IRS Releases Two Notices for Tax-Exempt Hospitals

by Baker Donelson

On December 30, 2013, the Internal Revenue Service issued two notices related to Section 501(r) of the Internal Revenue Code, which provides guidelines for hospital organizations wishing to retain tax-exempt status. Notice 2014-2 confirms that tax-exempt hospital organizations may rely on proposed regulations under Section 501(r) before final regulations are published. Notice 2014-3 provides correction and disclosure procedures for certain failures to meet the requirements under Section 501(r).

Background - Section 501(r)

Section 9007 of the Patient Protection and Affordable Care Act enacted Section 501(r) which provides that a hospital organization will not be afforded tax-exempt treatment under Section 501(c)(3) unless the hospital meets the requirements of Section 501(r)(3) through (r)(6).

  • Section 501(r)(3) requires a hospital organization to conduct a community health needs assessment (CHNA) every three years and implement a strategy to meet those needs.
  • Section 501(r)(4) requires a hospital organization to establish a financial assistance policy (FAP) and a policy related to emergency medical care.
  • Section 501(r)(5) limits amounts charged for emergency or other medically necessary care that is provided to individuals under the hospital's FAP to not more than the amounts generally billed to insured individuals.
  • Section 501(r)(6) requires reasonable efforts to be made to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions.

For a more detailed discussion on Section 501(r), please see our July 19, 2012 and April 16, 2013 Health Stat Alerts.

Notice 2014-2

Notice 2014-2 confirms that tax-exempt hospital organizations may rely on the proposed regulations under Section 501(r) dated June 26, 2012 and April 5, 2013, pending the publication of final regulations or other applicable guidance.

The preamble to the 2013 proposed regulations did not specifically address whether taxpayers could rely on sections other than Prop. Reg. Section 1.501(r)-3 pending the publication of final or temporary regulations. Notice 2014-2 was written to confirm that tax-exempt organizations may rely on both the 2012 and 2013 proposed regulations until final or temporary regulations or other applicable guidance is published.

Notice 2014-3

Notice 2014-3 includes a proposed revenue procedure that provides correction and disclosure procedures, under which certain failures to meet the requirements of Section 501(r) will be excused for purposes of Sections 501(r)(1) and 501(r)(2)(B).

Correction Principles: The proposed revenue procedure contains four correction principles:

  • Restoration of Affected Persons: To the extent possible, correction should be made with respect to each affected person, if any, and should restore the affected person(s) to the position they would have been in had the failure not occurred.
  • Reasonable and Appropriate Correction: Correction should be reasonable and appropriate to address the failure.
  • Timing: The correction should be made as promptly after discovery as is reasonable given the nature of the failure.
  • Implementation/Modification of Safeguards: If the hospital organization has not established practices and procedures for its hospital facility that are reasonably designed to achieve each facility's compliance with the requirements of Section 501(r), the hospital organization should establish such practices and procedures as part of its correction.

To the extent that a hospital organization's established practices and procedures comply with Section 501(r), but those practices or procedures failed, the hospital organization should determine if changes are needed to reduce the likelihood of that type of failure recurring and to assure prompt identification and correction of any such failures.

Disclosure: A failure is disclosed if the hospital organization reports the following information on Schedule H of its Form 990 in the year the failure is discovered:

  • A description of the failure;
  • A description of the discovery, including how the discovery was made and the timing of the discovery;
  • A description of the corrections made; and
  • A description of the revised or newly-implemented practices and procedures.

The proposed revenue procedure provides that minor and inadvertent omissions and errors due to reasonable cause that are corrected in accordance with the requirements of Prop. Reg. Section 1.501(r)-2(b) of the 2013 proposed regulations are not considered failures to meet a requirement of Section 501(r) and do not need to be disclosed.

Comments related to this proposed regulation must be submitted by March 14, 2014.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.