Medicare
Thousands of Medicare Providers Abuse the Federal Tax System Gao ID: GAO-08-618 June 13, 2008Under the Medicare program, the Centers for Medicare & Medicaid Services (CMS) and its contractors paid over $400 billion in Medicare benefits in calendar year 2006. GAO was asked to determine if Medicare providers have unpaid federal taxes and, if so, to (1) determine the magnitude of such debts, (2) identify examples of Medicare providers that have engaged in abusive or potentially criminal activities, and (3) determine whether CMS prevents delinquent taxpayers from enrolling in Medicare or levies payments to pay taxes. To determine amount of unpaid taxes owed by Medicare providers, GAO compared claim payment data from CMS and tax debt data from the Internal Revenue Service (IRS). In addition, GAO reviewed policies, procedures, and regulations related to Medicare. GAO also performed additional investigative activities.
Our analysis of data provided by CMS and IRS indicates that over 27,000 health care providers (i.e., about 6 percent of all such providers) paid under Medicare during calendar year 2006 had payroll and other agreed-to federal tax debts totaling over $2 billion. The $2 billion in unpaid tax debts only includes those debts reported on a tax return or assessed by IRS through its enforcement programs. This $2 billion figure is understated because some of these Medicare providers owed taxes under separate tax identification numbers (TIN) from the TINs that received the Medicare payments or they did not file their tax returns. We selected 25 Medicare providers with significant tax debt for more in-depth investigation of the extent and nature of any abusive or potentially criminal activity. Our investigation found abusive and potentially criminal activity, including failure to remit to IRS payroll taxes withheld from their employees. Rather than fulfill their role as "trustees" of this money and forward it to IRS as required by law, these Medicare providers diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. Furthermore, individuals associated with some of these providers at the same time used payroll taxes withheld from employees for personal gain. Some of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. In addition, some providers received Medicare payments even though they had quality-of-care issues, such as losing track of a patient in their care who has not been found. CMS has not developed a policy to require contractors (1) to obtain consent for IRS disclosure of federal tax debts and (2) to screen providers for unpaid taxes. Further complicating this issue, absent consent by the taxpayer, which CMS does not require, federal law generally prohibits the disclosure of taxpayer data to CMS or its contractors. IRS can continuously levy up to 15 percent of each payment made to a federal payee--for example, a Medicare hospital--until that tax debt is paid. However, CMS has not incorporated most of its Medicare payments into the continuous levy program. As a result, for calendar year 2006, the government lost opportunities to potentially collect over $140 million in unpaid taxes.
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Report to the Permanent Subcommittee on Investigations, Committee on
Homeland Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
June 2008:
Medicare:
Thousands of Medicare Providers Abuse the Federal Tax System:
GAO-08-618:
GAO Highlights:
Highlights of GAO-08-618, a report to the Permanent Subcommittee on
Investigations, Committee on Homeland Security and Governmental
Affairs, U.S. Senate.
Why GAO Did This Study:
Under the Medicare program, the Centers for Medicare & Medicaid
Services (CMS) and its contractors paid over $400 billion in Medicare
benefits in calendar year 2006.
GAO was asked to determine if Medicare providers have unpaid federal
taxes and, if so, to (1) determine the magnitude of such debts, (2)
identify examples of Medicare providers that have engaged in abusive or
potentially criminal activities, and (3) determine whether CMS prevents
delinquent taxpayers from enrolling in Medicare or levies payments to
pay taxes.
To determine amount of unpaid taxes owed by Medicare providers, GAO
compared claim payment data from CMS and tax debt data from the
Internal Revenue Service (IRS). In addition, GAO reviewed policies,
procedures, and regulations related to Medicare. GAO also performed
additional investigative activities.
GAO recommends that CMS consider issuing guidance to require Medicare
contractors to screen prospective Medicare providers for unpaid taxes,
including obtaining consent from these providers to disclose federal
tax debts. GAO also recommends that CMS incorporate all Medicare
payments into the continuous levy program as expeditiously as possible.
CMS stated that it has taken some actions and is planning other actions
to address GAO‘s two recommendations.
What GAO Found:
Our analysis of data provided by CMS and IRS indicates that over 27,000
health care providers (i.e., about 6 percent of all such providers)
paid under Medicare during calendar year 2006 had payroll and other
agreed-to federal tax debts totaling over $2 billion. The $2 billion in
unpaid tax debts only includes those debts reported on a tax return or
assessed by IRS through its enforcement programs. This $2 billion
figure is understated because some of these Medicare providers owed
taxes under separate tax identification numbers (TIN) from the TINs
that received the Medicare payments or they did not file their tax
returns.
We selected 25 Medicare providers with significant tax debt for more in-
depth investigation of the extent and nature of any abusive or
potentially criminal activity. Our investigation found abusive and
potentially criminal activity, including failure to remit to IRS
payroll taxes withheld from their employees. Rather than fulfill their
role as ’trustees“ of this money and forward it to IRS as required by
law, these Medicare providers diverted the money for other purposes.
Willful failure to remit payroll taxes is a felony under U.S. law.
Furthermore, individuals associated with some of these providers at the
same time used payroll taxes withheld from employees for personal gain.
Some of these individuals accumulated substantial wealth and assets,
including million-dollar houses and luxury vehicles, while failing to
pay their federal taxes. In addition, some providers received Medicare
payments even though they had quality-of-care issues, such as losing
track of a patient in their care who has not been found.
Table: Examples of Abusive and Criminal Activity:
Type of business: Hospital;
Unpaid tax debt: $15 million;
CMS payments: $21 million;
Description of Medicare health care provider activity: Owners were
found liable for submitting false claims to Medicare from another
medical business.
Type of business: Nursing home;
Unpaid tax debt: $7 million ;
CMS payments: $15 million;
Description of Medicare health care provider activity: IRS records
indicate that the owner purchased luxury cars and other personal items
with money funneled through a charitable foundation.
Type of business: Nursing home;
Unpaid tax debt: $4 million ;
CMS payments: $4 million ;
Description of Medicare health care provider activity: Owner
constructed multimillion-dollar home while business was not paying its
taxes.
Source: GAO analysis of IRS, CMS, public, and other records.
[End of figure]
CMS has not developed a policy to require contractors (1) to obtain
consent for IRS disclosure of federal tax debts and (2) to screen
providers for unpaid taxes. Further complicating this issue, absent
consent by the taxpayer, which CMS does not require, federal law
generally prohibits the disclosure of taxpayer data to CMS or its
contractors.
IRS can continuously levy up to 15 percent of each payment made to a
federal payee”for example, a Medicare hospital”until that tax debt is
paid. However, CMS has not incorporated most of its Medicare payments
into the continuous levy program. As a result, for calendar year 2006,
the government lost opportunities to potentially collect over $140
million in unpaid taxes.
What GAO Recommends:
GAO recommends that CMS consider issuing guidance to require Medicare
contractors to screen prospective Medicare providers for unpaid taxes,
including obtaining consent from these providers to disclose federal
tax debts. GAO also recommends that CMS incorporate all Medicare
payments into the continuous levy program as expeditiously as possible.
CMS stated that it has taken some actions and is planning other actions
to address GAO‘s two recommendations.
To view the full product, including the scope and methodology, click on
[http://www.gao.gov/cgi-bin/getrpt?GAO-08-618]. For more information,
contact Gregory Kutz at (202) 512-6722 or kutzg@gao.gov.
[End of section]
Contents:
Letter1:
Results in Brief:
Background:
Magnitude of Unpaid Taxes of Medicare Providers:
Examples of Medicare Providers Involved in Abusive and Potentially
Criminal Activity Related to the Federal Tax System:
Medicare Providers with Unpaid Taxes Are Not Prohibited from Enrolling
in or Receiving Payments from Medicare:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Medicare Providers with Unpaid Taxes:
Appendix III: Comments from the Internal Revenue Service:
Appendix IV: Comments from the Centers for Medicare & Medicaid
Services:
Tables:
Table 1: Summary Information on 10 Medicare Providers with Unpaid
Federal Taxes:
Table 2: Summary Information on 15 Medicare Providers with Unpaid
Federal Taxes:
Figures:
Figure 1: Medicare Providers' Unpaid Taxes by Tax Type:
Figure 2: Unpaid Taxes of Medicare Providers by Calendar Year:
Figure 3: Source of Unpaid Assessment:
Abbreviations:
CMS: Centers for Medicare & Medicaid Services:
DOD: Department of Defense:
FCTC: Federal Contractor Tax Compliance:
FMS: Financial Management Service:
GSA: General Services Administration:
HHS: Department of Health and Human Services:
HIGLAS: Healthcare Integrated General Ledger Accounting System:
IRS: Internal Revenue Service:
LLC: limited liability company:
OIG: Office of Inspector General:
TFRP: trust fund recovery penalty:
TIN: taxpayer identification number:
TOP: Treasury Offset Program:
United States Government Accountability Office:
Washington, DC 20548:
June 13, 2008:
The Honorable Carl Levin:
Chairman:
The Honorable Norm Coleman:
Ranking Member:
Permanent Subcommittee on Investigations:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
This report continues a body of work that has identified federal
contractors, grant recipients, and exempt organizations with unpaid
federal taxes. In hearings held by this subcommittee,[Footnote 1] we
testified that Department of Defense (DOD), federal civilian agency and
General Services Administration (GSA) contractors abused the federal
tax system with little consequence. Because of the significance of the
issues raised during these hearings, you asked us to provide additional
information about whether health care providers who were paid by the
government for Medicaid and Medicare-related services were engaged in
similar tax abuses and to provide recommendations to increase the
effectiveness and efficiency of tax revenue collections from federal
contractors under the Federal Payment Levy Program.
