[Federal Register Volume 78, Number 66 (Friday, April 5, 2013)]
[Proposed Rules]
[Pages 20523-20544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07959]
[[Page 20523]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 53
[REG-106499-12]
RIN 1545-BL30
Community Health Needs Assessments for Charitable Hospitals
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that provide
guidance to charitable hospital organizations on the community health
needs assessment (CHNA) requirements, and related excise tax and
reporting obligations, enacted as part of the Patient Protection and
Affordable Care Act of 2010. These proposed regulations also clarify
the consequences for failing to meet these and other requirements for
charitable hospital organizations. These regulations will affect
charitable hospital organizations.
DATES: Comments and requests for a public hearing must be received by
July 5, 2013.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-106499-12), room
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
106499-12), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC, or sent electronically via the Federal
eRulemaking Portal at http://www.regulations.gov (IRS REG-106499-12).
FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations,
Amy F. Giuliano or Preston J. Quesenberry at (202) 622-6070; concerning
submissions of comments and requests for a public hearing,
Oluwafunmilayo Taylor at (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review and approval under OMB control number 1545-0047, in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)). Comments on the collection of information should be sent to
the Office of Management and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP,
Washington, DC 20224. Comments on the collection of information should
be received by June 4, 2013. Comments are specifically requested
concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
The collection of information in these proposed regulations is in
Sec. 1.501(r)-3 and Sec. 1.6033-2(a)(2)(ii)(l). The collection of
information flows from sections 501(r)(3) and 6033(b)(15) of the
Internal Revenue Code (Code), which require a hospital organization to
conduct a CHNA and adopt an implementation strategy to meet the
community health needs identified through the CHNA at least once every
three years, report on its annual information return how it is meeting
the needs identified through the CHNA, and attach to its annual
information return a copy of its audited financial statements. The
expected recordkeepers are hospital organizations described in sections
501(c)(3) and 501(r)(2).
The following estimates are based on information that is available
to the IRS and averaged over a three-year time period, to reflect the
fact that the information collection generally will be spread over the
statutory three-year cycle during which a hospital organization is
required to conduct a CHNA and adopt an implementation strategy. A
particular hospital organization may require more or less time,
depending on the circumstances.
Estimated number of recordkeepers: 3,377.
Estimated average annual burden hours per recordkeeper: 80 hours.
Estimated total annual recordkeeping burden: 270,160 hours.
The burden for the collection of information contained in the
proposed amendments to Sec. 1.6033-2 will be reflected in the burden
on Form 990, ``Return of Organization Exempt from Tax,'' after it is
revised to require the additional information in the regulation.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
return information are confidential, as required by section 6103.
Background
The Patient Protection and Affordable Care Act, Public Law 111-148
(124 Stat. 119 (2010)) (the ``Affordable Care Act''), enacted section
501(r) of the Code, which imposes additional requirements on charitable
hospital organizations. Section 501(r)(1) states that a hospital
organization described in section 501(r)(2) will not be treated as a
tax-exempt organization described in section 501(c)(3) unless the
organization meets the requirements of section 501(r)(3) through
501(r)(6). The Affordable Care Act did not otherwise affect the
substantive standards for tax exemption that charitable hospital
organizations are required to meet under section 501(c)(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; 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).
Section 501(r)(2)(B)(i) requires a hospital organization that
operates more than one hospital facility to meet the requirements of
section 501(r) separately with respect to each hospital facility.
Section 501(r)(2)(B)(ii) provides that a hospital organization will not
be treated as described in section 501(c)(3) with respect to any
hospital facility for which the requirements of section 501(r) are not
separately met.
Section 501(r)(3) requires a hospital organization to conduct a
CHNA at least once every three years and adopt an implementation
strategy to meet the community health needs identified through the
CHNA. The CHNA must take into account input from persons who represent
the broad interests of the community served by the hospital
[[Page 20524]]
facility, including those with special knowledge of or expertise in
public health. The CHNA must also be made widely available to the
public.
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 (that
is, 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.
Section 6033(b)(15)(B) requires a hospital organization to file
with its Form 990 a copy of its audited financial statements (or, in
the case of an organization the financial statements of which are
included in consolidated financial statements with other organizations,
its consolidated financial statements).
Notice 2010-39
In May 2010, the Department of the Treasury (``Treasury
Department'') and the IRS issued Notice 2010-39 (2010-24 IRB 756 (May
27, 2010)), which solicited comments regarding the application of the
additional requirements imposed by section 501(r). The Treasury
Department and the IRS received approximately 125 comments in response
to Notice 2010-39 and considered the comments relating to the
consequences for failing a section 501(r) requirement in drafting these
proposed regulations. The principal comments considered are discussed
in this preamble under Explanation of Provisions.
Notice 2011-52
In July 2011, the Treasury Department and the IRS issued Notice
2011-52 (2011-30 IRB 60 (July 8, 2011)), which addressed the CHNA
requirements of section 501(r)(3). Notice 2011-52 described provisions
related to the CHNA requirements that the Treasury Department and the
IRS anticipated would be included in these proposed regulations and
solicited comments from the public. Specifically, Notice 2011-52
described anticipated regulatory provisions regarding the documentation
of a CHNA, how and when a CHNA is conducted, the community served by a
hospital facility, persons representing the broad interests of the
community, making a CHNA widely available to the public, the
implementation strategy, excise taxes on failures to meet the CHNA
requirements, reporting requirements related to CHNAs, and the
effective dates of the CHNA provisions. The Treasury Department and the
IRS received more than 80 comments in response to Notice 2011-52. The
principal comments considered in drafting these proposed regulations on
the CHNA requirements are discussed in this preamble under Explanation
of Provisions.
Notice 2011-52 provided that hospital organizations could rely on
the anticipated regulatory provisions described in the notice for 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. Thus,
hospital organizations may continue to rely on the interim guidance
described in Notice 2011-52 for any CHNA made widely available to the
public, and any implementation strategy adopted, on or before October
5, 2013.
Notice of Proposed Rulemaking on Section 501(r)(4) Through 501(r)(6)
On June 26, 2012, the Treasury Department and the IRS published a
notice of proposed rulemaking in the Federal Register (REG-130266-11;
77 FR 38148) (``2012 proposed regulations'') that contains proposed
regulations regarding the requirements of section 501(r)(4) (which
requires hospitals to establish financial assistance and emergency
medical care policies), section 501(r)(5) (which limits the amount
hospitals can charge for certain care provided to individuals eligible
for financial assistance), and section 501(r)(6) (which prohibits a
hospital from engaging in extraordinary collection actions before
making reasonable efforts to determine whether an individual is
eligible for financial assistance).
The 2012 proposed regulations also provide guidance on the hospital
organizations and facilities that must meet the section 501(r)
requirements. In particular, the 2012 proposed regulations contain a
definitions section that defines ``hospital organization,'' ``hospital
facility,'' and other key terms used in the regulations. See Sec.
1.501(r)-1 of the proposed regulations. In accordance with section
501(r)(2)(A)(i), the 2012 proposed regulations define ``hospital
organization'' as an organization recognized (or seeking to be
recognized) as described in section 501(c)(3) that operates one or more
hospital facilities, including a hospital facility operated through a
disregarded entity. Also in accordance with section 501(r)(2)(A)(i),
the 2012 proposed regulations define ``hospital facility'' as a
facility that is required by a state to be licensed, registered, or
similarly recognized as a hospital. In addition, the 2012 proposed
regulations note that references to a hospital facility taking certain
actions are intended to include instances in which the hospital
organization operating the hospital facility takes action through, or
on behalf of, the hospital facility. These definitions and concepts
generally apply for purposes of these proposed regulations on the CHNA
requirements and the consequences for failing to meet the section
501(r) requirements, although these proposed regulations make minor
amendments to the definitions of ``hospital facility'' and ``hospital
organization'' contained in the 2012 proposed regulations, as discussed
further in the ``Explanation of Provisions'' section of this preamble.
The comment period for the 2012 proposed regulations closed on
September 24, 2012. The Treasury Department and the IRS have received
more than 200 comments in response to the 2012 proposed regulations and
are continuing to consider these comments as they work toward
finalizing those proposed regulations. The Treasury Department and the
IRS intend to finalize the 2012 proposed regulations in conjunction
with the finalization of these proposed regulations.
Explanation of Provisions
These proposed regulations provide guidance on the CHNA
requirements of section 501(r)(3), and on the related reporting
obligations of section 6033. In addition, these proposed regulations
provide guidance on the consequences described in sections 501(r)(1),
501(r)(2)(B), and 4959 for failing to satisfy any of the section 501(r)
requirements, including the section 501(r)(4) through 501(r)(6)
requirements addressed in the 2012 proposed regulations. These proposed
regulations generally do not otherwise provide further guidance
regarding the section 501(r)(4) through 501(r)(6) requirements. They
do, however, make minor amendments to the definitions of ``hospital
facility'' and ``hospital organization'' contained in the 2012 proposed
regulations and also provide a new definition of ``operating'' a
hospital facility that is applicable for purposes of all of the section
501(r) requirements.
[[Page 20525]]
In interpreting the CHNA requirements of section 501(r)(3), the
Treasury Department and the IRS sought to preserve hospital facilities'
flexibility to determine the best way to identify and meet the
particular health needs of the specific communities they serve while
requiring a transparent assessment process with ample opportunity for
community input.
1. Hospital Facilities and Organizations
a. Hospital Organization for Purposes of Section 4959
Section 4959 imposes a $50,000 excise tax on ``a hospital
organization to which section 501(r) applies'' that fails to meet the
requirements of section 501(r)(3) for any taxable year. For purposes of
section 501(r), the 2012 proposed regulations define the term
``hospital organization'' to mean an organization ``recognized (or
seeking to be recognized) as described in section 501(c)(3)'' that
operates one or more hospital facilities. These proposed regulations
clarify that the section 4959 excise tax will apply to a hospital
organization that fails to meet the section 501(r)(3) requirements
during a taxable year in which its section 501(c)(3) status is revoked.
These proposed regulations do not otherwise change the substance of the
``hospital organization'' definition contained in the 2012 proposed
regulations.
b. Multiple Buildings Under a Single Hospital License
The definition of ``hospital facility'' in the 2012 proposed
regulations provides that multiple buildings operated by a hospital
organization under a single state license may be considered a single
hospital facility. This special rule for multiple buildings was
intended to allow flexibility but has the disadvantage of making it
harder for the IRS and the public to understand and to evaluate the
information reported on a hospital organization's Form 990,
particularly if multiple buildings under a single state license are
reported differently (as a single facility or as multiple facilities)
from year to year. To increase the certainty and consistency in the
designation of hospital facilities, these proposed regulations amend
this definition to provide that multiple buildings operated by a
hospital organization under a single state license ``are'' (rather than
``may be'') considered a single hospital facility. The Treasury
Department and the IRS request comments regarding whether (and under
what circumstances) a hospital organization should be able to treat
multiple buildings under a single state license as separate hospital
facilities for purposes of the CHNA and other section 501(r)
requirements and, if so, how certainty and consistency in the
designation of hospital facilities can be achieved.
c. Tribal Hospital Facilities
Several commenters recommended that these proposed regulations make
clear that a hospital facility operated by an Indian tribe or tribal
organization is not subject to the section 501(r) requirements, even if
the hospital facility is part of an organization described in section
501(c)(3). These commenters stated that tribal hospital facilities are
not typically ``required by a state to be licensed, registered, or
similarly recognized as a hospital,'' as contemplated in section
501(r)(2)(A)(i). The Treasury Department and the IRS note that section
501(r)(2)(A)(i) refers only to a hospital facility licensed or
registered by a state, not an Indian tribal government, and that
section 7871 does not provide that an Indian tribal government is
treated as a state for purposes of section 501(r). Accordingly, pending
any future guidance regarding other categories of hospital
organizations or facilities, a tribal facility that is not required by
a state to be licensed, registered, or similarly recognized as a
hospital is not a ``hospital facility'' for purposes of section 501(r),
and a section 501(c)(3) organization will not be considered a
``hospital organization'' solely as a result of operating such a tribal
facility.
d. Operating a Hospital Facility Through a Partnership
Notice 2011-52 stated the intention of the Treasury Department and
the IRS to include within the definition of ``hospital organization''
any organization described in section 501(c)(3) that operates a
hospital facility through a joint venture, limited liability company,
or other entity treated as a partnership for federal tax purposes.
Notice 2011-52 also requested comments regarding whether (and under
what circumstances) an organization should not be considered to
``operate'' a 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 tax
purposes that operates the hospital facility.
In response to Notice 2011-52, a few commenters recommended that a
hospital organization generally should not be considered to operate a
hospital facility through a partnership when it holds a minority
interest in that partnership. In defining ``minority interest,''
commenters suggested ownership thresholds ranging from less than 50
percent to less than 20 percent. Commenters stated that a hospital
organization with such a minority interest in a hospital facility joint
venture would not have the necessary control over the joint venture to
ensure that the hospital facility in question complied with the
requirements of section 501(r).
Another commenter recommended that section 501(r) should not apply
to a hospital facility operated by a partnership if the partner
described in section 501(c)(3) treats the income derived from that
facility as unrelated business taxable income (UBTI) that is taxed
under section 511. This commenter argued that the line on the
applicability of section 501(r) should be drawn based on the taxability
of the hospital facility's income rather than on the basis of a
particular percentage of ownership.
Yet another commenter suggested that these proposed regulations
should provide that an organization that owns a minority limited
partnership interest in a partnership that operates a hospital facility
should not be considered to ``operate'' that hospital facility for
purposes of section 501(r) if the organization entered into the limited
partnership agreement prior to the date section 501(r) was enacted
(that is, March 23, 2010) and has a primary tax-exempt purpose other
than the provision of community health care. As an example of such an
organization, this commenter cited a university medical school that
entered into a partnership agreement to operate a hospital facility
that gives the university control over the joint venture sufficient to
ensure the operation of the hospital facility furthers its exempt
educational purpose, but insufficient to ensure the hospital facility
is in compliance with section 501(r).
