IRS Requests Comments On Community Health Needs Assessment Requirement For Tax-Exempt Hospitals.

Part III -- Administrative, Procedural, and Miscellaneous

SECTION 1. PURPOSE

This notice addresses the community health needs assessment ("CHNA") requirements described in section 501(r)(3) of the Internal Revenue Code ("Code") and related excise tax and reporting obligations, applicable to hospital organizations that are (or seek to be) recognized as described in section 501(c)(3) of the Code. The CHNA requirements are among several new requirements that apply to section 501(c)(3) hospital organizations under section 501(r), which was added to the Code by section 9007(a) of the Patient Protection and Affordable Care Act ("Affordable Care Act"), Pub. L. No. 111-148, 124 Stat. 119, enacted March 23, 2010.¹ This notice describes specific provisions related to the CHNA requirements that the Treasury Department ("Treasury") and the Internal Revenue Service ("IRS") anticipate will be included in regulations to be proposed under section 501(r). This notice also invites comments from the public regarding the CHNA requirements.

Although the CHNA requirements are not effective until taxable years beginning after March 23, 2012, Treasury and the IRS are publishing this notice regarding the CHNA requirements now because they understand that some hospital organizations may choose to start the process of conducting CHNAs and developing implementation strategies in advance of the effective date. A hospital organization may rely on the anticipated regulatory provisions described in this notice with respect to any CHNA made widely available to the public, and any implementation strategy adopted, on or before the date that is six months after the date further guidance regarding the CHNA requirements is issued.

SECTION 2. BACKGROUND

Section 9007 of the Affordable Care Act added sections 501(r) and 4959 to the Code and amended section 6033(b). These provisions are applicable to "hospital organizations" described in new section 501(r)(2). Section 501(r)(1) provides that hospital organizations described in section 501(r)(2) will not be treated as described in section 501(c)(3) unless they satisfy the requirements specified in section 501(r), including the CHNA requirements described in section 501(r)(3).

Section 501(r)(2)(A) defines a "hospital organization" as (i) an organization that operates a facility required by a State to be licensed, registered, or similarly recognized as a hospital ("State-licensed hospital facility"), and (ii) any other organization that the Secretary determines has the provision of hospital care as its principal function or purpose constituting the basis for its exemption under section 501(c)(3).

If a hospital organization operates more than one hospital facility, section 501(r)(2)(B)(i) requires the organization to meet all of the section 501(r)(1) requirements, including the CHNA requirements, separately with respect to each hospital facility. Section 501(r)(2)(B)(ii) provides that the organization will not be treated as described in section 501(c)(3) with respect to any hospital facility for which such requirements are not separately met.

Section 501(r)(3)(A) provides that a hospital organization meets the CHNA requirements with respect to any taxable year only if the organization (i) has conducted a CHNA that meets the requirements of section 501(r)(3)(B) in such taxable year or in either of the two taxable years immediately preceding such taxable year, and (ii) has adopted an implementation strategy to meet the community health needs identified through such CHNA. Section 501(r)(3)(B) requires that a CHNA (i) take into account input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health, and (ii) be made widely available to the public. Although most of the requirements under section 501(r) are effective for taxable years beginning after March 23, 2010, the CHNA requirements are effective for taxable years beginning after March 23, 2012. See section 9007(f)(2) of the Affordable Care Act.

Section 501(r)(7) provides that the Secretary shall issue such regulations and guidance as may be necessary to carry out the provisions of section 501(r).

Section 4959 imposes a $50,000 excise tax on a hospital organization that fails to meet the CHNA requirements for any taxable year. A hospital organization must report the amount of any excise tax imposed on it under section 4959 on its annual information return (i.e., Form 990, Return of Organization Exempt From Income Tax, and related schedules) pursuant to section 6033(b)(10)(D).

Section 6033(b)(15)(A) requires a hospital organization to report on its Form 990 a description of how the organization is addressing the needs identified in each CHNA and a description of any needs that are not being addressed together with the reasons why the needs are not being addressed.

On May 27, 2010, the IRS released Notice 2010-39, 2010-24 I.R.B. 756, which requested comments regarding the new requirements under section 501(r), including the need, if any, for guidance regarding such requirements. In response to Notice 2010-39, the IRS received numerous comments requesting guidance on the CHNA requirements. In issuing this notice, Treasury and the IRS have considered all of the comments regarding the CHNA requirements received in response to Notice 2010-39.