This is the third in a series of reports and testimonies to respond to
your request. In March 2007, we testified that Medicare physicians,
health professionals, and suppliers paid under the Supplemental Medical
Insurance program, also known as Medicare Part B, had abused the
federal tax system while doing business with the federal
government.[Footnote 2] In November 2007, we testified and reported on
Medicaid health care providers from seven selected states that also
abused the federal tax system.[Footnote 3] This report will cover all
Medicare health care providers that have abused the federal tax system,
expanding on our March 2007 testimony.
The specific objectives of this forensic audit and related
investigations were to determine, to the extent possible, if Medicare
providers have unpaid federal taxes and, if so, to (1) determine the
magnitude of tax debts owed (2) identify examples of Medicare providers
involved in abusive or potentially criminal activities and (3)
determine whether the Centers for Medicare & Medicaid Services (CMS)
prevents Medicare providers with tax problems from enrolling in
Medicare or levies Medicare payments to pay tax debts.
To identify the magnitude of Medicare providers with unpaid federal
taxes, we obtained and analyzed the Internal Revenue Service (IRS) tax
debt data as of September 30, 2006, and obtained and analyzed the CMS
database of Medicare-approved claims and payments paid to Medicare
providers for calendar year 2006. We matched the list of Medicare
providers with IRS tax debts using taxpayer identification numbers
(TIN). To identify specific instances of abusive and potentially
criminal activities by selected Medicare providers and their owners, we
performed investigative work on a nonrepresentative selection of 25
Medicare providers. We selected these 25 providers using primarily the
amount of tax debt and number of delinquent tax periods as selection
factors. For these 25 cases, we reviewed copies of automated tax
transcripts and other tax records (for example, revenue officers'
notes) and performed additional searches of criminal, financial, health
care, and public records. To determine whether CMS prevents health care
providers from enrolling in Medicare or levies Medicare payments to pay
taxes, we examined the CMS regulations, policies, and procedures for
conducting determinations in the enrollment approval process. We also
interviewed officials from CMS, two large CMS Medicare contractors,
IRS, and the Department of the Treasury's (Treasury) Financial
Management Service (FMS) concerning any barriers to levying Medicare
payments. To determine the potential levy collections on Medicare
payments during calendar year 2006, we used 15 percent of the total
paid claim or total tax debt amount reported to the continuous levy
program, whichever was less. A more detailed description of the scope
and methodology related to our audit and investigative work supporting
this report is provided in appendix I.
We conducted this forensic audit and related investigations from July
2007 to June 2008 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
We performed our investigative work in accordance with standards
prescribed by the President's Council on Integrity and Efficiency.
Results in Brief:
In calendar year 2006, thousands of Medicare providers abused the
federal tax system with little consequence. Specifically, our analysis
of data provided by CMS and IRS indicated that over 27,000 Medicare
providers had unpaid federal taxes totaling over $2 billion. This
represented over 6 percent of the number of all Medicare providers paid
during calendar year 2006. The unpaid taxes largely consisted of
individual income and payroll taxes. However, the $2 billion of tax
debts owed by Medicare providers is substantially understated because
IRS data do not reflect all amounts owed by businesses and individuals.
Specifically, it 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 that specific tax
debts are owed. Also, there are Medicare providers that owed taxes
under separate TINs from those that received the Medicare payments and
are not included in the $2 billion figure. For example, our analysis
does not include federal taxes owed by individuals where payments are
made to the limited liability companies (LLC), partnerships, or other
businesses. These businesses then pass the income from Medicare to
business owners to be reported on their personal tax returns.
Our audits and investigations detail examples of abusive and criminal
activity related to the federal tax system by 25 Medicare providers.
These 25 providers were paid by Medicare for a variety of services,
including hospital, hospice, and skilled nursing facility services.
Many were established businesses (such as corporations) that owed
payroll taxes withheld for their employees. Rather than fulfill their
role as "trustees" of this money and forward it to IRS as required by
law, these Medicare providers diverted the money for other purposes. In
one case, a home health company received over $15 million in Medicare
payments but did not pay $7 million in federal taxes. The owner of the
company had a history of asset concealment schemes and other
questionable dealings involving trusts, partnerships, and other
entities. For example, the owner established a charitable foundation.
However, the funds from this foundation were used to purchase luxury
cars and other personal items. Our audit also identified quality of
care problems involving our cases, including patient neglect, for
example, losing track of a patient in the provider's care who has not
been found and not taking appropriate actions to prevent a patient's
suicide.
CMS has not developed Medicare regulations or an implementing policy to
(1) require contractors to obtain consent for IRS disclosure of federal
tax debts and (2) require CMS or its contractors to screen providers
for unpaid taxes. As a consequence, CMS has no mechanism to prevent
providers with substantial unpaid federal taxes from becoming Medicare
providers or receiving payments from Medicare. A provision of the
Taxpayer Relief Act of 1997 authorizes IRS to continuously levy certain
federal payments made to delinquent taxpayers.[Footnote 4] However, in
the 11 years since its passage, CMS has not incorporated most of its
Medicare payments into the continuous levy program.[Footnote 5] As a
result, for calendar year 2006, the government lost opportunities to
potentially collect over $140 million in unpaid federal taxes.[Footnote
6] CMS officials stated that they plan to incorporate all payments made
through the Healthcare Integrated General Ledger Accounting System
(HIGLAS), Medicare's central accounting system, into the levy program
by October 2008. According to CMS officials, this will cover about 60
percent of all Medicare fee-for-service payments. CMS officials stated
that the remaining 40 percent will be implemented into the continuous
levy program in the next several years as the Medicare contractors
convert their systems to HIGLAS.
We provided a draft of our report to FMS, CMS, and IRS for review and
comment. FMS did not have any comments on the draft. IRS stated that it
understood the importance and potential benefits of considering unpaid
federal tax debt in the Medicare screening process and will support the
CMS in its efforts to address the recommendations. CMS did not disagree
with our recommendations, and stated that it issued proposed rules that
would require prospective durable medical equipment, prosthetic, and
orthotic suppliers to be free of federal or state tax debt and it will
consider whether to use its authority to establish a similar
requirement for the other provider and supplier types. CMS also stated
that it is scheduled to begin subjecting its Medicare fee-for-service
payments to the levy program in October 2008. We are pleased that both
CMS and IRS have shown the willingness to improve the process of
utilizing available tax information to prevent providers with tax
problems from participating in Medicare and collecting tax debts. See
the Agency Comments and Our Evaluation section of this report for a
more detailed discussion of the agency comments. We have reprinted
IRS's written comments in appendix III and CMS's written comments in
appendix IV.
Background:
Authorized by the Title XVIII of the Social Security Act, Medicare is
the nation's largest health insurance program. In 2006, Medicare
provided medical services to 43.2 million beneficiaries and paid claims
totaling $402 billion in 2006. CMS, an operating division of the
Department of Health and Human Services (HHS), administers the Medicare
program. Medicare benefits are divided into four parts: (1) Part A
consists of inpatient hospital care, skilled nursing facility care,
qualified home health care, and hospice care; (2) Part B includes
physicians' services, outpatient hospital services, treatment for end-
stage renal disease, laboratory services, durable medical equipment,
certain elements of home health care, and other medical services and
supplies; (3) Part C, the Medicare Advantage program, includes
traditional health maintenance organizations, preferred provider
organizations, and private fee-for-service plans; and (4) Part D offers
beneficiaries an outpatient prescription drug benefit through private
plans that contract with Medicare. For Medicare Parts A and B, also
known as fee-for-service, CMS Medicare contractors are responsible for
screening Medicare providers prior to enrollment into the Medicare
program. Medicare contractors also process and pay Medicare fee-for-
service claims and are reimbursed by CMS through the Medicare Trust
Fund.[Footnote 7]
Magnitude of Unpaid Taxes of Medicare Providers:
Our analysis found that over 27,000 Medicare providers had over $2
billion in unpaid federal taxes as of September 30, 2006.[Footnote 8]
This represented over 6 percent of the approximately 436,000 Medicare
providers paid during calendar year 2006. This represented over 6
percent of the approximately 436,000 Medicare providers paid during
calendar year 2006. The amount of unpaid federal taxes we identified
among Medicare providers was substantially understated because (1) we
intentionally limited our scope to providers with agreed-to federal tax
debt for tax periods prior to 2006; (2) the IRS taxpayer data reflected
only the amount of unpaid taxes either reported by the taxpayer on a
tax return or assessed by IRS through its various enforcement programs
and thus the unpaid tax debt amount did not include entities that did
not file tax returns or underreported their income; and (3) our
analysis does not include Medicare providers that owed taxes under
separate TINs from those that received the Medicare payments.
Characteristics of Medicare Providers' Unpaid Federal Taxes:
As shown in figure 1, 73 percent of the approximately $2 billion in
unpaid taxes comprised individual income and payroll taxes. The other
27 percent of taxes included corporate income, excise, unemployment,
and other types of taxes.
Figure 1: Medicare Providers' Unpaid Taxes by Tax Type:
This figure is a pie chart showing Medicare providers' unpaid taxes by
tax type.
Payroll: $896 million: 44%;
Individual: $581 million: 29%;
Other: $540 million: 27%;
[See PDF for image]
Source: GAO analysis of Medicare payments data and IRS data as of
September 30, 2006.
