To File or Not to File? That is the Question. | Eastern North Carolina Now

    Publisher's Note: This is why we created Beaufort County Now. To provide a responsive, consistent platform, and now with significant traffic, where intelligent folks, members of the community, can disseminate information and ideas in a timely manner.

    Betty Murphy is without peer, locally, when it comes to assimilating data, organizing it and providing it back to the community in a manner that most people can understand. Thanks again Betty.


    Itīs that time of year. Nonprofits throughout the country are filing their IRS form 990s, with one exception locally - Beaufort County Hospital Association. When looking at the big picture, why would you not file? Below are two good reasons that not only make good sense, but also strengthens your organizationīs public image.

    "The Form 990 serves two essential purposes. First, it provides information that helps government agencies (the IRS and state charity regulators) enforce the laws that govern nonprofits. For example, it helps government regulators learn whether groups have been spending their funds in a way that might cause them to lose their charitable and tax-exempt status. Second, the Form 990 provides a great deal of financial information about the filing organizationīs financial condition, about its financial strength or weakness and about such things as the sources of its income." http://www.npccny.org/Form_990/990.htm)

    Please keep in mind as you go through this article we are writing about two separate hospital entities: If you search the Secretary of State Web site, you will find The Beaufort County Hospital Association is classified as a Non-Profit (SOSID #0011211) and the Beaufort Regional Health System is classified as a Municipal affiliated with a government entity (SOSID #609124).

    1. Non-profit Beaufort County Hospital Association (also known as BC Medical Center) was incorporated in        1958. The Hospital Association has its own set of bylaws. The governing board of the Hospital Association         is called the board of trustees.

    2. Beaufort Regional Medical Authority was created in 2001 and in 2009 the name was changed to         Beaufort Regional Health System. The System is governed by its own set of bylaws and a board of         commissioners.

    The commonality between the entities is the individual commissioners who serve as officers of the System are the same individuals who serve on the board of trustees.

    With few exceptions, the majority of nonprofits are required to file an annual financial report, commonly known as the IRS Form 990. It is an information return and not an income tax return. Usually, whoever prepares your annual audit also prepares your 990, as was the case with Beaufort County Hospital Association - the nonprofit arm of the hospital system. That is until the nonprofitīs board of trustees meeting on June 30, 2009. (source - BCHA Trustees 6/30/2009 minutes)

    This meeting turned out to be very important in more ways than one. A culmination of timely hospital-related changes were set in motion.

    1. Beaufort Mental Health would be renamed Tideland Psychiatric Services of Washington.

    2. Mr. Bedsole stated that the Medical Authority is now Beaufort Regional Health System as of June 15,         2009.

    3. The Amended/Restated ByLaws for Beaufort County Medical Center (the nonprofit) reflected a         suggested change by Mr. Bedsole - changing Chief Executive Officer to President.

    4. IRS Form 990 Exemption Strategy: "Mr. Hardy reported there was a situation with the IRS Form 990.         Non-profit organizations do not have to fill out the 990 form for the IRS. The new form is approximately         500 pages. Mr. Hardy concluded that since we are a medical authority under the General Statutes that         makes us a government entity, and we should be exempt from the 990 form. He stated that we would         like for our attorneys to send a letter to IRS explaining the situation, and that the previous years of          completing the form were in error."

     At the time of this decision the Board membership included several members with nonprofit experience. How ironic that an attorney whose expertise is bankruptcy and who knows the importance of financial accountability and deals with the IRS in his profession would even make a suggestion that virtually excludes any federal regulatory oversight of the Hospitalīs financial condition? Could this action in any way have contributed to the Hospitalīs current dire financial situation?

    Searching through IRS 990 filings for local nonprofit hospitals, I could not find one 990 that came close to being 500 pages. In fact, if you were to review the past eight years of 990s filed by UHS, the highest number of pages for any one year is 46.

    Although a motion to ratify the executive committee's decision for the attorney to submit a letter to the IRS passed unanimously, the letter was not signed by the hospital's attorney and does not appear to be written in "legalese." Itīs not clear whether this issue was even discussed with the hospital attorney. Instead, the letter to the IRS is signed by Hospital CEO and President Bill Bedsole. The tone of the letter is not one of requesting a reassessment of the nonprofit requirement for filing IRS 990, but rather notifying the IRS that the BC Hospital Association, Inc. (in their opinion) "is exempt from and will not be filing IRS Form 990 in the future." (source - Bedsole's letter)

     The IRS response letter dated Sept. 24, 2009 was addressed to Beaufort Regional Health System and granted the "organization" exemption from filing Form 990. But wait - the Employer Identification Number belonged to the nonprofit BC Hospital Association. Adding to the confusion was the fact that neither organizationīs name was mentioned in the body of the IRS letter. Throughout, the letter refers to "your organization." Could it be possible that the IRS assumed that the two entities are one and the same, that there is only one organization? Clearly, the System is an affiliate of a government unit and therefore not required to file an IRS Form 990. But the Hospital Association is and has always been a nonprofit and as such should file 990s. (source - IRS response letter)

     The hospital went so far as to ignore advice from the audit firm Dixon Hughes that recommended the System resume filing IRS Form 990s. Management Representation Letter (ref: BCH Audit for 2009): "The System is an exempt organization under Section 501Đ(3) of the Internal Revenue Code. Any services of which we are aware that would jeopardize the System's tax-exempt status, and all activities subject to tax on unrelated business income or excise or other tax, have been disclosed to you. In 2008, the System elected the tax position of a governmental entity upon the advice of the System's attorney. Given the position elected, the System did not file form 990 with the Internal Revenue Service for fiscal year ending September 30, 2009 and 2008 against the advice of Dixon Hughes."

    Given the documents provided to the Beaufort Observer, there is no indication that the 990 issue was discussed with the hospitalīs attorney. And if it was, the actual letter to the IRS makes no reference to advice given by the hospitalīs attorney and is signed by Bill Bedsole, President and CEO, Beaufort Regional Health System.

    What prompted Beaufort Regional Health System to make this request so soon after the 2008 revelation of embezzlement charges involving the nonprofit Beaufort County Hospital Foundation? What were they thinking???
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