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The sunny shores of the Cayman Islands may be far away from Columbus (more than 1,400 miles to be exact), but billions of dollars are spent each year from Ohio nonprofits in the Caribbean and around the world. are flowing into tax havens.
Nonprofit universities and hospital systems are already largely exempt from paying taxes, but in the U.S. they must pay taxes on certain types of investment income. However, a review of tax documents by Dispatch shows that it is common for nonprofits to be exempt from paying taxes. This is because large corporations and the super wealthy avoid paying taxes.
Many universities and hospitals in Ohio have offshore investments, which allow them to pay from profitable dividends without paying the taxes they would have to pay on certain investment income within the United States. .
While this practice is perfectly legal, experts told the Dispatch that it undermines tax-funded programs that help those in need and pay for infrastructure that benefits both universities and hospitals. He said it merited further scrutiny. Offshore investments involve more risk as they depend on the politics and stability, or lack thereof, of other countries.
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Offshore investments by nonprofit universities and hospitals based or located in the Columbus area total more than $3.3 billion, a Dispatch investigation of Form 990s filed with the Internal Revenue Service found. Nonprofits or organizations that are exempt from federal income tax must file Form 990 if they have gross income of $200,000 or more or total assets of $500,000 or more.
Among Columbus-area hospitals, OhioHealth has invested more than $939 million in Central America, the Caribbean, Europe, Iceland, Greenland, Canada and Mexico, and Michigan-based Mount Carmel Health’s parent company, Trinity Health, had invested more than $2.3 billion overseas. By comparison, the foundation of the Cleveland Clinic, a large, nationally known health system, had $4.1 billion in offshore investments in 2021, the most recent year in which each entity has a profit.
The Ohio University Foundation has invested more than $44 million in offshore investments as of 2021, and the University of Miami Foundation has invested $21 million. As of 2021, small private universities such as Ohio Wesleyan University have invested $16.3 million overseas, Capital University has invested $6.4 million, and Otterbein University has invested $5.1 million overseas.
Neither Ohio State University nor its foundation filed a Form 990 Schedule F detailing its offshore investments in 2021. Asked if the university has any overseas investments, spokesperson Ben Johnson said the public university does not share details of its investment portfolio.
The billions of dollars are being invested even as students struggle under the weight of trillions in loan debt and as Americans’ medical debt skyrockets.
Local nonprofits told the Dispatch that investing overseas is strategically and financially prudent.
Maura Donahue, Ohio Wesleyan University’s vice president for finance and administration, told the Dispatch that foreign investments comply with the university’s “risk tolerance” and help it meet its financial goals.
Trinity Health, which owns Mount Carmel, diversifies its investment portfolio with offshore accounts “to balance all risk factors, including geography, company and sector,” a spokesperson said in an emailed statement. Ta.
Similarly, OhioHealth Chief Financial Officer Michael Browning told the Dispatch that the hospital system uses offshore investments not to avoid paying taxes, but to balance its financial holdings. he said. At any given time, one country’s stock prices may be doing better than another, so spreading it across different markets can increase the stability of the health system, he said.
“We don’t consider taxability in our decision-making. We look at how it balances the portfolio,” Browning said. “What we want to do is get the best return possible with the least amount of risk.”
ups and downs
Since 2016, offshore investing for local nonprofits using offshore investing has seen its ups and downs.
OhioHealth’s investments grew 173% from 2016 to 2021, and Mount Carmel’s parent company saw a 52% increase in foreign investments.
Offshore investments appear to be increasing in health care systems, while investments in regional universities and other universities in Ohio are primarily decreasing.
The University of Miami Foundation had the largest decline, with its offshore investments dropping by more than 87%. According to records, only Otterbein University had his 40% increase.
The cause of the difference is unclear, but Leah Hederman Jr., executive director of the Center for Economic Research at the Buckeye Institute, a conservative think tank, said the coronavirus pandemic could explain the rise and fall. Ta.
“The contents of the safe are a mess,” Hederman said. “The bottom line is that it made it difficult to see everything.”
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OhioHealth’s Browning said the hospital system was able to avoid having to dip into investments in the wake of an unprecedented global pandemic that has changed the way people live for more than a year. But Eaton said the university was unlikely to have been so lucky.
Eaton said many universities have switched to online learning, and some have had to lay off employees or were at risk of doing so. Eaton suggested that to stem losses, the university may have been forced to cancel some investments to pay for other necessities.
In addition to the pandemic, there has been another change in the U.S. in recent years that could mean fewer institutions investing in tax-exempt jurisdictions, Hederman said.
In 2017, the U.S. corporate tax rate was lowered from 35% to 21% to make it more competitive with other countries. Hederman hopes this has already prompted some universities and health systems to move investments domestically.
“I hope there will be less appetite for investment in tax shelters and other entities,” he said.
How tax-free status is part of a “social transaction”
Hederman says it’s perfectly fine for nonprofits to offshor even if they don’t bring their investments back to the U.S., as long as the tax code still allows it and they keep their commitment to doing something in the public interest. Stated.
Universities should provide opportunities for students and help them build their careers, he said, and hospitals should provide services to people in need with serious medical conditions. Hederman said if a nonprofit isn’t delivering on its promises, it begs the question of whether it should be a nonprofit at all.
“They’re getting these tax breaks because of their social transactions… but it’s important that we continue to monitor whether these institutions are creating that value,” Hederman said.
Browning told the Dispatch that OhioHealth does this through its charity care program, which spent $107.7 million on patients in fiscal year 2023. The health system also spent $254 million on the Medicaid program and millions more on research and community health programs, he said.
Zach Kester, chief executive officer of Charitable Allies, an Indianapolis-based law firm and nonprofit advocacy group, said nonprofits provide “social good” and therefore can’t be helped by economics. He said it was necessary to ensure that the system could be maintained.
“Ultimately, nonprofits have an obligation to be financially prudent, including to avoid taxes,” Kester said of organizations making offshore investments.
Mr. Eaton disagreed. He said it’s unclear whether universities and hospitals invest in tax shelters to balance their stock portfolios or to avoid paying taxes, but it must mean something.
But Eaton doesn’t condemn nonprofits for doing this, and he doesn’t expect institutions to stop investing overseas as long as it’s legal.
Instead, Eaton said federal lawmakers should overhaul the current law to prevent it from continuing.
“The solution here is not to ask universities and hospitals to stop doing that, but to update tax policy,” Eaton said. “Still, I don’t think you necessarily have a fiduciary responsibility for tax evasion.”
mfilby@dispatch.com
@MaxFilby
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