This cumulative supplement accompanying the fourth edition of The Law of Tax‐Exempt Healthcare Organizations focuses on developments in the law in the tax‐exempt healthcare field since the book was published and through 2016. As in recent years, 2016 was a year of evolutionary regulatory development and guidance, rather than revolutionary.

The IRS continues to attempt to regulate the nonprofit tax‐exempt sector during a time when it has fallen into disfavor with the majority party in Congress, and perhaps with the incoming officials of the executive branch. It has sustained substantial reductions in budget and staff while being responsible for carrying the same load. Even the IRS Commissioner has been threatened with impeachment.

One fallout of this has been a marked decline in the issuance of substantive guidance in the form of revenue rulings, general counsel memoranda, private letter rulings, and even continuing professional education (CPE) text articles that have been the subject of much of the analysis provided in this text. Still, the IRS continues with useful and user‐friendly educational efforts in its online offerings and it has reduced processing time for applications for recognition of exemption to about a third of the time that was once required.

As chronicled in this supplement, the IRS this year helpfully provided more flexible guidance on the terms of permissible management services agreements with healthcare facilities financed with tax‐exempt bonds and more restrictive guidance on the qualification for exemption by accountable care organizations that operate outside of the Medicare Shared Savings Program. It also issued long‐awaited regulatory and administrative guidance on issues not unique to healthcare providers, but nevertheless of great importance and interest, including the permissible terms of deferred compensation plans that are popular with executives and a clearer path toward recognition of exemption for social welfare organizations.

The elephant in the room, however, is what awaits us in the year ahead. The most meaningful developments of the last five years for tax‐exempt healthcare organizations have been those resulting from the passage and implementation of the Affordable Care Act (ACA). The expansion of healthcare insurance coverage and access to care championed by the Act are the most substantial since the Medicare and Medicaid amendments to the Social Security Act were passed into law. And the new requirements for charitable healthcare organizations regarding community health needs assessments and financial assistance have resulted in major new regulations and herculean efforts by hospitals to implement them.

Nonetheless, we now stand on the edge of a precipice with a new Congress and a new president who have made clear their intent to repeal the Affordable Care Act at the earliest opportunity. It is also their expressed intent to replace that law with a new healthcare insurance plan, the details of which are as yet unknown. Does this mean, for example, that all of the new requirements regarding health needs assessments and financial assistance, brought about by the ACA through a revision to the Internal Revenue Code, will be eradicated? Also, the new Congress presumably now has the votes to carry out a long‐promised overhaul of the Internal Revenue Code to effectuate tax reform. What does this portend for tax‐exempt healthcare organizations?

At this point, it is unclear whether the additions to our next supplement will be extensive or minimal. In the words of the immortal Bette Davis, “Fasten your seat belts. It's going to be a bumpy night.”

Thomas K. Hyatt is a partner in the law firm Dentons US LLP, resident in the Washington, DC office. His practice is focused on corporate and tax‐exempt organization issues for nonprofit organizations. He has particular expertise in legal issues affecting tax‐exempt healthcare providers and in governance and public policy issues affecting tax‐exempt higher education institutions. Mr. Hyatt has represented organizations including public and private hospitals, multihospital systems, integrated delivery systems, academic medical centers, home health agencies, health maintenance organizations, continuing care retirement communities, provider associations, physician clinics, faculty practice plans, physician‐hospital organizations, and shared services organizations in such matters. He also frequently works with nonprofit governing boards and board committees to address such issues as regulatory compliance, fiduciary duty, conflicts of interest, bylaws development and revision, senior management compensation and benefits, chief executive contracts and transition, fundraising, lobbying and political campaign activity, board development, policy development, adoption of best governance practices, membership matters, corporate restructuring, mergers, and joint ventures. He is admitted to practice in the District of Columbia and Pennsylvania.

Mr. Hyatt is a member of the American Health Lawyers Association (AHLA), the American Bar Association, and the District of Columbia Bar. He served as a member of AHLA's Board of Directors from 1992 to 1998. Mr. Hyatt is one of the inaugural Fellows of AHLA. He is the Chair Emeritus and on the faculty of the annual Tax Issues in Healthcare Organizations seminar sponsored by AHLA, and is also the past chair of AHLA's Tax and Finance Practice Group. In 2004, Mr. Hyatt received AHLA's David J. Greenburg Service Award. He also serves as Senior Fellow for Public Policy with the Association of Governing Boards of Universities and Colleges. He has been listed in Best Lawyers in America since 2005 and as a DC Super Lawyer. He has also been listed in Chambers USA Healthcare, District of Columbia since 2012. Mr. Hyatt is a licensed consultant for the Standards for Excellence Institute. He frequently lectures on business and tax planning issues for nonprofit organizations and has written numerous articles for publication on tax‐exempt organization topics.

