Non-profit tax exemptions under heavy fire

Sen. Charles Grassley has been on a tear this year--one that could change the way not-for-profit hospitals defend their tax exemptions for decades to come. Meanwhile, prodded by Grassley and others, the IRS has done its own smackdown on how hospitals report on their charitable activities. And lest you think we're talking mere bureaucratic tweaks here, think again; the new IRS regs are serious business that require non-profits to do a whole lot of 'splainin'.

For one thing, the IRS rolled out new rules about how not-for-profit hospitals govern themselves, and how much subsidized and free care they provide. This included a new supplemental form, Schedule H, to the IRS's Form 990. The problem is, the American Hospital Association has said that these forms needed serious work. The dust is still settling on all of this, and hospitals can expect much wrangling over how the agency interprets the information on these forms in coming years.

In other news, University of Texas M.D. Anderson Cancer Center had to fight to defend its reputation as a charitable institution, especially when Senator Grassley turned his evil eye on them. Meanwhile, we'll have to wait until next year to see if the U.S. Supreme Court decides to take on the case of Vision Service Plan vs. the IRS, in which case their decision could cause a major sea change. More frighteningly, to non-profits, is the prospect that Grassley will, at long last, file legislation that would set a minimum amount of patient revenue (probably 5 percent) that non-profit hospitals will have to spend on charity care to keep their exemption.

Meanwhile, non-profits are facing state and local battles to defend their tax exemptions, too. For example, Provena Covenant continued a long battle to try to regain property tax exemptions this year. Not only that, states and municipalities are eyeing hospitals' property tax exemptions. (Boston's mayor, for one thing, is now trying to get more money out of the city's flush non-profits.) Expect more of the same in 2009--after all, nobody's predicting a magic end to the US recession anytime soon--and tax exemptions are a ripe target. I think we can be sure churches are safe, but hospitals, watch out!