WASHINGTON — The Internal Revenue Service has revoked the tax-exempt status of American Health Foundation Inc., raising questions about the tax-exemption of $28.96 million of refunding and revenue bonds that issuers in five states sold for three of its subordinate entities.
Dublin, Ohio-based AHF disclosed the IRS action and concerns in five identical notices posted for each set of bonds on the Municipal Securities Rulemaking Board’s online EMMA system.
The revocation occurred after AHF failed to file Forms 990-N in three subsequent years, as required by a law enacted in 2006, AHF president Mark Haemmerle said.
“To date the IRS has not questioned the continued tax-exempt status of the bonds,” the notices said. “Bond tax counsel to the corporation has advised the corporation that the bonds continue to remain tax-exempt under several alternative legal grounds.”
AHF said it has filed the Forms 990-N and that it and its subordinates have applied for tax-exempt status on a retroactive basis.
The bonds were all sold to refund previously issued bonds or to finance improvements for nursing homes.
The biggest issue is $15.36 million of first mortgage refunding and improvement revenue bonds that Montgomery County, Pa., Higher Education and Health Authority issued in 2006 for the subordinate, Montgomery Inc.
The other bonds are health care facilities first revenue mortgage revenue refunding bonds.
They include: $4.95 million of bonds issued by Washington County, Pa., Industrial Development Authority in 2003 for Central States Inc.; $4.39 million issued in 2003 for the Kentucky Economic Development Finance Authority for Kentucky-Iowa Inc.; $2.61 million issued in 2003 by Marion, Iowa for Kentucky-Iowa Inc.; and $1.65 million issued by the Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County, Tenn., for Central States Inc.
According to Timothy Dixon, an attorney in Ellicott City, Md., who is representing AHF, nonprofits with less than $50,000 in gross receipts per year did not have to file Form 990s for years.
AHF is a holding company with no revenues or expenses.
But the Pension Protection Act of 2006 required small exempt organizations to begin filing Forms 990-N, described as e-Postcards, and said any failure to do so for three consecutive years would result in a loss of tax-exempt status.
“The accountant overlooked that law change, just as 275,000 other organizations did,” said Dixon. AHF received its revocation notice from the IRS on June 17, 2011.
After discussions took place, IRS officials initially said the revocation had been an error, then reversed themselves and affirmed the revocation, according to Haemmerle.
Dixon says the bonds should remain tax-exempt if the IRS restores the tax-exempt status to AHF and the subordinates retroactively. However, retroactivity is not critical, he said. The revocation would not result in a “change of use” to the bonds, because use is established on the issue date based on reasonable expectations unless the borrower takes deliberate action to cause a change of use.
The failure to file the forms was not deliberate and was an omission on the part of AHF, not the subordinates, he said. In addition, Dixon argued that over the long term the bonds would still meet the standards for 501(c)(3) bonds.
