The Internal Revenue Service (IRS) does not take the requirement that taxpayers actually stay in compliance with tax laws lightly. This was recently highlighted in a case involving a hospital that lost its charitable status. This translated to a huge cost to the organization, as the hospital lost the tax benefits that come along with the designation.
More on what happened: What exactly did the hospital lose? In certain situations, hospitals can qualify as a 501(c)(3) charitable organization. This qualification allows the entity to take advantage of certain tax benefits. In order to get this designation, the entity must meet certain criteria. A recent publication in Bloomberg BNA discussed the case, noting the hospital is likely accused of failing to serve low-income patients. Due to this failure, it did not meet its obligations as a charitable organization and thus lost its exemptions.
Options for the future: Does the hospital have recourse? In short, yes. The hospital could contest the determination in court. In order to pursue this course of action, the hospital would have to follow certain protocol. As noted in the letter sent to the hospital by the Department of Treasury, contesting the determination would require a suit for declaratory judgment initiated within a specified period of time. In this case, the period of time given in the letter is 91 days.
It is important to note that revocation of a hospital’s exemptions under a 501(c)(3) status can result in revocation of the charitable status. The IRS states that this will be “the most dire of consequences” exercised by the agency.
Moving forward with this type of action is stressful and complicated. A failure to follow proper protocol can make it impossible to fight the determination. As a result, it is wise for businesses that find themselves in these types of situations to seek legal counsel. An experienced attorney can review the determination and help craft a contest to meet your specific case, better ensuring your business interests are protected.