IRS not collecting massive taxes from Medicaid providers

A July 2012 report from the Government Accountability Office (GAO) found that the IRS could collect massive additional taxes by offsetting payments that federal government is making to these same people/companies. The full amount of uncollected taxes is not known because the report covers only three states, and not all periods. The GAO report concludes:

About 7,000 Medicaid providers in three selected states (Florida, New York, and Texas) had approximately $791 million in unpaid federal taxes from calendar year 2009 or earlier. This represents about 5.6 percent of the Medicaid providers reimbursed by the selected states during 2009. These 7,000 Medicaid providers with unpaid federal taxes received a total of about $6.6 billion in Medicaid reimbursements during 2009 (including American Recovery and Reinvestment Act of 2009 [Recovery Act] funds). The amount of unpaid federal taxes GAO identified is likely understated because Internal Revenue Service (IRS) taxpayer data reflect only the amount of unpaid taxes either reported on a tax return or assessed by IRS through enforcement; it does not include entities that did not file tax returns or underreported their income.”

The IRS reason for not making these collections is not impressive. The GAO states:

IRS may levy, or seize, a taxpayer’s property to satisfy a tax debt and, in some instances, is authorized to use an automated process to continuously levy federal payments made to delinquent taxpayers. Medicaid reimbursements have never been continuously levied using this provision of the law because the IRS determined that these reimbursements do not qualify as federal payments.”

The IRS can continuously levy salaries, wages, and may other federal payments made. But IRS believes that Medicaid payments cannot be levied in the same manner, so that multiple levies (forms) would need to be completed to continue to pursue the debtor. Apparently, completing multiple levies is too much work for the IRS, so the Medicaid scoundrels are not pursued aggressively. For the large amounts involved, this seems silly. Equally silly is why the law for these levies has not been changed. The GOA report states:

Increased levy of Medicaid reimbursements could help IRS collect millions of dollars of unpaid federal taxes owed by Medicaid providers. IRS may levy a taxpayer’s property to satisfy a tax debt, but IRS currently may only subject Medicaid reimbursements to a onetime levy instead of a continuous levy, because Medicaid reimbursements are not considered “federal payments.”

California was supposed to be part of the sample for this audit, but was not because reliable California records were not available. The GAO reports:

We attempted to obtain data from the state of California. … We determined, through data tests, interviews, and reviews of state audit reports that the Medicaid data from California for 2009 were unreliable. California provided us with $38.4 billion in transactional data, but reported $41.8 billion in Net Expenditures to CMS—a difference of $3.4 billion (8.3 percent). When we asked California officials why the amounts in the data they provided did not reconcile to externally published sources, officials told us that they were unable to reconcile the data. We have notified the Health and Human Services Office of Inspector General to take any actions it deems appropriate.”

We previously reported on multiple situations in which the IRS and/or Congress is not performing the job that taxpayers reasonably expect of them.  Examples include:

  1. IRS Continues To Mismanage Refundable Tax Credits
  2. Unreported income taxes (17% of total) are too large to ignore
  3. Audit Report Discloses $4.2 Billion Annually Is Paid To Illegal Aliens Through A Refundable Tax Credit, With Practically No Offsetting Tax Revenues
  4. Billions Of Theft From The U.S. Government Could Be Stopped



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