Rev. Rul. 2004-51 (2004-1 CB 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 CB 718). Consequently, consistent with Notice
2011-52, these proposed regulations provide that, as a general rule, a
hospital organization ``operates'' a hospital facility if it is a
partner in a joint venture, limited liability company, or other entity
treated as a partnership for federal income tax
[[Page 20526]]
purposes that operates the hospital facility.
However, in light of the comments received, these proposed
regulations provide two exceptions to this general rule. First, as
commenters observed, an organization without the control over the
operation of a hospital facility sufficient to ensure that the hospital
facility furthers an exempt purpose is unlikely to have the control
sufficient to ensure compliance with section 501(r). As a general rule,
if a tax-exempt partner does not have control sufficient to ensure that
a trade or business activity regularly carried on by the partnership
furthers (or is substantially related to) its exempt purposes, that
activity will be considered an unrelated trade or business with respect
to the tax-exempt partner. See Rev. Rul. 2004-51; Rev. Rul. 98-15.
These proposed regulations provide that if a section 501(c)(3) partner
of a partnership operating a hospital facility does not have control
over the operation of the hospital facility sufficient to ensure that
the operation of the hospital facility furthers an exempt purpose
described in section 501(c)(3) and thus treats the operation of the
hospital facility, including the facility's provision of medical care,
as an unrelated trade or business, the hospital organization will not
be considered to ``operate'' the hospital facility for purposes of
section 501(r).
Second, as another commenter observed, some tax-exempt
organizations may have entered into partnership arrangements prior to
the enactment of section 501(r) that gave them control over a
partnership sufficient to ensure that the partnership furthers
charitable purposes other than the provision of community health care,
but not sufficient to ensure compliance with section 501(r). In
response to this comment, these proposed regulations provide a
grandfather rule under which a hospital organization will not be
considered to ``operate'' a hospital facility for purposes of section
501(r) if certain conditions are met. First, at all times since March
23, 2010, the hospital organization must have been organized and
operated primarily for educational or scientific purposes and must not
have engaged primarily in the operation of one or more hospital
facilities. Second, pursuant to a partnership arrangement (including
any side agreements) entered into before March 23, 2010, the hospital
organization must not own more than 35 percent of the capital or
profits interest in the partnership, not own a general partner or
similar interest, and not have sufficient control over the operation of
the hospital facility to ensure that the hospital facility complies
with the requirements of section 501(r).
Finally, like both Notice 2011-52 and the 2012 proposed
regulations, these proposed regulations make clear that a hospital
organization operates a hospital facility if it operates a hospital
facility through a wholly-owned entity that is disregarded as separate
from the hospital organization for federal tax purposes.
e. Activities Unrelated to the Operation of a Hospital Facility
In response to Notice 2010-39, a few commenters asked whether the
requirements of section 501(r) apply to those aspects of a hospital
organization's operations that do not relate to the operation of a
hospital facility. Section 501(r)(2)(B) provides that the requirements
of section 501(r) apply separately with respect to each of the hospital
facilities a hospital organization operates. Similarly, section
1.501(r)-2 of these proposed regulations (which describes consequences
for failing to satisfy the requirements of section 501(r)) only applies
to circumstances in which a hospital organization fails to meet one or
more of the requirements of section 501(r) ``separately with respect to
one or more hospital facilities'' it operates. Thus, the Treasury
Department and the IRS intend that a hospital organization is not
required to meet the requirements of section 501(r) with respect to any
activities unrelated to the operation of a hospital facility. For
example, if a hospital organization operates a facility that is not
required to be licensed as a hospital by the state in which the
facility is located, the hospital organization is not required to meet
the requirements of section 501(r) with respect to that facility.
f. Authorized Body of a Hospital Organization or Facility
For purposes of determining whether a hospital organization has
established a policy required under section 501(r)(4) for a hospital
facility it operates, the 2012 proposed regulations would require an
authorized body to adopt the policy for the hospital facility. The 2012
proposed regulations define the term ``authorized body'' to include:
(1) The governing body (that is, the board of directors, board of
trustees, or equivalent controlling body) of the hospital organization;
(2) a committee of, or other party authorized by, the governing body of
the hospital organization, to the extent permitted under state law; or
(3) in the case of a hospital facility that has its own governing body
and is recognized as an entity under state law but is a disregarded
entity for federal tax purposes, the governing body of that hospital
facility, or a committee of, or other party authorized by, that
governing body to the extent permitted under state law.
Because the definition of an ``authorized body'' of a hospital
facility that adopts a CHNA report or implementation strategy required
under section 501(r)(3) should be the same as the definition of an
``authorized body'' for purposes of section 501(r)(4), the term
``authorized body of a hospital facility'' is defined in Sec.
1.501(r)-1 of these proposed regulations so that it may apply for
purposes of both the section 501(r)(3) and the section 501(r)(4)
requirements.
2. Failures To Satisfy the Requirements of Section 501(r)
a. Minor and Inadvertent Omissions and Errors
Numerous commenters to Notice 2010-39 requested guidance on the
consequences of failing to meet one or more of the requirements of
section 501(r). In addition, commenters have noted that the guidance
released so far on section 501(r) (in Notice 2011-52 and the 2012
proposed regulations) has proposed multiple specific requirements, and
that hospitals, as large complex institutions, may experience minor and
inadvertent compliance failures notwithstanding their good faith
efforts to comply with the requirements. Commenters representing
hospitals expressed the view that a failure to meet a section 501(r)
requirement should only result in adverse consequences for a hospital
organization if the failure is a substantial one. The Treasury
Department and the IRS received similar informal comments from patient
advocates. Commenters also recommended that no adverse consequences
should result from a hospital organization's failure if the
organization corrects the failure, with many of these commenters
specifically suggesting that such corrections be required to be made
``by the end of the fiscal year being reported.''
The Treasury Department and the IRS recognize that minor and
inadvertent errors may occur even in circumstances in which a hospital
facility has practices and procedures in place that are reasonably
designed to facilitate overall compliance with section 501(r) and has
implemented safeguards reasonably calculated to prevent errors.
Therefore, these proposed regulations provide that a hospital
facility's omission of required
[[Page 20527]]
information from a policy or report described in Sec. 1.501(r)-3 or
Sec. 1.501(r)-4, or error with respect to the implementation or
operational requirements described in Sec. 1.501(r)-3 through Sec.
1.501(r)-6, will not be considered a failure to meet a requirement of
section 501(r) if the omission or error was minor, inadvertent, and due
to reasonable cause, and the hospital facility corrects such omission
or error as promptly after discovery as is reasonable given the nature
of the omission or error.
b. Excusing Certain Failures if a Hospital Facility Corrects and Makes
Disclosure
With respect to omissions or errors that rise above the level of
minor and inadvertent, the Treasury Department and the IRS recognize
that a hospital facility's prompt discovery and correction of such
omissions or errors is in the best interests of patients and that
requiring hospital facilities to report such omissions or errors and
disclose how such omissions or errors were corrected (for example, on
the Form 990) would achieve transparency, which is an important
objective of section 501(r). Increased transparency, in turn, will
permit organizations concerned with community health needs to use this
information to promote adoption of practices and procedures that
advance the goals of the section 501(r) requirements and encourage
promulgation of best practices. To provide an incentive for hospital
facilities to take steps not only to avoid errors but to correct and
provide disclosure when they occur, the Treasury Department and the IRS
will issue a revenue procedure, notice, or other guidance published in
the Internal Revenue Bulletin which will provide that a hospital
facility's failure to meet one or more of the requirements described in
Sec. 1.501(r)-3 through Sec. 1.501(r)-6 that is neither willful nor
egregious will be excused if the hospital facility corrects and
provides disclosure in accordance with the rules set forth in the
guidance. The Treasury Department and the IRS anticipate that this
guidance will provide that correction and disclosure should be
reasonable and appropriate for the failure at issue.
For purposes of this provision, willful is to be interpreted
consistent with the meaning of that term in the context of civil
penalties, which would include a failure due to gross negligence,
reckless disregard, or willful neglect. Furthermore, correction and
disclosure will not create a presumption that the failure was neither
willful nor egregious.
The Treasury Department and the IRS intend to issue the guidance
regarding correction and disclosure in proposed form in order to
provide an opportunity to comment on the procedures described therein.
c. Facts and Circumstances Considered in Determining Whether To Revoke
501(c)(3) Status
Section 501(r)(1) provides that a hospital organization will not be
treated as described in section 501(c)(3) unless it meets the
requirements of section 501(r). These proposed regulations interpret
this language as giving the IRS the authority to revoke a hospital
organization's section 501(c)(3) status if the organization fails to
meet one or more requirements of section 501(r). However, the Treasury
Department and the IRS agree with commenters that the IRS should
consider the relative size, scope, nature, and significance of any
failures to meet the section 501(r) requirements, as well as the
reasons for such failures and whether the same type of failures have
previously occurred, when determining whether revocation of section
501(c)(3) status is warranted. In addition, the Treasury Department and
the IRS consider it desirable that these proposed regulations provide
incentives for a hospital facility to establish and routinely follow
practices and procedures reasonably designed to promote and facilitate
overall compliance with the section 501(r) requirements and identify
any problems that arise and the reasons for their occurrence. Hospital
facilities should also have incentives to correct any section 501(r)
failures as promptly after discovery as is reasonable given the nature
of the failure and implement safeguards reasonably calculated to
prevent similar failures from occurring in the future. Accordingly,
these proposed regulations provide that the IRS will consider all of
these facts and circumstances in determining whether to continue to
recognize the section 501(c)(3) status of a hospital organization that
fails to meet one or more requirements of section 501(r). In general,
the Treasury Department and the IRS expect that application of these
facts and circumstances will ordinarily result in revocation of the
section 501(c)(3) status of a hospital organization if the
organization's failures to meet the requirements of section 501(r) are
willful or egregious.
d. Taxation of Noncompliant Hospital Facilities
A number of commenters recommended that if a hospital organization
fails to meet a section 501(r) requirement with respect to a particular
hospital facility it operates, only that hospital facility should be
treated as not described in section 501(c)(3), and the facility's
failure should not negate the tax exemption of the hospital
organization as a whole. A few commenters recommended that if a
hospital organization ceases to qualify as an organization described in
section 501(c)(3) with respect to a particular hospital facility but
continues to qualify as an organization described in section 501(c)(3)
overall, then any net income derived from the disqualified facility
should be subject to the unrelated business income tax under section
511.
Section 501(r)(2)(B)(ii) provides that a hospital organization
operating more than one hospital facility shall not be treated as
described in section 501(c)(3) with respect to any such hospital
facility for which the requirements of section 501(r)(1) are not
separately met (a ``noncompliant hospital facility''). Status under
section 501(c)(3) is determined at the organizational level, and
treating an organization as not described in section 501(c)(3) ``with
respect to'' a particular hospital facility it operates (or a
particular branch, division, or activity of the organization) has no
generally recognized meaning under the provisions of the Code governing
tax-exempt organizations. Notwithstanding this fact, the language in
section 501(r)(2)(B)(ii) suggests that a particular noncompliant
hospital facility operated by a hospital organization with more than
one facility may be treated as not described in section 501(c)(3)
without affecting the section 501(c)(3) status of the hospital
organization. A noncompliant hospital facility that is treated as not
described in section 501(c)(3), but that is owned and operated by a
hospital organization that continues to be described in section
501(c)(3), cannot be described in another subsection of 501(c) (such as
section 501(c)(4)), since the plain language of section 501(c) makes
clear that only organizations (not facilities, branches, divisions, or
other components of organizations) can be described in any one
subsection of 501(c). Thus, these proposed regulations interpret
section 501(r)(2)(B)(ii) to mean that a hospital organization that is
not treated as described in section 501(c)(3) ``with respect to'' a
particular noncompliant hospital facility ceases to be exempt from
taxation under section 501(a) with respect to that facility, even while
the hospital organization as a whole (with respect to its other
hospital facilities and activities) continues to be otherwise exempt
from taxation under
[[Page 20528]]
section 501(a) because it is described in section 501(c)(3).
Accordingly, these proposed regulations provide that if a hospital
organization operating 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 but continues to
be recognized as described in section 501(c)(3), the income derived
from the noncompliant hospital facility during that taxable year will
be subject to tax computed as provided in section 11 (or as provided in
section 1(e) if the hospital organization is a trust described in
section 511(b)(2)). To maintain consistency with the treatment of
organizations operating a single hospital facility, this tax will apply
only if the hospital organization would not continue to be described in
section 501(c)(3) based on the facts and circumstances described in
section 2.c of this preamble if the noncompliant hospital facility were
the only hospital facility that the organization operated. This tax
would not apply in the event of minor and inadvertent omissions or
errors described in section 2.a of this preamble or of failures that
are excused in accordance with the guidance described in section 2.b of
this preamble.
In applying the tax, the income derived from a noncompliant
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 of the Code that are directly connected
to the operation of that hospital facility during the taxable year.
These proposed regulations provide that this computation will exclude
any gross income and deductions already taken into account in computing
any UBTI described in section 512 derived from the facility during the
taxable year.
To be directly connected with the operation of a noncompliant
hospital facility, these proposed regulations provide that an item of
deduction must have proximate and primary relationship to the operation
of the hospital facility. Expenses, depreciation, and similar items
attributable solely to the operation of a hospital facility are
proximately and primarily related to such operation, and therefore
qualify for deduction to the extent that they meet the requirements of
section 162, section 167, or other relevant provisions of the Code.
These proposed regulations further provide that where expenses,
depreciation, and similar items are attributable to more than one
hospital facility operated by the hospital organization (and/or to
activities of the hospital organization unrelated to the operation of
hospital facilities), such items shall be allocated between the
hospital facilities (and/or other activities) on a reasonable basis.
In addition, these proposed regulations provide the gross income
and allowed deductions of a noncompliant hospital facility may not be
aggregated with the gross income and allowed deductions of the hospital
organization's other noncompliant hospital facilities or its unrelated
trade or business activities described in section 513. Thus, a hospital
organization operating more than one noncompliant hospital facility
that is subject to the facility-level tax must compute each facility's
taxable income separately and may not use net operating losses from one
noncompliant hospital facility to offset taxable income derived from
another noncompliant hospital facility. Similarly, a hospital
organization may not use net operating losses from a noncompliant
hospital facility to offset any UBTI derived from the organization's
unrelated trade or business activities.
