Medicaid
Thousands of Medicaid Providers Abuse the Federal Tax System Gao ID: GAO-08-239T November 14, 2007In fiscal year 2006, outlays for Medicaid were about $324 billion; about $185 billion was paid by the federal government. Because GAO previously identified abusive and criminal activity associated with government contractors owing billions of dollars in federal taxes, the subcommittee requested GAO expand our work to Medicare and Medicaid providers. Today's testimony covers Medicaid providers who abused the federal tax system from 7 selected states. GAO was asked to (1) determine if Medicaid providers have unpaid federal taxes, and the magnitude of such debts; (2) identify examples of Medicaid providers that have engaged in abusive or related criminal activities; and (3) determine whether the Centers for Medicare & Medicaid Services (CMS) and the states prevent health care providers with tax problems from enrolling in Medicaid or participating in the continuous levy program to pay federal tax debts. To perform this work, GAO analyzed tax data from the Internal Revenue Service (IRS) and Medicaid data from seven selected states and performed investigative activities.
Over 30,000 Medicaid providers, about 5 percent of those paid in fiscal year 2006, had over $1 billion of unpaid federal taxes. These 30,000 providers were identified from a nonrepresentative selection of providers from seven states: California, Colorado, Florida, Maryland, New York, Pennsylvania, and Texas. This $1 billion estimate is understated because some Medicaid providers may have understated their income or not filed their tax returns. GAO selected 25 Medicaid providers with high federal tax debt as case studies for more in-depth investigation of the extent and nature of abuse and related criminal activity. For all 25 cases GAO found abusive and related criminal activity, including failure to remit individual income taxes or payroll taxes to IRS. Rather than fulfill their role as "trustees" of federal payroll tax funds and forward them to IRS, these providers diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. Individuals associated with some of these providers diverted the payroll tax money for their own benefit or to help fund their businesses. Many of these individuals accumulated substantial assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. In addition, some case studies involved businesses that were sanctioned for substandard care of their patients. Despite their abusive and related criminal activity, these 25 providers received Medicaid payments ranging from about $100,000 to about $39 million in fiscal year 2006. CMS and our selected states do not prevent health care providers who have federal tax debts from enrolling in Medicaid. CMS officials stated that such a requirement for screening potential providers for unpaid taxes could adversely impact states' ability to provide health care to low income people. Further, federal law generally prohibits the disclosure of taxpayer data to CMS and states. No tax debt owed by Medicaid providers has ever been collected from Medicaid payments through the continuous levy program. IRS has determined that Medicaid payments are not considered ''federal payments'' and thus not eligible for this program. GAO estimates that for the seven selected states the federal government could have collected between $70 million to $160 million during fiscal year 2006 if an effective levy program was in place.
GAO-08-239T, Medicaid: Thousands of Medicaid Providers Abuse the Federal Tax System
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GAO Highlights:
Highlights of GAO-08-239T, a testimony before the Permanent
Subcommittee on Investigations, Senate Committee on Homeland Security
and Governmental Affairs, U.S. Senate
Why GAO Did This Study:
In fiscal year 2006, outlays for Medicaid were about $324 billion;
about $185 billion was paid by the federal government. Because GAO
previously identified abusive and criminal activity associated with
government contractors owing billions of dollars in federal taxes, the
subcommittee requested GAO expand our work to Medicare and Medicaid
providers. Today‘s testimony covers Medicaid providers who abused the
federal tax system from 7 selected states.
GAO was asked to (1) determine if Medicaid providers have unpaid
federal taxes, and the magnitude of such debts; (2) identify examples
of Medicaid providers that have engaged in abusive or related criminal
activities; and (3) determine whether the Centers for Medicare &
Medicaid Services (CMS) and the states prevent health care providers
with tax problems from enrolling in Medicaid or participating in the
continuous levy program to pay federal tax debts. To perform this work,
GAO analyzed tax data from the Internal Revenue Service (IRS) and
Medicaid data from seven selected states and performed investigative
activities.
What GAO Found:
Over 30,000 Medicaid providers, about 5 percent of those paid in fiscal
year 2006, had over $1 billion of unpaid federal taxes. These 30,000
providers were identified from a nonrepresentative selection of
providers from seven states: California, Colorado, Florida, Maryland,
New York, Pennsylvania, and Texas. This $1 billion estimate is
understated because some Medicaid providers may have understated their
income or not filed their tax returns.
We selected 25 Medicaid providers with high federal tax debt as case
studies for more in-depth investigation of the extent and nature of
abuse and related criminal activity. For all 25 cases we found abusive
and related criminal activity, including failure to remit individual
income taxes or payroll taxes to IRS. Rather than fulfill their role as
’trustees“ of federal payroll tax funds and forward them to IRS, these
providers diverted the money for other purposes. Willful failure to
remit payroll taxes is a felony under U.S. law. Individuals associated
with some of these providers diverted the payroll tax money for their
own benefit or to help fund their businesses. Many of these individuals
accumulated substantial assets, including million-dollar houses and
luxury vehicles, while failing to pay their federal taxes. In addition,
some case studies involved businesses that were sanctioned for
substandard care of their patients. Despite their abusive and related
criminal activity, these 25 providers received Medicaid payments
ranging from about $100,000 to about $39 million in fiscal year 2006.
Table: Examples of Medicaid Providers with Abusive and Related Criminal
Activity:
Type of business: Nursing home;
Unpaid tax debt: $2 million;
Fiscal year 2006 Medicaid payments: $6 million; Description of
activity: Owner fined for jeopardizing health and safety of patients.
Type of business: Home care;
Unpaid tax debt: $3 million;
Fiscal year 2006 Medicaid payments: $2 million; Description of
activity: Business did not file tax returns in late 1990s and early
2000s.
Type of business: Counselor;
Unpaid tax debt: $200,000;
Fiscal year 2006 Medicaid payments: $200,000; Description of activity:
Owner indicted for fraud for several hundred thousand dollars relating
to a federal program.
Source: GAO analysis of IRS, CMS, public, and other records.
[End of table]
CMS and our selected states do not prevent health care providers who
have federal tax debts from enrolling in Medicaid. CMS officials stated
that such a requirement for screening potential providers for unpaid
taxes could adversely impact states' ability to provide health care to
low income people. Further, federal law generally prohibits the
disclosure of taxpayer data to CMS and states.
No tax debt owed by Medicaid providers has ever been collected from
Medicaid payments through the continuous levy program. IRS has
determined that Medicaid payments are not considered ’federal payments“
and thus not eligible for this program. GAO estimates that for the
seven selected states the federal government could have collected
between $70 million to $160 million during fiscal year 2006 if an
effective levy program was in place.
What GAO Recommends:
GAO‘s related report (GAO-08-17), released today, recommended IRS
determine whether Medicaid payments can be included in the continuous
levy program and evaluate the 25 cases GAO identified for additional
collection and criminal investigation. IRS agreed with our
recommendations.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-239T]. For more information, contact Greg
Kutz at (202) 512-6722 or kutzg@gao.gov.
[End of section]
Testimony:
Before the Permanent Subcommittee on Investigations, Senate Committee
on Homeland Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:30 p.m. EST:
Wednesday, November 14, 2007:
Medicaid:
Thousands of Medicaid Providers Abuse the Federal Tax System:
Statement of Gregory D. Kutz, Managing Director Forensic Audits and
Special Investigations:
GAO-08-239T:
Mr. Chairman and Members of the Subcommittee:
Thank you for the opportunity to discuss Medicaid health care providers
from seven selected states and their adherence to the federal tax
system. This testimony builds on your concern about the $290 billion
annual federal tax gap. This testimony also builds on a large body of
work, conducted over the past few years, much of which was requested by
this Subcommittee, in which we investigated entities that have abused
the federal tax system while benefiting from doing business with or
receiving status from the federal government.[Footnote 1] Our
testimony, and the accompanying report that we are releasing
today,[Footnote 2] address Medicaid health care providers from seven
selected states who also abused the federal tax system.
