At a recent conference of the American Health Lawyers Association, IRS official Garrett Gluth confirmed that his agency will review the community benefit activities of 3,377 tax-exempt hospitals to determine whether they meet the requirements for tax exemption. This review is required under the 2010 Patient Protection and Affordable Care Act (the "Affordable Care Act"), which requires the IRS to review the community benefit activities of every hospital organization at least once every three years. According to Gluth, the IRS will look specifically at a hospital's Form 990 and Schedule H. The IRS has currently identified approximately one-third of the current tax-exempt hospitals to review, and it appears that the remaining two-thirds of hospitals will be reviewed over the next two years. These reviews are "stealth reviews," as hospitals will not be notified that they are under review, nor will they be notified of when these reviews begin or end.
What You Need To Know
Background
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In 1969, the IRS developed a community benefit standard to ensure that 501(c)(3) hospitals serve their communities. The community benefit standard requires a hospital have a board that is made up of a broad base of community members, an accessible medical staff, and a full-time emergency room open to all persons regardless of their ability to pay. Compliance with some of these requirements is disclosed on the Form 990 and Schedule H.
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Since its inception, the Schedule H has asked questions about certain community benefit activities of a 501(c)(3) hospital, including expenditures in various categories such as charity care, unreimbursed costs of care to Medicaid beneficiaries, research and education costs, and grants to other organizations for community health and similar services.
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The Affordable Care Act added Section 501(r) to the Internal Revenue Code. Under Section 501(r), a hospital will lose its tax-exempt status unless, among other requirements, the hospital has conducted a community health needs assessment and adopted an implementation strategy, has implemented a financial assistance policy, billing and collection policy, and emergency care treatment policy, and does not charge patients qualifying for financial assistance more than amounts generally charged to other patients. Compliance with these requirements is disclosed on the Form 990 and Schedule H.
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Section 501(r) applies to hospital organizations on a facility-by-facility basis. Accordingly, if a hospital organization operates more than one hospital facility, the organization is required to meet the additional Section 501(r) requirements separately with respect to each facility. Compliance with this requirement is disclosed on the Form 990 and Schedule H.
Key Concepts Taken From the Announcement
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The IRS has identified 3,377 hospitals to undergo a Form 990 and Schedule H review to determine their community benefit activities and their compliance with the requirements for tax-exemption.
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Any or all of the matters described above could be the subject of the review.
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Even if a given hospital is not reviewed in the initial round of 3,377 hospitals, every hospital will be subject to review this year or in one of the following two years.
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Hospitals should be ensuring they are meeting these requirements, and should be carefully reviewing how compliance with these requirements is being disclosed on the Form 990 and Schedule H.
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Failure to meet any of these requirements subjects a hospital to potential loss of exemption and, in the case of failing to meet the community health needs assessments requirements, potential excise tax penalties of $50,000 per year per hospital facility that is non-compliant.
What You Need To Do Now
Hospitals should pay careful attention to their Forms 990, particularly Schedule H, and understand that they will be reviewed by the IRS sometime over the next two years. Hospitals should work closely with their advisors to ensure they are meeting all requirements under Section 501(c)(3) and 501(r) and complete their Forms 990 and accompanying schedules in a complete and accurate manner.
For More Information
If you have questions regarding the IRS's review of community benefit plans under the Affordable Care Act, please contact:
