Tax Alert: IRS Chief Counsel Advice Requires Inclusion of EHR Incentive Payments as Income

The Electronic Health Record (EHR) Incentive Program was created by the American Recovery and Reinvestment Act. The goal of the program is to improve health care quality and efficiency by encouraging health care providers to record patient data electronically. Providers that demonstrate "meaningful use" of EHR technology can receive annual incentive payments from the Center for Medicaid Services (CMS) under the EHR program. Providers must demonstrate meaningful use by meeting specific guidelines outlined by CMS, such as issuing prescriptions electronically or electronically checking for drug interactions. CMS makes these payments based on the demonstration of meaningful use by individual providers rather than their practices.

CMS has stated that these payments are an incentive to encourage providers to record patient data electronically and not a reimbursement of the cost of implementing EHR technology. For this and other reasons, in a recent Chief Counsel Advice announcement, the IRS has concluded that these payments are includable as gross income and are not considered to be a return of capital. If a provider receives an incentive payment and is required to remit that payment to another entity, such as their practice, the payment is not considered gross income of the provider.

The IRS further concluded that CMS must report the amount of the annual incentive payment paid to each recipient on a Form 1099. CMS has a reporting obligation to the recipient of the payment and not to the party whom is responsible for including the amount as gross income (such as the provider's practice group).

If you receive a Form 1099 for such payment, we recommend contacting Michael LoVerde, CPA, Shareholder at Wilkin & Guttenplan PC to determine the proper treatment. Michael can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or 732 846 3000 

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