Medicaid is the largest source of funding for medical and health-
related services for America's poorest people. More than 50 million
persons enrolled in the Medicaid program in fiscal year 2006. Medicaid
is jointly funded by the federal and state governments. In fiscal year
2006, according to Centers for Medicare & Medicaid Services (CMS),
total outlays for Medicaid (federal and state) were approximately $324
billion, of which about $185 billion was paid by the federal
government.
Today's testimony focuses on (1) whether providers who receive Medicaid
payments from the seven selected states have unpaid federal taxes, and
if so, the magnitude of federal tax debts owed by these Medicaid
providers; (2) providing examples of providers engaged in abusive and
criminal activity related to the federal tax system; and (3) whether
CMS and selected states prevent health care providers with tax problems
from enrolling in Medicaid or participate in the continuous levy
program to pay federal tax debts.
To identify the extent to which Medicaid providers had unpaid federal
taxes, we obtained and analyzed fiscal year 2006 Medicaid payments made
to providers in a nonrepresentative selection of seven states:[Footnote
3] California, Colorado, Florida, Maryland, New York, Pennsylvania, and
Texas.[Footnote 4] We matched the lists of Medicaid providers with IRS
tax debts as of September 30, 2006. To further analyze abuse of the
federal tax system by selected Medicaid providers, we applied certain
criteria--the amount of outstanding tax debt, and the number and age of
reporting periods for which taxes were due--to select 25 providers for
detailed audit and investigation. For these 25 providers, we reviewed
tax records and performed additional searches of criminal, financial,
and other public records.
To determine whether CMS and states prevent health care providers with
unpaid federal taxes from enrolling in Medicaid, we interviewed
officials from CMS and selected states and examined CMS and selected
states' regulations, policies, and procedures for making determinations
in the enrollment approval process. We also interviewed officials from
CMS, the Internal Revenue Service (IRS), and the Department of the
Treasury's Financial Management Service (FMS) concerning any barriers
for levying Medicaid payments. For further details on our scope and
methodology, see appendix I of the accompanying report.[Footnote 5]
We conducted our audit work from July 2006 through August 2007 in
accordance with U.S. generally accepted government auditing standards.
We performed our related investigative work in accordance with
standards prescribed by the President's Council on Integrity and
Efficiency.
Summary:
While the vast majority of Medicaid providers pay their fair share of
taxes, thousands of Medicaid providers in seven selected states
abused[Footnote 6] the federal tax system with little or no
consequence. Our analysis of data provided by the selected states and
IRS indicates that over 30,000 Medicaid providers, over 5 percent, had
tax debts totaling over $1 billion as of September 30, 2006.[Footnote
7] The unpaid taxes largely consisted of individual income and payroll
taxes.[Footnote 8] The $1 billion estimate of tax debts owed by
Medicaid providers is understated because IRS data do not reflect all
amounts owed by businesses and individuals. Specifically, the $1
billion estimate of tax debts owed does not include amounts owed by
businesses and individuals that have not filed tax returns or that have
failed to report the full amount of taxes due (referred to as nonfilers
and underreporters) and for which IRS has not determined which specific
tax debts are owed.
Our audit and investigative work details the nature of abusive and
criminal activity related to the federal tax system by 25 Medicaid
providers. These 25 providers were paid by Medicaid for a variety of
services, including hospital, nursing facility, physician, and
ambulance services. Payments ranged from about $100,000 to
approximately $39 million during fiscal year 2006. Many were
established businesses that owed federal payroll taxes withheld for
their employees. Rather than fulfill their role as "trustees" of these
funds and forward them to IRS as required by law, these health care
providers diverted the money for other purposes. These payroll taxes
included amounts withheld from employee wages for Social Security,
Medicare, and individual income taxes.[Footnote 9]
At the same time that they were not paying their federal taxes, many
individuals associated with our 25 cases bought or owned significant
personal assets, including commercial properties, expensive homes, and
luxury vehicles. One business officer withdrew over $100,000 in cash at
casinos at the same time the business accumulated millions of dollars
in federal taxes. Further, another case study business was sanctioned
by its state regulator for substandard care of its patients.
