Stewards of the Visual Exposition
Can BRHS legally agree to merge with UHS? Secretary of State suspended the corporate charter
Publisher's Note: We do very much appreciate this fine article on the BRHS debacle from our friends at the Beaufort Observer. It is the opinion of this publisher that their continued, complete reporting and analysis of this controversial issue is unparalleled in scope.
The Beaufort Regional Health System may have more problems on its hands than we have yet been told. The corporate entity that is negotiating with University Health System of Eastern Carolina (UHS) may not be legally capable of making any legal or binding decisions on the merger with UHS.
On October 11, 2010, the N. C. Secretary of State suspended the corporate charter of the "Beaufort Regional Health System" for failure to file required paperwork with the Department of Revenue.
In addition to problems with the Department of Revenue, it appears the hospital may have also failed to file required non-profit tax returns with the IRS (Form 990). There is some dispute about whether they were required to file 990s and we are attempting to gain access to sufficient information to allow that to be determined. As explained below in a letter in July 2009, the CEO of the BRHS, Bill Bedsole, wrote the IRS telling them the hospital was not filing a 990 because he had determined they did not have to do so.
While there is some question about whether the IRS should have accepted Bedsole's assertion that they did not have to file the 990 tax return, what we have found out is that the BRHS auditor advised them that they were indeed required to file the tax returns. Apparently BRHS ignored this direction from the audit firm of Dixon Hughes. What we do know is that we have not been able to find a 990 on file with the IRS since 2008.
Thus, not only is the corporate legal status and the tax situation with the IRS a problem, but it is our understanding that the recent revised "Letter of Intent" that UHS tendered specifically excluded UHS from being liable for a number of things that BRHS would bring to a merger with UHS. Whether UHS has discovered the problems mentioned above has not yet been determined, but we have requested that information from BRHS.
On Thursday (4-7-11), the Observer requested a comment and documents related to the corporate-charter suspension and more information on the tax-filing status but we were not able to determine from the information BRHS provided by the close of the business day whether either problem will have a detrimental impact of the merger negotiations. We were not furnished any documents, including board minutes or correspondence with the Department of Revenue or Secretary of State's Office, that indicated that BRHS was aware of the charter suspension. But Pam Shadle, the Public Information Officer, did indicate they were looking into it and additional information would follow.
The preceding is a gross oversimplification of a very complex situation. What follows is a more detailed rendition of the results of some of the research we have been doing on the hospital situation. There is more to come, but what follows is the result of what our chief researcher, Betty Murphy, has discovered.
The Beaufort County Hospital Association, Inc. was created in 1958. It was established as a private, non-governmental, "non-profit" hospital. As a non-profit it was required to annually file an IRS Form 990 to disclose its financial details.
In 2001, the Beaufort County Board of Commissioners adopted a resolution to create Beaufort Regional Medical Authority (BRMA) pursuant to provisions of the North Carolina Hospital Authorities Act. In accordance with the NC General Statutes, they appointed a nine-member board to serve as the initial commissioners of the newly created "Authority".
This was followed up by the BRMA Board filing an Application for Incorporation to the Secretary of State to be designated as a "public" and "body corporate and politic". By incorporating as a "Hospital Authority", BRMA was categorized as a "Municipal" entity (Sec. of State corporation Web site). This essentially created a two-tier organization consisting of BRMA as the governing body and the BC Hospital Association as its operating arm. It is important to note that each entity has the same Board of Commissioners overseeing its operation.
The significance of this is that by establishing itself as a governmental body, BRMA is exempt from Federal and State revenue-reporting regulations. According to the Secretary of State, the Association, however, continues to be classified as a non-governmental, non-profit entity and, therefore, is required to file IRS Form 990.
In June 2009, a Resolution to change the "Authority's" name was adopted by a vote of the BRMA Board. The new name, "Beaufort Regional Health System," was chosen to strengthen and clarify the purpose and mission of the hospital. It also reflected the evolution of the hospital into an integrated health system. The name change was purely cosmetic as it did not affect the relationship between the BRMA/BRHS and the BC Hospital Association.
On July 2009, Bill Bedsole, as President/CEO of the BRHS sent a letter to the IRS. "The purpose of this letter is to inform you that Beaufort County Hospital Association, Inc. is now exempt from the filing requirements for IRS form 990." The basis for this exemption Bedsole claims is that the Hospital Authority "is duly incorporated as a public body and a body corporate of the State of North Carolina."
The letter further states "According to the bylaws of the corporation, the Beaufort County Hospital Association, Inc, is the operating arm of the Authority." "...(B)y virtue of its subdivision status of a body corporate of the State of North Carolina, is exempt from and will not be filing IRS Form 990 in the future."
This appears to be an incorrect assumption as records show the "Association" is clearly not a governmental body and is not exempt from the IRS reporting requirements. There have been no recorded changes to the legal documents filed with the State Government governing the non-profit status of the BC Hospital Association, Inc.
