MEDICAID

Providers in Three 

States with Unpaid 

Federal Taxes 

Received over $6 

Billion in Medicaid 

Reimbursements

Report to Congressional Requesters

July 2012

GAO-12-857

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-857, a report to 

congressional requesters 

July 2012 

MEDICAID 

Providers in Three States with Unpaid Federal Taxes 

Received over $6 Billion in Medicaid 

Reimbursements 

Why GAO Did This Study

The Recovery Act increased the 

federal share of Medicaid funding. 

Federal law does not prohibit providers 

with tax debt from enrolling in 

Medicaid, but GAO’s prior work found 

that thousands of Medicaid providers 

do have unpaid federal taxes. Since

any provider who received Medicaid 

reimbursements during 2009 received 

Recovery Act funds, GAO was asked 

to (1) determine the magnitude of 

unpaid federal taxes owed by Medicaid 

providers reimbursed during 2009 in 

selected states; (2) provide examples 

of Medicaid providers who have 

sizeable unpaid federal taxes; and (3) 

evaluate opportunities and challenges 

related to collecting unpaid federal 

taxes through a levy process designed 

to offset Medicaid reimbursements. 

GAO compared Medicaid 

reimbursement information from three 

states to known IRS tax debts as of 

September 30, 2009. These states 

were among those that received the 

largest portion of Recovery Act 

Medicaid funding. To provide examples 

of Medicaid providers who have 

sizeable unpaid federal taxes, GAO 

conducted a detailed review of 40 

Medicaid providers from the three 

states that had over $100,000 of

federal tax debt. GAO’s sample of 

three states and 40 cases cannot be 

generalized to all states and all 

Medicaid providers. GAO also 

reviewed relevant laws and reports and

interviewed federal and state officials. 

What GAO Recommends

GAO recommends that IRS explore

opportunities to enhance collection of 

unpaid taxes from Medicaid providers, 

including the use of continuous levies. 

IRS agreed with our recommendation.

What GAO Found

About 7,000 Medicaid providers in three selected states (Florida, New York, and 

Texas) had approximately $791 million in unpaid federal taxes from calendar 

year 2009 or earlier. This represents about 5.6 percent of the Medicaid providers 

reimbursed by the selected states during 2009. These 7,000 Medicaid providers 

with unpaid federal taxes received a total of about $6.6 billion in Medicaid 

reimbursements during 2009 (including American Recovery and Reinvestment 

Act of 2009 [Recovery Act] funds). The amount of unpaid federal taxes GAO

identified is likely understated because Internal Revenue Service (IRS) taxpayer 

data reflect only the amount of unpaid taxes either reported on a tax return or 

assessed by IRS through enforcement; it does not include entities that did not file 

tax returns or underreported their income. 

The 40 Medicaid providers GAO reviewed received a total of $235 million in 

Medicaid reimbursements (including Recovery Act funds) in 2009 and had 

unpaid federal taxes of about $26 million through 2010. The amount of unpaid 

federal taxes ranged from approximately $100,000 to over $6 million. In addition, 

IRS records indicate that providers in two of GAO’s cases are currently, or have 

previously been, under criminal investigation. For example, in one case a 

provider was caught participating in a medical billing fraud. 

Examples of Medicaid Providers with Sizeable Unpaid Taxes

Nature of 

work

Total Medicaid 

reimbursement

Known unpaid 

federal taxes Comments

Dentist Over $400,000 Over $200,000 Dentist owes primarily individual income 

taxes from the late 2000’s. Recently, the 

dentist was caught participating in a medical 

billing fraud. After a felony conviction, the 

dentist surrendered his/her license. 

Doctor Over $200,000 Over $500,000 Doctor owes primarily individual income 

taxes from the 2000’s. IRS tried to levy the 

doctor’s Medicaid payments on several 

occasions, with limited success. 

Medical 

Transport 

Over $1,000,000 Over $6,000,000 Company owes primarily payroll taxes from 

the late 2000’s. IRS levied company bank 

accounts and receivables and assessed a 

trust fund recovery penalty against the 

company’s president. 

Source: GAO analysis of 2009 Medicaid payment records and IRS known tax debts as of 9/30/11. 

IRS may levy, or seize, a taxpayer’s property to satisfy a tax debt and, in some 

instances, is authorized to use an automated process to continuously levy federal 

payments made to delinquent taxpayers. Medicaid reimbursements have never 

been continuously levied using this provision of the law because the IRS 

determined that these reimbursements do not qualify as federal payments. 

However, if such a process could be used, GAO estimates that IRS could have 

collected between $22 million and $330 million in the selected states in 2009. 

States we spoke to expressed concerns about implementing continuous levies, 

given the challenges they encounter with processing onetime IRS levies. For 

example, states have had difficulty reaching IRS revenue officers and problems 

with IRS sending levies to the wrong address.

