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Health Care

Industry Updates - 2007 Quarter 2

Form 990-T Now Open to Public Inspection

The IRS recently released guidance on the new Form 990-T, "Exempt Organization Business Income Tax Return" public disclosure requirement. Internal Revenue Code Section 6104(d) was amended to require public disclosure of the Form 990-T in addition to the Form 990. The public disclosure requirements apply to all Forms 990-T filed after August 17, 2006.

Internal Revenue Notice 2007-45 addresses a number of issues:

  • Organizations may rely on existing regulations under Section 6104 for complying with requests and for making returns "widely available;"
  • Organizations that file Form 990-T must make the return available for public inspection, regardless of whether the organization is otherwise subject to the public disclosure requirements. For example, churches that file the Form 990-T are subject to this requirement; and
  • Organizations that filed a Form 990-T for 2006 only to request a telephone excise tax refund are not subject to the public disclosure rules for the Form 990-T.

IRS Releases Findings of Study of Tax-Exempt Hospital and Community Benefits

The IRS released interim findings of their report on community benefit reporting on Forms 990 on July 19, 2007. In May 2006, the IRS sent surveys to almost 500 tax-exempt hospitals requesting information on how organizations report community benefits. The purpose of the survey was to assist the IRS in understanding how community benefits are calculated and reported. The interim report noted the following:

  • Uncompensated care made up the large component of total community benefit expenditures (made up 56% of total community benefits reported);
  • Uncompensated care was the most common reported community benefit (included in 97% of responses); and
  • There was no uniform computation of uncompensated care.

The report includes the response data summaries which organizations may use to compare their calculation and reports to other tax-exempt hospitals. View the full interim report.

Sen. Grassley Proposes Changes to Hospital Tax-Exempt Status

Sen. Charles Grassley, the Senate Finance Committee's ranking Republican member, recently released a discussion draft of policy recommendations that would impact tax-exempt hospitals. The recommendations would categorize tax-exempt hospitals either as a Section 501(c)(3) or a 501(c)(4) organization and would create different levels of community benefit requirements. Please note that these recommendations are merely suggestions and are not imminent legislation.

The recommendations include:

  • New requirements for Section 501(c)(3) Hospitals

    • Hospital must develop and publicize its charity care policy;
    • Hospital must provide annual charity care of at least 5% of its average annual expenditures or revenue, whichever is greater;
    • Any joint venture that a Section 501(c)(3) enters into with a for profit entity must have its own charity care policy;
    • Hospital must conduct a community needs assessment every three years.

  • New requirements for Section 501(c)(4) Hospitals

    • Hospital must conduct a community needs assessment every three years;
    • Hospital must provide annual community benefits of at least 5% of its average annual expenditures or revenue, whichever is greater. Community benefits would include charity care, emergency room open to all, burn units, trauma center, health professional education and training, health research, and other activities identified in the community needs assessment.

  • Requirements for all Tax Exempt Hospitals

    • Charges to the un-insured or under-insured shall not exceed the lower of the amount paid to the government or the actual cost;
    • The Board of directors, or any committees thereof, shall not be comprised of more than 25% physicians, management or those who may benefit from the hospital's activities;
    • Imposition of a termination tax on conversions to for-profit entities;
    • Hospitals that fail to meet their appropriate standards shall be assessed an excise tax.

  • Requirements for all Tax Exempt and Governmental Hospitals

    • Annual IRS reporting of basic information;
    • Development of practices to prevent unfair billing and collection practices.

IRS Redesigns Form 990

In June 2007, the IRS released a draft of a redesigned Form 990, "Return of Organization Exempt From Income Tax." See full details.

The IRS anticipates having the redesigned form in use for 2008 tax returns. The redesigned form consists of a ten page core form which includes most of the information currently requested on the current version of the Form 990.

The most significant change is the addition of a number of new schedules. They are:

  • Schedule C Political Campaign and Lobbying Activities
  • Schedule D Supplemental Financial Statements
  • Schedule F Statement of Activities Outside the U.S.
  • Schedule H Hospitals
  • Schedule K Supplemental Information on Tax Exempt Bonds
  • Schedule M Non-Cash Contributions
  • Schedule N Liquidation, Termination, Dissolution, or Significant Disposition of Assets
  • Schedule R Related Organizations

The proposed Schedule H requests information on charity care and community benefits, billings and collections, management companies and joint ventures, operational policies and facilities.

IRS Issues Guidance on Electronic Health Records

The IRS recently issued guidance for hospitals that provide staff physicians' assistance to buy and implement electronic health records ("EHR") software. Previously, the US Department of Health and Human Services issued regulations that allow hospitals to provide EHR software and support to their staff physicians without violating the federal anti-kickback and physician self-referral laws.

The IRS indicated that it will not treat such benefits to the medical staff physicians as impermissible private benefit or inurement if the following conditions are met:

  • The HHS regulations permit the organization to provide health information services;
  • The hospital enters into a health information services agreement with the medical staff physicians to provide such permissible services;
  • The hospital and participating physicians continue to comply with the HHS regulations;
  • To the extent permissible under law, the hospital may access all of the electronic medical records created by the physician;
  • The EHR benefits provided by the hospital are made available to all of the hospital's medical staff physicians; and
  • The same level of benefit is provided to all participating physicians, with the exception that variations are allowable to meet identified health care needs of the community.

Health Care Publications Contacts

Arizona

Tony Maki

480-444-3424

New Mexico

Brandon Fryar

505-830-6200

Northern California

Marci Pierce

415-677-8205

Oregon/Southwest Washington

Tony Andrade

503-242-1447

Southern California

DeVon Wiens

949-221-4000

Washington

Don Hansen

425-259-7227

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