in section 501(c)(3) of the Internal Revenue Code to qualify for tax exemption under section 501(a), but have not sought to be recognized by the IRS as such because they are otherwise fully tax‐exempt under a different provision of the Internal Revenue Code.” While this is true, many such hospitals also obtained recognition of exemption under section 501(c)(3) as “dual status” hospitals.60 The SBA determined that it will treat a nonprofit hospital exempt from taxation as an instrumentality of government as meeting the definition of “nonprofit organization” under section 1102 of the CARES Act “if the hospital reasonably determines, in a written record maintained by the hospital, that it is an organization described in section 501(c)(3) of the Internal Revenue Code and is therefore within a category of organization that is exempt from taxation under section 501(a).” The guidance does not identify what qualifies as such a written record or explain how or why a public hospital that had not sought dual status would maintain such a record. Its rationale for effectively according dual status treatment to non‐dual status hospitals was that it helped accomplish the statutory purpose of ensuring that borrowers “including entities that are helping to lead the medical response to the ongoing pandemic, can benefit from the loans provided under the PPP.”
Having reached this conclusion, however (perhaps because it had consulted with the Secretary of the Treasury, as noted in the FAQ), the SBA then tries to navigate the consequences of such treatment for charitable hospitals that are obligated to satisfy certain standards for addressing community health needs, financial assistance policies, and billing and collection practices.61 It concludes that “for purposes of the PPP, the requirements of section 501(r) do not apply to the determination of whether an organization is “described in section 501(c)(3).”62 And perhaps to further ensure that its unique characterization does not spread further (and to keep the IRS happy), the SBA concludes that the guidance under this FAQ “is solely for purposes of qualification as a ‘nonprofit organization’ under section 1102 of the CARES Act and related purposes of the CARES Act, and does not have any consequences for federal tax law purposes.”63
Subsequently, on December 27, 2020, the President signed into law the Consolidated Appropriations Act, 2021 (“CAA”), which included an additional $900 billion in stimulus relief to address the continuing economic effects of the COVID‐19 pandemic.64 The Act included the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (Division M of the CAA), along with additional COVID‐19 relief provisions (Division N of the CAA). The COVID‐19 relief provisions included additional Paycheck Protection Program funding and the opportunity for second‐draw loans; additional stimulus checks for individuals of $600; extended increased federal unemployment benefits; and funding for vaccines, testing, and healthcare providers.
NOTES
1 16.1 See Additional Statutory Requirements for Hospitals, § 26.2.
2 16.2 IRC § 509(a)(1), § 170(b)(1)(A)(iii).
3 16.3 IRC § 509(a)(2).
4 16.4 For a useful explanation of these issues and the IRS's issue indicators and audit tips for revenue agents examining them, see the related IRS Issue Snapshot, https://www.irs.gov/charities-non-profits/hospital-definition-under-irc-sections-509a1-and-170b1aiii-versus-irc-section-501r.
5 44.1 IRC § 115.
6 44.2 Rev. Proc. 95‐48, 1995‐2 C.B. 418.
7 44.3 IRC § 403(b).
8 44.4 A governmental unit, including a political subdivision, is not treated by the IRS as a dual status entity because it cannot qualify for charitable status.
9 44.5 Rev. Proc. 95‐48, 1995‐2 C.B. 418.
10 44.6 Reg. § 4958‐2(a); 66 Fed. Reg. 2147.
11 44.7 See Notice 2011‐52, I.R.B. 2011‐30 and the Preamble to the IRS § 501(r) regulations at 79 Fed. Reg. 78957.
12 44.8 Rev. Proc. 2019‐5, 2019‐1 I.R.B. 230 § 3.01(12).
13 57 https://www.govinfo.gov/content/pkg/PLAW-116publ136/pdf/PLAW-116publ136.pdf.
14 58 Colin Scholl et al. v. Steven Mnuchin et al.; No. 4:20‐cv‐05309 (DC ND CA, Oct. 14, 2020).
15 59 FAQ 42 (May 3, 2020), https://www.sba.gov/document/support-faq-lenders-borrowers.
16 60 See § 26.10.
17 61 See IRC § 501(r), § 26.10.
18 62 FAQ 42, n. 16.
19 63 FAQ 42.
20 64 https://www.govinfo.gov/content/pkg/BILLS-116hr133enr/pdf/BILLS-116hr133enr.pdf.
CHAPTER NINE Managed Care Organizations
§ 9.3 Commercial‐Type Insurance Providers
§ 9.3
