Warren, Grassley Pressure IRS To Crack Down on Nonprofit Hospitals Taking Advantage of Tax Code

Warren, Grassley Pressure IRS To Crack Down on Nonprofit Hospitals Taking Advantage of Tax Code

Many Hospitals Are Not Fulfilling Their Charitable Mission

Over 1,900 non-profit hospitals received $25.7 billion more in tax breaks than they give back to their community.

Text of Letter (PDF)

Washington, D.C. - U.S. Senator Elizabeth Warren (D-Mass.) and Senator Chuck Grassley (R-Iowa), members of the Senate Finance Committee, sent a letter to IRS Commissioner Danny Werfel urging him to strengthen and enforce tax code regulations on nonprofit hospitals, which are still taking advantage of their nonprofit status to pay little to nothing in taxes while failing to provide adequate charity and community care to their communities.

Under IRS rules, nonprofit hospitals may qualify for tax exemptions on the basis of providing charity care and community benefits. However, some nonprofit hospitals are benefiting from these tax exemptions while evading their responsibility to provide charity care - and, in some cases, engaging in abusive collections practices that harm their patients.

"While the promotion of health is an exempt purpose, not every entity that promotes health is entitled to a tax exemption," wrote the senators. "To qualify for a federal tax exemption based on the promotion of health, an organization must 'primarily benefit the community.' We are concerned that some nonprofit hospitals may fall short on this measure."

Medical debt burdens 1 out of every 3 adults in the United States, and unpaid hospital bills account for a significant portion of this debt. However, while roughly 73 percent of U.S. adults with medical debt owe money to hospitals, nearly 3,000 nonprofit hospitals qualify for tax-exempt status as "charitable" organizations, and receive more in tax breaks than they give back to their community.

"To ensure that nonprofit hospitals uphold their charitable missions, we further urge the IRS to strengthen and enforce regulations under Section 501(c)(3) and 501(r) of the tax code that pertain to nonprofit hospitals," concluded the senators.

The senators recommend the IRS implement the following guidance for nonprofit hospitals:

1. Increase oversight of tax-exempt hospitals to ensure consequences for noncompliance with Section 501(c)(3) and 501(r) requirements of the internal revenue code.
2. Establish clear standards for nonprofit hospitals' financial assistance policies and practices.
3. Require that nonprofit hospitals make comprehensive efforts to determine patient eligibility for financial assistance before initiating collections proceedings.
4. Reinstate its previous guidance requiring that nonprofit hospitals provide charity care to the extent of their financial ability.

This follows an August 2023 letter that the senators sent to the Treasury Inspector General for Tax Administration (TIGTA) and the Internal Revenue Service (IRS) requesting an evaluation of nonprofit hospitals' compliance with their tax-exempt requirements and a full examination of existing oversight authorities.

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