ANATOMY OF A NON-PROFIT’S TAX FILING, or, WHY THE HECK DOES BERKSHIRE HEALTH SYSTEMS HAVE FINANCIAL HOLDINGS IN THE TAX HAVEN CAYMAN ISLANDS??
By DAN VALENTI
PLANET VALENTI News and Commentary
(FORTRESS OF SOLITUDE, FRIDAY, DEC. 2, 2011) — On the tax filing of Berkshire Health Systems dated Aug. 15, 2011 — Form 990, Return of Organization Exempt from Income Tax with BHS’ employment ID # 04-2442944 — question 4 asks for a description of the organization’s achievement. Darlene Rodowicz, CFO, answers: “Berkshire Health Systems serves as the sole member to affiliates that form an integreated delivery system providing healthcare to the community.”
“Sole member to the affiliates” means that BHS essentially employs its 27 affiliates as part of “an integrated delivery system.” This description provides the definitive answer to the question, Is an employee of one of the affiliates — Berkshire Healthcare Systems, for example — an employee of the parent company? The answer is yes, by BHS’ own definition.
The “integrated delivery system” includes at least 27 companies:
1. Berkshire Health Systems, Inc.
2. Berkshire Medical Center, Inc.
3. Fairview Hospital, Inc.
4. Berkshire Faculty Services, Inc.
5. Berkshire Indemnity Company, SPC, LTD
6. BHS Management Services, Inc.
7. Berkshire Healthcare Systems, Inc.
8. Bourne Management Systems, Inc.
9. Greenfield Management Systems, Inc.
10. New Bedford Management Systems, Inc.
11. Northampton Management Systems, Inc.
12. East Longmeadow Management Systems, Inc.
13. Danvers Management Systems, Inc.
14. Peabody Management Systems, Inc.
15. South Yarmouth Management Systems, Inc.
16. Berkshire Pennsylvania, Inc.
17. Xenia East Management Systems, Inc.
18. Willowood of Great Barrington, Inc.
19. Willowood of North Adams, Inc.
20. Willowood of Williamstown, Inc.
21. Hillcrest Extended Care Services, Inc.
22. Berkshire Retirement Community, Inc.
23. Berkshire Extended Care Services, Inc.
24. Integri Nurse, Inc.
25. Integriscript, Inc.
26. Hospicecare in the Berkshires
27. Pittsfield Management Systems, Inc.
Genuine Market-Oriented Companies or Shell Game?
This is the listing of BHS holdings for the FY ending Sept. 30, 2010.
Integriscript Inc.? Integri Nurse Inc.? You’d think that for an organization as sophisticated as BHS, they would have at least hired the NYC advertising agency to come up with something more catchy, such as “Lenoxology.” Integriscript, incidentally, was formed on Dec. 1, 2009. It lists David Phelps as president, William Jones as treasurer, and Lynn Murphy as clerk.
According to Trovix website, the company provides “Value-added pharmacy solutions.” So be it. The company seems to have generated little income, at least judging by the information on Form 990. The same goes for Integri Nurse. Are these companies legit? We don’t mean in a technical sense but in a capitalistic sense, that is, legitimate businesses set up for the purpose of marketing products of services to fill organic needs generated by the routine working of the marketplace. Another alternative is that they are shell companies.
We learn on p. 16 of the filing that BHS does not provide monetary support for its affiliated companies. Rather, “This organization provides support in the form of providing management services to its supported organizations.” These management services aren’t for free. In short, it appears that BHS, the umbrella parent for the 27 affiliates, takes money from and doesn’t give money to its corporate “children.”
Not Bad Work If You Can Get It
According to Form 990, BHS President David Phelps, takes a “reportable compensation from related organizations” of $529,983. He also receives an “Estimated amount of other compensation from the organization and related organizations” of $38,266. As treasurer, Darlene Rodowicz takes $323,664 and $35,298 from these two sources.
On p. 7 of the filing, where these amounts are listed, there is an entry for “Average hours [of work] per week.” The document lists that Phelps and Rodowicz work 1.00 hours a week for their money. Assuming that they take no vacation and work 52 weeks (or 52 hours a year1), Phelps and Rodowicz give new meaning to the expression “hard-earned.” They must be the hardest working people in Show Biz, now that the late, great James Brown has moved to heaven.
Elsewhere, Phelps appears to work a little harder. On Form 990, Schedule J, pages 23 and 24, Rodowicz’s filing reveals the following compensations for the BHS President:
BHS AFFILIATE — COMPENSATION FOR DAVID PHELPS
* Berkshire Medical Center, $293,922 paid to Phelps
* Fairview Hospital, $39,190
* Berkshire Faculty Services, $97,974
* Berkshire Indemnity Company, $19,595
* Berkshire Healthcare Systems, $29,396
* Bourne Management Systems, Greenfield Management Systems, New Bedford Management Systems, Northampton Management Systems, East Longmeadow Management Systems, Danvers Management Systems, Peabody Management Systems, South Yarmouth Management Systems, Berkshire Pennsylvania Inc., and Xenia East Management Systems — $2,351 apiece
* Willowood of Great Barrington, $4,702
* Willowood of North Adams and Willowood of Williamstown — $3,527 apiece
* Hillcreast Extended Cared Services, $8,230
* Berkshire Retirement Community, $11,757
* Berkshire Extended Care Services, $8,230
* Integri Nurse, $3,527
* Integriscript, $3,527
* Hospice Care in the Berkshires, $11,757
* Pittsfield Management Systems, $5,878
That’s not bad work if you can get it.
All things being equal, there’s nothing wrong or unethical about any of this. America is the land of the free and the home of the warriors of opportunity. We did for capitalism what China is doing for Socialism. We put it on the map as the economic force of difference.
The point is, of course, that BHS has mushroomed from simple, little Pittsfield General Hospital into a vast empire ruled by David Phelps. The empire has a de facto monopoly with respect to healthcare and medical services in Berkshire County. The company has enormous political power and influence simply because of its size and because of Phelps’ political connections. This combination, with a few secret ingredients, added to a carefully adjusted mix, can produce nitroglycerin.
Are Monopolies Ever Good for the Consumer of Any Market, or Does Competition Provide Better Service at Lower Costs?
At the least, to put so much of an entire community’s healthcare options into one basket leaves the residents of the area — who make up our communities — vulnerable on any number of fronts, including medical, financial, political, and ethical, the latter since healthcare decisions are among the most important and often heart-wrenching a person has to make in life.
Also, as a general rule, the more choices and options people have, the lower their costs and the better the service they receive. Competition is good. Monopolies are bad. It’s what THE PLANET calls “the BJ Effect.” When BJ’s wholesale store opened its gas station, it undercut every gas station in Pittsfield. As a consequence, the other stations had to lower their prices. Good for the little guy.
Plus Free Winters in the Cayman Islands, on the House’s Money
Perhaps the most intriguing aspect of the Form 990 tax filing of BHS is found on p. 5, Part V, 4b: “At any time during the calendar year,” the IRS asks, “did the organization have an interest in, or a signature or other authority over, a financial account in a foreign country (such as a bank account, securities account, or other financial account)? If yes, enter the name of the foreign country.” Rodowicz entered: “Cayman Islands.”
The alarms, bells, and whistles burrow, chime, and piece the air at the mention of the Cayman Islands. The Caymans are a well-know tax haven used by the wealthy, both individuals and corporations.
According to NPR’s FRONTLINE, Cayman is the world’s fifth biggest financial center. The article (pbs.org/wgbh/pages/frontline/shows/tax/schemes/cayman.html) documents the recent trend of American corporations and wealthy individuals to “set up companies or subsidiaries in tax havens like the Caymans.”
In short, with holdings in the Caymans, Berkshire Health Systems has financial accounts in an offshore, international destination outside of U.S. jurisdiction. The questions are why and what are the nature of those holdings? Even though Angelo Stracuzzi is a trustee of BHS, we can be sure that “Angelo didn’t send them” to the Caymans? (On a marginally related note, a better question would be: Why hasn’t BHS saw fit to disinvite Stracuzzi from his position as a trustee/officer of BHS?).
Frontline says the problem with U.S. citizens or corporations having money in the Caymans is two-fold:
(1) Account holders in the Caymans have access to money at a far greater cost than they can get from American banks. They play by a different set of financial rules than the ordinary, unwashed masses. The game gets tilted heavily in their favor, simply because of their power and wealth. Are the financial rules that Mary Jane and Joe Kapanski have to play by just not good enough for BHS?
(2) More problematic is that such accounts “guarantee virtually complete secrecy about financial deals and assets held by Americans, in accordance with Cayman confidentiality laws.” It looks like the Caymans are the new Swiss bank account. This neat little dodge has made the Caymans a draw for criminal money laundering and the money dealings of big-time drug traffickers — not the kind of company with whom most of us would want to be associated.
Tax Havens Typically Exist for One Reason: So Account Holders Can Hide Money from the IRS
The Frontline article mentions how the Caymans have tried to tighten regulation and oversight to prevent such blatant criminal activity, but it has not done much, if anything, to stop the use of Cayman accounts to evade U.S. taxes.
With the amount of revenue generated by all of the companies of BHS, the exact nature of its Cayman holdings becomes important. As a mecca for tax dodgers, there are certainly many scenarios, far fetched and otherwise, that one could concoct. THE PLANET is not in any way, shape, or form alleging, saying, or implying that BHS has engaged in any illicit behavior with respect to its holdings in the Caymans. Let’s be clear about that.
We simply suggest that the admission of holdings in the Cayman Islands JUMPS off the otherwise stodgy and beard-combingly boring 990 tax form. What, the Pittsfield Co-Op isn’t good enough?
The Economist (from Geoffrey Colin Powell) defines a “tax haven” as “the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance.”
Form 990 advisers filers who has answered “YES” to holdings in a foreign country to “See the instruction for exceptions and filing requirements for Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts.”
There is no evidence in the 990 filing that explains BHS’ financial holdings in the Caymans. We do learn later in the document, on p. 30, that “Berkshire Health Systems’ financial statements are audited by an independent accountant only as part of consolidated financial statements and other financial information for Berkshire Health Systems and subsidiaries.”
We also read that “Financial statements are available to the public at the offices of … the chief financial officer and … the vice president and general counsel at 725 North Strett, Pittsfield, MA 01201.”
We would put out there, simply as an honest question: What are the excat nature of BHS’ holdings in the Caymans? Where is there office there? What work or services are done there? How often do officers of BHS have to visit the Caymans on work-related matters?
Inquiring minds want to know.
INTO THE WEEKEND WE GO, THEN TO FOXBORO ON SUNDAY, FOLLOWING SHANGRI-LA, THOUGH UTOPIA IS NEVER AN OPTION. HAPPY WEEKEND, O, MY BROTHERS AND SISTERS.
“OPEN THE WINDOW, AUNT MILLIE.”
LOVE TO ALL.