State disability-support payments qualified for the general welfare exclusion

Plain-English summary

A state agency funded services and items that helped people with intellectual or developmental disabilities remain at home while waiting for Medicaid waiver support. Eligible recipients had to be on the waiver wait list, lack other public funding, and live in their own or a family home. Funds could cover respite care, transportation, assistive technology, home modifications, emergency housing costs, medical expenses, and similar support, with reviews to ensure approved use. Recipients performed no services in exchange for the payments. The IRS ruled that the need-based payments promoted general welfare and were excluded from recipients' gross income, so the agency did not have to file section 6041 information returns for them.

Ruling snapshot

• Question: Were the state program payments excluded from income, and did the agency have to report them?
• Outcome: Approved, the payments were excluded and no section 6041 information returns were required.
• Key authorities: IRC §§ 61(a), 6041; Treas. Reg. § 1.6041-1; general welfare doctrine

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201743010                                              Third Party Communication: None
Release Date: 10/27/2017                                       Date of Communication: Not Applicable
Index Number: 61.00-00, 61.40-00, 6041.08-
              00                                               Person To Contact:
                                                               -------------------------, ID No. -----------------
--------------------------                                     ---------------------------------------------------
---------------------------------                              Telephone Number:
--------------------------------------------------------       ----------------------
---------------------------------------                        Refer Reply To:
-----------------------------                                  CC:ITA:B05
------------------------------------------                     PLR-104964-17
                                                               Date:
                                                               July 28, 2017




LEGEND:

Agency            =         -----------------------------------------------------------------------------------------
                  --------------------------------------------------------------------------------------------
----------------------------------------

State             =        -------------------------------------

Program           =        -----------------------------------------------------

Act               =        ------------------------------------------------

Dear ------------------:

This letter responds to your ruling request submitted on behalf of Agency by letter dated
February 2, 2017. You requested a ruling on whether certain payments Agency will
make under its Program to allow individuals with intellectual or developmental
disabilities to receive services and support at home or at a community-based facility are
excludable from the individual’s gross income under the general welfare doctrine.
Further you asked whether the Agency is required to file information returns for
payments made under the Program described below.

                                                 FACTS

The Agency is a state agency established in the executive branch of the government of
State. The purpose of the Program is to support the continued residence of individuals
with an intellectual or a developmental disability, in their own homes or their families’
homes, and to prevent placement in an institution. Under Act, Medicaid Home and
Community Based Services waivers (“Medicaid waiver”) for individuals with intellectual
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and developmental disabilities provide opportunities, for individuals who otherwise
would require care in an institution, to receive services and support at home or in
another community-based setting. Funds available to individuals and families through
the Program serve a similar purpose; supporting the individuals so that they can avoid
institutional placement and continue living in their own or their families’ homes while
awaiting a Medicaid waiver.

Funds for the Program are appropriated by State’s legislative body and implemented by
the Agency. Based on funding availability, the Agency establishes an annual individual
financial support limit, which is the maximum amount of the Agency disbursements an
individual can receive from the Program each year. Disbursement may be provided in
varying amounts up to that limit. Individuals and family members may submit
applications for the Program during the announced funding period. Applications are
considered by the Agency on a first-come, first-served basis until the annual allocation
appropriated to the Program by the State for the applicable year has been expended.

The disbursements are to pay for services and support, such as respite, transportation,
behavioral consultation, and behavior management; assistive technology and home
modifications that directly support the individual; emergency assistance with rent or
utilities; dental or medical expenses of the individual; emergency assistance and crisis
support; and other direct support services needed to support continued residence of the
individual in the community and reduce risk of institutionalization.

Eligibility for the Program is established by demonstrating (1) that an individual is on the
statewide Medicaid waiver wait list; (2) other public funding sources were explored but
are not available to purchase the requested services or items; and (3) the individual is
living in his or her own home or a family home. Eligibility for the statewide Medicaid
waiver wait list is established by demonstrating (1) that the individual has an intellectual
or developmental disability, and (2) that the individual is at risk of being placed in an
institutional intermediate care facility.

