New IRS Notices on Section 501(r)


Take note tax-exempt hospitals!

The IRS has released two Notices ( http://www.irs.gov/pub/irs-drop/n-14-03.pdf )that address the relatively new Section 501(r).  As a refresher, and in general terms, Section 9007 of the ACA enacted § 501(r), which imposes additional requirements on charitable hospital organizations. Section 501(r)(1) provides that a hospital organization will not be treated as described in § 501(c)(3) unless the organization meets the requirements of § 501(r)(3) through (r)(6).

§ 501(r)(3) through (r)(6) require charitable hospitals to:

  • establish written financial assistance and emergency medical care policies,
  • limit amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital’s financial assistance policy,
  • make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collection actions against the individual, and
  • conduct a community health needs assessment (CHNA) and adopt an implementation strategy at least once every three years. (These CHNA requirements are effective for tax years beginning after March 23, 2012).

The two Notices issued at the end of December (1) provide that tax-exempt hospitals may rely on the proposed regulations issued in 2013 to comply with 501(r) until final regulations are issued, and (2) describe new correction and disclosure procedures under which failures to meet the requirements of 501(r) will be excused.

The IRS apparently is trying to provide “an incentive for hospital organizations to take steps not only to avoid failures but to remedy and disclose them when they occur.”  Therefore, the 2013 proposed regulations specify that, for purposes of § 501(r)(1) and 501(r)(2)(B), a hospital organization’s failure to meet one or more of the requirements described in § 501(r) and § 1.501(r)–3 through § 1.501(r)–6 that is neither willful nor egregious will be excused if the hospital organization corrects the failure and makes disclosure in accordance with the rules set forth in additional guidance to be issued by the Treasury Department and the IRS.