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Navigating health reform
Community Health Needs Assessments: Penalties and Deadlines
The IRS recently reminded hospitals of the penalties they face for failing to complete a community health needs assessment (CHNA). A hospital that doesn’t complete the process by its fiscal year-end faces a $50,000 excise tax and the possibility of losing its tax-exempt status. It is also subject to a $50,000 penalty for each subsequent year of non-compliance.
"Although the IRS announcement provides little new information, it is a reminder of the significant penalties hospitals face if they do not comply with Sec. 501(r)," says Kurt Bennion, a health care engagement director with CliftonLarsonAllen.
In addition to the $50,000 excise tax, major and intentional failures to comply can also result in loss of the hospital’s 501(c)(3) status.
On August 14, 2013, the IRS and U.S. Treasury Department issued guidance to confirm that:
- The $50,000 excise tax must be reported and paid through Form 4720; and
- Form 4720 and the $50,000 payment have the same filing deadline as Form 990 — the 15th day of the fifth month following the organization’s year-end.
Even if a hospital completes a CHNA, it must ensure that the process and documents (the CHNA Report and Implementation Strategy) meet the requirements of Sec. 501(r)(3) and either Notice 2011-52 or the proposed regulation issued in April 2013.
The notice and proposed regulation contain numerous details. If a hospital fails to comply with all requirements, the IRS has the authority to determine that a valid CHNA was not completed. If that happens, the hospital would automatically be subject to the $50,000 excise tax, and its 501(c)(3) status could be at risk.
We recommend that all hospitals subject to 501(r) contact their tax advisor, legal counsel, or another qualified tax expert to confirm that their CHNA complies with all aspects of Sec. 501(r). A small investment at the start and end of the CHNA process can protect your hospital against significant losses.