Home Affordable Modification Program
6/25/2009

Payments Under Home Affordable Modification Program Excludable from Gross Income (Rev. Rul. 2009-19)

"Pay-for-Performance Success Payments" under the U.S. Government’s Home Affordable Modification Program (HAMP) are excludable from gross income. Under HAMP, which was created in response to the unprecedented financial stress of 2008 and 2009, financially stressed homeowners that make timely payments on modified loans are eligible to have incentive payments made on their behalf to lenders/investors. These payments reduce the principal balance on the homeowner’s mortgage loan. Absent an exclusion, these payments would constitute gross income under Code Sec. 61(a). However, the HAMP "Pay-for-Performance Success Payments" are excluded from income because they meet the definition of payments under governmental social benefit programs for the promotion of the general welfare and not for services rendered. See Rev. Rul. 74-205, 1974-1 C.B. 20 and Rev. Rul. 98-19, 1998-1 C.B. 840 for other examples of qualifying payments.

(The previous article was general in nature, and we recommend any reader consult with their business and tax advisor as to the specific application of this information to their particular facts and circumstances. This article is based on authorities which are subject to change, and accordingly, should not be relied upon. Any tax advice included in this article was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.)


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