View GAO-12-857. For more information, 

contact Richard J. Hillman at (202) 512-6722 

or hillmanr@gao.gov. 
Page i GAO-12-857 Medicaid 

Letter 1 

Background 4

About 7,000 Medicaid Providers in the Selected States Owed 

Approximately $791 Million in Federal Tax Debt 7

Examples of Medicaid Providers with Sizeable Outstanding Federal 

Tax Debt 11

Increased Levy of Medicaid Reimbursements Would Likely 

Increase Federal Tax Debt Collection, but Further Study Is 

Required 17

Conclusions 22

Recommendations for Executive Action 23

Agency Comments and Our Evaluation 23

Appendix I Objectives, Scope, and Methodology 25

Appendix II Additional Cases of Medicaid Providers with Sizeable 

Outstanding Federal Tax Debt 29

Appendix III Comments from the Internal Revenue Service 35

Appendix IV Comments from the Centers for Medicare & Medicaid Services 38

Related GAO Products 42

Tables 

Table 1: Examples of Medicaid Providers with Sizeable Delinquent 

Tax Debt 13

Table 2: Additional Cases of Medicaid Providers with Sizeable 

Outstanding Federal Tax Debt 29

Contents
Page ii GAO-12-857 Medicaid 

Figures

Figure 1: Medicaid Providers’ Unpaid Taxes by Tax Type 8

Figure 2: Unpaid Taxes of Medicaid Providers by Year 9

Abbreviations

BMF Business Master File 

CMS Centers for Medicare & Medicaid Services 

EIN Employer Identification Number 

FMAP Federal Medical Assistance Percentage 

FMS Financial Management Service 

FPLP Federal Payment Levy Program 

IMF Individual Master File 

IRS Internal Revenue Service 

MCO Managed Care Organization

Recovery Act American Recovery and Reinvestment Act of 2009

SRP State Reciprocal Program 

SSN Social Security Number 

TFRP Trust Fund Recovery Penalty 

TIN Taxpayer Identification Number 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-12-857 Medicaid 

United States Government Accountability Office 

Washington, DC 20548

July 27, 2012

The Honorable Max Baucus

Chairman

The Honorable Orrin Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Charles Grassley

Ranking Member

Committee on the Judiciary

United States Senate

The Honorable Carl Levin

Chairman

The Honorable Tom Coburn, M.D.

Ranking Member

Permanent Subcommittee on Investigations

Committee on Homeland Security 

and Governmental Affairs

United States Senate

Individuals, businesses, and other entities owed the U.S. government 

over $350 billion in total unpaid tax assessments, including interest and 

penalties, as of September 30, 2011, according to the Internal Revenue 

Service (IRS).1 Because of this and other issues, we have designated 

IRS enforcement of the nation’s tax laws as a high-risk issue.2

 

1

This figure includes amounts owed by taxpayers who file returns without sufficient 

payment as well as amounts assessed through the IRS enforcement process.

In addition, 

the American Recovery and Reinvestment Act of 2009 (Recovery Act) 

initially provided states with an estimated $87 billion in federal funds for 

Medicaid, a federal-state health financing program for certain low-income 

individuals, from October 2008 through December 2010, by increasing 

2

GAO maintains a program to focus attention on government operations that it identifies 

as high risk due to their greater vulnerabilities to fraud, waste, abuse, and 

mismanagement or the need for transformation to address economy, efficiency, or 

effectiveness challenges. The most recent update of this program was GAO’s 2011 HighRisk Series: An Update, GAO-11-394T (Washington, D.C.: Feb. 17, 2011).

 
 

Page 2 GAO-12-857 Medicaid 

federal reimbursement rates for the Medicaid program. Recovery Act 

funds were made available to states and the District of Columbia through 

an increase to the Federal Medical Assistance Percentage (FMAP), the 

rate at which the federal government matches state expenditures for most 

Medicaid services. Thus, any provider that received Medicaid 

reimbursements during calendar year 2009, by definition, received some 

Recovery Act funds.3

This report is the third in a series of three reports in response to your 

request regarding recipients of federal Recovery Act funds who have 

unpaid federal taxes.

Federal law does not prohibit providers with unpaid 

federal taxes from enrolling in or receiving payments from Medicaid. 

Further, although IRS can levy, or seize, Medicaid reimbursements to 

satisfy a provider’s tax debt, it does not have the authority to do so 

continuously using an automated process. Because of the potential that 

some Medicaid providers that received Recovery Act funds have unpaid 

federal taxes, you asked us to examine this issue.

4 This report focuses on Medicaid providers who 

benefitted from Recovery Act provisions that increased FMAP for 

Medicaid.5

 

3

For the purposes of this report, the term “provider” refers to any individual, business, or 

other entity that received at least one Medicaid reimbursement (e.g., doctors, hospitals, 

home care providers) from at least one of the three selected states.

For this report, our objectives were to (1) determine the 

magnitude of unpaid federal taxes owed by Medicaid providers receiving 

reimbursements during 2009 in selected states; (2) provide examples of 

Medicaid providers who have sizeable unpaid federal taxes; and (3) 

evaluate opportunities and challenges related to collecting unpaid federal 

taxes through a levy process designed to offset Medicaid 

reimbursements.

4

The first report, GAO, Recovery Act: Thousands of Recovery Act Contract and Grant 

Recipients Owe Hundreds of Millions in Federal Taxes, GAO-11-485 (Washington, D.C.: 

Apr. 28, 2011), described Recovery Act contractors and grant recipients who received

federal funds while having unpaid federal taxes. The second report, GAO, Recovery Act: 

Tax Debtors Have Received FHA Mortgage Insurance and First-Time Homebuyer Credits, 

GAO-12-592 (Washington, D.C.: May 29, 2012), described individuals who benefitted from 

the Recovery Act’s first-time homebuyer tax credit or increased FHA mortgage insurance 

loan limits, or both, while having unpaid federal taxes.

5

The Recovery Act increased the federal share of Medicaid costs by increasing the federal 

matching rate by a minimum of 6.2 percent from October 1, 2008, to December 31, 2010.

Pub. L. No. 111-5, § 5001 (Feb. 17, 2009).
 

