Under Health Care Reform, a Patient-Centered Outcomes Research (PCOR) fee is payable by a health insurance issuer and/or the plan sponsor (employer) of a self-insured medical plan, most health reimbursement arrangements (HRAs) and any non-excepted Health Care FSAs. The PCOR fee is payable for seven plan or policy years from October 1, 2012 to September 30, 2019.
The PCOR fee is paid as an excise tax reportable on IRS Form 720 filed no later than the July 31st of the next calendar year following the end of the affected plan’s year.
On May 31, 2013, the IRS issued a memorandum making it clear that the entity paying the PCOR fee can treat the fee as an ordinary and necessary deductible business expense.
In the memorandum, Associate Chief Counsel, Andrew Keyso, concludes that;
“Issuers of specified health insurance policies and sponsors of applicable self-insured health plans will be required to pay the PCOR fee yearly in connection with carrying on their trade or business. Section 162(a) allows a taxpayer to deduct all ordinary and necessary expenses incurred by the taxpayer in carrying on a trade or business. An expense is “ordinary” if it is “normal, usual or customary” in the taxpayer’s trade or business. See Deputy v. Dupont, 308 U.S. 488, 495 (1940). An expense is “necessary” if it is “appropriate and helpful” in the taxpayer’s business, but it need not be absolutely essential. Commissioner v. Tellier, 383 U.S. 687, 689 (1966) (citing Welch v. Helvering, 290 U.S. 111, 113 (1933)). Whether an expense is deductible under § 162 is a question of fact to be decided on the basis of all the relevant facts and circumstances. Cloud v. Commissioner, 97 T.C. 613, 618 (1991) (citing Commissioner v. Heininger, 302 U.S. 467, 473-5 (1943)). The required PCOR fee will be an ordinary and necessary business expense paid or incurred in carrying on a trade or business and, therefore, will be deductible under § 162.”