Based on Mr. Bedsole's letter, the IRS approved this request on Sept. 24, 2009, and no further 990s have been filed. The last 990 filed covered the period 10/1/2006 - 09/30/2007.
After completing the 2009 audit, audit firm Dixon Hughes recommended that the System resume filing IRS Form 990s. Management Representation Letter (ref: BCH Audit for 2009) "The System is an exempt organization under Section 501(c)(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."
In the meantime, the Secretary of State's Web site shows a Revenue Suspension letter was issued Oct. 11, 2010, to the Beaufort Regional Health System, 628 East 12th St., Washington, North Carolina 27889. This situation is quite serious and can be extremely disruptive as the NCGS Section 105-230 states:
(a)"... powers, privileges, and franchises conferred upon the corporation or limited liability company by the articles of incorporation, the articles of organization, or the certificate of authority terminate upon suspension."
(b) "Any act performed or attempted to be performed during the period of suspension is invalid and of no effect, unless the Secretary of State reinstates the corporation or limited liability company pursuant to G.S. 105-232"
The Sec. of State Web site was accessed on April 6, 2011 to confirm the existence of the Suspension letter. Click here to go to the Secretary of State Web site for Corporate Filings for: Beaufort Regional Health System. Here's what you will find:
During the last few years the Federal government has held many hearings and investigations into the world of non-profits. Because of failure to follow regulations many non-compliant non-profits now find themselves facing severe penalties. In the past non-profits which were negligent in either meeting deadlines or failing to file at all faced a monetary fee. But this fee did not prove to be a deterrent. In order to drive home the seriousness of failure to file, these non-profits could possibly lose their exemption status. For example, the following was recently posted in the Charity Lawyer Blog
Automatic Revocation of Exemption Penalty.
Written on April 24, 2010 by Ellis Carter
As part of the Pension Protection Act passed in 1996, Congress added a new penalty for tax-exempt organizations that fail to file their annual return for three years in a row. Formerly, the only penalty was a monetary penalty. The new law has upped the ante to impose the ultimate penalty: loss of exemption. The penalty applies to organizations that fail to file Form 990, Form 990-EZ, as well as the Form 990-N. Form 990-N is a relatively new form that must be filed by tax-exempt organizations whose revenues normally fall below $25,000.
Organizations that have their status revoked may apply for reinstatement based on reasonable cause for the failure to file. The first three-year period is 2007 through 2009, which means that once the 2010 filing deadline passes for these forms (May 17, 2010 for tax-exempt organizations with calendar fiscal years), organizations that failed to file their Form 990s for those three years will automatically lose their tax-exempt status.
Click here to read more at the original source.
Is the Hospital now facing more problems at both the State and Federal Level? When will this nightmare be over?
Go Back
The Beaufort Regional Health System may have more problems on its hands than we have yet been told. The corporate entity that is negotiating with University Health System of Eastern Carolina (UHS) may not be legally capable of making any legal or binding decisions on the merger with UHS.
On October 11, 2010, the N. C. Secretary of State suspended the corporate charter of the "Beaufort Regional Health System" for failure to file required paperwork with the Department of Revenue.
In addition to problems with the Department of Revenue, it appears the hospital may have also failed to file required non-profit tax returns with the IRS (Form 990). There is some dispute about whether they were required to file 990s and we are attempting to gain access to sufficient information to allow that to be determined. As explained below in a letter in July 2009, the CEO of the BRHS, Bill Bedsole, wrote the IRS telling them the hospital was not filing a 990 because he had determined they did not have to do so.
While there is some question about whether the IRS should have accepted Bedsole's assertion that they did not have to file the 990 tax return, what we have found out is that the BRHS auditor advised them that they were indeed required to file the tax returns. Apparently BRHS ignored this direction from the audit firm of Dixon Hughes. What we do know is that we have not been able to find a 990 on file with the IRS since 2008.
Thus, not only is the corporate legal status and the tax situation with the IRS a problem, but it is our understanding that the recent revised "Letter of Intent" that UHS tendered specifically excluded UHS from being liable for a number of things that BRHS would bring to a merger with UHS. Whether UHS has discovered the problems mentioned above has not yet been determined, but we have requested that information from BRHS.
On Thursday (4-7-11), the Observer requested a comment and documents related to the corporate-charter suspension and more information on the tax-filing status but we were not able to determine from the information BRHS provided by the close of the business day whether either problem will have a detrimental impact of the merger negotiations. We were not furnished any documents, including board minutes or correspondence with the Department of Revenue or Secretary of State's Office, that indicated that BRHS was aware of the charter suspension. But Pam Shadle, the Public Information Officer, did indicate they were looking into it and additional information would follow.
The preceding is a gross oversimplification of a very complex situation. What follows is a more detailed rendition of the results of some of the research we have been doing on the hospital situation. There is more to come, but what follows is the result of what our chief researcher, Betty Murphy, has discovered.
