The IRS has proposed new rules that will require tax-exempt
hospitals (and other tax-exempt entities) to review a variety of
compensation arrangements to avoid unintended tax consequences.
This article will provide a brief overview of the potential impact
of these new rules and steps that tax-exempt hospitals can take now
to avoid problems later.
What Compensation Arrangements Are Affected?
Special rules (often referred to as "457 rules") apply
to "deferred" compensation of tax-exempt entities,
including nonprofit and governmental hospitals. Deferred
compensation can come in a wide variety of forms, including paid
time off, death and disability benefits, severance benefits,
bonuses, and retirement benefits. Deferred compensation from a
tax-exempt entity will be taxed to the employee as soon as it is
vested (even if the employee won't receive the money in that
year!) unless the amount is deferred under certain retirement plans
or under a "bona fide" severance,
