On April 6, 2011, the Exempt Organizations Committee of the D.C. Bar hosted a panel discussion on the recently released revised Schedule H of IRS Form 990. The panelists included Ron Schultz, a former senior advisor to the IRS Commissioner of TE/GE at the time of the major revisions to Form 990. Also on the panel was Chris Giosa, an economist with the IRS Tax-Exempt and Government Entities Office. The panelists discussed the new requirements and changes to Schedule H and commented on the issues that need further clarification. Below are highlights and excerpts of the panel discussion:
- Tax-exempt hospitals should note that the new required disclosures are imposed on a facility-by-facility basis, which is a major change from most of the other exemption requirements that are applied on an entity-wide basis. The increased reporting requirements will provide Congress a large amount of data and studies to examine the differences between nonprofit and for-profit hospitals.
- One hotly debated issue related to billing is that gross charges can be used for rate setting, however these charges cannot be what a hospital actually bills patients without insurance.
- The IRS recognizes that Schedule H was released for the 2010 tax filing season prior to the IRS promulgating any guidance. The IRS intends to continue working with hospitals and public health communities to work through the implementation of the healthcare legislation and welcomes comments on the recent changes to Schedule H.
During the panel discussion, Mr. Giosa identified areas that the IRS has received comments and that it hopes to provide further guidance. These issues include:
- Whether Section 501(r) applies to 501(c)(3) organizations that operate a hospital facility through a disregarded entity or joint venture treated as a partnership for tax purposes;
- Whether 501(r) applies to hospital facilities located outside the United States;
- Whether 501(r) applies to government hospitals;
- The need for more details regarding contents of the community health assessments;
- The definition of a community for purposes of the health assessment. Commenters have asked for flexibility relating to the definition of community considering that some hospitals have target populations such as women or children and not a geographic area;
- The desire to be able to conduct community health assessments with one or more organizations to allow for cost-savings and consistent identification of community needs;
- Guidance concerning reasonable efforts to determine eligibility for financial assistance; and
- Guidance concerning extraordinary collection actions considering collection laws vary state-by-state.
Reviews will be conducted every three years but they are not audits of hospitals nor should hospitals expect to be notified that a review is being conducted or completed.
American Hospital Association Issues Letter Raising Concerns Over
Revised Schedule H
The American Hospital Association (AHA) together with 10 major state hospital associations called for the withdrawal and reissuance of Schedule H because the revised Schedule H “is burdensome, carelessly redundant, and was developed outside of the normal IRS process for implementing new statutory requirements for tax exemption.” In an April 20, 2011 letter to the IRS TE/GE Commissioner, the AHA identified the following multiple areas of concern with the new reporting requirements.
- IRS’s decision to implement a mandatory filing extension to August 15 is confusing to many hospitals operating on a calendar year basis. These hospitals are unsure how the mandatory extension affects the normal six-month extension request process.
- Limitations on billing only applies to patients who qualify for financial assistance, but the wording of related questions in Schedule H cause confusion. For example, further guidance is needed to explain how hospitals can bill wealthy foreign individuals who receive care.
- Section 501(r) applies only to licensed or similarly situated hospitals, however, Schedule H mandates disclosure of all nonhospital healthcare facilities operated by an exempt hospital, which is outside the scope of the Patient Protection and Affordable Care Act of 2010.
- Schedule H vastly expands the paperwork required of hospitals beyond what the Tax Code Section 501(r) requires regarding responses to 21 questions, many with sub-questions, that must be answered on a facility-by-facility basis. AHA calls this “onerous and redundant.”
We will continue to update you as future guidance is released. Click here to read our prior client alert about the changes to IRS Form 990 for Exempt Hospital Entities and the three-month filing extension for your 2010 IRS Form 990.
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