## Facts

- The IRS considered a nonprofit community hospital with facts substantially matching a previously described exempt hospital: a 250-bed facility governed by a board of prominent community members.
- Medical staff privileges were available to all qualified area physicians consistent with facility size and scope; the hospital maintained substantial active and courtesy medical staffs.
- The hospital owned an on-premises medical office building; active staff physicians could lease available space at market-comparable rents.
- The hospital generally limited non-emergency admissions to patients able to pay through personal funds, private insurance, or public programs (e.g., Medicare); patients unable to meet financial requirements were ordinarily referred to another hospital serving indigent patients.
- The hospital typically generated annual operating surpluses, which were reinvested in facilities and equipment, debt retirement, patient care improvements, and medical training, education, and research.
- Unlike the prior exempt hospital fact pattern, this hospital did not operate an emergency room.
- A state health planning agency determined that an emergency room at this hospital was unnecessary because it would duplicate emergency services and facilities adequately provided by another medical institution in the community.

## Issues

1. Whether a nonprofit hospital that otherwise satisfies the community-benefit characteristics for § 501(c)(3) exemption may qualify even though it does not operate an emergency room.
2. Whether a state health planning agency’s determination that an emergency room would unnecessarily duplicate adequate existing services supports exemption under the community-benefit standard.

## Decision

- The IRS concluded the hospital qualified for exemption as an organization described in § 501(c)(3).
- The IRS determined that operating an emergency room open to all is not an absolute requirement for hospital exemption.
- The IRS treated the state health planning agency’s finding of unnecessary duplication as justifying the absence of an emergency room in evaluating community benefit.
- The IRS amplified prior guidance to clarify that community benefit is evaluated under all facts and circumstances, and no single factor is dispositive.

## Legal Principles

- An organization qualifies under § 501(c)(3) if it is organized and operated exclusively for charitable purposes, with no inurement of net earnings to private persons.
- Promotion of health is a charitable purpose recognized under Treasury regulations interpreting § 501(c)(3).
- Under the community-benefit standard for hospitals, exemption turns on whether the hospital promotes health for a sufficiently broad community class based on all facts and circumstances.
- Operating an emergency room open to all, regardless of ability to pay, is evidence of community benefit but is not categorically required where public health planning authorities determine that additional emergency capacity would duplicate adequate existing services.
- Reinvestment of operating surpluses into facilities, patient care, and medical education and research supports the absence of private inurement and the hospital’s charitable operation.

## Conclusion

The IRS recognized that a nonprofit hospital can satisfy § 501(c)(3) under the community-benefit standard without operating an emergency room when a state health planning agency has determined that emergency services are already adequately provided elsewhere and a new emergency room would be unnecessary duplication.


Rev. Rul. 83-157, 1983-2 C.B. 94 (1983)