A new tax issue has arisen out of Obama Care and hospitals are now scrambling to consult with tax lawyers to find out how to best deal with the issue. Specifically, under the Patient Protection and Affordability Care Act tax exempt hospitals and affiliated faculty and physicians may end-up losing their tax-exempt status if they can’t meet new, more stringent requirements. Tax attorneys encourage hospitals to be proactive and to start reviewing the factors which may impact the government’s decision whether to maintain tax-exempt status.
One of the key ingredients to retaining tax-exempt status, according to most tax lawyers, is for hospitals to continually act in furtherance of their communities, their charitable purposes and to provide their communities benefits. The more convincing case hospitals can make here, the better their chances of keeping their tax-exempt status.
IRS tax attorneys point out one of the first things hospitals should do is whatever is necessary to establish a rebuttable presumption that all compensation relationships are reasonable. The more reasonable those relationships appear, the more likely tax exempt status may not be taken away.
Tax lawyers also suggest hospitals fully comply with tax-exempt requirements set out in the Patient Protection and Affordability Care Act, which are now codified in Section 501(r) of the Internal Revenue Code. If you have questions about these requirements you are encouraged to speak with a tax attorney who should be able to review those requirements with you and answer any of your questions.
Hospitals are also encouraged by many tax attorneys to annually document and review the charitable benefits and care the hospitals provide to their communities. The hospitals should also ensure that any and all money they allocated for community benefit purposes is, in fact used for such purposes. Tax lawyers also warn the money should actually provide a community benefit like education or research.
Some IRS tax attorneys remind their hospital clients about case law holding that if the value of charitable services provided each year is 1% or less of gross revenues, then the amount of community benefit, according to that case law, is not adequate. While no specific percentage is required, an IRS study has found that the average hospital reported approximately 9% of revenue was spent on community benefit. Tax lawyers suggest this is probably a good minimal starting place when considering whether the charitable services provided are adequate for purposes of retaining their tax exempt status.
Tax lawyers also recommend that hospitals publicize their willingness to accept Medicare and Medicaid patients and emphasize the services they make available to indigent patients. In the end, many tax attorneys advise the more hospitals can do to demonstrate they continually act in furtherance of their communities, the more likely they will be able to advance a compelling case to keep their tax-exempt status.
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