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By Jim DeLuccia, PICPA Communications Manager

Believe it or not, tax reform – also known as the Tax Cuts and Jobs Act (TCJA) of 2017 – is having an impact on the health care industry. Stephanie Hollick, CPA, FHFMA, senior manager with Baker Tilly in Williamsport, Pa., will explore this topic in greater detail at PICPA’s 2019 Health Care Conference, June 11-12 at Penn State Great Valley in Malvern, Pa. She spoke with me recently to preview her session, and outlined some of the major implications for CPAs working with health care clients, changes to Form 990, and the new tax law’s effects on unrelated business taxable income (UBTI).

Q: What is one example of how the new tax law is impacting CPAs working in the health care industry and their clients?  

One implication that I have been working on with my clients regarding the TCJA is employee parking. When the IRS released Notice 2018-99, which provided guidance on nondeductible transportation benefits, it stated that if the health care entity provides free parking to employees, there is a possibility that they will be required to pay tax on the cost of that parking.  

Q: What are a few benefits of a cost segregation study?

The main benefit of a cost segregation study is to reclassify personal property from building assets to personal property assets, which have shorter depreciable lives. For tax purposes, these shorter depreciable lives will contribute to reducing current income tax obligations for for-profit entities.

Q: What has changed on the Form 990 (Return of Organization Exempt from Income Tax)?  

There were no major changes to Form 990 for 2018. But some of the minor changes are as follows:  

• Excise tax on executive compensation - The new Section 4960 imposes an excise tax on an organization that pays to any covered employee more than $1 million in remuneration or pays an excess parachute payment during the year starting in 2018.
• Accounting Standard Update 2016-14, Presentation of Financial Statements for Not-for-Profit Entities, changed Form 990 to reflect the classification of net assets from three classes (unrestricted, temporarily restricted, and permanently restricted) to two classes (net asset without and with donor restrictions).
• Increase of UBTI by disallowed fringe - For organizations with employees, UBTI reported on Form 990-T is increased by any amount for which a deduction is not allowable because of Section 274, and which is paid or incurred by the organization after 2017 for any qualified transportation fringe (as defined in Section 132(f)), or any parking facility used in connection with qualified parking (as defined in Section 132(f)(5)(C)), or any on-premises athletic facility (as defined in Section 132(j)(4)(B)). This rule does not apply to the extent the amount paid or incurred is directly connected with an unrelated trade or business which is regularly carried on by the organization.

Q: How has the new tax law affected unrelated business income tax for health care organizations?  

Given the clarification on nondeductible transportation benefits and the removal of the ability to offset unrelated business income activities, there are many more health care entities that will be required to file a Form 990-T and pay unrelated business income tax.

For more information on how the TCJA affects the health care industry, make sure to check out Hollick’s presentation at the June 11-12 PICPA Health Care Conference.

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