Hospital Loses Tax-Exempt Status

Person to Contact: * * *
Employee Identification Number: * * *
Employee Telephone Number:
(Phone): * * *
(Fax): * * *

UIL Code: 501.03-00
Release Date: 8/17/2018

Date: April 25, 2018

Tax Year Ending: * * *

Taxpayer Identification Number: * * *

 

Dear * * *:

This is a final determination that you do not qualify for exemption from Federal income tax under Internal Revenue Code (the “Code”) section 501(a) as an organization described in Code section 501(c)(3) effective January 1, 20XX. Your determination letter dated October 22,19XX is revoked.

The revocation of your exempt status was made for the following reason(s):

Organizations described in section 501(c)(3) of the Internal Revenue Code and exempt from tax under section 501(a) must be both organized and operated exclusively for exempt purposes. A hospital organization must also comply with IRC 501(r) in order to be treated as described in IRC 501(c)(3). You are not in compliance with any of the provisions imposed under IRC 501(r). You are a status” hospital which is a governmental hospital that is also exempt under IRC 501(c)(3). You will retain your status as a governmental hospital upon the loss of your status as exempt under IRC 501(c)(3).

If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of section 7428 of the Code in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date this determination letter was mailed to you. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory Judgment by referring to the enclosed Publication 892. You may write to the courts at the following addresses:

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

If you have any questions about this letter, please contact the person whose name and telephone number are shown in the heading of this letter.

Sincerely,

Maria Hooke
Director, EO Examinations

Enclosure:
Publication 892

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Person to Contact/ID Number: * * *
Employee ID: * * *
Contact numbers:
Telephone: * * * 
Fax: * * *
Manager's Name/ID Number: * * *
Employee ID: * * *

Date: September 18, 2017

Taxpayer Identification Number: * * *

Form: * * *

Tax Year(s) Ended: * * *

Response Due Date: * * *

Dear * * *:

Why you are receiving this letter

We propose to revoke your status as an organization described in section 501(c)(3) of the Internal Revenue Code (Code). Enclosed is our report of examination explaining the proposed action.

What you need to do if you agree

If you agree with our proposal, please sign the enclosed Form 6018, Consent to Proposed Action — Section 7428, and return it to the contact person at the address listed above (unless you have already provided us a signed Form 6018). We'll issue a final revocation letter determining that you aren't an organization described in section 501(c)(3).

After we issue the final revocation letter, we'll announce that your organization is no longer eligible for contributions deductible under section 170 of the Code.

If we don't hear from you

If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final revocation letter. Failing to respond to this proposal will adversely impact your legal standing to seek a declaratory judgment because you failed to exhaust your administrative remedies.

Effect of revocation status

If you receive a final revocation letter, you'll be required to file federal income tax returns for the tax year(s) shown above as well as for subsequent tax years.

What you need to do if you disagree with the proposed revocation

If you disagree with our proposed revocation, you may request a meeting or telephone conference with the supervisor of the IRS contact identified in the heading of this letter. You also may file a protest with the IRS Appeals office by submitting a written request to the contact person at the address listed above within 30 calendar days from the date of this letter. The Appeals office is independent of the Exempt Organizations division and resolves most disputes informally.

For your protest to be valid, it must contain certain specific information including a statement of the facts, the applicable law, and arguments in support of your position. For specific information needed for a valid protest, please refer to page one of the enclosed Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status, and page six of the enclosed Publication 3498, The Examination Process. Publication 3498 also includes information on your rights as a taxpayer and the IRS collection process. Please note that Fast Track Mediation referred to in Publication 3498 generally doesn't apply after we issue this letter.

You also may request that we refer this matter for technical advice as explained in Publication 892. Please contact the individual identified on the first page of this letter if you are considering requesting technical advice. If we issue a determination letter to you based on a technical advice memorandum issued by the Exempt Organizations Rulings and Agreements office, no further IRS administrative appeal will be available to you.

