Tax Exemptions for Hospitals May Get More Scrutiny

The Internal Revenue Service has sent an 80-item questionnaire, including queries on billing practices and executive salaries to 550 hospitals presently filing Form 990s. There is no indication that the hospitals in question are under audit, but on the heels of recent actions involving credit counseling businesses and political activities of nonprofit organizations it appears as though the IRS intends to tighten requirements for tax-exempt status in the future. In the past year, the House Ways and Means Committee has held a hearing on financial practices of some exempted hospitals and some states have complained that abuse of tax-exempt status has been an issue.

Since a tax-exempt hospital has a cost advantage over for-profit, taxable hospitals, it is legitimate for the IRS to look at practices of hospitals. Unquestionably, state and locally-run hospitals should continue to be exempted; in my opinion, so should h0spitals clearly run on altrusic or religious principles. Beyond that, the IRS should be reasonable and fair in its determination of taxability, but should be able to tax hospitals primarily run with a profit motive.