HHS Addresses Taxability of Provider Relief Funding
Late on Friday evening (July 10, 2020) and less than a week before the looming July 15, 2020, tax deadline, the Department of Health and Human Services (HHS) finally issued guidance addressing the taxability of Provider Relief Fund (PRF) payments. As with so many of its prior instructions, HHS’ most recent guidance came without notice and without an official public announcement.
Here are the latest highlights for what providers may expect come tax season:
Bottom line, HHS considers a PRF payment includable as gross income under Section 61 of the Internal Revenue Code (the Code). A PRF payment cannot be excluded by a recipient from its gross income as a qualified disaster relief payment under Section 139 of the Code. HHS’ position on this issue is substantially similar to guidance issued recently by the IRS.
Like the IRS, HHS also explained that a nonprofit provider will generally not be subject to tax on its PRF payment. However, if the PRF payment reimbursed the nonprofit provider for expenses or lost revenue attributable to an unrelated trade or business, the PRF payment may be subject to tax under section 511 of the Code.
While we had hoped that PRF payments would be deemed qualified disaster relief payments— similar to the treatment of relief offered previously to victims of natural disasters—it appears that HHS and the IRS have rather definitively closed that door. We recommend that providers contact their tax preparers immediately to discuss the potential tax implications of this latest HHS and IRS guidance.
Our Chambliss team continues to monitor HHS’ guidance, including these FAQs, and other legal impacts of the COVID-19 pandemic. Please contact Mark Cunningham, Courtney Keehan, Jed Roebuck, or your relationship attorney if you have questions or need additional information.
Visit our COVID-19 Insight Center for our latest legislative and legal updates, articles, and resources.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings, and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. In some cases, the underlying legal information is changing quickly in light of the COVID-19 pandemic. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship. Please contact your legal counsel for advice regarding specific situations.