CCA 1349013: Payments to incorporated veterinarians generally require information reporting

Plain-English summary

This Chief Counsel Advice considers whether payments made in the course of a trade or business to a corporation providing veterinary services must be reported under IRC § 6041. It concludes that such payments generally are reportable when they total $600 or more during the year. The corporate-payee exception does not apply because veterinary services are medical and healthcare services for purposes of Treas. Reg. § 1.6041-3(p)(1). Payments outside a trade or business, payments below the annual threshold, or payments covered by another exception may be treated differently.

Ruling snapshot

• Question: Are payments of $600 or more to a corporation providing veterinary services subject to information reporting under IRC § 6041?
• Outcome: advice given, generally yes
• Key authorities: IRC §§ 6041, 6041A, and 4191(b)(1); Treas. Reg. § 1.6041-3(p)(1)

Full text (IRS public release)

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Office of Chief Counsel
Internal Revenue Service
memorandum
Number: 201349013
Release Date: 12/6/2013
CC:PA:01:LRPounders Third Party Communication: None
POSTS-131336-13 Date of Communication: Not Applicable

UILC: 6041.00-00, 6041.06-00, 6041A.05-00

date: October 24, 2013

 to:   Trudee L. Brillo,
       Senior Program Analyst
       (Tax Exempt & Government Entities)

from: Bridget E. Tombul,
Senior Technical Reviewer
(Procedure & Administration)

subject: Information reporting with respect to payments made to veterinary corporations

       This Chief Counsel Advice responds to your request for assistance. This advice may
       not be used or cited as precedent.

       ISSUES

       Do payments made by a taxpayer in the course of his or her trade or business to a
       veterinarian operating as a corporation have to be reported to the IRS under Internal
       Revenue Code (“IRC” or “Code”) § 6041?

       CONCLUSIONS

       Generally, yes. Payments made by a taxpayer in the course of the taxpayer’s trade or
       business to an incorporated veterinarian must be reported to the IRS to the extent the
       payments aggregate to $600 or more per year. Incorporated veterinarians are not
       exempted from the reporting requirement by Treas. Reg. § 1.6041-3(p)(1) because
       veterinarians are “engaged in providing medical and healthcare services” for the
       purposes of Treas. Reg. § 1.6041-3(p)(1).

       BACKGROUND

       Section 6041 of the Code generally requires taxpayers to file annual information returns
       for payments made in the course of the taxpayer’s trade or business, to the extent those

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payments amount to $600 or more in aggregate.1 In order to be subject to § 6041
reporting, two initial criteria must exist. First, the payment must be reported if it is made
in the course of the taxpayer’s trade or business, and second, the sum of the payments
made to the payee must amount to $600 or more in that year.

Many payments to veterinarians will not be subject to § 6041 reporting because they are
either not made in the course of the taxpayer’s trade or business, or because they do
not amount to $600 in a given year. For instance, a payment to a veterinarian to
vaccinate the family pet is probably not subject to § 6041 reporting because it is not
made in the course of a trade or business. However, there are many other instances
where veterinarian services are procured for animals used in the course of a taxpayer’s
trade or business and will exceed $600 a year. Examples of a trade or business that
might utilize veterinary services include animal farmers, ranchers, zoos, pet shops, etc.
Payments made to veterinarians in the course of the taxpayer’s trade or business which
amount to $600 or more in a given year are subject to information reporting under
§ 6041, unless an exception applies.

Treasury Regulation § 1.6041-3 provides several exceptions from information reporting
under § 6041 for certain types of payments. In particular, Treas. Reg. § 1.6041-3(p)
provides exceptions for payments made to certain payees, such as certain corporations,
tax exempt entities, and government entities. Under Treas. Reg. § 1.6041-3(p)(1),
payments made to corporations described in Treas. Reg. § 1.6049-4(c)(1)(ii)(A) are
generally exempted from the reporting requirement. However, under Treas. Reg.
§ 1.6041-3(p)(1) corporations “engaged in providing medical and healthcare services”
are not exempted from the reporting requirement. Veterinary practices are operated
through many types of business entity including corporations.

The analysis below addresses whether the exception for payments to corporate payees
should apply to otherwise reportable payments made to a corporation providing
veterinary services.

LAW AND ANALYSIS

To determine whether a corporation that renders veterinary services is an excepted
payee under Treas. Reg. § 1.6041-3(p)(1), we must determine whether a veterinarian is
“engaged in providing medical and healthcare services” for purposes of Treas. Reg.
§ 1.6041-3(p)(1).2

1
Our analysis turns on our interpretation of Teas. Reg. § 1.6041-3 which applies equally to both §§ 6041
and 6041A. See IRS Notice 2001-38 (stating that Treas. Reg. § 1.6041-3 also applies to IRC § 6041A);
see also proposed Treas. Reg. § 1.6041A-1(d) (proposed January 7, 1986). Therefore, the analysis
applies equally to information reporting required under either IRC § 6041 or 6041A.
2
Note that this analysis is limited to the applicability of the general corporate exception; a veterinarian
corporation may still be an exempt payee under a different exception.
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The words “medical” and “healthcare” typically refer broadly to the prevention,
diagnosis, treatment, and management of disease, illness, or injury by a professional.
See, e.g. American Heritage Dictionary of the English Language (Houghton Mifflin
Harcourt Publ’g Co., 5th ed. 2011) (defining “medical” as “of or relating to the study or
practice of medicine,” defining “medicine” as “the science and art of diagnosing and
treating disease or injury and maintaining health,” and defining “healthcare” as “the
prevention, treatment, and management of illness and the preservation of mental and
physical well-being through the services offered by the medical and allied health
professions”). The language of Treas. Reg. § 1.6041-3(p)(1) does not restrict the terms
“medical” or “healthcare” to services performed on humans.

The common definition of “veterinarian” is a professional engaged in the prevention,
diagnosis, and treatment of animal diseases and injuries. See e.g., Id. (defining a
veterinarian as “a person who practices a branch of medicine that deals with the
causes, diagnosis, and treatment of diseases and injuries of animals, especially
domestic animals.”); BUREAU OF LABOR STATISTICS, U.S. DEP’T OF LABOR, Occupational
Outlook Handbook: Veterinarians (2012-13 Edition) available at
http://www.bls.gov/ooh/healthcare/veterinarians.htm (listing veterinarians under
“healthcare” and defining a veterinarian as someone whose profession it is to
“diagnose, treat, or research diseases and injuries of animals.”). Reading these
definitions together, a veterinarian’s services squarely fall within the scope of what are
generally considered medical and healthcare services.

Congress and the IRS have historically included veterinarians in the field of medical and
healthcare services, and specifically excluded veterinarians when exclusion was
intended. For example, in Rev. Rul. 91-30 the IRS determined that veterinarians are in
the “field of health” and should be included within the meaning of “similar healthcare
providers” akin to doctors, nurses, and dentists, for purposes of defining a Personal
Service Corporation. As an example where Congress intended to exclude veterinarians
from a consideration of what is considered “medical, Congress specifically limited the
definition of “medical device” in IRC § 4191(b)(1) to devices “intended for humans.”
Under Treas. Reg. § 1.6041-3(p)(1) the language does not limit the terms “medical” or
“healthcare” to services intended to treat humans. Accordingly, we conclude that a
corporation providing veterinary services is “engaged in providing medical and
healthcare services,” for purposes of Treas. Reg. § 1.6041-3(p)(1), and is therefore not
excepted from the information reporting requirement of IRC § 6041 as a corporate
payee.

CASE DEVELOPMENT, HAZARDS AND OTHER CONSIDERATIONS

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