Hi cberdejo:

I must confess that I'd never heard of this specific program before.  Doing some research, however, I see that it is a non-profit program run in conjunction with the State of California's Office of Statewide Health Planning and Development.  Here is a link to the website I visited:

http://www.oshpd.ca.gov/hpef/Programs/STLRP.html

Basically, it appears this is a California government program designed to encourage physicians to live and work in underserved areas of the state.  For tax purposes, you do not need to report your payments received through this program on either your Federal or your California tax returns.  As you correctly surmise, because it is not taxable income, it need not be reported.  One analogous way to think of it is as though you were the recipient of a charitable gift.  In this case it is just a loan forgiveness gift administered through the state government.  Moreover, if I may take the liberty of expressing this sentiment, it seems to be for a very worthy cause.

Thank you for asking this thoughtful question, and good luck with your medical practice!

Regards