Page 3 GAO-12-857 Medicaid 

To determine the magnitude of unpaid federal taxes owed by Medicaid 

providers receiving reimbursements during 2009 in selected states, we 

obtained and analyzed annual Medicaid reimbursement information from 

the states of New York, Texas, and Florida. We attempted to obtain data 

from the state of California, but determined that the data we received were 

unreliable for the purposes of this report. We selected these states 

because they received the largest portion of the Recovery Act Medicaid 

funding.6

To provide examples of Medicaid providers who have sizeable unpaid 

federal taxes, we selected 20 Medicaid providers with unpaid business taxes 

and 20 Medicaid providers with unpaid individual taxes in the three selected 

states for detailed examination. These nonrepresentative selections of 

providers were chosen by using a random sample of the 113 Medicaid 

providers with unpaid business taxes and 26 Medicaid providers with unpaid 

individual taxes with at least $100,000 in Medicaid reimbursements during 

2009, $100,000 in unpaid federal taxes, and five noncontinuous years of 

accumulated unpaid federal taxes in or before 2010. In addition, you asked 

us to determine whether the owners and principals of Medicaid providers had 

unpaid federal taxes. To do so, we used open-source information to identify 

the owners and other principals for 600 randomly selected known Medicaid 

providers in Florida, New York, and Texas. We electronically matched these 

individuals with IRS’s tax debt data to identify their known unpaid federal 

taxes and to confirm their professional relationship with a nondebtor 

Medicaid provider. For example, a hospital that served as a Medicaid 

provider did not have unpaid federal taxes, but one of its owners or other key 

principals did have unpaid federal taxes. For all examples, we reviewed IRS 

We also obtained federal tax-debt data from IRS as of September 

30, 2011. Using the taxpayer identification number (TIN) as a unique 

identifier, we electronically matched IRS’s tax debt data to the population of 

Medicaid providers. We included only agreed-upon tax debts over $100 

from tax year 2009 and earlier to ensure that the provider owed or was 

accruing tax debt at the time that the provider received Medicaid funds. Our 

analysis determined the magnitude of known unpaid federal taxes owed by 

2009 Medicaid providers in only New York, Texas, and Florida and cannot 

be generalized to other states or periods.

 

6

New York, California, Texas, and Florida reported a combined $126.5 billion (35.1 

percent) in Medicaid reimbursements for 2009, of which $12.1 billion was paid with 

Recovery Act funds. New York, California, Texas, and Florida accounted for 13.55 

percent, 11.74 percent, 6.11 percent, and 5.46 percent of the Recovery Act Medicaid 

funds for 2009, respectively. 
 

Page 4 GAO-12-857 Medicaid 

and public records to develop case studies. These case studies are intended 

to illustrate the sizeable amounts of unpaid federal taxes owed by some 

Medicaid providers, are among the most egregious examples of Medicaid 

providers with unpaid federal taxes we identified, and cannot be generalized 

beyond the cases presented.

To evaluate opportunities and challenges related to collecting unpaid 

federal taxes through a levy process designed to recapture unpaid taxes 

by offsetting subsequent Medicaid reimbursements, we interviewed 

officials from relevant federal agencies and from selected states (chosen 

on the basis of size of their Medicaid programs or their participation in 

federal debt collection programs, or both).7

We conducted this performance audit from July 2010 through July 2012 in 

accordance with generally accepted government auditing standards.

We also reviewed applicable 

laws and regulations related to the issues of subjecting Medicaid 

reimbursements to tax levies, including the Department of the Treasury’s 

Federal Payment Levy Program (FPLP). A more detailed description of 

the scope and methodology related to our audit work supporting this 

report is provided in appendix I.

8

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

audit findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

Medicaid is a federal-state partnership that finances health care for 

certain low-income individuals, including children, families, the aged, and 

the disabled. More than 64 million persons were enrolled in the Medicaid 

program for fiscal year 2009. The Centers for Medicare & Medicaid 

Services (CMS) reported combined fiscal year 2009 and 2010 Medicaid 

program spending of $744 billion, $499 billion of which was funded by the 

federal government.9

 

7

We interviewed officials from California, Florida, Kentucky, Maryland, and Texas.

The federal government matches most state 

8

Initiation of our review was delayed significantly because California did not comply with 

our request for Medicaid provider payment data for over 8 months. What California 

ultimately provided was not sufficiently reliable for the purposes of our report. 

9

The Recovery Act increased federal funds for Medicaid for periods including fiscal year 

2009 and 2010. 

Background
 

Page 5 GAO-12-857 Medicaid 

Medicaid expenditures for covered services according to the FMAP, 

which is based on a statutory formula drawing on each state’s annual per 

capita income.10

Title XIX of the Social Security Act allows considerable flexibility within 

the states’ Medicaid plans. Within broad national guidelines established 

by federal statutes, regulations, and policies, each state (1) establishes its 

own eligibility standards; (2) determines the type, amount, duration, and 

scope of services;

Because of the mechanism through which the Recovery 

Act increased the federal share of funding for Medicaid through an 

increased FMAP, any provider that received Medicaid reimbursements 

during 2009 received Recovery Act funds. Within broad federal 

requirements, each state operates and administers its Medicaid program 

in accordance with a CMS-approved state Medicaid plan. These plans 

detail the populations served, the services covered, and the methods 

used to calculate payments to providers.

11

To receive payment for services or goods provided to beneficiaries from 

Medicaid, providers must first enroll in the Medicaid program. To enroll, 

providers must submit a Medicaid enrollment application to the state or 

the state’s fiscal agents who are responsible for determining whether the 

providers meet federal and state requirements for enrollment. The state 

or its fiscal agents are responsible for screening the applications on the 

basis of CMS and state policies. Once an applicant is deemed eligible by 

the state or its fiscal agents, Medicaid providers can submit their claims to 

the state for payment. The state is responsible for claims processing and 

verifying the claim is accurate, complete, medically necessary, and 

(3) sets the rate of payment for services; and (4) 

administers its own program—including enrollment of providers. Medicaid 

policies for eligibility, services, and payment are complex and vary 

considerably, even among states of similar size or geographic proximity. 

