The payments are incentives, not reimbursements


The Office of the Chief Counsel has determined in an advice letter to an IRS office that incentive payments to doctors and hospitals that use electronic health records are taxable income to the recipients.

The Centers for Medicare & Medicaid Services (CMS) makes incentive payments to individual providers (or to a hospital), not to practices or groups. Each member of a practice who demonstrates meaningful use of electronic health records (EHRs) may receive a payment. CMS may pay as much as $44,000 a year for five years.

The chief counsel determined that the incentive payments from CMS are taxable payments for services because they are based on meaningful use of EHRs and do not reimburse providers for expenses incurred in establishing EHRs.

The chief counsel concluded that, if recipients act as agents or conduits for their practice groups and have agreed to turn over the incentive payments to the practice groups, the assignment of income doctrine does not apply and the payments are gross income to the practice groups. (CCA 201307005)