New health system compliance focus on tax exemption matters

Michael W. Peregrine (mperegrine@mwe.com) is a Partner in the Chicago office and Erika Mayshar (emayshar@mwe.com) is a Partner in the Los Angeles office of McDermott Will & Emery LLP.

Compliance programs of non-profit hospitals and health systems should focus more closely on tax-exemption matters in the wake of the Tax Cuts and Jobs Act (the Act)[1] and recent Internal Revenue Service enforcement initiatives. Such focus is consistent with the general recognition that compliance programs should not be single-subject in nature (e.g., focusing solely on government payment program regulations), but should address the full spectrum of material legal and regulatory risks facing the organization. These new developments present an important opportunity for compliance programs to enhance their value to tax-exempt healthcare organizations, and should be brought to the attention of the board’s Audit & Compliance Committee.

The new developments fall into five separate categories: first, the tax-exempt hospital-specific provisions of the newly enacted Tax Cuts and Jobs Act; second, the broader policy themes of the Act as they affect tax exemption compliance; third, enhanced IRS enforcement of the requirements of the charity care/community benefit provisions of Section 501(r) of the Internal Revenue Code; fourth, the recent and unrelated action by the IRS to revoke the tax-exempt status of two hospitals; and fifth, an increasing public presence of the IRS in connection with tax-exemption enforcement and compliance guidelines.

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