In a prior Health Care e-Alert, we described CMS's
implementation of a new IRS levy program whereby Medicare may recoup from payments otherwise due to Medicare providers and suppliers, 15% of the
amounts due in order to satisfy a levy for past due income taxes owed by that provider. We noted that the decision was an implementation of a
1997 law, which authorized the IRS to collect overdue taxes through a continuous levy on certain federal payments owed to the taxpayer.
In a new decision, the United States Court of Appeals for the Fifth Circuit has added an additional weapon to the government's arsenal to recover
overdue taxes. The Fifth Circuit held in Mission Primary Care Clinic vs. IRS that the medical group was obligated to withhold and pay over
to the IRS approximately $40,000 in back taxes owed by an independent contractor physician providing services for the clinic. The statutory
provision authorizing the levy authorized the IRS to recoup those payments from any "salaries and wages" otherwise due to the taxpayer. Mission
Primary Care believed that that provision did not apply to independent contractors and, thus, was reluctant to pay the sums to the government,
only to have a further obligation to pay the amounts to the independent contractor physician as well.
The Fifth Circuit ruled, however, that the "continuing levy" authority of the IRS applies to all amounts paid to individuals providing services,
noting "it is immaterial in which capacity [the physician] received these post-levy payments. Summary judgment in favor of the IRS is proper as
to the issue of Mission's liability for failure to comply with the continuing levy."
Thus, the IRS has two effective tools to recover past due income taxes, both of which directly impact health care providers. CMS may directly
recoup those taxes from the provider from Medicare amounts otherwise payable to the provider. In addition, the IRS may directly place a levy on
any compensation payments payable to the physician, and the employer will be liable for those payments, whether the individual owing the taxes is
a W-2 employee or an independent contractor. Health care providers who receive a notice of levy from the IRS must be careful not to pay further
amounts to the employee or the contractor until the levy is satisfied. Otherwise, the provider may have the obligation to pay those amounts to
the IRS as well.
If you have any questions, please contact Jed Morrison at 210.978.7780 or
jmorrison@jw.com.
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