CMS and the selected states do not prevent health care providers who
have tax debts from enrolling in or receiving payments from Medicaid.
CMS has not promulgated regulations to require states to (1) screen
health care providers for unpaid taxes and (2) obtain consent for IRS
disclosure of federal tax debts. CMS officials stated that the primary
focus of the Medicaid program, in partnership with the states, is to
provide health care services for low income people and not the
administration of taxes. CMS officials stated that such a requirement
could be a burden to the states in their enrollment of providers and
could adversely impact states' ability to provide health care to the
poor. Even if CMS did want to screen health care providers with tax
debts, federal law generally prohibits the disclosure of taxpayer data
to CMS and states.[Footnote 10] Thus, CMS and states do not have access
to tax data directly from IRS unless the taxpayer provides consent.
Consequently, CMS and the selected states have no mechanism or
requirement to prevent health care providers who have tax debts from
enrolling in or receiving payments from Medicaid.
A provision of the Taxpayer Relief Act of 1997 authorizes IRS to
continuously levy certain federal payments made to delinquent
taxpayers. In response to one of our recommendations from our
accompanying report,[Footnote 11] IRS has determined that Medicaid
payments are not considered federal payments, and thus are not subject
to the continuous levy program. Thus, no tax debt owed by Medicaid
providers can be collected through the continuous levy program. If
there had been an effective program in place for levying Medicaid
payments, we estimate that for fiscal year 2006, the selected seven
states could have levied payments for the federal government and
collected between $70 million to about $160 million of unpaid federal
taxes.
Magnitude of Unpaid Federal Taxes of Medicaid Providers:
Our analysis found that over 30,000 Medicaid providers at the selected
states had over $1 billion in unpaid federal taxes as of September 30,
2006.[Footnote 12] This represents over 5 percent of the approximately
560,000 Medicaid providers paid by the selected states during federal
fiscal year 2006. As shown in figure 1, 87 percent of the approximately
$1 billion in unpaid taxes was comprised of individual income and
payroll taxes. The other 13 percent of taxes included corporate income,
excise, unemployment, and other types of taxes.
Figure 1: Medicaid Providers' Unpaid Taxes by Tax Type:
This figure is a pie chart showing medicaid providers' unpaid taxes by
tax type:
Payroll: 56%;
Individual income: 31%;
Other: 13%.
[See PDF for image]
Source: GAO analysis of Medicaid and IRS data as of September 30, 2006.
[End of figure]
A substantial amount of the unpaid federal taxes shown in IRS records
as owed by Medicaid providers had been outstanding for several years.
As reflected in figure 2, about 56 percent of the $1 billion in unpaid
taxes was for tax periods from calendar year 2000 through calendar year
2004, and approximately 29 percent of the unpaid taxes was for tax
periods prior to calendar year 2000. [Footnote 13]
Figure 2: Unpaid Taxes of Medicaid Providers by Calendar Year:
This figure is a pie chart showing unpaid taxes of medicaid providers
by calendar year:
2000-2004: 56%;
Prior to 2000: 29%;
2005: 15%.
[See PDF for image]
Source: GAO analysis of Medicaid and IRS data as of September 30, 2006.
[End of figure]
The amount of unpaid federal taxes reported above does not include all
tax debts owed by Medicaid providers due to statutory provisions that
give IRS a finite period under which it can seek to collect on unpaid
taxes. There is a 10-year statute of limitations beyond which IRS is
prohibited from attempting to collect tax debt.[Footnote 14]
Consequently, if the Medicaid providers owe federal taxes beyond the 10-
year statutory collection period, the older tax debt may have been
removed from IRS's records. We were unable to determine the amount of
tax debt that had been removed.
