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Testimony: 

Before the Permanent Subcommittee on Investigations, Committee on 
Homeland Security and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:30 p.m. EST: 

Tuesday, March 20, 2007: 

Medicare: 

Thousands of Medicare Part B Providers Abuse the Federal Tax System: 

Statement of: 

Gregory D. Kutz, Managing Director: 
Forensic Audits and Special Investigations: 

Steven J. Sebastian, Director: 
Financial Management and Assurance: 

John J. Ryan, Assistant Director: 
Forensic Audits and Special Investigations: 

GAO-07-587T: 

GAO Highlights: 

Highlights of GAO-07-587T, a testimony before the Permanent 
Subcommittee on Investigations, Senate Committee on Homeland Security 
and Governmental Affairs, U.S. Senate 

Why GAO Did This Study: 

Under the Medicare program, the Department of Health and Human Services 
(HHS) and its contractors paid a reported $330 billion in Medicare 
benefits in calendar year 2005. Because GAO previously identified 
government contractors with billions of dollars in unpaid federal 
taxes, the Subcommittee requested that we expand our work in this area 
to all Medicare providers. This testimony addresses Medicare 
physicians, health professionals, and suppliers for services related to 
senior health care, who received about 20 percent of all Medicare 
payments. 

Because of limitations in HHS data, GAO was asked to determine if 
Medicare Part B physicians, health professionals, and suppliers have 
unpaid federal taxes, and if so, to (1) determine the magnitude of such 
debts; (2) identify examples of Medicare physicians and suppliers that 
have engaged in abusive, or potentially criminal activities; and (3) 
assess HHS efforts to prevent delinquent taxpayers from enrolling in 
Medicare and levy payments to pay delinquent federal taxes. 

To perform this work, GAO reviewed data from HHS and the Internal 
Revenue Service (IRS). In addition, GAO reviewed policies, procedures, 
and regulations related to Medicare. GAO also performed additional 
investigative activities. We plan to report on the results of our work 
related to other Medicare providers including any needed 
recommendations later this year. 

What GAO Found: 

Over 21,000 of the physicians, health professionals, and suppliers 
(i.e., about 5 percent of all such providers) paid under Medicare Part 
B during the first 9 months of calendar year 2005 had tax debts 
totaling over $1 billion. This $1 billion figure is understated because 
some of these Medicare health care providers have understated their 
income and/or not filed their tax returns. 

We selected 40 Medicare physicians, health professionals, and suppliers 
with high tax debt for more in-depth investigation of the extent and 
nature of any related abusive or potentially criminal activity. Our 
investigation found abusive and potentially criminal activity, 
including failure to remit to IRS individual income taxes and/or 
payroll taxes withheld from their employees. 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 a new home) 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 had serious quality-of-care issues, including 
license reprimands and prior suspensions from state medical boards, 
revocations of hospital privileges, and previous exclusions from the 
Medicare program. 

Table: Examples of Medicare Health care Provider Abusive and Criminal 
Activity: 

Type of business: Physician; 
Unpaid tax debt: Over $600 thousand; 
HHS payments received: Up to $100,000; Description of activity: 
Physician convicted of money laundering through use of offshore 
accounts. 

Type of business: Physician; 
Unpaid tax debt: Nearly $1 million; 
HHS payments received: Over $100,000; 
Description of activity: Hospital denied physician's hospital 
privileges due to substandard care. 

Type of business: Ambulance; 
Unpaid tax debt: Over $ 5 million; 
HHS payments received: Over $ 100,000; Description of activity: Owner 
convicted for defrauding the U.S. government. 

Source: GAO analysis of IRS, HHS, public, and other records. 

[End of table] 

HHS has not issued Medicare regulations or policies requiring Medicare 
contractors to consider tax debts in making a decision about whether to 
enroll a physician, health professional, or supplier into Medicare. 
Further, HHS has not established a policy to obtain taxpayer consent to 
obtain tax information from IRS as part of its Medicare eligibility 
decision-making process. 

IRS can continuously levy up to 100 percent of each payment made to a 
federal payee—for example, a Medicare physician—until that tax debt is 
paid. However, HHS is not participating in the continuous levy program 
and thus the government has not collected unpaid taxes from Medicare 
payments. In the first 9 months of calendar year 2005, we estimate that 
the government lost opportunities to collect between $50 million and 
$140 million by not participating in the continuous levy program. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-587T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Gregory Kutz at (202) 512-
7455 or Steve Sebastian at (202) 512-3406. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

Thank you for the opportunity to discuss Medicare physicians, health 
professionals, and suppliers paid under the Supplemental Medical 
Insurance program, also know as Medicare Part B, who have abused the 
federal tax system while doing business with the federal government. 
This testimony provides the results of our most recent work related to 
identifying abusers of the federal tax system. In recent hearings held 
by this subcommittee,[Footnote 1] we testified that federal contractors 
(Department of Defense, federal civilian, and General Services 
Administration contractors) abused the federal tax system with little 
consequence. Due to the significance of the issues raised during those 
hearings, you asked us to provide additional information about whether 
Medicare providers who were paid by the government for Medicare-related 
services were engaged in similar tax abuses. Because of limitations in 
the data provided to us by the Department of Health and Human Services 
(HHS), this testimony will cover physicians, health professionals, and 
suppliers who were paid under Medicare Part B and engaged in tax 
abuses.[Footnote 2] We plan to conduct a subsequent audit and related 
investigations to determine whether other Medicare providers, such as 
hospitals, durable medical equipment suppliers, and skilled nursing 
facilities, have abused the federal tax system while receiving Medicare 
payments.[Footnote 3] Any recommendations needed to address the issues 
raised in this testimony will be included as part of our planned 
subsequent reporting on this area. 

The specific objectives of this audit and investigation were to 
determine, to the extent possible, if physicians, health professionals, 
and suppliers who receive Medicare Part B payments have unpaid federal 
taxes, and if so, to (1) determine the magnitude of tax debts owed; (2) 
identify examples of physicians, health professionals, and suppliers 
involved in abusive or potentially criminal activities; and (3) assess 
HHS efforts to prevent delinquent taxpayers from enrolling in Medicare 
and levy Medicare payments to pay delinquent federal taxes. 

To identify the magnitude of physicians, health professionals, and 
suppliers with unpaid federal taxes, we obtained and analyzed Internal 
Revenue Service (IRS) tax debt data as of September 30, 2005, and 
obtained and analyzed the HHS database of Medicare Part B-approved 
claims paid to physicians, health professionals, and suppliers for the 
first 9 months of calendar year 2005.[Footnote 4] We matched the list 
of Medicare physicians, health professionals, and suppliers with IRS 
tax debts using the taxpayer identification number (TIN). To illustrate 
examples of abuse or potential criminal activity, based on our data 
mining, we selected 40 Medicare physicians and suppliers for a detailed 
audit and investigation of the extent and nature of such activity. For 
these 40 cases, we reviewed copies of automated tax transcripts and 
other tax records (for example, revenue officer's notes) and performed 
additional searches of criminal, financial, health care, and public 
records. For these cases, we also updated the tax debt amount as of 
September 30, 2006, to reflect any additional tax assessments or 
collections that IRS recorded as of that date. To determine whether HHS 
prevents physicians, health professionals, and suppliers who owe tax 
debts from enrolling in Medicare or levying Medicare payments to pay 
taxes, we examined the HHS regulations, policies, and procedures for 
conducting determinations in the enrollment approval process. We also 
interviewed officials from HHS, two large HHS Medicare contractors, 
IRS, and the Department of Treasury's Financial Management Service 
(FMS) concerning any barriers for levying Medicare payments. A more 
detailed description of the scope and methodology related to our audit 
and investigative work supporting this testimony is provided in 
appendix I. 

We conducted our work from June 2006 through February 2007. Our audit 
work was performed in accordance with U.S. generally accepted 
government auditing standards. We performed our investigative work in 
accordance with standards prescribed by the President's Council on 
Integrity and Efficiency. 