SECTION 3. ANTICIPATED REGULATORY PROVISIONS

This section describes anticipated regulatory provisions regarding hospital organizations required to meet the CHNA requirements (section 3.01); hospital organizations with multiple hospital facilities (section 3.02); the documentation of a CHNA (section 3.03); how and when a CHNA is conducted (section 3.04); the community served by a hospital facility (section 3.05); persons representing the broad interests of the community (section 3.06); making a CHNA widely available to the public (section 3.07); implementation strategy (section 3.08); how and when an implementation strategy is adopted (section 3.09); excise taxes on failures to meet the CHNA requirements (section 3.10); reporting requirements related to CHNAs (section 3.11); and effective dates (section 3.12).

Section 501(r)(2)(A)(i) includes within the definition of a hospital organization any organization described in section 501(c)(3) that operates a State-licensed hospital facility. Rev. Rul. 2004-51, 2004-1 C.B. 974, provides that the activities of an entity that is treated as a partnership for federal tax purposes are treated as the activities of the tax-exempt partner for purposes of determining whether the tax-exempt partner is operated exclusively for exempt purposes and engages in an unrelated trade or business. See also Rev. Rul. 98-15, 1998-1 C.B. 718. In addition, when an entity is disregarded as separate from its owner, its operations are treated as a branch or division of the owner. See, e.g., Ann. 99-102, 1999-2 C.B. 545. Accordingly, Treasury and the IRS intend to include within the definition of a hospital organization any organization described in section 501(c)(3) that operates a State-licensed hospital facility through a disregarded entity or a joint venture, limited liability company, or other entity treated as a partnership for federal income tax purposes. Treasury and the IRS request comments regarding whether (or under what circumstances) an organization should not be considered to "operate" a State-licensed hospital facility for purposes of section 501(r) as a result of its owning a small interest (other than a general partner or similar interest) in an entity treated as a partnership for federal income tax purposes that operates the hospital facility.

Treasury and the IRS also intend to provide that a hospital facility located outside of the United States will not be considered a State-licensed hospital facility for purposes of section 501(r)(2)(A)(i) because the term "State" includes only the 50 States and the District of Columbia and not any U.S. possession or territory or foreign country. See section 7701(a)(9), (10).

The statutory language of section 501(r) applies to all hospital organizations that are (or seek to be) recognized as described in section 501(c)(3). Section 501(r) does not explicitly address government hospitals, nor does it include a specific exception for government hospitals. Accordingly, Treasury and the IRS intend to apply section 501(r) to every hospital organization that has been recognized (or seeks recognition) as an organization described in section 501(c)(3). However, in recognition of the unique position of government hospitals, Treasury and the IRS request comments regarding alternative methods a government hospital may use to satisfy the requirements of section 501(r)(3).

A number of commenters requested guidance on the potential consequences of a failure to satisfy the requirements of 501(r) separately with respect to a particular hospital facility. Treasury and the IRS intend to address the potential consequences of a failure to satisfy the CHNA requirements (or other requirements under section 501(r)) with respect to one or more hospital facilities in proposed regulations or other future guidance.

Many commenters requested that Treasury and the IRS define a CHNA in a manner sufficiently flexible to allow hospitals to design a CHNA appropriate to their unique community and available resources. At the same time, a number of commenters asked that Treasury and the IRS provide clear guidance regarding the required contents of a CHNA. Several commenters asked the IRS to define a CHNA as a written document developed for a hospital facility that includes a description of the community served by the hospital facility; the process used to conduct the assessment, including how the hospital took into account input from community members and public health experts; identification of any persons with whom the hospital has worked on the assessment; and the health needs identified through the assessment process.

Treasury and the IRS intend to require a hospital organization to document a CHNA for a hospital facility in a written report that includes the following information:

Treasury and the IRS request comments on what, if any, guidance is needed regarding when a hospital organization must conduct a CHNA for a new hospital facility that the hospital organization acquires or places into service after March 23, 2010.

Treasury and the IRS request comments regarding whether, and under what circumstances, documenting CHNAs for multiple hospital facilities together in one written report might improve the quality of the CHNAs, while still ensuring that information for each hospital facility is clearly presented and easily accessible.

For purposes of section 501(r)(3), Treasury and the IRS intend to provide that a hospital organization may take into account all of the relevant facts and circumstances in defining the community a hospital facility serves. Generally, Treasury and the IRS expect that a hospital facility's community will be defined by geographic location (e.g., a particular city, county, or metropolitan region). However, in some cases, the definition of a hospital facility's community may also take into account target populations served (e.g., children, women, or the aged) and/or the hospital facility's principal functions (e.g., focus on a particular specialty area or targeted disease). Notwithstanding the foregoing, a community may not be defined in a manner that circumvents the requirement to assess the health needs of (or consult with persons who represent the broad interests of) the community served by a hospital facility by excluding, for example, medically underserved populations, low-income persons, minority groups, or those with chronic disease needs.

