What does Illinois General Information Letter IT 19-0001-GIL conclude about Credit — Hospital Credit?

Plain-English summary

This General Information Letter answers a hospital's question about how to compute the Illinois Hospital Credit under 35 ILCS 5/223, an income tax credit available to for-profit hospitals equal to the lesser of (1) real property taxes paid during the tax year on property used for hospital purposes in the prior tax year, or (2) the cost, measured at cost, of free or discounted services the hospital provided during the tax year under its charitable financial assistance policy.

The hospital had paid a lump sum of Cook County real estate taxes on September 28, 2018, covering three tax years at once — the regular 2017 assessment plus two "omitted assessment" bills that had only just been issued for 2015 and 2016. Because its charity-care costs for 2015, 2016, and 2017 combined were far larger than the total taxes paid, the hospital's counsel asked the Department to confirm that the credit could be measured by comparing the entire three-year lump-sum tax payment against the aggregate three years of charity-care costs, rather than year-by-year, since the 2017 charity-care cost alone was smaller than the full lump-sum payment.

The Department restated the statutory test as written: for the taxable year that includes September 28, 2018, the taxpayer compares (i) the real property taxes paid during that taxable year on hospital property used in the prior taxable year against (ii) the cost of free or discounted services provided during that same taxable year (the year including September 28, 2018) — and the credit is the lesser of the two. The Department did not adopt or endorse the hospital's proposed multi-year aggregation approach; it simply directed the taxpayer back to the single-year comparison built into the statute, and also flagged the one-year deadline (measured from the return due date, including extensions) for transferring or selling the credit, per Department Form 1299-D instructions.

As a GIL, this letter is general guidance only — it is not a statement of Department policy, is not binding on the Department, and does not resolve the taxpayer's specific question about how to treat multiple years' worth of omitted-assessment property taxes paid in a single lump sum.

What this means for you

Hospital administrators and finance officers

If your hospital pays property taxes in one lump sum that actually covers multiple assessment years (for example, due to "omitted assessment" catch-up bills), do not assume you can net that whole payment against several years of charity-care costs combined. The Department's letter points to a single-taxable-year comparison: property taxes paid in the year, on property used for hospital purposes in the prior year, versus free/discounted-care costs incurred in that same year. If your charity-care cost for the specific credit year alone is lower than the lump-sum tax payment, that mismatch is a real risk the Department did not resolve here.

Accountants and tax professionals

Track the one-year window for transferring or selling an earned Hospital Credit — it runs from the due date of the return for the year the credit was earned (including extensions), per Department Form 1299-D, not simply "one year from the date the taxes were paid." Watch for situations involving omitted-assessment bills spanning multiple tax years paid in a single remittance; this GIL shows the Department declining to bless an aggregated multi-year computation, so a conservative year-by-year approach is safer absent further guidance or a private letter ruling request.

Taxpayers considering a ruling request

This letter also illustrates when the Department treats a request as a GIL rather than a private letter ruling: because the facts or nature of the question did not fit the private-ruling process, the Department responded with general, non-binding guidance instead of a binding determination. If you need a binding answer on a specific fact pattern, you may need to pursue a private letter ruling request that meets the Department's requirements for that process.

Common questions

Q: Did the Department agree that the hospital's proposed multi-year aggregation method was correct?
A: No. The taxpayer asked the Department to confirm that credit-year charity care could be measured by combining 2015-2017 costs against the lump-sum property tax payment covering all three years. The Department's ruling instead restated the statutory test as a single-taxable-year comparison and did not adopt the taxpayer's aggregation theory.

Q: How is the Hospital Credit actually calculated under Section 223?
A: It equals the lesser of (i) real property taxes paid during the taxable year on hospital-use property from the prior taxable year, or (ii) the cost (at cost) of free or discounted services provided under the hospital's charitable financial assistance policy during that taxable year, per 35 ILCS 5/223(a).

Q: Can the credit be sold or transferred, and how long does the hospital have to do that?
A: Yes, per Section 223(b) the credit may be transferred by the taxpayer that earned it. The Department noted that Form 1299-D instructions specify the transfer must occur within one year after the due date of that taxpayer's return (including extensions) for the year the credit was earned — not simply one year from the tax payment date.

Q: Is this letter binding on the Department or on other hospitals?
A: No. It is a General Information Letter under 2 Ill. Adm. Code 1200.120(b) and (c) — general guidance only, not a statement of Department policy, and not binding on the Department for this taxpayer or any other.

