Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 72-22

1972-1 C.B. 21

Sec. 61
Sec. 451

IRS Headnote

"Current financing payments" received under the Medicare Program by persons providing services are payments for services rendered, includible in income of cash method taxpayers for the taxable year received and treated as payments on accounts receivable by accrual method taxpayers.

Full Text

Rev. Rul. 72-22

Advice has been requested regarding the treatment, for Federal income tax purposes, of "current financing payments" received by a taxpayer pursuant to the Medicare Program of the Department of Health, Education, and Welfare as set forth in Title XVIII of the Social Security Act (Health Insurance for the Aged), as amended by Public Law 89-97, July 30, 1965, 42 U.S.C. 1395 et seq.

The taxpayer is engaged in the business of conducting a nursing home facility which participates as an extended care facility in the Medicare Program and reports its income and expenses, for Federal income tax purposes, on a calendar year using the cash receipts and disbursements method of accounting. During 1970, the taxpayer first requested and received 50x dollars under the Medicare Program, pursuant to the "current financing" arrangement of that program.

The specific question is whether the 50x dollars received by the taxpayer is a loan, or is includible in his income for the taxable year in which received.

Pursuant to regulations issued by the Social Security Administration under the Medicare law, hospitals, extended care facilities, and other providers of services may receive, at their option, "current financing payments". Section 405.454(g)(1) of the Federal Health Insurance For the Aged Regulations (20 CFR Chapter III, Part 405) provides that, in addition to the basic procedure for payment to a provider following submission of bills to the intermediary (agent for the Government, usually an insurance company), payment will be made upon request of the provider on a basis designed to reimburse currently for services furnished to the beneficiaries. The amount of such payment is initially computed on an estimated basis and periodically adjusted to represent the average level of services unreimbursed by the basic payment procedure and is designed to put the Medicare Program on a more current basis. See also, section 2410 of the Provider Reimbursement Manual (PRM).

The payments are not intended or made as interest free loans since they are made only after medical services have been provided. There is no authority in the Medicare law or the related regulations, to make payments to providers of services in advance of the rendition of health care services reimbursable under Medicare.

The procedures for obtaining current financing are designed to prevent payment in advance of the rendition of services. The regulations make it clear that such payments are reimbursements for services furnished to beneficiaries. The effect of the current financing payments, in the instant case, is that the taxpayer received payment on either its billed or unbilled accounts receivable which receivable had not been included in income.

In view of the above, a current financing payment is not an interest free loan, but is payment for services rendered. Accordingly, it is held that, in the instant case, the current financing payment of 50x dollars is includible in gross income and in the taxpayer's income in 1970, the taxable year of receipt. Further, in the case of a taxpayer using the accrual method of accounting, such payment is not includible in income for the taxable year in which received since such payment merely represents a payment on accounts receivable that should have already been included in income.