N.J. Admin. Code § 8:96-1.2

Current through Register Vol. 56, No. 12, June 17, 2024

Section 8:96-1.2 - Definitions

(a) The following words and terms, as used in this chapter, shall apply to both for-profit and nonprofit hospitals and have the following meanings unless the context clearly indicates otherwise. Financial terms should be interpreted consistently with Generally Accepted Accounting Principles (GAAP).

"35 percent controlled entity," means the same as that term is described in the instructions to IRS Form 990, Glossary, as it may be amended or superseded from time to time. Consistent with IRS Form 990, the term means an entity that is owned, directly or indirectly (for example, pursuant to constructive ownership rules of Internal Revenue Code Section 267(c)), by a given person, such as the organization's current or former owners, officers, directors, trustees, or key employees listed on IRS Form 990, Part VII, Section 1 regarding nonprofit hospitals and for-profit hospitals, or the family members thereof (listed persons) as follows:

1. A corporation in which listed persons own more than 35 percent of the total combined voting power;

2. A partnership in which listed persons own more than 35 percent of the profits interest; or

3. A trust or estate in which listed persons own more than 35 percent of the beneficial interest.

"American Institute of Certified Public Accountants" or "AICPA" means the entity by that name for which the contact information is AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110, telephone (888) 777-7077, telefacsimile (800) 362-5066, website: http://www.aicpa.org.

"Asset" means the same as that term is defined in the Financial Accounting Standards Board Statement of Financial Accounting Concepts Statement No. 8, incorporated herein by reference, as amended or superseded.

"Audited" means the same as described in the instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the instructions to IRS Form 990, the term means a formal examination of an organization's financial records and practices by an independent, certified public accountant with the objective of issuing a report on the organization's financial statements as to whether those statements are fairly stated according to generally accepted accounting principles (or other recognized comprehensive basis of accounting).

"Audited financial statement" means the same as described in the instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the instructions to IRS Form 990, the term means financial statements accompanied by a formal opinion or report prepared by an independent, certified public accountant with the objective of assessing the accuracy and reliability of the organization's financial statements.

"Business transactions" means the same as that term is described in the instructions to Schedule L of IRS Form 990, as it may be amended or superseded from time to time. Consistent with Schedule L of IRS Form 990, the term means transactions for which payments are made during the hospital's tax year between the hospital and an interested person. Business transactions include, but are not limited to, joint ventures and contracts of sale, lease, license, insurance, and performance of services, whether initiated during the organization's tax year or ongoing from a prior year.

"Control" means, for the purposes of determining related organizations, the same as that term is described in the instructions to IRS Form 990, Glossary, as it may be amended or superseded from time to time. Consistent with the instructions to IRS Form 990, control means:

1. Control of a nonprofit organization (or other organization without owners or persons having beneficial interests, whether the organization is taxable or tax-exempt): One or more persons (whether individuals or organizations) control a nonprofit organization if they have the power to remove and replace (or to appoint, elect, or approve or veto the appointment or election of, if such power includes a continuing power to appoint, elect, or approve or veto the appointment or election periodically, of or in the event of vacancies) a majority of the nonprofit organization's directors or trustees, or a majority of members who elect a majority of the nonprofit organization's directors or trustees. Such power can be exercised directly by a (parent) organization through one or more of the (parent) organization's officers, directors, trustees, or agents, acting in their capacity as officers, directors, trustees, or agents of the (parent) organization. Also, a (parent) organization controls a (subsidiary) nonprofit organization if a majority of the subsidiary's directors or trustees are trustees, directors, officers, employees, or agents of the parent.

2. Control of a stock corporation: One or more persons (whether individuals or organizations) control a stock corporation if they own more than 50 percent of the stock (by voting power or value) of the corporation.

3. Control of a partnership or limited liability company: One or more persons control a partnership if they own more than 50 percent of the profits or capital interests in the partnership (including a limited liability company treated as a partnership or disregarded entity for Federal tax purposes, regardless of the designation pursuant to State law of the ownership interests as stock, membership interests, or otherwise). A person also controls a partnership if the person is a managing partner or managing member of a partnership or limited liability company which has three or fewer managing partners or managing members (regardless of which partner or member has the most actual control), or if the person is a general partner in a limited partnership which has three or fewer general partners (regardless of which partner has the most actual control). For this purpose, a "managing partner" is a partner designated as such pursuant to the partnership agreement, or regularly engaged in the management of the partnership even though not so designated.

