New Report: New IRS Regulations for Nonprofit Hospitals

OLR Report 2015-R-0007 summarizes requirements under the Affordable Care Act for nonprofit (charitable) hospitals to maintain their tax-exempt status.

The Patient Protection and Affordable Care Act (“ACA”) added requirements that a nonprofit hospital must meet in order to maintain its § 501(c)(3) tax-exempt status under the Internal Revenue Code.  Under these provisions, a nonprofit hospital must:

1. conduct a community health needs assessment at least once every three taxable years and adopt an implementation strategy to meet the needs identified in the assessment;
2. establish a financial assistance policy (FAP) and emergency care policy;
3. bill patients eligible for the FAP at no more than the amount generally billed to patients with insurance, and not use gross charges; and
4. make reasonable efforts to determine whether the patient is eligible for the FAP before undertaking extraordinary collection actions, such as making a negative report to a credit bureau.

Nonprofit hospitals that fail to meet these requirements may lose their tax-exempt status, among other penalties.

 

These provisions took effect for taxable years beginning after March 23, 2010, except that the community health needs assessment requirement took effect in tax years beginning after March 23, 2012. In 2012 and 2013, the IRS issued proposed regulations providing guidance regarding these requirements.

On December 29, 2014, the IRS issued final regulations regarding these provisions.  Most of the final regulations apply to a hospital’s taxable years beginning after December 29, 2015; some provisions take effect before then.


For a summary of the statutory requirements and an overview of significant features of the final regulations, see the full report.