Individuals and families seek assistance from the Program after exhausting other
sources of public support. They are generally informed of the Program upon placement
on the Medicaid waiver wait list. The individuals and families seek assistance to pay for
the additional costs for an individual with intellectual or developmental disability beyond
the normal living expenses, which add financial stress on the individual or their family.
Thus, the Program helps reduce the economic hardship inherent in assisting these
individuals, and their family members, to continue living at home.

Once the Agency approves a request for funds, the funds are distributed by the
Program directly to the individual or family member, or on behalf of the individual. All
Program funds must be exclusively used for approved services and items. There is no
expectation or requirement that the individual or the family member perform any
services as a condition for receiving the payments.
PLR-104964-17                                3


The Agency conducts post-funding reviews to verify that the funds are used in the
manner and for the services and items initially approved. Funds inappropriately used
are subject to recovery, and future funding requests may be denied.

                                  LAW AND ANALYSIS

Under § 61(a) of the Internal Revenue Code, except as otherwise provided in subtitle A,
gross income includes all income from whatever source derived. The Internal Revenue
Service has consistently concluded, however, that certain payments to individuals by
governmental units under legislatively provided social benefit programs for the
promotion of the general welfare of the public (i.e., based on need) are not includible in
a recipient’s gross income (general welfare exclusion).

To qualify under the general welfare exclusion, payments must (i) be made from a
governmental fund, (ii) be for the promotion of general welfare (i.e., generally based on
individual or family needs such as housing, education, and basic sustenance
expenses), and (iii) not represent compensation for services. See, e.g., Rev. Rul. 57-
102, 1957-1 C.B. 26, (general welfare exclusion applies to payments to the blind); Rev.
Rul. 78-46, 1978- 1 C.B. 22 (general welfare exclusion applies to debt forgiveness for
public safety officers killed in the line of duty); Rev. Rul. 75-246, 1975-1 C.B. 24
(general welfare exclusion applies to amounts paid in connection with job training for
economically disadvantaged); and Rev. Rul. 63-136, 1963-2 C.B. 19 (general welfare
exclusion applies to payments made under government grant for retraining individuals
for better job skills). Compare Rev. Rul. 76-131, 1971-1 C.B. 16 (general welfare
exclusion does not apply to bonuses paid by state to long-time residents as not based
on need) with Rev. Rul. 98-19, 1998-1 C.B. 840 (general welfare exclusion applies to
relocation payments made by city to residents to move from flood-damaged residence
to another residence).

Section 6041 provides in part that “[a]ll persons engaged in a trade or business and
making payment in the course of such trade or business” report payments of “rent,
salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable gains, profits, and income” of $600 or more in any taxable
year. Section 1.6041-1(a) of the Income Tax Regulations refers to such payments as
payments “of fixed or determinable income.” Section 1.6041-1(b)(1) clarifies that the
term “persons engaged in a trade or business” in § 6041 includes not only organizations
engaged for gain or profit, but also organizations the activities of which are not for the
purpose of gain or profit. This would include a State and any agency or instrumentality
of a State. See § 1.6041-1(i).

The term “income” as used in § 6041 and the regulations thereunder is not defined by
statute or regulation. However, comparison to the other items listed in § 6041, and in
particular the phrase “fixed or determinable gains, profits, and income,” indicates that
PLR-104964-17                                4

“income” refers to gross income, and not merely the gross amount paid. Section
1.6041-1(f)(1) reinforces this conclusion by stating that “the amount to be reported as
paid to a payee is the amount includible in the gross income of the payee.” Thus,
§ 6041 only requires reporting of payments in excess of $600 which are includible in the
recipient’s gross income.

                                     CONCLUSION

Based on the facts submitted, we conclude that the payments distributed from the
Program to or on behalf of the individual or the family member are for the promotion of
general welfare and are therefore excludable from the individual’s gross income.
Accordingly, the Agency is not required by § 6041 to file information returns reporting
payments made by the Program.

Except as expressly provided herein, no opinion is expressed or implied concerning the
federal tax consequences of any aspect of these transactions other than those
expressed above.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.


                                      Sincerely,




                                      Shareen S. Pflanz
                                      Senior Technician Reviewer, Branch 5
                                      Office of Associate Chief Counsel
                                      (Income Tax and Accounting)