Hospital loses tax-exempt status after inking JV with for-profit company

The IRS revoked an acute care hospital's tax-exempt status after the hospital entered into a joint venture agreement with a for-profit company, according to The National Law Review

Various details have been redacted from the recently released final adverse determination letter, including the hospital's name, but the letter is clear that the hospital lost its 501(c)(3) status for entering into a lease agreement in a manner that was incongruent with its tax-exempt status.

According to the IRS, the nonprofit hospital leased its property, land and equipment to the for-profit entity. The hospital also gave control of its operations to the for-profit.

The IRS noted that to keep its tax-exempt status, a hospital must retain control of the joint venture when entering into an agreement with a for-profit entity, which the hospital in this situation failed to do.

Although the for-profit company agreed to maintain the hospital's charity care policies, the IRS revoked the hospital's tax-exempt status because the facility was not operated exclusively for a tax-exempt purpose. The IRS determined the lease agreement resulted in the for-profit entity deriving private benefit that is inconsistent with tax exemption, according to the report.

Read the full National Law Review article here.

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