A number of commenters expressed concern that interest on bonds
issued as qualified 501(c)(3) bonds to finance a hospital facility will
become taxable if the facility fails one or more requirements of
section 501(r). These proposed regulations make clear that if a
hospital organization operating a noncompliant hospital facility
continues to be recognized as described in section 501(c)(3) and
otherwise exempt from tax under section 501(a), the fact that a
facility-level tax is imposed as a result of the facility's failure to
comply with section 501(r) will not itself cause the interest on such
bonds to be taxable.
Finally, these proposed regulations make clear that the facility-
level tax described in this section 2.d of the preamble will be
reported on the Form 990-T.
3. Community Health Needs Assessments
Consistent with section 501(r)(3)(A), these proposed regulations
provide that a hospital organization meets the requirements of section
501(r)(3) in any taxable year with respect to a hospital facility it
operates only if the hospital facility has conducted a CHNA in such
taxable year or in either of the two immediately preceding taxable
years and an authorized body of the hospital facility has adopted an
implementation strategy to meet the community health needs identified
through the CHNA by the end of the taxable year in which the hospital
facility conducts the CHNA. In general, these proposed regulations are
consistent with the anticipated rules described in Notice 2011-52, with
certain modifications intended to be responsive to the more than 80
comments received on Notice 2011-52.
a. Conducting a Community Health Needs Assessment
In conducting a CHNA, these proposed regulations provide that a
hospital facility must define the community it serves and assess the
health needs of that community. In assessing the community's health
needs, the hospital facility must, consistent with section
501(r)(3)(B)(i), take into account input from persons who represent the
broad interests of its community, including those with special
knowledge of or expertise in public health. The hospital facility must
also document the CHNA in a written report (``CHNA report'') that is
adopted for the hospital facility by an authorized body of the hospital
facility. Finally, consistent with section 501(r)(3)(B)(ii), the
hospital facility must make the CHNA report widely available to the
public. These proposed regulations provide that a CHNA is considered
``conducted'' on the date the hospital facility has completed all of
these steps. Because a hospital facility must make a CHNA report widely
available to the public continuously for a number of years (as
discussed in section 3.a.vi of this preamble), these proposed
regulations clarify that a hospital facility is considered to have
completed the step of making the CHNA report widely available to the
public on the date it first makes the CHNA report widely available to
the public.
i. Community Served by the Hospital Facility
Notice 2011-52 stated the intention of the Treasury Department and
the IRS to allow a hospital facility to take into account all of the
relevant facts and circumstances in defining the community it serves.
Notice 2011-52 noted that, generally, the Treasury Department and the
IRS would expect a hospital facility's community to be defined
geographically but that, in some cases, the definition might also take
into account target populations served or specialized functions.
Notwithstanding this generally flexible approach to defining community,
Notice 2011-52 stated that a community could not be defined in a manner
that circumvented the requirement to assess the health needs of the
hospital facility's community by excluding, for example, medically
underserved populations,
[[Page 20529]]
low-income persons, minority groups, or those with chronic disease
needs. Finally, Notice 2011-52 requested comments on the relative
merits of different geographically-based definitions of community and,
more specifically, on whether future guidance 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]SA, as the county in which the
facility is located.
Many commenters supported the facts-and-circumstances approach to
defining a hospital facility's community outlined in Notice 2011-52 and
recommended against a definition based on specified geographic
boundaries. These commenters noted that each hospital facility is in
the best position to determine its community and that requiring the
community to be defined as a specific geographic area may not be
appropriate or correspond to the actual populations served, especially
in the case of specialized and regional hospitals. These commenters
also recommended against defining the community served by a hospital
facility as the MSA, [mu]SA, or county in which the facility is
located, noting that such areas or politically-defined jurisdictions
are often unrelated to hospital service areas.
Other commenters recommended a geographic definition of community,
but requested one that would be flexible in the method of definition
(for example, not restricted to specific political jurisdictions). A
few commenters went further and stated that the geographic definition
of community should include the political jurisdiction in which the
hospital facility is located or where the hospital facility is an
essential provider. These commenters recommended against definitions of
community based on the demographics or residence of the hospital
facility's specific patient populations, noting that a hospital
facility's current patient population does not necessarily reflect the
broader community.
Consistent with Notice 2011-52, these proposed regulations provide
a hospital facility with the flexibility to take into account all of
the relevant facts and circumstances in defining the community it
serves, including the geographic area served by the hospital facility,
target populations served (for example, children, women, or the aged),
and principal functions (for example, focus on a particular specialty
area or targeted disease). These proposed regulations also clarify that
a hospital facility may define its community to include populations in
addition to its patient populations and geographic areas outside of
those in which its patient populations reside. For example, a hospital
facility collaborating with other hospital facilities in its MSA in
conducting a CHNA may define its community as the entire MSA in which
all of the collaborating hospital facilities are located, even if the
hospital facility itself only generally serves and draws its patients
from a portion of that MSA.
While desiring to give a hospital facility the flexibility it needs
to define its community served in a manner appropriate to its specific
facts and circumstances, the Treasury Department and the IRS continue
to share the interest expressed by some commenters in ensuring that
hospital facilities assess and address the needs of medically
underserved, low-income, and minority populations in the areas they
serve. Thus, similar to the restriction included in Notice 2011-52,
these proposed regulations provide that a hospital facility may not
define its community in a way that excludes medically underserved, low-
income, or minority populations who are part of its patient
populations, live in geographic areas in which its patient populations
reside (unless they are not part of the hospital facility's target
populations or affected by its principal functions), or otherwise
should be included based on the method used by the hospital facility to
define its community. These proposed regulations clarify that medically
underserved populations include populations experiencing health
disparities or at risk of not receiving adequate medical care as a
result of being uninsured or underinsured or due to geographic,
language, financial, or other barriers. (For reasons discussed in
section 3.a.iii.B of this preamble, these proposed regulations do not
list those with chronic disease needs as a separate category of persons
that must not be excluded.) Finally, if a hospital facility uses a
method of defining its community that takes into account patient
populations, these proposed regulations require the hospital facility
to treat as patients all individuals who receive care from the hospital
facility, without regard to whether (or how much) they or their
insurers pay for the care received or whether they are eligible for
financial assistance.
ii. Assessing Community Health Needs
These proposed regulations provide that in order to ``assess'' the
health needs of the community it serves, a hospital facility must
identify significant health needs of the community, prioritize those
health needs, and identify potential measures and resources (such as
programs, organizations, and facilities in the community) available to
address the health needs. For these purposes, health needs include
requisites for the improvement or maintenance of health status in both
the community at large and in particular parts of the community (such
as particular neighborhoods or populations experiencing health
disparities). Requisites for the improvement or maintenance of health
status in a community may include improving access to care by removing
financial and other barriers to care, such as a lack of information
regarding sources of insurance designed to benefit vulnerable
populations.
Notice 2011-52 stated the intention of the Treasury Department and
the IRS to require a hospital facility to prioritize all of the
community health needs identified through the CHNA. A few commenters
suggested that only the most significant of the likely extensive list
of community health needs identified through a CHNA should have to be
prioritized. These proposed regulations respond to this comment by
clarifying that a CHNA need only identify significant health needs and
need only prioritize, and otherwise assess, those significant health
needs identified. A hospital facility may determine whether a health
need is significant based on all of the facts and circumstances present
in the community it serves.
A few commenters asked for additional guidance regarding how a CHNA
should prioritize community health needs. These proposed regulations do
not require a hospital facility to use any particular methods or
criteria in prioritizing health needs. They do, however, list as
possible examples of prioritization criteria the burden, scope,
severity, or urgency of the health need; the estimated feasibility and
effectiveness of possible interventions; the health disparities
associated with the need; and/or the importance the community places on
addressing the need. This list of possible prioritization criteria is
not intended to be exhaustive, and a hospital facility may use any
criteria it deems appropriate.
iii. Persons Representing the Broad Interests of the Community
In assessing the health needs of the community it serves, these
proposed regulations require a hospital facility to (consistent with
section 501(r)(3)(B)(i)) take into account input from persons
[[Page 20530]]
who represent the broad interests of the community served by the
hospital facility, including those with special knowledge of or
expertise in public health. Specifically, these proposed regulations
require a hospital facility to take into account input from, at a
minimum: (1) At least one state, local, tribal, or regional
governmental public health department (or equivalent department or
agency) with knowledge, information, or expertise relevant to the
health needs of the community; (2) members of medically underserved,
low-income, and minority populations in the community, or individuals
or organizations serving or representing the interests of such
populations; and (3) written comments received on the hospital
facility's most recently conducted CHNA and most recently adopted
implementation strategy.
Notice 2011-52 stated that the Treasury Department and the IRS
intended to require a CHNA to take into account input from, at a
minimum: (1) Persons with special knowledge of or expertise in public
health; (2) federal, tribal, regional, state, or local health or other
departments or agencies, with current data or other information
relevant to the health needs of the community served by the hospital
facility; and (3) leaders, representatives, or members of medically
underserved, low-income, and minority populations, and populations with
chronic disease needs, in the community served by the hospital
facility.
A. Governmental Public Health Departments
With respect to the requirement described in Notice 2011-52 to take
into account input from federal, tribal, regional, state, or local
health or other departments, many commenters urged that a hospital
facility should be able to choose the level and type of governmental
public health department from which it seeks input, noting that not
every local jurisdiction has a local public health department. On the
other hand, a number of public health organizations suggested that
these proposed regulations should require a hospital facility to
consult with the state public health department in the state where the
hospital facility is licensed and/or the local public health department
in the local jurisdiction where the hospital facility is located. These
organizations noted that such departments can play a critically
important role in coordinating CHNA efforts and provide expertise in
CHNA planning and execution, access to existing health data, and
knowledge of local conditions, needs, and resources.
These proposed regulations preserve the flexibility in Notice 2011-
52 of allowing a hospital facility to choose the jurisdictional level
of government (for example, state, local, tribal, or regional) that it
feels is most appropriate for its CHNA. These proposed regulations do
not require a hospital facility to seek input from a local public
health department, in particular, in recognition of some commenters'
observation that not all jurisdictions will have local public health
departments available to participate in the CHNA process. However, in
recognition of the planning and subject-matter expertise that public
health departments can offer to the CHNA process, a hospital facility
is required to seek input from a public health department (or
equivalent department or agency) in particular, rather than any
governmental departments with current data or other information
relevant to the health needs of the community (as described in Notice
2011-52). Such input could include input from the state public health
official or any local public health official.
In addition, given commenters' emphasis on the importance of input
from public health departments at the state or local level, these
proposed regulations require a hospital facility to seek input from a
public health department at a state or local, not a federal, level.
Because a governmental public health department presumably has special
knowledge of or expertise in public health, requiring input from a
public health department eliminates the need for a separate requirement
to consult with a person with special knowledge of or expertise in
public health (as provided in Notice 2011-52).
B. Medically Underserved, Low-Income, and Minority Populations
Commenters generally supported the purpose behind the requirement
to take into account input from medically underserved, low-income, and
minority populations in the community but asked for clarification on
who may be considered ``leaders'' or ``representatives'' of such
populations. One commenter noted that the term ``chronic disease
needs'' is broad and could potentially require a hospital facility to
seek input from a large number of individuals in order to address every
chronic disease in its community.
These proposed regulations maintain the requirement to take into
account input from medically underserved, low-income, and minority
populations in the community served by the hospital facility but
respond to comments by clarifying and simplifying the approach taken in
Notice 2011-52. To address the numerous comments expressing confusion
over the terms ``leaders'' and ``representatives'' of such populations,
these proposed regulations clarify that a hospital facility may seek
input either directly from members of medically underserved, low-
income, and minority populations in the community (for example, in the
form of meetings, focus groups, surveys, or interviews) or from
individuals or organizations serving or representing the interests of
those populations. To address the concern with requiring input related
to every chronic disease in a community, these proposed regulations do
not refer to chronic disease needs in particular but rather define
``medically underserved populations'' in a manner that focuses on
disparities in coverage, access, and other barriers to care for persons
with health needs that may include, but are not limited to, chronic
diseases.
C. Written Comments
A few commenters recommended an input requirement not contained in
Notice 2011-52: a requirement that a hospital facility take into
account public input and comments on a draft version of its CHNA report
before the report is finalized. These commenters noted the importance
of a public comment process for ensuring that the CHNA accurately
reflects the community's views and priorities and adequately analyzes
available data.
These proposed regulations do not adopt the specific
recommendations to require hospital facilities to make a draft copy of
a CHNA report available for public comment due to the complexity of the
additional timeframes and procedures such a process would require.
However, the Treasury Department and the IRS recognize the value of
providing a mechanism for public feedback on CHNA reports and their
related implementation strategies. Therefore, these proposed
regulations respond to these comments by requiring a hospital facility
to consider written comments received from the public on the hospital
facility's most recently conducted CHNA and most recently adopted
implementation strategy. (As discussed in section 4 of this preamble,
the public will be able to review a hospital facility's most recently
adopted implementation strategy because it will either be attached to
the Form 990 of the hospital organization that operates it or made
widely available on a Web site.) Because a new CHNA must be conducted
and an implementation strategy adopted at least once every three years,
this requirement establishes
[[Page 20531]]
the same sort of continual feedback on CHNA reports suggested by
commenters, albeit over a longer period of time. It is anticipated that
this opportunity for feedback on CHNA reports and implementation
strategies will result in a meaningful exchange over time and that the
longer timeframe will give the public sufficient time to provide
comments and hospital facilities sufficient time to consider the
public's comments and take the comments into account when conducting
their next CHNA. In addition, as discussed in section 3.a.vi of this
preamble, to help facilitate the option of posting a draft CHNA report
for public review and comment, these proposed regulations provide that
the posting of draft CHNA reports will not trigger the start of a
hospital facility's next three-year CHNA cycle.
D. Input on Financial and Other Barriers and From Other Sources
In addition, some commenters recommended that a hospital facility
should be required to integrate evaluations of financial assistance
policies and procedures and the need for uncompensated care into its
CHNA. The Treasury Department and the IRS recognize that the need to
improve access to care by removing financial barriers can be among the
significant health needs assessed in a CHNA. Accordingly, these
proposed regulations provide that input from persons representing the
broad interests of the community includes, but is not limited to, input
on any financial and other barriers to access to care in the community.
