Tax-Exempt Organization Accounting Flashcards

A nonprofit hospital system has a wholly owned for-profit subsidiary. For consolidated financial reporting purposes:

Answer: The subsidiary is consolidated if the hospital has a controlling financial interest

Under ASC 810, a controlling financial interest (generally majority ownership) requires consolidation of a for-profit subsidiary into the nonprofit parent's financial statements.

A healthcare nonprofit sells its outpatient clinic to a for-profit entity. The gain on the sale is:

Answer: Generally excluded from UBIT as a gain from sale of property used in exempt activities

Gains from the sale of property used in the performance of the organization's exempt function are generally excluded from UBIT under IRC Section 512(b)(5).

Under the ACA's Section 501(r), tax-exempt hospitals must conduct a Community Health Needs Assessment (CHNA) at least every:

Answer: Three years

ACA Section 501(r)(3) requires tax-exempt hospitals to conduct a CHNA and adopt an implementation strategy at least once every three taxable years.

Failure by a tax-exempt hospital to satisfy the IRC Section 501(r) requirements can result in:

Answer: A $50,000 excise tax penalty per taxable year

A hospital that fails to meet 501(r) requirements is subject to an excise tax of $50,000 for each taxable year of noncompliance.

A tax-exempt hospital allocates shared administrative costs (IT, HR) between its exempt patient care activities and its unrelated business activities. This allocation is necessary to:

Answer: Accurately determine the net unrelated business taxable income subject to tax

Proper allocation of shared costs between exempt and unrelated business activities is required by IRC Section 512 to accurately calculate net UBIT subject to federal income tax.

Which of the following transactions between a tax-exempt hospital and its board chair at below-market rates would most likely trigger IRS scrutiny under the private benefit doctrine?

Answer: The hospital leasing space to the board chair's private practice at 50% of fair market rent

Providing an economic benefit to a board member at below-market rates constitutes private benefit and may constitute an excess benefit transaction under IRC Section 4958.

A nonprofit healthcare organization receives a bequest from a deceased donor's estate with no restrictions. This bequest should be recorded as:

Answer: Net assets without donor restrictions upon receipt of the unconditional bequest

An unconditional bequest with no donor-imposed restrictions is recognized as net assets without donor restrictions when received or when receipt is reasonably assured and the amount is estimable.