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 AHCA Disappointed in IRS Proposal to Deny Providers Full Benefits of Tax Cuts

The IRS has issued a proposed rule that would hamper the ability of skilled nursing facility (SNF) owners as well as some assisted living owners to fully benefit from federal tax cuts put in place this year. The draft rule has drawn criticism from the American Health Care Association/National Center for Assisted Living (AHCA/NCAL), which has vowed to fight to get language in a final rule that allows providers to realize specified tax savings.

At issue is how the IRS treats income derived from businesses that are defined as a “specified service trade or business.” The new tax law excludes such entities under its definition of a “qualified trade or business” and a corresponding tax deduction. AHCA/NCAL is advocating that SNFs and assisted living communities not be defined as a “specified service trade or business.”

AHCA/NCAL sources said the issue is not complicated and that the new tax law allows passthrough entities like limited liability corporations, partnerships, S-corporations, and sole proprietors to deduct 20 percent of their “qualified business income.”  

Since many SNFs and assisted living owners structure their business this way, AHCA/NCAL said it makes sense those facilities should be able to deduct 20 percent of their income and pay taxes on a much lower total number.

The tax issue is significant for many providers, since most of facilities are for-profit enterprises owned and/or operated by individuals or so-called passthrough entities, like limited liability companies and partnerships. 

These passthrough businesses pay taxes under the individual tax code and traditionally have done so to avoid the 35 percent corporate tax rate. But, the new tax law lowered the corporate rate to 21 percent. To make sure passthrough companies also received tax relief, the new tax law created the new deduction for them on their business income, sources said.

To get the full tax relief, however, SNFs and assisted living facilities cannot be categorized as a specified service trade or business, an argument AHCA/NCAL has been making for several reasons.  

The first reason is the primary intent of Congress was to keep practicing physicians and other similar professionals from reorganizing their business structures to be able to take advantage of the 20 percent deduction. The tax law is intended to help real businesses with significant numbers of employees and capital needs, which would provide tax relief to industries like long term and post-acute care to help employees and/or put additional dollars to work in the economy. 

The second argument AHCA/NCAL has made is that SNFs and assisted living facilities are more than just health care providers in that they provide board, meals, security, socialization, and so on. 

In addition to advocating for changes to policymakers, AHCA/NCAL said it would file comments to the IRS draft rule by the Oct. 1 deadline.
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