a Form 990 Schedule H conundrum how much of your bad debt might be charity?

Headnote

IRS Form 990 Schedule H requires hospitals to estimate the amount of charity care in their reported bad debt. Are you ready to document this information-and prove it?

Starting with fiscal years that begin in 2009, all U.S. tax-exempt hospitals must complete and submit the entire IRS Form 990 Schedule H. Organized into six parts, Schedule H requires hospitals to:

* Summarize their charity care policies

* Document their community benefits and community building programs

* Identify how they meet community healthcare needs

* Describe other activities or characteristics that the IRS associates with taxexempt status and/or believes important to disclose to the public

Schedule H also requires that hospitals clearly distinguish between charity care (for patients the hospital determines are financially unable to pay all or portions of their bills based on the hospital's financial assistance policy) and bad debt (for patients the hospital determines to have ability to pay but have not).

Much of Schedule H can be completed in a relatively straightforward fashion-by following the instructions, completing accounting worksheets that have been available in various forms for about 30 years, and preparing cogent responses to the open-ended questions in Part VI.

However, the second page of the schedule includes a question that is proving particularly challenging for hospitals to answer. Part III, Section A, Line 3 states: "Enter the estimated amount of the organization's bad-debt expense (at cost) attributable to patients eligible under the organization's charity care policy."

Part III.A.3 emerged from a policy debate about whether bad debt should be counted (in whole or in part) as a community benefit (i.e., in Part I of Schedule H). The question is challenging from multiple perspectives:

* The answers will have policy significance in terms of future community benefit reporting and exemption standards for hospitals.

* Different stakeholders may reach different conclusions regarding the answers.

* The value requested never has been required as a part of routine financial reporting or patient accounting.

* Hospitals will not all use the same method to develop answers.

* No generally accepted methodology has yet been developed.

High-Stakes Issue

Answers to this and other questions on Schedule H may open up the entire patient collection process (including outsourced elements) to examination by the IRS, state...