Summary: 

Thousands of Medicare Part B physicians, health professionals, and 
suppliers abused the federal tax system with little 
consequence.[Footnote 5] Specifically, our analysis of data provided by 
HHS and IRS indicates that over 21,000 Medicare Part B physicians, 
health professionals and suppliers[Footnote 6] had tax debts totaling 
over $1 billion.[Footnote 7] This represented about 5 percent of the 
number of all Medicare Part B physicians, health professionals, and 
suppliers paid during the first 9 months of calendar year 2005. The 
unpaid taxes largely consisted of individual income and payroll 
taxes.[Footnote 8] However, our $1 billion estimate of tax debts owed 
by Medicare Part B physicians, health professionals, and suppliers is 
understated because IRS data does not reflect all amounts owed by 
businesses and individuals. Specifically, it does not include amounts 
(1) 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 (2) for which IRS has not 
determined that specific tax debts are owed. Further, our past audits 
have also indicated that IRS records contain coding errors that affect 
the accuracy of taxpayer account information--including erroneous 
exclusion of tax debt from IRS's collection activities. [Footnote 9] 

Our audits and investigations detail examples of the extent and nature 
of abusive and criminal activity related to the federal tax system by 
40 Medicare Part B physicians, health professionals, and suppliers. 
These 40 cases were paid by Medicare for a variety of services, 
including physician, ambulance, laboratory, and imaging 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 physicians, health professionals, and suppliers diverted the 
money for other purposes. These payroll taxes included amounts withheld 
from employee wages for Social Security, Medicare, and individual 
income taxes.[Footnote 10] In one case, an ambulance owner paid 
employees in cash and did not report this income to the IRS. Although 
the ambulance owner was convicted for defrauding the U.S. government, 
the ambulance company continued to receive Medicare payments from HHS. 

At the same time that they were not paying their federal taxes, many 
individuals associated with our 40 cases bought or owned significant 
personal assets, including commercial properties, multimillion dollar 
homes, and luxury vehicles. One physician gambled millions of dollars 
at the same time the individual owed hundreds of thousands of dollars 
in federal taxes. Further, several of the case studies involved 
physicians who were sanctioned by their state medical boards for, among 
other things, drug abuse and substandard care of their patients. 

HHS does not have policies in place to prevent physicians, health 
professionals, and suppliers who have tax debts from enrolling in and 
receiving payments from Medicare. Further, federal law generally 
prohibits IRS from disclosing taxpayer data to HHS and its contractors 
unless the taxpayer provides consent.[Footnote 11] HHS has not 
established a policy to obtain Medicare applicant's consent to obtain 
information from IRS to consider in its Medicare eligibility decision 
making process. Specifically, HHS has not developed Medicare 
regulations or HHS implementing policy to require HHS or their 
contractors to (1) screen physicians, health professionals, and 
suppliers for unpaid taxes and (2) require contractors to obtain 
consent for IRS disclosure of federal tax debts. As a consequence, HHS 
has no mechanism to prevent physicians, health professionals, and 
suppliers who have tax debts from enrolling in or receiving payments 
from Medicare. 

Further, HHS has not taken advantage of an available program to collect 
tax debts from physicians and other Medicare Part B providers. A 
provision of the Taxpayer Relief Act of 1997 authorizes IRS to 
continuously levy certain federal payments made to delinquent 
taxpayers.[Footnote 12] However, in the 10 years since its passage, HHS 
has neither participated in the continuous levy program nor actively 
participated in a task force dedicated to improving the program's 
effectiveness. Thus, no tax debt owed by Medicare Part B physicians, 
health professionals, and suppliers has ever been collected through the 
continuous levy program.[Footnote 13] As a result, we estimate that for 
the first 9 months of calendar year 2005 alone the federal government 
lost opportunities to collect between $50 million to $140 million in 
unpaid federal taxes because HHS has not worked with IRS to effectively 
levy Medicare payments. 

Magnitude of Unpaid Taxes of Medicare Part B Physicians, Health 
Professionals, and Suppliers: 

Our analysis of 2005 data found that over 21,000 physicians, health 
professionals, and suppliers[Footnote 14] who received Medicare Part B 
payments during the first 9 months of 2005 had over $1 billion in 
unpaid federal taxes as of September 30, 2005.[Footnote 15] This 
represents about 5 percent of the number of Medicare Part B physicians, 
health professionals, and suppliers paid during the first 9 months of 
calendar year 2005. Because the IRS database does not include amounts 
owed by taxpayers who have not filed tax returns and for which IRS has 
not assessed tax amounts due, the estimated amount of unpaid federal 
taxes is understated. 

Characteristics of Medicare Part B Physicians, Health Professionals, 
and Suppliers' Unpaid Federal Taxes: 

As shown in figure 1, about 91 percent of the over $1 billion in unpaid 
taxes was comprised of federal individual income and payroll taxes. The 
other 9 percent of taxes included corporate income, excise, 
unemployment, and other types of taxes. Unlike our previous reports and 
testimonies on contractors with tax debts, a larger percentage of taxes 
owed by these physicians, health professionals, and suppliers was 
comprised of federal individual income taxes, which are unpaid amounts 
that individuals owe on their personal income. These taxpayers are 
typically either sole proprietors or certain limited liability 
companies that report income through individual income tax 
returns[Footnote 16].: 

Figure 1: Medicare Part B Physicians, Health Professionals, and 
Suppliers with Unpaid Federal Taxes (by Tax Type) as of September 30, 
2005: 

[See PDF for image] 

Source: GAO analysis of HHS data as of September 30, 2005. 

[End of figure] 

As shown in figure 1, Medicare Part B physicians, health professionals, 
and suppliers, which are corporations or other kinds of businesses, 
owed about $430 million in federal 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 fiduciary 
responsibility to hold these amounts "in trust" for the federal 
government until the employer makes a federal tax deposit in that 
amount. To the extent 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 and assessed a civil monetary 
penalty known as a trust fund recovery penalty.[Footnote 17] Willful 
failure to remit payroll taxes can also be a criminal felony offense 
punishable by imprisonment of up to 5 years,[Footnote 18] while the 
failure to properly segregate payroll taxes can be a criminal 
misdemeanor offense punishable by imprisonment of up to a 
year.[Footnote 19] The law imposes no penalties upon 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 federal government's general fund. Thus, personal 
income taxes, corporate income taxes, and other government revenues not 
specifically designated for the trust funds 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 
as owed by Medicare Part B physicians, health professionals, and 
suppliers had been outstanding for several years. As reflected in 
figure 2, about 85 percent of the over $1 billion in unpaid taxes were 
for tax periods prior to calendar year 2004, with about 41 percent of 
the unpaid taxes for tax periods prior to calendar year 2000.[Footnote 
20] 

Figure 2: Medicare Part B Physicians, Health Professionals, and 
Suppliers with Unpaid Federal Taxes (by Calendar Year) as of September 
30, 2005: 

[See PDF for image] 

Source: GAO analysis of HHS and IRS data as of September 30, 2005. 

[End of figure] 

Our previous work has shown that as unpaid taxes age, the likelihood of 
collecting all or a portion of the amount owed decreases.[Footnote 21] 
This is due, in part, to 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 we have 
identified does not include all tax debts owed by physicians, health 
professionals, and related suppliers due to statutory provisions that 
give IRS a finite period under which it can seek to collect on unpaid 
taxes. Generally, there is a 10-year statutory collection period beyond 
which IRS is prohibited from attempting to collect tax debt.[Footnote 
22] Consequently, if these physicians, health professionals, and 
suppliers owe federal taxes beyond the 10-year statutory collection 
period, the older tax debt may have been removed from IRS's 
records.[Footnote 23] We were unable to determine the amount of tax 
debt that had been removed. 

