IRS to Continue to Focus on Health-Care Groups

The Internal Revenue Service’s Exempt Organizations Division has announced its priorities for the year.

At the top of the list: It will continue its series of special, intensive audits of hospitals, colleges and universities, and other tax-exempt organizations that have complex subsidiaries or legal structures, including for-profit companies and partnerships. From 1991 to 1997, the I.R.S. completed audits of 95 such organizations and continued work on examinations of 79 others.

This year the I.R.S. will focus, as it did in 1997, on joint ventures and similar arrangements between tax-exempt health-care groups and for-profit organizations. The Exempt Organizations Division plans to work with other Internal Revenue Service officials who specialize in auditing businesses.

Another I.R.S. priority for 1998 is the selection for audit of several dozen tax-exempt organizations that conduct travel tours to see whether the trips are related to the groups’ missions.

Last fall, Congress told the I.R.S. to write new regulations to clarify when charities owe unrelated-business income taxes on commercial travel-tour operations that are not related to their tax-exempt purposes. Some businesses think the current rules are hazy, allowing many charities to escape the tax and to unfairly compete with them. “The ambiguities in the definition of what is and is not taxable contribute to the ongoing controversy,” Congress said in a report that accompanied its appropriation to the Treasury Department.