Rev. Rul. 76-479

Advice has been requested whether, under the circumstances described below, fees paid to a nonprofit research and educational organization for professional services rendered by its physician-members are includible in the gross incomes of such physician-members under section 61 of the Internal Revenue Code of 1954.

The medical staff of a nonprofit hospital formed a nonprofit research and educational foundation to study and discuss and to experiment by means of laboratory and clinical procedures with respect to, the cause, nature, prevention, and cure of diseases. All the members of the hospital's medical staff are required to be members of the research and education foundation. To implement its goals the foundation agreed to provide medical service to patients with limited incomes. These patients, known as teaching cases, are referred from the hospital's out-patient clinic or emergency room, and have no regular attending physician. In addition, all patients whose hospital care is paid for by the county in which the hospital is located are considered teaching cases. Fees for the medical services rendered are based on a patient's ability to pay.

Each member of the medical staff executes an assignment form that enables the foundation to collect all fees generated from providing medical treatment to the teaching cases. Most of the members of the hospital's medical staff are physicians engaged in private practice, although some of the members of the medical staff are physicians employed by the hospital on a full or part-time basis.

Section 61(a) of the Code provides that, unless otherwise excluded by law, gross income means all income from whatever source derived including, but not limited to, compensation for services, including fees and similar items. Additionally, section 1.61-2(c) of the Income Tax Regulations provides, in part, that where, pursuant to an agreement or understanding, services are rendered to a person for the benefit of an organization described in section 170(c) and an amount for such services is paid to such organization by the person to whom the services are rendered, the amount so paid is income to the person performing the services.

Moreover, as a general rule, an assignment or similar transfer by a taxpayer of compensation for personal services to another individual or entity is an ineffectual method of relieving a taxpayer of Federal income tax liability on the transfer regardless of the motivation behind the transfer. See Lucas v. Earl, 281 U.S. 111 (1930); Helvering v. Horst, 311 U.S. 112 (1940), 1940-2 C.B. 206; Helvering v. Eubank, 311 U.S. 122 (1940), 1940-2 C.B. 209.

However, the Internal Revenue Service has recognized that amounts received by an agent on behalf of a principal, and turned over to the principal, are not taxable to the agent under section 61(a) of the Code. See for example, Rev. Rul. 74-581, 1974-2 C.B. 25, which holds that fees paid by a Federal District Court to a university's attorney-faculty members and students for representing indigent clients, while participating in the university's clinical program that is part of its regular curriculum, are not includible in the gross income of the students or attorney-faculty members, when pursuant to an agreement between the university and the participating attorney-faculty members and students such fees are turned over to the university. See also Rev. Rul. 69-274, 1969-1 C.B. 36, Rev. Rul. 65-282, 1965-2 C.B. 21, Rev. Rul. 58-515, 1958-2 C.B. 28, and Rev. Rul. 58-220, 1958-1 C.B. 26, that discuss other agency situations where amounts received are not includible under section 61(a).

In the instant case, membership in the research and educational foundation is a condition precedent to being a member of the hospital's medical staff, and such membership requires that any fees for treating teaching cases must be paid to the research and education foundation. The members of the hospital's medical staff, as individuals, have no control over the fees charged, or the collection and disbursement of such fees. It is the foundation that has established the program to provide medical services to patients with limited incomes and the foundation that obtains research information as a result of providing such services. Thus, the members of the medical staff of the hospital are acting as agents of the foundation when performing such services under the circumstances described.

Accordingly, in the instant case, any fees derived from treating teaching cases are not includible in the gross incomes of the physicians rendering such services.

Compare Rev. Rul. 76-323, page 18, this Bulletin, which holds that amounts received by members of a religious order for work performed outside the religious community, whether or not retained for living expenses, are includible in the gross incomes of such members, since in performing these services the members are not acting as agents of the religious order.