Unpaid Federal Taxes of Medicare Part B Physicians, Health 
Professionals, and Suppliers Is Understated: 

Although over $1 billion in unpaid federal taxes owed by Medicare Part 
B physicians, health professionals, and suppliers as of September 30, 
2005, is a significant amount, it understates the full extent of unpaid 
taxes owed by these or other businesses and individuals. The IRS tax 
database reflects 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 instances from our case 
studies in which Medicare Part B physicians, health professionals, and 
suppliers failed to file tax returns for a particular tax period and 
IRS had not assessed taxes for these tax periods. Consequently, while 
these physicians, health professionals, and suppliers had unpaid 
federal taxes, they were listed in IRS records as having no unpaid 
taxes for that period. 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 24] Consequently, the full extent of unpaid federal taxes 
for Medicare Part B physicians, health professionals, and suppliers is 
not known. 

In addition to the IRS tax database not reflecting all assessed tax 
amounts due, our past audits have also indicated that the IRS tax 
database contains coding errors that adversely affect IRS's collection 
activities. IRS's collection process is heavily dependent upon its 
automated computer system and the information that resides within this 
system. In particular, the codes in each taxpayer's account in IRS's 
tax database are critical to IRS in tracking the collection actions it 
has taken against a tax debtor and in determining what, if any, 
additional collection actions should be pursued. For example, IRS uses 
these codes to identify cases it should exclude from the continuous 
levy program,[Footnote 25] which is an automated method of collecting 
tax debt by offsetting certain federal payments made to individuals and 
businesses, as well as from other collection actions. 

While we did not evaluate the appropriateness of IRS's exclusions for 
this testimony, the exclusions are only as good as the codes IRS has 
entered into its systems. In our previous work, we found that 
inaccurate coding at times prevented IRS collection action, including 
referral to the continuous levy program.[Footnote 26] Specifically, in 
November 2006, we estimated that about $2.4 billion in tax debt was 
erroneously excluded from the continuous levy program as of September 
30, 2005. IRS did not identify and correct the coding errors we found 
because it did not sufficiently monitor the timely updating of the 
status and transaction codes or the effect of computer programming 
changes. In addition, we found that the design of IRS's policies for 
monitoring the status of financial hardship cases was not sufficient to 
ensure the ongoing accuracy of such designations.[Footnote 27] 
Therefore, effective management of these codes is critical because if 
these codes are not accurately or appropriately updated to reflect 
changing circumstances, cases may be needlessly excluded from 
collection action, including the continuous levy program. 

Examples of Medicare Part B Physicians, Health Professionals, and 
Suppliers Involved in Abusive and Potentially Criminal Activity Related 
to the Federal Tax System: 

For all 40 cases involving Medicare Part B physicians, health 
professionals, and suppliers with outstanding tax debt that we audited 
and investigated, we found abusive and/or potentially criminal activity 
related to the federal tax system.[Footnote 28] Of these cases, 25 
involved physicians, health professionals, and suppliers that had 
unpaid payroll taxes dating as far back as the early 1990s. Rather than 
fulfill their role as "trustees" of this money and forward it to IRS as 
required by law, these physicians, health professionals, and suppliers 
diverted the money for other purposes. IRS had trust fund recovery 
penalties in effect for 16 of the 25 business cases at the time of our 
review. In addition, as discussed previously, willful failure to remit 
payroll taxes can be a criminal felony offense punishable by 
imprisonment up to 5 years,[Footnote 29] while the failure to properly 
segregate payroll taxes can be a criminal misdemeanor offense 
punishable by imprisonment of up to a year.[Footnote 30] The other 15 
cases involved individuals who had unpaid individual income taxes 
dating as far back as the 1970s. 

Our review of selected Medicare Part B physicians, health 
professionals, and suppliers revealed significant challenges that IRS 
faces in its enforcement of tax laws, a continuing high-risk area for 
IRS.[Footnote 31] 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 40 
physicians, health professionals, and suppliers found that IRS attempts 
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 our 
40 cases showed that IRS did not issue paper levies to the Medicare 
contractors to levy the payments of physicians, health professionals, 
and suppliers for 28 of our 40 cases. As a result, most of the 
physicians, health professionals, and suppliers in our case studies 
continued to receive Medicare Part B payments while owing their federal 
taxes. 

Our investigations revealed that, despite owing substantial amounts of 
federal taxes to the IRS, some physicians, health professionals, and 
suppliers had substantial personal assets--including multimillion 
dollar homes and luxury cars. For example, one physician purchased a 
house for over $1 million while his business owed over $1 million in 
federal taxes. Another physician purchased a luxury vehicle, paid for 
partly with cash, and gambled millions of dollars while owing over 
$400,000 in taxes. 

In addition to failure to pay taxes, our investigations also revealed 
that several physicians associated with our case studies received 
Medicare Part B payments even though they had significant problems 
related to the practice of medicine. Six physicians had been previously 
excluded from the Medicare program for such things as professional 
incompetence, financial misconduct involving a government-operated 
program, and failure to pay health education loans. Further, 13 
physicians in our cases had also been sanctioned by their state medical 
boards for such things as substandard care of their patients, drug 
abuse, abusive prescription writing, unprofessional conduct, lack of 
moral character, income tax evasion, embezzlement, aiding and abetting 
unlicensed practice, and illegible patient records. 

Table 1 highlights 15 of the 40 cases of Medicare physicians, health 
professionals, and suppliers with unpaid taxes. Appendix II provides 
details on the other 25 cases we examined. We are referring all 40 
cases we examined to IRS for further collection activity and criminal 
investigation, if warranted. 

Table 1: Summary Information on Unpaid Federal Taxes and Abusive and 
Criminal Activity Related to 15 Medicare Part B Physicians, Health 
Professionals, and Suppliers: 

Case: Case 1; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Nearly $1 million; 
Description of activity: 
* Physician has not made any federal tax payments since the early 
2000s; 
* Hospital denied physician's hospital privileges due to substandard 
care; 
* State medical board investigated physician for disciplinary action; 
* HHS IG had previously excluded physician from Medicare program; 
* Physician delinquent on child support; 
* In 2 recent years, physician reported to IRS over $300,000 and 
$100,000 in net profit for the business; 
* Physician did not submit claims to Medicare contractor, sometimes for 
months at a time, to avoid IRS levies; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 2; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Over $600,000; 
Description of activity: 
* IRS generated tax returns for the physician for the late 1990s and 
early 2000s because the physician did not file them. Physician did not 
make any tax payments for those tax years; 
* Physician convicted of money laundering through offshore accounts; 
* Physician owns a related business that owes over $300,000 in taxes; 
* Physician recently submitted compromise offer to IRS for less than 
one half of individual income taxes owed; 
* Physician delinquent on child support for tens of thousands of 
dollars; 
* HHS IG had previously excluded physician from Medicare program. 

Case: Case 3; 
Nature of work / type of entity: Ambulance / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $1 million; 
Unpaid federal tax[B]: Nearly $11 million; 
Description of activity: 
* IRS assessed trust fund recovery penalty against an officer of the 
business; 
* Business officer owns several luxury vehicles; 
* State Medicaid Fraud Unit investigating business; 
* Law enforcement seized cash from business; 
* Business received thousands of dollars from another federal agency 
over a 2-year period; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 4; 
Nature of work / type of entity: Ambulance / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $5 million; 
Description of activity: 
* Owner convicted of defrauding the U.S. government; 
* Owner paid employees in cash and did not report their income to IRS; 
* Business partially paid payroll taxes while owner was in prison. 
Business owner stated that the business officer used company funds, in 
part, for a party. IRS assessed trust fund recovery penalty on business 
officer; 
* IRS established repayment agreement in 2004 with business for over 
$3,000 per month with possibility of increasing payment in the future; 
* Owner owes nearly $600,000 in individual income taxes. 

Case: Case 5; 
Nature of work / type of entity: Imaging / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $1 million; 
Unpaid federal tax[B]: Nearly $3 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Business entered into installment agreement of about $6,000 a month 
but subsequently defaulted for failure to pay federal tax deposits; 
* Government agency fined business over $1 million for substandard 
work; 
* Business lost over $200,000 in adjudicated medical malpractice claim; 
* IRS recently issued a tax refund for tens of thousands of dollars to 
the owner. IRS subsequently filed a trust fund recovery penalty against 
the owner, thus missing an opportunity to offset the refund payment. 

