Rev. Rul. 83-157
1983-2 C.B. 94.
Internal Revenue Service
HOSPITALS; NONPROFIT; NO EMERGENCY ROOMS
Published: October 17, 1983
26 CFR 1.501(c)(3)-1: Organizations organized and operated for religious,
charitable, scientific, testing for public safety, literary, or educational
purposes, or for the prevention of cruelty to children or animals
Hospitals; nonprofit; no emergency rooms. A nonprofit hospital that is
not required to operate an emergency room where a state or local health
planning agency has found that this would unnecessarily duplicate emergency
services and facilities that are adequately provided by another medical
institution in the community is exempt under section 501(c)(3) of the Code.
Rev. Rul. 69-545 amplified.
Does the nonprofit hospital described below qualify for exemption from
federal income tax as an organization described in section 501(c)(3) of the
Internal Revenue Code?
A nonprofit hospital is identical to Hospital A, described in Situation 1
of Rev. Rul. 69-545, 1969-2 C.B. 117, except that it does not operate an
emergency room. A state health planning agency has determined that the
operation of an emergency room by the hospital is unnecessary because it
would duplicate emergency services and facilities that are adequately
provided by another medical institution in the community. The facts of
Situation 1 of Rev. Rul. 69-545 are as follows:
Hospital A is a 250-bed community hospital. Its board of trustees is
composed of prominent citizens in the community. Medical staff privileges
in the hospital are available to all qualified physicians in the area,
consistent with the size and nature of its facilities. The hospital has
150 doctors on its active staff and 200 doctors on its courtesy staff. It
also owns a medical office building on its premises with space for 60
doctors. Any member of its active medical staff has the privilege of
leasing available office space. Rents are set at rates comparable to those
of other commercial buildings in the area.
The hospital operates a full time emergency room and no one requiring
emergency care is denied treatment. The hospital otherwise ordinarily
limits admissions to those who can pay the cost of their hospitalization,
either themselves, or through private health insurance, or with the aid of
public programs such as Medicare. Patients who cannot meet the financial
requirements for admission are ordinarily referred to another hospital in
the community that does serve indigent patients.
The hospital usually ends each year with an excess of operating receipts
over operating disbursements from its hospital operations. Excess funds are
generally applied to expansion and replacement of existing facilities and
equipment, amortization of indebtedness, improvement in patient care, and
medical training, education, and research.
LAW AND ANALYSIS
Section 501(c)(3) of the Code provides for the exemption from federal
income tax of organizations organized and operated exclusively for
charitable purposes, no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
Section 1.501(c)(3)-1(d)(2) of the Income Tax Regulations provides that
the term "charitable" is used in section 501(c)(3) of the Code in its
generally accepted legal sense. In the general law of charity, the
promotion of health is considered to be a charitable purpose. Restatement
(Second) of Trusts, 368, 372; Bogert, Trusts and Trustees, 374(rev.2d ed.
1977); IV Scott on Trusts, 368, 372 (3d ed. 1967). This principle is
recognized by the Service in Rev. Rul. 69-545.
Section 1.501(c)(3)-(d)(1)(ii) of the regulations provides that an
organization is not organized or operated exclusively for charitable
purposes unless it serves a public rather than a private interest. An
organization that promotes the health of a limited class of beneficiaries
is serving the private interests of these individuals rather than a public
interest, and therefore is not organized and operated exclusively for a
charitable purpose. IV Scott on Trusts 372.2 (3d ed. 1967). However, the
promotion of health, like the relief of poverty and the advancement of
education and religion, is one of the purposes in the general law of
charity that is deemed beneficial to the community as a whole even though
the class of beneficiaries eligible to receive a direct benefit from its
activities does not include all members of the community. The class must
be sufficiently large, however, so that the community as a whole benefits.
Restatement (Second) Trusts, 368, comment (b) and 372, comment (b) and (c);
IV Scott on Trusts 368, 372.2 (3d ed. 1967). (See Rev. Rul. 69-545.)
In Rev. Rul. 69-545, after examining all the facts, it was determined
that Hospital A promoted the health of a class of persons that was broad
enough to benefit the community. A major factor in this determination was
the operation by Hospital A of an emergency room open to all persons
regardless of ability to pay.
Generally, operation of a full time emergency room providing emergency
medical services to all members of the public regardless of their ability
to pay for such services is strong evidence that a hospital is operating to
benefit the community. Nevertheless, there are other significant factors
that may be considered in determining whether a hospital promotes the
health of a class of persons broad enough so that the community benefits.
The hospital in this case does not operate an emergency room because the
state health planning agency has made an independent determination that
this operation would be unnecessary and duplicative. Consequently, the
hospital is unable to rely on the operation of an emergency room open to
all regardless of ability to pay as strong evidence that the hospital
promotes the health of a sufficiently broad class of persons to benefit the
community. Other significant factors, however, including a board of
directors drawn from the community, an open medical staff policy, treatment
of persons paying their bills with the aid of public programs like medicare
and medicaid, and the application of any surplus to improving facilities,
equipment, patient care, and medical training, education, and research,
indicate that the hospital is operating exclusively to benefit the
Certain specialized hospitals, such as eye hospitals and cancer
hospitals, offer medical care limited to special conditions unlikely to
necessitate emergency care and do not, as a practical matter, maintain
emergency rooms. These organizations may also qualify under section
501(c)(3) if there are present similar, significant factors that
demonstrate that the hospitals operate exclusively to benefit the
Based on these facts, the nonprofit hospital described above qualifies
for exemption from federal income tax as an organization described in
section 501(c)(3) of the Code.
Even though an organization considers itself within the scope of this
revenue ruling, it must file an application on Form 1023, Application for
Recognition of Exemption, in order to be recognized by the Service as an
organization described in section 501(c)(3) of the Code. See sections
1.501(a)-1 and 1.508- 1(a) of the regulations. In accordance with the
instructions to Form 1023, the application should be filed with the
District Director of Internal Revenue for the key district indicated
EFFECT ON OTHER REVENUE RULINGS
Rev. Rul. 69-545 is amplified.
Rev. Rul. 83-157, 1983-2 C.B. 94.