The IRS has released a revised Form 990 Schedule H (Hospitals), which was modified to include inquiries regarding compliance with Internal Revenue Code Section 501(r). That section was enacted as part of the Patient Protection and Affordable Care Act (PPACA), and imposes various additional requirements on Section 501(c)(3) hospitals relating to financial assistance policies, limits on charges, limits on collection practices, and community health needs assessments. For the most part, these new provisions apply to hospitals for tax years beginning after March 23, 2010; the provisions regarding community health needs assessments are effective for tax years beginning after March 23, 2012.
Since the date of enactment, the IRS has been scrambling to revise Schedule H to reflect the new provisions of Section 501(r), with repeated public statements by IRS officials in late 2010 that the form would be released as soon as possible. Now, the newly-released revision shows an expansion of the existing Part V, which previously required only basic identifying information regarding the various facilities operated by the filing organization. The inclusion of the new Section 501(r) inquiries in this particular portion of Schedule H reflects the conceptual mismatch between the traditional focus of federal income tax exemption and reporting on a legal entity basis, and the new Section 501(r) requirements on a hospital facility basis.
The revised Schedule H includes inquiries regarding community health needs assessments but notes that such questions are optional for the 2010 tax year (and presumably will be for the 2011 tax year as well, given the effective date of these provisions). The other new Section 501(r) inquiries do not include an "optional" notation, which suggests that perhaps the IRS expects all Section 501(c)(3) hospital organizations to answer the questions for their 2010 tax year – an apparent inconsistency since PPACA made such provisions applicable only for tax years beginning after March 23, 2010. However, in new Schedule H Instructions posted to the IRS website February 24, 2011, the IRS has clarified that these Section 501(r) inquiries are in fact optional for organizations whose 2010 tax year began before March 23, 2010. The handling of this clarification in the Instructions, versus in the Schedule itself, may be construed to suggest that the IRS is hoping to achieve as much symmetry as possible in terms of 2010 reporting, notwithstanding the mid-year effective date of Section 501(r).
From a substantive standpoint, the Schedule and Instructions overall take a reasoned approach to the information reporting required directly or indirectly by PPACA. The IRS seems to have considered nonprofit hospital viewpoints in designing the questions. Not surprisingly, the questions reflect some of the Congressional concerns that led to enactment of Section 501(r). For example, the statute regulates a tax-exempt hospital's ability to engage in "extraordinary collection practices." Not surprisingly, the IRS, in Part V. Section B of the Schedule, asks whether the reporting facility permitted liens on residences or body attachments. It is not yet clear, however, how reasonable the IRS's approach is to collecting information about a hospital's use of gross charges (i.e., chargemaster rates) in determining the amounts billed to individuals (1) eligible for assistance under the facility's financial assistance policy or (2) who do not have insurance covering emergency or other medically necessary care. The language in Section 501(r) restricting the amounts charged to patients eligible under the facility's financial assistance policy and its limitation on the use of gross charges has generated controversy, and language in the Schedule and Instructions is unlikely by itself to fully resolve the ambiguity.
Given the significant changes in Schedule H and corresponding adjustments to the IRS's processing systems, the IRS has concurrently announced an automatic three-month deferral of the Form 990 due date for certain hospital filers. In Announcement 2011-20 (which, along with the revised Schedule H, can be found at http://www.irs.gov/charities/charitable/article/0,,id=236274,00.html), the IRS granted a limited automatic three-month extension to file Forms 990 for the 2010 tax year. The extension applies only to hospital organizations (i.e., exempt organizations that operate one or more hospital facilities and thus are required to complete Schedule H), and only to those that otherwise would be required to file before August 15, 2011. In essence, this means that the extension covers only those hospital organizations whose 2010 tax year started between January 1, 2010, and March 23, 2010 -- organizations that were not required to comply with Section 501(r) for the 2010 tax year. The extension is not merely permissive. Rather, the IRS has declared that such organizations may not file their 2010 Forms 990 before July 1, 2011.
The revised Schedule H and Instructions are certain to generate considerable reaction among the tax-exempt hospital community as organizations continue to sort through the specific expectations of Section 501(r) and federal courts around the country continue to debate the constitutionality of the legislation by which the provisions were enacted (i.e., PPACA).
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