[Congressional Record Volume 147, Number 54 (Thursday, April 26, 2001)]
[Senate]
[Page S3996]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. INOUYE:
  S. 779. A bill to amend the Internal Revenue Code of 1986 to treat 
certain hospital support organizations as qualified organizations for 
purposes of section 514(c)(9); to the Committee on Finance.
  Mr. INOUYE. Mr. President, I rise to introduce legislation that would 
extend to qualified hospital support organizations the debt-financed 
property rules that currently apply to tax-exempt education 
institutions and pension funds. This measure is of great importance to 
the 18,000 inpatients and the more then 200,000 outpatients who receive 
health care services from the Queen's Health System of Hawaii. 
Currently, Federal tax laws that were enacted in 1969 stand between the 
wishes of Queen Emma Kaleleonalani who, in 1885, bequeathed land to the 
Queen Emma Foundation to support the Queen's Health System, and the 
citizens of Hawaii who depend on the Queen's Health System for health 
care services.
  The foundation is a nonprofit, tax-exempt, public charity. Its 
purpose is to support and improve health care services in Hawaii by 
committing funds generated by foundation-owned properties to the 
Queen's Medical Center, an accredited teaching hospital in Honolulu 
that maintains an emergency room open to all, regardless of ability to 
pay, and that admits Medicare and Medicaid patients. The foundation and 
the medical center are members of the Queen's Health Systems, which 
also operates Molokai General Hospital, a small community hospital on 
the island of Molokai. Additionally, Queen's operates clinics on 
various islands, provides home health care services, supports nursing 
programs at Hawaiian colleges and universities, operates a medical 
library, holds health fairs, and provides other educational services 
for the benefit of the Hawaiian community.
  Presently, the funds that enable the foundation to support these 
services are generated by Foundation-owned properties that were 
bequeathed more than 100 years ago by Queen Emma. Most of the 
foundation's land is now encumbered by long-term, fixed-rent commercial 
and industrial ground leases. The returns from these ground leases are 
extremely low, and under their terms, the foundation is unable to 
increase rents to keep pace with the appreciation of land values in 
Hawaii. The foundation would like to increase its cash flow by buying 
out the current leases and re-leasing the land at existing market 
rates. The foundation would also like to upgrade the improvements on 
its lands to further enhance their revenue-generating potential. 
However, current debt-financed property rules under the unrelated 
business income tax would subject the revenues earned by the foundation 
from its improved properties to income tax, significantly reducing the 
funds available to the foundation to meet its obligation to provide 
quality health care services to the citizens of Hawaii.
  Colleges, universities, and pension funds are currently exempt from 
the debt-financed property rules. The foundation seeks the same 
treatment that presently applies to educational institutions and 
pension funds. I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 779

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. TREATMENT OF CERTAIN HOSPITAL SUPPORT 
                   ORGANIZATIONS AS QUALIFIED ORGANIZATIONS FOR 
                   PURPOSES OF DETERMINING ACQUISITION 
                   INDEBTEDNESS.

       (a) In General.--Subparagraph (C) of section 514(c)(9) of 
     the Internal Revenue Code of 1986 (relating to real property 
     acquired by a qualifed organization) is amended by striking 
     ``or'' at the end of clause (ii), by striking the period at 
     the end of clause (iii) and inserting ``; or'', and by adding 
     at the end the following new clause:

       ``(iv) a qualified hospital support organization (as 
     defined in subparagraph (I)).''.

       (b) Qualified Hospital Support Organizations.--Paragraph 
     (9) of section 514(c) of the Internal Revenue Code of 1986 is 
     amended by adding at the end the following new subparagraph:
       ``(I) Qualified hospital support organizations.--For 
     purposes of subparagraph (C)(iv), the term `qualified 
     hospital support organization' means, with respect to any 
     eligible indebtedness (including any qualified refinancing of 
     such eligible indebtedness), a support organization (as 
     defined in section 509(a)(3)) which supports a hospital 
     described in section 119(d)(4)(B) and with respect to which--

       ``(i) more than half of its assets (by value) at any time 
     since its organization--

       ``(I) were acquired, directly or indirectly, by gift or 
     devise, and
       ``(II) consisted of real property, and

       ``(ii) the fair market value of the organization's real 
     estate acquired, directly or indirectly, by gift or devise, 
     exceeded 10 percent of the fair market value of all 
     investment assets held by the organization immediately prior 
     to the time that the eligible indebtedness was incurred.

     For purposes of this subparagraph, the term `eligible 
     indebtedness' means indebtedness secured by real property 
     acquired by the organization, directly or indirectly, by gift 
     or devise, the proceeds of which are used exclusively to 
     acquire any leasehold interest in such real property or for 
     improvements on, or repairs to, such real property. A 
     determination under clauses (i) and (ii) of this subparagraph 
     shall be made each time such an eligible indebtedness (or the 
     qualified refinancing of such an eligible indebtedness) is 
     incurred. For purposes of this subparagraph, a refinancing of 
     such an eligible indebtedness shall be considered qualified 
     if such refinancing does not exceed the amount of the 
     refinanced eligible indebtedness immediately before the 
     refinancing.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to indebtedness incurred on or after the date of 
     the enactment of this Act.
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