Exemption Revoked: One Hospital’s Joint Venture Mishap

hospital joint ventureIntroduction

Joint ventures between non-profit hospitals and for-profit enterprises are fairly common in the health care industry. The arrangements, however, require careful attention, or the non-profit may put its tax exemption at risk.

PLR 201744019, released by the IRS in November 2017, illustrates the problem: On August 7, 2017, the IRS retroactively revoked the exempt status of a hospital operator as of February 1, 2011 after concluding that an agreement that it reached sometime during the 20th century meant that it was not operated exclusively for charitable purposes. The joint venture was a whole-hospital arrangement in which the exempt organization leased its land, property, and equipment to a for-profit management company which then operated in the organization’s name.… Read More

Heal Thyself: A Look at Audits of Hospital Organizations Under Section 501(r)

Affordable care act, taxLove it or loathe it, the Affordable Care Act brought big changes to health care.

One of those changes has not received the attention it deserves. The act amended section 501 of the Internal Revenue Code to impose certain specific requirements on “hospital organizations,” which are exempt organizations that operate one or more facilities that are “required by a State to be licensed, registered, or similarly recognized as a hospital.” I.R.C. § 501(r)(2)(A)(i).

The fact that these requirements are included in section 501 of the Code is significant, as it means that a hospital organization needs to comply to maintain tax-exempt status.… Read More

Flirting with Disaster: A Look at How Tax-Exempt Status Can Be Revoked

Non Profit, Tax-ExemptWhen a non-profit loses its tax-exempt status under the Internal Revenue Code, it is frequently the end of the organization.

Sometimes the problem is easily resolved; an exempt organization that has its status revoked because it failed to file its annual returns on Form 990 can be reinstated retroactively if it acts promptly. See Rev. Proc. 2014-11, 2014-3 I.R.B. 411; see also Rev. Proc. 2017-5, 2017-1 I.R.B. 230. But in most other cases, the loss of the exemption is a disaster:

  • First, the organization will be liable for income taxes that were not part of its budget.
  • Second, its sources of funding will likely disappear, as donors will no longer receive a tax deduction, and governmental grants may be conditioned upon tax-exempt status.
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