Notice 2011-52, 2011-30 IRB
A new notice carries interim guidance on the community health needs assessment (CHNA) requirements that exempt hospitals will be required to meet in order to retain their Code Sec. 501(c)(3) status and avoid penalties. The CHNA requirements, which were carried in the Patient Protection and Affordable Care Act (Affordable Care Act, P.L. 111-148), are effective for tax years beginning after Mar. 23, 2012.
New CHNA requirements. Code Sec. 501(r), as added by the Affordable Care Act, calls for hospitals to meet a series of new and complex rules in order to keep their status as Code Sec. 501(c)(3) organizations. One of these is the requirement for a hospital to conduct a community health needs assessment (CHNA). Specifically, for tax years beginning after Mar. 23, 2012, a hospital organization must conduct a CHNA every three years and adopt an implementation strategy to meet the community health needs identified through the assessment. The CHNA must (1) take into account input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health, and (2) be made widely available to the public. (Code Sec. 501(r)(3)) The CHNA may be based on current information collected by a public health agency or non-profit organizations and may be conducted together with one or more organizations, including related organizations. (Joint Committee on Taxation's Technical Explanation of the Affordable Care Act (JCT Explanation)) A hospital organization that operates more than one hospital facility must meet the Code Sec. 501(r)(1) requirements (including the CHNA rules) separately with respect to each hospital facility.
Hospital organizations must include in their annual information return (i.e., Form 990) a description of how they are addressing the identified CHNA needs and a description of any needs that are not being addressed and why. (Code Sec. 6033(b)(15)(A)) Under Code Sec. 4959, failure to meet the CHNA requirements results in a $50,000 excise tax, which under Code Sec. 6033(b)(10) must be reported by the hospital organization.
In 2010, IRS solicited comments on the new Affordable Care Act rules for hospitals, including the CHNA requirements.
Interim guidance. Following are highlights of IRS's new, detailed interim guidance on the CHNA rules:
Who must meet CHNA rules. Under Code Sec. 501(r)(2)(A), a hospital organization required to meet the CHNA rules is (i) an organization operating a State-licensed hospital facility, and (ii) any other organization that IRS determines has the provision of hospital care as its principal function or purpose constituting the basis for its exemption under Code Sec. 501(c)(3).
Notice 2011-52, provides that:
* Before the effective date of any future, prospective guidance, only organizations operating State-licensed hospital facilities will be considered “hospital organizations” that must satisfy the CHNA rules.
* IRS intends to include within the definition of a hospital organization any Code Sec. 501(c)(3) organization that operates a State-licensed hospital facility through a disregarded entity or a joint venture, limited liability company, or other entity treated as a partnership for federal income tax purposes.
* IRS intends to provide that a hospital facility located outside of the U.S. will not be considered a State-licensed hospital facility.
* IRS intends to apply Code Sec. 501(r) to every hospital organization that is (or wants to be) a Code Sec. 501(c)(3) organization. However, in recognition of the unique position of government hospitals, IRS seeks comments on how such hospitals may use alternative methods to satisfy the CHNA rules.
* IRS intends to require a hospital organization operating multiple hospital facilities to document separately the CHNA and the implementation strategy for each of its hospital facilities, but requests comments on the consequences of failure to meet the rules for one or more facilities.
Implementation and timing of a CHNA. Notice 2011-52, Sec. 3, provides detailed guidance on the required content of a CHNA, and when it is treated as “conducted” (i.e., in the tax year that the written report of its findings is made widely available to the public). In what appears to be a significant concession, IRS says it intends to allow a hospital organization to: (1) base a CHNA on information collected by other organizations, such as a public health agency or non-profit organization; and (2) conduct a CHNA in collaboration with other organizations, including related organizations, other hospital organizations, for-profit and government hospitals, and state and local agencies such as public health departments. However, a hospital organization still will have to document the CHNA for each of its hospital facilities in separate written reports for each hospital facility.
Other guidance. Notice 2011-52 carries details of how IRS expects to define a hospital facility's community, persons considered to represent the broad interests of that community (for input in formulating a CHNA), when a CHNA will be treated as being made widely available to the public (e.g., publication on website), and when and how a hospital organization is treated as having adopted an implementation strategy to meet community needs identified through the CHNA.
IRS says it intends to impose the $50,000 Code Sec. 4959 excise tax on any hospital organization that fails to satisfy the CHNA rules with respect to a hospital facility in any three-year period. For example, if a calendar-year hospital organization operating only one hospital facility fails to conduct a CHNA by the last day of 2013, and also did not conduct a CHNA in 2011 or 2012, it will be subject to a $50,000 excise tax for its 2013 tax year. If it then fails to conduct a CHNA by the last day of 2014, it will again be subject to a $50,000 excise tax for its 2014 taxable year (having not conducted a CHNA in 2012, 2013, or 2014).
Schedule H (Hospitals) of Form 990. Under Code Sec. 6033(b)(10)(D), a hospital organization must report on its annual information return (Form 990) the amount of the excise tax imposed on it under Code Sec. 4959. Additionally, Code Sec. 6033(b)(15)(A) requires a hospital organization to report on its annual Form 990 a description of how it is addressing the needs identified in each CHNA and a description of any such needs that are not being addressed together with the reasons why such needs are not being addressed. IRS has added new questions to Schedule H of Form 990 to reflect the new reporting requirements for hospital organizations under Code Sec. 6033(b)(15)(A). IRS says it also has plans to add questions reflecting the new reporting requirements under Code Sec. 6033(b)(10)(D) to Form 990.
Effective dates. The CHNA requirements are effective for tax years beginning after Mar. 23, 2012. Thus, IRS intends to require a hospital organization to conduct a CHNA and adopt an implementation strategy for each of its hospital facilities by the last day of its first tax year beginning after Mar. 23, 2012. Also, a CHNA that is conducted and an implementation strategy that is adopted in either of the two tax years immediately preceding the tax year in which Code Sec. 501(r)(3) becomes effective may apply toward satisfaction of the CHNA requirements for the tax year in which Code Sec. 501(r)(3) becomes effective (and the succeeding tax year, if within the three-year period beginning with the year the CHNA was conducted). Finally, IRS affirms that although the reporting requirement in Code Sec. 6033(b)(15)(A) is effective for tax years beginning after Mar. 23, 2010, because the CHNA requirements are not effective until tax years beginning after Mar. 23, 2012, IRS won't require hospital organizations to report the Code Sec. 6033(b)(15)(A) information on, or attach implementation strategies to, Forms 990 for any tax year beginning on or before Mar. 23, 2012.
A hospital organization may rely on the anticipated regulatory provisions in Notice 2011-52, with respect to any CHNA made widely available to the public, and any implementation strategy adopted, on or before the date that is six months after the date further guidance regarding the CHNA requirements is issued.
References: For additional requirements that “charitable hospitals” must meet to qualify as tax-exempt organizations, see FTC 2d/FIN ¶D-4141.1; United States Tax Reporter ¶5014.46.