Finally, similar to Notice 2011-52, these proposed regulations
provide that a hospital facility may take into account input from a
broad range of persons located in or serving its community who may have
special knowledge of or expertise in public health, including, but not
limited to, health care consumers and consumer advocates, nonprofit and
community-based organizations, academic experts, local government
officials, local school districts, health care providers and community
health centers, health insurance and managed care organizations,
private businesses, and labor and workforce representatives. As
discussed in section 3.a.vi of this preamble, one way for a hospital
facility to take into account input from such a broad range of persons
is to pursue the option of posting on its Web site a draft CHNA report
for public review and comment. The Treasury Department and the IRS
believe a CHNA with broad input from the community can increase the
likelihood of well-targeted initiatives that address the needs of
communities and improve the health of residents.
iv. Documentation of a CHNA
Similar to the documentation rule described in Notice 2011-52,
these proposed regulations provide that a hospital facility must
document its CHNA in a CHNA report that is adopted by an authorized
body of the hospital facility and includes: (1) A definition of the
community served by the hospital facility and a description of how the
community was determined; (2) a description of the process and methods
used to conduct the CHNA; (3) a description of how the hospital
facility took into account input from persons who represent the broad
interests of the community it serves; (4) a prioritized description of
the significant health needs of the community identified through the
CHNA, along with a description of the process and criteria used in
identifying certain health needs as significant and prioritizing such
significant health needs; and (5) a description of potential measures
and resources identified through the CHNA to address the significant
health needs.
Like Notice 2011-52, the proposed regulations provide more detail
about two of these required elements of the CHNA report: the
description of the process and methods used to conduct the CHNA and the
description of how the hospital facility took into account input from
persons who represent the broad interests of the community. However, in
response to comments about the need for greater flexibility, these
proposed regulations provide that a hospital facility's CHNA report
``will be considered to'' describe each of these elements if it
contains certain information instead of prescribing a single method of
meeting the requirement.
A. Description of Process and Methods
These proposed regulations provide that a hospital facility's CHNA
report will be considered to describe the process and methods used to
conduct the CHNA if the CHNA report: (1) describes the data and other
information used in the assessment, as well as the methods of
collecting and analyzing this data and information, and (2) identifies
any parties with whom the hospital facility collaborated, or with whom
it contracted for assistance, in conducting the CHNA.
B. Description of Community Input
In describing how the hospital facility took into account input
from persons who represent the broad interests of the community it
serves, Notice 2011-52 stated that a hospital facility would have to
describe when and how the organization consulted with such persons. A
number of commenters sought clarification that a general summary of
``when and how'' would be sufficient. Specifically, some of these
commenters noted that a detailed account of each instance of feedback
could be quite burdensome and may create the impression that less
formal interactions with community members are insufficient or unworthy
of consideration or hinder the free flow of information.
In response to these comments, these proposed regulations clarify
that the CHNA report may summarize, in general terms, how and over what
time period input was provided (for example, whether through meetings,
focus groups, interviews, surveys, or written comments and between what
dates) and need not provide a detailed description of each instance of
feedback. These proposed regulations also clarify that the CHNA report
may contain a general summary of the input received. Thus, for example,
a hospital facility may describe a series of town hall meetings by
noting that four meetings were held over a three-month period and
generally summarizing the input received, without necessarily having to
provide the specific dates of each meeting, a list of attendees, or
minutes of the discussion.
Notice 2011-52 stated that a hospital facility taking into account
input from an organization would be required to identify in the CHNA
report not only the organization but also the name and title of at
least one individual in the organization with whom the hospital
facility consulted. Commenters, however, were generally opposed to
inclusion in the publicly available CHNA report of the names and roles
of private individuals who gave input into the CHNA process, noting
that the information may not add much value to the overall CHNA but
could raise privacy concerns and deter individuals from providing
input. In response to these comments, these proposed regulations do not
specifically require the CHNA report to contain the names or titles of
any individuals contacted within an organization. In addition, the
proposed regulations specify that a CHNA report does not need to name
or otherwise individually identify any individuals participating in
community forums, focus groups, survey samples, or similar groups.
However, the Treasury Department and the IRS continue to believe
that a
[[Page 20532]]
CHNA report should identify the organizations that provided input into
the CHNA and summarize the nature and extent of that input. In
addition, a CHNA report should describe the medically underserved, low-
income, or minority populations being represented by the organizations
or individuals providing input. Accordingly, these proposed regulations
provide that a hospital facility's CHNA report will be considered to
describe how the hospital facility took into account input if the CHNA
report: (1) Summarizes, in general terms, the input provided and how
and over what time period such input was provided; (2) provides the
names of organizations providing input and summarizes the nature and
extent of the organization's input; and (3) describes the medically
underserved, low-income, or minority populations being represented by
organizations or individuals providing input.
The Treasury Department and the IRS request comments regarding
whether these proposed rules provide for sufficient disclosure
regarding the community input into a CHNA report, or whether the CHNA
report should be required to provide any other information regarding
input provided, in order to ensure transparency in the CHNA process.
C. Description of Prioritization of the Community's Health Needs and of
Potential Measures and Identified Resources to Address Such Needs
With respect to the requirement in Notice 2011-52 to describe the
existing health care facilities and other resources within the
community available to meet the health needs identified through the
CHNA, many commenters asked that the description of these resources be
limited to known or available facilities and resources. These
commenters argued that a community-wide inventory of health care
resources is not the responsibility of any one hospital facility, but
rather a task more appropriate to public health departments.
Accordingly, these proposed regulations limit the description of
resources available to address health needs to those known or
identified in the course of conducting the CHNA.
Additional commenters remarked that both the prioritization of
health needs and a description of resources available to meet the
health needs identified through the CHNA are more appropriate in an
implementation strategy than in a CHNA report. On the other hand, other
commenters noted the importance of community input in the overall CHNA
process and sought an opportunity to provide input on potential
interventions and programs that may be included in a hospital
facility's implementation strategy. In fact, such commenters asked that
the implementation strategy, in addition to the CHNA, be subject to
public input and made widely available to the public.
The Treasury Department and the IRS recognize that conducting a
CHNA and developing an implementation strategy are part of one fluid
process, with no definite point at which the CHNA ends and the
implementation strategy begins. Prioritizing health needs and
identifying potential measures and resources to address health needs,
for example, could reasonably be interpreted as part of ``assessing''
those health needs or, alternatively, as the first step in devising a
strategy to meet those needs. Accordingly, these proposed regulations
respond to commenters' requests for enhanced transparency and an
opportunity for community input by requiring items that could
reasonably be included as part of either the CHNA or the implementation
strategy to be described in the CHNA report. Thus, these proposed
regulations require the CHNA report to include a prioritized
description of the significant health needs of the community identified
through the CHNA, along with a description of the process and criteria
used in prioritizing these health needs. These proposed regulations
also require the CHNA report to include a description of the potential
measures and resources identified through the CHNA to address the
significant health needs.
v. Collaboration on CHNA Reports
Notice 2011-52 stated that the Treasury Department and the IRS
intend to allow a hospital organization to conduct a CHNA in
collaboration with other organizations, including related
organizations, other hospital organizations, for-profit and government
hospitals, and public health and other departments of state and local
governments. However, even in cases where collaboration between
hospitals occurs, Notice 2011-52 stated that the Treasury Department
and the IRS intended to require each hospital facility to document its
CHNA in a separate written report. Many commenters recommended that
when several hospital facilities within the same defined community work
collaboratively on a CHNA, they should be able to issue a joint CHNA
report or separate CHNA reports that are substantively identical. These
commenters argued that joint reporting would encourage collaboration,
reduce redundancy and expense, and provide a more coherent picture of
the community's health needs. Some of these commenters suggested that
the joint CHNA report could be required to contain different sections
for each particular hospital facility. On the other hand, other
commenters recommended retaining the requirement for separate CHNA
reports, noting that facility-level reporting ensures that information
for each hospital facility is clearly presented and easily accessible.
In balancing these concerns, these proposed regulations provide,
generally, that every hospital facility must document its CHNA in a
separate CHNA report. However, these proposed regulations provide that
if a hospital facility is collaborating with other facilities and
organizations in conducting its CHNA or is basing its CHNA, in part, on
a CHNA for all or part of its community conducted by another
organization, portions of the hospital facility's CHNA report may be
substantively identical to the CHNA report of a collaborating hospital
facility or the other organization conducting a CHNA, if appropriate
under the facts and circumstances. For example, if a hospital facility
conducts a survey of the health needs of residents of homeless shelters
located in the community in collaboration with other hospital
facilities, the description of that survey in the hospital facility's
CHNA report may be identical to the description contained in the CHNA
reports for the other collaborating hospital facilities. Similarly, if
the state or local public health department with jurisdiction over the
community served by the hospital facility conducts an inventory of
community health improvement resources available in that community, the
hospital facility may include that inventory in its CHNA report.
These proposed regulations also provide an exception to the general
requirement of separate CHNA reports: namely, if a hospital facility
collaborates with other hospital facilities in conducting its CHNA, all
of the collaborating hospital facilities may produce a joint CHNA
report as long as all of the facilities define their community to be
the same and conduct a joint CHNA process. In addition, the joint CHNA
report must clearly identify each hospital facility to which it applies
and an authorized body of each collaborating hospital facility must
adopt the joint CHNA report as its own.
Thus, for example, if a hospital facility collaborates with nine
other hospital facilities that are all located in and serving a
particular MSA, all ten hospital facilities define their
[[Page 20533]]
community as constituting the entire MSA, and all ten hospital
facilities conduct a joint CHNA process, the ten hospital facilities
may prepare a joint CHNA report that identifies all of the
collaborating hospital facilities by name. Under these proposed
regulations, such a joint CHNA report would satisfy the requirement to
document the CHNA in a written CHNA report for any one of the
collaborating hospital facilities as long as the joint CHNA report is
adopted by an authorized body of the hospital facility.
vi. Making the CHNA Report Widely Available to the Public
Consistent with Notice 2011-52, these proposed regulations provide
that in order to make its CHNA report widely available to the public, a
hospital facility must post the CHNA report on the hospital facility's
Web site or, if the hospital facility does not have its own Web site
separate from the hospital organization that operates it, on the
hospital organization's Web site. Alternatively, the hospital facility
may post the CHNA report on a Web site established and maintained by
another entity as long as either the hospital facility or hospital
organization's Web site (if the facility or organization has a Web
site) provides a link to the Web page on which the CHNA report is
posted, along with clear instructions for accessing the report on that
Web site. In addition, the hospital facility must ensure that
individuals with access to the Internet can access, download, view, and
print a hard copy of the CHNA report without requiring special computer
hardware or software (other than software that is readily available to
members of the public without payment of any fee) and without payment
of a fee to the hospital facility, hospital organization, or other
entity maintaining the Web site. Finally, the hospital facility must
provide individuals who ask how to access a copy of the CHNA report
online with the direct Web site address, or URL, of the Web page on
which the document is posted.
Commenters generally supported the requirement outlined in Notice
2011-52 to make the CHNA report widely available on a Web site. Many of
these commenters believed that this Web posting requirement alone was
sufficient to make the CHNA report widely available to the public.
Others, however, urged the Treasury Department and the IRS to expand
the requirements for making a CHNA widely available to the public to
require the hospital facility to provide paper copies of the CHNA
report for free to any individual requesting it. Some commenters
requested a requirement that the hospital facility identify strategies
to inform various sectors of the community that the CHNA report is
widely available on a Web site.
A few commenters also recommended expanding the requirements
associated with making CHNA reports widely available on a Web site.
Some commenters recommended requiring that the CHNA reports be
conspicuously posted on the applicable Web site, for example by
requiring a highly visible link on the Web site's homepage. Another
commenter recommended requiring past, as well as current, CHNA reports
to be posted, to demonstrate improvement of health care objectives over
the long term. Yet another commenter recommended requiring that
individuals do not need to provide personally identifiable information
or create an account to access the CHNA report.
Because of the focus on increased transparency of hospital
facilities in section 501(r), the Treasury Department and the IRS have
adopted most of the comments seeking to enhance transparency of a
hospital facility's CHNA by expanding the requirements to make the CHNA
report widely available to the public. Specifically, these proposed
regulations make four changes to the interim rule described in Notice
2011-52 for making the CHNA report widely available to the public.
First, these proposed regulations require a complete version of the
CHNA report to be ``conspicuously'' posted on a Web site, to ensure
that the CHNA report can be easily located on the Web site. Second,
instead of requiring the CHNA report to be posted on the Web site until
the next CHNA report is posted, these proposed regulations require the
CHNA report to remain on the Web site until two subsequent CHNA reports
have been posted, so information on trends will be available to the
public. Third, these proposed regulations add that an individual must
not be required to create an account or otherwise be required to
provide personally identifiable information in order to access the CHNA
report on a Web site. Fourth, these proposed regulations add a
requirement that a hospital facility must make a paper copy of its CHNA
report available for public inspection without charge at the hospital
facility at least until the date the hospital facility has made
available for public inspection, without charge, a paper copy of its
two subsequent CHNAs.
Because the requirement to make a document ``widely available on a
Web site'' applies not only to a hospital facility's CHNA reports but
also, under the 2012 proposed regulations, to its financial assistance
policy and related documents, the term ``widely available on a Web
site'' is defined in the definitions section of these proposed
regulations and will apply to both rules.
Finally, to facilitate the sharing of draft versions of the CHNA
report for comment as requested by some commenters, these proposed
regulations provide that a hospital facility will not be considered to
have made the CHNA report widely available to the public for purposes
of determining the date on which the hospital facility has conducted
the CHNA if it makes widely available on a Web site (and/or for public
inspection) a version of the CHNA report that is expressly marked as a
draft on which the public may comment. Thus, a hospital facility may
post a draft CHNA report for public review and comment without starting
its next three-year CHNA cycle.
b. Implementation Strategies
Notice 2011-52 noted the intention of the Treasury Department and
the IRS to define an ``implementation strategy'' for a hospital
facility as a written plan that addresses each of the health needs
identified through a CHNA for the facility. Notice 2011-52 further
provided that an implementation strategy would ``address'' a health
need identified through a CHNA if the written plan either: (1)
describes how the hospital facility plans to meet the health need, or
(2) identifies the health need as one the hospital facility does not
intend to meet and explains why the hospital facility does not intend
to meet the health need.