Although the $1 billion in unpaid federal taxes we identified as owed
by Medicaid providers as of September 30, 2006, is a significant
amount, it understates the full extent of unpaid taxes. This amount
does not include amounts due IRS from Medicaid providers that did not
file payroll taxes (nonfilers) and that underreported their payroll tax
liability (underreporters). Also, we did not include Medicaid provider
tax debt from 2006 tax periods, or tax debt for entities owing less
than $100 or paid less than $100.
Examples of Extent and Nature of Medicaid Providers' Abusive and
Criminal Activity Related to the Federal Tax System:
For all 25 cases that we audited and investigated,[Footnote 15] we
confirmed that their activities were abusive and in many instances
found criminal activity related to the federal tax system. These 25
providers were paid by Medicaid for a variety of services, including
hospital, nursing facility, physician, and ambulance services. Payments
ranged from about $100,000 to approximately $39 million during fiscal
year 2006. In table 1, we summarize 5 of these cases. We have referred
the 25 cases detailed in our accompanying report to IRS so that it can
determine whether additional collection action or criminal
investigation is warranted. In response to our report, IRS agreed to
review our cases to determine if additional collection action or
criminal investigation is needed.
Table 1: Medicaid Providers with Unpaid Federal Taxes:
Case: 1;
Nature of work: Nursing home;
Medicaid payments[A]: $39 million;
Unpaid federal tax[B]: $16 million;
Comments:
* Business's tax debt is primarily unpaid payroll taxes;
* Business fined for quality of care violations in early 2000s;
* Business officer withdrew over $100,000 in cash at casinos at the
same time he was not paying the nursing home's taxes;
* Multimillion-dollar IRS and state tax liens filed against the
business.
Case: 2;
Nature of work: Hospital;
Medicaid payments[A]: $9 million;
Unpaid federal tax[B]: $5 million;
Comments:
* Business's tax debts are primarily composed of unpaid payroll taxes
beginning in the late 1990s;
* IRS reported tax debts to the continuous levy program for collection
action;
* IRS proposed an injunction to close the business in a recent year
because the business continued to accumulate tax debt;
* IRS assessed a trust fund recovery penalty (TFRP) against business
owners;
* IRS attempted to levy a bank account but the owner closed the account
prior to the levy;
* Business owners had several large cash transactions in recent years;
* Owners own two residences worth over $2 million;
* IRS and the state filed tax liens against the business;
* Business received over $2 million in Medicare payments in a recent
year.
Case: 3;
Nature of work: Nursing home;
Medicaid payments[A]: $6 million;
Unpaid federal tax[B]: $2 million;
Comments:
* Business's federal tax debts are primarily composed of unpaid payroll
taxes;
* Business received nearly $2 million in Medicare payments in a recent
year;
* IRS reported tax debts to the continuous levy program for collection
action;
* Business charged with patient abuse, and business and business owner
also fined and suspended for jeopardizing the health and safety of
patients;
* IRS filed tax liens against the business and business owner;
* Related business owes over $1 million of unpaid taxes that have been
referred to the continuous levy program.
Case: 4;
Nature of work: Home care;
Medicaid payments[A]: $2 million;
Unpaid federal tax[B]: $3 million;
Comments:
* Business's tax debts are primarily unpaid payroll taxes beginning in
the late 1990s;
* Business did not file tax returns in late 1990s and early 2000s;
* Business owners own multiple real properties, including a million
dollar residence, luxury vehicles, and a recreational boat;
* IRS assessed over $1 million TFRP against one business owner;
* Business filed bankruptcy in a recent year;
* IRS and state filed tax liens against the business;
* Business owners own several related health care businesses which are
in bankruptcy status.
Case: 5;
Nature of work: Professional counselor;
Medicaid payments[A]: $200,000;
Unpaid federal tax[B]: $200,000;
Comments:
* Owner's tax debt is primarily individual income taxes;
* Owner and spouse currently under investigation for mail fraud;
* Owner has a felony conviction;
* Owner indicted for fraud for several hundred thousand dollars
relating to a federal program;
* IRS filed tax liens against the owners.
