SECTION 2. BACKGROUND

Section 9007 of the Patient Protection and Affordable Care Act, Public Law 111–148 (124 Stat. 119 (2010)), added §§ 501(r) and 4959 to the Internal Revenue Code and amended § 6033(b) of the Code. These provisions affect organizations that operate one or more hospital facilities and that are exempt or are seeking exemption from federal income tax because they are described in § 501(c)(3) of the Code (“hospital organizations”). Section 501(r)(1) provides that a hospital organization will not be treated as described in § 501(c)(3) unless the organization meets the requirements of § 501(r)(3) through (r)(6).

The statutory requirements of § 501(r) (except for § 501(r)(3)) are effective for a hospital organization’s first taxable year beginning after March 23, 2010. The effective date for § 501(r)(3) is a hospital organization’s first taxable year beginning after March 23, 2012.

On June 26, 2012, the Department of the Treasury (“Treasury Department”) and the Internal Revenue Service (“IRS”) published a notice of proposed rulemaking in the Federal Register (REG– 130266–11, 2012–32 I.R.B. 126, [77 FR 38148]) (“2012 proposed regulations”) that contains proposed regulations regarding the requirements of § 501(r)(4), (r)(5), and (r)(6). In addition, § 1.501(r)–1 of the 2012 proposed regulations contains definitions of “hospital organization,” “hospital facility,” and other key terms used in the regulations. The preamble of the 2012

proposed regulations provides that taxpayers may rely on the 2012 proposed regulations until final or temporary regulations are issued.

On April 5, 2013, the Treasury Department and the IRS published a notice of proposed rulemaking in the Federal Register (REG–106499–12, 2013–21 I.R.B. 1111, [78 FR 20523]) (“2013 proposed regulations”) that contains proposed regulations regarding the community health needs assessment (CHNA) requirements of § 501(r)(3) and the related reporting obligations under § 6033 and excise tax under § 4959. In addition, the 2013 proposed regulations provide guidance on the consequences for failing to meet any of the § 501(r) requirements. The 2013 proposed regulations also make minor amendments to the definitions of “hospital facility” and “hospital organization” contained in the 2012 proposed regulations and note that the definitions and concepts contained in the 2012 proposed regulations generally apply for purposes of the 2013 proposed regulations. The 2013 proposed regulations provide that a hospital facility may rely on § 1.501(r)–3 of the 2013 proposed regulations for any CHNA conducted or implementation strategy adopted on or before the date that is six months after the date those proposed regulations are published as final or temporary regulations in the Federal Register.

A hospital organization must comply with the statutory requirements of § 501(r), which are already in effect. The 2012 and 2013 proposed regulations and other interim guidance represent, in the view of the Treasury Department and the IRS, a reasonable interpretation of the statute. However, hospital organizations will not be required to comply with the 2012 and 2013 proposed regulations until such regulations are published as final or temporary regulations.