Contacting the Taxpayer Advocate Office is a taxpayer right

You have the right to contact the office of the Taxpayer Advocate. Their assistance isn't a substitute for established IRS procedures, such as the formal appeals process. The Taxpayer Advocate can't reverse a legally correct tax determination or extend the time you have (fixed by law) to file a petition in a United States court. They can, however, see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling. You may call toll-free 1-877-777-4778 and ask for Taxpayer Advocate assistance. If you prefer, you may contact your local Taxpayer Advocate at:

For additional information

If you have any questions, please call the contact person at the telephone number shown in the heading of this letter. If you write, please provide a telephone number and the most convenient time to call if we need to contact you.

Thank you for your cooperation.

Sincerely,

Maria Hooke
Director, EO Examinations

Enclosures:
Report of Examination
Form 6018
Publication 892
Publication 3498

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Issue

Whether the tax-exempt status of * * * should be revoked for its failure to comply with provisions of the Affordable Care Act and Internal Revenue Code § 501(r).

Facts

* * *, * * * or * * *, is a governmental hospital and an internal revenue code (IRC) § 501(c)(3) exempt organization as well. IRS records show the 501(c)(3) ruling date as August, 20XX. They are a regional healthcare provider established in 19XX by the * * * County Board of Supervisors as a special purpose government entity under the laws of the state of * * *. Currently, the entity is governed by a five-member Board of Trustees pursuant to code of 19XX, as amended. The trustees are appointed by the * * * County Board of Supervisors. The relationship between * * * and * * * County results in * * * being designated as a component unit of * * * County.

* * * opened as a 0-bed facility in * * *, * * * with the goal of providing the best possible medical care at an affordable cost for the people of * * * County. They provide general medical and surgical care for inpatient, outpatient, and emergency room patients. * * * participates in both Medicare and Medicaid programs. In 20XX became a 0-bed critical access hospital. The facility serves a local community, specifically the residents of * * * County in the state of * * *.

They have an emergency room which operates 24 hours daily. Within the main hospital or adjacent thereto * * * operates Family care clinics, an Outpatient specialty clinic, and physical, occupational, and speech therapy services.

* * * facilities also include: * * * — Outpatient Behavioral Health; * * *, a 0-bed long-term care facility; * * *; * * * in * * *, * * *; and in * * *, * * *.

In their various facilities services provided by * * * include:

• Ambulance Services

• Emergency Department

• Laboratory

• Nutritional Services

• Outpatient Behavioral Health

• Outpatient Specialty Clinic

• Radiology

• Respiratory Therapy

• Swing Bed Program

• Skilled Nursing Facility

• Therapy: Physical, Occupational, and Speech

• Geriatric Psychiatric Care

The vision statement on their website reads, “* * *." * * * is licensed as a hospital in the state of * * *. The hospital is one of the largest employers in the county with over 0 persons on their payroll. Employing local residents allows the facility to promote economic stability and vitality within the county. * * * also provides funding for educational programs in the community and supports or initiates programs that support health awareness.

* * * Doctor/Practitioner staff, as shown on its website, includes 0 persons comprised of: 0 individuals who are either Nurse Practitioners (NP) or Family Nurse Practitioners; 0 medical doctors; 0 doctors of osteopathy medicine; * * * certified registered nurse anesthetist; and doctor of podiatric medicine. They employ * * * Nurse Practitioners to staff the emergency room (ER) and another employee, * * *, also helps in the ER and makes rounds in the hospital. They use a tele-med system that allows the NPs to speak with a physician regarding care for patients in the ER when a local physician is not available. They also have * * * other physicians who practice family medicine. * * * provides office space for the specialists who practice at their hospital. The specialists also work at other facilities in the area.

* * * is a member of The * * * (* * *), an IRC § 501(c)(6) not-for-profit corporation. * * * operations began in 19XX as the vision of 0 administrators from small (less than 0 beds), rural, safety-net hospitals located in the * * *. They envisioned a network that would support and strengthen rural hospital operations and provide a voice with rural health advocacy on the local and national level.

The mission of the * * * is to assist member hospitals in being successful health care providers in their unique rural setting by helping them to achieve collectively what they could not achieve individually.

* * * was selected for examination for possible deficiencies relative to IRC § 501(r) which imposes additional requirements on hospitals identified as tax-exempt under IRC § 501(c)(3) per provisions of the Affordable Care Act (ACA). * * * does not have a Form 990 filing requirement by virtue of its status as a governmental entity; however, that does not preclude its adherence to statutes enacted in response to the ACA for IRC § 501(c)(3) hospitals.

