2023 Marcum Year-End Tax Guide

THE MARCUM YEAR-END TAX GUIDE 2023 103

Many hospital systems receive the benefit of tax exemption. The provision of health care services is not, in itself, an activity which is automatically eligible for tax exemption. A hospital organization must demonstrate that it operates to promote the health of a class of persons broad enough to benefit the community. What is commonly known as the “Community Benefit Standard” was outlined in Rev. Rul. 69-545. Rev. Rul 69-545 explains, “To qualify for exemption from Federal income tax under section 501(c)(3) of the Code, a nonprofit hospital must be organized and operated exclusively in furtherance of some purpose considered ‘charitable’ in the generally accepted legal sense of that term, and the hospital may not be operated, directly or indirectly, for the benefit of private interests. “ TIPS ON MAINTAINING YOUR HOSPITAL’S TAX-EXEMPT STATUS MARY ANTONETTI

When the IRS redesigned Form 990 in 2008, Schedule H was added to attempt to quantify the amount of charity care a hospital provides. There are two main buckets in calculating the charity care percentage: financial assistance and means-tested government programs; and other benefits. Financial assistance and means tested government programs include financial assistance (i.e., charity care), Medicaid, and other means-tested programs. Other benefits include community health improvement services, health professions education, subsidized health services, research, and cash/ in-kind contributions. When this was originally published, the expectation was the IRS would gather data on the charity care percentages reported by different types of hospitals and provide metrics. One thought was that the IRS would

question organizations with under 5% in charity care. Shortly after the new Form 990, Schedule H was published, the Affordable Care Act enacted Section 501(r) of the Internal Revenue Code, which added significant requirements for a hospital to maintain its tax-exempt status. These requirements fall into four main sections: • Community Health Needs Assessment (CHNA). • Financial assistance and emergency medical care policy. • Limitation on charges. • Billings and collections policy. With the enactment of IRC Section 501(r) requirements, the reporting for community benefit on line 7 of Schedule H seemed to hold less importance.

Fast forward to 2020, which brought the COVID-19 crisis. ICU units were at capacity, and staffing and supplies were both in short supply and increasing in cost. Ancillary services, such as ambulatory surgery services, were curtailed by government shutdowns. The federal government allocated over $100 billion to hospitals through the Provider Relief Fund. In speaking to many clients, this money was needed to pay for staffing, supplies, and other items to keep the organization serving the community. Outside the hospital community, this was not necessarily the perception. On April 28, 2023, the House Ways and Means Committee convened an Oversight Hearing on non-profit hospitals. Almost 60% of hospitals in the United States are non-profit hospitals, especially essential in serving rural communities.

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