Tax Insights from Exempt Organizations Tax Services Draft of IRS 2014 Form 990, Schedule H Proposes Key Changes to Questions on Section 501(r) Compliance November 24, 2014 In brief In September, the Internal Revenue Service (IRS) released drafts of the 2014 Form 990, Schedule H and instructions. The most significant proposed changes appear in Part V, Section B, Facility Policies and Procedures, addressing a hospital facility’s compliance with Section 501(r) of the Internal Revenue Code (IRC). Click the following links for the draft 2014 Form 990, Schedule H and instructions. In detail Form 990, Schedule H must be completed by a hospital organization that operates a hospital facility. A hospital facility is one that is required to be licensed, registered, or similarly recognized by a state as a hospital. Part V, Section B, Facility Policies and Procedures, asks questions to evaluate a hospital’s compliance with the requirements of Section 501(r) of the IRC. Section 501(r) of the IRC imposes requirements for a hospital facility to qualify as a charitable organization described in Section 501(c)(3) of the IRC. In general, Section 501(r) of the IRC requires a hospital facility to: (1) conduct a Community Health Needs Assessment (CHNA) and adopt an implementation strategy once every three years, (2) adopt a written financial assistance policy (FAP), (3) limit the amounts it charges for emergency or medically necessary care to the amounts generally billed to those with insurance and refrain from using gross charges; and (4) prevent the use of extraordinary collection actions before making reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s FAP. Community Health Needs Assessment (CHNA) Key proposed changes to the CHNA questions include: x Two new questions ask whether the hospital facility was first licensed by a State as a hospital facility in the current or immediately preceding tax year, as well as whether the hospital facility was acquired or placed into service as a tax-exempt hospital in the current or immediately preceding tax year (and if so, details must be provided). x Several questions with refined language to better capture the IRS’s focus on how a hospital facility is addressing the community’s “significant” health needs identified in the CHNA (adding the word “significant” from the prior version in three places). www.pwc.com Tax Insights x A new question asks if the hospital facility collaborated with one or more non-hospitals in conducting its CHNA. If “yes,” the hospital facility must list the other organizations. x To disclose how a hospital facility makes its CHNA widely available, the check box for “Available upon request from the hospital facility” has been changed to “Made a paper copy available for public inspection without charge at the hospital facility.” x A hospital facility must report the tax year it last adopted an implementation strategy and the website where it is available. If it is not available online, the hospital facility is asked if the implementation strategy is attached to its return. x Hospital facilities must describe how they are addressing CHNAidentified needs along with why certain identified needs are not being addressed. Financial Assistance Policy (FAP) Key proposed changes to the FAP questions include: x The FAP eligibility criteria questions are consolidated into new Line 13 (old lines 9, 10, 11, and 12). Modifications include: (i) adding check boxes for whether Federal Poverty Guidelines are used to determine free or discounted care; (ii) removing “Uninsured discount,” “Medicaid/Medicare,” and “State regulation” as eligibility factors for financial assistance; and (iii) 2 adding a box for “Underinsurance status.” x The question on how the FAP explains the financial aid application method now includes several new check boxes, including that the FAP “Described the information the hospital facility may require an individual to provide as part of his or her application.” x The IRS expanded the check boxes of measures used to publicize the FAP. If the hospital facility makes its FAP, FAP application, or plain language summary available online, the hospital facility must provide the url. The form no longer asks if the policy was made available by attaching it to billing invoices. Billing and Collections Key proposed changes to the billing and collection practices questions include: x Refined language to clarify that these questions apply to “other authorized parties” acting on the reporting facility’s behalf. x Regarding the permitted actions a hospital facility can take under its policies before making reasonable efforts to determine an individual’s FAP eligibility, the form now asks about “Selling an individual’s debt to another party.” Further, the check boxes for “Lawsuits,” “Liens on residences,” and “Body attachments” have been replaced by a check box for “Actions that require a legal or judicial process.” Hospital facilities can check a new box if none of the listed or similar actions were permitted. Corresponding changes were made to the next question, which asks about what actions were performed during the year before satisfying the reasonable efforts requirement. x In Line 20 (old line 18), which asks about the efforts made before engaging in collection activities, a new check box has been added for reporting that none of the listed efforts were taken. The draft form and instructions do not modify the questions about charges to FAP-eligible individuals or the hospital facility’s emergency medical care policy. The proposed changes to Schedule H and the instructions include references to the 2012 and 2013 proposed regulations. While hospitals may rely on the proposed regulations, they are not binding until they are finalized (the timing of which remains uncertain). Hospitals must, however, continue to meet the statutory requirements of Section 501(r) of the IRC. Schedule H, Part V, Section B will likely change significantly when the final regulations are issued. The takeaway The 2014 Form 990, Schedule H and instructions are still in draft form and will be finalized in the upcoming weeks. However, hospital organizations should review the draft return to evaluate how the questions would be answered and determine what additional disclosures may be required. pwc Tax Insights Let’s talk For a deeper discussion of how this issue might affect your organization, please contact: Exempt Organizations Tax Services Practice: Marci Krause (202) 414-1012 [email protected] Ron Schultz (202) 346-5096 [email protected] Michelle Michalowski (202) 414-1615 [email protected] Rob Friz (267) 330-6248 [email protected] Caroline Burnicki (617) 530-5767 [email protected] Matthew Petroski (267) 330-3207 [email protected] Travis Patton (202) 414-1042 [email protected] Erin Couture (617) 530-6179 [email protected] Anthony Russo (267) 330-1356 [email protected] Gwen Spencer (617) 530-4120 [email protected] Eric McNeil (267) 330-6415 [email protected] Paul Tanis (617) 415-8562 [email protected] Laura Parello (646) 471-2472 [email protected] Erica McReynolds (267) 330-1750 [email protected] © 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. 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