[End of figure]
As shown in figure 1, Medicare providers owed $896 million in payroll
taxes. Employers are subject to civil and criminal penalties if they do
not remit payroll taxes to the federal government. When an employer
withholds taxes from an employee's wages, the employer is deemed to
have a responsibility to hold these amounts "in trust" for the federal
government until the employer makes a federal tax deposit in that
amount. When these withheld amounts are not forwarded to the federal
government, the employer is liable for these amounts as well as the
employer's matching Federal Insurance Contribution Act contributions
for Social Security and Medicare. Individuals within the business
(e.g., corporate officers) may be held personally liable for the
withheld amounts not forwarded[Footnote 9] and assessed a civil
monetary penalty known as a trust fund recovery penalty (TFRP). Failure
to remit payroll taxes can also be a criminal felony offense punishable
by imprisonment of not more than 5 years,[Footnote 10] while the
failure to properly segregate payroll taxes can be a criminal
misdemeanor offense punishable by imprisonment of up to a
year.[Footnote 11]
The law imposes no penalties on an employee for the employer's failure
to remit payroll taxes since the employer is responsible for submitting
the amounts withheld. The Social Security and Medicare trust funds are
subsidized or made whole for unpaid payroll taxes by the general fund.
Thus, personal income taxes, corporate income taxes, and other
government revenues are used to pay for these shortfalls to the Social
Security and Medicare trust funds.
A substantial amount of the unpaid federal taxes shown in IRS records
owed by Medicare providers had been outstanding for several years. As
reflected in figure 2, about 54 percent of the $2 billion in unpaid
taxes were for tax periods from calendar year 2000 through calendar
year 2004, and approximately 32 percent of the unpaid taxes were for
tax periods prior to calendar year 2000.[Footnote 12]
Figure 2: Unpaid Taxes of Medicare Providers by Calendar Year:
This figure is a pie chart showing unpaid taxes of Medicare providers
by calendar year.
2000-2004: $1.1 billion: 54%;
Prior to 2000: $648 million: 32%;
2005: $282 million: 14%;
[See PDF for image]
Source: GAO analysis of Medicare payments data and IRS data as of
September 30, 2006.
[End of figure]
Our previous work has shown that as unpaid taxes age, the likelihood of
collecting all or a portion of the amounts owed decreases.[Footnote 13]
This is, in part, because of the continued accrual of interest and
penalties on the outstanding tax debt, which, over time, can dwarf the
original tax obligation. The amount of unpaid federal taxes reported
above does not include all tax debts owed by Medicare providers because
of statutory provisions that give IRS a finite period under which it
can seek to collect unpaid taxes. Generally, there is a 10-year
statutory collection period beyond which IRS is prohibited from
attempting to collect tax debt.[Footnote 14] Consequently, if the
Medicare 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.
As shown in figure 3, Medicare providers did not disclose to IRS a
significant amount of taxes owed instead the taxes were discovered
through IRS examination or investigation. Specifically, $784 million,
or about 39 percent of the $2 billion in unpaid taxes, was assessed by
an IRS examination or investigation.[Footnote 15] Medicare providers
did report about $857 million of the tax debt amount. These amounts
were generally reported on tax returns filed but containing a balance
due.
Figure 3: Source of Unpaid Assessment:
This figure is a pie chart showing source of unpaid assessment.
Self-reported: $857 million: 42%;
IRS Examination: $784 million: 39%;
Other: $375 million: 19%.
[See PDF for image]
Source: GAO analysis of Medicare payments data and IRS data as of
September 30, 2006.
[End of figure]
Unpaid Federal Taxes of Medicare Providers Are Understated:
Although the over $2 billion in unpaid federal taxes owed by Medicare
providers as of September 30, 2006, is a significant amount, it likely
substantially understates the full extent of unpaid taxes owed by these
or other businesses and individuals. The IRS tax database reflected
only the amount of unpaid federal taxes either reported by the
individual or business on a tax return or assessed by IRS through its
various enforcement programs. The IRS database does not reflect amounts
owed by businesses and individuals that have not filed tax returns and
for which IRS has not assessed tax amounts due. For example, during our
audit, we identified several instances from our 25 case studies in
which Medicare providers failed to file tax returns for a particular
tax period and IRS had not assessed taxes for these tax periods.
Consequently, while these providers had unpaid federal taxes, they were
listed in IRS records as having no unpaid taxes for those periods.
Further, our analysis did not attempt to account for businesses or
individuals that purposely underreported income and were not
specifically identified by IRS as owing the additional federal taxes.
According to IRS, underreporting of income accounted for more than 80
percent of the estimated $345 billion annual gross tax gap.[Footnote
16] Finally, our analysis did not attempt to identify Medicare
providers that owed taxes under separate TINs from those that received
the Medicare payments. For example, sole proprietors and certain LLCs
may file Medicare claims under their employer identification numbers.
If these Medicare providers owe personal income taxes the analysis will
not capture the amount of the personal income taxes owed. Consequently,
the full extent of unpaid federal taxes for Medicare providers is not
known.
Examples of Medicare Providers Involved in Abusive and Potentially
Criminal Activity Related to the Federal Tax System:
For all 25 cases involving Medicare providers with outstanding tax debt
that we audited and investigated, we found abusive activity,
potentially criminal activity, or both related to the federal tax
system.[Footnote 17] All of these cases involved Medicare providers
that had unpaid payroll taxes, many dating as far back as the early
1990s.[Footnote 18] Rather than fulfill their role as "trustees" of
this money and forward it to IRS as required by law, these Medicare
providers diverted the money for other purposes. IRS had TFRPs in
effect for 11 of the 25 business cases at the time of our review. In
addition, as discussed previously, willful failure to remit payroll
taxes is a criminal felony offense punishable by imprisonment up to 5
years.[Footnote 19]
Our review of selected Medicare providers revealed significant
challenges that IRS faces in its enforcement of tax laws, a continuing
high-risk area for IRS.[Footnote 20] Although the nation's tax system
is built upon voluntary compliance, when businesses and individuals
fail to pay voluntarily, IRS has a number of enforcement tools,
including the use of levies, to compel compliance or elicit payment.
Our review of the 25 Medicare providers found that IRS attempted to
work with the businesses and individuals to achieve voluntary
compliance, pursuing enforcement actions later rather than earlier in
the collection process. Our review of IRS records with respect to the
25 cases showed that IRS did not issue paper levies to the Medicare
contractors to levy the payments of Medicare providers for 10 of the 25
cases. As a result, many of the Medicare providers in our case studies
continued to receive Medicare payments while failing to pay their
federal taxes.
Our investigations revealed that despite owing substantial amounts of
federal taxes to IRS, some owners of Medicare providers had substantial
personal assets--including multimillion-dollar homes and luxury cars.
For example, the auditor for one Medicare provider found that the owner
misappropriated assets for personal gain. At the same time as owing
taxes, the owner was building a multimillion-dollar residence and had
over $1.5 million in home furnishings and artwork.
In addition to failure to pay taxes, our investigations also revealed
that certain Medicare providers had significant quality-of-care and
other problems. For example, several cases involved quality-of-care
problems, including patient neglect, for example, losing track of a
patient in the provider's care who has not been found and not taking
appropriate actions to prevent a patient's suicide. In addition, a
couple of nursing homes were cited by regulators for violating patient
health and safety regulations. In another case, an owner of one
Medicare provider was excluded from the Medicare program for submitting
false Medicare claims, and in another case a provider continued to
receive Medicare payments even though it was barred from receiving
government contracts. In yet another case, the owner used funds from
the business to fund the owner's statewide political campaign during
the time the business was not paying its payroll taxes.
Table 1 highlights 10 of the 25 cases of Medicare providers with unpaid
taxes. IRS has collection actions during 2007 on 18 of 25 cases.
Appendix II provides details on the other 15 cases we examined. We are
referring all 25 cases we examined to IRS for further collection
activity and criminal investigation.
Table 1: Summary Information on 10 Medicare Providers with Unpaid
Federal Taxes:
Case: Case 1;
Nature of work/type of entity: Home health care;
Medicare paid claims during calendar year 2006[A]: $400,000;
Unpaid federal tax[B]: $600,000;
Comments: * Company has history of not paying all taxes owed since the
1990s;
* Owner has personal real estate worth over $1 million. Owner
transferred vacation house to spouse for practically nothing during IRS
collection efforts;
* According to IRS records, all attempts to bring company into
voluntary compliance have failed;
* Owner made large cash deposits and withdrawals totaling hundreds of
thousands of dollars during the time little payroll taxes were paid to
IRS.
Case: Case 2;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $1 million;
Unpaid federal tax[B]: $6 million;
Comments: * Company has history of not paying all taxes owed since the
1990s;
* Company entered into installment agreement for tens of thousands of
dollars a month but subsequently defaulted without making any of the
installment payments;
* Company was investigated for tax fraud;
* Owner transferred personal residence worth over $1 million to spouse
in mid-2000s at same time company owed taxes;
* Owner was convicted of diversion of funds from federally backed
loans;
* Owner was indicted for Medicaid fraud and patient neglect;
* Owner recently received over $150,000 in consulting business and
$100,000 in interest payments from several real estate entities.
Case: Case 3;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $100,000;
Unpaid federal tax[B]: $800,000;
Comments: * Company has history of not paying all taxes owed since the
1990s;
* Company has generally not made tax payments or filed tax returns
since the mid-2000s;
* Owner's personal residence valued at over $1 million;
* Owner annually received over $20,000 in Social Security disability
payments;
* Company received over $1.5 million in income from a real estate
investment company in late 2000s;
* IRS assessed a TFRP against the owner.
Case: Case 4;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $15 million;
Unpaid federal tax[B]: $7 million;
Comments: * Tax debts mainly consisted of payroll taxes owed from
several related companies in the early 2000s;
* Owner has personal residence valued at over $1 million and owned
another property valued at over $1 million while owing taxes;
* IRS records indicate that owner has a history of asset concealment
schemes and questionable dealings with trusts, partnerships, LLCs, and
other entities;
* Owner established charitable foundation that was used to purchase
luxury cars and other personal items;
* In addition to Medicare payments, company also received hundreds of
thousands of dollars from another federal agency and millions from a
state agency;
* Company offered to compromise the debt for hundreds of thousands of
dollars in the 2000s, but offer was rejected by IRS because taxpayer
had sufficient resources to pay the tax debts;
* Company was investigated for check kiting activity for millions of
dollars.
