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The tax-exempt status of nonprofit hospitals has received increased attention from policymakers interested in examining the value they provide instead of paying taxes. We use 2012 data from the Internal Revenue Service (IRS) Form 990, Centers for Medicare and Medicaid Services (CMS) Hospital Cost Reports, and American Hospital Association's (AHA) Annual Survey to compare the value of community benefits with the tax exemption. We contrast nonprofit's total community benefits to what for-profits provide and distinguish between charity and other community benefits. We find that the value of the tax exemption averages 5.9% of total expenses, while total community benefits average 7.6% of expenses, incremental nonprofit community benefits beyond those provided by for-profits average 5.7% of expenses, and incremental charity alone average 1.7% of expenses. The incremental community benefit exceeds the tax exemption for only 62% of nonprofits. Policymakers should be aware that the tax exemption is a rather blunt instrument, with many nonprofits benefiting greatly from it while providing relatively few community benefits.

Provisions of the Affordable Care Act (ACA) encouraged tax-exempt hospitals to invest broadly in community health benefits. Four years after the ACA's enactment, hospitals had increased their average spending for all community benefits by 0.5 percentage point, from 7.6 percent of their operating expenses in 2010 to 8.1 percent in 2014.

Context: Community Benefit spending by not-for-profit hospitals has served as a critical, formalized part of the nation's safety net for almost 50 years. This has occurred mostly through charity care. This article examines how not-for-profit hospitals spent Community Benefit dollars prior to full implementation of the Affordable Care Act (ACA)., Methods: Using data from 2009 to 2012 hospital tax and other governmental filings, we constructed national, hospital-referral-region, and facility-level estimates of Community Benefit spending. Data were collected in 2015 and analyzed in 2015 and 2016. Data were matched at the facility level for a non-profit hospital's IRS tax filings (Form 990, Schedule H) and CMS Hospital Cost Report Information System and Provider of Service data sets., Results: During 2009, hospitals spent about 8% of total operating expenses on Community Benefit. This increased to between 8.3% and 8.5% in 2012. The majority of spending (>80%) went toward charity care, unreimbursed Medicaid, and subsidized health services, with approximately 6% going toward both community health improvement and health professionals' education. By 2012, national spending on Community Benefit likely exceeded $60 billion. The largest hospital systems spent the vast majority of the nation's Community Benefit; the top 25% of systems spent more than 80 cents of every Community Benefit dollar., Discussion: Community Benefit spending has remained relatively steady as a proportion of total operating expenses and so has increased over time-although charity care remains the major focus of Community Benefit spending overall., Implications: More than $60 billion was spent on Community Benefit prior to implementation of the ACA. New reporting and spending requirements from the IRS, alongside changes by the ACA, are changing incentives for hospitals in how they spend Community Benefit dollars. In the short term, and especially the long term, hospital systems would do well to partner with public health, other social services, and even competing hospitals to invest in population-based activities. The mandated community health needs assessment process is a logical home for these sorts of collaborations. Relatively modest investments can improve the baseline level of health in their communities and make it easier to improve population health. Aside from a population health justification for a partnership model, a business case is necessary for widespread adoption of this approach. Because of their authorities, responsibilities, and centuries of expertise in community health, public health agencies are in a position to help hospitals form concrete, sustainable collaborations for the improvement of population health., Conclusion: The ACA will likely change the delivery of uncompensated and charity care in the United States in the years to come. How hospitals choose to spend those dollars may be influenced greatly by the financial and political environments, as well as the strength of community partnerships.

The federal government encourages public support for charitable activities by allowing people to deduct donations to tax-exempt organizations on their income tax returns. Tax-exempt hospitals are major beneficiaries of this policy because it encourages donations to the hospitals while shielding them from federal and state tax liability. In exchange, these hospitals must engage in community benefit activities, such as providing care to indigent patients and participating in Medicaid. The congressional Joint Committee on Taxation estimated the value of the nonprofit hospital tax exemption at $12.6 billion in 2002--a number that included forgone taxes, public contributions, and the value of tax-exempt bond financing. In this article we estimate that the size of the exemption reached $24.6 billion in 2011. The Affordable Care Act (ACA) brings a new focus on community benefit activities by requiring tax-exempt hospitals to engage in communitywide planning efforts to improve community health. The magnitude of the tax exemption, coupled with ACA reforms, underscores the public's interest not only in community benefit spending generally but also in the extent to which nonprofit hospitals allocate funds for community benefit expenditures that improve the overall health of their communities., (Project HOPE—The People-to-People Health Foundation, Inc.)