Case: Case 6; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $1 million; 
Description of activity: 
* Physician generally has history of not paying all taxes owed since 
the early 1990s; 
* In the early 2000s, physician made compromise offer of over $200,000 
but the offer was lost by IRS in the review process. Physician 
submitted revised offer. No decision was made on the compromise offers 
by IRS; 
* Physician has not filed an individual income tax return or paid any 
taxes since early 2000s; 
* Over $100,000 of the tax debt owed by the physician reached its 
statutory collection expiration period and can no longer be collected 
by IRS; 
* State medical board reprimanded physician. 

Case: Case 7; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $2 million; 
Description of activity: 
* Physician's tax debts are comprised of individual income tax debt and 
trust fund recovery penalty from another business; 
* Physician has extensive history of not filing individual income tax 
returns or payroll tax returns from another business on time; 
* Physician offered installment agreement of over $10,000 per month but 
was rejected by IRS for his failure to disclose accounts receivables; 
* Owner owns two other businesses that owe over $1 million in unpaid 
federal taxes; 
* State medical board sanctioned physician. 

Case: Case 8; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Over $400,000; 
Description of activity: 
* Physician entered into installment agreement of about $10,000 a month 
but subsequently defaulted; 
* HHS IG had previously excluded physician from Medicare program; 
* State medical board placed physician's license on probation; 
* Physician made multiple large cash deposits totaling tens of 
thousands of dollars. Many of these transactions were structured to 
avoid mandatory IRS reporting; 
* Owner recently purchased a luxury vehicle paid, in part, by a large 
cash transaction; 
* At the same time the physician was not paying taxes, the physician 
made millions of dollars in gambling transactions; 
* Physician reported about $500,000 and over $100,000 in net profit for 
his physician business in 2 recent years; 
* Physician delinquent on child support for tens of thousands of 
dollars; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 9; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Over $400,000; 
Description of activity: 
* IRS suspended collection action on physician for financial hardship; 
* Hospital revoked physician's clinical privileges for substandard 
care; 
* HHS IG had previously excluded physician from Medicare; 
* Business owes over $150,000 to another federal agency. 

Case: Case 10; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Nearly $400,000; 
Description of activity: 
* Owner convicted for filing fraudulent tax returns. Owner used 
business accounts to pay for personal expenses; 
* Owner attempted to transfer large amounts of money to a country known 
for state-sponsored terrorism at same time the business owed taxes; 
* Owner owns multiple real properties, including a multimillion dollar 
home; 
* Owner's recent reported income was about $500,000; 
* Owner closed business and paid IRS the asset value of business, which 
was hundreds of thousands of dollars less than taxes owed. IRS listed 
business as defunct. Owner started virtually identical business to get 
a new start; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 11; 
Nature of work / type of entity: Ambulance/ Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $1 million; 
Unpaid federal tax[B]: Nearly $2 million; 
Description of activity: 
* Business owns several ambulance companies owing tax debts, mostly 
payroll taxes; 
* Business officer decided to "grow the business" instead of paying 
federal taxes; 
* Business received over $100,000 from another federal agency over a 2-
year period; 
* Business obtained contract for disaster relief efforts; 
* Business officer possesses multiple real properties, including house 
on a golf course and luxury vehicles, while owing taxes; 
* Company filed for bankruptcy in the 2000s; 
* IRS assessed trust fund recovery penalty against an officer of the 
business; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 12; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Nearly $400,000; 
Description of activity: 
* Owner owes over $400,000 in individual income taxes; 
* Owner owns an expensive house, liquor establishment, and a plane 
while owing taxes; 
* IRS has not assessed trust fund recovery penalty for the payroll tax 
debts because owner owes large individual income taxes liabilities that 
would make the collection of trust fund recovery penalty unlikely; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 13; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Nearly $2 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Business entered into installment agreement of about $20,000 a month 
but subsequently defaulted; 
* IRS assessed trust fund recovery penalty against owner. IRS 
erroneously placed the account in taxpayer claim status for about 9 
months suspending certain collection activities. During this time, the 
owner was able to purchase a house for over $1 million and receive a 
tax refund on his personal taxes for thousands of dollars; 
* Owner receives income from a tobacco farm; 
* Physician lost over $1 million in adjudicated medical malpractice 
claims. 

Case: Case 14; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Nearly $1 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Business has history of entering into installment agreements with IRS 
and defaulting on those agreements; 
* Owner transferred properties worth over $2 million to his spouse 
while IRS was pursuing collection efforts; 
* Owner leases luxury car while owing taxes; 
* IRS has not assessed trust fund recovery penalty for the payroll tax 
debts because business is a sole proprietor and, thus, owner is 
personally liable for the payroll taxes; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 15; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $1 million; 
Unpaid federal tax[B]: Over $1 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Owner recently submitted compromise offer to IRS for about one fourth 
of taxes owed to be paid over 2 years. The amount to be paid would 
cover the trust fund recovery penalty assessed on the business owner; 
* Owner's recent reported income was about $500,000; 
* Owner owns million dollar house, a pleasure boat, and several night 
clubs while owing taxes. 

Source: GAO's analysis of IRS, FMS, Medicare claims, public, and other 
records. 

Notes: Dollar amounts are rounded. A Medicare physician, health 
professional, or supplier can submit claims using either an Employer 
Identification Number (EIN) or Social Security Number (SSN). In our 
testimony, any entity submitting a claim with an EIN is referred to as 
a business, and any entity submitting a claim with an SSN is referred 
to as an individual. 

[A] Medicare Part B payments are physician, health professional, and 
supplier claims approved by HHS for payment for the first 9 months of 
calendar year 2005. 

[B] Unpaid tax amount as of September 30, 2006. 

[End of table] 

The following provides detailed information on three of the cases we 
examined. 

* Case 1: Although in 2 recent years, the physician's business reported 
a net income of over $300,000 and $100,000, respectively, the physician 
has not made any federal tax payments to IRS. In addition, the 
physician has been delinquent in child support during this time. As a 
result, the physician's spouse had to sell the residence because the 
spouse could not afford the house. A hospital revoked the physician's 
hospital privileges for substandard care and the state medical board 
also investigated the physician. The physician received over $100,000 
in Medicare Part B payments for the first 9 months of calendar year 
2005. 

* Case 2: A physician was convicted of money laundering through 
offshore accounts. In addition to owing over $600,000 in federal 
individual income taxes, the physician owes tens of thousands of 
dollars in delinquent child support and also owns a related business 
that owes over $300,000 in federal taxes. Even though owing significant 
debts, the physician owns several residential properties, including an 
overseas house. HHS paid the physician nearly $100,000 in Medicare Part 
B payments during the first 9 months of calendar year 2005. 

* Case 4: An ambulance business owner paid employees in cash and did 
not report this income to IRS. The ambulance business owner was 
convicted and incarcerated for defrauding the U.S. government. While 
the owner was in prison, a business officer used company funds to 
purchase property for the business officer instead of paying the 
federal payroll taxes to IRS. In 2004, the business negotiated and is 
paying on a repayment agreement of about $3,000 per month. These 
monthly payments are substantially less than the interest that would 
accrue on the debt. HHS paid the ambulance company over $100,000 in 
Medicare Part B payments during the first 9 months of calendar year 
2005. 

