Rev. Proc. 2015-21: Section 501(r) compliance; corrections, disclosures by hospitals

Rev. Proc. 2015-21: Section 501(r)

The IRS today released an advance copy of Rev. Proc. 2015-21, setting forth guidance regarding correction and disclosure procedures for hospital organizations to follow so that certain failures to meet the requirements of section 501(r) will be excused.


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The regulations under section 501(r) provide rules whereby a hospital facility will not lose its tax-exempt status due to a failure to meet the requirements of section 501(r) if such failure was not willful or egregious and was corrected and disclosed in accordance with further guidance to be issued by the government.

Rev. Proc. 2015-21 [PDF 44 KB] provides such guidance, adopting—with certain changes—the proposed guidance set forth in Notice 2014-3.


Under Rev. Proc. 2015-21, a “correction” must be made in accordance with the following principles:

  • To the extent reasonably feasible, a correction is to be made with respect to each affected person and must restore such person(s) to the position they would have been in had the failure not occurred.
  • The correction is to be reasonable and appropriate for the failure.
  • The correction is to be made as promptly after discovery, as is reasonable.
  • The hospital organization is to establish or modify (as necessary) practices and procedures reasonably designed to achieve each hospital facility’s compliance with section 501(r), to the extent not already in place.

The revenue procedure provides several examples of correction.

A failure is “disclosed” by providing the following information the hospital organization’s Form 990, Return of Organization Exempt from Income Tax, for the tax year in which the failure is discovered:

  • A description of the failure
  • A description of the correction made
  • A description of the practices and procedures that were revised or newly established

Changes from the proposed guidance include the following:

  • Numerous modifications to conform to the regulations, including two examples of minor omissions and errors
  • A clarification that the correction principle requiring restoration of affected individuals applies only to failures to meet the requirements of sections 501(r)(4)(A), (r)(5), or (r)(6)—relating to financial assistance policies, limitation on charges, and billing and collection
  • A requirement to estimate the number of persons affected and the dollar amounts involved, while deleting the requirement to describe the practices and procedures that were in place prior to the occurrence of the failure to detect or prevent the type of failure that occurred
  • A clarification to aggregate in a summary multiple errors of the same type and the corrections of those errors
  • A deletion of the requirement to describe the discovery of the failure
  • A provision that hospital organizations that do not have a Form 990 filing requirement may disclose their failures and corrections on a website

A hospital organization may use the provisions of the revenue procedure, if contacted by the IRS regarding an examination of the organization, if correction has begun and disclosure has occurred (unless the hospital organization’s Form 990 is not yet due).

Rev. Proc. 2015-21 is effective on and after March 10, 2015. In addition, a hospital organization will be considered to have corrected and made disclosure if it corrected and disclosed a failure falling within the scope of this revenue procedure or Notice 2014-3 in a manner consistent with this revenue procedure or in accordance with Notice 2014-3 prior to March 10, 2015.

Rev. Proc. 2015-21 will be published in Internal Revenue Bulletin 2015-13 on March 30, 2015.


For more information, contact:

Rick Speizman | +1 (202) 533-3084 |

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