Since the entity is not required to file Form 990, information reported on Schedule H of that return had to be obtained from other sources. A review of the entity's website did not provide the data, nor was there a link or indication of where the data was located. Other searches were performed which also resulted in § 501(r) data not being located; therefore, the searches performed identified deficiencies relevant to the ACA requirements. Specifically, preliminary review of the entity did not locate its:

• Community Health Needs Assessment, CHNA, on * * * website, nor was there a link or instructions identifying where the CHNA was located.

• Implementation Strategy (IS) addressing the CHNA

• Financial Assistance Policy (FAP)

• Emergency Medical Care Policy (EMCP)

• Billing and Collection Procedures

IRC § 501(r) states a hospital must comply with the items noted above to retain tax-exempt status under IRC § 501(c)(3). * * *, * * * CEO, and * * *, * * * controller, were informed that governmental hospitals are described as “dual status” entities when they have received a determination letter from the IRS stating they are exempt under IRC § 501(c)(3) as a hospital.

During discussions with CEO, * * *, and Controller, * * *, both stated they were not aware * * * was exempt under IRC § 501(c)(3). * * * has served as CEO of since April, 20XX, prior to that he served as the CFO. * * * has been the controller since June, 20XX. * * * stated that after receiving correspondence from the IRS the matter had been discussed with the board of trustees and none of them were aware of * * * exemption as a IRC § 501(c)(3) hospital.

We discussed why some governmental hospitals prefer to be dual status hospitals. * * * states none of the reasons discussed are applicable to * * *. He did state they sought to have a CHNA prepared, but the individual they contracted to do the work did not complete the task timely. Furthermore, there were concerns about the report that was eventually submitted to them. Additionally, they have not completed an Implementation Strategy, nor have they complied with the other provisions of IRC § 501(r).

Law

IRC § 501(r):

(r) Additional requirements for certain hospitals. —

(1) In general. — A hospital organization to which this subsection applies shall not be treated as described in subsection (c)(3) unless the organization —

(A) meets the community health needs assessment requirements described in paragraph (3),

(B) meets the financial assistance policy requirements described in paragraph (4),

(C) meets the requirements on charges described in paragraph (5), and

(D) meets the billing and collection requirement described in paragraph (6).

(2) Hospital organizations to which subsection applies. —

(A) In general. — This subsection shall apply to —

(i) an organization which operates a facility which is required by a State to be licensed, registered, or similarly recognized as a hospital, and

(ii) any other organization which the Secretary determines has the provision of hospital care as its principal function or purpose constituting the basis for its exemption under subsection (c)(3) (determined without regard to this subsection).

(B) Organizations with more than 1 hospital facility. — lf a hospital organization operates more than 1 hospital facility —

(i) the organization shall meet the requirements of this subsection separately with respect to each such facility, and

(ii) the organization shall not be treated as described in subsection (c)(3) with respect to any such facility for which such requirements are not separately met.

(3) Community health needs assessments. —

(A) In general. — An organization meets the requirements of this paragraph with respect to any taxable year only if the organization —

(i) has conducted a community health needs assessment which meets the requirements of subparagraph (B) in such taxable year or in either of the 2 taxable years immediately preceding such taxable year, and

(ii) has adopted an implementation strategy to meet the community health needs identified through such assessment.

(B) Community health needs assessment. — A community health needs assessment meets the requirements of this paragraph if such community health needs assessment —

(i) takes 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) is made widely available to the public.

(4) Financial assistance policy. — An organization meets the requirements of this paragraph if the organization establishes the following policies:

(A) Financial assistance policy. — A written financial assistance policy which includes —

(i) eligibility criteria for financial assistance, and whether such assistance includes free or discounted care,

(ii) the basis for calculating amounts charged to patients.

(iii) the method for applying for financial assistance,

(iv) in the case of an organization which does not have a separate billing and collections policy, the actions the organization may take in the event of non-payment, including collections action and reporting to credit agencies, and

(v) measures to widely publicize the policy within the community to be served by the organization.

(B) Policy relating to emergency medical care. — A written policy requiring the organization to provide, without discrimination, care for emergency medical conditions (within the meaning of section 1867 of the Social Security Act (42 U.S.C. 1395dd)) to individuals regardless of their eligibility under the financial assistance policy described in subparagraph (A).

