The IRS released a very short FAQ to provide two answers related to the taxation of provider relief payments from the Provider Relief Fund created by the CARES Act.[1]

The web page describes the program as follows:

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, appropriated $100 billion for the Public Health and Social Services Emergency Fund (Provider Relief Fund). The Paycheck Protection Program and Health Care Enhancement Act, enacted on April 24, 2020, appropriated an additional $75 billion to the Provider Relief Fund. This funding will be used to reimburse eligible health care providers for health care-related expenses or lost revenues that are attributable to the COVID-19 pandemic. See https://www.hhs.gov/provider-relief/index.html for more information about the Provider Relief Fund.

Taxpayers who receive these funds may wonder about their tax status—are these payments taxable income or not?

Section 139 Does Not Apply

Following the declaration of the national emergency, a number of commentators have pointed out the special exclusion from income for certain payments related to emergency relief found at IRC §139. Some providers have posited that these payments seem “like” a relief payment related to COVID-19 and thus should be non-taxable. But the FAQ points out an issue with that view in Question 1:

Q1: May a health care provider that receives a payment from the Provider Relief Fund exclude this payment from gross income as a qualified disaster relief payment under section 139 of the Internal Revenue Code (Code)?

A: No. A payment to a business, even if the business is a sole proprietorship, does not qualify as a qualified disaster relief payment under section 139. The payment from the Provider Relief Fund is includible in gross income under section 61 of the Code.

Tax Exempt Health Care Provider

The IRS also provides guidance to tax exempt health care providers who receive such payments, indicating that generally such payments will not subject the entity to tax—but with an exception for entities with unrelated businesses:

Q: Is a tax-exempt health care provider subject to tax on a payment it receives from the Provider Relief Fund?

A: Generally, no. A health care provider that is described in section 501(c) of the Code generally is exempt from federal income taxation under section 501(a). Nonetheless, a payment received by a tax-exempt health care provider from the Provider Relief Fund may be subject to tax under section 511 if the payment reimburses the provider for expenses or lost revenue attributable to an unrelated trade or business as defined in section 513.

[1] “Frequently Asked Questions about Taxation of Provider Relief Payments,” IRS Website, July 6, 2020, https://www.irs.gov/newsroom/frequently-asked-questions-about-taxation-of-provider-relief-payments (retrieved July 10, 2020)