Case: Case 5;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $1 million;
Unpaid federal tax[B]: $11 million;
Comments: * Company has history of not paying all payroll taxes owed
since the 1990s;
* Regulator cited company for history of failure to maintain compliance
with licensure rules and serious deficiencies in health and safety of
its residents. The deficiencies were significant enough to require a
ban on all admissions for the facility;
* IRS records indicate that owner attempted to hide income through use
of partnerships, tiered agreements, and leasehold interest. In
addition, owner has business holdings in two foreign countries;
* Owner made frequent trips out of the country at the same time
business owed taxes;
* In addition to Medicare payments, company also received hundreds of
thousands of dollars from another federal agency and millions of
dollars from a state agency;
* Owner was investigated for underreporting income;
* Entity owner has many assets, including timeshares, a boat, an
unrelated business, and hundreds of thousands of dollars of decorative
items at the owner's personal residence;
* Company was investigated for check kiting activity of hundreds of
thousands of dollars;
* IRS assessed a TFRP against the owner.
Case: Case 6;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $4 million;
Unpaid federal tax[B]: $4 million;
Comments: * Company has history of not paying all payroll taxes owed
since the early 2000s, including not filing tax returns for one year
during this time;
* Company was sued for wrongful death and employment discrimination;
* Owner owns real estate worth millions of dollars;
* Owner recently built a personal residence worth over $2 million while
claiming that the owner had no funds to repay the company's taxes.
Building contractor claims that the house was built using overseas
funds;
* IRS records indicate that owner owns over $1 million in home
furnishings and artwork;
* Owner uses an LLC for income reporting so no income is reported in
owner's name. Owner reports a small amount of income to IRS while
living a lavish lifestyle;
* IRS records indicate that owner purchased property overseas and plans
to move there to avoid paying delinquent taxes;
* Owner had several luxury vehicles at same time company owed taxes;
* In addition to Medicare payments, company also received millions of
dollars from a state agency;
* IRS assessed a TFRP against the owner.
Case: Case 7;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $2 million;
Unpaid federal tax[B]: $1 million;
Comments: * Company's tax debts primarily consisted of payroll taxes;
* Owner's personal residence is worth over $1 million;
* Company paid owner millions of dollars for management fees and rent;
* Owner used company funds to augment owner's affluent lifestyle
including purchase of luxury cars and multiple vacations;
* Company offered to compromise tax debts for less than $100,000 but
offer was rejected by IRS;
* IRS records indicate that company structured cash withdrawals to
evade reporting requirements;
* In addition to Medicare payments, company also received millions of
dollars from a state agency;
* Company made multiple large cash deposits totaling tens of thousands
of dollars. Many of these transactions appear to have been structured
to avoid mandatory IRS reporting.
Case: Case 8;
Nature of work/type of entity: Home health care;
Medicare paid claims during calendar year 2006[A]: $300,000;
Unpaid federal tax[B]: $600,000;
Comments: * Company's tax debts primarily consisted of payroll taxes;
* Owner and related trust own nearly $6 million in real estate,
including residence valued at over $2 million;
* Owner pays about $100,000 a year in mortgage interest and receives
over $200,000 in investment income;
* Owner closed company that owed taxes and started new business.
Owner's new company still receives medical payments under the closed
company's TIN;
* Owner gambled tens of thousands of dollars at the same time the
company owed taxes.
Case: Case 9;
Nature of work/type of entity: Home health care;
Medicare paid claims during calendar year 2006[A]: $900,000;
Unpaid federal tax[B]: $11 million;
Comments: * Company has history of not paying all payroll taxes owed
since the 1990s;
* Owner's personal residence is worth over $5 million;
* Owner received millions of dollars in federal grants while company
was incurring tax debts;
* Owner's annual mortgage interest was about $300,000;
* Owner sold over $100 million in real estate in the late 2000s;
* IRS assessed a TFRP against the owner.
Case: Case 10;
Nature of work/type of entity: Hospital;
Medicare paid claims during calendar year 2006[A]: $21 million;
Unpaid federal tax[B]: $15 million;
Comments: * Company's tax debts primarily consisted of payroll taxes;
* An owner's personal residence is worth over $6 million;
* Owners were found liable for millions of dollars to Medicare for
submitting false claims from another medical business;
* IRS assessed a TFRP against the owner.
Source: GAO's analysis of IRS, FMS, Medicare claims, public, and other
records.
Note: Dollar amounts are rounded.
[A] Medicare payments are Medicare provider claims approved by CMS for
payment for calendar year 2006.
[B] Unpaid tax amount as of September 30, 2006.
[End of table]
The following provides illustrative detailed information on four of the
cases we examined.
* Case 4: The nursing home consists of several companies that received
over $15 million in Medicare payments while owing more than $7 million
in tax debts. IRS records indicated that the company owners attempted
to conceal assets through questionable business entities such as
trusts, partnerships, LLCs, and other fictitious entities. While the
nursing home owed taxes, the owner possessed a $1 million personal
residence and an additional $1 million piece of real estate. IRS
records also showed that the owner purchased luxury cars and other
personal items from money funneled through a charitable foundation.
Specifically, the company owner donated large sums of money to the
foundation then claimed the deductions on their personal tax return
while purchasing expensive personal items.
* Case 5: The nursing home has a history of tax noncompliance since the
late 1990s. The nursing home received over $1 million in Medicare
payments while owing more than $11 million in tax debt. IRS records
indicated that the nursing home owner has attempted to shield income
through partnerships, tiered agreements, and leasehold agreements. In
addition, the owner has various companies using over 100 bank accounts,
wire transfers, an overseas billing company, and a large financial
transaction to an overseas bank account. The nursing home has been
sanctioned by regulators for quality-of-care deficiencies so serious
that the home was barred from accepting new admissions.
* Case 6: The nursing home received over $4 million in Medicare
payments and hundreds of thousands of dollars in federal government
contracts while simultaneously owing over $4 million in tax debt.
Although the owners of the nursing home claimed an inability to pay
delinquent taxes because of lack of resources, one owner constructed a
$4 million home while the other owner lived in a multimillion-dollar
home while owing taxes. IRS records indicated that the owners also
underreported income on their personal tax returns and received
financial compensation, such as salary and bonuses, from another
company to disguise reporting of income. IRS records indicated that one
company owner may relocate overseas to avoid paying taxes.
* Case 10: The company received over $21 million in Medicare payments
while simultaneously owing over $15 million in tax debt. The company
was under investigation for underreporting income, bankruptcy fraud,
and submitting false claims to Medicare. The company's owner also owns
a multimillion-dollar residence.
Medicare Providers with Unpaid Taxes Are Not Prohibited from Enrolling
in or Receiving Payments from Medicare:
CMS does not prevent Medicare providers with tax debts from becoming
Medicare providers or receiving payments from the Medicare
program.[Footnote 21] Neither Medicare regulations nor CMS implementing
guidance require CMS or its contractors to screen Medicare providers
for tax debts prior to enrollment. Even if such requirements did exist,
absent taxpayer consent, federal law generally prohibits IRS from
disclosing taxpayer data, and consequently, CMS and its contractors
have no access to tax data directly from IRS. In addition, CMS has not
fully participated in the continuous levy program. Specifically, CMS
has not incorporated Medicare fee for service payments in the
continuous levy program. As a result, the federal government
potentially lost opportunities to collect over $140 million in unpaid
taxes during calendar year 2006.[Footnote 22]
CMS Medicare contractors are generally responsible for screening
Medicare providers prior to enrollment into the Medicare
program.[Footnote 23] However, as part of the screening process,
neither CMS policies nor CMS regulations require Medicare contractors
to consider the tax debts or tax-related abuses of prospective Medicare
providers or conduct any criminal background checks on these
individuals.[Footnote 24] Medicare contractors are required to review
the HHS Office of Inspector General (OIG) exclusion list and the GSA
debarment list; however, these lists do not include all individuals or
businesses that have abused the federal tax system.[Footnote 25]
Exclusion of certain individuals and entities from participation in
Medicare programs is made by statute.[Footnote 26] The statute provides
for both mandatory and permissive exclusions. Mandatory exclusions are
confined to health-related criminal offenses, while permissive
exclusions concern primarily non-health-related offenses. The Federal
Acquisition Regulation cites conviction of tax evasion as one of the
causes for debarment; indictment on tax evasion charges is cited as a
cause for suspension.[Footnote 27] Moreover, while a felony offense,
the deliberate failure to remit taxes, in particular payroll taxes,
will likely not result in an individual or entity being placed on the
OIG exclusion or GSA debarment lists unless the taxpayer is convicted.
Based on our work, we believe that it is unlikely that companies will
be excluded or debarred for failure to pay delinquent payroll taxes.
Even if a taxpayer is convicted of tax evasion or other tax-related
crime, the individual or business still may not be placed on the OIG
exclusion or GSA debarment lists. To place them on these lists, federal
agencies must identify those individuals and businesses and provide
them with due process. As part of due process, the agency must
determine whether the exclusion or debarment is in the government's
interest. For example, in our March 2007 testimony, we noted several
cases involving conviction of tax-related crimes where the providers
were not reported on the OIG exclusion or GSA debarment lists.[Footnote
28]
Further complicating CMS decision making on the consideration of tax
debts for Medicare, federal law does not permit IRS to disclose
taxpayer information, including tax debts, to CMS or Medicare
contractor officials unless the taxpayer consents, which CMS does not
currently require.[Footnote 29] 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 a record of conviction for tax
offense is publicly available.[Footnote 30] Consequently, CMS and its
contractors do not have ready access to information on unpaid tax debts
to consider in making decisions on Medicare providers.
