The Effect of the Affordable Care Act on Charitable Hospitals

The New IRC Section 501(r) and the CPA's Role

William A. Bailey, JD, LLM, CPA, and Ronald R. Tidd, PhD, CPA (inactive), and Ryan Cahalan, JD, LLM, MBA

In March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (ACA) into law. Part of the new legislation included the addition of Internal Revenue Code (IRC) section 501(r), “Additional Requirements for Certain Hospitals for Exemption from Tax.” Nearly 60% of hospitals in the United States are tax-exempt under the IRC. The new subsection adds additional requirements for current and future tax-exempt hospitals to keep or receive tax-exempt status. Failure to comply with the IRC section 501(r) requirements can result in monetary penalties, as well as the loss or denial of a hospital's tax-exempt status.