Thus, a person who is eligible for Medicaid in one state may not be 

eligible in another state, and the services provided by one state may differ 

considerably in amount, duration, or scope from services provided in a 

similar or neighboring state.

 

10The federal share of a state’s Medicaid payments may range from 50 to 83 percent. 

11All states must provide certain services, such as inpatient and outpatient hospital 

services, nursing facility services, and physician services, and may provide additional, 

optional services, such as prescription drugs, dental care, and certain home- and 

community-based services.
 

Page 6 GAO-12-857 Medicaid 

covered under the state’s Medicaid plan. After the claim is approved by 

the state, it pays the claim.

Federal reimbursement for Medicaid generally begins after a Medicaid 

beneficiary receives care from a health care provider such as a hospital, 

physician, or nursing home. The state pays the provider from a 

combination of state funds and federal funds, the latter of which have 

been advanced by CMS each quarter. The state then files a quarterly 

expenditure report, in which it claims the federal share of the Medicaid 

expenditure as reimbursement for its payment to providers and reconciles 

its total expenditures with the federal advance. In addition to 

reimbursement for medical services, the state may claim federal 

reimbursement for functions it performs to administer its Medicaid 

program, such as enrolling new beneficiaries; reviewing the 

appropriateness of providers’ claims; and collecting payments from third 

parties, which are payers other than Medicaid, such as Medicare, that 

may be liable for some or all of a particular health claim.12

Federal law does not prohibit providers with unpaid federal taxes from 

enrolling in or receiving payments from Medicaid. Federal regulations and 

policies require the states, as part of their responsibilities for determining 

whether the providers meet Medicaid requirements for enrollment, to verify 

basic information on potential providers, including whether the providers 

meet state licensure requirements and whether the providers are prohibited 

from participating in federal health care programs. However, federal 

regulations and policies do not require the states to screen these providers 

for federal tax delinquency nor do they explicitly authorize the states to 

reject the providers that have delinquent tax debt from participation in 

Medicaid. Further, federal law generally does not permit IRS to disclose 

taxpayer information, including tax debts, unless the taxpayer consents.

IRS may levy a taxpayer’s property to satisfy a tax debt. For instance, IRS 

could seize and sell property that a taxpayer holds (such as the 

taxpayer’s car, boat, or house), or IRS could seize property that belongs 

to the taxpayer but is held by someone else (such as the taxpayer’s 

wages, retirement accounts, dividends, bank accounts, licenses, rental 

income, accounts receivable, or commissions). Currently, IRS may issue 

 

12Federal reimbursements for administrative costs are paid at a different matching 

percentage than beneficiary care costs.
 

Page 7 GAO-12-857 Medicaid 

a onetime notice of levy to a state Medicaid agency to collect the 

receivable balance immediately due to a given provider. IRS may then 

issue additional successive, onetime levies if the proceeds received from 

the initial levy are not sufficient to satisfy the government’s claim. A 

provision of the Taxpayer Relief Act of 199713 authorizes IRS to 

continuously levy (typically using an automated process) certain federal 

payments made to delinquent taxpayers in order to collect tax debt, but 

Medicaid reimbursements have never been collected using this provision 

of the law. This is because IRS determined that Medicaid disbursements 

do not qualify as federal payments and thus may not be subjected to the 

continuous levy. This decision was based on the nature of the Medicaid 

reimbursement as a state entitlement, and the considerable operational 

discretion vested in state agencies in the administration of the Medicaid 

program, including discretion to create unique eligibility standards for 

enrollment of providers and to establish criteria for disbursement of funds.

Our analysis found that, as of September 30, 2011, about 7,000 Medicaid 

providers in the three selected states had approximately $791 million in 

unpaid federal taxes from 2009 or earlier.14 These providers accumulated 

an additional $59 million in unpaid federal taxes during 2010 and 2011.15

These providers represent about 5.6 percent of the approximately 125,000 

Medicaid providers reimbursed by the selected states during 2009. These 

7,000 Medicaid providers with unpaid federal taxes received a total of 

about $6.6 billion in Medicaid reimbursements during 2009, which included 

Recovery Act funds.16

 

13Pub. L. No. 105-34, § 1024 (Aug. 5, 1997), 26 U.S.C. § 6331(h). 

The amount of unpaid federal taxes we identified 

among Medicaid providers is likely understated because the IRS taxpayer 

data reflect only the amount of unpaid taxes either reported by the taxpayer 

on a tax return or assessed by IRS through its various enforcement 

14These figures include an unknown number of individuals and businesses that have a 

current installment agreement, have submitted an offer-in-compromise, have declared 

bankruptcy, or are otherwise in the process of negotiating a payment method for their 

delinquent taxes.

15In addition, we note that approximately 4,200 additional 2009 Medicaid providers in 

these states accumulated unpaid federal taxes during only 2010 or 2011.

16If a provider had more than one associated TIN, each TIN was counted separately for 

the purposes of this analysis; therefore, we found that an insignificant number of 

payments (less than 250 providers and $35 million) have been counted multiple times if 

more than one associated TIN had delinquent federal taxes.

About 7,000 Medicaid 

Providers in the 

Selected States Owed 

Approximately $791 

Million in Federal Tax 

Debt
 

Page 8 GAO-12-857 Medicaid 

programs, and generally the unpaid federal taxes amount does not include 

entities that did not file tax returns or underreported their income.

