Proposed IRS Rules to Allow Reporting of Beneficial Environmental Improvements

Feb 7, 2012 by  | Bio |  Leave a Comment

More and more, studies are recognizing the positive benefits of environmental improvements to communities. Now, potential changes to IRS non-profit reporting rules would allow nonprofit hospitals to report the cost of the environmental improvements they make.

IRS Schedule H is a mandatory reporting form introduced by the IRS in 2008. Its purpose is to quantify, in a way that is comparable across institutions, how nonprofit hospitals meet their community benefit obligations and therefore document their tax-exempt status. Schedule H requires hospitals to report on total community benefit and charity care expenses as well as proportion of total institutional spending on these categories. Changes to the reporting rules, released in draft form on December 15, 2011, will allow hospitals to report on costs associated with their community-building activities, such as activities to protect/improve the community’s health or safety.

The rule change now allows hospitals to include activities related to “environmental improvements” if the activity:

1) is provided for the primary purpose of improving community health;

2) addresses an environmental issue known to affect community health; and

3) is subsidized by the organization at a net loss.

The potential implications of this rule change could see a great positive benefit for communities since hospitals would now have additional incentive to implement activities with environmental and community health benefits. CLF Ventures, the market-based strategy consulting arm of Conservation Law Foundation, is encouraged by this rule change.

Working to support local sustainable agriculture by buying local produce, increasing recycling which reduces landfill burdens, or promoting carpooling or public transit to reduce emissions are all potential items that could be documented under these new rules as they support a hospital’s community mission and would be considered environmental improvements. At the same time, the IRS rule change explicitly forbids inclusion of environmental improvement expenses that are “primarily for marketing purposes,” so ostensibly, nonprofit hospitals will have to implement meaningful environmental improvements in order to receive credit for them.

As nonprofit institutions’ tax-exempt status come under increased scrutiny, both in and outside of Massachusetts, nonprofit hospitals will have an interest in augmenting the share of their total expenses that count as “community benefits.” The Affordable Care Act requires nonprofit hospitals to conduct community health needs assessments every three years. The proposed changes to the IRS nonprofit reporting rules provide nonprofit hospitals a new opportunity to include within these needs assessments information about potential improvements to air quality, water, energy systems, etc.—and a new incentive to implement measures that can benefit both the environment and local community health.

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