IRS challenges Medicare cost deductions for UBIT - Internal Revenue Service; unrelated business income tax - Financial Manager's Notebook - column

Healthcare Financial Management, Sept, 1991 by Elizabeth A. Purcell

As the IRS continues hospital system examinations, tax-exempt hospitals can expect the IRS to scrutinize UBIT deductions based on Medicare costs. To properly deduct any cost in computing UBIT, it must be an allowable deduction under the IRC, be directly connected to the unrelated trade or business, and clearly reflect income.

(a) Revenue Rulings 68-374, 1968-2 Cumulative Bulletin (C.B.) 242;68-375, 1968-2 C.B. 245; 68-376, 1968-2 C.B. 246; 85-110, 1985-2 C.B. 166.

(b) Revised Preparation Guide for Tax-Exempt Hospitals and Other Healthcare Organizations: IRS Form 990 & 990-T, HFMA, 1990.

(c) A General Counsel Memorandum (GCM) is a legal opinion of the Office of the Chief Counsel based on the particular issues and facts of a specific caase. GCMs are not intended for precedential use and do not represent the official agency position.

(d) U.S. Treasury Regulations, Sections 1.512(a)-1(a), (c).

(e) 42 Code of Federal Regulations, 413.130 (1990)

Provider Reimbursement Manual, Health Care Financing Administration, Part I, Section 100.

(f) Treas. Reg., Section 1.446-1(a)(2).

(g) Provider Reimbursement Manual, Part I, Section 104.17.

Elizabeth A. Purcell, JD, is an assistant branch chief in the office of the assistant chief counsel (employee benefits and exempt organizations) of the Internal Revenue Service, Washington, D.C. Views expressed in the article are those of the author and do not necessarily represent the position of the Internal Revenue Service.