Mr. Hyatt is a 1979 cum laude graduate of Boston College, and received his law degree in 1982 from the University of Pittsburgh, where he served as editor‐in‐chief of the Journal of Law and Commerce.

Bruce R. Hopkins is the principal in the law firm Bruce R. Hopkins Law Firm, LLC, in Kansas City, Missouri. He concentrates on the representation of tax‐exempt organizations, including healthcare organizations. His practice ranges over the entirety of law matters involving exempt organizations, with emphasis on the formation of nonprofit organizations, acquisition of recognition of tax‐exempt status for them, governance and the law, the private inurement and private benefit doctrines, the intermediate sanctions rules, legislative and political campaign activities issues, public charity and private foundation rules, unrelated business planning, use of exempt and for‐profit subsidiaries, joint venture planning, tax shelter involvement, review of annual information returns, Internet communications developments, the law of charitable giving (including planned giving), and fundraising law issues.

Mr. Hopkins is the Professor from Practice at the University of Kansas School of Law, where he teaches courses on the law of nonprofit and tax‐exempt organizations.

Mr. Hopkins served as Chair of the Committee on Exempt Organizations, Tax Section, American Bar Association; Chair, Section of Taxation, National Association of College and University Attorneys; and President, Planned Giving Study Group of Greater Washington, DC.

Mr. Hopkins is the series editor of Wiley's Nonprofit Law, Finance, and Management Series. In addition to coauthoring The Law of Tax‐Exempt Healthcare Organizations, Fourth Edition, he is the author of The Law of Tax‐Exempt Organizations, Eleventh Edition; Planning Guide for the Law of Tax‐Exempt Organizations: Strategies and Commentaries; Tax‐Exempt Organizations and Constitutional Law: Nonprofit Law as Shaped by the U.S. Supreme Court; Bruce R. Hopkins' Nonprofit Law Dictionary; Bruce R. Hopkins' Nonprofit Law Library (e‐book); IRS Audits of Tax‐Exempt Organizations: Policies, Practices, and Procedures; The Tax Law of Charitable Giving, Fifth Edition; The Law of Fundraising, Fifth Edition; The Tax Law of Associations; The Tax Law of Unrelated Business for Nonprofit Organizations; The Nonprofits' Guide to Internet Communications Law; The Law of Intermediate Sanctions: A Guide for Nonprofits; Starting and Managing a Nonprofit Organization: A Legal Guide, Sixth Edition; Nonprofit Law Made Easy; Charitable Giving Law Made Easy; Private Foundation Law Made Easy; Fundraising Law Made Easy; 650 Essential Nonprofit Law Questions Answered; The First Legal Answer Book for Fund‐Raisers; The Second Legal Answer Book for Fund‐Raisers; The Legal Answer Book for Nonprofit Organizations; and The Second Legal Answer Book for Nonprofit Organizations; and is the coauthor, with Jody Blazek, of Private Foundations: Tax Law and Compliance, Third Edition; also with Ms. Blazek, of The Legal Answer Book for Private Foundations; with David O. Middlebrook, of Nonprofit Law for Religious Organizations: Essential Questions and Answers; with Douglas K. Anning, Virginia C. Gross, and Thomas J. Schenkelberg, of The New Form 990: Law, Policy, and Preparation; with Ms. Gross, of Nonprofit Governance: Law, Practices & Trends; and with Ms. Gross and Mr. Schenkelberg, of Nonprofit Law for Colleges and Universities: Essential Questions and Answers for Officers, Directors, and Advisors. He also writes Bruce R. Hopkins' Nonprofit Counsel, a monthly newsletter published by John Wiley & Sons.

Mr. Hopkins maintains a website providing information about the law of tax‐exempt organizations, at www.nonprofitlawcenter.com. Material posted on this site includes current developments outlines concerning this aspect of the law, summaries of court opinions, discussions of his books, various indexes for his newsletter, and a “What's New” listing of recent developments in exempt organizations law.

Mr. Hopkins received the 2007 Outstanding Nonprofit Lawyer Award (Vanguard Lifetime Achievement Award) from the American Bar Association, Section of Business Law, Committee on Nonprofit Corporations. He is listed in The Best Lawyers in America, Nonprofit Organizations/Charities Law, 2007–2016.