A number of commenters asked that the implementation strategy be
required to address only significant or priority health needs
identified through the CHNA. Other commenters asked if the
implementation strategy could address health needs identified from a
source other than the hospital facility's CHNA.
As indicated in section 3.a.ii of this preamble, these proposed
regulations limit the health needs that a hospital facility must
identify through its CHNA to significant health needs and the health
needs covered in the implementation strategy are limited to those
significant health needs identified through the CHNA. In addition,
these proposed regulations do not require a hospital facility to
develop a strategy or plan to address each identified significant
health need. Rather, consistent with section 6033(b)(15)(A) of the
Code, these proposed regulations follow the approach set forth in
Notice 2011-52 and clarify that a hospital facility's implementation
strategy must,
[[Page 20534]]
with respect to each significant health need identified through the
CHNA, either: (1) describe how the hospital facility plans to address
the health need; or (2) identify the health need as one the hospital
facility does not intend to address and explain why the hospital
facility does not intend to address the health need. Accordingly, an
implementation strategy may describe how the hospital facility plans to
address only a few of the significant health needs identified through a
CHNA, as long as it explains why it does not intend to address the
other identified significant health needs for which no plan is
provided.
Although an implementation strategy must address the significant
health needs identified through a hospital facility's CHNA, these
proposed regulations do not limit an implementation strategy to
addressing only those health needs, and it may describe activities to
address health needs that the hospital facility identifies in other
ways.
i. Describing How a Hospital Facility Plans To Address a Significant
Health Need
Commenters recommended that the implementation strategy be required
to describe its intended impact on health outcomes. Some of these
commenters recommended that the descriptions of intended impacts
include short- and long-term measurable goals and objectives, as well
as methods to evaluate the plan's effectiveness. One commenter stated
that an implementation strategy should assign an economic value to each
strategy or activity, and an aggregate total benefit. Others
recommended requiring the implementation strategy to include a
mechanism to receive ongoing community feedback.
In describing how a hospital facility plans to address a
significant health need identified through the CHNA, these proposed
regulations adopt some of the commenters' recommendations by requiring
the implementation strategy to describe, in addition to the actions the
hospital facility intends to take to address the health need, the
anticipated impact of these actions and the plan to evaluate such
impact. For example, a hospital facility's CHNA may identify as
significant health needs financial or other barriers to care in the
community, such as high rates of financial need or large numbers of
uninsured individuals and families. Its implementation strategy could
describe a program to decrease the impact of these barriers, such as by
expanding its financial assistance program or helping uninsured
individuals and families learn about and enroll in sources of insurance
such as Medicare, Medicaid, Children's Health Insurance Program (CHIP),
and the new Health Insurance Marketplaces (also known as the
Exchanges); state how it anticipates its program will reduce these
barriers to care; and identify the data sources it will use to track
the program's impact on the barriers.
These proposed regulations also require the implementation strategy
to identify the programs and resources the hospital facility plans to
commit to address the health need. Finally, the implementation strategy
must describe any planned collaboration between the hospital facility
and other facilities or organizations in addressing the health need.
While these proposed regulations do not require the implementation
strategy itself to include any particular mechanism for community
input, they do provide that a hospital facility must establish an
ongoing feedback mechanism by requiring a hospital facility, in
conducting a CHNA, to take into account written comments received on
its most recently adopted implementation strategy, as described in
section 3.a.iii.C of this preamble.
ii. Describing Why a Hospital Facility Is Not Addressing a Significant
Health Need
Several commenters sought clarification regarding the level of
detail required in the implementation strategy's explanation of why the
hospital facility does not intend to address a significant health need.
Some of these commenters stated that an explanation of the
prioritization strategy together with comments noting that another
facility or organization is addressing the health need should be
sufficient.
These proposed regulations clarify that a brief explanation of why
a hospital facility does not intend to address the significant health
need is sufficient. Some possible examples of reasons a hospital
facility might offer for not addressing a health need, include, but are
not limited to, resource constraints, relative lack of expertise or
competency to effectively address the need, a relatively low priority
assigned to the need, a lack of identified effective interventions to
address the need, and/or the fact that the need is being addressed by
other facilities or organizations in the community. This list of
possible reasons is not intended to be exhaustive, and a hospital
facility may provide whatever reasons reflect its particular facts and
circumstances.
iii. Joint Implementation Strategies
Notice 2011-52 noted that the Treasury Department and the IRS
intended to allow hospital facilities to collaborate with other
facilities and organizations in developing an implementation strategy
but to still require each hospital facility to separately document its
implementation strategy. Some commenters requested that hospital
facilities conducting a joint CHNA should be permitted to adopt a joint
implementation strategy while other commenters recommended retaining
the requirement for separate implementation strategies, with each side
advancing arguments similar to those advanced for and against joint
CHNA reports.
In balancing these concerns, these proposed regulations state that
a hospital facility may develop an implementation strategy in
collaboration with other facilities and organizations. In addition,
these proposed regulations provide that a hospital facility that
collaborates with other facilities or organizations in developing its
implementation strategy generally must document its implementation
strategy in a separate written plan that is tailored to the hospital
facility and takes into account its specific programs and resources.
However, these proposed regulations also provide an exception to
the general requirement of separate implementation strategies: namely,
a hospital facility collaborating with other hospital facilities may
adopt a joint implementation strategy as long as it documents its CHNA
in a joint CHNA report (as described in section 3.a.v of this preamble)
and the joint implementation strategy meets three requirements. First,
the joint implementation strategy must be clearly identified as
applying to the hospital facility. Second, the joint implementation
strategy must clearly identify the hospital facility's particular role
and responsibilities in taking the actions described in the
implementation strategy and the programs and resources the hospital
facility plans to commit in taking those actions. Third, the joint
implementation strategy must include a summary or other tool that helps
the reader easily locate those portions of the joint implementation
strategy that relate to the hospital facility.
iv. When the Implementation Strategy Must Be Adopted
In order to satisfy the CHNA requirements with respect to any
taxable year, section 501(r)(3)(A)(ii) requires a hospital facility to
adopt an
[[Page 20535]]
implementation strategy to meet the health needs identified through the
CHNA described in section 501(r)(3)(A)(i). Consistent with this
statutory language, Notice 2011-52 stated the intention of the Treasury
Department and the IRS to require a hospital facility to adopt an
implementation strategy to meet the health needs identified through a
CHNA by the end of the same taxable year in which it conducts that
CHNA. A number of commenters sought additional time to complete the
implementation strategy, in part to accommodate collaborating hospital
facilities with different taxable years. Most of these commenters
recommended that the implementation strategy should be adopted within
12 months after completion of the CHNA or by the end of the next
taxable year, rather than by the end of the same taxable year in which
the CHNA is completed.
Because a hospital facility only has to conduct a CHNA once every
three years and may begin the CHNA process at any time during the
three-year period, a hospital facility should have ample time to
complete the CHNA earlier in the third taxable year and adopt an
implementation strategy by the end of that same taxable year. The
flexibility afforded by a three-year cycle should also allow hospital
facilities with different tax years sufficient time to collaborate.
Thus, consistent with Notice 2011-52, these proposed regulations
provide that an authorized body of the hospital facility must adopt the
implementation strategy by the end of the same taxable year in which
the hospital facility finishes conducting the CHNA (typically, by
making the CHNA report widely available to the public). These proposed
regulations also clarify that if a hospital facility begins working on
a CHNA in one taxable year but completes the final required step for
the CHNA (and hence is considered to have conducted it) in the
subsequent taxable year, it is not required to adopt the implementation
strategy until the taxable year in which the CHNA process is considered
conducted, not the year it began. The Treasury Department and the IRS
seek comments on whether this rule will materially inhibit the ability
of hospital facilities with different taxable years to collaborate with
each other or otherwise burden hospital facilities unnecessarily.
Notwithstanding the general rule that the implementation strategy
must be adopted in the same taxable year the CHNA is considered
conducted, these proposed regulations provide transition relief for the
adoption of a hospital facility's implementation strategy for its first
CHNA conducted after the effective date of section 501(r)(3), in
recognition of the fact that certain hospital facilities may not have a
full three years in which to conduct their first CHNA. This transition
relief is described in section 3.d of this preamble.
c. New Hospital Facilities
Notice 2011-52 requested comments regarding when a hospital
facility that is newly acquired or placed into service must conduct a
CHNA. Comments received on this issue ranged from requiring such a
hospital facility to conduct a CHNA within the first taxable year of
acquisition or licensing to allowing the facility three taxable years
following the date of acquisition or licensing. In addition, at least
two commenters asked for clarification on when a for-profit hospital
that converts to section 501(c)(3) status must conduct a CHNA.
Additional commenters asked if a short taxable year resulting from, for
example, a change in ownership, is considered a ``taxable year'' for
purposes of the three-year CHNA cycle.
These proposed regulations provide that a hospital facility that is
newly acquired or placed into service by a hospital organization, or
that becomes newly subject to section 501(r) because the hospital
organization that operates it is newly recognized as described in
section 501(c)(3), must conduct a CHNA and adopt an implementation
strategy to meet the community health needs identified through that
CHNA by the last day of the second taxable year beginning after the
date, respectively, the hospital facility is acquired or placed into
service, or newly subject to section 501(r).
A short taxable year of less than twelve months is considered a
taxable year for purposes of section 501(r). Thus, the taxable year in
which a hospital facility is acquired or placed into service, or
becomes subject to section 501(r), is a taxable year for purposes of
the CHNA requirements, regardless of whether that taxable year is less
than twelve months. As a result, a deadline of the last day of the
second taxable year beginning after the date of acquisition, licensure,
or section 501(c)(3) recognition provides these new hospital facilities
with three taxable years (even if less than three full calendar years)
to meet the section 501(r)(3) requirements.
d. Transition Rules
A number of commenters requested various forms of transition
relief, noting the complexity of the new CHNA requirements. In
particular, a few commenters asked if a CHNA conducted before the
effective date of the CHNA requirements could satisfy the CHNA
requirements for a taxable year beginning after the effective date
(that is, for a taxable year beginning after March 23, 2012). In
addition, several commenters specifically requested transition relief
with respect to the first implementation strategy adopted after the
effective date of the CHNA requirements. The suggestions for transition
relief for the adoption of the first implementation strategy ranged
from 30 to 60 days after the end of the taxable year in which the CHNA
was conducted to the end of the taxable year following the taxable year
in which the CHNA was conducted. In response to these comments, these
proposed regulations provide transition relief that is tailored to the
taxable year after March 23, 2010, in which a hospital facility
conducts its first CHNA.
i. CHNA Conducted in Taxable Year Beginning Before March 23, 2012
These proposed regulations provide that a hospital facility that
conducted a CHNA described in section 501(r)(3) in either of its first
two taxable years beginning after March 23, 2010, does not need to meet
the requirements of section 501(r)(3) again until the third taxable
year following the taxable year in which the hospital facility
conducted the CHNA. To qualify for this transition relief, the hospital
facility must adopt an implementation strategy to meet the community
health needs identified through the CHNA conducted in its first taxable
year beginning after March 23, 2010 or 2011 on or before the 15th day
of the fifth calendar month following the close of its first taxable
year beginning after March 23, 2012. Thus, for example, if a hospital
facility reporting on a calendar-year basis conducts a CHNA in 2012 and
adopts an implementation strategy for that CHNA on or before May 15,
2014, it does not need to meet the section 501(r)(3) requirements again
until 2015.
ii. CHNA Conducted in First Taxable Year Beginning After March 23, 2012
If a hospital facility conducts a CHNA described in section
501(r)(3) in its first taxable year beginning after March 23, 2012,
these proposed regulations provide that the hospital facility will be
deemed to satisfy the requirement to adopt an implementation strategy
in the same taxable year the CHNA is conducted if an authorized body of
the hospital facility adopts an implementation strategy to meet the
community health needs identified through that CHNA on or before the
[[Page 20536]]
15th day of the fifth calendar month following the close of its first
taxable year beginning after March 23, 2012.
4. Reporting Requirements Related to CHNAs
Notice 2011-52 stated the intention of the Treasury Department and
the IRS to require a hospital organization to attach to its annual
information return (Form 990) the most recently adopted implementation
strategy for each of the hospital facilities it operates. A few
commenters stated that, rather than require the entire implementation
strategy to be attached to the Form 990, the Treasury Department and
the IRS should permit a narrative summary description of the contents
of its implementation strategy to be provided on the Form 990. One of
these commenters noted that the implementation strategy is only
required to be updated every three years, so in many instances a
narrative may provide more relevant and timely information. A number of
other commenters recommended requiring the implementation strategy to
be made widely available to the public, rather than merely attached to
the Form 990, in order to encourage greater transparency and provide an
opportunity for public input and comment.
These proposed regulations allow a hospital organization either to
attach to its Form 990 a copy of the most recently adopted
implementation strategy for each hospital facility it operates or to
provide on the Form 990 the URL(s) of the Web page(s) on which it has
made each implementation strategy widely available on a Web site. An
implementation strategy must describe, with respect to each significant
health need identified through the CHNA, how the hospital facility
plans to address the health need or why the hospital facility does not
intend to address the health need. Similarly, section 6033(b)(15)(A)
requires a hospital organization to furnish annually information
setting forth 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.'' Thus, the requirement in these proposed
regulations to attach the implementation strategy to the Form 990, or
provide on the Form 990 the URL where the implementation strategy is
made widely available on a Web site, partially implements section
6033(b)(15)(A).
However, the requirement in section 6033(b)(15)(A) also encompasses
an annual, up-to-date description of the actions actually taken by a
hospital facility during the taxable year to address the significant
health needs identified through the most recently conducted CHNA
(which, presumably, will typically be steps taken during a taxable year
to execute the hospital facility's most recently adopted implementation
strategy). Accordingly, these proposed regulations require a hospital
organization to provide annually on the Form 990 a description of the
actions taken during the taxable year to address the significant health
needs identified through its most recent CHNA for each hospital
facility it operates or, if no actions were taken with respect to one
or more of these health needs, the reason or reasons why no actions
were taken.
