The tax-exempt status of more than 550 hospitals appears to be the latest nonprofit segment coming under scrutiny by the Internal Revenue Service.

The IRS sent compliance check questionnaires, asked 80 detailed questions of the hospitals, asking for information about the hospital's operations, billing practices and the pay for top executives. Before the 1970s, hospitals were required to provide charity care to qualify for tax-exempt status, but in recent decades, hospitals have been able to maintain their status as long as they provide benefits to the community in other ways -- ranging from cholesterol screenings to emergency care, or medical research.

The questionnaires came on the heels of recent IRS investigations into the tax-exempt status of credit counselors, and the issuance of new guidance after an examination of political activity by tax-exempt organizations during the 2004 election campaign.

According to published reports, director of the exempt organizations division of the IRS, Lois Lerner, said the questionnaires could be used in deciding whether standards for nonprofit hospitals should be changed or clarified. Lerner said, the agency may decide to conduct formal audits of some hospitals, with a full-scale examination of their records.

The IRS lists about 7,000 entities as nonprofit hospitals and health care organizations; over the past decade less than 400 have been audited. In May 2005, the House Ways & Means Committee held a hearing on the "Tax-Exempt Hospital Sector." During that hearing, politicians discussed the trend of nonprofit hospitals now operating for-profit subsidiaries and a number of states that had found nonprofit hospitals to be abusing their state tax exemptions.

Thursday was the deadline for hospitals to respond to the IRS. survey, but many requested more time. The full 9-page questionnaire is available at www.irs.gov/pub/irs-tege/eo_hospital_questionnaire.pdf.pdf .

Previously on WebCPA:

IRS Takes on Credit Counselors' Tax Exemption (May 17, 2006)

IRS Releases New Guidance for Political Activities (Feb. 27, 2006)

IRS Names Director for Exempt Organizations Division (Dec. 28, 2005)

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