[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.513-6]

[Page 180-181]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.513-6  Certain hospital services not unrelated trade or business.

    (a) In general. Under section 513(e), the furnishing of a service 
listed in section 501(e)(1)(A) by a hospital to one or more other 
hospitals will not constitute unrelated trade or business if--
    (1) The service is provided solely to hospitals that have facilities 
to serve not more than 100 inpatients,
    (2) The service would, if performed by the recipient hospital, 
constitute an activity consistent with that hospital's exempt purposes, 
and

[[Page 181]]

    (3) The service is provided at a fee not in excess of actual cost, 
including straight line depreciation and a reasonable rate of return on 
the capital goods used to provide the service. For purposes of this 
section, a rate of return on capital goods will be considered reasonable 
provided that it does not exceed, on an annual basis, the percentage 
described below which is based on the average of the rates of interest 
on special issues of public debt obligations issued to the Federal 
Hospital Insurance Trust Fund for each of the months included in the 
taxable year of the hospital duringwhich the captial goods are used in 
providing the service. Determinations as to the cost of services and the 
applicable rate of return should be made as prescribed by 42 U.S.C. 
1395x(v)(1) (A) and (B) and the regulations thereunder (permitting a 
health care facility to be reimbursed under the Medicare program for the 
reasonable cost of (its) services, including, in the case of certain 
proprietary facilities, a reasonable return on equity capital). For 
taxable years beginning on or before May 14, 1986, the rate of return 
shall be one and one-half times the average of the rates of interest on 
public debt obligations described above which were in effect on or 
before April 20, 1983.
    (b) Hospital defined. As used in this section the word hospital 
means a hospital described in section 170(b)(1)(A)(iii).
    (c) Example. The provisions of this section are illustrated by the 
following example:

    Example. A large metropolitan hospital provides various services to 
other hospitals. The hospital furnishes a purchasing service to 
hosptials N and O, a data processing service to hospitals R and S, and a 
food service to hospitals X and Y. All the hospitals are described in 
section 170(b)(1)(A)(iii). All the hospitals have facilities to serve 
not more than 100 inpatients except hospital N. The services are 
furnished at cost to all hospitals except that hospital R is charged a 
fee in excess of cost for its use of the data processing service. The 
purchasing service constitutes unrelated trade or business because it is 
not provided solely to hospitals having facilities to serve not more 
than 100 inpatients.
    The data processing service constitutes unrelated trade or business 
because it is provided at a fee in excess of cost. The food service 
satisfies all three requirements of paragraph (a) of this section and 
does not constitute unrelated trade or business.

    (d) Effective date. Section 513(e) and this section apply to taxable 
years beginning after December 31, 1953.

[T.D. 8075, 51 FR 5322, Feb. 13, 1986; 51 FR 8490, Mar. 12, 1986]