The Internal Revenue Service is expected to unveil by mid-June a major overhaul of its not-for-profit reporting rules, a revamp that may require not-for-profit hospitals to quantify and disclose how much theyre spending on charity care and other community benefits in exchange for their tax exemptions.
The agency will release on its Web site in coming weeks proposed changes to the form, called the 990, which is used by many of the nations private tax-exempt organizations to publicly disclose where their revenue comes from and how they spend it. Specifically, the Form 990 requires those organizations to report such items as operating information and yearly financial figures, including chief executives pay and perks. State attorneys general, public watchdogs and the IRS rely heavily on the form to monitor the nations $3 trillion tax-exempt sector to ensure not-for-profits comply with conditions of their preferential tax treatment and prevent abuse. But the document has been widely criticized as confusing, cumbersome and ineffective as an enforcement tool.
In fact, in a letter last week to U.S. Treasury Secretary Henry Paulson, two prominent senators called the 990 inadequate to encompass vital information regarding major parts of the nonprofit sectorespecially hospitals and universities. Sens. Chuck Grassley, (R-Iowa) and Max Baucus (D-Mont.), urged the IRS to require more detailed questions tailored to the specifics of their fields if transparency and openness are to have real value, they wrote.
Efforts to redesign the Form 990, under way for four years, are expected to yield the most radical overhaul to the tax form in more than 20 years, said IRS spokesman Eric Smith.
Planned changes will pare down and reorganize the form in a bid to eliminate redundant questions, and will introduce new supplemental forms to collect specific data on some activities, such as lobbying, and certain types of tax-exempt organizations or industries, he said.
Smith declined to say whether not-for-profit hospitals will be among those organizations targeted for additional reporting, but healthcare insiders and tax experts said such a move is widely expected.
Once the form is released, the agency is expected to take public comment on the draft for about three months, he said. The redesigned form could be in use by as early as 2008.
Whats less certain is whether the IRS will require disclosure of charity care for needy patients or a tally of additional subsidies for community health and wellness initiatives, and if so, how.