Citations and references

• 35 ILCS 5/223 (Illinois Hospital Credit — income tax credit equal to the lesser of hospital real property taxes paid or cost of charitable free/discounted services)
• 35 ILCS 5/201(a), (b) (the income tax liability against which the Section 223 credit is applied)
• 2 Ill. Adm. Code 1200.120(b), (c) (defining and limiting the effect of General Information Letters)
• 210 ILCS 85/1 et seq., Illinois Hospital Licensing Act (referenced as the licensing basis for the taxpayer's hospital)
• Illinois Department of Revenue Form 1299-D Instructions (one-year window, from the return due date including extensions, to transfer or sell an earned Hospital Credit)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2019/it19-0001-gil.pdf

Original ruling text

IT 19-0001-GIL 01/14/2019 CREDIT — HOSPITAL CREDIT

Credit Equals Lesser of Real Property Taxes Paid or Cost of Free or Discounted Services

January 14, 2019

Re: Illinois income tax

Dear XXXXxX:

This is in response to your letter dated December 7, 2018 in which you requested a letter ruling. The
nature of your request and the information provided requires that we respond with a General
Information Letter (GIL). A GIL is designed to provide general information, is not a statement of
Department policy and is not binding on the Department. See 2 III. Adm. Code § 1200.120(b) and (c),
which may be accessed from the Department's web site at www.|Ltax.com.

Your letter states as follows:

We are counsel to COMPANY, d/b/a COMPANY 1. COMPANY 1, an Illinois corporation,
owns and operates COMPANY 1, a ## bed general acute care hospital licensed by the Illinois
Department of Public Health pursuant to the Illinois Hospital Licensing Act, 210 ILCS 85/1, et
seq. COMPANY 1 is not exempt from federal income taxes under the Internal Revenue Code.

On September 28, 2018, COMPANY 1 remitted $$$ to the Cook County Treasurer’s Office for
the payment of real estate property taxes (the “Property Taxes”). The Property Taxes covered
assessment years 2017, 2016 (which was an omitted assessment year) and 2015 (which was
an omitted assessment year). All of these taxes for all three years were due and payable in
2018. More specifically, the 2015 property tax bills/assessments were issued in the Spring of
2018 and stated as follows in the middle of the bill: “This is an Omitted Tax Bill for 2015
entered as a warrant in Tax Year 2017 (payable in 2018).” At the top of each bill the following
was Stated “2017 Omitted Assessment Property Tax Bill” for “Tax Year 2015” and “Payable in
2018.” The same is true for the 2016 assessments. More specifically, the 2016 property tax
bills‘assessments were issued in the Spring of 2018 and stated as follows in the middle of the
bill: “This is an Omitted Tax Bill for 2016 entered as a warrant in Tax Year 2017 (payable in
2018).” At the top of each bill the following was stated “2017 Omitted Assessment Property
Tax Bill” for “Tax Year 2016” and “Payable in 2018.”

The real property associated with the Property Taxes was used for hospital purposes during
2015, 2016, 2017, and continues to be used for hospital purposes in 2018.

Pursuant to Section (a) of the Illinois Hospital Credit Act, 35 ILCS 5/223 (“the “Illinois Hospital
Tax Credit Act”), a hospital such as COMPANY 1 is entitled to an Illinois income tax credit
equal to the lesser of: (i) the amount of real property taxes paid during the tax year on real
property used for hospital purposes during the prior tax year; or (ii) the cost of free or
discounted services provided during the tax year pursuant to the hospital’s charitable financial
assistance policy in the form of tax credits against the tax imposed under subsections (a) and
(b) of Section 201 of the Illinois Income Tax Act, 35 ILCS 5/101, et seq (the “Act”).

Pursuant to Section (b) of the Illinois Hospital Tax Credit Act, a hospital such as COMPANY 1
can sell/transfer any accrued Illinois income tax credits under the Illinois Hospital Tax Credit
Act to a qualified purchaser within one year of the payment of the Property Taxes (i.e. on or
before September 29, 2019 in this case).

IT 19-0001-GIL
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COMPANY 1's direct cost of free or discounted services during 2015, 2016, and 2017
exceeded (by a very large sum) the amount of the Property Taxes paid on September 28,
2018. However, COMPANY 1's direct cost of free or discounted services provided solely in
2017 did not exceed the amount of the Property Taxes paid on September 28, 2018 (because
the Property Taxes paid on September 28, 2018 included the 2015 omitted assessment and
the 2016 omitted assessment, as well as the 2017 assessment).

Based on our reading of the Illinois Hospital Tax Credit Act, we believe that COMPANY 1 is
entitled to an Illinois income tax credit in the amount of $$$ (i.e. the entire amount of the
Property Taxes paid on September 28, 2018) for use against 2018 income tax liabilities
because the direct cost of free or discounted services provided by COMPANY 1 during 2015,
2016 and 2017 exceeded $$$ (i.e. the entire amount of Property Taxes paid on September 28,
2018). Thus, the amount of the paid Property Taxes becomes the amount of the Illinois income
tax credit. We further believe that COMPANY 1 can transfer/sell that 2018 Illinois income tax
credit in the amount of $$$ to a qualified purchaser (so long as that Illinois income tax credit is
transferred or sold prior to September 27, 2019.)

