Tax-Exempt Section 501(c)(3) Hospitals: Community Benefit Standard and Schedule H

Source: Erika Lunder and Edward C. Liu, Congressional Research Service, RL34605, July 31, 2008

From the summary:
Non-profit hospitals receive billions of dollars in governmental subsidies due to their tax-exempt status as 501(c)(3) charitable organizations. Among other requirements, these hospitals must be organized and operated for a charitable purpose in order to maintain their tax-exempt status. Under the “community benefit” standard developed by the IRS, charitable hospitals are judged on whether they provide sufficient health benefits to the community. Recently, questions have arisen as to whether 501(c)(3) hospitals are providing adequate public benefits to justify their status as charitable organizations. Both Congress and the IRS have examined the issue of hospitals’ tax-exempt status over the past several years. One outcome has been that the IRS developed a new annual reporting requirement (Schedule H of the Form 990) for hospitals to report information regarding their activities. The new Schedule H has been controversial. In the 110th Congress, the Charity Care for the Uninsured Act of 2007 (H.R. 973) would create a new tax credit for physicians who provide charity care. No legislation has been introduced in the 110th Congress that would address the tax treatment of hospitals. There was such a bill in the 109th Congress — the Tax Exempt Hospitals Responsibility Act of 2006 (H.R. 6420). Among other things, this bill would have imposed a tax on 501(c)(3) hospitals that failed to treat low-income uninsured patients. This report examines the standards under which hospitals qualify for tax-exempt charitable status under federal law, recent inquiries made by Congress and the IRS into whether hospitals are conducting sufficient activities to justify their exemption, and the new Schedule H. It ends with a brief discussion of H.R. 973 (110th Congress) and H.R. 6420 (109th Congress)

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