(5) Limitation on charges. — An organization meets the requirements of this paragraph if the organization —

(A) limits amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the financial assistance policy described in paragraph (4)(A) to not more than the amounts generally billed to individuals who have insurance covering such care, and

(B) prohibits the use of gross charges.

(6) Billing and collection requirements. — An organization meets the requirement of this paragraph only if the organization does not engage in extraordinary collection actions before the organization has made reasonable efforts to determine whether the individual is eligible for assistance under the financial assistance policy described in paragraph (4)(A).

(7) Regulatory authority. — The Secretary shall issue such regulations and guidance as may be necessary to carry out the provisions of this subsection, including guidance relating to what constitutes reasonable efforts to determine the eligibility of a patient under a financial assistance policy for purposes of paragraph (6).

26 C.F.R. § 1.501(r)-1, Treas. Reg. § 1.501(r)-1

§ 1.501(r)-1 Definitions.

Currentness

(a) Application. The definitions set forth in this section apply to §§ 1.501(r)-2 through 1.501(r)-7.

(b) Definitions — (1) Amounts generally billed (AGB) means the amounts generally billed for emergency or other medically necessary care to individuals who have insurance covering such care, determined in accordance with § 1.501(r)-5(b).

(2) AGB percentage means a percentage of gross charges that a hospital facility uses under § 1.501(r)-5(b)(3) to determine the AGB for any emergency or other medically necessary care it provides to an individual who is eligible for assistance under its financial assistance policy (FAR).

(3) Application period means the period during which a hospital facility must accept and process an application for financial assistance under its FAR submitted by an individual in order to have made reasonable efforts to determine whether the individual is FAR-eligible under § 1.501(r)-6(c).

(4) Authorized body of a hospital facility means —

(i) The governing body (that is, the board of directors, board of trustees, or equivalent controlling body) of the hospital organization that operates the hospital facility or a committee of, or other party authorized by, that governing body to the extent such committee or other party is permitted under state law to act on behalf of the governing body;

(5) Billing and collections policy means a written policy that includes all of the elements described in § 1.501(r)-4(b)(4)(i).

(6) Date provided means, in the case of any billing statement, written notice, or other written communication that is mailed, the date of mailing. The date that a billing statement, written notice, or other written communication is provided can also be the date such communication is sent electronically or delivered by hand.

(9) Emergency medical care means care provided by a hospital facility for emergency medical conditions.

(10) Emergency medical conditions means emergency medical conditions as defined in section 1867 of the Social Security Act (42 U.S.C. 1395dd).

(11) Extraordinary collection action (EGA) means an action described in § 1.501(r)-6(b)(1).

(12) Financial assistance policy (FAR) means a written policy that meets the requirements described in § 1.501(r)-4(b).

(17) Hospital facility means a facility that is required by a state to be licensed, registered, or similarly recognized as a hospital. Multiple buildings operated under a single state license are considered to be a single hospital facility.

(24) Plain language summary of the FAR means a written statement that notifies an individual that the hospital facility offers financial assistance under a FAR and provides the following additional information in language that is clear, concise, and easy to understand:

(vi) A statement of the availability of translations of the FAR, FAR application form, and plain language summary of the FAR in other languages, if applicable.

(29) Widely available on a Web site means —

(i) The hospital facility conspicuously posts a complete and current version of the document on —

(A) The hospital facility's Web site;

(B) If the hospital facility does not have its own Web site separate from the hospital organization that operates it, the hospital organization's Web site; or

(C) A Web site established and maintained by another entity, but only if the Web site of the hospital facility or hospital organization (if the facility or organization has a Web site) provides a conspicuously-displayed link to the Web page where the document is posted, along with clear instructions for accessing the document on that Web site;

(ii) Individuals with access to the Internet can access, download, view, and print a hard copy of the document from the Web site —

(A) Without requiring special computer hardware or software (other than software that is readily available to members of the public without payment of any fee);

(B) Without paying a fee to the hospitality facility, hospital organization, or other entity maintaining the Web site; and

(C) Without creating an account or being otherwise required to provide personally identifiable information; and

(iii) The hospital facility provides individuals who ask how to access a copy of the document online with the direct Web site address, or URL, of the Web page where the document is posted.

