Bipartisan Scrutiny of Tax-Exempt Hospitals Continues

On Nov. 19, 2024, Sens. Chuck Grassley and Elizabeth Warren confirmed in a letter to the IRS commissioner that they are continuing their bipartisan focus on fighting rising medical debt in the U.S. The letter requests that the IRS strengthen and enforce regulations under Sections 501(c)(3) and 501(r) regarding the tax-exempt status and community benefit requirements for not-for-profit hospitals.

The letter is the latest in a series of communications increasing scrutiny on tax-exempt hospitals’ community benefit activities and the value of their tax exemption relative to the benefits they provide. For instance, in August 2023, Grassley and Warren, along with Sens. Bill Cassidy and Raphael Warnock, wrote to the IRS, noting the growing amount of medical debt and calling for regulatory action from both the IRS and Treasury Inspector General for Tax Administration (TIGTA) to investigate the community benefit activities of tax-exempt hospitals.

The senators continue the theme in their recent letter, suggesting that some not-for-profit hospitals might be taking advantage of their tax-exempt status and failing to provide adequate charity and care to their communities. They note previous legislative efforts to address medical debt and express appreciation for the regulatory and enforcement activities conducted by both the IRS and TIGTA. They recommend that the IRS further increase oversight and enforcement of community benefit activities, including collaboration with other federal and state agencies to address violations. The letter also calls for the IRS to establish standardized financial assistance policies and prohibit aggressive debt collection practices under Section 501(r) community benefit requirements.

Crowe observation

With a call for the IRS to brief congressional staff by Dec. 10, 2024, and a new administration taking shape following the election, it remains to be seen what the IRS’ response will be or what increased enforcement efforts might result. However, the trend of increasing scrutiny on tax-exempt hospitals is likely to continue.

Looking ahead

With the change in administration and the president-elect’s focus on smaller government, it is unclear what will become of the federal regulatory environment. However, the latest letter from Grassley and Warren makes it clear that at least some in Congress will continue to push for increased oversight and enforcement of tax-exempt hospitals. As such, tax-exempt hospitals should focus on understanding, tracking, and communicating the full scope of their community benefit efforts. In addition, they should work with their tax advisers to review their current community benefit activities, take necessary steps to ensure compliance with the requirements of Section 501(r), and quantify the value of their tax-exempt status.