Based on the foregoing, we are hereby seeking a determination pursuant to Section 1200.120
of the Act from the Department that supports COMPANY 1’s position that a hospital eligible for
an income tax credit pursuant to the Illinois Hospital Tax Credit Act should look to the
aggregate amount of the eligible hospital’s direct costs of free or discounted services during
2015, 2016 and 2017 because the Property Taxes paid by COMPANY 1 on September 28,
2018 included the 2015 omitted tax year assessment, the 2016 omitted tax year assessment,
and the 2017 tax year assessment.

Please call or write with any additional questions. We would appreciate receiving your
response as soon as possible (preferably on or before December 24, 2018, so we can close
the tax credit sale with the qualified purchaser on or before December 31, 2018).

RULING

Section 223 of the Illinois Income Tax Act ("IITA" ; 35 ILCS 5/223) provides for the following credit
against the regular income tax:

(a) For tax years ending on or after December 31, 2012 and ending on or before December 31,
2022, a taxpayer that is the owner of a hospital licensed under the Hospital Licensing Act, but
not including an organization that is exempt from federal income taxes under the Internal
Revenue Code, is entitled to a credit against the taxes imposed under subsections (a) and (b)
of Section 201 of this Act in an amount equal to the lesser of the amount of real property taxes
paid during the tax year on real property used for hospital purposes during the prior tax year or
the cost of free or discounted services provided during the tax year pursuant to the hospital's
charitable financial assistance policy, measured at cost.

(b) If the taxpayer is a partnership or Subchapter S corporation, the credit is allowed to the
partners or shareholders in accordance with the determination of income and distributive share
of income under Sections 702 and 704 and Subchapter S of the Internal Revenue Code. A
transfer of this credit may be made by the taxpayer earning the credit within one year after the

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IT 19-0001-GIL
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credit is earned in accordance with rules adopted by the Department. The Department shall
prescribe rules to enforce and administer provisions of this Section. If the amount of the credit
exceeds the tax liability for the year, then the excess credit may be carried forward and applied
to the tax liability of the 5 taxable years following the excess credit year. The credit shall be
applied to the earliest year for which there is a tax liability. If there are credits from more than
one tax year that are available to offset a liability, the earlier credit shall be applied first. In no
event shall a credit under this Section reduce the taxpayer's liability to less than zero.

As provided in subsection (a) of this Section, an eligible licensed hospital is allowed a credit against
the regular income tax imposed under IITA Section 201(a) and (b) in an amount equal to the /esser of
: (i) the amount real property taxes paid during the taxable year on real property used for hospital
purposes during the prior taxable year, or (ii) the cost of free or discounted services provided during
the taxable year at Illinois locations pursuant to the hospital's charitable financial assistance policy. In
this case, to compute the COMPANY 1’s credit under Section 223 for its taxable year that includes
September 28, 2018, the taxpayer must compare the amount of real property taxes paid during such
taxable year on real property used for hospital purposes during its prior taxable year with the cost of
free or discounted services provided during the taxpayer’s taxable year that includes September 28,
2018.

In the present case, you have stated that COMPANY 1 properly paid on September 28, 2018 an
amount of $## in real property taxes on property used for hospital purposes during 2017. To
determine whether the amount of the credit for your taxable year that includes September 28, 2018 is
$##, you must compare this amount with the cost of free or discounted services provided during your
taxable year that includes September 28, 2018. The credit under IITA Section 223 is the lesser
amount.

In your letter you state that COMPANY 1 has until September 27, 2019 to transfer the credit. You
should note that Department Form 1299-D Instructions provides, regarding transfer of the credit
under IITA Section 223, as follows:

The Hospital Credit may be transferred, either by selling or donating the credit,
¢ by the taxpayer who originally earned the credit, and
¢ only if the transfer occurs within one year after the due date of that taxpayer’s return,
including extensions. (Emphasis added)

As stated above, this is a GIL. A GIL does not constitute a statement of policy that applies, interprets
or prescribes the tax laws, and it is not binding on the Department. If you have questions regarding
this GIL you may contact Legal Services at (217) 782-7055. If you have further questions related to
Illinois income tax laws, visit our website at www.revenue.state.il.us or contact the Department’s
Taxpayer Information Division at (217) 782-3336.

Sincerely,

Brian L. Stocker
Associate Counsel (Income Tax)

IT 19-0001-GIL
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