26 C.F.R. § 1.501(r)-2, Treas. Reg. § 1.501(r)-2
§ 1.501(r)-2 Failures to satisfy section 501(r).
Currentness

(a) Revocation of section 501(c)(3) status. Except as otherwise provided in paragraphs (b) and (c) of this section, a hospital organization failing to meet one or more of the requirements of section 501(r) separately with respect to one or more hospital facilities it operates may have its section 501(c)(3) status revoked as of the first day of the taxable year in which the failure occurs. In determining whether to continue to recognize the section 501(c)(3) status of a hospital organization that fails to meet one or more of the requirements of section 501(r) with respect to one or more hospital facilities, the Commissioner will consider all relevant facts and circumstances including, but not limited to, the following:

(1) Whether the organization has previously failed to meet the requirements of section 501(r), and, if so, whether the same type of failure previously occurred.

(2) The size, scope, nature, and significance of the organization's failure(s).

(3) In the case of an organization that operates more than one hospital facility, the number, size, and significance of the facilities that have failed to meet the section 501(r) requirements relative to those that have complied with these requirements.

(4) The reason for the failure(s).

(5) Whether the organization had, prior to the failure(s), established practices or procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the section 501(r) requirements.

(6) Whether the practices or procedures had been routinely followed and the failure(s) occurred through an oversight or mistake in applying them.

(7) Whether the organization has implemented safeguards that are reasonably calculated to prevent similar failures from occurring in the future.

(8) Whether the organization corrected the failure(s) as promptly after discovery as is reasonable given the nature of the failure(s).

(9) Whether the organization took the measures described in paragraphs (a)(7) and (a)(8) of this section before the Commissioner discovered the failure(s).

(b) Minor omissions and errors — (1) In general. A hospital facility's omission of required information from a policy or report described in § 1.501(r)-3 or § 1.501(r)-4, or error with respect to the implementation or operational requirements described in §§ 1.501(r)-3 through 1.501(r)-6, will not be considered a failure to meet a requirement of section 501(r) if the following conditions are satisfied:

(i) Such omission or error was minor and either inadvertent or due to reasonable cause.

(ii) The hospital facility corrects such omission or error as promptly after discovery as is reasonable given the nature of the omission or error. Such correction must include establishment (or review and, if necessary, revision) of practices or procedures (formal or informal) that are reasonably designed to promote and facilitate overall compliance with the requirements of section 501(r).

(4) Reasonable cause. For purposes of this paragraph (b), the fact that a hospital facility has established practices or procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the section 501(r) requirements prior to the occurrence of an omission or error is a factor tending to show that the omission or error is due to reasonable cause.

(c) Excusing certain failures if hospital facility corrects and discloses. A hospital facility's failure to meet one or more of the requirements described in §§ 1.501(r)-3 through 1.501(r)-6 that is neither willful nor egregious shall be excused for purposes of this section if the hospital facility corrects and makes disclosure in accordance with rules set forth by revenue procedure, notice, or other guidance published in the Internal Revenue Bulletin. For purposes of this paragraph (c), a “willful” failure includes a failure due to gross negligence, reckless disregard, or willful neglect, and an “egregious” failure includes only a very serious failure, taking into account the severity of the impact and the number of affected persons. Whether a failure is willful or egregious will be determined based on all of the facts and circumstances. A hospital facility's correction and disclosure of a failure in accordance with the relevant guidance is a factor tending to show that the failure was not willful.

(d) Taxation of noncompliant hospital facilities — (1) In general. Except as otherwise provided in paragraphs (b) and (c) of this section, if a hospital organization that operates more than one hospital facility fails to meet one or more of the requirements of section 501(r) separately with respect to a hospital facility during a taxable year, the income derived from the noncompliant hospital facility (“noncompliant facility income”) during that taxable year will be subject to tax

(2) Noncompliant facility income — (i) In general. For purposes of this paragraph (d), the noncompliant facility income derived from a hospital facility during a taxable year will be the gross income derived from that hospital facility during the taxable year, less the deductions allowed by chapter 1 that are directly connected to the operation of that hospital facility during the taxable year, excluding any gross income and deductions taken into account in computing any unrelated business taxable income described in section 512 that is derived from the facility during the taxable year.

