Wednesday, June 30, 2010

IRS Changes Rules for CCRC's Refundable Entrance Fees?

From a recent article:
The Internal Revenue Service surprised and alarmed retirement community operators recently when it challenged an operator of luxury continuing care retirement community’s tax treatment of refundable entrance fees.

Classic Residence by Hyatt...followed industry practice by treating the refundable portions of residents’ entrance fees as loans with obligations to repay. In December 2009, the IRS sent a notice of deficiency for almost $129 million for the 2005 tax year to Classic insisting that the company should have treated the more than $318 million it received in mostly refundable entrance fees that year as taxable income “from rental/occupancy of the living units.”
Will this ruling stick and how might it change CCRC financial management?  Are operators actually alarmed?  Erikson, for example, which operates many communities (including Ann's Choice near me in Warminster, PA) still highlights its "Refundable Entrance Deposit" as a key selling point.

1 comment:

  1. There has been no change in the IRS rules for the tax treatment of entrance fees at Continuing Care Retirement communities.In the instance of Hyatt, a field agent of the IRS made a determination in error. This error has now been corrected and the tax levy removed.There have been several IRS ruling and administrative rulings that support the tax treatment of refundable entrance fees.