Further, CMS has not implemented a process for continuously levying
payments made by Medicare contractors.[Footnote 31] As a result, IRS
does not capture at least a portion of payments made to Medicare
providers that owe federal tax debts. Thus, none of the 25 providers on
which we performed a detailed review had their Medicare fee-for-service
payments subject to the continuous levy program. As stated earlier,
federal law allows IRS to continuously levy federal vendor payments
until the tax debt is paid. IRS implemented this authority by creating
a continuous levy program that utilizes FMS's Treasury Offset Program
system. In July 2001, we reported that CMS did not have any plan to
participate in the continuous levy program and we recommended that the
Commissioners of IRS and FMS work with CMS to develop plans to include
Medicare payments in the continuous levy program.[Footnote 32] In July
2006, IRS began to pursue HHS participation in the continuous levy
program through the Federal Contractor Tax Compliance (FCTC) Task
Force, a multiagency group dedicated to improving the continuous levy
process.[Footnote 33] In response to IRS's request, and a month before
your subcommittee's hearing on Medicare physicians, health
professionals, and suppliers that owe federal taxes, CMS began to
participate in the FCTC Task Force meetings in February 2007.
According to CMS officials, CMS plans to incorporate all payments made
through HIGLAS, Medicare's central accounting system, into the levy
program by October 2008. CMS officials stated that this will cover
about 60 percent of all Medicare fee-for-service payments. CMS
officials said that the remaining 40 percent will be implemented into
the continuous levy program in the next several years as the Medicare
contractors convert their systems to HIGLAS.
If there was an effective levy program in place, we estimate that CMS
through its Medicare contractors potentially could have collected over
$140 million of unpaid federal taxes during fiscal year 2006. This
estimate was based on those debts that IRS reported to the Treasury
Offset Program as of September 30, 2006.[Footnote 34]
Conclusions:
As federal deficits continue to mount, the federal government must take
all effective measures to collect the billions of dollars of unpaid
taxes. Because payroll taxes fund the Medicare program, Medicare
providers should especially pay their fair share of taxes owed,
especially payroll taxes. However, with respect to the continuous levy
program, the federal government continues to fail to reach its
potential. A substantial amount of Medicare payments to delinquent
taxpayers will continue to go uncollected until CMS can establish a
process to incorporate its payments into the continuous levy program.
The failure to enforce tax laws against Medicare providers has a
detrimental affect on compliance.
Recommendations for Executive Action:
We recommend that the Administrator of CMS take the following two
actions:
* To enhance program integrity, consider (1) issuing guidance requiring
Medicare contractors to determine to the extent feasible if prospective
Medicare providers (including any Medicare providers that reenroll into
Medicare) have delinquent federal taxes, including obtaining applicant
consent to inquire as to tax debt status from IRS, and (2) using the
results of those inquiries in determining whether to enroll such
providers into the Medicare program. In making this determination, CMS
could also build in consideration of the potential adverse effect that
this requirement may have on Medicare's ability to provide health care
to the elderly and other Medicare beneficiaries.
* Incorporate all Medicare payments into the continuous levy program as
expeditiously as possible.
Agency Comments and Our Evaluation:
We provided a draft of our report to FMS, CMS, and IRS for review and
comment. FMS did not have any comments on the draft. We received
written comments on a draft of this report from the Commissioner of
Internal Revenue (see app. III). We also received comments from the
Acting Administrator of CMS on our draft, who did not disagree with our
two recommendations (see app. IV).
The Commissioner of Internal Revenue stated that he understood the
importance and potential benefits of considering unpaid federal tax
debt in the Medicare screening process and will support CMS in
addressing our recommendations to CMS. Further, the Commissioner of
Internal Revenue stated that if CMS established a process by which
Medicare providers supply their TINs to IRS, IRS would be able to
provide CMS a historical record of the taxpayers' accounts, which would
indicate any periods of unpaid taxes. The Commissioner of Internal
Revenue stated that IRS is currently working with CMS and FMS on a
pilot program to levy CMS Medicare payments through the continuous levy
program.
In its response to the draft of the report, the Acting Administrator of
CMS stated that CMS has taken some actions and is planning other
actions to address our recommendations. Specifically, in response to
our first recommendation, CMS stated that it issued proposed rules that
would require prospective durable medical equipment, prosthetic, and
orthotic suppliers to be free of federal or state tax debt. CMS stated
that it will consider whether to use its authority to establish a
similar requirement for the other provider and supplier types. CMS also
stated that it will carefully consider public policy implications of
balancing the interests of denying or revoking Medicare program
participation with Medicare's responsibility for paying for the health
care needs of the Medicare beneficiaries. In response to our second
recommendation, CMS stated that it is scheduled to begin subjecting its
Medicare fee-for-service payments to the levy program in October 2008.
We are pleased that both CMS and IRS have shown the willingness to
improve the process of utilizing available tax information to prevent
providers with tax problems from participating in Medicare and
collecting tax debts. As discussed in our draft report, we agree with
CMS that in determining whether to require the screening of prospective
Medicare providers for delinquent federal taxes, CMS should consider
the potential adverse effect that this requirement may have on
Medicare's ability to provide health care to the elderly and other
Medicare beneficiaries. Further, as also discussed in our draft report,
we also believe that the incorporation of Medicare fee-for-service
payments into the levy program will significantly improve collections
of outstanding federal taxes owed by Medicare providers.
As agreed with your offices, unless you publicly release its contents
earlier we plan no further distribution of this report until 30 days
from its date. At that time, we will send copies of this report to the
Secretary of the Treasury, the Commissioner of the Financial Management
Service, the Commissioner of Internal Revenue, the Acting Administrator
of Centers for Medicare & Medicaid Services, and other interested
parties.
The report is also available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov]. If you have any questions concerning
this report, please contact either 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
report.
Signed by:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
[End of section]
Appendix I: Scope and Methodology:
To identify the magnitude of unpaid federal taxes owed by Medicare
providers, we obtained and analyzed the Internal Revenue Service (IRS)
tax debt data as of September 30, 2006. We also obtained and analyzed
calendar year 2006 Medicare payments to providers from the Centers for
Medicare & Medicaid Services (CMS). Our analysis included all Medicare
providers (i.e., Parts A, B, C and D) that were paid during calendar
year 2006. We matched the Medicare payment data to the IRS unpaid
assessment data using the taxpayer identification number (TIN) field.
To avoid overestimating the amount owed by Medicare providers with
unpaid tax debts and to capture only significant tax debts, we excluded
from our analysis tax debts and paid claims meeting specific criteria
to establish a minimum threshold in the amount of tax debt and in the
amount of paid claims to be considered when determining whether a tax
debt is significant. The criteria we used to exclude tax debts are as
follows:
* tax debts that IRS classified as compliance assessments or memo
accounts for financial reporting,[Footnote 35]
* tax debts from calendar year 2006 tax periods, and:
* total unpaid taxes and Medicare paid claims of less than $100.
The criteria above were used to exclude tax debts that might be under
dispute or generally duplicative or invalid and tax debts that are
recently incurred. Specifically, compliance assessments or memo
accounts were excluded because these taxes have neither been agreed to
by the taxpayers nor affirmed by the court, or these taxes could be
invalid or duplicative of other taxes already reported. We excluded tax
debts from calendar year 2006 tax periods to eliminate tax debt that
may involve matters that are routinely resolved between the taxpayer
and IRS, with the taxes paid or abated within a short period. We
excluded tax debts and Medicare paid claims of less than $100 because
they are insignificant for the purpose of determining the extent of
taxes owed by Medicare providers.
To identify indications of abuse or potentially criminal activity, we
selected 25 Medicare providers for a detailed audit and
investigation.[Footnote 36] The 25 providers were chosen using a
nonrepresentative selection approach based on our judgment, data
mining, and a number of other criteria. Specifically, we narrowed the
25 providers with unpaid taxes based on the amount of unpaid taxes,
number of unpaid tax periods, amount of payments reported by Medicare,
and indications that owner(s) might be involved in multiple companies
with tax debts. 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 indicate that the owners or officers of a business are
involved in other related entities[Footnote 37] 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.
Because our investigations were generally limited to publicly available
information, our audit of the 25 cases may not have identified all
related parties, criminal activity or significant assets (such as
personal bank data, companies established to hide assets, etc.) related
to these Medicare providers.
To determine the potential levy collections on Medicare payments during
calendar year 2006, we used 15 percent of the total paid claim or total
tax debt amount reported to the TOP per IRS records, whichever was
less. A gap will exist between what could be collected and the maximum
levy amount calculated because (1) tax debts in TOP may not be eligible
for immediate levy because IRS has not completed due process
notifications and (2) tax debts may become ineligible for levy because
of a change in collection status (e.g., tax debtor filed for
bankruptcy).
To determine the extent to which Medicare payments to providers are
continuously levied to pay tax debts, we examined the statutory and
regulatory authorities that govern the continuous levy program and
interviewed officials from CMS, IRS, and the Financial Management
Service (FMS) to determine whether any legal barriers exist.
To determine the potential levy collections on Medicare payments during
calendar year 2006, we used 15 percent of the total paid claim or total
tax debt amount reported to the Treasury Offset Program (TOP) per IRS
records, whichever is less. A gap will exist between what could be
collected and the maximum levy amount calculated because (1) tax debts
in TOP may not be eligible for immediate levy because IRS has not
completed due process notifications and (2) tax debts may become
ineligible for levy because of a change in collection status (e.g., tax
debtor filed for bankruptcy).
