Listen to this article

URBANA — A four-year Internal Revenue Service audit of the Carle Foundation ended in a settlement agreement that required some changes, Carle's former chief financial officer recalled.

Returning for a second day of testimony Tuesday in the trial of a lawsuit Carle filed against state and local taxing authorities, Robert Tonkinson said he thought settling with the IRS in 2008 was a good idea.

The IRS had been probing the not-for-profit Carle Foundation's relationship with the former for-profit Carle Clinic in connection with the continuation of the foundation's status as a 501(c)(3) federally tax-exempt organization — as opposed to the scope of the current trial, which is focused on property tax exemptions Carle was denied for 2004-11 on four of its properties in Urbana.

In the Carle Foundation's settlement agreement with the IRS, Tonkinson said, Carle kept its federal exemption status and wasn't penalized.

Some of the changes required in the settlement included a requirement for the foundation to divest properties off its main central Urbana campus that were used primarily by the former Carle Clinic through a lease arrangement, Tonkinson said. The foundation was also asked to recruit more physicians who weren't employed by the clinic and required to reduce the percentage of clinic physicians on the foundation board of directors, he said.

Tonkinson said he believed settling with the IRS was the best option to avoid the risk of the IRS removing the foundation's federal exemption status and the expense of going to court over that.

Plus, he said, the changes the IRS sought from the Carle Foundation were "irritating" but weren't disruptive to operations.

In the years prior to the foundation's purchase of the clinic, Tonkinson said, the hospital and clinic had more than 100 contractual agreements for services purchased by the clinic from the hospital and hospital from the clinic.

Tonkinson described the negotiations for these agreements as often "quite contentious" and said the clinic and foundation didn't see eye-to-eye "all the time."

Tonkinson was scheduled to return to court this morning to be questioned by attorneys representing the Illinois Department of Revenue, Champaign County, Urbana and Cunningham Township — all units of government named as defendants in Carle's lawsuit and all opposed to the property tax exemptions Carle wants for the prior tax years.

Carle's property tax exemptions were restored in 2012 under a change in state law that set out new requirements for nonprofit hospitals to meet when they seek property tax exemptions in their communities.

Reporter

Debra Pressey is a reporter covering health care at The News-Gazette. Her email is dpressey@news-gazette.com, and you can follow her on Twitter (@DLPressey).