The U.S. Government Accountability Office (GAO) has released a report on its study of IRS enforcement of hospital tax exemption requirements.
The GAO was asked by Congress to review IRS's enforcement of requirements for tax-exempt hospitals. The report assesses IRS oversight of how tax-exempt hospitals provide community benefits and the enforcement of the Affordable Care Act requirements for tax-exempt hospitals.
At its onset, the report recognizes the role hospitals are playing in response to the COVID-19 pandemic by saying:
”Hospitals are on the front line of our national response to Coronavirus Disease 2019 (COVID-19), with hospitals across the country working at maximum capacity to treat the sick. The Internal Revenue Service (IRS) and the Department of the Treasury (Treasury) have recognized the promotion of health as a charitable purpose and have specified that nonprofit hospitals are eligible for a tax exemption.”
But the report goes on to describe a lack of clarity in guidance for how hospitals report community benefit and on weakness in the IRS oversight.
The report makes one recommendation for Congress and four for the Internal Revenue Service:
- Congress should consider specifying in the Internal Revenue Code what services and activities it considers sufficient community benefit.
- Recommendation to the IRS ask the Commissioner of Internal Revenue to: :
- Update Form 990, including Schedule H and Instructions to ensure that the information demonstrating the community benefits a hospital is providing is clear and can be easily identified by Congress and the public
- Assess the benefits and costs of requiring tax-exempt hospital organizations to report community benefit expenses on Schedule H by individual facility rather than by collective organization
- Establish a process to identify hospitals at risk for noncompliance with the community benefit standard
- Establish specific audit codes for identifying potential noncompliance with the community benefit standard
CHA is working with our tax counsel, Ernst and Young, AHA and other hospital organizations to consider implications of this report.