Nonprofits Asked to Justify Their Tax-Exempt Status
Lois G. Lerner was appointed as Director of the Exempt Organizations (EO) Division of the Internal Revenue Service (IRS) in December 2005. According to the IRS the tax-exempt sector of the economy had total assets of approximately $3.7 trillion in 2002, the latest year for which data are available, with revenues of $1.2 trillion or about 10 percent of GDP. The New York Times reports that under Lerner’s direction the IRS has sent “compliance check questionnaires” to more than 550 tax-exempt hospitals out of the 7,000 or so nonprofit healthcare organizations it lists, of which is has audited 375 during the last decade. This questionnaire (IRS form 13790 - pdf) includes questions such as:
- Did your hospital deny medical services to any individuals with private insurance/Medicare/Medicaid/no insurance?
- Did your hospital’s emergency room provide services to all members of the community regardless of their ability to pay?
- Have you denied any qualified physician’s application for medical staff privileges?
- How much did your hospital spend on medical research programs?
- Did your hospital conduct any medical trial studies?
- Did your hospital limit public access to the findings or results from any of its medical research programs/medical trial studies?
- How much did your hospital spend on uncompensated care?
How many individuals received uncompensated care from your hospital?
Charles W. Bailey, general counsel of the Texas Hospital Association (THA), found the 9-page, 80-question form “overwhelming.” Senator Charles E. Grassley of Iowa and Chairman of the Senate Committee on Finance who recently inquired about the reality of the nonprofit purpose of some American hospitals expressed his support for the IRS move. Representatives for the American Hospital Association (AHA) and the Catholic Health Association (CHA) do not agree as to whether losses on Medicare-paid treatments and bad debt should be considered a community benefit. The CHA thinks that Medicare losses could come from hospital inefficiency and using them to justify tax exemption erodes credibility.
Health Affairs also published a series of articles about nonprofits. One written by Gregg Bloche argues that nonprofits should be paid for performance by tying tax benefits to accomplishments (beyond current achievements) in health promotion, quality, and care for the needy. David A. Hyman and William M. Sage also advocate a “trust but verify” approach.
June 21, 2006 Related topics: Finance