Saturday, November 3, 2018
The IRS afresh issued a Private Letter Ruling (the “PLR”) abandoning a hospital organization’s area 501(c)(3) cachet for declining to accede with the area 501(r) requirements.1 In what may be a assurance of things to come, the PLR serves as a admonition of the accent of acknowledging with area 501(r) in adjustment to escape an analysis safe and, in ablaze of the IRS’s pre-audit techniques discussed in the PLR, highlights the accent that should be placed on advancement an easy-to-navigate, adjustable website to abatement the likelihood of an analysis occurring in the aboriginal place.
The Hospital was a “dual status” hospital that was absolved from federal assets tax by advantage of actuality both a authoritative hospital and a area 501(c)(3) alignment (i.e., the Hospital, which was accordingly created by a burghal and a county, had ahead submitted a Form 1023 to the IRS applying for area 501(c)(3) status). According to the PLR, the IRS called the Hospital for assay in ablaze of accessible deficiencies apropos to area 501(r) compliance. Because the Hospital was a authoritative article that was absolved from filing Forms 990 (and decidedly Schedule H thereto), the IRS approved admonition apropos the Hospital’s area 501(r) acquiescence from added sources, including the Hospital’s website.
Upon analysis of the Hospital’s website, the IRS could acquisition no affirmation of acquiescence with area 501(r). Specifically, the IRS could not locate the Hospital’s (i) Association Bloom Needs Assessment (“CHNA”) or a articulation or instructions anecdotic area the CHNA is located, (ii) its accomplishing action acclamation the CHNA; (iii) Banking Abetment Action (“FAP”); (iv) Emergency Medical Affliction Policy; or (v) Billing and Accumulating Procedures.
In ablaze of the perceived noncompliance, the IRS beatific an antecedent acquaintance letter to the Hospital, alternating with several Admonition Document Requests. Afterwards initially declining to respond, the Hospital eventually contacted the IRS and declared that the CHNA had been prepared, but not acquaint to the Hospital’s website, and that an accomplishing action had not been completed. In addition, the Hospital declared that it was blind that bifold cachet hospitals are appropriate to accede with the accoutrement of area 501(r).
The Hospital’s lath of admiral met to altercate the analysis and bent that there was no actual account for its connected cachet as a area 501(c)(3) alignment because the affidavit that a authoritative hospital ability accept bifold cachet were not applicable. Accordingly, the Hospital a the IRS that it admired to aish its area 501(c)(3) cachet and requested admonition on the able adjustment for accomplishing so in adjustment to abstain banking penalties, if at all possible.
Section 501(r), allowable in 2010 as allotment of the Affordable Affliction Act, imposes assertive requirements on hospital organizations that are (or seek to be) absolved from federal assets tax beneath area 501(c)(3). In general, area 501(r) requires a hospital alignment to (i) conduct a CHNA at atomic already every three years and accept an accomplishing action (updated annually) to abode association bloom needs articular in the CHNA, (ii) authorize a accounting FAP and a accounting action administering emergency medical care, (iii) in the case of emergency medical affliction and added medically all-important care, burden from charging bodies acceptable for banking abetment added than amounts about billed to insured patients, and (iv) accomplish reasonable efforts to actuate whether patients are acceptable for banking abetment afore agreeable in amazing accumulating efforts.
After arising two sets of proposed regulations in 2012 and 2013, the IRS and the Department of the Treasury appear final regulations (the “Final Regulations”), able for tax years alpha afterwards December 29, 2015, that set alternating advice apropos area 501(r) and the after-effects for declining to accommodated any of its requirements.
A hospital alignment that fails to accede with area 501(r) and the specific requirements set alternating in the Final Regulations for anniversary hospital ability that it operates can ache acute consequences, including the artifice of an customs tax and alike accident of tax-exempt cachet in cases of adamant or arrant non-compliance.
Because the Final Regulations accept now been in aftereffect for assorted tax years, it is absolutely accessible that we will see an uptick in IRS audits to actuate acquiescence with area 501(r) and the Final Regulations. As the PLR reminds us, this includes not alone area 501(c)(3) organizations that are appropriate to book Forms 990, but additionally bifold cachet hospitals that are absolved from the Form 990 filing requirement. Although the Hospital in the PLR saw no acumen to abide its area 501(c)(3) status, that will not be the case for every bifold cachet hospital. Accordingly, all area 501(c)(3) hospital organizations should ensure acquiescence with area 501(r) and, if contravention exists, booty antidotal actions.
In addition, because several accoutrement of the Final Regulations crave items to be fabricated broadly accessible to the public, including by announcement on a website, it is acute that hospital organizations and their admonition technology cadre accept the accent that the website plays in ensuring area 501(r) compliance. As the PLR indicates, the IRS will analysis a hospital organization’s website not alone during an audit, but additionally potentially afore an analysis is commenced to actuate whether there is any contravention to address. Thus, hospital organizations will be well-served if their websites are accessible to cross and the admonition and behavior appropriate by area 501(r) and the Final Regulations are readily identifiable. In added words, the best analysis for a hospital isn’t the one that is auspiciously bankrupt – it’s the one that’s never opened in the aboriginal place.
1 All references to “section” are to the applicative area of the Internal Revenue Code of 1986, as amended.
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