4. Control of a trust with beneficial interests: One or more persons control a trust if they own more than 50 percent of the beneficial interests in the trust. A person's beneficial interest in a trust shall be determined in proportion to that person's actuarial interest in the trust as of the end of the tax year. See 26 CFR 301.7701-2, 3, and 4 for more information on classification of corporations, partnerships, disregarded entities, and trusts. Control can be indirect. See the Schedule R (IRS Form 990) instructions for a description of indirect control.

"Controlled entity" means the same as that term is described in the instructions to IRS Form 990, Glossary, as it may be amended or superseded from time to time. Consistent with the instructions to IRS Form 990, the term means an organization controlled by a controlling organization pursuant to I.R.C. § 512(b)(13). A controlled entity may be a nonprofit organization. For the definition of control in this context, see I.R.C. § 512(b)(13)(D) and 26 CFR 1.512(b)-1(l)(4) (substituting "more than 50%" for "at least 80%" in the regulation, for purposes of this definition). Controlled entities are a subset of related organizations. For purposes of this definition, controlled entities do not include disregarded entities of the filing organization.

"Controlling organization" means the same as that term is defined in I.R.C. § 512(b)(13) and the instructions to IRS Form 990, Glossary, as it may be amended or superseded from time to time. Consistent with I.R.C. § 512(b)(13) and the instructions to IRS Form 990, the term means an exempt organization that controls a controlled entity. The Internal Revenue Code Section 512(b)(13) treats payments of interest, annuity, royalties, and rent from a controlled entity to a controlling organization as unrelated business taxable income under certain circumstances. Control in this context means:

(i) in the case of a corporation, ownership (by vote or value) of more than 50 percent of the stock in such corporation;

(ii) in the case of a partnership, ownership of more than 50 percent of the profits interests, or capital interests in such partnership; or

(iii) in any other case, ownership of more than 50 percent of the beneficial interests in the entity. Section 318 (relating to constructive ownership of stock) shall apply for purposes of determining ownership of stock in a corporation. Similar principles shall apply for purposes of determining ownership of interests in any other entity.

"Department" means the New Jersey Department of Health, for which the contact information for submissions that this chapter requires is:

1. By regular mail:

Office of Health Care Financing

New Jersey Department of Health

PO Box 360

Trenton, NJ 08625-0360

2. By overnight delivery service or hand delivery:

Office of Health Care Financing

New Jersey Department of Health

55 N. Willow Street, 5th Floor

Trenton, NJ 08608

3. By electronic mail: financial.reports@doh.nj.gov

"Director" or "trustee" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990, the term means, unless otherwise provided, a member of the organization's governing body at any time during the tax year, but only if the member has any voting rights. A member of an advisory board that does not exercise any governance authority over the organization is not considered a director or trustee.

"Disregarded entity" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990, the term means an entity wholly owned by the organization that is generally not treated as a separate entity for Federal tax purposes (for example, single-member limited liability company of which the organization is the sole member). See 26 CFR 301.7701-2 and 3. A disregarded entity generally must use the EIN of its sole member. An exception applies to employment taxes: for wages paid to employees of a disregarded entity, the disregarded entity must file separate employment tax returns and use its own EIN on such returns. See 26 CFR 301.6109-1(h) and 301.7701-2(c)(2)(iv).

"Electronic Data Gathering Analysis and Retrieval system" or "EDGAR system" means an online web-based platform that the United States Securities and Exchange Commission operates at https://www.sec.gov/edgar.shtml.

"Electronic Municipal Market Access system" or "EMMA(R) system" means an online web-based platform that the Municipal Securities Rulemaking Board operates at http://emma.msrb.org.

"Family member" or "family relationship" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990, the term means, unless specified otherwise, the family of an individual includes only his or her spouse (see IRS Revenue Ruling 2013-17 regarding same-sex marriage), ancestors, brothers and sisters (whether whole or half-blood), children (whether natural or adopted), grandchildren, great-grandchildren, and spouses of brothers, sisters, children, grandchildren, and great-grandchildren.

"Financial statements" means, collectively, the statements, schedules, and notes that GAAP requires for presentation of financial statements.

