WASHINGTON — A professional group of accountants is asking the Internal Revenue Service to give large nonprofit hospitals a grace period of at least three years to fix any tax compliance problems that could jeopardize their tax-exempt status.
During the three-year period, the tax-exempt status of any outstanding bonds issued by the hospital would not be affected, under the proposal the American Institute of Certified Public Accountants made to the IRS in an Oct. 12 letter.
The seven-page letter, sent to IRS commissioner Doug Shulman, details how the agency should implement new requirements placed on nonprofit hospitals by the health care reform law, the Patient Protection and Affordable Care Act, that was enacted on March 30.
Specifically, the AICPA suggested that the IRS institute the three-year grace period for hospitals with multiple facilities, all of which must meet the standards of a 501(c)(3) organization to qualify as tax-exempt. The hospital’s outstanding tax-exempt bonds would remain tax-exempt during the grace period, the AICPA said.
Only if that grace period expired and a “substantial failure” of a hospital facility remained unfixed would its tax-exempt status be revoked. However, the IRS would need to offer guidance on what would happen to the outstanding tax-exempt bonds of the hospital if one of its facilities lost tax-their exempt status at the end of the grace period, the group said.
The IRS had asked for public comment on several specific points surrounding the health care reform law, including the tax treatment of nonprofit hospitals with multiple facilities.
In its comment letter, the AICPA also weighed in on how the IRS should handle the new requirement that nonprofit hospitals regularly conduct a community health needs assessment.
Specifically, the law requires every nonprofit hospital to conduct a community health needs assessment every three years with broad input from the community. The findings must be reported on the hospital’s Form 990, the annual information return that charitable organizations must submit to the IRS, and be made available to the public. Hospitals face a $50,000 excise tax if they fail to meet the requirement.
The AICPA recommended that all hospitals in a common metropolitan area be given the option of joining forces to produce a single assessment, and that the term “community health needs assessment” be defined “as broadly as possible” to accommodate the diversity of hospital organizations nationwide.
It also asked the IRS to clarify that a hospital could post the findings of the assessment on its website to comply with the requirement that it be widely available to the public.
The AICPA also said the IRS needs to clarify the definition of a hospital. The reform law simply states that a hospital is defined as an organization that is recognized by its state as a hospital. But the AICPA noted that some states, like New York, use broad definitions that also apply to nursing homes and dental clinics.
“We do not believe that it is the intention of Congress to impose the new requirements on nursing homes, community clinics or other health care organizations,” the group wrote.