The Internal Revenue Service released Form 990 on December 20, 2007. The form retains the draft format of a core form and includes a series of schedules to obtain information from tax-exempt organizations identified as hospitals under Illinois law. All facilities licensed or certified as hospitals under state law must complete Schedule H. Fortunately, the IRS is providing transitional relief for Schedule H. For the 2008 tax year (returns filed in 2009), only basic identifying information will be required. Completion of all other parts of the new form is optional but will be required for the 2009 tax year (returns filed in 2010) and beyond.

Schedule H still requires hospitals to report on an entity-by-entity or EIN basis. But the final form includes several modifications. Bad debt expenses, Medicare shortfalls and community building activities are excluded from Part I of Schedule H. However, other sections of Schedule H have been redesigned to help determine whether such expenses should be treated as community benefits. Part III of Schedule H includes additional reporting of bad debt and Medicare shortfall information to allow organizations to explain what portion of those expenses should be considered a community benefit. Part II of Schedule H permits the reporting of community building and asks organizations to help the IRS understand what building activities should be considered community benefits.

There was universal opposition to the billing table in the draft Form 990. Many hospitals did not keep records in the draft format. Others were concerned the information was proprietary and that disclosure might violate contracts with insurance companies or create a competitive disadvantage. The final version of Form 990 eliminates the billing and revenue table.

The new Form 990 adds Schedule O, which is designed to allow supplemental explanations and narrative responses to the form’s questions. In addition, space is added for the submission of information not required by the form. The IRS continues to study the feasibility of attachment of PDF items or links to websites.

The new Form 990 also phases in Schedule K, for tax-exempt bonds. Healthcare organizations will need to report basic identifying information for tax year 2008. Full compliance is deferred to tax year 2009. Reporting for bonds issued before 2003 is eliminated.

The IRS plans to release instructions for the new Form 990 in early 2008. For more information, please contact Victoria R. Glidden at 815-490-4914 or your regular Hinshaw attorney.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.