Physicians, Health Professionals, and Suppliers with Unpaid Taxes Are 
Not Prohibited from Enrolling or Receiving Payments from Medicare: 

HHS does not prevent physicians, health professionals, and suppliers 
with tax debts from enrolling in or receiving payments from the 
Medicare program. HHS has not developed Medicare regulations or HHS 
implementing policy to require HHS or their contractors to (1) screen 
physicians, health professionals, and suppliers for unpaid taxes and 
(2) require contractors to obtain consent for IRS disclosure of federal 
tax debts. However, because HHS has not participated in the continuous 
levy program, no tax debts owed by these physicians, health 
professionals and suppliers are being collected through the program. As 
a result, the federal government lost opportunities to collect between 
$50 million and $140 million in unpaid taxes in the first 9 months of 
calendar year 2005.[Footnote 32] 

HHS Medicare contractors are responsible for screening physicians, 
health professionals, and suppliers prior to enrollment into the 
Medicare program. However, as part of the screening process, neither 
HHS policies nor HHS regulations require Medicare contractors to 
consider tax debts or tax-related abuses of prospective physicians, 
health professionals, and suppliers. Medicare contractors are also not 
required to conduct any criminal background checks on these 
individuals. Medicare contractors are required to review the HHS Office 
of Inspector General (OIG) exclusion list and the General Services 
Administration (GSA) debarment lists; however, these lists do not 
include all individuals or businesses who have abused the federal tax 
system.[Footnote 33] The basis of exclusion of certain individuals and 
entities from participation in Medicare programs is made by 
statute.[Footnote 34] 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. 
Consequently, the deliberate failure to remit taxes, in particular 
payroll taxes, while a felony offense, will likely not result in an 
individual or business being debarred or suspended unless there is an 
indictment or conviction of the crime. 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 Medicare exclusion or GSA debarment lists unless the taxpayer is 
convicted. 

Even if an individual or entity is convicted of tax evasion or other 
tax-related crime, the individual or business still may not be placed 
on the Medicare exclusion or GSA debarment lists. To be placed on these 
lists, federal agencies must identify those individuals and businesses 
and provide them with due process. As part of the due process, the 
agency must make a determination as to whether the exclusion or 
debarment is in the government's interest. None of the 40 cases that we 
investigated, including those involving a conviction for tax-related 
crimes, are currently on the Medicare exclusion or GSA debarment lists. 

Further complicating HHS decision making on the consideration of tax 
debts for Medicare, federal law does not permit IRS to disclose 
taxpayer information, including tax debts, to HHS or Medicare 
contractor officials unless the taxpayer consents.[Footnote 35] HHS has 
not established a policy to obtain Medicare applicants' consent to 
obtain tax information from IRS to consider in its Medicare eligibility 
decision making process. 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[Footnote 36] or a record of conviction for 
tax offense is publicly available.[Footnote 37] Consequently, HHS 
officials and their contractors do not have ready access to information 
on unpaid tax debts to consider in making decisions on physicians, 
health professionals and suppliers. 

Further, HHS has not established policy to participate in the IRS 
continuous levy program, thus preventing IRS from capturing at least a 
portion of the Medicare payments made to physicians, health 
professionals, and suppliers that owe tax debts. As stated earlier, 
federal law allows IRS to continuously levy federal vendor payments up 
to 100 percent until the tax debt is paid.[Footnote 38] IRS has 
implemented this authority by creating a continuous levy program that 
utilizes FMS's Treasury Offset Program system. In July 2001, we 
reported that HHS did not have plans to participate in the continuous 
levy program and we recommended that the Commissioners of IRS and FMS 
work with HHS to develop plans to include Medicare payments in the 
continuous levy program.[Footnote 39] 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 40] In 
response to IRS's request, HHS began to participate in the FCTC Task 
Force meetings in February 2007. 

If HHS had previously worked with IRS to levy Medicare Part B payments, 
we estimate, using the conservative 15 percent rate that FMS uses to 
levy civilian contractors,[Footnote 41] the federal government could 
have collected about $50 million in unpaid federal taxes for the first 
9 months of calendar year 2005. Using the 100 percent rate authorized 
by law, the federal government could have collected approximately $140 
million. These estimates were based on debt information IRS has 
reported to TOP as of September 30, 2005. 

Concluding Comments: 

Thousands of Medicare Part B physicians, health professionals, and 
suppliers have failed in their responsibility to pay federal taxes they 
owe as individuals and businesses residing and conducting business in 
this nation. Further our case studies demonstrate that physicians and 
other medical service providers with federal tax debts can receive 
Medicare Part B payments while engaging in abusive and potentially 
criminal activity. In addition, our case studies determined that some 
physicians who abused the federal tax system are also not providing 
quality care to all of their patients. Additionally, because HHS has 
failed to participate in the continuous levy process since its 
authorization in 1997, the federal government has missed the 
opportunity to collect hundreds of millions of dollars in unpaid taxes 
from Medicare Part B physicians, health professionals, and suppliers. 
The federal government cannot afford to leave millions of dollars in 
taxes uncollected each year in the current environment of federal 
deficits, nor can it continue to permit physicians, health 
professionals, and suppliers that have abused the federal tax system 
from participating in the Medicare program. 

Mr. Chairman and Members of the Subcommittee, this concludes our 
statement. We would be pleased to answer any questions that you or 
other members of the committee may have at this time. 

GAO Contacts: 

For further information about this testimony, please contact Gregory 
Kutz at (202) 512-7455 or kutzg@gao.gov or Steve Sebastian at (202) 512-
3406 or sebastians@gao.gov. Contacts points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this testimony. 

[End of section] 

Appendix I: Scope and Methodology: 

To identify the magnitude of unpaid taxes owed by Medicare Part B 
physicians, health professionals and suppliers, we requested from 
Department of Health and Human Services (HHS) the related Medicare Part 
B claims data for calendar year 2005.[Footnote 42] HHS was only able to 
provide us these data for the first 9 months of calendar year 2005 by 
the end of our review. We also obtained and analyzed the Internal 
Revenue Service (IRS) unpaid assessment data as of September 30, 2005. 
We matched the Medicare claim data to the IRS unpaid assessment data 
using the taxpayer identification number (TIN) field. To avoid 
overestimating the amount owed by Medicare Part B physicians, health 
professionals, and suppliers 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 43] 

* tax debts from calendar year 2005 tax periods, and: 

* Medicare Part B physicians, health professionals, and suppliers with 
total unpaid taxes and Medicare Part B 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 2005 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 the current year. We 
further excluded tax debts and Medicare Part B paid claims of less than 
$100 because they are insignificant for the purpose of determining the 
extent of taxes owed. 

To identify examples of abuse or potentially criminal activity, we 
selected 40 Medicare Part B physicians, health professionals, and 
suppliers with federal tax debts for detailed audit and investigation. 
The 40 cases were chosen using a nonrepresentative selection approach 
based on our judgment, data mining, and a number of other criteria. 
Specifically, we narrowed the 40 cases with unpaid taxes based on the 
amount of unpaid taxes, number of unpaid tax periods, amount of 
payments reported by Medicare Part B, and indications that owner(s) 
might be involved in multiple companies with tax debts. 

We obtained copies of automated tax transcripts and other tax records 
(for example, revenue officer's notes and certain individual tax 
returns) from IRS, and reviewed these records to exclude physicians and 
suppliers that had recently paid off their unpaid tax balances and 
considered other factors before reducing our number of case studies to 
40. We 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 44] that have unpaid federal taxes, we 
also reviewed records of the related entities and the owner(s) or 
officer(s), in addition to the original business we identified. For 
each related entity, we determined whether that entity had Medicare 
Part B payments for the first 9 months of calendar year 2005 and had 
unpaid federal taxes as of September 30, 2005. We updated the tax debt 
amount as of September 30, 2006, to reflect any additional tax 
assessments or collections that have occurred. In instances where we 
identified related parties that had both Medicare Part B payments and 
tax debts, our case studies included those related entities, combining 
unpaid taxes and combined Medicare Part B payments for the original 
individual/business as well as all related entities. 

To determine the extent to which HHS officials and their contractors 
are required to consider tax debts or other criminal activities in the 
enrollment of physicians, health professionals, and suppliers into 
Medicare, we examined Medicare regulations and HHS policies and 
procedures for enrollment. We also discussed policies and procedures 
used to enroll physicians, health professionals, and suppliers into 
Medicare with officials from two Medicare contractors. As part of these 
discussions, we inquired whether HHS and their contractors specifically 
consider tax debts or perform background investigations to determine 
whether prospective physicians, health professionals, and suppliers are 
qualified before their enrollment to Medicare is granted. 

