The Time Is Now: Taxation Reform for Expanded Clinical Trial Access


Expanding clinical trial access to include historically underrepresented ethnic and racial minorities means addressing root-cause barriers, including taxation.

Linda McCarty, JD, LLM, Chief Legal Officer and Privacy Officer of Javara Research.

Linda McCarty, JD, LLM, Chief Legal Officer and Privacy Officer of Javara Research.

The Unspoken Barrier

While taxation of clinical trial payments is not the only barrier preventing equitable access to clinical trials, it is one that is often overlooked and disregarded industry wide. To truly expand clinical trial access to include historically underrepresented ethnic and racial minorities, we must address root-cause barriers, and this includes taxation.

Understanding Taxation and Vulnerable Populations

Since the pandemic, we have seen meaningful legislative reform to increase diversity in clinical trials, including the Food and Drug Omnibus Reform Act of 2022 (FDORA Act), requiring sponsors to develop and submit Race and Ethnicity Diversity Plans to the FDA for enrolling an adequate number of participants from underrepresented racial and ethnic populations in clinical trials.

Payments to clinical trial participants are generally modest in nature and meant to lessen the financial burden of participation. Including these payments as part of taxable income has the unintended consequence of deterring and even preventing participation for vulnerable populations. Vulnerable populations can be understood in this context as those who have historically had inequitable access to comprehensive, quality healthcare services, including access to clinical trials.

Clinical Trial Compensation as Gross Income

The Internal Revenue Code defines gross income as “all income from whatever source derived.” The Internal Revenue Service (IRS) and the courts have applied the definition broadly to include “income realized in any form.”1

While clinical trial payments are included within the concept of gross income, participants technically may be able to offset the income received with deductions for expenses incurred in connection with their participation. However, such expenses are deductible only if they qualify as “trade or business expenses or as “deductible medical expenses.

Qualifying as a “Trade or Business”

It is difficult for clinical trial participation to qualify as a trade or business.The Code does not define the phrase “trade or business,” and no general conclusions can be drawn about whether participation in a clinical trial constitutes a trade or business. Rather, each case must be evaluated on its own; however, the Supreme Court has stated a “trade or business” generally requires that “the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for income or profit.”2

The remuneration received for clinical trial participation is typically quite modest, making it difficult for the individual to demonstrate income as primary motivation; the limited duration of a trial generally prevents participation from being considered “regular” or “continuous.”

Defining a “Deductible Medical Expense”

Technically, some expenses stemming from clinical trial participation can qualify as a “deductible medical expense,” which are generally defined to include payments for diagnosis, cure, mitigation, treatment, or prevention of disease or for the purpose of affecting any structure or function of the body, as well as transportation essential to obtain such care.3

While participation in a clinical trial may involve the receipt of medical care, this care is rarely paid for by the participant. The result? Medical expense deductions are often limited to transportation expenses.

The Impact of Taxation for Recipients of Low-Income Subsidies

In 2022, 37.9 million Americans were living below the poverty line (11.5% of the U.S. population), with poverty disproportionately impacting minority populations.4 Many living at or below the poverty line rely on social welfare programs to meet their most basic needs. By treating clinical trial payments as taxable income, we are deterring participation by those who rely on public assistance because eligibility for these programs is typically based on an individual’s gross and net income and available resources.

The Impact of Taxation on Undocumented Immigrants

Undocumented immigrants are another segment of the population that has historically been excluded from clinical trials. In 2019, an estimated 11.2 million undocumented immigrants resided in the United States, representing 3.8% of the U.S. population.5

Fear of deportation is among the primary reasons undocumented immigrants are reluctant to participate in clinical trials.6 Because payments made to clinical trial participants are reportable on tax form 1099 if remuneration exceeds $600 in a calendar year, the payer is required to obtain the participant’s taxpayer identification number (TIN) via a completed W-9 form.

The TIN for most taxpayers is their social security number (SSN); however, undocumented immigrants are not able to obtain an SSN. Instead, these individuals must request an Individual Taxpayer Identification Number (ITIN). Many foreign nationals present in the United States illegally are reluctant to apply for an ITIN for fear of deportation or criminal proceedings.

Financial Implications for Other Stakeholders

Exclusion of clinical trial payments from taxable gross income is unlikely to have a significant revenue impact on the government as payments are generally modest, and Institutional Review Boards can be trusted to keep them so. If fiscal impact was a concern, the gross income exclusion could be limited to payments below a given ceiling.

There is ample precedent for enacting similar exclusions. Congress has created gross income exclusions to incentivize or reward various socially useful behaviors, including those specific to promoting positive healthcare outcomes.7

A Way Forward

COVID-19 highlighted many existing regulatory barriers preventing or deterring clinical trial access. The time is now to amend the Internal Revenue Code to provide a gross income exclusion on payments to participants. Doing so would not only remove this barrier for undocumented immigrants and recipients of income-based subsidies but would also provide a positive incentive for clinical trial participation for all members of society.

Such an amendment would support the vital goal of collecting representative data and developing care and treatment options that are effective for the very populations they are intended to serve. In turn, this exclusion would also provide the opportunity to boost diversity in clinical trials and improve public health by supporting enrollment from underserved and undocumented populations, among others.

About the Author

Linda McCarty, JD, LLM, is a clinical research executive with over 20 years of experience working with organizations across the healthcare and life sciences industries. As Chief Legal Officer and Privacy Officer of Javara Research, she leads the development of Javara’s legal and regulatory architecture that is underpinning its integrated research model, developing legal strategies to enable the integration of clinical trials with clinical care within complex healthcare systems. Linda earned her LLM (Taxation) from Boston University School of Law, JD from New England Law Boston, and BA from San Diego State University.


  1. Treas. Reg. §1.61-1(a).
  2. Comm’r v. Groetzinger, 480 U.S. 23, 35 (1987)
  3. See Code §213(d)(1).
  4. U.S. Census Bureau, Current Population Survey, 2023 Annual Social and Economic Supplement (CPS ASEC)
  5. Profile of the Unauthorized Population - US |
  6. Mariana Arevalo, Natalia I. Heredia, Sarah Krasny, Maria L. Rangel, Leticia A. Gatus, Lorna H. McNeill, Maria E. Fernandez, Mexican-American perspectives on participation in clinical trials: A qualitative study, Contemporary Clinical Trials Communications, Volume 4, 2016, Pages 52-57, ISSN 2451-8654,
  7. To illustrate,Code §§ 104 (excluding payments received on account of certain injuries or sicknesses); 129 (excluding employer-provided dependent care assistance), In addition to these income exclusions, the IRS has recognized that certain payments should not be reportable as a matter of public policy. These include payments made to individuals for the benefit of the general welfare, such as certain job training awards (see, e.g., PLR 201127007 (April 5, 2011)) and certain whistleblower awards (see Treas. Reg. §1.6041-1(l)).
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