The Patient Protection and Affordable Care Act added Section 501(r) to the Internal Revenue Code (“IRC”). Specifically, IRC Section 501(r)(3) provides that tax-exempt hospitals must conduct a Community Health Needs Assessment ( CHNA ) once every three years and adopt an implementation strategy to meet the community health needs identified within it.
The CHNA requirements are effective for tax years beginning after March 23, 2012. The initial three-year window commences with tax years beginning after this date.
On April 3, 2013, the Internal Revenue Service ( IRS ) issued proposed regulations on the CHNA requirements under Section 501(r)(3). While these proposed regulations are generally consistent with the previous guidance provided by the IRS in Notice 2011-52, there are some clarifications.
The proposed regulations revise the definitions for hospital facility and hospital organization and provide a definition for operating a hospital facility through a joint venture or limited-liability company. The regulations clarify what is required to make the CHNA and other documents widely available to the public. Only the significant health needs (as opposed to all health needs) identified through the CHNA process need to be prioritized and described in the CHNA report and addressed in the implementation strategy.
The proposed regulations address the excise tax for failure to conduct a CHNA, as well as the consequences for hospitals that do not satisfy any of the Section 501(r) requirements imposed on charitable hospitals. An excise tax of $50,000 per facility will apply for a failure to conduct a CHNA, and may apply even if the failure is excused for other purposes.
After taking into consideration all facts and circumstances, the IRS may revoke a hospital s tax-exempt status in appropriate cases of noncompliance with any part of Section 501(r). The IRS will examine whether the organization has had previous failures; the size, scope, and significance of the failure; and the reasons for the failure. Errors or omissions that are due to reasonable cause may be waived if they are corrected and appropriately reported (in accordance with future guidance provided by the IRS.) If a single facility within a multi-facility organization fails to comply with the statutory requirements (and the failure would have resulted in revocation in the case of a single-facility hospital organization), the proposed regulations impose a tax on the income of the noncompliant facility.
The IRS has requested comments on these newly proposed regulations be submitted before July 5, 2013. The IRS intends to finalize the CHNA proposed regulations and the previously issued 501(r) proposed regulations together. Hospital facilities may rely on the CHNA guidance previously provided in Notice 2011-52 for any CHNA made widely available to the public and any implementation strategy adopted on or before October 5, 2013.
To discuss the proposed regulations and how they affect your organization, contact the expert listed below at PYA, (800) 270-9629