To determine the extent to which HHS levies Medicare Part B payments to 
physicians, health professionals, and suppliers owing tax debts, we 
examined the statutory and regulatory authorities that govern the 
continuous levy program to determine whether any legal barriers exist. 
We also interviewed officials from HHS, two Medicare contractors, IRS, 
and Department of Treasury's Financial Management Service (FMS) 
officials as to any operational impediments for the continuous levy of 
provider payments to pay federal tax debts. 

To determine the potential levy collections on the first 9 months of 
calendar year 2005, we used 15 percent and 100 percent of the total 
paid claim or total tax debt amount reported to TOP per IRS records, 
whichever is less. To be conservative, we used the 15 percent rate that 
FMS uses to levy civilian contractors. 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) IRS may remove tax 
debts from the levy program because the taxpayer filed for bankruptcy, 
negotiated an installment agreement, or some other action which made 
the taxpayer ineligible for the levy program. 

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 HHS's Medicare claims history and FMS's TOP databases, we 
interviewed HHS 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, 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 our audit work from June 2006 through February 2007 in 
accordance with U.S. generally accepted government auditing standards, 
and 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 Physicians, Health Professionals, and Suppliers 
with Unpaid Taxes: 

This appendix presents summary information on the abusive or 
potentially criminal activity associated with 25 of our 40 case 
studies.[Footnote 45] Table 2 summarizes the abuse or potentially 
criminal activity related to the federal tax system for these 25 
physicians, health professionals, and suppliers that also received 
Medicare Part B payments in 2005. The cases involving businesses 
primarily involved unpaid payroll taxes. 

Table 2: Summary Information on Other Medicare Part B Physicians, 
Health Professionals and Suppliers with Unpaid Federal Taxes: 

Case: Case 16; 
Nature of work / type of entity: Medical Imaging / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Nearly $900,000; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes covering over 15 tax 
periods. For most of these tax periods, business made no tax payments; 
* IRS assessed trust fund recovery penalty against the owner of the 
business; 
* Business filed for bankruptcy in 2000s; 
* State agency investigated and closed business for negligent services; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 17; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Over $100,000; 
Description of activity: 
* Tax debt is individual income tax debt owed from the mid 2000s; 
* IRS recently levied over $200,000 in investments that paid off 
individual income taxes owed from the late 1990s to the early 2000s; 
* State medical board suspended physician's license; 
* Physician filed for bankruptcy in 2000s. 

Case: Case 18; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Over $400,000; 
Description of activity: 
* Physician has not filed tax returns to the IRS since late 1990s; 
* State medical board reprimanded physician; 
* HHS IG had previously excluded physician from Medicare program. 

Case: Case 19; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $400,000; 
Description of activity: 
* Physician's tax debt is largely comprised of individual income taxes 
owed for tax years in the 1990s; 
* HHS IG had previously excluded physician from Medicare program; 
* State medical board suspended physician's license; 
* Physician owes over $100,000 to another federal agency. 

Case: Case 20; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Over $3 million; 
Description of activity: 
* Physician has generally refused to pay federal income taxes since 
1970s; 
* Physician is a tax protester; 
* Physician attempted to convey residential property to children to 
prevent foreclosure by IRS; 
* Over $350,000 of tax debt owed by the physician reached its statutory 
collection expiration period and can no longer be collected by IRS; 
* Physician owes over $1 million to another federal agency. 

Case: Case 21; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Nearly $900,000; 
Description of activity: 
* Physician offered installment agreement of about $1,000 a month; 
* Physician did not make federal income tax payments for several years 
in 2000s; 
* State medical board suspended physician's license; 
* Physician was convicted of income tax evasion. 

Case: Case 22; 
Nature of work / type of entity: Ambulance / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Nearly $700,000; 
Description of activity: 
* Business offered installment agreement of about $20,000 a month but 
was rejected by IRS because taxpayer did not stay current with either 
making required payroll tax deposits or filing required payroll tax 
returns; 
* Business officer admitted to using tax money for another business; 
* IRS is investigating business for abusing filing requirements; 
* IRS is in the process of assessing trust fund recovery penalty for 
the payroll tax debts. 

Case: Case 23; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Nearly $3 million; 
Description of activity: 
* IRS revenue officer noted that taxpayer used compromise offers to 
delay collection efforts; 
* State medical board suspended physician's license; 
* Physician is under investigation for illegally transferring assets so 
that IRS cannot seize them; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 24; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $1 million; 
Description of activity: 
* Physician's tax debt is largely comprised of individual income taxes 
owed for tax years in the 1990s. Physician also owes a trust fund 
recovery penalty for over $100,000; 
* Physician stated that he did not pay taxes because of purchase of 
businesses and payment of children's college education; 
* Physician owns house near a country club worth over $500,000 while 
owing taxes; 
* Physician's recent reported income was over $500,000; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 25; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $2 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Owner claimed that taxes were not paid because Medicare and Medicaid 
were slow in paying claims; 
* Owner owns multimillion dollar house, as well as paintings, antiques, 
and other collectibles worth hundreds of thousands of dollars while 
business owed taxes; 
* Owner recently closed business and started a new company. At about 
the same time, the business owner paid over $1 million in trust fund 
recovery penalty payments to pay off the personal assessment. However, 
even with these payments, business still owes over $2 million in unpaid 
taxes. 

Case: Case 26; 
Nature of work / type of entity: Ambulance/ Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $1 million; 
Unpaid federal tax[B]: Nearly $2 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Business has generally not made any federal tax deposits since mid-
2000s. Owner stated that tax returns were not filed because owner did 
not have the money to pay payroll taxes; 
* Multiple federal and state tax liens totaling nearly $2 million filed 
against the business; 
* Business received thousands of dollars from another federal agency 
over a 2-year period; 
* IRS is in the process of assessing trust fund recovery penalty for 
the payroll tax debts; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 27; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $1 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Owner owes over $600,000 in individual income taxes; 
* IRS classified account as a financial hardship; 
* Owner owns $2 million dollar house; 
* Owner made large cash withdrawals totaling hundreds of thousands of 
dollars during the time little or no payroll taxes were paid to IRS; 
* State medical board sanctioned physician; 
* IRS has not assessed trust fund recovery penalty for the payroll tax 
debts because business is a sole proprietor and thus is personally 
liable for the payroll taxes. 

Case: Case 28; 
Nature of work / type of entity: Ambulance / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $1 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Business under court order to pay IRS tens of thousands per month; 
* Owner owns another business that owes over $400,000 in payroll taxes; 
* IRS assessed trust fund recovery penalty against the owner of the 
business; 
* Business obtained contract for disaster relief efforts; 
* Owner stated that taxes were not paid because of higher gasoline 
prices and insurance. 

Case: Case 29; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $1 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* IRS assessed trust fund recovery penalty against the owner of the 
business; 
* Hospital suspended physician's clinical privileges for substandard 
care; 
* State medical board sanctioned owner. 

Case: Case 30; Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; Medicare Part B paid claims for first 9 months of 
calendar 2005[A]: Over $1 million; [Empty]; Description of activity: * 
Tax debt is unpaid payroll taxes; * Business made no tax payments since 
early 2000s and has not filed a tax return since mid-2000s; * Owner 
owns about $900,000 in real property; * IRS has not performed 
assessment for trust fund recovery penalty related to payroll tax 
debts; * IRS reported tax debts to TOP for collection action. 

Case: Case 31; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $1 million; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* IRS assessed trust fund recovery penalty against the owner of the 
business; 
* IRS filed federal tax liens totaling nearly $1 million against the 
business; 
* Owner owns a million-dollar house and luxury car while owing taxes; 
* Physician delinquent on student loans for tens of thousands of 
dollars. 

