IRS Offers Three-Month Filing Extension of Form 990 for Exempt Hospital Entities

February 28, 2011

But throws out a wide net to catch excess benefit and unrelated business transactions

The Internal Revenue Service, as of February 23, announced a three-month filing extension of Forms 990 by tax-exempt organizations operating one or more hospital facilities.

Announcement 2011-20 grants an automatic three-month, penalty-free filing extension to such hospital organizations with return due dates earlier than August 15, and advises them to file neither the paper nor electronic version of the Form 990 for the 2010 tax year until July 1.

“The automatic extension of the filing due date applies only to hospital organizations that are required to file Schedule H with the 2010 Form 990 and that would otherwise be required to file the 2010 Form 990 before August 15, 2011. The automatic extension of the filing due date does not apply to any other tax-exempt organization required to file Form 990.”

However, the announcement added that recently formed hospital organizations that did not file Form 990 Schedule H for tax year 2009, and who believe they are entitled to the extension of time under this announcement, are encouraged to file Form 8868 Application for Extension of Time to File an exempt organization tax return to reduce the risk that they may incorrectly receive a penalty notice from the IRS.

Hospital organizations requiring more than the given extension period may request another three-month extension by filing Form 8868, Part II, the announcement said.

The extension comes as IRS completes the implementation of changes to its forms and systems in accordance with the Patient Protection and Affordable Care Act (PPACA) of 2010 (Pub. L. N. 111-148), which contains additional requirements for charitable hospitals.

Excerpts from 2010 Instructions for Schedule H (Form 990)

Hospital organizations will be subject to greater reporting requirements under the revised Schedule H that could raise issues of excess benefit transactions under the intermediate transaction penalties of Section 4958 and unrelated trade or business income tax under section 511.

The PPACA under section 501(r) added additional requirements a hospital organization must meet to qualify for tax exemption under section 501(c)(3) in tax years beginning after March 23, 2010. These additional requirements address a hospital organization’s financial assistance policy, emergency medical care policy, billing and collections, and charges for medical care. Also, for tax years beginning after March 23, 2012, the PPACA requires hospital organizations to conduct community health needs assessments.

Because section 501(r) requires an organization to meet these requirements with respect to each of its hospital facilities, Part V, Facility Information, has been expanded to include a new Section A, Hospital Facilities, in which an organization must list its hospital facilities, at any time during the tax year, that were required to be licensed, registered, or similarly recognized as a hospital under state law, and any other organization that the Secretary determines has the provision of hospital care as its principal function or purpose constituting the basis for its exempt status under section 501(c)(3), without regard to section 501(r). Part V also includes a new Section B, Facility Policies and Practices, for reporting of information on policies and practices addressed in section 501(r). The organization must complete a separate Section B for each of its hospital facilities listed in Section A for tax years beginning after March 23, 2010.

The provisions of section 501(r) are effective for tax years beginning after March 23, 2010, except for the community health needs assessment requirements of section 501(r)(3), which are effective for tax years beginning after March 23, 2012. Accordingly, the questions in Part V, Section B, regarding community health needs assessments (lines 1 through 7) are optional for tax year 2010. Section B, lines 8-21, are optional for hospital organizations reporting a tax year beginning on or before March 23, 2010.

Section 6033(b)(15)(B) also requires hospital organizations to submit a copy of their audited financial statements to the IRS. Accordingly, an organization whose tax year begins after March 23, 2010 that is required to file Form 990, Schedule H, Part V, Section B, must attach its audited financial statements for the tax year to its Form 990 (see instructions for Form 990, Part IV, line 20b).

Part V also includes a new Section C, in which the organization must list all of its non-hospital healthcare facilities that it operated during the tax year, whether or not such facilities were required to be licensed or registered under state law. The organization should not complete Part V, Section B, for any of these non-hospital facilities. This would include subsidiaries and joint venture operations with physician practices that could lead to further review by the IRS. See under sections 4958 and 511.See for further information.

New Health Entities Created Under PPACA May Take Both Taxable and Tax-Exempt Forms

Nonprofit organizations will be at the center of some of the new entities created by the 2010 healthcare reform law, but it is not yet clear whether they will be exempt or non-exempt, Treasury Department Official Ruth Madrigal said at the conference, February 23.

Among the new entities the law calls for are accountable care organizations (ACOs) in which groups of service providers and suppliers work together to manage the care of Medicare beneficiaries.

“It’s not clear what type of entity this would be and certainly it’s not clear what its tax status would be, what may evolve are tax-exempt hospitals getting together with doctors and medical service providers to address community health needs more effectively,” Madrigal said.

Those entities structured as tax-exempt organizations will require particular attention. Organizers of ACOs with a tax-exempt need to ensure that all the arrangements are fair, that charitable assets are protected and that charitable activities are going on, she said.

We will keep you informed on IRS and Treasury Department implementation regarding the Patient Protection and Affordable Care Act and other related matters concerning healthcare. For more in this area see Nonprofit Health Lawyers Present Unique Approach to Section 501(r), IRS Addresses Hospital Concerns Regarding Section 501(r), Nonprofit Hospitals in Need of an Aspirin, Health Reform: Is the Hospital Industry Misapplying Congressional Intent?, and ACOs and the Shared Savings Program – Part II: Unanswered Questions.

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