IRS proposes procedures for charitable hospitals to correct, disclose failures to meet §501(r)


Health Care Alert
Health care legislative and regulatory update

On December 30, 2013, the IRS issued a proposed revenue procedure that provides correction and disclosure procedures under which certain failures to meet the requirements of §501(r) of the Internal Revenue Code will be excused for purposes of §501(r)(1) and §501(r)(2)(B).  This notice invites comments regarding the procedures set forth in the proposed revenue procedure, including what additional examples, if any, would be helpful and whether hospitals should be required to make additional disclosures.IRS 501(r) procedures for tax-exempt hospitals

In order to be excused from failure under §501(r), the failure must fall within certain parameters (i.e., not willful or egregious), the hospital organization must correct the failure promptly in accordance with this guidance, and must disclose certain information including the failure and correction measures in Schedule H of Form 990.

The proposed guidance defines “willful or egregious” failure as a failure due to gross negligence, reckless disregard or willful neglect. It is important to note that the IRS cautions that a correction and disclosure of a failure does not create a presumption that the failure was not willful or egregious. In addition, the proposed Revenue Procedure specifies that although noncompliance may not be treated as a failure for purposes of §501 (r)(1) and §501(r)(2)(B), a hospital may still be subject to a $50,000 excise tax for failure to meet the community health needs assessment requirements of §501(r)(3).

For full details, read the proposed procedure: Notice 2014-3

Contact us to review implications for your hospital.

Frank Giardini
Health Care Tax
T +1 215 656 3060

Michele Melchior
Health Care Tax
T +1 704 926 0337