WASHINGTON – The Internal Revenue Service is raising the bar for not-for-profit hospitals and healthcare organizations reporting information on annual tax returns.
The IRS last month released a draft of a redesigned Form 990, the return filed by organizations that are exempt from income tax.
For not-for-profit healthcare organizations, the new form will increase requirements for reporting community benefit data and salary figures for top executives.
The IRS is accepting comments on the new form until September 14, and plans to begin using the redesigned form for the 2008 tax year, which will be filed in 2009.
The IRS said the redesign of the form, the first in 28 years, was based on three principles: enhancing transparency to provide the IRS and public with a realistic picture of an organization; promoting compliance by helping the IRS assess instances of noncompliance; and minimizing the burden on filing organizations.
In detailing requirements for its new Schedule H for hospitals, the IRS is pointed about its intent in gathering information.
“In the hospital area, concerns continue to be raised about whether there are differences between for-profit and tax-exempt hospitals,” the IRS wrote in its rationale. “The proposed schedule is designed to combat the lack of transparency surrounding the activities of tax-exempt organizations that provide hospital or medical care.”
The IRS selected the community benefit reporting model developed by the Catholic Health Association in developing its form.
In addition to asking information on community benefit, the IRS is specifically asking tax-exempt hospital organizations to supply information on billing and collection practices; data on management and joint ventures, focusing on the structure of the organization and any inurement or private benefit issues; and general information on exempt activities and community needs assessment.
The new form includes worksheets to calculate traditional charity care; the ratio of costs to charges; the unpaid costs of Medicaid and other public programs; community health improvement services and community benefit operations; the net cost of health professions education; the net cost of subsidized health services; and the unsponsored cost of research.
Heads of the Senate Finance Committee, who had asked for an update, were pleased with the progress.
“This new form will help the public and the IRS assess whether tax-exempt organizations are staying true to the reason they were granted exempt status in the first place,” said committee chairman Max Baucus (D-Mont.).
“The 990 filing is often the public’s only look at a non-profit’s finances,” said Chuck Grassley (R-Iowa).
Taxpayers “deserve accountability for the generous tax breaks the federal government offers to tax-exempt groups.”