Tax-Exempt Status Revoked: Is Your Hospital’s Tax-Exempt Status Safe?

The Internal Revenue Service (IRS) recently reported the first revocation of a hospital’s tax-exempt status under the Internal Revenue Code (IRC) Section 501(r) requirements of the Affordable Care Act (ACA).  This announcement may strike fear in the hearts of hospitals throughout the nation; however, an understanding of the facts and circumstances is critical.  The fact pattern that resulted in the hospital’s revocation is unique in that the hospital was exempt both under Section 501(c)(3) and as a governmental hospital.  Though its exempt status is revoked under Section 501(c)(3), as a governmental entity, the hospital should continue to be exempt from tax, which is good news for the community it serves.

The Hospital’s Missteps

The IRS did not name the affected hospital; however, it did release information about the fact pattern that resulted in the hospital’s loss of exemption.  Upon review of Form 990, the IRS noted noncompliance and, therefore, commenced a full Section 501(r) compliance review of the hospital.  During the review, the executive management emphasized that the organization is a small, rural hospital that lacks the resources to conduct and publicize a full-scale Community Health Needs Assessment (CHNA) and create an implementation strategy to comply with the requirements of the ACA.  Additionally, executive management indicated on more than one occasion that they did not have a need, or a desire, to preserve the tax-exempt status of the hospital under IRC Section 501(c)(3).

The entity did prepare a limited CHNA to achieve Medicare designation as a critical care access facility, but not with a specific aim to comply with 501(r) in accordance with the ACA.  The CHNA was not posted on the organization’s website, though paper copies were available upon request.  The hospital did not develop an implementation strategy.

The IRS’s decision to revoke the hospital’s tax-exempt status, rather than impose the $50,000 excise tax penalty for failure to properly conduct and publicize a CHNA, was based, in large part, on the executives’ assertions that they do not intend to achieve or maintain compliance with 501(r) provisions going forward.  The IRS determined that the violations were egregious and not likely to be corrected.

Is Your Hospital Compliant?

The IRS is certainly “making a statement” with this revocation and has indicated it will continue to focus on hospitals’ compliance with Section 501(r).  It may be time for your hospital to consider a Section 501(r) compliance assessment.  To help you take the first steps in safeguarding your hospital’s tax-exempt status, consider the following questions:

  • Is your hospital’s CHNA current and compliant?
  • Is the CHNA located on your hospital website in a clear and conspicuous place?
  • Did your hospital prepare a written implementation strategy in tandem with the CHNA?
  • Is your hospital’s financial assistance policy (FAP) compliant with final regulations?
  • Is the FAP conspicuously posted on your hospital’s website in plain language?
  • Is the FAP available in alternate languages (if there is a significant portion of the hospital’s community that speaks a language other than English)?
  • Is the FAP readily available in paper form throughout your hospital facility, including admissions and the emergency department?

This list is not all-inclusive, and each hospital’s situation is unique.  If you have any questions about the recent IRS revocation, would like to perform a Section 501(r) compliance assessment for your tax-exempt hospital, or would like to request a speaker on this topic for your organization or event, contact one of our PYA executives below at (800) 270-9629.

Debbie Ernsberger

Debbie Ernsberger


Amy DeLong

Amy DeLong

Senior Manager

Related Posts
A recent article in DecisionHealth’s Part B News provides a glimpse into the future of charting patient encounters and the changes that will occur regarding Evaluation and Management (E/M) documentation....
Read More

PYA Thought Leader Quoted in Article Highlighting Potential Changes to E/M Documentation and Reporting

PYA made significant contributions to the recently released “BVR/AHLA Guide to Valuing Physician Compensation and Healthcare Service Arrangements,” which serves as the definitive guide for healthcare organizations seeking to understand...
Read More

PYA Lends Expertise in Premier Industry Publication for Valuing Physician Compensation and Healthcare Service Arrangements

An on-demand webinar, presented by Mike Shamblin, CPA, and brought to you by PYA, helps lay the foundation for the new revenue recognition standard.  The webinar guides healthcare providers of...
Read More

PYA On-Demand Webinar Outlines the New Revenue Recognition Standard in Preparation for Implementation

Gaining a deeper understanding of the legalities associated with academic medical centers (AMCs) and other teaching hospitals will be the focus this winter at the American Health Lawyers Association (AHLA)...
Read More

PYA Supports AHLA Programming for AMCs and Teaching Hospitals

In the wake of this year’s devastating hurricane season, the President signed into law the “Disaster Tax Relief and Airport and Airway Extension Act of 2017” (the Act). This law...
Read More

Individual Tax Relief for Disaster Areas

PYA senior manager Valerie Rock authored an article, “New Payment Review Strategies: What to Do If You Receive an Outlier Coding Notice,” which was recently published in Medical Economics magazine....
Read More

“New Payment Review Strategies: What to Do If You Receive an Outlier Coding Notice”

Blockchain technology, one of the biggest technology developments in years, has the potential to transform the accounting and audit (A&A) industry. The potential benefits are numerous, but so are the...
Read More

Blockchain Technology—An Audit and Accounting Awakening

In one of the most unpredictable and hotly contested presidential races in United States history, Donald Trump promised, if elected, to pass, among other things, massive tax reform that would...
Read More
tax reform

Tax Reform—What Stays, What Goes, What’s Left?

As compliance regulations and laws evolve and increase in number, many organizations – hospitals, home health agencies, skilled nursing facilities, physician practices, and third-party medical billing companies, among others –...
Read More
compliance risk assessments

Compliance Risk Assessments: The Foundation of Effective Compliance Programs

Share This Insight

If you received value from this article, please share it with your network (e.g., Facebook, Twitter, LinkedIn). Icons below for your convenience.

Stay Current

See more newsletter and alert options.

PYA Population Health Ascend

PYA Healthcare Blog

PYA Thought Leadership Services

The Healthcare Loop