Exempt Organizations Advisory - IRS Begins Compliance Checks of Tax-Exempt Hospitals

In an effort to determine whether tax-exempt hospitals are adhering to the community benefit standard set forth in Revenue Ruling 69-545 (click here), the IRS has begun a compliance check initiative, in which they will contact approximately 600 hospitals across the country. Several tax-exempt hospitals have already received a "Compliance Check Questionnaire," Form 13790 (click here).

The questionnaire is divided into three parts, the first of which is basic identifying information regarding the organization. Part II includes seventy-two questions involving the operations of the tax-exempt hospital, including information regarding: patients; emergency room care; board of directors; medical staff privileges; medical research; professional medical education and training; uncompensated care; billing practices; and community programs. Part III of the questionnaire includes nine questions regarding compensation which, according to the instructions, should be answered "as it pertains to employees in your hospital who are disqualified persons."

This IRS initiative follows Congressional inquiries into tax-exempt hospitals as a part of its ongoing review of the nonprofit sector. On May 25, 2005, Senate Finance Committee Chairman Charles Grassley sent a letter with forty-six questions to ten nonprofit hospitals, asking them to account for activities related to their tax-exempt status. On May 26, 2005, the Ways and Means Committee held a hearing entitled "A Review of the Tax-Exempt Hospital Sector."  Topics included: the legal history of the tax-exemption for hospitals; IRS oversight of tax-exempt hospitals; the need for congressional oversight of the standards for hospital tax-exemption; and Federal policies that subsidize treatment of the indigent by hospitals. 

The Exempt Organization Advisory is a general summary of the law and is not intended as specific legal advice for any organization.

Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Questions and comments about the Exempt Organizations Advisory are always welcome and should be sent to bstone@steptoe.com.