"Generally accepted accounting principles" or "GAAP" means the accounting principles that a reporting entity determines to be applicable, and that are generally accepted in the United States as authoritative by:

1. The Financial Accounting Standards Board (FASB) with respect to nongovernmental entities, as articulated in the Financial Accounting Standards Board Accounting Standards Codification (R) (2009), as amended and supplemented, available at www.fasb.org, and from the FASB at 401 Merritt 7, PO Box 5116, Norwalk, CT 06856; or

2. The Governmental Accounting Standards Board (GASB) with respect to State and local governmental entities, as articulated in the GASB Codification of Governmental Accounting and Financial Reporting Standards (2021), as amended and supplemented, available at www.gasb.org, and from the GASB at 401 Merritt 7, PO Box 5116, Norwalk, CT 06856.

"Generally accepted auditing standards" or "GAAS" means the auditing standards that are generally accepted in the United States as authoritative, as specified in the AICPA Professional Standards (2021), as amended or superseded from time to time.

"Good and marketable" means a title that is free from all liens, mortgages, security interests, encumbrances, and adverse claims or other charges.

"Governing body" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990, the term means the group of one or more persons authorized pursuant to state law to make governance decisions on behalf of the organization and its shareholders or members, if applicable. The governing body is, generally speaking, the board of directors (sometimes referred to as board of trustees) of a corporation or association, or the trustee or trustees of a trust (sometimes referred to as the board of trustees).

"Highest-compensated employee" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990, the term means one of the five highest compensated employees of the organization (including employees of a disregarded entity of the organization), other than current officers, directors, trustees, or key employees, whose aggregate reportable compensation from the organization and related organizations is greater than $ 100,000 for the calendar year ending with or within the organization's tax year.

"Hospital" means a general hospital and specialty heart hospital that the Department licenses pursuant to N.J.A.C. 8:43G.

"Interested person" means the same as that term is defined in the instructions to Schedule L of IRS Form 990, as it may be amended or superseded from time to time. Consistent with Schedule L of IRS Form 990, the term includes:

1. A current or former officer, director, trustee, or key employee of the hospital;

2. The creator or founder of the organization;

3. Any individual or organization that made contributions during the tax year in the aggregate of at least $ 5,000 and whose contributions are required to be reported on Schedule B of IRS Form 990, Schedule of Contributions, for the organization's tax year;

4. A member of a grant selection committee;

5. A family member of an entity or individual described above;

6. A 35 percent controlled entity; or

7. An employee of a substantial contributor or of a 35 percent controlled entity.

Additionally, regarding for-profit entities, an interested person shall include an owner of the hospital or related organization or any family member of an owner of the hospital or related organization.

"IRS Form 990" means Internal Revenue Service Form 990 and all related schedules, instructions, and glossaries thereto, incorporated herein by reference, as amended and supplemented.

"Joint venture" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990, that term means, unless otherwise provided, a partnership, limited liability company, or other entity treated as a partnership for Federal tax purposes, as described at 26 CFR 301.7701-1 through 301.7701-3.

"Key employee" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990, that term means:

1. An employee of an organization (other than an officer, director, or trustee) who meets all three of the following tests applied in the following order:

i. $ 150,000 Test. Receives reportable compensation from the organization and all related organizations in excess of $ 150,000 for the calendar year ending with or within the organization's tax year.

ii. Responsibility Test. The employee:

(1) Has responsibilities, powers, or influence over the organization as a whole similar to those of officers, directors, or trustees;

(2) Manages a discrete segment or activity of the organization that represents 10 percent or more of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole; or

(3) Has or shares authority to control or determine 10 percent or more of the organization's capital expenditures, operating budget, or compensation for employees; and

iii. Top 20 Test. Is one of the 20 employees (that satisfy the $ 150,000 Test and Responsibility Test) with the highest reportable compensation from the organization and related organizations for the calendar year ending with or within the organization's tax year.

"Management company" means any company, organization, or person engaged by the hospital to manage any portion of the hospital's operations or provide consulting or supervisory services to the hospital regarding its operations, property management, strategic planning, revenue cycle, or purchasing.

"Net patient service revenue" means the amount expected to be realized in cash, that is, gross revenue at established rates less contractual adjustments, discounts, and any other price concessions.

"Officer" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990 that term means, unless otherwise provided (for example, signature block, principal officer in heading), a person elected or appointed to manage the organization's daily operations at any time during the tax year, such as a president, vice-president, secretary, treasurer, and, in some cases, board chair. The officers of an organization are determined by reference to its organizing document, bylaws, or resolutions of its governing body, or as otherwise designated consistent with state law, but at a minimum, include those officers required by applicable state law. For purposes of these rules, treat the organization's top management official and top financial official as officers.