As shown in figure 1, about 77 percent of the approximately $791 million 

in unpaid federal taxes was made up of individual income taxes, 

corporate income taxes, and payroll taxes. The other 23 percent of taxes 

included excise taxes, miscellaneous penalties, and other types of taxes.

Figure 1: Medicaid Providers’ Unpaid Taxes by Tax Type

Over 40 percent of the unpaid federal taxes owed by Medicaid providers 

in these three states were payroll taxes. Employers are subject to civil 

and criminal penalties if they do not remit payroll taxes to the federal 

government. When an employer withholds taxes from an employee’s 

wages, the employer is deemed to have a responsibility to hold these 

amounts “in trust” for the federal government until the employer makes a 

federal tax deposit in that amount. 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 

Contributions Act contributions for Social Security and Medicare. 

Individuals within a business (e.g., corporate officers) may be held 

personally liable for the withheld amounts not forwarded and they may be 

assessed a civil monetary penalty known as a trust fund recovery penalty 

(TFRP). Willful failure to remit payroll taxes can also be a criminal felony 
 

Page 9 GAO-12-857 Medicaid 

offense punishable by imprisonment up to 5 years, while the failure to 

properly segregate payroll taxes can be a criminal misdemeanor offense 

punishable by imprisonment of up to 1 year.17

A substantial amount of the unpaid federal taxes shown in IRS records as 

owed by Medicaid providers have been outstanding for several years. As 

shown in figure 2, about 51 percent of the $791 million in unpaid federal 

taxes was for tax periods from 2004 through 2007, and approximately 21 

percent of the unpaid federal taxes was for tax periods prior to 2004.

Figure 2: Unpaid Taxes of Medicaid Providers by Year

 

17The 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 general fund of the Treasury. Thus, personal income taxes, corporate income 

taxes, and other government revenues are used to pay for these shortfalls to the Social 

Security and Medicare trust funds. 
 

Page 10 GAO-12-857 Medicaid 

Our previous work has shown that as unpaid taxes age, the likelihood of 

collecting all or a portion of the amount owed decreases.18 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 reported above does not include all tax 

debts owed by Medicaid providers due to statutory provisions that give 

IRS a finite period under which it can seek to collect on unpaid taxes. 

There is a 10-year statute of limitations beyond which IRS is prohibited 

from attempting to collect tax debt. Consequently, if the Medicaid 

providers have unpaid federal taxes from beyond the 10-year statutory 

collection period, the older tax debt may have been removed from IRS’s 

records.19 We were unable to determine whether any tax debt had been 

removed for these providers on this basis, and if so, the amount that had 

been removed.

Although $791 million in unpaid federal taxes owed by Medicaid providers 

in the selected states as of September 30, 2011, is a significant amount, it 

likely 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. 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 $450 billion 

gross tax gap estimated for tax year 2006.20

 

18GAO, Internal Revenue Service: Recommendations to Improve Financial and 

Operational Management, 

As discussed below, some of 

our case-study examples include individuals and businesses who did not 

file required accurate tax returns.

GAO-01-42 (Washington, D.C.: Nov. 17, 2000).

19Of the $167 million in pre-2004 debt shown in fig. 2, $61 million is for 2000 or earlier, 

and may therefore be uncollectible.

20The annual gross tax gap is the difference between taxes owed and taxes paid on time 

in a given year. IRS estimated that the gross tax gap for tax year 2006 was $450 billion. 

Unpaid Federal Taxes of 

Medicaid Providers Is 

Likely Understated
 

Page 11 GAO-12-857 Medicaid 

Further, we did not attempt to broadly identify instances where a Medicaid 

provider owed taxes under a separate TIN from the TIN under which the 

provider received the Medicaid reimbursements in our calculations of the 

magnitude of tax debt. For example, if a sole proprietor filed Medicaid 

claims under his/her business’s Employer Identification Number (EIN), but 

owed personal income taxes under his/her own Social Security Number 

(SSN), we would not have been able to match the proprietor’s Medicaid 

claims to his/her debt. Consequently, the extent of unpaid federal taxes 

for Medicaid providers may be understated since we may not have had all 

relevant TINs for each Medicaid provider that owes tax debt. However, 

we were able to identify several case-study examples of this 

phenomenon, as discussed below.

When we reviewed each state’s Medicaid data, we reached the 

conclusion that the data from New York, Texas, and Florida were 

sufficiently reliable for the purposes of our study. However, we 

determined, through data tests, interviews, and reviews of state audit 

reports that the Medicaid data from California for 2009 were unreliable. 

California provided us with $38.4 billion in transactional data, but reported 

$41.8 billion in Net Expenditures to CMS—a difference of $3.4 billion (8.3 

percent). When we asked California officials why the amounts in the data 

they provided did not reconcile to externally published sources, officials 

told us that they were unable to reconcile the data. We have notified the 

Health and Human Services Office of Inspector General to take any 

actions it deems appropriate.

We reviewed 40 Medicaid providers with unpaid federal taxes (20 with 

unpaid business taxes and 20 with unpaid individual taxes) and 10 

additional cases where the provider did not have unpaid federal taxes, but 

one of its principals had unpaid federal taxes. In each case, the provider 

received significant reimbursement payments from Medicaid, including 

Recovery Act funds, while having unpaid federal taxes. These case 

studies are intended to illustrate the sizeable amounts of unpaid federal 

taxes owed by some Medicaid providers, are among the most egregious 

examples of Medicaid providers with unpaid federal taxes we identified, 

and cannot be generalized beyond the cases presented.

