In the case, the State agency making the payments was established to advise, assist, and serve the State's growing elderly population, and to create an environment that provides choices, promotes independence, health, and well-being, and enables elderly individuals to remain in their communities and avoid nursing home placement through its various programs.
The specific legislative purpose of the Program was to encourage low-income elders to be cared for in family-type living arrangements as an alternative to nursing homes or other institutional care settings. To be eligible to participate in the Program, the elderly individual must:
- be at least 60 years old;
- have income not exceeding Medicaid limits for institutional care;
- be at risk for nursing home placement, which is measured by the total number of Activities of Daily Living (personal care tasks such as bathing and eating) and Instrumental Activities of Daily Living (normal, everyday tasks performed by an independent individual such as meal preparation and shopping) that the elderly individual requires help to accomplish; and
- live with an adult caregiver who is present in the home and able to provide supervision and care for the elderly individual.
Currently, elders participating in the Program on average require assistance on more than 4 of the 6 Activities of Daily Living and almost all of the 8 Instrumental Activities of Daily Living. More than half of the elders participating in the Program have dementia. Commercial caregivers are not eligible to participate in the Program.
The Program provides for two types of subsidy payments, basic and special, to offset, in part, the costs of support and maintenance for elderly individuals living in the home of a capable adult caregiver, usually a spouse or other relative. The basic subsidy is a monthly payment to the caregiver to defray, in part, the basic living needs of the elderly individual, such as food, clothing, housing, medical needs, and other incidentals (not covered by Medicare, Medicaid, or other insurance). Special subsidy payments are made for additional goods and services that the case manager determines are necessary to maintain the health and well-being of the elderly person. Special subsidy payments can be made for items such as chore services, counseling, home-delivered meals, education and training for the caregiver, housing adaptations, medical therapeutic services, medical transportation, respite care, medical supplies and equipment (such as medication and wheelchairs).
The basic and special subsidies promote the health and well-being of elderly individuals by partially reimbursing the caregivers for some of the monthly living expenses of the elderly individuals, and are not a payment for caring for the elderly individuals or for any other services. Because of this subsidization of their home living costs, many elderly individuals are able to postpone nursing home care for longer periods than would otherwise be the case, or avoid institutional care altogether.
The State Department administers the Program through State's agency system for the aging, which consists of two systems. The first system (including the Taxpayer) consists of agencies that within a geographic area monitor service providers, write subsidy checks, and serve as the final appeal for client/applicant grievances. The other system consists of local agencies or community service providers that determine client eligibility and eligible subsidy amount, provide care planning and case management, annually reassess on-going eligibility, enter data to generate monthly payments, prepare reports, and maintain documentation.
Under the general welfare exclusion, payments to individuals by the government under legislatively provided social benefit programs for the promotion of the general welfare are not included in a recipient's gross income. The payments must (1) be made from a governmental fund, (2) be for the promotion of the general welfare (i.e., generally based on individual or family needs), and (3) not represent compensation for services. (See, e.g., Rev Rul 2003-12, 2003-1 CB 283 ).
Code Sec. 6041(a) provides generally that all persons engaged in a trade or business that pay another person $600 or more in any tax year of fixed or determinable income in the course of that trade or business must file an information return setting forth the amount of the payment and the recipient of the payment.
The recent ruling observes that the Taxpayer makes payments under the Program to defray a part of the costs necessary to maintain the health of frail, elderly individuals who need daily care. These payments are made from a governmental fund pursuant to a state statute, are based on economic need and health status of the elderly individuals, and are not for services rendered by the caregivers or the elderly individuals. Because the payments are intended to reimburse the caregivers' expenses of promoting the health and well-being of the elderly individuals, the interposition of the caregivers as the recipients does not bar application of the general welfare exclusion. Accordingly, the basic and special subsidy payments Taxpayer makes for the benefit of the elderly individuals under the Program are not includible in the incomes of the elderly individuals or their home caregivers. Thus, the Taxpayer is not required to file information returns for these payments for either the elderly individuals or their home caregivers.
Information is also available at the Estate Planning Information Center, from this office, or your local elder law attorney, local area agencies on aging or local county departments of job and family services.
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