As employers plan for paying various health care reform fees, one question that arises is whether the fees owed are tax deductible. In particular, it has been unclear whether the fees paid pursuant the Affordable Care Act to fund the Patient-Centered Outcomes Research Institute (“PCORI”) would be deductible business expenses under Section 162 of the Internal Revenue Code (the “Code”). On June 7, 2013, the Office of the Chief Counsel of the IRS released a memorandum concluding that, in general, the payment of the PCORI fee should be tax deductible as an ordinary business expense.
Health care reform established PCORI to study medical treatment practices and outcomes in the U.S. To help fund PCORI, health care reform adopted Code sections 4375-4377 which require issuers of specified health insurance policies and sponsors of certain self-insured health plans to pay an annual fee to help fund PCORI, beginning with plan or policy years ending after September 30, 2012. For plan and policy years ending after September 30, 2012, and before October 1, 2013, the applicable dollar amount is $1. For plan and policy years ending after September 30, 2013, and before October 1, 2014, the applicable dollar amount is $2. For plan and policy years beginning on or after October 1, 2014, and before October 1, 2019, the applicable dollar amount is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services. The applicable dollar amount is then multiplied by the average number of lives covered by the plan or policy to come up with the bottom line dollar amount owed. That amount is then reported on IRS Form 720 (which has been updated for this purpose).
The IRS Chief Counsel memorandum opining that these fees generally are deductible business expenses provides helpful additional guidance for employers as they calculate and determine their PCORI fee liability.