Blue Cross Loses Its State Tax Exemption in California

indexLittle Rock     The state of California in an unusual and precedent setting move withdrew the state tax exempt status of Blue Cross Blue Shield of California.  The Los Angeles Times said they did so “quietly,” but trust  me on this one, their action will reverberate with a loud roar  throughout the soft chairs and well-appointed executive suites of highly  paid, supposedly nonprofit hospital and insurance executives all around the country.  In the short term, barring appeals, this will cost the Blues  tens of millions of years in state tax payments in California.  In the long term this may toughen the backbones of many state tax authorities  and the IRS, now charged with regularly assessing the charitable contributions of nonprofit hospitals, to finally separate the herd,  making the wolves in sheep’s clothing who have for profit style hearts and pay stubs, either really be mission driven or really be all about  the money.

God knows, the California Blues were asking for it!  They had $4 billion in reserves.  They had to be forced by the legislature to reveal the fact that their chief executive was being paid over $4 million per year in 2011 and 2012, and then still with impunity didn’t disclose his pay after that but simply said the top three executives all were paid over
$1 million per year.  This was not a new problem for the Blues.  Their reserves didn’t suddenly surge to $4 billion plus, but have been working  their way up from $3 billion over the last couple of years.  Incidentally,  the level of their reserves was almost four times the industry recommendation for what any outfit might have possibly needed for any conceivable circumstance or calamity.  In some ways in California this is a footnote in a long series of chapters where for profit practices operating with nonprofit protections have been scrutinized and questioned.  One part of California’s Blue Cross operation had already been lopped off as for profit earlier, and with this movement by the California taxman, the company will have to put up or shut up on its charity obligations.  The company’s earlier strategy had been to calf off $30 or $40 million to a separate foundation to handle their charitable obligations, but they must have missed the memo that to be tax exempt the whole operation has to be operating for charitable purposes not just a branch off the main trunk.

Are they alone? Hardly! Looking at the similar problem in nonprofit hospitals, our researchers would only nod at the Cali-Blues pay stubs.  Certainly big nonpro hospital execs at outfits in Houston for example are making in the $4 and $5 million range.  The Partners’ nonprofit hospital behemoth based in Boston lists a small army of  executives making more than a million on their IRS 990.  Children’s in Houston is over a billion dollar operation and even with its creative accounting only claims to spend $6 million in charity care, making the California Blue Cross look like a big spender. It goes on and on and on like this from city to city, state to state.  Looking through our researchers’ spreadsheet you can’t tell what hits you first, the headache at reading all the big numbers, or the heartache at seeing how miserly the charity care continues to be.

As California just made clear, a day of reckoning is coming on the state level as desperate legislators have to balance their budgets and are less willing to pretend these slicksters can get away with being something they aren’t.  These insurers and hospitals have to hear the footsteps of state and federal tax folks heading towards their doors now.  The party is coming to an end.  It’s time for them to pay the piper.  Luckily, that means a better day for all of the rest of us!

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Who Knew? IRS Tax Exemption Process Has Gotten Easier!

photo_37681_carouselLittle Rock       We all know all about the Internal Revenue Service, right? The very mention of the IRS causes virtually all grown men and women to duck-and-cover. In fact, many Americans are somewhat confused and think that possibly the government has gone to war against the IRS somewhere in the Middle East, but that’s ISIS, not IRS.

We also have heard about the on-going controversy, regularly brought back up to boil and stirred heavily about the IRS nonprofit tax exemption department. Recently there was yet another spate of publicity in the concentrated hunt for witches over there when someone thought they might have figured out how to access some missing emails that conspiracy-minded citizens believe may have been caught in some Rosemary Woods type of Bermuda Triangle mystery gap deleting god knows what from the files of the former, now resigned, head of the tax exempt division. The Republicans believe that the IRS went hard on Tea Party tax exemption applications. The Democrats have established that the IRS also went hard on lib-left groups. Congressman Darryl “Step Away from the Car” Issa has tried repeatedly to get someone to care about his investigation, and it’s a basic beltway back-and-forth.

Well, it seems in the midst of all of this mayhem somehow the IRS started taking some steps to streamline the process of actually getting a tax exempt designation as a 501(c)3 for small startup nonprofits. You know groups that want to fix a playground or organize sweet summer socials, like I don’t know, maybe tea parties?

Here’s how it works. Rather than being an almost 30-page application which some lawyers, being on the time clock obviously, say can take 100 to 150 hours of time to complete, the application has shrunk down to only three pages, taking only about the same number of hours to finish some of the same lawyers guesstimate, unhappily. Rather than it being forever and a day to get a response, some groups report having used the new procedure and heard within a week from the IRS that they were approved, which is almost unbelievable.

But, the whole point was to get rid of the backlog, separate the wheat from the chaff, and focus, focus, focus on what the IRS’s real job is supposed to be. Maybe they are going to use the extra time and person power to go after businesses which are not paying taxes, trying to go to foreign countries to evade taxes, and every other kind of scheme imaginable. Just saying.

An outfit can take advantage of this new IRS procedure if they have less than $50000 of gross income and less than $250,000 in total assets. Since most organizations applying for a 501c3 status are brand spanking new outfits many, if not most, groups could easily meet these lowball numbers. Of course you have to be nonprofit, too. This is not an Airbnb “sharing economy hustle, OK?

These windows open and shut all of the time in Washington and with the IRS. If you’ve been caught on the wrong side of the street before, this might be just the alley to hurry down right now to secure an exemption, if that’s what you want and need for your organization, cause, or idea, and if your outfit is all about for education, welfare, and charitable purposes.

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