IRS ruling - Hospital’s laboratory testing meets “unique circumstances” test 

July 15:  The IRS publicly released a technical advice memorandum (TAM), in which it was concluded that a tax-exempt hospital’s income from the performance of medical laboratory services for non-patients is not subject to unrelated business income tax (UBIT). TAM 201428030 (release date: July 11, 2014; dated March 7, 2008)

Read TAM 201428030 [PDF 243 KB]


A hospital located in a rural, medically underserved area provides medical laboratory services both to its own patients and to patients of private physicians who are not hospital patients. While a commercial laboratory is available to serve the needs of the non-patients, the lab is some distance away and cannot provide test results as quickly as the hospital laboratory. The difference in turnaround time could result in serious medical consequences for the individuals involved.

IRS ruling

The IRS found that the commercial laboratory is not within a reasonable distance of the communities served by the hospital and therefore cannot adequately serve their health needs—particularly the needs of patients for timely laboratory testing.

Accordingly, the IRS concluded that the provision of laboratory services by the hospital to non-patients is substantially related to, and contributes importantly to, the hospital’s exempt purpose. Income from the performance of such services is not subject to UBIT.

KPMG observation

The IRS’s general position, as stated in Rev. Rul. 85-110 [PDF 51 KB] is that income from diagnostic laboratory testing performed by a hospital, on non-patients, is subject to UBIT although there may be unique circumstances under which this general rule might not apply. This TAM highlights one such circumstance.

It is interesting to note the emphasis that the IRS places upon the potential medical consequences that might result if the less timely commercial laboratory were used, instead of the hospital laboratory. One wonders whether the IRS would consider this to be a more important factor in the case of an ill or injured patient as opposed to a patient receiving a routine physical examination. This is not addressed in the TAM.

For more information, contact:

Rick Speizman, Partner-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group

+1 (202) 533-3084

©2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International.

KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.

The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Direct comments, including requests for subscriptions, to
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.

Share this

Share this


Current and future KPMG clients may subscribe to TaxNewsFlash email alerts.

Email your contact information.

TaxNewsFlash-Exempt Organizations by year