How can a big hospital system qualify as a nonprofit?

Minneapolis Nonprofit and Tax-Exempt Organizations attorney Greg Larson shares how big healthcare providers can be considered nonprofits.

Contact Greg Larson

Email: [email protected]

Phone: (612) 632-3276


Well, the defining difference between a nonprofit hospital and a for-profit hospital is that the nonprofit hospital is required to adhere to something called the Community Benefit Standard. That’s an idea that’s been around for a long time and, in fact, was defined by the IRS way back in 1969. And they issued a revenue ruling that kind of established a multi-factor test for what a nonprofit hospital was expected to do in its community in order to kind of earn its tax-exempt status. And the sort of factors that go into that is that the nonprofit hospital is expected to have an open emergency room that will service kind of everyone who needs – has a need, that it will have a board that is made up of representatives of the community, as opposed to the private interest of the hospital. And that it will, again, reinvest any profit that the hospital makes into programs that are expected to kind of increase access of the public to healthcare and improve quality of care.

More recently, with the passage of the Affordable Care Act, some of these rules have been made officially part of the tax code. So now a nonprofit hospital is expected to do what’s called a community needs assessment every three years. And that helps to kinda shape and focus the sorts of community programming that the hospital does. And then the nonprofit hospital also has to report on its activities that were done for the community benefit in its annual IRS filing, which is called the Form 990.