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IRS Revokes Nonprofit Status from Hospital Under 501(r)

The Internal Revenue Service (IRS), for the first time since regulations for tax-exempt hospitals went into effect in October 2016, has revoked the nonprofit status for one hospital.  Nonprofit hospitals are required to comply with the Internal Revenue Service’s 501 (r) rules, including completing a community health needs assessment and meeting financial assistance policy requirements. Hospitals subject to 501(r) must also adhere to limitations on charges and follow billing and collection practices under the requirements, ACA International previously reported in the January 2016 issue of Pulse.

According to a report from FierceHealthcare, “The IRS deemed the hospital ‘egregious’ for its failure to meet the requirements, concluding that it had ‘neither the will, the resources, nor the staff to follow through’ with them.”  The IRS issued a letter to the hospital for the revocation in February 2017 and released it on their website in August.  The primary reason for the revocation, according to FierceHealthcare, is the hospital failed to make its community health needs assessment available to the public online.

The letter states: “You are a hospital organization which with the requirements of IRC section 501 (r), to conduct a community health needs assessment, adopt an implementation strategy and make it widely available to the public.”  It also states the hospital is a small rural facility without the financial or staffing resources to dedicate to meeting the requirements of 501 (r) and the community health needs assessment.

Under the Affordable Care Act, the IRS is required to review activities at tax-exempt hospitals once every three years.  Requirements, previously reported in Pulse, for a hospital to maintain its nonprofit status, set by the IRS and mandated by the Affordable Care Act, include:

Establishing written financial assistance and emergency medical care policies.

Limiting amounts charged for emergency or other medically necessary care to individuals eligible for assistance to not more than amounts billed to people with insurance for the care.

Determining if an individual is eligible for financial assistance before using extraordinary collection practices.

Conducting a community health needs assessment and adopt an implementation strategy at least once every three years.

Jan Smith, a tax senior manager in Crowe Horwath’s Healthcare practice, said in an interview with the Healthcare Financial Management Association (HFMA) that it is unlikely this action by the IRS will set a precedent for revoking nonprofit status of other hospitals.

“If hospitals are making a good-faith effort to comply, I would be surprised if the IRS would revoke their tax status at this stage of 501 (r) examinations,” Smith said in the interview with HFMA.  More information: and

Last modified onMonday, 23 October 2017 20:27
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