In each of these 40 cases, the provider received significant 

reimbursement payments from Medicaid (which included Recovery Act 

funds) while owing at least $100,000 in unpaid federal taxes. In many 

California Medicaid 

Provider Data Were 

Unreliable

Examples of Medicaid 

Providers with 

Sizeable Outstanding 

Federal Tax Debt

Business and Individual 

Providers with Tax Debt
 

Page 12 GAO-12-857 Medicaid 

cases, IRS records showed abusive or potentially criminal activity related 

to the federal tax system. For example, all 20 of the business providers 

we reviewed owed delinquent payroll taxes. As discussed previously, 

businesses and organizations with employees are required by law to 

collect, account for, and transfer income and employment taxes withheld 

from employees’ wages to IRS; failure to do so may result in civil or 

criminal penalties. We also found instances of providers entering into and 

subsequently defaulting on installment agreements with IRS numerous 

times or sending IRS bad checks. Thirty of the 40 providers did not file a 

tax return or filed late at least one time in the last 10 years.21

These 40 providers received a total of $235 million in Medicaid 

reimbursements. The case-study providers represent a broad range of 

provider types such as doctors, dentists, home care providers, hospitals, 

durable medical equipment suppliers, and social services providers. The 

amount of unpaid federal taxes associated with these case studies is 

about $26 million in total, ranging from approximately $100,000 (the 

minimum threshold used to draw our sample) to over $6 million 

individually.22

Law enforcement, regulatory bodies, and others have found abusive or 

criminal activity related to some of the providers’ medical practices. IRS 

records indicate that at least two of the entities are currently, or have 

previously been, under criminal investigation. For example, one of the 

providers was involved in a large Medicaid fraud scheme. Another 

provider was found guilty of improperly prescribing controlled substances. 

Other providers took actions that were not overtly criminal, but raised 

concerns about the quality of care provided. For example, providers have 

IRS has taken collection or enforcement activities (e.g., 

levying assets, filing federal tax liens, assessing a TFRP) against all 40 of 

these recipients. We note that at least 13 of these recipients had 

scheduled Medicaid reimbursements subjected to onetime levy by IRS to 

pay delinquent taxes on at least one occasion. In one case, IRS collected 

hundreds of thousands of dollars from the taxpayer using these levies.

 

21We reviewed IRS records for each case and considered the case to have not filed a tax 

return or filed late at least one time in the last 10 years if we found evidence that explicitly 

described the taxpayer as a late or nonfiler, or if we found evidence that IRS appeared to 

file a substitute for return against the taxpayer. 

22These figures include all known unpaid debts for tax periods through 2010.
 

Page 13 GAO-12-857 Medicaid 

had actions taken against their professional licenses and have been fined 

by state oversight agencies for regulatory violations.

Table 1 highlights 10 Medicaid providers with unpaid federal taxes. Thirty 

additional cases can be found in appendix II. We have referred all 40 

providers to IRS for further investigation, as appropriate.

Table 1: Examples of Medicaid Providers with Sizeable Delinquent Tax Debt

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 1

Dentist 

(Individual)

Medicaid: Over $400,000

Taxes: Over $400,000

• The dentist primarily owes individual income taxes from the mid-1990s.

• IRS filed federal tax liens against this dentist.

• The dentist filed for bankruptcy in the mid-1990s.

• In the mid-1990s, a state licensing agency fined and suspended the 

dentist for actions including improperly prescribing controlled 

substances. 

Case 2

Dentist 

(Individual)

Medicaid: Over $400,000

Taxes: Over $200,000

• The dentist primarily owes individual income taxes from the late 2000s.

• Recently, the dentist was caught participating in a medical billing fraud. 

After a felony conviction, the dentist surrendered his/her license.

• IRS filed federal tax liens against this dentist. 

Case 3

Dentist 

(Individual)

Medicaid: Over $100,000

Taxes: Over $100,000

• The dentist primarily owes individual income taxes from the late 2000s. 

The dentist’s business also owes over $100,000 in outstanding federal 

tax debt (not included here) primarily for unpaid payroll taxes.

• IRS levied the dentist’s bank accounts on multiple occasions, but only 

received a nominal amount of money. IRS unsuccessfully attempted to 

levy the dentist’s other assets and income sources multiple times.

• IRS filed federal tax liens against this dentist.

• The dentist attempted to enter an installment agreement with IRS. 

However, IRS could not approve the agreement until all required tax 

returns were filed, which did not happen.

• Per IRS records, the dentist spent money on fine dining, trips, spas, 

shopping, and wine while owing substantial tax debt.

• The dentist failed to respond to recent IRS attempts at contact. IRS 

records described his behavior as flagrant.

• The dentist’s business recently filed for bankruptcy. 
 

Page 14 GAO-12-857 Medicaid 

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 4

Doctor 

(Individual)

Medicaid: Over $200,000

Taxes: Over $500,000

• The doctor primarily owes individual income taxes from throughout the 

2000s.

• The doctor entered into an installment agreement with IRS and 

subsequently defaulted.

• IRS records noted that the doctor was “clearly paying personal bills from 

his business checking account.”

• IRS unsuccessfully attempted to levy the doctor’s bank account and 

other sources. IRS also attempted to levy the doctor’s Medicaid 

payments on several occasions. Some attempts were successful, while 

in other instances the levy arrived at the state Medicaid agency after 

payment had already been made to the doctor. IRS records noted that 

the Medicaid payments were the doctor’s only sizable levy source.

• The doctor had filed for bankruptcy in the early 2000s.