Mr. Hopkins earned his JD and LLM degrees at the George Washington University National Law Center, his SJD at the University of Kansas School of Law, and his BA at the University of Michigan. He is a member of the bars of the District of Columbia and the state of Missouri.

Throughout this book, 10 books by Bruce R. Hopkins (in some cases as co‐author), all published by John Wiley & Sons, Inc., are referenced in this way:

The second, third, sixth, and eighth of these books are annually supplemented. Also, updates on all of the foregoing subjects (plus The Law of Tax‐Exempt Healthcare Organizations) are available in Bruce R. Hopkins' Nonprofit Counsel, a monthly newsletter, also published by Wiley.

§ 1.2 DEFINING TAX‐EXEMPT ORGANIZATIONS

p. 9. Insert as second paragraph:

The U.S. Supreme Court, reflecting these principles, wrote that a “nonprofit entity is ordinarily understood to differ from a for‐profit corporation principally because it ‘is barred from distributing its net earnings, if any, to individuals who exercise control over it, such as members, officers, directors or trustees.’”^23.1 The Court has discussed the concept of nonprofit organizations on other occasions.^23.2 (Of course, before there can be a nonprofit organization or a tax‐exempt organization, there must first be an organization.^23.3)

§ 1.5 CHARITABLE HEALTHCARE ORGANIZATIONS

p. 15. Insert following existing text at note 79:

• Meanwhile, state courts continue to challenge the qualification of hospitals as charitable organizations for real property tax exemption purposes. In a 91‐page decision that describes the current structure and operations of the majority of hospitals in the United States, the New Jersey Tax Court revoked property tax exemption for Morristown Memorial Hospital. The court concluded that “[i]f it is true that all non‐profit hospitals operate like the Hospital in this case…then for purposes of the property tax exemption, modern non‐profit hospitals are essentially legal fictions.…Clearly, the operation and function of modern non‐profit hospitals do not meet the current criteria for property tax exemption under [New Jersey law.]” AHS Hospital Corp., d/b/a Morristown Memorial Hospital v. Town of Morristown, 2015 BL 206190 (N.J. Tax Ct. 2015). See generally, Paff, “Is Your Nonprofit Hospital's Property Tax Exemption Safe?,” Bloomberg Daily Report for Executives, August 25, 2015.

p. 22. Insert following existing material:

§ 1.10 ABLE PROGRAMS

The newest category of tax‐exempt organization, modeled somewhat on the state‐sponsored qualified tuition program,¹³⁷ is the ABLE program.¹³⁸ This is a program established and maintained by a state, or agency or instrumentality of a state, under which a person may make contributions for a tax year, for the benefit of an eligible individual, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.¹³⁹ A designated beneficiary may have only one ABLE account.¹⁴⁰ A beneficiary must be a resident of the state that established the program or a resident of a contracting state.¹⁴¹ An interest in an ABLE program may not be used as security for a loan.¹⁴²

An eligible individual is an individual entitled to benefits based on blindness or disability under the Social Security Act, where the blindness or disability occurred before the date on which the individual attained age 26, or a disability certification¹⁴³ with respect to the individual is filed with the IRS.¹⁴⁴ A designated beneficiary in connection with an ABLE account established under a qualified ABLE program is the eligible individual who established an ABLE account and is the owner of the account.¹⁴⁵ The term disability expenses means expenses related to the eligible individual's blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses for education, housing, transportation, health, financial management services, and legal fees.¹⁴⁶

Contributions to an ABLE account must be in the form of money.¹⁴⁷ There is an annual per account funding limit equal to the annual gift tax exclusion.¹⁴⁸ A qualified ABLE program must provide a separate accounting for each designated beneficiary.¹⁴⁹ A beneficiary may, directly or indirectly, direct the investment of contributions to the program, and earnings thereon, no more than two times in any calendar year.¹⁵⁰ Distributions from a qualified program are not includable in the beneficiary's gross income to the extent they do not exceed the amount of qualified disability expenses.¹⁵¹

Each officer or employee having control of the qualified ABLE program or their designee must make reports regarding the program to the IRS and to designated beneficiaries with respect to matters such as contributions, distributions, and the return of excess contributions.¹⁵² For research purposes, the IRS must make available to the public reports containing aggregate information, by diagnosis and other relevant characteristics, on contributions and distributions from qualified ABLE programs.¹⁵³