Data Reliability Assessment:
To determine the reliability of the IRS unpaid assessments data, we
relied on the work we performed during our annual audits of IRS's
financial statements. While our financial statement audits have
identified some data reliability problems associated with the coding of
some of the fields in IRS's tax records, including errors and delays in
recording taxpayer information and payments, we determined that the
data were sufficiently reliable to address this report's objectives.
Our financial audit procedures, including the reconciliation of the
value of unpaid taxes recorded in IRS's masterfile to IRS's general
ledger, identified no material differences.
For the Medicare payment databases and FMS's TOP databases, we
interviewed CMS and FMS officials responsible for their respective
databases. In addition, we performed electronic testing of specific
data elements in the databases that we used to perform our work. Based
on our discussions with agency officials, our review of agency
documents, and our own testing, we concluded that the data elements
used for this testimony were sufficiently reliable for our purposes.
We conducted this forensic audit from July 2007 to June 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. We performed our
investigative work in accordance with standards prescribed by the
President's Council on Integrity and Efficiency.
[End of section]
Appendix II: Medicare Providers with Unpaid Taxes:
This appendix presents summary information on the abusive or
potentially criminal activity associated with 15 of our 25 case
studies.[Footnote 38] Table 2 summarizes the abuse or potentially
criminal activity related to the federal tax system for these 15
Medicare providers. The cases involving businesses primarily involved
unpaid payroll taxes.
Table 2: Summary Information on 15 Medicare Providers with Unpaid
Federal Taxes:
Case: Case 11;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $800,000;
Unpaid federal tax[B]: $3 million;
Comments: * Company has history of not paying all payroll taxes owed
since the 1990s;
* Company officer owed hundreds of thousands of dollars in individual
income taxes;
* IRS assessed trust fund recovery penalties (TFRP) of millions of
dollars against several company officers;
* Company filed Chapter 11 bankruptcy;
* Owner was associated with dozens of business entities. Several of
these companies were closed by the state tax department;
* IRS assessed a TFRP against the owner.
Case: Case 12;
Nature of work/type of entity: Durable medical equipment supplier;
Medicare paid claims during calendar year 2006[A]: $400,000;
Unpaid federal tax[B]: $400,000;
Comments: * Company tax debt consisted primarily of payroll taxes;
* Company had hundreds of thousands of dollars in suspicious bank
activities while owing taxes;
* Company paid to remodel an officer's personal residence from employee
retirement contributions;
* Company is under investigation for Medicare and Medicaid fraud;
* Company officer owes tens of thousands of dollars in individual
income taxes and has not filed an individual income tax return in the
past couple of years.
Case: Case 13;
Nature of work/type of entity: Home health care;
Medicare paid claims during calendar year 2006[A]: $200,000;
Unpaid federal tax[B]: $2 million;
Comments: * Company has history of not paying all payroll taxes owed
since the 1990s;
* Company made multiple large cash deposits totaling tens of thousands
of dollars. Many of these transactions appear to have been structured
to avoid mandatory IRS reporting;
* Company defaulted on installment agreement;
* Company owner is under IRS investigation for using financial
investments and company loans to avoid IRS levies;
* IRS assessed a TFRP against the owner.
Case: Case 14;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $1 million;
Unpaid federal tax[B]: $1 million;
Comments: * Company tax debt consisted primarily of payroll taxes;
* Owner owns real estate worth more than $4 million including a
personal residence valued at about $800,000;
* Owner sold off over $2 million in real estate while company owed
taxes;
* Owner has a yacht and luxury vehicle;
* Owner had numerous stock sales totaling $10 million. The largest
transaction was hundreds of thousands of dollars from an energy
company;
* Owner received federal government contract worth hundreds of
thousands of dollars while owing taxes.
Case: Case 15;
Nature of work/type of entity: Home health care;
Medicare paid claims during calendar year 2006[A]: $400,000;
Unpaid federal tax[B]: $600,000;
Comments: * Company has history of not paying all payroll taxes owed
since 2002;
* Company filed for bankruptcy and submitted an installment plan to
emerge from bankruptcy in the 2000s;
* Owner has personal residence valued at about $900,000 and sold
personal real estate for about $400,000 while company owed taxes. Owner
paid over $75,000 a year in mortgage interest;
* Company owner owned luxury vehicle;
* IRS assessed a TFRP against the owner.
Case: Case 16;
Nature of work/type of entity: Home health care;
Medicare paid claims during calendar year 2006[A]: $800,000;
Unpaid federal tax[B]: $600,000;
Comments: * Company tax debt primarily consisted of payroll taxes;
* Company has had tax compliance issues since the 1990s and defaulted
on multiple installment agreements;
* Company leased a luxury vehicle for the owner and owner's spouse also
owned a luxury vehicle;
* IRS records indicate that the high salary of the owner contributed to
the company's failure to pay taxes;
* IRS assessed a TFRP against the owner.
Case: Case 17;
Nature of work/type of entity: Home health care;
Medicare paid claims during calendar year 2006[A]: $400,000;
Unpaid federal tax[B]: $900,000;
Comments: * Company has history of not paying all payroll taxes owed
since the early 2000s;
* Owner received tens of thousands of dollars in unemployment
compensation.
Case: Case 18;
Nature of work/type of entity: Hospital;
Medicare paid claims during calendar year 2006[A]: $3 million;
Unpaid federal tax[B]: $2 million;
Comments: * Company tax debt primarily consisted of payroll taxes;
* Company filed for bankruptcy.
Case: Case 19;
Nature of work/type of entity: Home health care;
Medicare paid claims during calendar year 2006[A]: $1 million;
Unpaid federal tax[B]: $100,000;
Comments: * Company has history of not paying all payroll taxes owed
since the early 2000s;
* Owner purchased several personal properties in the 2000s worth over
$1 million;
* Company owner owned luxury vehicle.
Case: Case 20;
Nature of work/type of entity: Hospital;
Medicare paid claims during calendar year 2006[A]: $3 million;
Unpaid federal tax[B]: $1 million;
Comments: * Company generally has history of not paying all payroll
taxes owed since the early 2000s;
* Company provided owner with luxury vehicle;
* Owner was investigated for check fraud of tens of thousands of
dollars;
* IRS assessed a TFRP against the owner.
Case: Case 21;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $7 million;
Unpaid federal tax[B]: $13 million;
Comments: * Company has history of not paying all payroll taxes owed
since the early 2000s;
* IRS investigated company related to offshore accounts;
* Bank closed company's checking accounts because of check kiting of
hundreds of thousands of dollars;
* Officer owned luxury cars, boats, luxury furniture, timeshares, and
numerous possessions;
* Company was sued for rental housing-related issues and paid tens of
thousands of dollars to settle the suit.
Case: Case 22;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $800,000;
Unpaid federal tax[B]: $1 million;
Comments: * Company's tax debts primarily consisted of payroll taxes;
* In addition to Medicare payments, company also received millions of
dollars from Medicaid;
* IRS records indicate that a company officer did not bill patients for
their care for hundreds of thousands of dollars because officer wanted
company to go into receivership. Company officer planned to take over
company after it went into receivership; * IRS did not seize company
because of significant hardship to the patients;
* Company owns building worth about $2 million.
Case: Case 23;
Nature of work/type of entity: Durable medical equipment supplier;
Medicare paid claims during calendar year 2006[A]: $1 million;
Unpaid federal tax[B]: $200,000;
Comments: * Company's tax debts primarily consisted of payroll taxes
from the early 2000s. Owner has generally not made any federal payroll
tax payments for the last couple of years;
* Owner claims slow Medicare payment processing is cause for tax
delinquency;
* Company submitted installment agreement of about $7,000 a month but
was denied for failure to pay federal tax deposits;
* Company paid for owner's luxury vehicle.
Case: Case 24;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $1 million;
Unpaid federal tax[B]: $1 million;
Comments: * Company's tax debts primarily consisted of payroll taxes
from the early 2000s;
* Owner and related trust own about $2 million in real estate,
including a residence valued at over $1 million;
* Owner recently received thousands of dollars in unemployment
compensation;
* In addition to Medicare payments, company also received millions of
dollars from Medicaid;
* IRS assessed a TFRP against the owner.
Case: Case 25;
Nature of work/type of entity: Nursing home;
Medicare paid claims during calendar year 2006[A]: $1 million;
Unpaid federal tax[B]: $600,000;
Comments: * Company's tax debts primarily consisted of payroll taxes;
* Company pays majority of its income to company officers. Company also
paid for the vehicles of the officers;
* Company received thousands of dollars from another federal agency.
Source: GAO's analysis of IRS, FMS, Medicare claims, public, and other
records.
Note: Dollar amounts are rounded.
[A] Medicare payments are Medicare provider claims approved by CMS for
payment for calendar year 2006.
[B] Unpaid tax amount as of September 30, 2006.
[End of table]
[End of section]
Appendix III: Comments from the Internal Revenue Service:
Commissioner:
Department Of The Treasury:
Internal Revenue Service:
Washington, D.C. 20224:
May 19, 2008:
Mr. Gregory Kutz:
Managing Director, Forensic Audits and Special Investigations:
Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Mr. Kutz:
Thank you for the opportunity to review your draft report titled:
"Medicare: Thousands of Medicare Providers Abuse the Federal Tax
System" (GAO-08-618). I understand the importance and potential
benefits of considering unpaid federal tax debt in the Medicare
screening process and will support the Centers for Medicare and
Medicaid Services (CMS) in their efforts to address their
recommendations.
The first recommendation directs CMS to consider issuing guidance to
require Medicare contractors to screen prospective Medicare providers
for unpaid taxes, including obtaining consent from these providers to
inquire as to tax debt status from IRS. The second recommends that CMS
incorporate all Medicare payments into the continuous levy program as
expeditiously as possible.
If CMS established a process by which Medicare providers consent to CMS
supplying their Taxpayer Identification Numbers to the IRS, the IRS
would be able to provide CMS a historical record of the taxpayers'
accounts, which would indicate any periods of unpaid taxes.