These proposed regulations also reiterate the requirement of
section 6033(b)(15)(B) that a hospital organization attach to its Form
990 a copy of its audited financial statements for the taxable year--or
in the case of an organization the financial statements of which are
included in consolidated financial statements with other organizations,
such consolidated financial statements. The Treasury Department and the
IRS request comments regarding whether hospital organizations whose
financial statements are included in consolidated financial statements
should be able to redact financial information about any taxable
organizations that are members of the consolidated group.
Finally, consistent with section 6033(b)(10), these proposed
regulations require a hospital organization to disclose the amount of
the excise tax imposed on the organization under section 4959 during
the taxable year for failures to meet the requirements of section
501(r)(3).
A few commenters requested clarification regarding whether
government hospitals will continue to be excepted from these and other
Form 990 reporting requirements under Rev. Proc. 95-48 (1995-2 C.B.
418). 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
a Form 990. The Affordable Care Act did not change the requirements
regarding which organizations are required to file a Form 990.
Accordingly, a government hospital (other than one that is described in
section 509(a)(3)) that has been excused from filing a Form 990 under
Rev. Proc. 95-48 or a successor revenue procedure is not required to
file a 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 by these proposed regulations under section 6033,
including under sections 6033(b)(10)(D) and (b)(15) and the proposed
requirement to attach one or more implementation strategies to a Form
990.
5. Excise Tax on Failure to Meet CHNA Requirements
Section 4959 imposes a $50,000 excise tax on a hospital
organization that fails to meet the CHNA requirements of section
501(r)(3) with respect to any taxable year.
Notice 2011-52 indicated the intent of the Treasury Department and
the IRS to impose the $50,000 tax with respect to a failure by a
hospital facility to satisfy section 501(r)(3) in any three-year
period, making it possible for the excise tax to apply in sequential
years. Notice 2011-52 provided an example of a hospital organization
that reports on a calendar-year basis and operates only one hospital
facility, which is subject to the $50,000 excise tax in 2013 because
the hospital facility failed to conduct a CHNA in 2011, 2012, and 2013.
If the hospital facility again fails to conduct a CHNA by the last day
of 2014, Notice 2011-52 noted the hospital organization will again be
subject to the $50,000 excise tax in 2014 for the hospital facility's
failure to conduct a CHNA in 2012, 2013, and 2014. These proposed
regulations include this example of the application of the section 4959
excise tax and confirm that the excise tax may be imposed for each
taxable year that a hospital facility fails to meet the section
501(r)(3) requirements. These proposed regulations also make clear that
the excise tax may be imposed in addition to any tax imposed on a
noncompliant hospital facility as described in section 2.d of this
preamble or that results from revocation of a hospital organization's
section 501(c)(3) status.
In addition, Notice 2011-52 stated the intention of the Treasury
Department and the IRS 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 that operates two
hospital facilities fails to meet the requirements of section 501(r)(3)
with respect to both facilities in any taxable year, the hospital
organization will be subject to a total excise tax of $100,000
[[Page 20537]]
($50,000 for each hospital facility) for that taxable year.
At least one commenter argued that applying the $50,000 excise tax
on a facility-by-facility basis is inconsistent with the statutory
language in section 4959 that ``there is imposed on the organization a
tax equal to $50,000.'' On the other hand, two commenters explicitly
supported applying the section 4959 excise tax at the hospital facility
level. One of these commenters expressed concern that if the $50,000
excise tax were imposed on a hospital organization without regard to
the number of hospital facilities it operates that have failed the
section 501(r)(3) requirements, a hospital organization operating
multiple facilities may choose to pay the tax rather than conduct a
CHNA and adopt an implementation strategy for every facility it
operates.
The Treasury Department and the IRS note that section
501(r)(2)(B)(i) requires a hospital organization operating more than
one hospital facility to meet the CHNA requirements ``separately with
respect to each such facility'' and section 501(r)(2)(B)(ii) suggests
that one hospital organization can fail to meet the CHNA requirements
separately with respect to each hospital facility. Thus, a hospital
organization with multiple hospital facilities can ``fail[] to meet the
requirements of section 501(r)(3)'' within the meaning of section 4959
separately with respect to each hospital facility. Accordingly, these
proposed regulations adopt the approach in Notice 2011-52 of applying
the excise tax on a facility-by-facility basis.
One commenter requested clarification that the excise tax will be
imposed on any hospital organization that fails to satisfy any
requirement under section 501(r)(3), including the requirement to adopt
an implementation strategy, and is not limited to a failure related to
conducting the CHNA. These proposed regulations, in adopting the
approach taken in Notice 2011-52, clarify that the excise tax is
imposed on a failure to meet any of the requirements under section
501(r)(3), including the requirement to adopt an implementation
strategy described in section 501(r)(3)(A)(ii).
Effective/Applicability Dates
The 2012 proposed regulations under section 501(r)(4) through
(r)(6) were proposed to apply for taxable years beginning on or after
the date those rules are published in the Federal Register as final or
temporary regulations. By contrast, these proposed regulations provide
that both these proposed regulations and the 2012 proposed regulations
will generally be effective on the date these rules are published in
the Federal Register as final or temporary regulations. Providing for
an immediate effective date gives immediate effect to the transition
relief described in Sec. 1.501(r)-3(e) and will also allow the
Treasury Department and the IRS to consider transition relief for the
requirements under Sec. 1.501(r)-4 through Sec. 1.501(r)-6 of the
2012 proposed regulations based on the estimated amount of time to come
into compliance with those rules rather than a particular hospital
organization's taxable year. The proposed regulations under sections
6033(b)(10) and (b)(15)(A) are proposed to be effective for returns
filed on or after the date these rules are published in the Federal
Register as final or temporary regulations.
A hospital facility may rely on Sec. 1.501(r)-3 of these proposed
regulations for any CHNA conducted or implementation strategy adopted
on or before the date that is six months after the date these proposed
regulations are published as final or temporary regulations in the
Federal Register. As provided in Notice 2011-52, hospital organizations
may continue to rely on the interim rules described in Notice 2011-52
for any CHNA conducted or implementation strategy adopted on or before
October 5, 2013, which is the date that is six months after these
proposed regulations are published. After October 5, 2013, Notice 2011-
52 is obsolete. The Treasury Department and the IRS invite comments on
whether, and what type of, additional transitional relief may be
necessary.
Hospital organizations should note that the statutory effective
date of section 501(r)(3) is a hospital organization's first taxable
year beginning after March 23, 2012. The effective date for the other
requirements under section 501(r) is a hospital organization's first
taxable year beginning after March 23, 2010.
Availability of IRS Documents
IRS notices, revenue rulings, and revenue procedures cited in this
preamble are made available by the Superintendent of Documents, U.S.
Government Printing Office, Washington, DC 20402.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866, as supplemented by Executive Order 13563. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to this proposed regulation. It is hereby certified that
the collection of information in these regulations will not have a
significant economic impact on a substantial number of small entities.
The collection of information is in Sec. 1.501(r)-3 and Sec. 1.6033-
2(a)(2)(ii)(l) of the regulations. This certification is based on the
following:
Consistent with the requirements imposed by statute, Sec.
1.501(r)-3 of the regulations requires hospital facilities to conduct a
CHNA and adopt an implementation strategy. However, these requirements
need only be satisfied once over a period of three taxable years.
Moreover, some hospital facilities already conduct similar community
needs assessments under state law, and the Treasury Department and the
IRS expect that these facilities will be able to draw upon pre-existing
processes and resources to some extent.
Consistent with the requirements imposed by statute, Sec. 1.6033-
2(a)(2)(ii)(l) of the regulations requires affected organizations to
report annually on a Form 990 actions taken during the year to address
community health needs and to attach audited financial statements to
the Form 990. To assist the IRS and the public, the regulations also
require affected organizations to attach to the Form 990 a copy of the
most recently adopted implementation strategy or provide the URL of a
Web page where it is available to the public. For affected
organizations, the burden of providing either a copy of the
implementation strategy or the address of a Web site where it can be
found will be minimal. Consequently, the regulations do not add to the
impact on small entities imposed by the statutory scheme.
For these reasons, the collection of information in this regulation
that is subject to the Regulatory Flexibility Act will not impose a
significant economic burden upon the affected organizations.
Accordingly, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the Code, this regulation has been submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small entities.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble
[[Page 20538]]
under ADDRESSES. The Treasury Department and the IRS request comments
on all aspects of the proposed rules. All comments will be available at
www.regulations.gov or upon request.
A public hearing will be scheduled if requested in writing by any
person that timely submits written comments. If a public hearing is
scheduled, notice of the date, time, and place for the public hearing
will be published in the Federal Register.
Drafting Information
The principal authors of these proposed regulations are Preston J.
Quesenberry and Amy F. Giuliano, Office of the Chief Counsel (Tax-
Exempt and Government Entities). However, other personnel from the
Treasury Department and the IRS participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 53
Excise taxes, Foundations, Investments, Lobbying, Reporting and
recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 53 are proposed to be amended as
follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.501(r)-0 as proposed to be amended at 77 FR 38160
(June 26, 2012) is proposed to be further amended as follows:
0
1. Adding a new entry to Sec. 1.501(r)-1, paragraph (c).
0
2. Adding new entries to Sec. 1.501(r)-2 and Sec. 1.501(r)-3.
0
3. Revising the entry to Sec. 1.501(r)-7.
The revision and additions to read as follows:
Sec. 1.501(r)-0 Outline of regulations.
* * * * *
Sec. 1.501(r)-1 Definitions.
* * * * *
(c) Additional definitions.
(1) Authorized body of a hospital facility.
(2) Operating a hospital facility.
(3) Partnership agreement.
(4) Widely available on a Web site.
Sec. 1.501(r)-2 Failures to satisfy section 501(r).
(a) Revocation of section 501(c)(3) status.
(b) Minor and inadvertent omissions and errors.
(c) Excusing certain failures if hospital facility corrects and
discloses.
(d) Taxation of noncompliant hospital facilities.
(1) In general.
(2) Noncompliant facility income.
(3) No aggregation.
(4) Interaction with other Code provisions.
Sec. 1.501(r)-3 Community health needs assessments.
(a) In general.
(b) Conducting a CHNA.
(1) In general.
(2) Date a CHNA is conducted.
(3) Community served by the hospital facility.
(4) Assessing community health needs.
(5) Persons representing the broad interests of the community.
(6) Medically underserved populations.
(7) Documentation of a CHNA.
(8) Making the CHNA report widely available to the public.
(c) Implementation strategy.
(1) In general.
(2) Description of how the hospital facility plans to address a
significant health need.
(3) Description of why a hospital facility is not addressing a
significant health need.
(4) Joint implementation strategies.
(5) When the implementation strategy must be adopted.
(d) New hospital facilities.
(e) Transition rules.
(1) CHNA conducted in taxable year beginning before March 23, 2012.
(2) CHNA conducted in first taxable year beginning after March 23,
2012.
* * * * *
Sec. 1.501(r)-7 Effective/applicability dates.
(a) Effective/applicability date.
(b) Reliance and transition period.
0
Par. 3. Section 1.501(r)-1 as proposed to be amended at 77 FR 38160
(June 26, 2012) is proposed to be further amended by revising
paragraphs (b)(15) and (b)(16) and adding new paragraph (c) to read as
follows:
Sec. 1.501(r)-1 Definitions.
* * * * *
(b) * * *
(15) 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. For purposes of this paragraph
(b)(15), the term ``state'' includes only the 50 states and the
District of Columbia and not any U.S. territory or foreign country.
References to a hospital facility taking actions include instances in
which the hospital organization operating the hospital facility takes
actions through or on behalf of the hospital facility.
(16) Hospital organization means an organization recognized (or
seeking to be recognized) as described in section 501(c)(3) that
operates one or more hospital facilities. If the section 501(c)(3)
status of such an organization is revoked, the organization will, for
purposes of section 4959, continue to be treated as a hospital
organization during the taxable year in which such revocation becomes
effective.
* * * * *
(c) Additional definitions--(1) 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; or
(ii) If the hospital facility has its own governing body and is
recognized as an entity under state law but is a disregarded entity for
federal tax purposes, the governing body of that 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.
(2) Operating a hospital facility includes operating the facility
through the organization's own employees or contracting out to another
organization to operate the facility. For example, if an organization
hires a management company to operate the facility, the hiring
organization is considered to operate the facility. An organization
also operates a hospital facility if it is the sole member or owner of
a disregarded entity that operates the hospital facility. In addition,
an organization operates a hospital facility if it owns a capital or
profits interest in, or is a member of, a joint venture, limited
liability company, or other entity treated as a partnership for federal
income tax purposes that operates the hospital facility unless either--
[[Page 20539]]
(i) The organization does not have control over the operation of
the hospital facility sufficient to ensure that the operation of the
hospital facility furthers an exempt purpose described in section
501(c)(3) and thus treats the operation of the hospital facility,
including the facility's provision of medical care, as an unrelated
trade or business described in section 513(a) with respect to the
hospital organization; or
(ii) At all times since March 23, 2010, the organization has been
organized and operated primarily for educational or scientific purposes
and has not engaged primarily in the operation of one or more hospital
facilities and, pursuant to a partnership agreement entered into prior
to March 23, 2010,--
(A) Does not own more than 35 percent of the capital or profits
interest in the partnership (determined in accordance with section
707(b)(3));
(B) Does not own a general partner interest, managing-member
interest, or similar interest in the partnership; and
(C) Does not have control over the operation of the hospital
facility sufficient to ensure that the hospital facility complies with
the requirements of section 501(r).
(3) Partnership agreement, for purposes of paragraph (c)(2)(ii) of
this section, includes all written agreements among the partners, or
between one or more partners and the partnership, concerning affairs of
the partnership and responsibilities of the partners, whether or not
embodied in a document referred to by the partners as the partnership
agreement, entered into before March 23, 2010. A partnership agreement
also includes any modifications to the agreement agreed to by all
partners, or adopted in any other manner provided by the partnership
agreement, but no such modifications adopted on or after March 23,
2010, that affect whether or not the agreement is described in
paragraph (c)(2)(ii) of this section. In addition, a partnership
agreement includes provisions of Federal, state, or local law, as in
effect before March 23, 2010, that govern the affairs of the
partnership or are considered under such law to be part of the
partnership agreement.
