Yesterday, the Internal Revenue Service (IRS) announced that tax-exempt hospitals need not answer certain questions related to the Patient Protection and Affordable Care Act's (PPACA) requirements for their continued tax exemption. 

As you may recall, the PPACA added exemption requirements for tax-exempt hospitals through new Section 501(r) to the Internal Revenue Code.  Earlier this year, the IRS released a redesigned Schedule H, Hospitals,to the Form 990 that included Section 501(r)-related questions focusing on each facility's (i) community health needs assessment practices, (ii) financial assistance policies, (iii) billing and collection practices, and (iv) charges for medical care. 

Today's announcement makes answering these questions optional for the 2010 reporting year.  This gives tax-exempt hospitals more time to analyze the schedule's new questions and better prepare for future disclosures.  No penalties will be assessed against tax-exempt hospitals that choose to leave blank this Schedule H subpart.

Key Takeaways

  • Tax-exempt hospitals must still wait until at least July 1, 2011, to file their 2010 returns.  In February, the IRS directed tax-exempt hospitals to delay filing their Forms 990.  The stated purpose for this unusual delay was to give the IRS additional time to implement changes to the IRS forms and systems to accommodate the additional requirements for charitable hospitals.  Today's announcement does not effect the July 1st delay.
  • While the new Schedule H questions are optional, tax-exempt hospitals must still demonstrate that they comply with Section 501(r)'s requirements or else risk losing their exempt status.  The announcement does not alter Section 501(r)'s effectiveness, just the reporting disclosure timeframe.
  • A tax-exempt hospital must still attach a copy of its most recent audited financial statements to its 2010 Form 990 if its reporting period began after March 23, 2010.  This requirement reflects another Affordable Care Act requirement.
  • The announcement encourages the tax-exempt hospital community to provide comments on how to improve the clarity and reduce the reporting burden of the Form 990 and Schedule H.

A copy of IRS Announcement 2011-37 is attached and available at: http://www.irs.gov/pub/irs-drop/a-11-37.pdf