Physician loan-repayment awards were tax-free and unreportable

Plain-English summary

A state program made student-loan repayment awards to physicians who agreed to practice in designated physician-shortage areas. Awards were limited by the recipients' qualifying undergraduate and medical-school debt, and each payment depended on continued service and eligibility. Chief Counsel concluded that the program was intended to increase health care availability in underserved or health-professional-shortage areas. The awards were therefore excluded from recipients' income under Section 108(f)(4). Because the payments were loan repayments rather than debt forgiveness and were not taxable income, the state had no reporting obligation under Sections 6050P or 6041.

Ruling snapshot

• Question: Were the physician loan-repayment awards excluded from income, and did the state have to report them?
• Outcome: Advice given that the awards were excluded and required no information reporting.
• Key authorities: IRC §§ 108(f)(4), 6041, and 6050P.

Full text (IRS public release)

Office of Chief Counsel
Internal Revenue Service
Memorandum
Number: 201815016
Release Date: 4/13/2018
CC:ITA:B05:ECReigle
POSTF-125979-17

UILC: 108.00-00, 108.05-00 Student Loans

date: January 08, 2018

to: Division Counsel
(Small Business/Self-Employed)

  Attn: Mr. John Janusz

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

subject: Tax Treatment of Loan Repayment Made Pursuant to Program P

This Chief Counsel Advice responds to your October 4, 2017, request for assistance
regarding the above matter. This advice may not be used or cited as precedent.

LEGEND

State A = --------------
Program P = ------------------------------------------------------------------------
Agency B = -----------------------------------------------------
$X = ------------

ISSUES

1. Whether cash award payments made to recipients in State A’s Program P, a
   student loan repayment program, are excludable from their gross income under
   § 108(f)(4) of the Internal Revenue Code (the “Code”)?

2. What, if any, are the reporting requirements for these award payments?

POSTF-125979-17 2

CONCLUSION

   1. Cash award payments received by recipients in State A’s Program P, a
      student loan repayment program as more fully described herein, are
      excludable from recipients’ gross income under § 108(f)(4) of the Code.

   2. State A is not required to file or furnish any information returns with respect to
      the award payments made to recipients in Program P.

FACTS

State A is seeking to determine whether cash award payments given under Program P
are excluded from gross income under § 108(f)(4) of the Code. Program P provides
award payments to physicians who agree to practice medicine in an area of State A
designated as having a shortage of physicians. State A has determined that there is a
generalized shortage of health services providers for certain geographic areas of the
state. Program P allows State A to target this underserved population across all needy
areas of the state. Agency B in State A has established needs-based guidelines for
selecting participating health care providers as well as identifying perceived need sites.

To receive a cash award payment, recipients in Program P must meet certain eligibility
requirements and agree to practice medicine in a designated shortage area for no less
than ----months. Such service obligation consists of either the establishment of a
practice of medicine or employment as a licensed physician in the designated shortage
area in State A, or a combination of both. Recipients also must have student loans
either made or guaranteed by a state or federal governmental agency or by the
educational institution which the recipient attended, for the purpose of paying
educational expenses at the undergraduate or medical school.

The award consists of -----------------------annual award payments, with the each payment
dependent upon the individual fulfilling the service requirement for-----------months, and
maintaining the eligibility requirements. Each annual award payment is limited to the
lesser of the total of the recipient’s undergraduate and medical school student loan
expense or $X. The award payments under Program P are limited to repayment of
educational loans that were made for undergraduate and medical education at an
accredited institution, and loans made to cover expenses at a graduate school other
than medical school are not included.

.

LAW AND ANALYSIS

Section 61(a) of the Internal Revenue Code provides that, except as otherwise provided
by the law, gross income means all income from whatever source derived, including
income from compensation for services, and income from the discharge of
indebtedness. Under § 61 of the Code, Congress intends to tax all gains or undeniable

POSTF-125979-17 3

accessions to wealth, clearly realized, over which taxpayers have complete dominion.
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), 1955-1 C.B. 207.

Section 108(f)(4) of the Code provides for the exclusion from income, of payments
received under the National Health Service Corps Loan Repayment Program, and
certain State loan repayment programs qualifying under § 3381 of the Public Health
Service Act, or under “any other State loan repayment or loan forgiveness program that
is intended to provide for the increased availability of health care services in
underserved or health professional shortage areas (as determined by such State).”
This provision is effective for amounts received by individuals in taxable years beginning
or after December 31, 2008.

Our review of the purposes and operations of Program P shows that amounts received
under Program P are amounts received under a State loan repayment or loan
forgiveness program that is intended to provide for the increased availability of health
care services in underserved or health professional shortage areas (as determined by
State A), and thus, excluded from gross income under § 108(f)(4) of the Code.

The amounts paid by State A under Program P are for loan repayment and not loan
forgiveness. Therefore, there is no discharge of indebtedness requiring information
reporting under § 6050P of the Code. The amounts paid under Program P are not
includable in recipients’ gross incomes under § 61(a) of the Code, and are therefore not
fixed or determinable income under § 6041 of the Code. Therefore, no information
reporting is required under § 6041 of the Code.

This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.

Please call (202) 317-7006 if you have any further questions.

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