Source: GAO's analysis of IRS, FMS, Medicaid claims, public, and other
records.
Notes: Dollar amounts are rounded. The nature of unpaid taxes for
businesses was primarily due to unpaid payroll taxes. A Medicaid
provider can submit claims using either an employer identification
number (EIN) or Social Security number (SSN). In our testimony, any
provider submitting a claim with an EIN is referred to as a business,
and any provider submitting a claim with an SSN is referred to as an
individual.
[A] Medicaid payments are Medicaid claims paid by states for fiscal
year 2006 (October 1, 2005, to September 30, 2006).
[B] Unpaid tax amount was as of September 30, 2006.
[End of table]
The above cases illustrate how some Medicaid providers abused the
federal tax system for their own benefit. Some of these individuals
bought or owned significant personal assets, including expensive homes,
recreational boats and luxury vehicles. One business officer withdrew
over $100,000 in cash at casinos at the same time the business owed
millions of dollars in federal taxes. Further, another case study
business was sanctioned by its state regulator for substandard care of
its patients.
Four of the above cases involved established businesses that owed
federal payroll taxes withheld for their employees. Rather than fulfill
their role as "trustees" of these funds and forward them to IRS as
required by law, these health care providers diverted the money for
other purposes. These payroll taxes included amounts withheld from
employee wages for Social Security, Medicare, and individual income
taxes.[Footnote 16]
Providers with Unpaid Federal Taxes Are Not Prohibited from Enrolling
or Receiving Payments from Medicaid:
Federal law does not prohibit providers with unpaid federal taxes from
enrolling in and billing Medicaid. Federal regulations and policies
require the states, as part of their responsibilities for determining
whether the providers meet Medicaid requirements for enrollment, to
verify basic information on potential providers, including whether the
providers meet state licensure requirements and whether the providers
are prohibited from participating in federal health care programs.
However, federal regulations and policies do not require the states to
screen these providers for federal tax delinquency, nor do they
explicitly authorize the states to reject the providers that have
delinquent tax debt from participation in Medicaid. CMS officials
stated that the primary focus of the Medicaid program is to provide
health care services for low income people and not the administration
of taxes. CMS officials stated that such a requirement could be a
burden to the states in their enrollment of providers and could
adversely impact states' ability to provide health care to the poor.
Consequently, the selected states' processes generally do not consider
federal tax debts of prospective providers in the Medicaid enrollment
process.[Footnote 17]
Further, due to a statutory restriction on disclosure of taxpayer
information, even if tax debts specifically were to be considered in
enrollment in Medicaid, no coordinated or independent mechanism exists
for the states to obtain complete information on providers that have
unpaid tax debt. Federal law does not permit IRS to disclose taxpayer
information, including tax debts, to CMS or Medicaid state officials
unless the taxpayer consents, which neither CMS nor the states
currently seek.[Footnote 18] Thus, certain tax debt information can
only be discovered from public records if IRS files a federal tax lien
against the property of a tax debtor or if a record of conviction for
tax offense is publicly available.[Footnote 19] Consequently, CMS and
state officials do not have ready access to information on unpaid tax
debts to consider in making decisions on Medicaid providers.
Although a provision of the Taxpayer Relief Act of 1997 authorizes IRS
to continuously levy certain federal payments made to delinquent
taxpayers, no tax debt owed by Medicaid providers has ever been
collected using this provision of the law.[Footnote 20] If there had
been an effective levy program in place, we estimate that the selected
states could have levied payments for the federal government and
collected between $70 million to about $160 million of unpaid federal
taxes during fiscal year 2006. In response to our recommendation to
conduct a study to determine whether Medicaid payments can be
incorporated in the continuous levy program, IRS has determined that
Medicaid payments are not federal payments and thus not subject to the
continuous levy program.[Footnote 21]
Concluding Comments:
Available data indicate that the vast majority of Medicaid providers
appear to pay their federal taxes. However, our work has shown that
over 30,000 Medicaid providers have taken advantage of the opportunity
to avoid paying their federal taxes. While Medicaid providers are
relied on to deliver significant medical services to those most in
need, they must also pay their fair share of federal taxes. It is also
important that they comply with federal tax law in order for the
federal government to collect the funds to which it is entitled to
finance critical government priorities, and to help improve the overall
level of compliance with the nation's tax laws.