Nonprofit hospitals are exempt from federal income taxation if they pass organizational and operational tests, including satisfying the community-benefit standard. Policymakers, however, have questioned the adequacy of the community benefits that nonprofit hospitals provide in exchange for these exemptions. The Internal Revenue Service recently responded to these concerns by redesigning its tax forms for nonprofit hospitals. The new Form 990 Schedule H requires nonprofit hospitals to provide additional information about their community-benefit activities. This new reporting requirement, however, places an undue focus on input-based community-benefit indicators, in particular expenditures. We argue that expanding the current input-based reporting requirement to include not only monetary inputs but also population health outcomes would achieve greater benefit for society.

This article examines the recent significant changes to the Form 990 information return for tax-exempt organizations. Specifically, we address those changes to the return that may impact the health care industry. The Internal Revenue Service (IRS) argues the redesign of the Form 990 is based on the following three principles: enhancing transparency, promoting tax compliance, and minimizing the burden on the filing organization. It has yet to be determined whether the significant reorganization of the informational return will benefit the stakeholders of the health care industry. We argue that these changes are a step in the right direction in providing necessary disclosure for policymakers and federal regulators.

By mid-month, the IRS expects to unveil extensive changes to its Form 990 reporting rules for not-for-profits, which could further affect current disclosure or nondisclosure of tax-exempt hospitals' community benefits and charity care. Most hospitals welcome the revisions, but the legislative process to implement those reforms could be lengthy, says healthcare attorney Bernadette Broccolo, left.

In Caracci v. Commissioner, the Internal Revenue Service faced an important test in its application of Excess Benefit Taxes to disqualified persons of a nonprofit corporation that converted to for-profit status. This Article, written by the taxpayers' valuation expert, details the difficulties in the IRS case and demonstrates the reasons for the Fifth Circuit's reversal of the Tax Court's judgment in favor of the IRS. The author concludes with a number of lessons that taxpayers can take from Caracci.

Tax-exempt healthcare organizations have turned to the Internet as a powerful tool in communicating with the public, medical staff, and patients. Activities as diverse as providing links to the Web sites of other organizations, selling goods and services, soliciting contributions, and hosting forums on the Internet raise unresolved questions concerning the impact of Internet use on such organizations' tax-exempt status. The Internal Revenue Service has provided no guidance to date regarding the manner in which a nonprofit organizations' use of the Internet may affect its tax-exempt status or subject it to federal income tax on some sources of funds. This article suggests analytical approaches for applying existing law in the Internet context and identifies areas that are ripe for additional guidance.

On April 25, 2002, the Internal Revenue Service finalized the proposed Corporate Sponsorship regulations. The changes made in the final regulations pertain to the proposed $79 ceiling on disregarded benefits, the 2 percent threshold for disregarded benefits, the scope of disregarded benefits, Web site hyperlinks, the inclusion of certain electronic publications in the definition of periodicals, the valuation date for substantial return benefits, and the scope of use or acknowledgement. The proposed regulations were discussed in the Winter 2002 issue of Managed Care Quarterly in an article titled the same as this one. This article is based on the final IRS regulations and therefore supersedes the original article published in the Winter 2002 issue.

The IRS earlier this year issued new regulations that tax-exempt organizations must follow in disclosing to the public certain documents as directed by the Omnibus Budget Reconciliation Act of 1987 (OBRA87) and the Taxpayer Bill of Rights 2 of 1996. The new rules went into effect June 8, 1999. Complying with these rules may pose difficulties in terms of the increased exposure of the documents that must be disclosed, increased labor, time limitations, and penalties, some of which can be imposed upon a director or officer. An organization can escape some of the burden of responding to requests by posting the documents on its Web site, but it still must make the documents available for inspection at its principal office and certain regional offices.

Here is a description of some recent changes in U.S. tax law that now allow tax-exempt non-profit organizations to improve one employee benefit--at a minimal cost to the employer. Tax-exempt organizations can now offer employees 401(k) retirement plans.