The Beaufort County Hospital Association, Inc. was created in 1958. It was established as a private, non-governmental, "non-profit" hospital. As a non-profit it was required to annually file an IRS Form 990 to disclose its financial details.
In 2001, the Beaufort County Board of Commissioners adopted a resolution to create Beaufort Regional Medical Authority (BRMA) pursuant to provisions of the North Carolina Hospital Authorities Act. In accordance with the NC General Statutes, they appointed a nine-member board to serve as the initial commissioners of the newly created "Authority".
This was followed up by the BRMA Board filing an Application for Incorporation to the Secretary of State to be designated as a "public" and "body corporate and politic". By incorporating as a "Hospital Authority", BRMA was categorized as a "Municipal" entity (Sec. of State corporation Web site). This essentially created a two-tier organization consisting of BRMA as the governing body and the BC Hospital Association as its operating arm. It is important to note that each entity has the same Board of Commissioners overseeing its operation.
The significance of this is that by establishing itself as a governmental body, BRMA is exempt from Federal and State revenue-reporting regulations. According to the Secretary of State, the Association, however, continues to be classified as a non-governmental, non-profit entity and, therefore, is required to file IRS Form 990.
In June 2009, a Resolution to change the "Authority's" name was adopted by a vote of the BRMA Board. The new name, "Beaufort Regional Health System," was chosen to strengthen and clarify the purpose and mission of the hospital. It also reflected the evolution of the hospital into an integrated health system. The name change was purely cosmetic as it did not affect the relationship between the BRMA/BRHS and the BC Hospital Association.
On July 2009, Bill Bedsole, as President/CEO of the BRHS sent a letter to the IRS. "The purpose of this letter is to inform you that Beaufort County Hospital Association, Inc. is now exempt from the filing requirements for IRS form 990." The basis for this exemption Bedsole claims is that the Hospital Authority "is duly incorporated as a public body and a body corporate of the State of North Carolina."
The letter further states "According to the bylaws of the corporation, the Beaufort County Hospital Association, Inc, is the operating arm of the Authority." "...(B)y virtue of its subdivision status of a body corporate of the State of North Carolina, is exempt from and will not be filing IRS Form 990 in the future."
This appears to be an incorrect assumption as records show the "Association" is clearly not a governmental body and is not exempt from the IRS reporting requirements. There have been no recorded changes to the legal documents filed with the State Government governing the non-profit status of the BC Hospital Association, Inc.
Based on Mr. Bedsole's letter, the IRS approved this request on Sept. 24, 2009, and no further 990s have been filed. The last 990 filed covered the period 10/1/2006 - 09/30/2007.
After completing the 2009 audit, audit firm Dixon Hughes recommended that the System resume filing IRS Form 990s. Management Representation Letter (ref: BCH Audit for 2009) "The System is an exempt organization under Section 501(c)(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."
In the meantime, the Secretary of State's Web site shows a Revenue Suspension letter was issued Oct. 11, 2010, to the Beaufort Regional Health System, 628 East 12th St., Washington, North Carolina 27889. This situation is quite serious and can be extremely disruptive as the NCGS Section 105-230 states:
(a)"... powers, privileges, and franchises conferred upon the corporation or limited liability company by the articles of incorporation, the articles of organization, or the certificate of authority terminate upon suspension."
(b) "Any act performed or attempted to be performed during the period of suspension is invalid and of no effect, unless the Secretary of State reinstates the corporation or limited liability company pursuant to G.S. 105-232"
The Sec. of State Web site was accessed on April 6, 2011 to confirm the existence of the Suspension letter. Click here to go to the Secretary of State Web site for Corporate Filings for: Beaufort Regional Health System. Here's what you will find:
During the last few years the Federal government has held many hearings and investigations into the world of non-profits. Because of failure to follow regulations many non-compliant non-profits now find themselves facing severe penalties. In the past non-profits which were negligent in either meeting deadlines or failing to file at all faced a monetary fee. But this fee did not prove to be a deterrent. In order to drive home the seriousness of failure to file, these non-profits could possibly lose their exemption status. For example, the following was recently posted in the Charity Lawyer Blog
As part of the Pension Protection Act passed in 1996, Congress added a new penalty for tax-exempt organizations that fail to file their annual return for three years in a row. Formerly, the only penalty was a monetary penalty. The new law has upped the ante to impose the ultimate penalty: loss of exemption. The penalty applies to organizations that fail to file Form 990, Form 990-EZ, as well as the Form 990-N. Form 990-N is a relatively new form that must be filed by tax-exempt organizations whose revenues normally fall below $25,000.
Organizations that have their status revoked may apply for reinstatement based on reasonable cause for the failure to file. The first three-year period is 2007 through 2009, which means that once the 2010 filing deadline passes for these forms (May 17, 2010 for tax-exempt organizations with calendar fiscal years), organizations that failed to file their Form 990s for those three years will automatically lose their tax-exempt status.
Click here to read more at the original source.
Is the Hospital now facing more problems at both the State and Federal Level? When will this nightmare be over?
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