The Internal Revenue Service (“IRS”), on December 29th, released final regulations for Internal Revenue Code (“IRC”) §501(r) entitled “Additional Requirements for Charitable Hospitals; Community Health Needs Assessments for Charitable Hospitals; Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return”. IRC §501(r) was introduced under the Affordable Care Act (“ACA”) and includes requirements that hospital facilities must follow in order to maintain tax-exempt status under IRC §501(c)(3). The final regulations were published in the Federal Register on December 31st and provide tax-exempt hospital facilities with much anticipated, long-awaited final guidance.
Effective Date of the Final Regulations
The final regulations are effective on December 29th and were published in the Federal Register on December 31st. In response to the various comments received by the IRS concerning the transition period, the final regulations under IRC §501(r) apply to a tax-exempt hospital facility’s taxable years beginning after December 29, 2015. This will provide all tax-exempt hospital facilities with at least one year to become fully compliant with the final regulations. For example:
- Tax-exempt hospital facilities with a December 31st calendar year-end have until January 1, 2016 to be fully compliant;
- Tax-exempt hospital facilities with a June 30th fiscal year-end have until July 1, 2016; and
- Tax-exempt hospital facilities with a September 30th fiscal year-end have until October 1, 2016.
Action Step for Tax-Exempt Hospital Facilities
All tax-exempt hospital facilities should perform an IRC §501(r) readiness assessment and implement changes, if necessary, prior to the effective date for full compliance in conjunction with their respective year end as outlined above.
The final regulations state that, “For taxable years beginning on or before December 29, 2015, the final regulations provide that a hospital facility may rely on a reasonable, good faith interpretation of section 501(r). A hospital facility will be deemed to have operated in accordance with a reasonable, good faith interpretation of section 501(r) if it has complied with the provisions of the 2012 and/or 2013 proposed regulations of these final regulations”.
Background
The ACA, signed into law by President Obama on March 23, 2010, introduced IRC §501(r) which includes four new requirements that tax-exempt hospital facilities are required to comply with related to a tax-exempt hospital facility’s:
- Community Health Needs Assessment (IRC §501(r)(3));
- Financial Assistance Policy (IRC §501(r)(4));
- Limitation on amounts charged, to individuals eligible under the organization’s financial assistance policy, for emergency or other medically necessary care (IRC §501(r)(5)); and
- Billing and collection practices (IRC §501(r)(6)).
The IRC §501(r) requirements, with the exception of the community health needs assessment, were effective for a tax-exempt hospital facility’s taxable year beginning after March 23, 2010; the date of the enactment of the ACA. The community health needs assessment requirement has been in effect for taxable years beginning after March 23, 2012. Thus, tax-exempt hospitals should already be in compliance with the provisions under IRC §501(r)(3).
Timeline
In July of 2011, the IRS released Notice 2011-52 which provided tax-exempt hospital facilities with guidance to follow in conducting a community health needs assessment (“CHNA”). Following this, in April of 2013, the IRS issued proposed regulations as a follow up to IRS Notice 2011-52 providing further guidance on the community health needs assessment requirements and the related excise tax under IRC §4959.
The IRS published proposed regulations on the requirements of IRC §501(r)(4), §501(r)(5) and §501(r)(6) in June of 2012. These regulations were proposed to apply for tax years beginning on or after the date the regulations were finalized or issued as temporary regulations, however, in the interim, taxpayers were able to rely on the proposed regulations until final or temporary regulations were issued. Following their release, a public hearing regarding these proposed regulations was held on December 5, 2012.
Finally, in August of 2013, the IRS issued temporary and proposed regulations that provided guidance to tax-exempt hospital facilities on how and when to file returns reporting the excise tax under IRC §4959 for failure to meet the CHNA requirements for any tax year.
Conclusion
This tax tip is intended as a general announcement that the final regulations have been issued. A future Withum Weekly Pulse edition will provide a more detailed summary of the final Regulations.
- A complete copy of the final regulations can be accessed at https://federalregister.gov/a/2014-30525.
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The information contained herein is not necessarily all-inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.