Mr. Chairman and Members of the Subcommittee, this concludes my
statement. I would be pleased to answer any questions that you or other
members of the committee may have at this time.
For further information about this testimony, please contact Gregory D.
Kutz at (202) 512-6722 or kutzg@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this testimony.
[End of section]
Appendix I: Related GAO Products:
Tax Compliance: Thousands of Organizations Exempt from Federal Income
Tax Owe Nearly $1 Billion in Payroll and Other Taxes. GAO-07-1090T.
Washington, D.C.: July 24, 2007.
Tax Compliance: Thousands of Organizations Exempt from Federal Income
Tax Owe Nearly $1 Billion in Payroll and Other Taxes. GAO-07-563.
Washington, D.C.: June 29, 2007.
Tax Compliance: Thousands of Federal Contractors Abuse the Federal Tax
System. GAO-07-742T. Washington, D.C.: April 19, 2007.
Medicare: Thousands of Medicare Part B Providers Abuse the Federal Tax
System. GAO-07-587T. Washington, D.C.: March 20, 2007.
Internal Revenue Service: Procedural Changes Could Enhance Tax
Collections. GAO-07-26. Washington, D.C.: November 15, 2006.
Tax Debt: Some Combined Federal Campaign Charities Owe Payroll and
Other Federal Taxes. GAO-06-887. Washington, D.C.: July 28, 2006.
Tax Debt: Some Combined Federal Campaign Charities Owe Payroll and
Other Federal Taxes. GAO-06-755T. Washington, D.C.: May 25, 2006.
Financial Management: Thousands of GSA Contractors Abuse the Federal
Tax System. GAO-06-492T. Washington, D.C.: March 14, 2006.
Financial Management: Thousands of Civilian Agency Contractors Abuse
the Federal Tax System with Little Consequence. GAO-05-683T.
Washington, D.C.: June 16, 2005.
Financial Management: Thousands of Civilian Agency Contractors Abuse
the Federal Tax System with Little Consequence. GAO-05-637. Washington,
D.C.: June 16, 2005.
Financial Management: Some DOD Contractors Abuse the Federal Tax System
with Little Consequence. GAO-04-414T. Washington, D.C.: February 12,
2004.
Financial Management: Some DOD Contractors Abuse the Federal Tax System
with Little Consequence. GAO-04-95. Washington, D.C.: February 12,
2004.
[End of section]
Footnotes:
[1] See related GAO products at the end of this testimony.
[2] GAO, Medicaid: Thousands of Medicaid Providers Abuse the Federal
Tax System, GAO-08-17 (Washington, D.C.: Nov. 14, 2007).
[3] There are 56 Medicaid programs, including one for each of the 50
states, the District of Columbia, Puerto Rico, American Samoa, Guam,
Northern Mariana Islands, and the Virgin Islands. Hereafter, all 56
entities are referred to as states.
[4] Throughout this testimony, these seven states are referred to as
the selected states.
[5] GAO-08-17.
[6] We considered activity to be abusive when a Medicaid provider's
actions or inactions, though not illegal, took advantage of the
existing tax enforcement and administration system to avoid fulfilling
federal tax obligations and were deficient or improper when compared
with behavior that a prudent person would consider reasonable.
[7] Because some Medicaid providers may do business with Medicare and
other federal agencies, such as Veterans Affairs, some of the
approximately 30,000 Medicaid providers described in this testimony may
also have been included in our reports concerning the Department of
Defense, General Services Administration, civilian federal contractors,
Medicare Part B providers, and tax-exempt organizations that abuse the
federal tax system.
