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entitled to claim additional business expenses associated with
the income that was allocated under section 265.
Discussion
The parties agree that payments petitioners received
directly from residents, or their representatives, are taxable
and that payments petitioners received for residents placed in
their home directly by the State of Oregon are tax exempt under
section 131. The parties disagree about whether payments
petitioners received from ElderPlace are exempt from tax under
section 131 and the proper allocation of expenses to exempt and
nonexempt income under section 265.
Section 131 Foster Care Payments
Section 131(a) provides that gross income shall not include
"qualified foster care payments". A "qualified foster care
payment" as described in section 131(b)(1) is any amount:
(A) which is paid by a State or political
subdivision thereof or by a placement agency which is
described in section 501(c)(3) and exempt from tax
under section 501(a), and
(B) which is--
(i) paid to the foster care provider for
caring for a qualified foster individual in the
foster care provider's home, or
(ii) a difficulty of care payment.[5]
5Difficulty of care payments as described in sec. 131(c) are
not at issue in this case.
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