• The state Board of Medicine disciplined the doctor for quality of care 

and record-keeping violations. 

Case 5

Doctor 

(Individual)

Medicaid: Over $100,000

Taxes: Over $200,000

• The doctor primarily owes individual income taxes from the early 2000s 

as well as TFRPs assessed for payroll taxes owed by the doctor’s 

business.

• IRS filed federal tax liens against this doctor.

• The doctor agreed to multiple installment agreements with IRS, but 

defaulted each time. The doctor’s spouse also entered into and 

defaulted on an installment agreement.

• IRS records stated that the doctor incurs significant expenses for private 

schooling and mortgage payments.

• IRS found that the doctor sold property to a holding company at a value 

well below market. IRS records expressed concern that the doctor was 

attempting to move the property out of the reach of the government.

• The responsible state professional board placed restrictions on the 

doctor’s ability to practice. 

Case 6

Medical Transport

(Business) 

Medicaid: Over $1,000,000

Taxes: Over $6,000,000

• The business primarily owes payroll taxes from the late 2000s.

• IRS levied the business’s bank accounts and receivables multiple times. 

IRS also continuously levied the provider’s Medicare payments.

• IRS assessed a TFRP against the business’s president.

• The business entered into an installment agreement with IRS, but 

eventually defaulted for noncompliance with filing requirements. When 

IRS tried to discuss the requirements with the business’s legal 

representative, the representative was described by IRS records as 

uncooperative, interruptive, and insulting toward IRS.

• IRS considered a seizure of the business’s assets, but for policy 

reasons it was deemed unworkable. 
 

Page 15 GAO-12-857 Medicaid 

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 7

Medical Transport 

(Business) 

Medicaid: Over $300,000

Taxes: Over $600,000

• The business primarily owes payroll taxes from the late 2000s.

• The business had previously filed for bankruptcy in the early 2000s.

• IRS successfully levied the business’s bank accounts and income 

sources. IRS also assessed a TFRP against multiple officers.

• IRS records expressed concern that the business was routing Medicaid 

claims through an intermediary to avoid an outstanding levy.

• IRS observed a number of potentially fraudulent activities from the 

business including the omission of income, failure to file and pay taxes, 

tax evasion, and conspiracy to mislead the government. IRS referred 

the case to its Criminal Investigation unit. 

Case 8

Nursing 

(Business) 

Medicaid: Over $200,000

Taxes: Over $3,000,000

• The nursing business primarily owes payroll taxes from the 2000s. The 

business paid off or successfully pursued abatement of prior delinquent 

taxes from the 1990s after IRS began collection activities.

• The business claimed the debt was caused by slow timing of 

government payments, but IRS records noted that the business was 

able to stay in business even when enforcement actions eliminated the 

government payments. 

• Per IRS, the business bounced checks, missed agreed-upon voluntary 

payments, and continued accumulating new tax liabilities while 

collection was occurring on older debts. IRS records further noted that 

the business only appeared to submit payments under direct threat of 

seizure.

• IRS repeatedly levied the business’s Medicaid payments, collecting 

hundreds of thousands of dollars. After the levies, the business reduced 

the amount of work done for Medicaid.

• The business’s officers, a married couple, purchased a new home while 

their business was accumulating debt. IRS records expressed concern 

that the officers were living above their means and borrowing from the 

business to pay for personal expenses.

• IRS assessed TFRPs against the business’s officers on multiple 

occasions. IRS eventually referred the case to the Department of Justice. 

Case 9

Social Services

(Business) 

Medicaid: Over $4,000,000

Taxes: Over $1,000,000

• The business primarily owes payroll taxes from the early 2000s.

• The business attempted to settle the outstanding debt using an offer-incompromise, but IRS rejected it because it was determined to be 

insufficient.

• The business alleged that it needed to have a large cash reserve under 

state regulations, complicating IRS efforts to enforce collection 

activities.

• IRS filed federal tax liens against this business.

• The business’s owner also has a history of outstanding personal tax 

debt primarily for unpaid individual income taxes. 
 

Page 16 GAO-12-857 Medicaid 

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 10

Social Services

(Business) 

Medicaid: Over $200,000

Taxes: Over $200,000

• The business primarily owes payroll taxes from the late 2000s.

• The business claimed the debt was due to a family emergency and the 

economic downturn.

• IRS records noted that the “[business] has established a pattern of 

noncompliance by continuing to fail to make deposits.” IRS also told 

business officers that even though the business was helping the 

community, it didn’t exempt the business from paying payroll taxes.

• IRS successfully levied the business’s bank accounts multiple times.

• IRS assessed a TFRP against multiple officers, who admitted that other 

creditors were paid while delinquent taxes were accruing. However, IRS 

records noted that the officers had little to no property or income to 

seize. These officers also failed to file their personal tax returns for the 

same period.

• The business entered into and subsequently defaulted on multiple 

installment agreements with IRS. 

Source: GAO analysis of IRS and Medicaid records. 

We examined 10 additional cases of individuals who had unpaid federal 

taxes while appearing to serve as a principal for a Medicaid provider that 

did not have known tax debt.23

In three of these cases, medical professionals submitted their names as 

payees to the state Medicaid agency, along with a TIN other than their 

personal SSN. In all three cases, this secondary TIN did not have 

associated tax debt, but the doctors each had personal tax debt under 

their SSNs, ranging from about $20,000 to over $60,000. These doctors 

received between $15,000 and $150,000 from Medicaid through their 

secondary TIN. In another case, we identified two officers with unpaid 

For the principals that we examined, their 

known unpaid federal taxes ranged from $4,000 to $1.3 million. These 

individuals reported to IRS receiving from $30,000 to $300,000 in wages 

or other payments from a Medicaid provider, with 8 of the 10 cases 

involving total payments exceeding $100,000. The providers they worked 

for received from $1,000 to $50 million in Medicaid reimbursements.

