Thursday, April 4, 2013
The IRS released yesterday the proposed regulations under Internal Revenue Code section 501(r)(3) relating to community health needs assessments by charitable hospitals that are tax-exempt under section 501(c)(3). Perhaps the most significant part of the proposed regulations is they provide guidance on the consequences for failing to meet one or more of the requirements of section 501(r), including but not limited to the assessments requirement. The proposed regulations provide that omissions or errors that are minor, inadvertent, and due to reasonable cause will not be considered such a failure as long as the hospital facility at issue corrects the omission or error promptly after discovery. The proposed regulations further provide that a failure will be excused if it was neither willful nor egregious and the hospital facility at issue both corrects and discloses the failure. Failures that are not excused will result in the hospital facility at issue being subject to corporate income tax, but the entire hospital organization will only have its tax-exempt status revoked after consideration of all the relevant facts and circumstances relating to the failure(s) and any past failures.
The proposed regulations follow two earlier IRS notices regarding these assessments (Notice 2010-39 and Notice 2011-52), both of which generated numerous comments, and join previously issued proposed regulations under sections 501(r)(4), (5), and (6).