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What is . . . Tax-Exempt?

June 28, 2006

If your not-for-profit institution feels as though its tax exempt status is in jeopardy, you’re not alone. The N.Y. Times reported on June 18:

The Internal Revenue Service has begun a wide-ranging investigation of nonprofit hospitals to determine whether they are flouting standards for tax-exempt status, whether they deny care to people without insurance and whether they provide significant amounts of charity care.

The agency has sent "compliance check questionnaires" to more than 550 tax-exempt hospitals, seeking detailed information about their operations and billing practices and the compensation of top hospital executives.

Lois G. Lerner, director of the exempt organizations division of the I.R.S., said the questionnaires could be used in deciding whether standards for nonprofit hospitals should be changed or clarified. The current standards, with little changed since 1969, rely on a vaguely defined concept of "community benefit."

While reviewing the questionnaires, Ms. Lerner said, the agency may decide to conduct formal audits of some hospitals, with a full-scale examination of their records.

This week, Health Affairs published online a collection of papers entitled How Nonprofits Matter addressing, among other things, the issue of whether health care providers should be accorded nonprofit status, and the question of whether tax-exempt health care providers provide better health care than their for-profit counterparts.  The short answer: the jury’s still out.

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