Last week, the IRS clarified in a Frequently Asked Questions memo that for-profit healthcare providers who received grants through the COVID-19 Provider Relief Fund must include said payments as part of their gross income under 26 USC 61.

Neither the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which created the $100 billion Provider Relief Fund, nor the Paycheck Protection Program and Health Care Enhancement Act, which added an additional $75 billion to the Fund, specifically provided that receipt of these funds would be taxable, and the announcement came as a surprise to many providers.

The impact of this guidance means that hospitals and some independent physician practice groups who received these funds will be subject to the 21 percent corporate tax rate and will not be able to count them as “qualified disaster relief payments” under 26 USC 139. The IRS further clarified, however, that tax-exempt providers are not subject to a tax if they received Provider Relief Funds unless they were used to reimburse that provider for expenses or lost revenue.