The IRS—for the second time in less than year—has revoked the tax-exempt status of a “dual status” hospital for failure to meet the requirements of section 501(r).
Read LTR 201829017 [PDF 827 KB] (released July 20, 2018, and dated April 20, 2018)
A dual-status organization is one that is recognized as described in section 501(c)(3) and excludes income under section 115(1). As was the case in last year’s revocation—LTR 201731014 (August 4, 2017) [PDF 8.3 MB]—the IRS revoked the hospital’s section 501(c)(3) status after the hospital informed the IRS exam agent that it no longer wanted or needed the status.
In the recent ruling, interestingly, the hospital represented that it was not even aware that it had section 501(c)(3) status. Other than acknowledging the hospital’s concern regarding potential penalties, the revocation letter makes no mention of any excise taxes under section 4959 for failure to meet the community health needs assessment (CHNA) requirements of section 501(r)(3).
These two revocations are the only ones that KPMG professionals are aware of, that are attributable to an organization’s failure to meet the requirements of section 501(r). Though neither addresses potential section 4959 exposure, the IRS lacks the statutory authority to abate section 4959 taxes. To avoid such excise taxes, dual-status hospitals that have determined they do not want and have no need for section 501(c)(3) status, and that do not intend to comply with the requirements of section 501(r), may want to consider voluntarily relinquishing such status pursuant to section 3.01(12) of Rev. Proc. 2018-5, 2018-1 I.R.B. 233.
For more information, contact a tax professional with KPMG’s Washington National Tax practice:
Preston Quesenberry | +1 202 533 3985 | firstname.lastname@example.org
Randall Thomas | +1 202 533 3786 | email@example.com
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