"Owner" means any person, partnership, corporation, company, trust, or any other organization that owns, directly or indirectly (including ownership by any family members), more than five percent of the voting rights, profit or beneficial interest in an organization, regardless of whether that interest is evidenced by shares, certificates, stocks, contract, agreement, or any other form used to represent a voting, profit, or beneficial interest, including any person whose combined ownership, individually or through a controlling interest in any other organizations, owns more than five percent voting, profit, or beneficial interest in the organization.

"Related organization" means the same as that term is described in the Glossary of the Instructions to IRS Form 990, as it may be amended or superseded from time to time. Consistent with the Instructions to IRS Form 990, that term means an organization, including a nonprofit organization, a stock corporation, a partnership or limited liability company, a trust, and a governmental unit or other government entity, that stands in one or more of the following relationships to the filing organization at any time during the tax year:

1. Parent: an organization that controls the filing organization.

2. Subsidiary: an organization controlled by the filing organization.

3. Brother/sister: an organization controlled by the same person or persons that control the filing organization. However, if the filing organization is a trust that has a bank or financial institution trustee that is also the trustee of another trust, the other trust is not a brother/sister related organization of the filing organization on the ground of common control by the bank or financial institution trustee.

4. Supporting/supported: an organization that claims to be at any time during the tax year, or that is classified by the IRS at any time during the tax year as:

(i) a supporting organization of the filing organization within the meaning of I.R.C. § 509(a)(3), if the filing organization is a supported organization within the meaning of I.R.C. § 509(f)(3); or

(ii) a supported organization, if the filing organization is a supporting organization.

5. Sponsoring organization of a voluntary employees' beneficiary association (VEBA): an organization that establishes or maintains a VEBA within the meaning of I.R.C. § 501(c)(9) during the tax year. A sponsoring organization of a VEBA also includes an employee organization, association, committee, joint board of trustees, or other similar group of representatives of the parties that establish or maintain a VEBA. Although a VEBA must report a sponsoring organization as a related organization, a sponsoring organization should not report a VEBA as a related organization, unless the VEBA is related to the sponsoring organization in some other capacity described in this definition.

6. Contributing employer of a VEBA: an employer that makes a contribution or contributions to the VEBA during the tax year. Although a VEBA must report a contributing employer as a related organization, a contributing employer should not report a VEBA as a related organization, unless the VEBA is related to the contributing employer in some other capacity described in this definition.

"Reporting period" means the reporting period a hospital specifies pursuant to N.J.A.C. 8:31B-4.6.

"Reporting threshold" for nonprofit hospitals means the minimum amount of business transactions with interested persons that must be reported pursuant to the instructions to Part IV of Schedule L of IRS Form 990, as it may be amended or superseded from time to time. Consistent with Schedule L, an organization must report business transactions with an interested person, if:

1. All payments during the tax year between the organization and the interested person exceeded $ 100,000;

2. All payments during the tax year from a single transaction between such parties exceeded the greater of $ 10,000 or one percent of the filing organization's total revenue for the tax year;

3. Compensation payments during the tax year by the organization to a family member of a current or former officer, director, trustee, or key employee of the organization listed in IRS Form 990, Part VII, Section A, exceeded $ 10,000;

4. In the case of a joint venture with an interested person, the organization has invested $ 10,000 or more in the joint venture, whether or not during the tax year, and the profits or capital interest of the organization and of the interested person each exceeds 10 percent at some time during the tax year; or

5. For for-profit hospitals, the reporting threshold shall be $ 10,000 or any excess thereof.

"Sale-leaseback agreement" means an agreement, affecting property on which a hospital stands and/or a building in which a hospital operates, wherein, the hospital or a director, officer, key employee, or highly compensated individual, as well as any owner(s) of the hospital:

1. Agrees to sell the property and/or building to a purchaser; and

2. Agrees, or expresses an intention, to lease the transferred property from the purchaser upon completion of the sale.

"Statement of operations or income" means statement of operations or income, as GAAP defines and/or describes that term, also commonly referred to as statement of operations, income statement, statement of revenues and expenses, earnings statement, or profit and loss statement.

"System hospital" means a hospital that is part of a network or system of hospitals and/or other health care facilities that commonly is referred to as a health care system.

"Unaudited," as used to describe financial statements, or a statement of operations or income, means that an ICPA neither audited the subject document(s) using GAAS, nor attested thereto as presented in accordance with GAAP.

N.J. Admin. Code § 8:96-1.2

Administrative correction.
See: 51 N.J.R. 617(a).

Amended by 55 N.J.R. 2335(b), effective 11/20/2023