(4) 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 on which 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 without requiring special
computer hardware or software (other than software that is readily
available to members of the public without payment of any fee); without
payment of a fee to the hospital facility, hospital organization, or
other entity maintaining the Web site; and 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 on which the document is posted.
0
Par. 4. Sections 1.501(r)-2 and 1.501(r)-3 are added to read as
follows:
Sec. 1.501(r)-2 Failures to satisfy section 501(r).
(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 and procedures (formal or informal) reasonably
designed to promote and facilitate overall compliance with the section
501(r) requirements;
(6) Whether the practices and 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);
and
(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 and inadvertent omissions and errors. A hospital
facility's omission of required information from a policy or report
described in Sec. 1.501(r)-3 or Sec. 1.501(r)-4, or error with
respect to the implementation or operational requirements described in
Sec. 1.501(r)-3 through Sec. 1.501(r)-6, will not be considered a
failure to meet a requirement of section 501(r) if--
(1) Such omission or error was minor, inadvertent, and due to
reasonable cause; and
(2) The hospital facility corrects such omission or error as
promptly after discovery as is reasonable given the nature of the
omission or error.
(c) Excusing certain failures if hospital facility corrects and
discloses. Pursuant to guidance set forth by revenue procedure, notice,
or other guidance published in the Internal Revenue Bulletin, a
hospital facility's failure to meet one or more of the requirements
described in Sec. 1.501(r)-3 through Sec. 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
the rules set forth in the guidance. If a hospital facility's failure
was willful or egregious, the failure will not be excused, even if the
hospital facility corrects and makes disclosure in accordance with the
guidance, and no presumption will be created by a hospital facility's
correction and disclosure that the failure was neither willful nor
egregious. For purposes of this paragraph (c), willful is to be
interpreted consistent with the meaning of that term in the context of
civil penalties, which would include a failure due to gross negligence,
reckless
[[Page 20540]]
disregard, or willful neglect. Furthermore, notwithstanding a hospital
facility's compliance with such future guidance, a hospital facility
may, in the discretion of the IRS, be subject to an excise tax under
section 4959 for failures to meet the requirements of section
501(r)(3).
(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 computed as provided in section 11 (or as provided in
section 1(e) if the hospital organization is a trust described in
section 511(b)(2)), but substituting ``noncompliant facility income''
for ``taxable income,'' if--
(i) The hospital organization continues to be recognized as
described in section 501(c)(3) during the taxable year, but
(ii) The hospital organization would not continue to be recognized
as described in section 501(c)(3) during the taxable year based on the
facts and circumstances described in paragraph (a) of this section (but
disregarding paragraph (a)(3)) if the noncompliant hospital facility
were the only hospital facility operated by the organization.
(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 of the Internal Revenue Code (Code)
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.
(ii) Directly connected deductions. For purposes of this paragraph
(d), to be directly connected with the operation of a hospital facility
that has failed to meet the requirements of section 501(r), an item of
deduction must have proximate and primary relationship to the operation
of the hospital facility. Expenses, depreciation, and similar items
attributable solely to the operation of a hospital facility are
proximately and primarily related to such operation, and therefore
qualify for deduction to the extent that they meet the requirements of
section 162, section 167, or other relevant provisions of the Code.
Where expenses, depreciation, and similar items are attributable to a
noncompliant hospital facility and other hospital facilities operated
by the hospital organization (and/or to other activities of the
hospital organization unrelated to the operation of hospital
facilities), such items shall be allocated between the hospital
facilities (and/or other activities) on a reasonable basis. The portion
of any such item so allocated to a noncompliant hospital facility is
proximately and primarily related to the operation of that facility and
shall be allowable as a deduction in computing the facility's
noncompliant facility income in the manner and to the extent it would
meet the requirements of section 162, section 167, or other relevant
provisions of the Code.
(3) No aggregation. In computing the noncompliant facility income
of a hospital facility, the gross income from (and the deductions
allowed with respect to) the hospital facility may not be aggregated
with the gross income from (and the deductions allowed with respect to)
the hospital organization's other noncompliant hospital facilities
subject to tax under this paragraph (d) or its unrelated trade or
business activities described in section 513.
(4) Interaction with other Code provisions--(i) Hospital
organization operating a noncompliant hospital facility continues to be
treated as tax-exempt. A hospital organization operating a noncompliant
hospital facility subject to tax under this paragraph (d) shall
continue to be treated as an organization that is exempt from tax under
section 501(a) because it is described in section 501(c)(3) for all
purposes of the Code. Thus, for example, the application of this
paragraph (d) shall not, by itself, affect the tax-exempt status of
bonds issued to finance the noncompliant hospital facility.
(ii) Noncompliant hospital facility operated by a tax-exempt
hospital organization is subject to tax. A noncompliant hospital
facility described in paragraph (d)(1) of this section is subject to
tax under this paragraph (d), notwithstanding the fact that the
hospital organization operating the hospital facility is otherwise
exempt from tax under section 501(a) and subject to tax under section
511(a) and that Sec. 1.11-1(a) of this chapter states such
organizations are not liable to the tax imposed under section 11.
(iii) Noncompliant hospital facility not a business entity. A
noncompliant hospital facility subject to tax under this paragraph (d)
is not considered a business entity for purposes of Sec. 301.7701-
2(b)(7) of this chapter.
Sec. 1.501(r)-3 Community health needs assessments.
(a) In general. With respect to any taxable year, a hospital
organization meets the requirements of section 501(r)(3) with respect
to a hospital facility it operates only if--
(1) The hospital facility has conducted a community health needs
assessment (CHNA) that meets the requirements of paragraph (b) of this
section in such taxable year or in either of the two taxable years
immediately preceding such taxable year; and
(2) An authorized body of the hospital facility (as defined in
Sec. 1.501(r)-1(c)(1)) has adopted an implementation strategy to meet
the community health needs identified through the CHNA, as described in
paragraph (c) of this section, by the end of the taxable year in which
the hospital facility conducts the CHNA.
(b) Conducting a CHNA--(1) In general. To conduct a CHNA for
purposes of paragraph (a) of this section, a hospital facility must
complete all of the following steps--
(i) Define the community it serves;
(ii) Assess the health needs of that community;
(iii) In assessing the health needs of the community, take into
account input from persons who represent the broad interests of that
community, including those with special knowledge of or expertise in
public health;
(iv) Document the CHNA in a written report (``CHNA report'') that
is adopted for the hospital facility by an authorized body of the
hospital facility; and
(v) Make the CHNA report widely available to the public.
(2) Date a CHNA is conducted. For purposes of this section, a
hospital facility will be considered to have conducted a CHNA on the
date it has completed all of the steps described in paragraph (b)(1) of
this section. Solely for purposes of determining the date on which a
CHNA has been conducted, a hospital facility will be considered to have
made the CHNA report widely available to the public on the date it
first makes the CHNA report widely available to the public as described
in paragraph (b)(8)(i) of this section.
(3) Community served by the hospital facility. In defining the
community it serves for purposes of paragraph (b)(1)(i) of this
section, a hospital facility may take into account all of the relevant
facts and circumstances, including the geographic area served by the
hospital
[[Page 20541]]
facility, target populations served (for example, children, women, or
the aged), and principal functions (for example, focus on a particular
specialty area or targeted disease). A hospital facility may define its
community to include populations in addition to its patient populations
and geographic areas outside of those in which its patient populations
reside. However, a hospital facility may not define its community to
exclude medically underserved, low-income, or minority populations who
are part of its patient populations, live in geographic areas in which
its patient populations reside (unless they are not part of the
hospital facility's target populations or affected by its principal
functions), or otherwise should be included based on the method the
hospital facility uses to define its community. In addition, if a
hospital facility's method of defining its community takes into account
patient populations, the hospital facility must treat as patients all
individuals who receive care from the hospital facility, without regard
to whether (or how much) they or their insurers pay for the care
received or whether they are eligible for assistance under the hospital
facility's financial assistance policy.
(4) Assessing community health needs. To assess the health needs of
the community it serves for purposes of paragraph (b)(1)(ii) of this
section, a hospital facility must identify significant health needs of
the community, prioritize those health needs, and identify potential
measures and resources (such as programs, organizations, and facilities
in the community) available to address the health needs. For these
purposes, the health needs of a community include requisites for the
improvement or maintenance of health status in both the community at
large and in particular parts of the community (such as particular
neighborhoods or populations experiencing health disparities). A
hospital facility may determine whether a health need is significant
based on all of the facts and circumstances present in the community it
serves. In addition, a hospital facility may use any criteria to
prioritize the significant health needs it identifies, including, but
not limited to, the burden, scope, severity, or urgency of the health
need; the estimated feasibility and effectiveness of possible
interventions; the health disparities associated with the need; or the
importance the community places on addressing the need.
(5) Persons representing the broad interests of the community. To
take into account input from persons who represent the broad interests
of the community it serves (including those with special knowledge of
or expertise in public health) for purposes of paragraph (b)(1)(iii) of
this section, a hospital facility must take into account input from the
sources listed in paragraphs (b)(5)(i), (b)(5)(ii), and (b)(5)(iii) of
this section in assessing the health needs of its community. Input from
these persons includes, but is not limited to, input on any financial
and other barriers to access to care in the community. In addition, a
hospital facility may take into account input from a broad range of
persons located in or serving its community, including, but not limited
to, health care consumers and consumer advocates, nonprofit and
community-based organizations, academic experts, local government
officials, local school districts, health care providers and community
health centers, health insurance and managed care organizations,
private businesses, and labor and workforce representatives. A hospital
facility must take into account input from the following sources in
assessing the health needs of its community--
(i) At least one state, local, tribal, or regional governmental
public health department (or equivalent department or agency) with
knowledge, information, or expertise relevant to the health needs of
that community;
(ii) Members of medically underserved, low-income, and minority
populations in the community served by the hospital facility, or
individuals or organizations serving or representing the interests of
such populations; and
(iii) Written comments received on the hospital facility's most
recently conducted CHNA and most recently adopted implementation
strategy.
(6) Medically underserved populations. For purposes of this
paragraph (b), medically underserved populations include populations
experiencing health disparities or at risk of not receiving adequate
medical care as a result of being uninsured or underinsured or due to
geographic, language, financial, or other barriers.
(7) Documentation of a CHNA--(i) In general. For purposes of
paragraph (b)(1)(iv) of this section, the CHNA report adopted for the
hospital facility by an authorized body of the hospital facility must
include--
(A) A definition of the community served by the hospital facility
and a description of how the community was determined;
(B) A description of the process and methods used to conduct the
CHNA;
(C) A description of how the hospital facility took into account
input from persons who represent the broad interests of the community
it serves;
(D) A prioritized description of the significant health needs of
the community identified through the CHNA, along with a description of
the process and criteria used in identifying certain health needs as
significant and prioritizing such significant health needs; and
(E) A description of the potential measures and resources
identified through the CHNA to address the significant health needs.
(ii) Process and methods used to conduct the CHNA. A hospital
facility's CHNA report will be considered to describe the process and
methods used to conduct the CHNA for purposes of paragraph (b)(7)(i)(B)
of this section if the CHNA report describes the data and other
information used in the assessment, as well as the methods of
collecting and analyzing this data and information, and identifies any
parties with whom the hospital facility collaborated, or with whom it
contracted for assistance, in conducting the CHNA.
(iii) Input from persons who represent the broad interests of the
community served by the hospital facility. A hospital facility's CHNA
report will be considered to describe how the hospital facility took
into account input from persons who represent the broad interests of
the community it serves for purposes of paragraph (b)(7)(i)(C) of this
section if the CHNA report summarizes, in general terms, the input
provided by such persons and how and over what time period such input
was provided (for example, whether through meetings, focus groups,
interviews, surveys, or written comments and between what dates);
provides the names of organizations providing input and summarizes the
nature and extent of the organization's input; and describes the
medically underserved, low-income, or minority populations being
represented by organizations or individuals that provided input. A CHNA
report does not need to name or otherwise individually identify any
individuals participating in community forums, focus groups, survey
samples, or similar groups.
(iv) Separate CHNA reports. While a hospital facility may conduct
its CHNA in collaboration with other organizations and facilities
(including, but not limited to, related and unrelated hospital
organizations and facilities, for-profit and government hospitals,
governmental departments, and nonprofit organizations), every hospital
facility must document the information described in this paragraph
(b)(7) in a
[[Page 20542]]
separate CHNA report to satisfy paragraph (b)(1)(iv) of this section
unless it is eligible to adopt a joint CHNA report as described in
paragraph (b)(7)(v) of this section. However, if a hospital facility is
collaborating with other facilities and organizations in conducting its
CHNA or if another organization has conducted a CHNA for all or part of
the hospital facility's community, portions of the hospital facility's
CHNA report may be substantively identical to portions of a CHNA report
of a collaborating hospital facility or the other organization
conducting a CHNA, if appropriate under the facts and circumstances.
For example, if a hospital facility conducts a survey of the health
needs of residents of homeless shelters located in the community in
collaboration with other hospital facilities, the description of that
survey in the hospital facility's CHNA report may be identical to the
description contained in the CHNA reports for the other collaborating
hospital facilities. Similarly, if the state or local public health
department with jurisdiction over the community served by the hospital
facility conducts an inventory of community health improvement
resources available in that community, the hospital facility may
include that inventory in its CHNA report.
(v) Joint CHNA reports--(A) In general. A hospital facility that
collaborates with other hospital facilities in conducting its CHNA will
satisfy paragraph (b)(1)(iv) of this section if an authorized body of
the hospital facility adopts for the hospital facility a joint CHNA
report produced for all of the collaborating hospital facilities, as
long as all of the collaborating hospital facilities define their
community to be the same and conduct a joint CHNA process, and the
joint CHNA report is clearly identified as applying to the hospital
facility.