Case: Case 32; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $900 thousand; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes, with business only making 
one tax payment since the early 2000s; 
* IRS assessed trust fund recovery penalties against owner for this 
business and several other businesses totaling over $1 million; 
* Owner received about $90,000 in interest payments in one year from a 
company he owned that also owed federal taxes; 
* Owner owns several partnerships involved in medical services and land 
properties; 
* Physician served on the Board of Directors of a publicly held 
company; 
* IRS went to court to enforce summons order against business owner; 
* Owner was investigated for check fraud. 

Case: Case 33; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $300,000; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Business sought to establish installment agreement with IRS for taxes 
owed but was rejected because business was not current of tax deposits; 
* Owner claims taxes were not paid when business lost health contracts 
after hiring a noncertified doctor; 
* Owner owns several real estate properties worth nearly $4 million 
including residence worth over $1.5 million; 
* IRS assessed trust fund recovery penalty against owner for the 
payroll tax debts; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 34; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Nearly $800,000; 
Description of activity: 
* Business recently established installment agreement with IRS for 
taxes owed and agreed to future increases; 
* Owner was convicted of obtaining controlled substances by means of 
deception; 
* IRS is in process of assessing trust fund recovery penalty for the 
payroll tax debts. 

Case: Case 35; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $2 million; 
Description of activity: 
* Physician was convicted of tax evasion after transferring funds 
overseas; 
* Physician lost over $500,000 in adjudicated medical malpractice 
claims. 

Case: Case 36; 
Nature of work / type of entity: Physician / Individual; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $1 million; 
Description of activity: 
* Physician offered to compromise the debt for over $200,000 in 2004 
but was rejected by IRS; 
* Physician reported individual annual income to IRS for over $250,000 
in mid-2000s; 
* Physician owns residence worth over $800,000 while owing taxes; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 37; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $600,000; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Owner owns other multiple business entities owing approximately 
$500,000 in federal taxes. Owner also personally owes over $1 million 
in individual income taxes; 
* IRS went to court to enforce summons order against business owner; 
* State medical board sanctioned owner; 
* IRS assessed trust fund recovery penalty against the owner of the 
business; 
* IRS reported tax debts to TOP for collection action. 

Case: Case 38; 
Nature of work / type of entity: Physician / Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: Up 
to $100,000; 
Unpaid federal tax[B]: Over $200,000; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* IRS assessed trust fund recovery penalty against business owner; 
* State medical board sanctioned owner; 
* Both the business and the owner filed for bankruptcy in the 2000s. 

Case: Case 39; 
Nature of work / type of entity: Medical Laboratory/ Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $600,000; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes; 
* Business owner possesses multiple real properties, as well as several 
luxury vehicles and boats while business owed taxes; 
* Business owner received multiple tax refunds in 2000s totaling tens 
of thousands of dollars because no trust fund recovery penalty was 
assessed against owner. In addition, business owner received $1 million 
dollar cash settlement. 

Case: Case 40; 
Nature of work / type of entity: Physician/ Business; 
Medicare Part B paid claims for first 9 months of calendar 2005[A]: 
Over $100,000; 
Unpaid federal tax[B]: Over $800,000; 
Description of activity: 
* Tax debt is primarily unpaid payroll taxes. For several tax periods, 
business made no tax payments; 
* Owner owns multiple real properties, including residence, worth over 
$500,000 while owing taxes; 
* Owner lost over $250,000 in adjudicated medical malpractice claim; 
* IRS plans to assess trust fund recovery penalty for the payroll tax 
debts if the business does not fully repay tax debts; 
* IRS reported tax debts to TOP for collection action. 

Source: GAO's analysis of IRS, FMS, HHS, public, and other records. 

Notes: Dollar amounts are rounded. A Medicare physician, health 
professional, or supplier can submit claims using either an Employer 
Identification Number (EIN) or Social Security Number (SSN). In our 
testimony, any entity submitting a claim with an EIN is referred to as 
a business, and any entity submitting a claim with an SSN is referred 
to as an individual. 

[A] Medicare Part B payments are physician, health professional, and 
supplier claims approved by HHS for payment for the first 9 months in 
calendar year 2005. 

[B] Unpaid tax amount as of September 30, 2006. 

[End of table] 

[End of section] 

Appendix III: Medicare Physicians, Health Professionals, and Suppliers 
With Federal and State Tax Liens: 

This appendix summarizes the extent to which Medicare physicians, 
health professionals, and suppliers have federal or state liens filed 
against their property. As discussed previously, certain tax debt 
information can only be discovered from public records, such as credit 
reports, if IRS files a federal tax lien against the property of a tax 
debtor. Of the 40 cases, 31 had federal tax liens filed by the Internal 
Revenue Service and 23 had tax liens filed by the states. Table 3 
provides a summary of the federal or state tax liens filed for all 40 
cases. 

Table 3: Summary of Federal and State Tax Liens Against Medicare Part B 
Physicians, Health Professionals, and Suppliers with Unpaid Taxes: 

Case study: 1; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 2; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 3; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 4; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 5; 
Federal tax lien?: No; 
State tax lien?: No. 

Case study: 6; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 7; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 8; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 9; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 10; 
Federal tax lien?: No; 
State tax lien?: No. 

Case study: 11; 
Federal tax lien?: No; 
State tax lien?: No. 

Case study: 12; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 13; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 14; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 15; 
Federal tax lien?: No; 
State tax lien?: Yes. 

Case study: 16; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 17; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 18; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 19; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 20; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 21; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 22; 
Federal tax lien?: No; 
State tax lien?: No. 

Case study: 23; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 24; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 25; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 26; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 27; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 28; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 29; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 30; 
Federal tax lien?: No; 
State tax lien?: Yes. 

Case study: 31; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 32; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 33; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 34; 
Federal tax lien?: No; 
State tax lien?: Yes. 

Case study: 35; 
Federal tax lien?: No; 
State tax lien?: Yes. 

Case study: 36; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 37; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 38; 
Federal tax lien?: Yes; 
State tax lien?: Yes. 

Case study: 39; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Case study: 40; 
Federal tax lien?: Yes; 
State tax lien?: No. 

Source: Public records. 

[End of table] 

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.: March 14, 2006). 

[2] For this testimony, we are defining physician, health professional, 
and supplier to include the following: (1) Physician to include 
medicine, doctor of osteopathy, doctor of dental surgery or dental 
medicine, doctor of podiatric medicine, or doctor of optometry, and a 
doctor of chiropractic legally authorized to practice by a state in 
which he/she performs this function. (2) Health professional to include 
individuals and businesses excluding physicians who may deliver covered 
Medicare services if the services are incident to a physician's service 
or if there is specific authorization in the law. They include nurse 
practitioners and physician assistants, qualified clinical 
psychologists, clinical social workers, certified nurses, midwives, 
ambulances, and certified registered nurse anesthetists. (3) Supplier 
to include an entity that is qualified to furnish health services 
covered by Medicare, other than providers, physicians, and health 
professionals. They include ambulatory surgical centers, independent 
physical therapists, mammography facilities, independent occupational 
therapists, clinical laboratories, and portable X-ray suppliers. For 
purposes of this testimony, durable medical equipment suppliers were 
excluded, but we plan to examine them in the subsequent audit. 

[3] In addition to Medicare providers, we are also conducting a 
separate audit on Medicaid providers who have abused the federal tax 
system while receiving Medicaid payments. 

[4] We requested the approved Medicare Part B claims to physicians, 
health professionals, and suppliers for calendar year 2005. HHS was 
able to provide us the first 9 months of calendar year 2005 claims by 
the end of our review. 

[5] We considered activity to be abusive when a Medicare Part B 
physician, health professional or supplier's actions or inactions, 
though not illegal, took advantage of the existing tax enforcement and 
administration system to avoid fulfilling federal tax obligations and 
were deficient or improper when compared with behavior that a prudent 
person would consider reasonable. 

[6] Because some Medicare Part B physicians, health professionals, and 
suppliers may do business with other federal agencies, some described 
in this report may also have been included in our reports concerning 
Department of Defense, General Services Administration, and civilian 
federal contractors that abuse the federal tax system. 

