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IRS Requirements for A Community Health Needs Assessment for Tax Exempt Hospitals August 2011

IRS Requirements for A Community Health Needs Assessment for Tax Exempt Hospitals

Robert Bowsher

Robert T. Bowsher

The Internal Revenue Service recently issued Notice 2011-52, which provides information and solicits further comment on the new community healthcare needs assessment (“CHNA”) required for tax exempt hospitals. CHNAs are required by §501(r) of the Internal Revenue Code (“Code”), which was enacted by the Affordable Care Act, and apply to hospitals exempt under §501(c)(3) of the Code. This new notice discusses guidelines and implementation of the CHNA and addresses taxpayers’ previous comments to IRS’s previous Notice 2010-39. The IRS anticipates that these guidelines will be incorporated into the regulations to be proposed under §501(r).

Section 501(r) provides that a hospital will not be exempt under §501(c)(3) unless it meets the CHNA requirements. A CHNA must be conducted every three (3) years and the hospital must have adopted an implementation strategy to remedy the needs set forth in the CHNA. Section 501(r)(3)(B) requires that a CHNA take into account input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health. The CHNA is also required to be made widely available to the public. These requirements are effective for tax years beginning after March 23, 2012. Accordingly, for hospitals using a calendar year, these requirements become effective on January 1, 2013.

Notice 2011-52 sets forth tentative conclusions of the IRS in certain specific areas. This is a brief summary of the Notice and is not intended to be comprehensive. The actual Notice should be consulted for more detail.


The IRS indicates that currently the only exempt organizations having to comply with the CHNA requirements are organizations operating state-licensed hospital facilities. These rules would apply to any exempt organization which operates a state-licensed hospital facility directly, or indirectly through a disregarded entity or a joint venture, limited liability company or other entity treated as a partnership for federal income tax purposes.

The Notice mentions that a number of commenters suggested that the CHNA requirements should not apply to hospitals which are part of the government, or a governmental unit or a hospital service district which would otherwise be tax exempt as a government or political subdivision under §115 of the Code notwithstanding the hospital’s tax exempt classification under §501(c)(3). The IRS takes the position that §501(r) applies to all hospitals exempt under §501(c)(3), whether or not they may be owned governments or political subdivisions. Accordingly, the IRS intends to apply the CHNA requirements to every hospital that is been recognized as an organization under §501(c)(3).


An exempt organization owning more than one hospital must meet the CHNA requirement separately with respect to each hospital facility and the organization will not be considered tax exempt with respect to any hospital for which the CHNA requirements are not met. From the Notice, it is clear that the IRS has not determined on how this penalty can be applied to non-compliant hospital facilities owned by organizations exempt under §501(c)(3) which own other hospitals that are CHNA compliant.


A CHNA is a written report including the following information:

(a) A description of the community served by the hospital facility and how the community was determined.

(b) A description of the process and methods used to conduct the assessment. If the hospital collaborates with other organizations in developing the CHNA; the report should identify all of such organizations.

(c) A description of how the hospital considered input from persons who represent the board interests of the community served by the hospital. This includes how and when the hospital consulted these people, whether though interviews, surveys, focus groups or meetings. The report must identify any individual providing input who has special knowledge by name, title, affiliation and qualifications.

(d) A prioritization of the community needs and the basis for prioritizing such needs.

(e) A description of the existing healthcare facilities and other resources within the community available to meet the community health needs identified in the CHNA.


A CHNA must be conducted in every third taxable year. The IRS considers a CHNA as being conducted in the taxable year that the written report of its findings is made widely available to the public. A CHNA must identify and assess the health needs of, and take into account input from persons who represent the broad interests of the community served by the specific hospital facility. The organization may utilize information collected by other organizations, such as public health agencies or non-profit organizations. The organization may conduct a CHNA in collaboration with other organizations, including for profit and governmental hospitals and state and local agencies, such as public health departments.


The IRS expects that a hospital’s community will be defined by geographic location (e.g., a particular city, county, or metropolitan region). But the definition of a hospital’s community may also take into account target populations served (e.g., children, women, or the aged) and/or the hospital’s principal functions (e.g., focus on a particular specialty area or targeted disease).

However, the IRS indicates that the community may not be defined in a manner that circumvents the requirement to assess the health needs of the community served by a hospital facility by excluding, for example, medically underserved populations, low income persons, minority groups or those with chronic disease needs.


A hospital must take into account input from persons who represent the broad interests of the community served by the hospital. The IRS intends to provide that a CHNA must, at a minimum, take into account input from:

(a) Persons with special knowledge of or expertise in public health.

(b) Federal, tribal, regional, state or local health or other departments or agencies, with current data or other information relevant to the health needs of the community served by the hospital.

(c) Leaders, representatives or members of medically underserved, low income and minority populations and populations with chronic disease needs in the community. The hospital, of course, may consult other persons located in and/or serving the community. These people may have certain knowledge or expertise, such as healthcare consumer advocates or academic experts.


Section 501(r) requires that the CHNA be made “widely available to the public”. This requirement can be met by posting the CHNA on the hospitals’ website or the hospital’s organization website, or another website, to which any individual requesting a copy can be directed. The CHNA not only must be posted on a website, but the document must be easily accessible and be easily downloaded from the website. Any CHNA must be available until the subsequent CHNA has been posted in its place.


In addition to the needs report, the hospital must adopt an “implementation strategy” to meet the community health needs identified through the CHNA. The IRS intends to define an “implementation strategy” as a written plan for a hospital facility that addresses each of the community health needs identified through a CHNA for such facility. This written plan must:

(a) describe how the hospital plans to meet the health need; or

(b) identifies the health need as one the hospital does not intend to meet and explains why the hospital does not intend to meet the health need.

The implementation strategy must be tailored to the particular hospital facility and can also outline any planned collaboration with other healthcare organization departments or agencies in meeting the health need. The hospital’s implementation strategy shall be attached to the hospital’s annual Form 990. But a government hospital or hospital service district remains relieved of the obligation to file Form 990s.


The IRS intends to provide that a hospital must adopt an implementation strategy by the end of the same year in which it conducts the CHNA. The IRS intends to consider an implementation strategy as being adopted on the date the implementation strategy is approved by an authorized governing body of the hospital organization. An authorized governing body is generally the board of directors or board of trustees of the hospital organization, but may also be a committee of the governing body provided that under state law, the committee has the authority to act on behalf of the governing body.


Section 4959 imposes a $50,000 excise tax on a hospital organization that fails to meet the CHNA requirements for any taxable year including failing to meet the CHNA requirements for any facility of a hospital organization owning multiple facilities.

Pursuant to IRS Circular 230 and IRS regulations, any federal tax advice contained in this article is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed under the Internal Revenue Code.