19 Health Law. 1 (2006-2007)

handle is hein.journals/healaw19 and id is 1 raw text is: THE ABA HEALTH LAW SECTION
H EALTH
HLAWYER

IN THIS ISSUE         THE PRICE IS RIGHT! - TAXPAYERS
PREVAIL IN THE FIRST CASE TO
The Price is Right! - Taxpayers
Prevail in the First Case to  REVIEW  IRS IMPOSITION        OF
Review IRS Imposition of
Intermediate Sanctions .............. 1  INTERMEDIATE SANCTIONS

Of PACS and Trolls: How the
Patent Wars May Be Coming to a
Hospital Near You ................. 15
Advance Directives Day: A Story
of Success, A Call to Action, and
A How-To Manual ............. 21
Health Care Providers' Rights to
Refuse to Provide Treatment on
the Basis of Moral or Religious
Beliefs  ............................... 25
The Quality Variable in Hospital
Merger Analysis ................. 34
Volume 19, Number 1
October 2006

Bernadette M. Broccolo, Esq.
Elizabeth M. Mills, Esq.
McDermott Will & Emery LLP
Chicago, IL
Robert C. Louthian, Esq.
Amy Hooper Kearbey, Esq.
McDermott Will & Emery LLP
Washington, DC
Introduction
In the first case arising under the
intermediate sanction provisions of
Section 4958 of the Internal Revenue
Code, the United States Court of Appeals
for the Fifth Circuit (the 5th Circuit or
the court) delivered a blow to the
Internal Revenue Service (IRS) by
ruling against the IRS's imposition of
Section 4958 excise taxes and its revoca-
tion of the Section 501 (c) (3) status of the
exempt organizations.' Whereas the
United States Tax Court had been willing
to overlook a flawed business valuation
offered by the IRS in support of its actions
and to impose sanctions based on the Tax
Court's own valuation analysis, the 5th
Circuit concluded that the Tax Court
made errors as a matter of law and erro-
neous factual findings, reversed the Tax
Court's decision, and rendered the case

against the IRS. The court's decision not
to remand the case was based on its
conclusion that even on remand the
Commissioner would be unable to meet
his burden of proving that the individual
disqualified persons involved had received
exempt organization assets with a value in
excess of the consideration the individuals
had paid the assets.'
This decision, which comes ten years
after the enactment of Section 4958,
boldly underscores (1) the critical impor-
tance of securing a proper valuation -
both as to valuation methodologies and
the factual assumptions used in the analy-
sis - to demonstrate that a transaction
with a disqualified person3 (or insider)
does not result in excess benefit or private
inurement, and (2) the unique complexi-
ties and challenges that can arise in
securing a proper valuation of a health
care business entity. The 5th Circuit's
brutal analysis and commentary concern-
ing the IRS's handling of the procedural
and substantive aspects of the case also
provide clear insights into related tax
planning and tax controversy considera-
tions and strategies, such as satisfying the
appropriate data prong of the Section
4958 rebuttable presumption criteria, the

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