[7] As of September 30, 2006, we estimate that the Medicare Part B 
providers had over $1.3 billion in tax debts for tax year 2005 and 
prior years. 

[8] Payroll taxes are amounts that employers withheld from employees' 
wages for federal income taxes, Social Security, and Medicare as well 
as the related employer matching contributions for Social Security and 
Medicare taxes. Employers are responsible for remitting payroll taxes 
to IRS and are liable for any outstanding balance. 

[9] GAO, Financial Management: Some DOD Contractors Abuse the Federal 
Tax System with Little Consequence, GAO-04-95 (Washington, D.C.: Feb. 
12, 2004); and GAO, Internal Revenue Service: Procedural Changes Could 
Enhance Tax Collections, GAO-07-26 (Washington, D.C.: Nov. 15, 2006). 

[10] Willful failure to remit payroll taxes is a criminal felony 
offense while the failure to properly segregate payroll taxes can be a 
criminal misdemeanor offense. 26 U.S.C. §§ 7202, 7215 and 7512 (b). 

[11] HHS Medicare contractors screen physicians, health professionals, 
and suppliers prior to enrollment into the Medicare program. Medicare 
contractors also process and pay the Medicare claims and are reimbursed 
by CMS through the Medicare Trust Fund. 

[12] To improve the collection of unpaid taxes, IRS is authorized to 
continuously levy up to 100 percent for federal payments related to 
goods and services. To implement this levy authority, IRS, in 
coordination with the Department of Treasury's FMS, implemented the 
Federal Levy Payment Program (FPLP) in July 2000. The FPLP program 
utilizes FMS's Treasury Offset Program (TOP) for the levy of federal 
payments. 

[13] To satisfy tax debts, IRS does have the authority to legally seize 
property either held by the taxpayer or owned by the taxpayer and held 
by a third party. This authority includes the seizure of Medicare 
receivables held by Medicare contractors and owed to physicians, health 
professionals, and suppliers. However, IRS policy is to use the levy 
against Medicare payments for only flagrant cases. Unlike levies from 
the continuous levy program, each levy is typically a one-time seizure 
of property (i.e., Medicare receivables) held by Medicare contractors 
at a specific point of time and is done on a case-by-case basis based 
on the particular circumstances of the case. IRS officials stated that 
they do not know how much in tax levies were collected from Medicare 
payments. 

[14] Our estimate is for Medicare Part B physicians, health 
professionals, and suppliers with tax debt applicable to the 2004 tax 
year and prior years as of September 30, 2005. To avoid overestimating 
the amount owed by Medicare physician and physicians and related 
suppliers with unpaid tax debts and to capture only significant tax 
debts, we 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 
2005, (3) approved Medicare claims less than $100, and (4) tax debts 
less than $100. 

[15] As of September 30, 2006, we estimate that Medicare Part B 
physicians, health professionals, and suppliers had over $1.3 billion 
in tax debts for tax years 2005 and prior years. 

[16] Sole proprietors and certain limited liability companies may file 
Medicare claims under their Social Security Numbers (SSNs). If these 
physicians and related suppliers had employees, they would typically 
report the payroll taxes under an employer identification number and 
not their SSNs. 

[17] 26 U.S.C. § 6672. 

[18] 26 U.S.C. § 7202. 

[19] 26 U.S.C. § 7215 and 26 U.S.C. § 7512 (b). 

[20] 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. 

[21] GAO, Internal Revenue Service: Recommendations to Improve 
Financial and Operational Management, GAO-01-42 (Washington D.C.: Nov. 
17, 2000). 

[22] The 10-year time may be suspended for a variety of reasons, 
including for periods during which the taxpayer is involved in a 
collection due process appeal, litigation, or a pending offer in 
compromise or installment agreement. As a result, fig. 2 includes taxes 
that are for tax periods from more than 10 years ago. 

[23] For example, IRS wrote off over $350,000 for one of our cases 
because those unpaid taxes could no longer be collected by IRS because 
it reached its statutory extension period. 

[24] According to IRS, nonfilers and underpayment of taxes comprised 
the rest of the gross tax gap. 

[25] Each week IRS sends FMS an extract of its tax debt files 
containing updated account balances of tax debts that are already in 
TOP, the new tax debts that need to be added to TOP, and all taxes in 
TOP that need to be removed. FMS sends payment data to TOP to be 
matched against these unpaid federal taxes. If there is a match and IRS 
has updated TOP to reflect that it has completed all legal 
notifications, the federal payment is reduced (levied) to help satisfy 
the unpaid federal taxes. In addition to federal tax debts, the TOP 
database also includes federal nontax debts, state tax debts, and child 
support debts. 

[26] GAO, Financial Management: Some DOD Contractors Abuse the Federal 
Tax System with Little Consequence, GAO-04-95 (Washington, D.C.: Feb. 
12, 2004); and GAO, Internal Revenue Service: Procedural Changes Could 
Enhance Tax Collection, GAO-07-26 (Washington, D.C.: Nov. 15, 2006). 

[27] IRS grants tax debtors experiencing financial difficulty a 
hardship designation that excludes them from the continuous levy 
program and other tax collection activities until their income 
increases. To measure this, IRS solely uses the income reported on the 
tax debtor's annual tax returns. However, IRS does not monitor those 
tax debtors to ensure they are filing and paying current taxes. As we 
reported last year, for 31 financial hardship cases we examined, 24 had 
ceased to file tax returns. 

[28] For all cases, we performed searches of criminal, financial, tax, 
and public records to determine whether the physicians and suppliers 
are involved in other related entities. For each related entity, we 
determined whether that entity had Medicare payments for the first 9 
months of calendar year 2005 and had unpaid federal taxes as of 
September 30, 2005. In instances where we identified related parties 
with both Medicare Part B payments and tax debts, we defined a case 
study to include those related entities, and reported on the combined 
unpaid taxes and combined Medicare Part B payments for the original 
individual/business and all the related entities. 

[29] 26 U.S.C. § 7202. 

[30] 26 U.S.C. § 7215 and 26 U.S.C. § 7512 (b). 

[31] GAO, High Risk Series: An Update, GAO-07-310 (Washington, D.C.: 
Jan. 2007). 

[32] The $50 million estimate is based on 15 percent rate that FMS uses 
to levy civilian contractors. The $140 million estimate is based on the 
100 percent rate authorized by law. 

[33] 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. 

[34] 42 U.S.C. § 1320a-7. 

[35] 26 U.S.C. § 6103. 

[36] For example, 8 of the 40 cases for which we performed detailed 
audit and investigation did not have federal tax liens filed against 
them. See app. III for federal and state tax liens by each case. 

[37] 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. 

[38] Of the 40 cases that we performed detailed review, IRS reported 16 
of them for continuous levy. 

[39] GAO, Tax Administration: Millions of Dollars Could Be Collected If 
IRS Levied More Federal Payments, GAO-01-711 (Washington, D.C.: July 
20, 2001). 

[40] 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 the Department of Defense (DOD), Defense Finance and Accounting 
Service, IRS, FMS, General Services Administration, Office of 
Management and Budget, and 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. 

[41] In October 2004, Congress passed the American Jobs Creation Act 
2004, Pub. L.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 real 
estate, such as rent payments, from the new levy requirement. Because 
civilian agencies' payment systems cannot separately identify real 
estate transactions from other contractor payments, FMS could not 
implement the new law for civilian payments and continues to levy 
payments at 15 percent. 

[42] Physician claim data consists of all Part B claims processed for 
physicians, health professionals, and suppliers by Medicare contractors 
excluding durable medical equipment. As such, durable medical equipment 
will be reviewed in the subsequent audit. 

[43] Under federal accounting standards, unpaid assessments require 
taxpayer or court agreement to be considered federal taxes receivables. 
Compliance assessments and memo accounts are not considered federal 
taxes receivable because they are not agreed to by taxpayers or the 
courts. 

[44] We define related entities as entities that share common owner(s) 
or officer(s), a common TIN, or a common address. 

[45] Table 1 in the main portion of this testimony provides data on 15 
detailed cases. 

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