Capital Costs

Question: When fundraising for capital needs of a hospital-owned property used exclusively for a community benefit purpose, are those fundraising costs reportable? For example, a hospital incurs fundraising costs for a capital campaign. The funds raised will be restricted to renovation of physical spaces owned by the hospital that are used for community benefit activities. The building houses a clinic serving Medicaid and uninsured patients, including a significant focus on HIV and chronic diseases. It is also used for programs subsidized by the county health department, for graduate medical education, and some donated space for community benefit purposes. Hospitals can report fundraising costs for community benefit programs. What is the case or considerations when raising funds for capital for such purposes?

Recommendation: Before reporting these fundraising expenses as community benefit consider the following:

  • How certain is it that the renovated space would actually be used for the described purposes for at least the duration of the "useful life" of the renovated assets? If the buildings/space is pretty much guaranteed to be used for the described community benefit purposes for a dozen or so years or more, then we recommend reporting these expenses. Evidence that shows the building/space would be used for community benefit purposes for some years might be a lease agreement with the county health department. And/or with the clinic if this isn't operated by the hospital itself. If the lease agreement(s) are long term in nature, then there is a strong case for reporting the costs as community benefit. If the lease agreement is short term, a case still can be made but the intent needs to be that the space houses community benefit activities for many years.
  • If there are any serious questions about whether the space will be used for community benefit purposes for the duration of its “useful life,” then we would recommend not reporting these expenses.

It should be noted that Schedule H instructions state hospitals can't count "contributions to the capital of another organization." This means contributions that lead the hospital to have an ownership interest of some kind in "another organization." For example, an equity investment which means the hospital really isn't contributing anything, instead, it's investing in the other organization.

(March 2019)

Question: Can our organization count donations to other organizations for capital costs.

Recommendation: The CHA A Guide for Planning and Reporting Community Benefit , Chapter 2 discusses contributions to the capital needs of other entities.

(November 2015)

Please Take Note: The information provided does not constitute legal or tax advice. The material is provided for informational/educational purposes only. Please consult with counsel regarding your organization's particular circumstances.