(B) Example. The following example illustrates this paragraph
(b)(7)(v):
Example. P is one of ten hospital facilities located in and
serving the populations of a particular Metropolitan Statistical
Area (MSA). P and the other nine facilities in the MSA, some of
which are unrelated to P, decide to collaborate in conducting a CHNA
for the MSA and to each define their community as constituting the
entire MSA. The ten hospital facilities work together with the state
and local health departments of jurisdictions in the MSA to assess
the health needs of the MSA and collaborate in conducting surveys
and holding public forums to receive input from the MSA's residents,
including its medically underserved, low-income, and minority
populations. The hospital facilities then work together to prepare a
joint CHNA report documenting this joint CHNA process that contains
all of the elements described in paragraph (b)(7)(i) of this
section. The joint CHNA report identifies all of the collaborating
hospital facilities, including P, by name, both within the report
itself and on the cover page. The board of directors of the hospital
organization operating P adopts the joint CHNA report for P. P has
complied with the requirements of this paragraph (b)(7)(v) and,
accordingly, has satisfied paragraph (b)(1)(iv) of this section.
(8) Making the CHNA report widely available to the public--(i) In
general. For purposes of paragraph (b)(1)(v) of this section, a
hospital facility's CHNA report is made widely available to the public
only if the hospital facility--
(A) Makes the CHNA report widely available on a Web site, as
defined in Sec. 1.501(r)-1(c)(4), at least until the date the hospital
facility has made widely available on a Web site its two subsequent
CHNA reports; and
(B) Makes a paper copy of the CHNA report available for public
inspection without charge at the hospital facility at least until the
date the hospital facility has made available for public inspection
without charge a paper copy of its two subsequent CHNA reports.
(ii) Making draft CHNA reports widely available. Notwithstanding
paragraph (b)(8)(i) of this section, if a hospital facility makes
widely available on a Web site (and/or for public inspection) a version
of the CHNA report that is expressly marked as a draft on which the
public may comment, the hospital facility will not be considered to
have made the CHNA report widely available to the public for purposes
of determining the date on which the hospital facility has conducted a
CHNA under paragraph (a) of this section.
(c) Implementation strategy--(1) In general. For purposes of
paragraph (a)(2) of this section, a hospital facility's implementation
strategy to meet the community health needs identified through the
hospital facility's CHNA is a written plan that, with respect to each
significant health need identified through the CHNA, either--
(i) Describes how the hospital facility plans to address the health
need; or
(ii) Identifies the health need as one the hospital facility does
not intend to address and explains why the hospital facility does not
intend to address the health need.
(2) Description of how the hospital facility plans to address a
significant health need. In describing how a hospital facility plans to
address a significant health need identified through a CHNA for
purposes of paragraph (c)(1)(i) of this section, the implementation
strategy must describe the actions the hospital facility intends to
take to address the health need, the anticipated impact of these
actions, and a plan to evaluate such impact. The implementation
strategy must also identify the programs and resources the hospital
facility plans to commit to address the health need. Finally, the
implementation strategy must describe any planned collaboration between
the hospital facility and other facilities or organizations in
addressing the health need.
(3) Description of why a hospital facility is not addressing a
significant health need. In explaining why it does not intend to
address a significant health need for purposes of paragraph (c)(1)(ii)
of this section, a hospital facility may provide a brief explanation of
its reason for not addressing the health need, including, but not
limited to, resource constraints, other facilities or organizations in
the community addressing the need, relative lack of expertise or
competencies to effectively address the need, a relatively low priority
assigned to the need, and/or a lack of identified effective
interventions to address the need.
(4) Joint implementation strategies. A hospital facility may
develop an implementation strategy in collaboration with other
facilities and organizations, including, but not limited to, related
and unrelated hospital organizations and facilities, for-profit and
government hospitals, governmental departments, and nonprofit
organizations. In general, a hospital facility that collaborates with
other facilities and organizations in developing its implementation
strategy must still document its implementation strategy in a separate
written plan that is tailored to the particular hospital facility,
taking into account its specific programs and resources. However, a
hospital facility that adopts a joint CHNA report described in
paragraph (b)(7)(v) of this section may also adopt a joint
implementation strategy that, with respect to each significant health
need identified through the joint CHNA, either describes how the
collaborating hospital facilities plan to address the health need or
identifies the health need as one the hospital facilities do not intend
to address and explains why the hospital facilities do not intend to
address the health need, as long as the joint implementation strategy--
(i) Is clearly identified as applying to the hospital facility;
(ii) Clearly identifies the hospital facility's particular role and
responsibilities in taking the actions described in the implementation
strategy and the programs and resources
[[Page 20543]]
the hospital facility plans to commit to such actions; and
(iii) Includes a summary or other tool that helps the reader easily
locate those portions of the joint implementation strategy that relate
to the hospital facility.
(5) When the implementation strategy must be adopted--(i) In
general. For purposes of paragraph (a)(2) of this section, in order to
have adopted an implementation strategy to meet the health needs
identified through a hospital facility's CHNA by the end of the same
taxable year in which the hospital facility conducts that CHNA, an
authorized body of the hospital facility must adopt the implementation
strategy during the taxable year in which the hospital facility
completes the final step for the CHNA described in paragraph (b)(1) of
this section, regardless of whether the hospital facility began working
on the CHNA in a prior taxable year.
(ii) Example. The following example illustrates this paragraph
(c)(5):
Example. M is a hospital facility that last conducted a CHNA
and adopted an implementation strategy in Year 1. In Year 3, M
defines the community it serves, assesses the health needs of that
community, and takes into account input from persons who represent
the broad interests of that community. In Year 4, M documents its
CHNA in a CHNA report that is adopted by an authorized body of M,
makes the CHNA report widely available on a Web site, and makes
paper copies available for public inspection. To meet the
requirements of paragraph (a)(2) of this section, an authorized body
of M must adopt an implementation strategy to meet the health needs
identified through that CHNA by the last day of Year 4.
(d) New hospital facilities. A hospital facility that is newly
acquired or placed into service, or that becomes newly subject to the
requirements of section 501(r) because the hospital organization that
operates it is newly recognized as described in section 501(c)(3), must
meet the requirements of section 501(r)(3) by the last day of the
second taxable year beginning after the date, respectively, the
hospital facility is acquired; licensed, registered, or similarly
recognized by its state as a hospital; or newly subject to the
requirements of section 501(r) as a result of the hospital organization
operating it being recognized as described in section 501(c)(3).
(e) Transition rules--(1) CHNA conducted in taxable year beginning
before March 23, 2012. A hospital facility that conducted a CHNA
described in section 501(r)(3) in either its first taxable year
beginning after March 23, 2010, or its first taxable year beginning
after March 23, 2011, does not need to meet the requirements of section
501(r)(3) again until the third taxable year following the taxable year
in which the hospital facility conducted that CHNA, provided that the
hospital facility has adopted an implementation strategy to meet the
community health needs identified through that CHNA on or before the
15th day of the fifth calendar month following the close of its first
taxable year beginning after March 23, 2012.
(2) CHNA conducted in first taxable year beginning after March 23,
2012. A hospital facility that conducts a CHNA described in section
501(r)(3) in its first taxable year beginning after March 23, 2012,
will be deemed to satisfy paragraph (a)(2) of this section during that
taxable year if an authorized body of the hospital facility adopts an
implementation strategy to meet the community health needs identified
through that CHNA on or before the 15th day of the fifth calendar month
following the close of its first taxable year beginning after March 23,
2012.
0
Par. 5. Section 1.501(r)-7 as proposed to be amended at 77 FR 38169
(June 26, 2012) is proposed to be further amended by revising the
section to read as follows:
Sec. 1.501(r)-7 Effective/applicability dates.
(a) Effective/applicability date. The rules of Sec. 1.501(r)-1
through Sec. 1.501(r)-6 are effective on the date of publication of
the Treasury decision adopting these rules as final or temporary
regulations.
(b) Reliance and transition period. A hospital facility may rely on
Sec. 1.501(r)-3 of the proposed regulations published in the Federal
Register on April 5, 2013, for any CHNA conducted or implementation
strategy adopted on or before the date that is six months after these
regulations are published as final or temporary regulations in the
Federal Register.
0
Par. 6. Section 1.6012-2 is amended by redesignating paragraphs (i)
through (k) as paragraphs (j) through (l) and adding new paragraph (i)
to read as follows:
Sec. 1.6012-2 Corporations required to make returns of income.
* * * * *
(i) Hospital organizations with noncompliant hospital facilities.
Every hospital organization (as defined in Sec. 1.501(r)-1(b)(16))
that is subject to the tax imposed by Sec. 1.501(r)-2(d) shall make a
return on Form 990-T. The filing of a return to pay the tax described
in Sec. 1.501(r)-2(d) does not relieve the organization of the duty of
filing other required returns.
* * * * *
0
Par. 7. Section 1.6012-3 is amended by adding new paragraph (a)(10) to
read as follows:
Sec. 1.6012-3 Returns by fiduciaries.
(a) * * *
(10) Hospital organizations organized as trust with noncompliant
hospital facilities. Every fiduciary for a hospital organization (as
defined in Sec. 1.501(r)-1(b)(16)) organized as a trust described in
section 511(b)(2) that is subject to the tax imposed by Sec. 1.501(r)-
2(d) shall make a return on Form 990-T. The filing of a return to pay
the tax described in Sec. 1.501(r)-2(d) does not relieve the
organization of the duty of filing other required returns.
* * * * *
0
Par. 8. Section 1.6033-2 is amended by adding paragraphs (a)(2)(ii)(l)
and (k)(4) to read as follows:
Sec. 1.6033-2 Returns by exempt organizations (taxable years
beginning after December 31, 1969) and returns by certain nonexempt
organizations (taxable years beginning after December 31, 1980).
(a) * * *
(2) * * *
(ii) * * *
(I) In the case of a hospital organization (as defined in Sec.
1.501(r)-1(b)(16)) described in section 501(c)(3) during the taxable
year--
(1) A copy of its audited financial statements for the taxable year
(or, in the case of an organization the financial statements of which
are included in consolidated financial statements with other
organizations, such consolidated financial statements);
(2) Either a copy of the most recently adopted implementation
strategy, within the meaning of Sec. 1.501(r)-3(c), for each hospital
facility it operates or the URL of each Web page on which it has made
each such implementation strategy widely available on a Web site within
the meaning of Sec. 1.501(r)-1(c)(4) along with or as part of the
community health needs assessment (CHNA) to which the implementation
strategy relates;
(3) For each hospital facility it operates, a description of the
actions taken during the taxable year to address the significant health
needs identified through its most recently conducted CHNA, within the
meaning of Sec. 1.501(r)-3(b), or, if no actions were taken with
respect to one or more of these health needs, the reason(s) why no
actions were taken; and
[[Page 20544]]
(4) The amount of the excise tax imposed on the organization under
section 4959 during the taxable year.
* * * * *
(k) * * *
(4) The applicability of paragraph (a)(2)(ii)(l) of this section
shall be limited to returns filed on or after the date the regulations
adding (a)(2)(ii)(l) are published as final or temporary regulations in
the Federal Register.
PART 53--FOUNDATION AND SIMILAR EXCISE TAXES
0
Par. 9. The authority citation for part 53 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 10. Section 53.4959-1 is added to read as follows:
Sec. 53.4959-1 Taxes on failures by hospital organizations to meet
section 501(r)(3).
(a) Excise tax for failure to meet the section 501(r)(3)
requirements--(1) In general. If a hospital organization (as defined in
Sec. 1.501(r)-1(b)(16)) fails to meet the requirements of section
501(r)(3) separately with respect to a hospital facility it operates in
any taxable year, there is imposed on the hospital organization a tax
equal to $50,000. If a hospital organization operates multiple hospital
facilities and fails to meet the requirements of section 501(r)(3) with
respect to more than one facility it operates, the $50,000 tax is
imposed on the hospital organization separately for each hospital
facility's failure. The tax may be imposed for each taxable year that a
hospital facility fails to meet the requirements of section 501(r)(3).
The tax imposed by this section may be imposed in addition to any tax
imposed by Sec. 1.501(r)-2(d) or as a result of revocation of a
hospital organization's section 501(c)(3) status.
(2) Examples. The following examples illustrate this paragraph (a):
Example 1. (i) U is a hospital organization that operates only
one hospital facility, V. In Year 1, V conducts a community health
needs assessment (CHNA) and adopts an implementation strategy to
meet the health needs identified through the CHNA. In Years 2 and 3,
V does not conduct a CHNA. V fails to conduct a CHNA by the last day
of Year 4. Accordingly, U has failed to meet the requirements of
section 501(r)(3) with respect to V in Year 4 because V has failed
to conduct a CHNA in Years 2, 3, and 4. U is subject to a tax equal
to $50,000 for Year 4.
(ii) V also fails to conduct a CHNA by the last day of Year 5.
Accordingly, U has failed to meet the requirements of section
501(r)(3) with respect to V in Year 5 because V has failed to
conduct a CHNA in Years 3, 4, and 5. U is subject to a tax equal to
$50,000 for Year 5.
Example 2. P is a hospital organization that operates only one
hospital facility, Q. In Year 1, Q conducts a CHNA and adopts an
implementation strategy to meet the health needs identified through
the CHNA. In Years 2 and 3, Q does not conduct a CHNA. In Year 4, Q
conducts a CHNA but does not adopt an implementation strategy to
meet the health needs identified through that CHNA by the last day
of Year 4. Accordingly, P has failed to meet the requirements of
section 501(r)(3) with respect to Q in Year 4 because Q has failed
to adopt an implementation strategy by the end of the taxable year
in which Q conducted its CHNA. P is subject to a tax equal to
$50,000 for Year 4.
Example 3. R is a hospital organization that operates two
hospital facilities, S and T. In Year 1, S and T each conduct a CHNA
and adopt an implementation strategy to meet the health needs
identified through the CHNA. In Years 2 and 3, S and T do not
conduct a CHNA. S and T each fail to conduct a CHNA by the last day
of Year 4. Accordingly, R has failed to meet the requirements of
section 501(r)(3) with respect to both S and T in Year 4. R is
subject to a tax equal to $100,000 ($50,000 for S's failure plus
$50,000 for T's failure) for Year 4.
(b) Effective/applicability dates. These rules are effective on the
date of publication of the Treasury decision adopting these rules as
final or temporary regulations.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2013-07959 Filed 4-3-13; 4:15 pm]
BILLING CODE 4830-01-P