With regard to the second recommendation, we are currently working with
CMS and Financial Management Services on a pilot program to levy CMS
Medicare payments through the continuous levy program. We scheduled the
pilot for production in October 2008.
If you have any questions, or if you would like to discuss this
response in more detail, please contact Frederick W. Schindler,
Director, Collection Policy at (202) 283-7650.
Sincerely,
Signed by:
Douglas Shulman:
[End of section]
Appendix IV Comments from the Centers for Medicare & Medicaid Services:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
Department Of Health & Human Services:
Office of the Assistant Secretary for Legislation:
Washington, D.C. 20201:
May 29, 2008:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Kutz:
Enclosed are the Department's comments on the U.S. Government
Accountability Office's (GAO) draft report entitled: Medicare:
"Thousands of Medicare providers Abuse the Federal Tax System" (GAO 08-
618).
The Department appreciates the opportunity to review and comment on
this report before its publication.
Sincerely,
Jennifer R. Luong for:
Vincent J. Ventimiglia, Jr.:
Assistant Secretary for Legislation:
Attachment:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services:
Administrator:
Washington, DC 20201"
Date: MAY 29 2008
Subject: Government Accountability Office (GAO) Draft Report: MEDICARE:
Thousands of Medicare Providers Abuse the Federal Tax System (GAO-08-
618)
Thank you for the opportunity to review and comment on the above GAO
draft report. GAO's study focused on Medicare providers who were
identified as owing federal tax debt and provided recommendations for
the Centers for Medicare & Medicaid Services (CMS) to improve the
process of collecting tax debt and for utilizing available tax
liability information to prevent providers with tax problems from
participating in the Medicare program. CMS appreciates the time and
resources that GAO invested in this study and has already taken several
steps to implement the recommendations.
The report recognizes that federal law does not permit the Internal
Revenue Service (IRS) to disclose taxpayer information, including tax
debts, to CMS or its Medicare contractors without consent. However,
certain tax debt can be discovered from public records if IRS files a
tax lien or if a record of a conviction for tax offense is publicly
available. CMS and its contractors do not have ready access to
information on unpaid tax debts to consider in making enrollment or
other decisions related to Medicare providers.
Despite these challenges, as your report notes, CMS is making changes
in its processes to more efficiently assist the IRS in collecting
unpaid taxes. Additionally, CMS complies with IRS policies on reporting
of income, responds to paper tax levies and sends a portion of its
Medicare payments to Treasury for the Federal Payment Levy Program
(FPLP). We would like the final report to acknowledge that CMS has been
working with GAO to provide ownership information from the CMS Provider
Enrollment Chain Ownership System. We understand that GAO is using this
information to review for tax delinquency and fraud.
The GAO recommends that the Administrator of CMS take the following two
actions:
GAO Recommendation:
To enhance program integrity, consider: (I) issuing guidance requiring
Medicare contractors to determine to the extent feasible if prospective
Medicare providers (including any Medicare providers that reenroll into
Medicare) have delinquent federal taxes, including obtaining applicant
consent to inquire as to tax debt status from IRS; and (2) using the
results of those inquiries in determining whether to enroll such
providers into the Medicare program. In making this determination, CMS
could also build in consideration of the potential adverse effect that
this requirement may have on Medicare's ability to provide health care
to the elderly and other Medicare beneficiaries.
CMS Response:
As noted by GAO on page 21 of its report, CMS issued proposed rules on
January 25, 2008 that would require prospective durable medical
equipment, prosthetic and orthotic suppliers to be free of federal or
state tax debt. CMS is considering whether to use its authority to
establish a similar requirement for other provider and supplier types.
Very importantly, as GAO suggests, Medicare must balance the interests
of denying or revoking Medicare program participation with Medicare's
responsibility for paying for the health care needs of the Medicare
beneficiary. While CMS must enforce its payment safeguard role and take
appropriate enforcement actions, public policy implications would have
to be carefully considered. These larger issues as they relate to tax
delinquencies might be better addressed by Congress with specific
consideration of the merits of singling out health care reimbursement
to enforce forfeiture of livelihood or facility closure. As we gain
experience with FPLP, beginning in October 2008, we will continue to
work with GAO, the health care provider industry and Congress regarding
the ways we can safeguard the Medicare program from those individuals
and organizations that have tax delinquencies.
GAO Recommendation:
Incorporate all Medicare payments into the continuous levy program as
expeditiously as possible.
CMS Response:
As GAO noted on page 24 of the draft report, in October 2008, CMS is
scheduled to begin subjecting Medicare fee-for-service payments to
FPLP. CMS has been consistently consolidating its Medicare claims
processing systems and will have, by this October, successfully
migrated a number of its largest contractors to a single integrated
financial ledger”the Healthcare Integrated General Ledger Accounting
System (HIGLAS). This effort will result in over 60 percent of Medicare
payments being subject to the continuous levy program. Historically,
CMS had over 75 claims and financial processing systems that would have
made earlier participation in FPLP difficult and costly. With the
implementation of HIGLAS, execution of the continuous levy will be
efficient and timely. CMS will exchange Medicare payment information
daily with Treasury's Financial Management Service (FMS).
In addition to the above, CMS has additional comments outlined below:
* The draft report does not mention that CMS issues over 1 million IRS
1099s for its Medicare payments made during the year. These are
available for IRS to match tax debts with payments.
(See comment 1.):
* We would like the report to reflect that in 2006, CMS received 970
paper levies from IRS Revenue Officers totaling $109 million.
(See comment 2.):
* The draft report suggests that CMS has not incorporated most of its
debt into the FPLP since the passage of the Taxpayer Relief Act of 1997
when it authorized the continuous levy of federal payments. Presently,
over $11 billion in Medicare payments per month are subject to the
FPLP, representing 30 percent of Medicare monthly payments. These are
payments to managed care organizations, prescription drug plans,
certified laboratories and those made under an authorized demonstration
plan.
(See comment 3.):
* The CMS' Chief Financial Officer (CFO) became aware of the Federal
Contractor Tax Compliance (FCTC) Taskforce in February 2007, and
immediately began participating, on a biweekly basis, in the Taskforce
in order to develop plans to bring Medicare contractor payments into
the FPLP. We believe it is significant that CMS will be ready to send
payments, using a new IT solution, 20 months after first meeting with
the FCTC Taskforce.
(See comment 4.):
* Additionally, the draft report fails to recognize that, through the
IRS/CMS/SSA Data Match, CMS uses IRS data from citizens tax returns,
coupled with their SSA data and Medicare enrollment records to identify
other health plan coverage. Annually, CMS saves over $1.2 billion in
Medicare Trust Fund for services that are the responsibility of other
insurers. This exchange of information since 1991 has saved billions.
(See comment 5.):
* On page 7 of the report, the GAO reports that over 27,000 Medicare
providers had unpaid federal taxes. However, until reaching footnote 36
on page 28, which says the report addresses only Part A providers, the
report does not indicate which categories of the more than 1,000,000
Medicare Part A and B providers and suppliers this includes. On page 4,
the draft report says that the 27,000 providers represent 6 percent of
all Medicare providers paid in 2006. We do not understand the basis for
this calculation and recommend that the GAO provide more detail. There
are approximately 1,000,000 Part B providers and suppliers alone. Of
the 25 examples discussed, all are either a healthcare organization or
a corporation. The majority of Medicare providers are physicians and
over 82 percent of these physicians have assigned themselves to a
corporation. In GAO's report of last year specifically addressing Part
B providers, the report said that 21,000 of these had tax debts. Is the
combined total 48,000 and what is the provider universe to which that
total should be compared?
(See comment 6.):
* On page 22 of the draft report, the GAO cites the difficulty imposed
by the existing debarment system and says that Federal agencies must
provide potentially barred individuals and businesses with due process,
implying that it might not be necessary or desirable. The CMS solicits
any recommendations the GAO could offer on this issue.
(See comment 7.):
* The GAO says that the $2 billion owed in unpaid tax debts includes
debts already known to and assessed by the IRS through its enforcement
programs. As of September 2006, those tax debts remained uncollectible.
Beginning in October 2008, CMS will be sending over 60 percent of its
Medicare payments through the FPLP enforcement program. We recommend
that the GAO review the results of that effort to determine actual
collections and whether the estimate needs to be revised.
(See comment 8.):
* The study established a minimum ($100) threshold for tax debt. The
report does not, however, include any data on the number of providers
or dollars of taxes owed above the $100 threshold. For example, if one
percent (270) of the debtors owe at least $10,000 and in the aggregate
this amounts to 99 percent of the $2 billion owed, the implications for
enforcement are different than if the debt amounts were less skewed.
Additionally, there is no information on tax debts by provider type.
Enforcement efforts targeted to a few thousand high-risk corporations
or provider types could be a strategic objective.
(See comment 9.):
The CMS would like to again acknowledge our appreciation to the GAO for
its efforts and appreciates the opportunity to review and comment on
the draft report. We look forward to any additional insights that GAO
can provide so that CMS can strengthen its stewardship of the Medicare
Trust Funds.
The following are GAO's comments on CMS's letter dated May 29, 2008.
GAO Comments:
1. IRS Form 1099 is an annual information report of income to IRS.
However, this report cannot be used to continuously levy Medicare
payments because they reflect prior calendar year payments that have
already been made to the provider.
2. We have revised the report to state that CMS reported that it
received 970 paper levies from IRS revenue officers totaling $109
million. We also noted that while CMS did not report the amount it
actually collected from these paper levies, we do not believe paper
levies are a significant source of revenue collection.
3. We have revised the report to include the amount of Medicare
payments that are subject to the continuous levy program.
