting response) Refute any erroneous or misleading quotes of facts or law Be concise, focused, assertive, and accurate Consider position papers, outside experts, state law Strategy focus first (with IRS buy in) on easier/less issue laden areas 8 Hot IRS audit issues Unrelated Business Income Tax accounting methods Depreciation (consider Tangible Property Regulations) Bad debt Validity of NOL (profit motive) Transfer pricing Expense allocations and dual use property Captive Insurance Companies and IRC Section 512(b)(17) calculations 9 5

7 Hot IRS audit issues Unrelated Business Income (continued) Joint ventures Control considerations by IRS How the agreement is written vs. intent Should have billed versus actual billing (for administrative services) Too much profit for accomplishment of charitable purposes? Mitigate via upfront documentation of intent, understanding of agreement, business purposes, valuation, board approvals, etc. 10 Hot IRS audit issues Consistency with exempt purposes, including supporting organizations Management agreements Review of major transactions for possible Disqualified Persons Occupational Medicine Durable medical equipment sales including in-hospital PHO and Accountable Care Organizations Medicare Shared Savings Program Other Networks (Medicaid, Commercial, Mixed) 11 6

8 Hot IRS audit issues FICA withholding for foreign nationals and start dates Fitness centers offering employee discount does it meet the IRC Section 132 exclusion requirements? What about other laws vs. tax laws? State law reasons to support/counter IRS Consolidated groups (lack of stock certificates) Article amendments for dissolution language and other limits on distribution/use of charitable assets Statute of Frauds Corporate Practice of Medicine 12 Worker Classification Medical Director Classification Sole physician PCs Inconsistency in classifications Non-tax implications Current signed agreements (Stark consideration) VCSP (Voluntary Worker Classification Settlement Program) for worker classification Mitigation techniques and strategies 13 7

9 Non-tax ripple effects related to IRS audits Change in process agreed to with the IRS can have other business implications JVs renegotiate more control for EO / charity standards than current agreements allow Worker classification of similarly situated individuals Governance (e.g. compensation approval process) Board composition 14 Non-tax ripple effects related to IRS audits Change in process agreed to with the IRS can have other business implications (continued) Can be used as part of negotiations with third parties May result in need to restructure legal entities or otherwise change placement of activity between legal entities Bifurcating contracts to strengthen UBI position 15 8

10 Settlement Approach Forms 5701 and other proposals Do your homework/consider alternative analysis Mapping out exposure in dollars and effect on operations, administrative burden Allocations of overall adjustment Between legal entities State tax implications depending on how adjustment is written up Who is in the room with the IRS and when? Series of negotiation meetings (formal and informal) Closing Agreement or other documentation of resolution 16 Post Exam Activities Summary memo of exam Scope of exam and parties involved Issues addressed and how resolved Action steps to mitigate each issue in the future Debrief leadership Debrief various parts of organization Provide education where appropriate 17 9

11 Post Exam Activities Implement action steps Consider whether organizational structure needs to be modified Consider renegotiating contracts/agreements now or at renewal time Consider process/ documentation changes/policy changes Consider trial balance account changes Prepare for next examination including maintaining contemporaneous documentation 18 This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation