I

103D CONGRESS

1ST SESSION H. R. 483

To amend the Internal Revenue Code of 1986 to impose an excise tax

on certain sales of assets of medical service organizations to managers,

etc. of such organization.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 6, 1993

Mr. STARK introduced the following bill; which was referred to the Committee

on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to impose

an excise tax on certain sales of assets of medical service

organizations to managers, etc. of such organization.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. EXCISE TAX ON SELF-DEALING IN CERTAIN

4 ASSETS OF TAX-EXEMPT MEDICAL SERVICE

5 ORGANIZATIONS.

6 (a) IN GENERAL.—Chapter 42 of the Internal Reve7 nue Code of 1986 (relating to private foundations and cer8 tain other tax-exempt organizations) is amended by redes-
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1 ignating subchapter D as subchapter E and by inserting

2 after subchapter C the following new subchapter:

3 ‘‘SUBCHAPTER D—SELF-DEALING IN CERTAIN ASSETS

4 OF TAX-EXEMPT MEDICAL SERVICE ORGANIZATIONS

‘‘Sec. 4958. Tax on self-dealing in certain assets of tax-exempt

medical service organizations.

5 ‘‘SEC. 4958. TAX ON SELF-DEALING IN CERTAIN ASSETS OF

6 TAX-EXEMPT MEDICAL SERVICE ORGANIZA7 TIONS.

8 ‘‘(a) INITIAL TAXES.—

9 ‘‘(1) ON SELF-DEALER.—There is hereby im10 posed a tax on each self-dealing asset transaction

11 between a disqualified person and a medical service

12 organization. The rate of tax shall be equal to 5 per13 cent of the amount involved with respect to such

14 transaction for each year (or part thereof) in the

15 taxable period. The tax imposed by this paragraph

16 shall be paid by any disqualified person (other than

17 an organization manager acting only as such) who

18 participates in such transaction.

19 ‘‘(2) ON ORGANIZATION MANAGER.—In any

20 case in which a tax is imposed by paragraph (1),

21 there is hereby imposed on the participation of any

22 organization manager in any self-dealing asset trans23 action between a disqualified person and a medical

24 service organization, knowing that it is such a trans-
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1 action, a tax equal to 2.5 percent of the amount in2 volved with respect to such transaction for each year

3 (or part thereof) in the taxable period, unless such

4 participation is not willful and is due to reasonable

5 cause. The tax imposed by this paragraph shall be

6 paid by any organization manager who participated

7 in the self-dealing asset transaction.

8 ‘‘(b) ADDITIONAL TAXES.—

9 ‘‘(1) ON SELF-DEALER.—In any case in which

10 an initial tax is imposed by subsection (a)(1) on a

11 self-dealing asset transaction by a disqualified per12 son with a medical service organization and such

13 transaction is not corrected within the taxable pe14 riod, there is hereby imposed a tax equal to 200 per15 cent of the amount involved. The tax imposed by

16 this paragraph shall be paid by any disqualified per17 son (other than an organization manager acting only

18 as such) who participated in such transaction.

19 ‘‘(2) ON ORGANIZATION MANAGER.—In any

20 case in which an additional tax is imposed by para21 graph (1), if an organization manager refused to

22 agree to part or all of the correction, there is hereby

23 imposed a tax equal to 50 percent of the amount in24 volved. The tax imposed by this paragraph shall be
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1 paid by any organization manager who refused to

2 agree to part or all of the correction.

3 ‘‘(c) JOINT AND SEVERAL LIABILITY.—If more than

4 one person is liable under any paragraph of subsection (a)

5 or (b) with respect to any one self-dealing asset trans6 action, all such persons shall be jointly and severally liable

7 under such paragraph with respect to such transaction.

8 ‘‘(d) SELF-DEALING ASSET TRANSACTION.—For

9 purposes of this section—

10 ‘‘(1) IN GENERAL.—The term ‘self-dealing asset

11 transaction’ means any direct or indirect sale or ex12 change, or leasing, of any medical asset to any dis13 qualified person.

14 ‘‘(2) EXCEPTION.—Such term shall not include

15 any transaction if it is established to the satisfaction

16 of the Secretary that—

17 ‘‘(A) such transaction is at arm’s length

18 and for fair market value, and

19 ‘‘(B) such transaction does not involve

20 (and is not part of a series of transactions in21 volving) the disposition of any medical activity

22 (or of a substantial portion of any medical ac23 tivity).

24 ‘‘(3) CONTROLLED ENTITIES.—In the case of

25 any 50-percent controlled entity (other than an en-
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1 tity exempt from tax under section 501(a)) of a

2 medical service organization—

3 ‘‘(A) if there is a disposition of any medi4 cal asset by such entity, such organization shall

5 be treated as disposing of such asset to the ex6 tent of such organization’s proportionate share

7 of such entity, and

8 ‘‘(B) any disposition of an interest referred

9 to in subsection (f)(2) in such entity shall be

10 treated as a disposition of such organization’s

11 proportionate share of the medical assets of

12 such entity.

13 For purposes of the preceding sentence, the term

14 ‘proportionate share’ means the percentage of the

15 interests referred to in subsection (f)(2) in such en16 tity which are held by such organization.

17 ‘‘(e) DISQUALIFIED PERSON; ORGANIZATION MAN18 AGER.—For purposes of this section—

19 ‘‘(1) DISQUALIFIED PERSON.—The term ‘dis20 qualified person’ means—

21 ‘‘(A) any organization manager,

22 ‘‘(B) any person who performs substantial

23 professional medical services for the medical

24 service organization pursuant to an employment
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1 or other contractual relationship with such or2 ganization,

3 ‘‘(C) any member of a family (as defined

4 in section 4946(d)) of any individual described

5 in subparagraph (A) or (B), and

6 ‘‘(D) any 35-percent controlled entity of

7 persons described in subparagraph (A), (B), or

8 (C).

9 ‘‘(2) ORGANIZATION MANAGER.—The term ‘or10 ganization manager’ means, with respect to a medi11 cal service organization, any officer, director, or

12 trustee of such organization (or any individual hav13 ing powers or responsibilities similar to those of offi14 cers, directors, or trustees of the organization).

15 ‘‘(f) MEDICAL SERVICE ORGANIZATION; MEDICAL

16 ACTIVITY; MEDICAL ASSET.—For purposes of this sec17 tion—

18 ‘‘(1) MEDICAL SERVICE ORGANIZATION.—The

19 term ‘medical service organization’ means any orga20 nization which (without regard to any self-dealing

21 asset transaction) would be described in section

22 501(c)(3) and exempt from tax under section 501(a)

23 if such organization (either directly or through any

24 50-percent controlled entity of such organization)

25 engages in a medical activity.
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1 ‘‘(2) MEDICAL ACTIVITY.—The term ‘medical

2 activity’ means any activity of providing medical or

3 hospital care or medical education or medical re4 search.

5 ‘‘(3) MEDICAL ASSET.—The term ‘medical

6 asset’ means any tangible or intangible asset used in

7 a medical activity.

8 ‘‘(g) CONTROLLED ENTITIES.—For purposes of this

9 section—

10 ‘‘(1) 35-PERCENT CONTROLLED ENTITY.—The

11 term ‘35-percent controlled entity’ means—

12 ‘‘(A) a corporation in which persons de13 scribed in subparagraph (A), (B), or (C) of sub14 section (e)(1) own more than 35 percent of the

15 combined voting power,

16 ‘‘(B) a partnership in which such persons

17 own more than 35 percent of the profits inter18 est, and

19 ‘‘(C) a trust or estate in which such per20 sons own more than 35 percent of the beneficial

21 interest.

22 ‘‘(2) 50-PERCENT CONTROLLED ENTITY.—The

23 term ‘50-percent controlled entity’ means any cor24 poration, partnership, or trust in which a medical

25 service organization owns more than 50 percent of
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1 the combined voting power, profits interest, or bene2 ficial interest, as the case may be.

3 ‘‘(3) CONSTRUCTIVE OWNERSHIP RULES.—

4 Rules similar to the rules of paragraphs (3) and (4)

5 of section 4946(a) shall apply for purposes of this

6 subsection.

7 ‘‘(h) OTHER DEFINITIONS.—For purposes of this

8 section—

9 ‘‘(1) TAXABLE PERIOD.—The term ‘taxable pe10 riod’ means, with respect to any self-dealing asset

11 transaction, the period beginning with the date on

12 which the transaction occurs and ending on the ear13 liest of—

14 ‘‘(A) the date of mailing a notice of defi15 ciency under section 6212 with respect to the

16 tax imposed by subsection (a)(1),

17 ‘‘(B) the date on which the tax imposed by

18 subsection (a)(1) is assessed, or

19 ‘‘(C) the date on which correction of the

20 self-dealing asset transaction is corrected.

21 ‘‘(2) AMOUNT INVOLVED.—The term ‘amount

22 involved’ means, with respect to any self-dealing

23 asset transaction, the amount of money and fair

24 market value of other property transferred by the

25 medical service organization in the transaction (or in
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1 the case of a lease, the fair market value of the

2 leased property). For purposes of the preceding sen3 tence—

4 ‘‘(A) in the case of the taxes imposed by

5 subsection (a), fair market value shall be deter6 mined as of the date of which the transaction

7 occurs, and

8 ‘‘(B) in the case of the taxes imposed by

9 subsection (b), fair market value shall be the

10 highest fair market value during the taxable pe11 riod.

12 ‘‘(3) CORRECTION.—The terms ‘correction’ and

13 ‘correct’ mean, with respect to any self-dealing asset

14 transaction, undoing the transaction to the extent

15 possible, but in any case place the medical service

16 organization in a financial position not worse than

17 that in which it would be if the disqualified person

18 were dealing under the highest fiduciary standards.’’

19 (b) TECHNICAL AND CONFORMING AMENDMENTS.—

20 (1) Subsections (a), (b), and (c) of section 4963

21 of such Code are each amended by inserting ‘‘4958,’’

22 after ‘‘4955,’’.

23 (2) Subsection (b) of section 4962 of such Code

24 is amended by inserting before the period ‘‘and shall

25 not include the tax imposed by section 4958(a) (re-
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1 lating to initial tax on self-dealing asset trans2 actions)’’.

3 (3) Subsection (e) of section 6213 of such Code

4 is amended by inserting ‘‘4958 (relating to self-deal5 ing in certain assets of tax-exempt medical service

6 organizations),’’ before ‘‘4971’’.

7 (4) The table of subchapters for chapter 42 of

8 such Code is amended by striking the last item and

9 inserting the following:

‘‘Subchapter D. Self-dealing in certain assets of tax-exempt medical service organizations.

‘‘Subchapter E. Abatement of first and second tier taxes in certain cases.’’

10 (c) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to transactions occurring after No12 vember 26, 1991.

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