According to the Tax Exempt and Government Entities Division of the IRS, the IRS intends to explore whether its 1969 revenue ruling outlining the tests for hospitals to qualify as tax-exempt remains applicable in current times. In Revenue Ruling 69-545, five factors are set forth in determining community benefit, including the following:

  • a board comprised of a broad base of community members;
  • an open medical staff; and
  • a full-time emergency room open to all persons regardless of ability to pay.

The IRS is concerned that some of the factors are no longer relevant and that the standard itself might be off target for some types of hospitals because no distinction is made between nonprofit and for-profit hospitals. A recent tax-exempt hospital study revealed considerable diversity in the sector, causing the IRS to question whether a bright line test would be easier to administer. Another issue being considered is whether “sole provider” critical access hospitals should be subject to the same facts-and-circumstances test regarding tax exemption as other types of hospitals. Teaching and research hospitals also might fall within this category.