Industry Insights

501(r) Final Regulations Issued – Exploring 501(r)(3)

January 2015
Author:  Kerry Bejarano

Kerry Bejarano

Senior Managing Consultant


Health Care
Not-for-Profit & Government

201 N. Illinois Street, Suite 700
P.O. Box 44998
Indianapolis, IN 46244-0998 (46204)


On December 29, 2014, the IRS issued final regulations for charitable hospitals as part of the Patient Protection and Affordable Care Act, the law hospitals must comply with to retain their tax-exempt status. These final regulations update and clarify the requirements outlined in the temporary regulations for Internal Revenue Code Section 501(r). This article focuses on changes specific to Section 501(r)(3) – Community Health Needs Assessments.

While hospital facilities still must conduct a community health needs assessment (CHNA) and adopt an implementation strategy based on the health needs identified in the assessment, the final regulations clarify and change documentation and processes to help with preparation of the next cycle of CHNA reports. These modifications include:

  • Adoption of the implementation strategy by an authorized body of the organization must occur on or before the fifteenth day of the fifth month after the end of the taxable year the CHNA was conducted and made widely available to the public.
  • If a hospital facility has multiple buildings operating under the same license, the community served is the aggregate of the areas/populations of each facility.
  • When determining what constitutes a health need, other examples are included for needs that may be considered, e.g., social, behavioral and environmental factors influencing health (rather than choosing a need based solely on financial barriers).
  • The final regulations require evaluation of the impact of actions taken to address significant health needs since the last CHNA report.

Most hospitals completed their initial CHNA during calendar year 2013. As illustrated below, some early adopters will have to complete their next CHNA during calendar year 2015. Even those that didn’t perform their first CHNA early might need to start planning for the second within the next year.

If you have questions regarding the final 501(r)(3) regulations, contact your BKD advisor.

Note:  The requirements covered in this article are just some of those outlined in the final regulations. BKD is offering a complimentary webinar with an expanded discussion regarding these changes and how to prepare your organization for the next CHNA. Visit our registration page for more information.

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