Analysis and Government Position

The ACA, enacted March 23, 20XX added new, mandatory requirements on hospital organizations to retain their exemption under IRC § 501(c)(3). Most of the provisions were effective upon passage of the ACA. The CHNA requirements became effective for tax years beginning after March 23, 20XX and stated the hospital must conduct a CHNA and implementation strategy at least once every three years for tax years beginning after March 23, 20XX. The entity operates on a calendar year ending December 31 annually. The CHNA would have be conducted no later than its year ended December 31, 20XX for them to be compliant.

The final regulations were issued on December 31, 20XX effective for tax years beginning after December 29, 20XX.

IRC § 501(r) states hospitals required to follow its provisions will not be recognized as an entity described in subsection 501(c)(3) unless it meets the criteria enumerated in subsection 501(r)(1)(A), (B), (C), and (D). Those sections state the entity must have a CHNA, FAR, limit the amounts charged for emergency or other medically necessary care provided to patients eligible for assistance under its FAR and they prohibit the use of gross charges, and states the hospital cannot engage in extraordinary collection actions before reasonable efforts have been made to determine whether the patient is eligible for assistance under the hospital's FAR.

IRC § 501(r) further states this law is applicable to organization's that operate a facility required to be licensed, registered, or recognized as a hospital and any other organization determined to have the provision of hospital care as its principal function or purpose constituting the basis for its exemption under subsection 501(c)(3).

Treasury Regulations § 1.501(r)-1 provides definitions of terms pertinent to IRC § 501(r). It provides clarity on: amounts that can be charged patients; billing policies; FAR applications; governing body of the hospital; and other pertinent items.

Treasury Regulations § 1.501(r)-2 states hospitals failing to meet one or more of the requirements of this section could have its 501(c)(3) status revoked effective the first day of the taxable year in which the failure occurs.

The entity does have a website which we reviewed during the pre-audit phase of the examination. The website did not meet the final regulations; nor was there any indication the temporary and/or proposed regulations had been followed or met. The entity stated they performed a CHNA which in their opinion was inadequate, otherwise none of the provision of the ACA were followed.

During conversations with the entity and review of their operations, it was established they were not in compliance with the provision of IRC § 501(r); furthermore, they were not aware of their statutory obligation to do so.

The entity's CEO stated after discussions with the governing body they had discussed termination of the 501(c)(3) status since they were not aware for its existence, nor was a tangible benefit being derived from the status. The entity was established as governmental hospital and has been operating as such. They were concerned about the assessment of penalties due to their lack of compliance.

The entity presented a schedule of net earnings for the periods 20XX through 20XX;

• FY 20XX — ($0)

• FY 20XX — ($0)

• FY 20XX — ($0)

• FY 20XX — ($0)

• FY 20XX — (%0)

• FY 20XX — ($0)

The losses sustained over the tax periods identified above are approximately 0 million dollars. The current CEO states he scrapped the management company utilized by his predecessor and implemented other policies to reduce cost including eliminating some positions. He is concerned about the imposition of penalties resulting from their lack of compliance as that could place a financial hardship on the entity.

Upon review of the procedures to terminate, which results in a prospective action and a subsequent request for retroactive termination of the exempt status, along with discussions with counsel, it was determined revocation of their exempt status was applicable and appropriate based upon the facts.

The entity will retain its status as a governmental hospital upon loss of its status as a public charity.

Taxpayer's Position

The taxpayer has stated they will agree to revocation of their status as an IRC § 501(c)(3) hospital since they would remain a governmental hospital.

Conclusion

The entity is a hospital that was selected for an examination to determine its compliance with the ACA provisions under IRC § 501(r). The entity is a governmental hospital that is also exempt under IRC § 501(c)(3) of the code. This type entity is referred to as a “dual status” hospital. It was determined the entity is not in compliance with any of the provisions imposed under § 501(r) of the code. The entity stated they were not aware of the § 501(c)(3) exemption and were not availing themselves of benefits afforded under that subsection; therefore, revocation of their exempt status is proposed effective for the year beginning January 1, 20XX as this is the first taxable year failure to comply with § 501(r) was noted.