Hospital Loses Tax-Exempt Status Through ACA Noncompliance

501(c)(3) tax-exempt status is something many hospitals have come to enjoy and even take for granted. However, such status can be quickly lost through noncompliance with the Internal Revenue Code and other federal regulations. In a Final Adverse Determination letter made public by the IRS on August 4, 2017, the exempt status of an unnamed hospital was revoked in February 2017 due to the hospital’s failure “to comply with the requirements of IRC section 501(r), to conduct a community health needs assessment (“CHNA”), adopt an implementation strategy and make it widely available to the public.” IRC section 501(r) was added to the tax code as part of the Affordable Care Act, adding requirements for 501(c)(3) hospitals to make the communities they serve more aware of their accessibility. This revocation illustrates that the federal government views tax-exempt status as a privilege it bestows, the requirements of which are not to be taken lightly.

Tax exemption carries with it obvious benefits, but those benefits are realized in varying degrees among different sizes and varieties of institutions claiming exemption. CHNAs are meant to benefit patients and taxpayers but can also be very costly to the implementing institution, and some argue they are prohibitively so. This leads to a conundrum for hospitals already operating at or near a loss: shell out the cost of compliance, or give up tax-exempt status and its accompanying benefits.

Compliance with federal regulations is something that hospitals and health care entities in general tend to put on the back burner while they focus on patient care and other day-to-day management matters. But the longer compliance gets put off in favor of other tasks, the more difficult it will become to bring the organization into full compliance. The management of any health care entity carries with it great responsibility, and though it can be both expensive and tedious, compliance with all pertinent federal regulations is of utmost importance to the entity’s successful operation and optimal patient care. Working with an experienced health care attorney is the best way for health care entities, both for-profit and non-profit, to meet all of their compliance requirements in an efficient and cost-effective manner.

The letter can be accessed here: Final Adverse Determination Letter