The Internal Revenue Service announced in a two-page field directive that it will propose regulations to clarify the tax-exempt status of not-for-profit HMOs -- an issue raised in a recent federal court ruling on a health plan owned by Intermountain Health Care, Salt Lake City. The regulations will define "commercial type" insurance and how section 501(m) of the IRS code, which relates to insurers' tax status, applies to tax-exempt 501(c)(3) and 501(c)(4) organizations, including HMOs. Until the regulations are final, the IRS said it will cease to use 501(m) to revoke HMOs' tax-exempt status, with few exceptions. In addition, the IRS will put on hold HMOs' applications for tax exemption, except for existing 501(c)(3) HMOs seeking to switch to a less-stringent (c)(4) exemption.
Questions surfaced about HMOs' tax-exempt status after a federal appellate court ruled that Intermountain's IHC Health Plans was not a 501(c)(3) organization because it did not operate exclusively for charitable purposes. The IRS will publish a formal notice of its plan to propose regulations on May 27. It will accept comments on the contents of the regulations to be proposed until Aug. 25. -- by Mark Taylor