IRS News Release  
August 21, 1990

New Instructions to Help Detect
Potentially Abusive Transactions

WASHINGTON - The Internal Revenue Service today issued new instructions to its examiners to help them detect potentially abusive transactions in which charitable organizations buy or sell health care facilities financed with tax exempt bonds.

The IRS emphasis on examining such transactions was announced earlier in a news release dated April 3, 1990.

The instructions issued today for exempt organizations examiners concern processing applications for recognition of exemption from federal tax under Internal Revenue Code section 501(c)(3) that are submitted by nursing homes, old age homes, extended care facilities, hospitals and other health care organizations.

The instructions explain how examiners are to handle cases with evidence of possible abuse. They describe abusive situations the IRS intends to curtail and specify information that should be provided by applying organizations that have or intend to have facilities financed by tax exempt bonds.

The IRS said that abusive transactions can have adverse consequences both for charitable organizations and for investors in tax exempt bonds. Impermissible private benefit can result in the loss of the organization's tax exempt status. If that happens, the interest paid on bonds issued by the organization may be taxable to the bondholder.

The new instructions are included in Internal Revenue Manual sections 7668.(17) and 7(10)7(11).

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