n-14-02.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

# Part III - Administrative, Procedural, and Miscellaneous

## Reliance on Proposed Regulations for Tax-exempt Hospitals

Notice 2014-2

### SECTION 1. PURPOSE

This notice confirms that tax-exempt hospital organizations can rely on proposed
regulations under § 501(r) contained in notices of proposed rulemaking published on
June 26, 2012, and April 5, 2013, pending the publication of final regulations or other
applicable guidance.

### SECTION 2. BACKGROUND

Section 9007 of the Patient Protection and Affordable Care Act, Public Law 111-148
(124 Stat. 119 (2010)), added §§ 501(r) and 4959 to the Internal Revenue Code and
amended § 6033(b) of the Code. These provisions affect organizations that operate
one or more hospital facilities and that are exempt or are seeking exemption from
federal income tax because they are described in § 501(c)(3) of the Code ("hospital
organizations"). Section 501(r)(1) provides that a hospital organization will not be
treated as described in § 501(c)(3) unless the organization meets the requirements of
§ 501(r)(3) through (r)(6).

<!-- PageBreak -->

The statutory requirements of § 501(r) (except for § 501(r)(3)) are effective for a
hospital organization's first taxable year beginning after March 23, 2010. The effective
date for § 501(r)(3) is a hospital organization's first taxable year beginning after March
23, 2012.

On June 26, 2012, the Department of the Treasury ("Treasury Department") and the
Internal Revenue Service (IRS) published a notice of proposed rulemaking in the
Federal Register (REG-130266-11, 2012-32 I.R.B. 126, 77 FR 38148) ("2012 proposed
regulations") that contains proposed regulations regarding the requirements of
§ 501(r)(4), (r)(5), and (r)(6). In addition, § 1.501(r)-1 of the 2012 proposed regulations
contains definitions of "hospital organization," "hospital facility," and other key terms
used in the regulations. The preamble of the 2012 proposed regulations provides that
taxpayers may rely on the 2012 proposed regulations until final or temporary regulations
are issued.

On April 5, 2013, the Treasury Department and the IRS published a notice of
proposed rulemaking in the Federal Register (REG-106499-12, 2013-21 I.R.B. 1111, 78
FR 20523) ("2013 proposed regulations") that contains proposed regulations regarding
the community health needs assessment (CHNA) requirements of § 501(r)(3) and the
related reporting obligations under § 6033 and excise tax under § 4959. In addition, the
2013 proposed regulations provide guidance on the consequences for failing to meet
any of the § 501(r) requirements. The 2013 proposed regulations also make minor
amendments to the definitions of "hospital facility" and "hospital organization" contained
in the 2012 proposed regulations and note that the definitions and concepts contained

<!-- PageBreak -->

in the 2012 proposed regulations generally apply for purposes of the 2013 proposed
regulations. The 2013 proposed regulations provide that a hospital facility may rely on
§ 1.501(r)-3 of the 2013 proposed regulations for any CHNA conducted or
implementation strategy adopted on or before the date that is six months after the date
those proposed regulations are published as final or temporary regulations in the
Federal Register.

A hospital organization must comply with the statutory requirements of § 501(r),
which are already in effect. The 2012 and 2013 proposed regulations and other interim
guidance represent, in the view of the Treasury Department and the IRS, a reasonable
interpretation of the statute. However, hospital organizations will not be required to
comply with the 2012 and 2013 proposed regulations until such regulations are
published as final or temporary regulations.

#### SECTION 3. RELIANCE

Because the preamble to the 2013 proposed regulations did not expressly mention
whether taxpayers could rely on sections other than § 1.501(r)-3 pending the publication
of final or temporary regulations, some commenters have asked whether they can rely
currently on the other sections of the 2013 proposed regulations. The Treasury
Department and the IRS confirm that tax-exempt organizations may rely on all of the
provisions of both the 2012 and 2013 proposed regulations pending the publication of
final or temporary regulations or other applicable guidance. In addition, organizations
may rely on § 1.501(r)-3 of the 2013 proposed regulations for any CHNA conducted or

<!-- PageBreak -->

implementation strategy adopted on or before the date that is six months after final or
temporary regulations are published.

The 2013 proposed regulations make minor amendments to the definitions of
"hospital facility" and "hospital organization" contained in the 2012 proposed regulations.
Tax-exempt hospital organizations may rely on either the definitions in the 2012
proposed regulations or the amended definitions in the 2013 proposed regulations until
final or temporary regulations or other applicable guidance are published. Thus, for
example, in accordance with the definition of "hospital facility" in § 1.501(r)-1(b)(15) of
the 2012 proposed regulations, a hospital organization may, but is not required to, treat
multiple buildings operated under a single state license as a single hospital facility. In
addition, organizations may rely on the definition of what it means to be "operating a
hospital facility" in § 1.501(r)-1(c)(2) of the 2013 proposed regulations - including the
exceptions provided in § 1.501(r)-1(c)(2)(i) and (ii) for certain tax-exempt organizations
that are partners in partnerships that operate hospital facilities - to determine whether
an organization "operates" a hospital facility and is, therefore, subject to the
requirements of § 501(r). Organizations may rely on the two exceptions provided in
§ 1.501(r)-1(c)(2)(i) and (ii) of the 2013 proposed regulations for purposes of the 2013
Form 990, Return of Organization Exempt from Income Tax, and Schedule H, Hospitals,
of the Form 990, notwithstanding the fact that the instructions to the 2013 Form 990 and
Schedule H do not mention these exceptions.

<!-- PageBreak -->

### SECTION 4. DRAFTING INFORMATION

The principal authors of this notice are Garrett Gluth of the Tax Exempt and
Government Entities Division of the IRS and Amber Mackenzie of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However,
other personnel from the IRS and Treasury Department participated in developing this
notice. For further information regarding this notice, contact Mr. Gluth at (202) 317-
8413 or Ms. Mackenzie at (202) 317-5800 (not toll-free numbers).