On August 7, 2023, a bipartisan group of four United States Senators issued a letter to the Internal Revenue Service (IRS), requesting information from the IRS on how it scrutinizes tax-exempt community hospitals. The letter expressed concern that nonprofit hospitals may not be providing sufficient “community benefit” required to justify their tax-exempt status.
The four senators who issued the letter were Elizabeth Warren, D-Massachusetts, Raphael Warnock, D-Georgia, Bill Cassidy, R-Louisiana, and Charles Grassley, R-Iowa. The letter requested information from the IRS regarding its oversight of how community hospitals receive and maintain their tax-exempt status. Currently, the IRS uses the “community benefit” standard to determine whether a nonprofit hospital qualifies for tax exemptions, which have been estimated to be worth over $28 billion in 2020.
The letter explained that under current IRS rules, nonprofit hospitals that provide “benefits to a class of persons that is broad enough to benefit the community” may qualify for tax exemptions. The senators expressed concern that nonprofit hospitals may take advantage of this broad standard, engage in practices that are not in the best interest of patients, and avoid having to provide essential care in the community to those in need. The letter cites several instances where nonprofit hospitals have placed liens on patients’ homes in poor and rural areas, charged full price for services that should have been free or discounted, and filed lawsuits against patients for unpaid medical bills.
The letter stated that the IRS uses annual tax forms and regular reviews of nonprofit hospitals’ community benefits to confirm nonprofit hospitals are complying with the law. Nonprofit hospitals are required to file a Form 990 each year, which requires hospitals to report information on compensation, revenue, assets, liabilities, and information on community benefits. The letter expressed concern that the “10 holistically analyzed metrics” relied upon by the IRS to determine a nonprofit hospital’s compliance are insufficient as currently used. The letter urged the IRS to review Form 990 so that it may better identify and review nonprofit hospitals’ community benefit activities.
The letter also requested answers to a series of questions to better understand the IRS’s existing oversight of nonprofit hospitals, including, among others, a request that the IRS list the most commonly reported community benefit activities that qualified a nonprofit hospital for tax exemptions for the past two years, disclose updates made to Form 990 to modify how it identifies a nonprofit hospital’s community benefit information, and list the names of nonprofit hospitals that lost their tax-exemption due to noncompliance with the community benefit standard since January 1, 2014.
The senators also wrote to the Treasury Inspector General for Tax Administration, requesting the agency investigate whether the IRS is sufficiently scrutinizing nonprofit community hospitals’ compliance with tax-exempt requirements and their obligations to provide community benefits.
The senators’ full letter can be read here.
