The question of whether non-profit hospitals are doing enough to justify their tax-exempt status is the focus of a new Government Accountability Office study on the manner in which the Internal Revenue Service evaluates hospitals’ tax exemption.
According to the study, the IRS struggles with one of the three primary criteria for non-profit hospitals’ tax-exempt status outlined in the Affordable Care Act (PPACA): whether the community benefit such hospitals provide justifies their tax exemption.
The GAO review observed that
While PPACA established requirements to better ensure hospitals are serving their communities, the law is unclear about what community benefit activities hospitals should be engaged in to justify their tax exemption. The Internal Revenue Service (IRS) identified factors that can demonstrate community benefits, but they are not requirements. IRS does not have authority to specify activities hospitals must undertake and makes determinations based on facts and circumstances. This lack of clarity makes IRS’s oversight challenging. Congress could help by adding specificity to the Internal Revenue Code (IRC).
The GAO report also notes that
…according to IRS officials, hospitals with little to no community benefit expenses would indicate potential noncompliance. However, IRS was unable to provide evidence that it conducts reviews related to hospitals’ community benefits because it does not have codes to track such audits.
The tax-exempt status of some hospitals has been a matter of interest to some members of Congress in recent years.
Learn more about why the GAO undertook this analysis, what it found, and what it recommended to the IRS to address the shortfalls in its current approach to its responsibility for evaluating whether individual non-profit hospitals continue to merit their tax-exempt status in the GAO report “Tax Administration: Opportunities Exist to Improve Oversight of Hospitals’ Tax-Exempt Status.”