Compliance programs of non-profit hospitals and health systems hould 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
Specific tax changes in the Act
The Act, signed into law on
December 22, 2017, contains several noteworthy tax law changes for tax-exempt
by Michael W. Peregrine and Erika Mayshar
New health system
compliance focus on tax
» The new tax bill reflects increasing Congressional skepticism that non-profit health systems deserve the benefits
of tax-exempt status.
» The IRS’s Exempt Organizations Division appears to be invigorated, based on recent enforcement actions against
» These developments suggest the renewed importance of organizational compliance with tax-exemption standards.
» Recent developments are also a reminder that compliance programs should not be single subject in nature.
» This is an important opportunity for compliance professionals to team with the general counsel and the
organization’s tax advisors.
Michael W. Peregrine ( firstname.lastname@example.org) is a Partner in the Chicago
office and Erika Mayshar ( email@example.com) is a Partner in the Los
Angeles office of McDermott Will & Emery LLP.