Treasury and the IRS request comments regarding the relative merits of different geographically-based definitions of community. Treasury and the IRS specifically request comments regarding whether future regulations should define the geographic community of a hospital facility as the Metropolitan Statistical Area (MSA) or Micropolitan Statistical Area ([mu]SA) in which the facility is located or, if the hospital facility is a rural facility not located in a MSA or [mu], as the county in which the facility is located.

In order to meet the requirement to take into account input from persons who represent the broad interests of the community served by a hospital facility, Treasury and the IRS intend to provide that a CHNA must, at a minimum, take into account input from --

In addition to persons described above in paragraphs (1), (2), and (3), a hospital organization or facility may also consult with and seek input from other persons located in and/or serving the hospital facility's community. For example, a hospital organization or facility may consult or seek input from healthcare consumer advocates; nonprofit organizations; academic experts; local government officials; community-based organizations, including organizations focused on one or more health issues; health care providers, including community health centers and other providers focusing on medically underserved populations, low-income persons, minority groups, or those with chronic disease needs; private businesses; and health insurance and managed care organizations.

In defining widely available to the public for purposes of section 501(r)(3)(B)(ii), Treasury and the IRS intend to adopt rules similar to those set forth in Treas. Reg. § 301.6104(d)-2(b). Thus, a hospital organization will be considered to have made a hospital facility's CHNA widely available to the public by posting the written report of the CHNA findings on the hospital facility's website or, if the hospital facility does not have its own website separate from the hospital organization that operates it, on the hospital organization's website. Alternatively, the written report may be posted on a website established and maintained by another entity as long as either --

Treasury and the IRS request comments regarding whether future guidance should provide additional methods that a hospital organization could or must use to make a CHNA widely available to the public.

As with any other requirement under section 501(r), a hospital organization must meet the requirement to adopt an implementation strategy separately with respect to each hospital facility it operates. Treasury and the IRS intend to define an "implementation strategy" for a hospital facility as a written plan that addresses each of the community health needs identified through a CHNA for such facility. For these purposes, Treasury and the IRS intend to provide that an implementation strategy will address a health need identified through a CHNA for a particular hospital facility if the written plan either --

As discussed in section 3.11 of this notice, Treasury and the IRS intend to require a hospital organization to attach to its annual Form 990 the most recently adopted implementation strategy for each of its hospital facilities.

Treasury and the IRS intend to allow hospital organizations to develop implementation strategies for their hospital facilities in collaboration with other organizations, including related organizations, other hospital organizations, for-profit and government hospitals, and State and local agencies, such as public health departments. If a hospital organization collaborates with other organizations in developing an implementation strategy, the implementation strategy should identify all of the organizations with which the hospital organization collaborated. In addition, to ensure that the hospital organization meets the CHNA requirements separately with respect to each hospital facility and that the implementation strategy for each hospital facility is clearly presented and easily accessible, Treasury and the IRS intend to require a hospital organization to document separately the implementation strategy for each of its hospital facilities.

Treasury and the IRS request comments regarding whether, and under what circumstances, documenting implementation strategies for multiple hospital facilities together in one written document might improve the quality of the implementation strategies while still ensuring that information for each hospital facility is clearly presented and easily accessible.

Treasury and the IRS intend to consider an implementation strategy as being adopted on the date the implementation strategy is approved by an authorized governing body of the hospital organization.

For these purposes, an authorized governing body means --

Treasury and the IRS intend to impose the $50,000 excise tax under section 4959 on any hospital organization that fails to satisfy the CHNA requirements with respect to a hospital facility in any three-year period. For example, if a hospital organization reporting on a calendar-year basis that operates only one hospital facility fails to conduct a CHNA by the last day of 2013, and also did not conduct a CHNA in 2011 or 2012, it will be subject to a $50,000 excise tax under section 4959 for its 2013 taxable year. If it then fails to conduct a CHNA by the last day of 2014, it will again be subject to a $50,000 excise tax under section 4959 for its 2014 taxable year (having not conducted a CHNA in 2012, 2013, or 2014).

Because section 501(r)(2)(B)(i) requires a hospital organization to meet the CHNA requirements "separately with respect to each [hospital] facility," Treasury and the IRS intend to apply the section 4959 excise tax separately with respect to each hospital facility's failure to meet the CHNA requirements. Thus, if a hospital organization operates two hospital facilities and fails to meet the requirements of section 501(r)(3) for both of them for any taxable year, that hospital organization will be subject to a total excise tax of $100,000 ($50,000 for each hospital facility) in that taxable year.

