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Top 5 501(r) Misses to Avoid

With the final 501(r) regulations released on December 29, 2014, one would think that every tax-exempt hospital should be fully compliant with these regulations by now. However, the IRS continues to perform a review of an organization’s 501(r) compliance at least once every three years. These reviews could be closed without further notice to the organization, or they could lead to a referral for audit. This article will provide you with a basic understanding of the common mistakes to avoid with your organization’s 501(r) compliance so you can decrease the likelihood of an IRS audit examination for 501(r) compliance.

Below are common items that potentially trigger a 501(r) audit examination:

1. Absence of Community Health Needs Assessment (CHNA) on the website and timely adoption.

Hospitals must conduct and timely adopt a CHNA every three years before the end of their respective tax year to ensure compliance with the 501(r) regulations. Part of the CHNA requirements is making the CHNA widely available which includes posting it to the organization’s website. Before this can be posted, it must be adopted by the Board of Directors. Therefore, an organization with 6/30 year-end would need to have their CHNA conducted, adopted by the Board, and posted to their website by June 30, 2020, if they are completing a CHNA for the 2019 tax year. There is no extension available for this requirement. Another important note is that along with the current CHNA, organizations must also make their prior two CHNAs widely available on their website as well.

2. Absence of an Implementation Strategy (I/S) on the website or attached to a currently filed 990 and timely adoption.

The I/S can be considered widely publicized by it being posted to the organization’s website or being attached to the organization’s Form 990 filing each year. The I/S must be adopted by the Board on or before the 15th day of the fifth month after the end of the taxable year in which the organization completes the CHNA. Therefore, the organization used as an example above would have until November 15, 2020, to develop and timely adopt their I/S. The I/S would either need to be shown on the organization’s website by this date or included with the Form 990 filing (but we recommend the I/S showing the adopted date by the Board for either method).

3. Absence of the organizations adopted Financial Assistance Policy (FAP), FAP application, and plain language summary of the FAP on the organization’s website.

We recommend these three items to show as clear, separate links/documents to meet this requirement. If the FAP and FAP application are included in the same file, we recommend clear labeling for a user to tell when one file ends and another begins.

4. Absence of a list of providers (besides the hospital itself).

A list of providers (besides the hospital itself) that deliver emergency or other medically necessary care in the hospital facility should be included. If applicable, which providers are covered by the FAP and which are not should also be specified.

5. News articles/media reports that infer an organization is not following its policies.

Even by ensuring that all internal compliance is completed, the IRS could still open an examination if an organization has received media scrutiny for its 501(r) compliance/practices.


While the above list can help an organization stay in compliance with the 501(r) regulations that could trigger potential audits, there are still many more aspects to the 501(r) regulations that should be implemented and followed including an organization’s FAP, CHNA, I/S, limitation on charges, Billing and Collection Policy, Emergency Medical Care Policy, and more. Blue & Co. can help your organization become compliant with the 501(r) regulations or even give you peace of mind that your organization is already meeting the 501(r) regulations. Please contact your local Blue & Co. advisor for further questions.

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