Bad Debt Tax Form Gets Another Review from Hospitals

The new tax form for not-for-profit hospitals that requires the spelling out of bad debt, charity care and executive pay is going through one more review, according to an announcement last week by the Internal Revenue Service. The agency said it is giving hospitals until June 1 to comment on its draft instructions for Form 990, Schedule H for tax-exempt organizations to ensure the instructions are clear to the firms that will use the form beginning with their 2009 returns.

The IRS announcement and a link to an email comment letter can be found on its Web site.

The revisions to Form 990 and the addition of Schedule H were born largely out of Iowa Republican Sen. Charles Grassley’s demand that not-for-profit medical providers release more details about their charity care and debt collection practices. Grassley and critics of the tax breaks not-for-profit hospitals receive have questioned if non-profit hospitals provide enough free or discounted care to justify the billions they write off on their taxes.

The IRS announced in December its final revisions to Form 990, which includes Schedule H, (“Tax Change Could Reduce Charity Care by For-Profit Hospitals,” March 5), an itemization form designed specifically for hospitals to provide more details about charity care, bad debt and executive pay.

The American Hospital Association was one of many organizations that complained about the absence of clear instructions for completing the new form. The AHA’s President Rich Umbdenstock said that “absent instructions and worksheets for Schedule H, hospitals will be seriously hampered in their efforts to collect and report the information required.”

Umbdenstock has indicated the association may ask for more time if necessary in transitioning to the new form. Nonetheless, he pledged that the AHA would continue to work with the IRS to monitor hospitals' progress on properly completing the form.

The IRS said previous public comment criticized the form’s lack of term definitions and examples for help in completing difficult portions of the form. Would-be filers also complained that the instructions had ambiguous reporting standards for executive compensation and insufficient guidance to promote uniform reporting practices.

The IRS said the draft instructions address those issues. In addition to including a glossary of terms, the draft instructions include a table to help filers determine how and where to report certain compensation, and many illustrative examples, the IRS said in a press release.