TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, May 17, 2009

Do Nonprofit Hospitals Deserve Their Tax-Exempt Status?

Laura L. Folkerts (J.D. 2009, Iowa) has published Note, Do Nonprofit Hospitals Provide Community Benefit? A Critique of the Standards for Proving Deservedness of Federal Tax Exemptions, 34 J. Corp. L. 611 (2009).  Here is the Conclusion:

The community benefit standard has been an ineffective measure of the deservedness of nonprofit hospitals to receive tax exemptions. For at least 17 years, many nonprofit hospitals have received tax exemptions greater than the value of the community benefit they provided. The Senate Finance Committee's staff, keenly aware of the ineffectiveness of the community benefit standard, has proposed reforms in this area. The IRS, also aware of the need for improvement in the reporting requirements of § 501(c)(3) hospitals, recently redesigned Form 990 for the first time in nearly 30 years. These actions do not go far enough. Congress needs to enact legislation, substantially based on the Committee staff's proposals, that will ensure § 501(c)(3) hospitals are deserving of their tax exemptions. This legislation needs to define all critical terminology, as recommended in Part IV.B. The IRS needs to strictly enforce this legislation and impose sanctions on all hospitals that violate the standards. Additionally, the IRS needs to refine and strictly enforce its redesigned Form 990. Together, these recommended actions will promote transparency, accountability, and--most importantly--deservedness of tax exemptions.

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