Once upon a time, tax-exempt hospitals provided charity care and community benefit in exchange for tax breaks. The end. But wait! Increased scrutiny from politicians and regulators has rewritten this story’s ending. Let’s go back in time.
The year is 2005: Senator Charles Grassley of Iowa begins to voice concerns as to whether 501(c)(3) hospitals have proven worthy of tax-exempt status, and raises the following questions:
- Have tax-exempt hospitals provided sufficient community benefit?
- Are they adhering to charity care policies?
- Are they providing excessive compensation to executives?
- What distinguishes tax-exempt hospitals from their for-profit counterparts?
- What is the Internal Revenue Service (IRS) doing to hold tax-exempt hospitals accountable?
Fast forward to 2008: The demand for reform specific to tax-exempt hospitals continues. Again, the question is posed whether tax-exempt hospitals are worthy of exemption from Federal and state taxes. The result? A substantial redesign of Form 990, including release of Schedule H (specifically required for hospitals).
2010: The Affordable Care Act includes several reforms specific to tax-exempt hospitals, including community health needs assessments and financial assistance policy requirements. The IRS issues proposed regulations for these provisions in early 2013, but has yet to issue final regulations.
2014: Almost a decade has passed, and lawmakers are still referencing earlier concerns that “the practices of many nonprofit hospitals were virtually indistinguishable from their for-profit counterparts.” Senator Grassley asks for an update on the various initiatives to monitor tax-exempt hospitals and once again calls into question whether hospitals are doing enough to remain tax-exempt.
What happens next? The pressure is on the tax-exempt hospital, and the minimum is not enough. Form 990 and Schedule H are not enough. The Community Health Needs Assessment and Financial Assistance Policy are not optional. A community benefit report is a necessary tool; and a tax benefit study is the tool of the future. A tax benefit study quantifies the value of a hospital’s tax-exempt status. Armed with this information, a hospital can provide substantiative proof that community benefit outweighs the benefit of its tax-exempt status.
Do you know what your hospital’s tax-exemption is worth?
PYA can give this story a happy ending, by helping you quantify the value of your hospital’s tax-exemption and thereby demonstrate how much your tax-exempt hospital’s community benefit exceeds its tax benefit. For more information about how we can help you go above and beyond the minimum and become an advocate for your hospital’s tax-exemption, please contact the experts listed below at PYA, (800) 270-9629.
Recommended Links:
Learn more about Healthcare Tax Services and Healthcare Audit and Accounting Services
WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOLLOWING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
