1099 Misc or Other Income

[TAX]

My client, surgeon, has staff privileges at Delnor Hospital. His wife had a aby delivered in that hospital in 2008. The hospital reduced their bill by $ 10,000 described as "professional courtesy" and then issued a Form 1099-MISC, box 7 as nonemployee compensation for the $ 10,000.

Is this right?

[Kram BergGold]

Partial answer

Clearly it is not non employee compensation although it might be box 3 other income on the 1099. The question to me is, did the Doc give something to get. If for some reason the hospital reduced my fee by $10,000 it would not be taxable to me. However, there may be a quid pro quo going on between the Doc and the Hospital.
You might call the hospital and ask them to tell you what there thinking is on this matter.

[Jiggers]

$10,000 Discount?

I may give a client a discount from their fee, as a professional courtesy. But I don't issue a 1099!

Something doesn't sound correct.

He needs to get a better explanation from the hospital, or give you the correct one!

[OtisMozzetti]

similar issues with real estate commission

I know a tax professional whose daughter was sent a 1099-MISC by a real estate agent who handled a real estate transaction for his daughter. The commission had been reduced in order to make the deal go through. My friend the tax professional had to go around several times with the IRS before the IRS finally backed down and did not include the reduction in commission in his daughter's reportable income.

[JohnH]

Sounds like someone in administration has some sort of beef with the Doc.
Guess they'd better hope they don't get appendicitis the weekend he's the only one on call....

[erchess]

Hmmmm

I read that the doctor has admitting privileges at the hospital. If they are not paying him for the work he does there then he certainly is not an employee.

Now of course if they discounted the fee for say a low income patient without insurance then the patient would surely not recognize income. But this doctor brings revenue to the hospital every time he he puts a patient there. It's hard for me to see why there is not a quid pro quo that would make the discount received by the Doctor taxable.

I could see an argument for exempting the money from SE Tax but as a practical matter it might be cheaper in the long run to pay SE on the money than to argue about it in an audit.

And by the way if they gave the same discount to the outside accountant who handles the hospital's tax reporting I would be inclined to say that this person also must recognize taxable income equal to the discount.

[Bees Knees]

The hospital is issuing a 1099-MISC because offering professional courtesy discounts is not an excludable fringe benefit under the tax code. The original poster said the client has staff privileges. I assume that means the doctor is an employee (or staff member) of that hospital. Thus, the doctor would not receive such a discount if it were not for the fact that he is an employee of that hospital.

The benefit should actually be added to the doctor’s W-2 as taxable wages.

[erchess]

Bees

If you are right in the way you read the OP then your conclusion is correct. I took OP to mean that the Doctor has a practice in the area and admitting privileges at the hospital but is not an employee of nor an IC at the hospital.

[Bees Knees]

The original poster said "staff privileges." That implies the doctor is a member of the hospital staff. Thus, the fringe benefit is taxable, unless a specific exclusion under the code applies.

The only excludable benefit that comes close is mentioned on page 13-27 of TTB:

No-Additional-Cost Services [IRC §132(b)]

The value of services provided to employees that an employer offers
to customers in the ordinary course of business in which the
employee performs substantial services is excluded from taxable
wages.

These types of services are generally excess capacity
services, such as airline, bus, or train tickets, hotel
rooms, or telephone services provided free or
at a reduced price to employees working in
those lines of business.

The service provided to employees cannot be
excluded if it causes the employer to incur
substantial additional costs.

I think the last sentence would disqualify our example. Delivering a baby at a hospital does cause the employer to incur substantial additional costs. So no exclusion would apply here.

[gkaiseril]

Clearly it is not non employee compensation although it might be box 3 other income on the 1099. The question to me is, did the Doc give something to get. If for some reason the hospital reduced my fee by $10,000 it would not be taxable to me. However, there may be a quid pro quo going on between the Doc and the Hospital.
You might call the hospital and ask them to tell you what there thinking is on this matter.

The doctor is not necessarily an employee of the hospital, although there are hospital employee doctors, but this doctor is clearly not an employee but a service provider to the hospital. Being a member of the hospital staff does not make the doctor an employee. Besides being allowed to admit and treat patients, the doctor maybe providing additional services to the hospital like supervising departments, certifying lab results, supervising other doctors in their practice at the hospital. This is a hangover from when the majority of doctors were sole practitioners and not employees of a group, hospital or clinic. This doctor also does not have his malpractice insurance, retirement, health insurance, etc paid by the hospital as an employee whether a doctor or not would be provided with. The doctor probably practices at other hospitals, has admitting privileges at other hospitals, may teach medical subjects at other schools either paid or not and even have medical licenses in other states.

This issue of whether a doctor with admitting or staff privileges is an employee or contractor is still be argued in the courts;

http://www.ebglaw.com/files/19882_Physician%20Staff%20Privileges%20Client%20Alert.pdf

http://biotech.law.lsu.edu/cases/medstaff/Candler_General.htm

A review of the hospital bylaws and state laws would be needed to sort this out, if that is even possible.

This may need to be resolved by the doctor and the hospital administrator or accounting department as to exactly how this discount should be handled.

Maybe the hospital doe not want to disclose that special treatment was given to a doctor and have that information coming out in financial or government reports.

Professional courtesies in the past were exchanged in the past between doctors when they carried large health insurance deductibles and there was far less government oversight of hospitals.

[Davc]

I don't think it means he's an employee:


hospital staff privileges,
n the authority given to a clinician to practice at a hospital within the scope of privileges granted to him or her by that hospital.

[OtisMozzetti]

SE tax, yah sure

I read that the doctor has admitting privileges at the hospital. If they are not paying him for the work he does there then he certainly is not an employee.
...
I could see an argument for exempting the money from SE Tax but as a practical matter it might be cheaper in the long run to pay SE on the money than to argue about it in an audit.
...

The doctor probably has self-employment income, and maybe also some wages subject to Social Security, which total way above the maximum amount subject to Social Security. So, he or she most likely won't pay any additional Social Security tax anyhow!

The doctor might end up paying some additional Medicare tax if this $10,000 discount ends up treated as self-employment income. 1.45% x $10,000 is only $145.

[OtisMozzetti]

just wondering?

Even though the doctor probably charged a fortune for the surgery done for us two years ago, I wonder how many of us tax professionals would charge this doctor surgeon our normal full price if he or she sends his or her spouse next year to get their tax return done? Or would we extend "professional courtesy"?

[Bees Knees]

Whether or not the doctor works as an employee of the hospital, or works as an independent contractor of the hospital, the issue is the same. The hospital is giving the doctor a fringe benefit which is not excludable from tax under the code.

The benefit is taxable, subject to SE tax.

[JON]

Does not make sense

If the Doctor had not received the fringe it would have been covered by insurance!!!! What the heck is this hospital doing and your client better get a group to review the reasoning for this with the hospital. I have heard of such discounts between oral surgeons and dentists and they are never recorded. There it happens because the professional knows the other professional and the billing comes from there practices not the hospitals.

I have never seen it with hospitals-if this becomes a practice it would be better if the sife goes someplace with her insurance coverage.