IRS Releases Final Schedule H Form for Not-for-Profit Hospitals

It’s official. Beginning next year, not-for-profit hospitals will have to disclose how much money they spend on free care and discounted care, and detail expenses directly related to unpaid medical bills.

The Internal Revenue Service said Tuesday that its revised instructions for tax-exempt organizations are complete and that hospitals and most charities must file an annual informational return to maintain their tax-exempt status. 

The IRS revised the form after public comment criticized its lack of term definitions and examples that would help filers complete difficult portions of the form. Organizations affected by the changes also complained that the instructions had ambiguous reporting standards for executive compensation and insufficient guidance to promote uniform reporting practices.

"The revised form will give the IRS and the public a much better view of how exempt organizations operate,” the agency said in a press release. “The improved transparency provided by these changes will also benefit the tax-exempt community.”

The revisions to Form 990 and the addition of Schedule H stem largely from Iowa Republican Sen. Charles Grassley’s demand that not-for-profit medical providers disclose more details about their charity care and debt collection practices. Grassley and critics of the tax breaks non-profit hospitals receive have questioned if not-for-profit hospitals provide enough free or discounted care to justify the billions they write off each year on their taxes. The IRS said the information on Form 990 and Schedule H, which was designed specifically for hospitals, will be made available to the public.

In addition to hospitals’ charity care, bad debt expense and collections practices, hospitals will have to report how it governs and compensates its directors, trustees, key employees and independent contractors, as well as any additional compensation to certain employees, such as expenses paid for business associations and social clubs. 

The IRS said Schedule H must be completed by organizations that operate one or more facilities licensed or registered as a hospital under state law.  The IRS also said the revised instructions feature several new tools that make it easier to answer questions line-by-line to promote uniform reporting.

“Input from the tax-exempt community played a major role in how the new instructions were designed.” the IRS said