Please Take Note: The information provided does not constitute legal or tax advice. The material is provided for informational/educational purposes only. Please consult with counsel regarding your organization's particular circumstances.
Question: We received funds from the Medicare Rural Floor Settlement which encompassed approximately seven years of Medicare activity. The question has arisen as to whether we should be netting the settlement amount against our current 2012 unpaid cost of Medicare programs.
Recommendation: We recommend following GAAP (Generally Accepted Accounting Principles) unless IRS rules override those principles. That means accounting for revenue on Schedule H the same way that you account for those revenues for financial statement purposes.
Regarding Medicare revenue, the tax year 2014 Schedule H instructions for Part III state the following: "If the organization received any prior year settlements for Medicare-related services in the current tax year, it can provide an explanation in Part VI, line 1." Therefore, the revenue is to be included — but then be sure to provide an explanation in Part VI, line 1 so readers of the information know why the numbers are different from one year to the next.
(Updated November 2015)