As described above, the Affordable Care Act added two specific reporting requirements for hospital organizations to section 6033(b). Section 6033(b)(10)(D) requires a hospital organization to report on its annual information return (Form 990) the amount of the excise tax imposed on the organization under section 4959. Section 6033(b)(15)(A) requires a hospital organization to report on its annual Form 990 a description of how the organization is addressing the needs identified in each CHNA and a description of any such needs that are not being addressed together with the reasons why such needs are not being addressed.

The IRS has added new questions to Schedule H, Hospitals, of the Form 990 to reflect the new reporting requirements for hospital organizations under section 6033(b)(15)(A). The IRS also plans to add questions reflecting the new reporting requirements under section 6033(b)(10)(D) to the Form 990 in the future. As discussed in section 3.12 of this notice, responses to these questions are optional on Forms 990 for taxable years beginning on or before March 23, 2012.

As discussed above, section 501(r)(3)(A)(ii) requires a hospital organization to adopt an implementation strategy for each of its hospital facilities. Treasury and the IRS intend to require a hospital organization to attach to its annual Form 990 its most recently adopted implementation strategy for each of its hospital facilities. (See section 3.09 of this notice for when an implementation strategy must be adopted.) If a hospital organization only conducts one CHNA and adopts one implementation strategy for a hospital facility in a given three-year period, Treasury and the IRS intend to allow it to attach the same implementation strategy for that hospital facility to the Form 990 for each of those three years.

In Rev. Proc. 95-48, the IRS exercised its discretionary authority under section 6033(a)(3)(B) to relieve certain governmental units and affiliates of governmental units from the requirement to file Form 990. The Affordable Care Act did not change the requirements regarding what organizations are required to file Form 990. Accordingly, a government hospital (other than one that is described in section 509(a)(3)) that has been excused from filing Form 990 under Rev. Proc. 95-48 or a successor revenue procedure is not required to file Form 990. Because government hospitals described in Rev. Proc. 95-48 (other than those described in section 509(a)(3)) are relieved from the annual filing requirements under section 6033, they are also relieved from any new reporting requirements imposed on hospital organizations under section 6033, including the requirements under sections 6033(b)(10)(D) and (b)(15)(A) and the anticipated requirement to attach one or more implementation strategies to a Form 990.

Section 501(r)(3)(A) provides that an organization meets the CHNA requirements with respect to any taxable year only if the organization has conducted a CHNA in such taxable year or in either of the two taxable years immediately preceding such taxable year and has adopted an implementation strategy to meet the community health needs identified through the CHNA. Accordingly, a CHNA that is conducted and an implementation strategy that is adopted in either of the two taxable years immediately preceding the taxable year in which section 501(r)(3) becomes effective may apply toward satisfaction of the CHNA requirements for the taxable year in which section 501(r)(3) becomes effective (and the succeeding taxable year, if within the three-year period beginning with the year the CHNA was conducted).

The reporting requirement described in section 6033(b)(15)(A) is effective for taxable years beginning after March 23, 2010, but because the CHNA requirements are not effective until taxable years beginning after March 23, 2012, Treasury and the IRS do not intend to require hospital organizations to report the information described in section 6033(b)(15)(A) on, or attach implementation strategies to, Forms 990 for any taxable year beginning on or before March 23, 2012.

SECTION 4. RELIANCE

Treasury and the IRS expect to issue proposed regulations that will provide guidance regarding the requirements under section 501(r) in general and the CHNA requirements of section 501(r)(3) in particular. Hospital organizations may rely on the anticipated regulatory provisions described in this notice with respect to any CHNA made widely available to the public, and any implementation strategy adopted, on or before the date that is six months after the date further guidance regarding the CHNA requirements is issued.

SECTION 5. REQUEST FOR COMMENTS

Treasury and the IRS request comments regarding the CHNA requirements described in this notice. In addition to the comments specifically requested above, comments are also specifically requested regarding the definitions of a hospital organization, a hospital facility, a CHNA, a community served by a hospital facility, an implementation strategy, conducted (for purposes of the CHNA), and adopted (for purposes of the implementation strategy).

Comments should be submitted on or before September 23, 2011. Please include Notice 2011-52 on the cover page. Comments should be sent to the following address:

All comments will be available for public inspection and copying.

SECTION 6. DRAFTING INFORMATION

The principal author of this notice is Preston Quesenberry of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Mr. Quesenberry at (202) 622-1124 (not a toll-free call).