[8] Payroll taxes include amounts that employers withhold from
employees' wages for federal income taxes, Social Security, and
Medicare as well as the related employer matching contributions for
Social Security and Medicare taxes. Employers are responsible for
remitting payroll taxes to IRS and are liable for any outstanding
balance.
[9] Willful failure to remit payroll taxes is a criminal felony offense
while the failure to properly segregate payroll taxes can be a criminal
misdemeanor offense. 26 U.S.C. §§ 7202, 7215, and 7512 (b).
[10] States screen health care providers prior to enrollment into the
Medicaid program. States also process and pay Medicaid claims and are
reimbursed for the federal share of these payments by CMS.
[11] GAO-08-17.
[12] Our estimate of Medicaid providers with tax debt as of September
30, 2006, excluded (1) tax debts that have not been agreed to by the
tax debtor or affirmed by the court, (2) tax debts from calendar year
2006, (3) approved Medicaid claims less than $100, and (4) tax debts
less than $100.
[13] A "tax period" varies by tax type. For example, the tax period for
payroll and excise taxes is generally one quarter of a year. The
taxpayer is required to file quarterly returns with IRS for these types
of taxes, although payment of the taxes occurs throughout the quarter.
In contrast, for income, corporate, and unemployment taxes, a tax
period is 1 year.
[14] The 10-year time limit may be suspended and include periods during
which the taxpayer is involved in a collection due process appeal,
litigation, a pending offer-in-compromise, or an installment agreement.
As a result, fig. 2 includes taxes that are for tax periods from more
than 10 years ago.
[15] For these 25 cases, we obtained copies of automated tax
transcripts and other tax records (for example, revenue officer's
notes) from IRS and performed additional searches of criminal,
financial, and public records. In cases where record searches and IRS
tax transcripts indicated that the owners or officers of a business
were involved in other related entities (i.e., entities that share
common owner(s) or officer(s), a common TIN, or a common address) that
have unpaid federal taxes, we also reviewed the related entities and
the owner(s) or officer(s), in addition to the original business we
identified. In instances where we identified related parties that had
both Medicaid payments and tax debts, our case studies included those
related entities, combining unpaid taxes and combined Medicaid payments
for the original individual/business as well as all related entities.
Because our investigations were generally limited to publicly available
information, our audit of the 25 cases may not have identified all
related parties or all significant assets (i.e., personal bank data,
companies established to hide assets) that the Medicaid providers own.
[16] Willful failure to remit payroll taxes is a criminal felony
offense while the failure to properly segregate payroll taxes can be a
criminal misdemeanor offense. 26 U.S.C. §§ 7202, 7215, and 7512 (b).
[17] Officials from California stated that they do consider federal
debts, including tax debts, if they are self-disclosed on a Medicaid
application. California officials said that no verification is made.
[18] 26 U.S.C. § 6103.
[19] Under section 6321 of the Internal Revenue Code, IRS has the
authority to file a lien upon all property and rights to property,
whether real or personal, of a delinquent taxpayer.
[20] To improve the collection of unpaid taxes, IRS is authorized to
continuously levy up to 100 percent for federal payments related to
goods and services. To implement this levy authority, IRS, in
coordination with the Department of the Treasury's FMS, implemented the
Federal Levy Payment Program in July 2000. This program uses FMS's
Treasury Offset Program (TOP) for the levy of federal payments.
[21] In addition to the continuous levy program, IRS also has the
authority to legally seize property either held by the taxpayer or
owned by the taxpayer and held by a third party. This authority
includes the seizure of Medicaid receivables held by states and owed to
health care providers. Unlike levies from the continuous levy program,
each levy is typically a one-time seizure of property (i.e., Medicaid
receivables) held by states at a specific point of time and is done on
a case-by-case basis based on the particular circumstances of the case.
IRS officials stated that they do not know how much in tax levies were
collected from Medicaid payments.
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