Entering Notice 2014-7 Waiver income in 1120-S

[taxguyak]

Company is S-Corp Homecare qualifying for Notice 2014-7 tax free waiver income due to shareholder taking care of homecare patients in the home that she lives in.  Is it correct to enter the waiver income, then deduct the waiver income as a Notice 2014-7 expense?  Therefore, all other expenses such as wages, supplies, would not be deducted since the waiver income is tax free.

[abctax55]

https://accountants.intuit.com/community/tax-talk/discussion/notice-2014-7-for-s-corp/00/321161

Is there a connection here????

[taxguyak]

Yes similar situation.  I would think the Notice 2014-7 applies to an S-Corp, but I haven't seen on irs.gov saying that it does or doesn't apply.  IRS gives an example that it applies to a Schedule C. If it applies to an S-Corp I don't think operating expenses could be deducted, as the intent of the Waiver income is to cover all expenses.  

[sjrcpa]

Have you actually read the Notice?

The header says:

"This notice provides that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver (Medicaid waiver) program, described in this notice, are difficulty of care payments excludable under § 131 of the Internal Revenue Code."

An S Corp is not an individual care provider.

[qbteachmt]

"I would think the Notice 2014-7 applies to an S-Corp"

The S Corp can't live in your home and take care of you.

However, an employee of the S Corp can live in your home and take care of you. They might also be taking care of another person outside the home, so they have some wages that would apply and some wages that do not apply.

[taxguyak]

So that would mean the owner's wages would be tax free=$0.  Since the W2 has already been filed as taxable income, it would have to be amended.

[qbteachmt]

I missed this detail:

"due to shareholder taking care of homecare patients in the home that she lives in"

Locally there will be a regulation which covers when this is a Group Home condition, as opposed to "in my home" condition. It might be at 4 patients, for instance. If this is not considered "in my private home" but a group home situation, then the corporation is running a business and it is all regular taxable wages.