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