Payments under state's in-home supportive care programs can be excluded from gross income.

• Author: Murad, Jihan

In Letter Ruling 201623003, the IRS ruled that payments made under a state's in-home supportive care programs should be treated as difficulty-of-care payments excludable from the gross income of the care provider under Sec. 131.

The IRS's ruling came in response to a request from a taxpayer (a state department) for a determination whether payments made under a state's in-home supportive programs should be treated the same as payments described in Notice 2014-7 and be excluded from the care provider's gross income.

Description of State Programs

The taxpayer's state's in-home supportive services programs (which the taxpayer directs and oversees) provide care to allow elderly, blind, or disabled individuals to remain safely in their home. There are four programs:

* A program under Section 1905(a) (24) of the Social Security Act (SSA), known as Program A.

* A program under Section 1915(j) of the SSA, known as Program B.

* A program under Section 1915(k) of the SSA, known as Program C.

* A state-funded residual program, known as Program D.

Programs A, B, and C are funded by the state and federal government; Program D is funded solely by the state. Eligibility for each program varies, but they all share the purpose of preventing institutionalization and enabling an eligible individual to be cared for in the home.

Qualifying under Program C requires a determination that if not for the provision of home and community-based attendant services and supports, the individual would require care in a hospital, a nursing facility, an intermediate care facility, or an institution for mental diseases.

Programs A, B, and D provide care to individuals who are at risk of institutionalization. These programs require that an applicant or recipient obtain a certification from a licensed health care professional that the individual is unable to perform one or more daily activities and that, without assistance, the individual is at risk of placement in out-of-home care.

All programs are administered by county welfare departments under the taxpayer's direction and oversight. All programs require state approval and oversight of the care in the provider's home.

The nature of payments is similar under all of the state's in-home supportive care programs, i.e., to provide assistance with the daily activities and personal care services and ancillary services subordinate to personal care services.

Notice 2014-7

Notice 2014-7 provides guidance on the tax treatment of certain...