Hospital loses tax-exempt status over joint venture with for-profit entity

An acute care hospital’s 501(c)(3) status was revoked by the Internal Revenue Service after it entered into a joint venture with a for-profit entity, according to the National Law Review.

While details about the case have been redacted, including the identity of the hospital, it appears the facility leased its land, property and equipment to a for-profit operator specializing in rural hospitals, which also assumed control of the hospital’s operations. The IRS said this meant the for-profit company was deriving private benefits from the hospital operations which weren’t in line with its tax-exempt status.

The arrangement had been going on for quite some time, as the hospital had first transferred management and then operational control to the for-profit operator in the 1990s.

Revoking a hospital’s tax-exempt is very rare. The only other example occurred earlier in 2017, when the IRS stripped nonprofit status from a hospital over its failure to meet requirements on a community health needs assessment.

With more healthcare organizations pursuing joint ventures, the more recent case could be a major influence on partnerships between for-profit and nonprofit entities. Read more at the link below: