Tax-exempt Standards for Hospitals

On May 26th, the House Ways and Means Committee convened a hearing to review current exemption standards for nonprofit hospitals. At the hearing, IRS Commissioner, Mark Everson acknowledged several issues the IRS has with tax-exempt hospitals, including complex joint ventures with for-profit partners, excessive executive compensation and activities which benefit private interests more than incidentally.

However, in responding to a request from committee members for recommendations in establishing new standards for determining tax exemption, Everson recommended the committee proceed with caution. He indicated any changes in the criteria used by the IRS could have unintended consequences on the communities served by such hospitals. Everson indicated the IRS is satisfied with the community benefit standard which has been used in reviewing hospital exemption applications since 1969.

Several committee members appeared critical of tax-exempt hospitals, including Chairman, William Thomas, (R-California), who stated that less and less is being required of hospitals for them to obtain or maintain their tax-exempt status. Other committee members defended non-profit hospitals. Charles Rangel, (D-New York) even questioned the need for the hearing.

No current legislation was considered at the hearing. Members of the committee agreed additional data is necessary to address the issue of tax-exemption for hospitals at future hearings.

If you would like more information, please contact Eddie Phillips at (800) 270-9629.

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.