Community Benefit Analysis on Federal Tax-Exemption for Charitable Organizations

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Federal tax-exemption for charitable organizations has been in existence since the beginning of federal income tax law. This exemption is based on the principle that the federal government’s loss of tax revenue is equivalent to the relief of financial burdens charitable organizations provide that would otherwise have to be supported by public funds. Nonprofit hospitals are able to qualify for federal tax-exemption under section 501(c)(3) of the Internal Revenue Code because the Internal Revenue Service (IRS) has recognized the promotion of health for the benefit of the community, where medical assistance is afforded to the poor or where medical research is promoted, as a charitable purpose. (U.S. Government Accountability Office, 2008)…show more content…
In 1969, the IRS established broader standards for nonprofit hospital tax-exemption status based on the extent to which these hospitals provide community benefit to the communities they serve. (Somerville, 2012) From 1969 to the implementation of the Patient Protection and Affordable Care Act (ACA) in 2010, there were some attempts to change this policy, however these attempts largely failed. Prior to the implementation of the ACA, community benefit activities included providing free and discounted care to uninsured and low-income patients, reimbursement shortfalls associated with participation in Medicaid programs, activities to promote population health improvement, programs to increase access to care, medical research, training for health professionals, and other contributions that benefit the hospital’s community. Under the ACA, additional requirements were established for hospitals to be qualified as tax-exempt including conducting a community health needs assessment at least every 3 years and develop an implementation strategy to address the needs identified by the assessment, adopting and publicizing a written financial assistance policy, and limiting charges, billing, and debt collection practices directed to individuals who qualify for financial assistance. (The Hilltop Institute, 2013b) While the IRS
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