4. IRS provided documentation that showed that in July 2006 IRS began
to pursue Department of Health and Human Services participation in the
continuous levy program through the Federal Contractor Tax Compliance
Task Force.
5. The IRS/CMS/SSA[Footnote 39] data match program is not used to
collect delinquent federal taxes. Therefore, a discussion of this
program is not relevant to our report.
6. We have revised the report to clarify that the 27,000 Medicare
providers with unpaid federal taxes encompasses all Medicare providers
that have received payments during calendar year 2006. This includes
all Medicare providers for Parts A, B, C, and D. Our analysis only
included Medicare providers that had TINs that received Medicare
payments greater than $100. As our draft report states, we believe that
our estimate is substantially understated because, among other things,
our analysis does not include Medicare providers that owed taxes under
separate TINs from those that received the Medicare payments.
7. In our draft report, we stated that we believe that it is unlikely
that companies will be excluded or debarred for failure to pay
delinquent payroll taxes. Although we appreciate CMS's solicitation, we
are not making any recommendations on the use of the existing debarment
system to collect unpaid taxes at this time.
8. In our draft report, we state that to determine the potential levy
collections on Medicare payments during calendar year 2006, we used 15
percent of the total paid claim or total tax debt amount reported to
TOP per IRS records, whichever was less. A gap will exist between what
could be collected and the maximum levy amount calculated because (1)
tax debts in TOP may not be eligible for immediate levy because IRS has
not completed due process notifications and (2) tax debts may become
ineligible for levy because of a change in collection status (e.g., tax
debtor filed for bankruptcy). We plan to follow up on our
recommendation to CMS in incorporating Medicare payments into the
continuous levy program;
however, we do not believe that a revision to the estimate in this
report is necessary.
9. In our draft report, we state that our analysis only included tax
debts and Medicare paid claims of $100 or more because they are
significant for the purpose of determining the extent of taxes owed by
Medicare providers.
[End of section]
Footnotes:
[1] GAO, Financial Management: Some DOD Contractors Abuse the Federal
Tax System with Little Consequence, GAO-04-414T (Washington, D.C.: Feb.
12, 2004);
Financial Management: Thousands of Civilian Agency Contractors Abuse
the Federal Tax System with Little Consequence, GAO-05-683T
(Washington, D.C.: June 16, 2005);
and Financial Management: Thousands of GSA Contractors Abuse the
Federal Tax System, GAO-06-492T (Washington, D.C.: Mar. 14, 2006).
[2] GAO, Medicare: Thousands of Medicare Part B Providers Abuse the
Federal Tax System, GAO-07-587T (Washington, D.C.: Mar. 20, 2007).
[3] GAO, Medicaid: Thousands of Medicaid Providers Abuse the Federal
Tax System, GAO-08-17 (Washington, D.C.: Nov. 14, 2007), and Medicaid:
Thousands of Medicaid Providers Abuse the Federal Tax System, GAO-08-
239T (Washington, D.C.: Nov. 14, 2007).
[4] Pub. L. No. 105-34, 111 Stat. 788 (1997).
[5] According to CMS officials, certain Medicare payments that are
disbursed by Treasury (such as managed care and drug benefit payments)
do go through the continuous levy program.
[6] To determine the potential levy collections on Medicare payments
during calendar year 2006, we used 15 percent of the total paid claim
or total tax debt amount reported to the continuous levy program,
whichever was less. IRS officials stated that Medicare payments can
only be levied at 15 percent of payments under current law.
[7] For Medicare Parts C and D, CMS processes the payment files, which
are sent to Treasury for disbursement.
[8] Our analysis included all Medicare providers (i.e., Parts A, B, C,
and D) that were paid during calendar year 2006. Our analysis of
Medicare 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 Medicare
claims less than $100, and (4) tax debts less than $100.
[9] 26 U.S.C. § 6672.
[10] 26 U.S.C. § 7202.
[11] 26 U.S.C. § 7215 and 26 U.S.C. § 7512 (b).
[12] 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. A tax period may not always correspond to the age of
the tax debt, as when a tax form is filed years after the due date or
when IRS assesses additional taxes to earlier tax periods.
[13] GAO, Internal Revenue Service: Recommendations to Improve
Financial and Operational Management, GAO-01-42 (Washington D.C.: Nov.
17, 2000).
[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] Assessments from IRS examinations and investigations include
assessments as a result of the creation of a substitute form. Other
sources of IRS assessments include adjustments to modules, credit
discrepancies, math errors, penalties, Underreporting Program
assessments, drug assessments, delinquent return notice status,
Windfall Profits program assessments, and other assessments with none
of the other categorized conditions.
[16] According to IRS, nonfiling and underpayment of taxes made up the
rest of the gross tax gap.
[17] For all cases, we performed searches of criminal, financial, tax,
and public records to determine whether the Medicare providers are
involved in related entities. For each related entity, we determined
whether that entity had Medicare payments for calendar year 2006 and
had unpaid federal taxes as of September 30, 2006. In instances where
we identified related parties with both Medicare payments and tax
debts, we defined a case study to include those related entities, and
reported on the combined unpaid taxes and combined Medicare payments
for the original individual/business and all the related entities.
[18] 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.
[19] 26 U.S.C. § 7202.
[20] GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.:
Jan. 2007).
[21] If a Medicare provider is convicted of a felony, including tax
evasion, CMS and its contractors can revoke the Medicare providers'
enrollment and billing privileges. See 42 C.F.R. § 424.535.
[22] To determine the potential levy collections on Medicare payments
during calendar year 2006, we used 15 percent of the total paid claim
or total tax debt amount reported to the continuous levy program,
whichever is less.
[23] CMS screens and enrolls managed care organizations for the
Medicare Advantage program.
[24] CMS has recently proposed a new regulation for additional
safeguards on durable medical equipment, prosthetics, orthotics, and
supplies. In this proposed regulation, issued on January 25, 2008, CMS
requires that prospective providers must not have federal or state tax
debts.
[25] The OIG exclusion list provides information on health care
providers that are excluded from participation in Medicare, Medicaid,
and other federal health care programs because of criminal convictions
related to Medicare or state health programs or other major problems
related to health care (e.g., patient abuse or neglect). The GSA
debarment list provides information on individuals or entities that are
debarred, suspended, or otherwise excluded from participating in any
other federal procurement or nonprocurement activity. Federal agencies
can place individuals or entities on the GSA debarment list for a
variety of reasons, including fraud, theft, bribery, and tax evasion.
[26] 42 U.S.C. § 1320a-7.
[27] 48 C.F.R. § 9.406-2 and 48 C.F.R. § 9.407-2.
[28] GAO-07-587T.
[29] 26 U.S.C. § 6103.
[30] 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.
[31] Payments processed by CMS headquarters are made through Treasury.
These payments consist largely of payments for managed care, drug
subsidy, and contracts. Since these payments are processed by Treasury,
they are subject to the continuous levy program. According to CMS,
these payments represent about 30 percent of all Medicare payments. In
addition, CMS reported that it received 970 paper levies from IRS
revenue officers totaling $109 million. CMS did not report the amount
it actually collected from these paper levies. However, our discussions
with selected Medicare contractors and review of our case studies
indicate that paper levies are not a significant source of collection
revenue.
[32] GAO, Tax Administration: Millions of Dollars Could Be Collected If
IRS Levied More Federal Payments, GAO-01-711 (Washington, D.C.: July
20, 2001).
[33] To address issues raised by our February 12, 2004, report and
testimony, this multiagency task force was established to help improve
the continuous levy program. The task force includes representatives
from DOD, the Defense Finance and Accounting Service, IRS, FMS, GSA,
the Office of Management and Budget, and the Department of Justice. As
a result of the actions undertaken by the task force, IRS reported
collecting millions in taxes through the improvements in the continuous
levy program.
[34] In October 2004, Congress passed the American Jobs Creation Act of
2004, Pub. L. No. 108-357, 118 Stat 1418 codified as amended in
scattered sections of 26 U.S.C., to increase the maximum continuous
levy from 15 percent to up to 100 percent of payments to contractors
with unpaid taxes. The act specifically increased the continuous levy
on payments to vendors for "goods and services" sold or leased to the
government. According to IRS, the legal language, which specified that
goods and services be subject to the 100 percent levy provision,
excludes Medicare payments from the new levy requirement. As such,
Medicare payments will have to be levied at 15 percent.
[35] Under federal accounting standards, unpaid assessments require
taxpayer or court agreement to be considered federal taxes receivable.
Compliance assessments and memo accounts are not considered federal
taxes receivable because they are not agreed to by taxpayers or the
courts.
[36] We excluded physicians, health professionals, and suppliers paid
under Medicare Part B because they were the focus of our previous March
2007 testimony. See GAO-07-587T. Our prior investigation found Medicare
physicians, health professionals, and suppliers with abusive and
potentially criminal activity, including failure to remit to IRS
individual income taxes, payroll taxes withheld from their employees,
or both. Rather than fulfill their role as "trustees" of this money and
forward it to IRS, they diverted the money for other purposes. Willful
failure to remit payroll taxes is a felony under U.S. law. Further,
individuals associated with some of these providers used payroll taxes
withheld from employees for personal gain (e.g., to purchase new homes)
or to help fund their businesses. Many of these individuals accumulated
substantial wealth and assets, including million-dollar houses and
luxury vehicles, while failing to pay their federal taxes. In addition,
some physicians received Medicare payments even though they has serious
quality-of-care issues, including license reprimands, prior suspensions
from state medical boards, revocations of hospital privileges, and
previous exclusions from the Medicare program.
[37] We define related entities as entities that share common owner(s)
or officer(s), a common TIN, or a common address.
[38] Table 1 in the main portion of this testimony provides detailed
data on 10 cases.
[39] SSA is the Social Security Administration.
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