While the new reporting requirements under Internal Revenue Code Section 501(r) affect 501(c)(3) hospitals, governmental hospitals are unsure whether 501(r) applies to them. Many governmental hospitals have dual-exempt status under 501(c)(3), and 501(r) indicates that all hospitals with 501(c)(3) status are required to comply with the new reporting requirements. In IRS Notice 2010-39, the IRS asked for written comments regarding the new reporting requirements.

Section 501(r) requires charitable hospitals to:

• Conduct a community health needs assessment once every three years
• Establish a financial assistance policy and an emergency medical care policy
• Limit the amount charged for emergency or other medically necessary care provided to individuals eligible for assistance under the organization’s financial assistance policy
• Make reasonable efforts to determine whether an individual is eligible for assistance under the organization’s financial assistance policy
• Provide the following information to the IRS each tax year:
  • Description of the organization’s actions to address needs identified in its community health needs assessment
  • Audited financial statements

Hopefully, the IRS will address the 501(r) reporting requirements as they relate to governmental hospitals with dual-exempt status under 501(c)(3). In the interim, governmental hospitals should find out if they have received a 501(c)(3) determination letter from the IRS. Many governmental hospitals may have received an exemption to access certain employee benefit plans. Others may issue bonds as a 501(c)(3) issuer as opposed to a governmental issuer. In many cases, dual status was requested years ago, and current members of the hospital’s management team may not be aware of the additional 501(c)(3) exemption. If hospital officials are unsure if the organization has received a 501(c)(3) determination letter, they may search IRS Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, by clicking here. Organizations also may check the Guidestar website for an indication of their exempt status.

Finally, new filing requirements for exempt organizations may pose additional complications for governmental hospitals with dual-exempt status. The IRS now requires most exempt organizations to file Form 990, Form 990-EZ or Form 990-N. Form 990-N (electronic postcard for small organizations) is required every year. As a result of these new requirements, the IRS plans to automatically revoke exempt status for most organizations that have not filed one of the above referenced forms for three consecutive years. While governmental hospitals are exempt from filing Form 990, many governmental entities with dual status have been included in the IRS database for automatic revocation. While the database should only include the dual status under 501(c)(3), governmental hospitals should remain aware of this issue. The IRS is sending filing reminders to affected organizations, and organizations should check the National Center for Charitable Statistics website to see if their tax-exempt status is in jeopardy. The IRS also has published a database of at-risk organizations categorized by state. If a governmental hospital finds it is at risk of having its tax-exempt status revoked, the organization should act quickly to notify the IRS in writing to correct the database.

For more information on this issue or related matters, please consult your BKD advisor.