 

23Of the 30 cases for whom we requested and received IRS records, we conducted further 

examinations when (1) we could confirm the principal’s relationship with the provider, (2) 

the provider received at least $100 from Medicaid, (3) the principal in question owed at 

least $3,000 in tax debt, and (4) the principal appeared to have a key role in the provider’s 

ownership structure or operations, or both (e.g., owners, primary shareholders, officer, or 

chairperson).

Examples Where at 

Least One Principal 

Owes Delinquent 

Personal Taxes 
 

Page 17 GAO-12-857 Medicaid 

federal taxes totaling approximately $370,000 at a nonprofit provider that 

received over $6 million in Medicaid reimbursements. Each officer 

reported a salary in excess of $100,000 for 2009. Finally, in one case, we 

identified a doctor who, according to IRS, “had a history of noncompliance 

... and avoidance of payment of taxes” resulting in over $1 million in 

delinquent personal income taxes (including fines and penalties), while 

the business he/she owned received under $2,000 in Medicaid 

reimbursements. IRS collected a portion of the outstanding debt by 

garnishing the doctor’s wages at his company after the doctor defaulted 

on an installment agreement.

Increased levy of Medicaid reimbursements could help IRS collect 

millions of dollars of unpaid federal taxes owed by Medicaid providers. 

IRS may levy a taxpayer’s property to satisfy a tax debt, but IRS currently 

may only subject Medicaid reimbursements to a onetime levy instead of a 

continuous levy, because Medicaid reimbursements are not considered 

“federal payments.”24 We estimate that if IRS were able to continuously 

levy Medicaid reimbursements, it could collect from $22 million to $330 

million from the three selected states for 2009, depending on the 

circumstances of the levy and certain provider behaviors. Alternatively, 

manual continuous levies (levies that are physically mailed by IRS at its 

discretion) targeted against providers that owed a significant amount of 

tax debt and received large Medicaid reimbursements may represent a 

lower-cost opportunity to collect unpaid federal taxes. The states that we 

spoke to expressed concerns over the use of continuous levies and also 

described problems related to the enforcement of onetime levies.

 

24Federal law allows IRS to use different types of levies and levy programs that vary 

depending on the type of asset or income stream that IRS is seizing. Generally a levy only 

applies to possessed properties and existing obligations at the time the levy is issued, but 

IRS may issue successive levies if the proceeds received from the initial levy are not 

sufficient to satisfy the government’s claim. However, some levies are continuous from the 

date a levy is first made until it is released by IRS. Salary, wages, certain federal 

payments, annuities or pension payments under the Railroad Retirement Act or the 

Railroad Unemployment Insurance Act, unemployment benefits, workmen’s 

compensation, and certain public assistance payments all may be levied continuously, 

although there may be limitations for how much may be levied at one time. 26 U.S.C. 

§ 6331(h). 

Increased Levy of 

Medicaid 

Reimbursements 

Would Likely Increase 

Federal Tax Debt 

Collection, but 

Further Study Is 

Required
 

Page 18 GAO-12-857 Medicaid 

IRS may issue a onetime notice of levy to a state Medicaid agency to 

collect the receivable balance immediately due to a given provider, to the 

extent the provider owes federal taxes. However, IRS can only collect 

funds that are due to the provider at the moment that the levy is received 

by the state Medicaid agency. To the extent the initial levy does not 

collect the full amount of unpaid federal taxes due, IRS must issue 

subsequent onetime levy notices to collect a provider’s Medicaid 

reimbursements due from the state Medicaid agency. In comparison, 

continuous levies are active until IRS agrees to release the levy and if 

allowed to apply to Medicaid payments can be automatically applied to 

any future requests for Medicaid reimbursement without additional levy 

notices. For example, one mechanism that IRS uses to implement 

continuous levies is an automated system referred to as the Federal 

Payment Levy Program (FPLP). Through FPLP, IRS collected $614 

million in fiscal year 2011 and has collected over $3.26 billion since it was 

implemented in 2000 (including collection of Medicare payments made 

after fiscal year 2008).25 Under the FPLP, each week IRS sends the 

Department of the Treasury’s Financial Management Service (FMS) an 

extract of its tax debt files. These files are uploaded into the Treasury 

Offset Program.26

Current federal law does not allow IRS to subject Medicaid 

reimbursements to continuous levy. At a 2007 hearing held by the Senate 

Homeland Security & Governmental Affairs Committee, IRS and 

Department of the Treasury officials testified that the FPLP could not be 

used to offset Medicaid reimbursements because such payments do not 

meet the criteria established to be considered “federal payments.” In 

FMS sends payment data to this offset program to be 

matched against unpaid federal taxes. If there is a match and IRS has 

updated the weekly data sent to the offset program to reflect that it has 

completed all statutory notifications, any federal payment owed to the 

debtor is reduced (levied) to help satisfy the unpaid federal taxes.

 

25The Medicare Improvements for Patients and Providers Act of 2008, enacted by 

Congress in July 2008, requires CMS to take all necessary steps to participate in the 

FPLP as soon as possible. Pub. L. No. 110-275, § 189 (July 15, 2008).

26The Treasury Offset Program is an automated process administered by the Department 

of the Treasury’s FMS in which certain federal payments are withheld or reduced (offset) 

to collect delinquent tax and nontax debts owed to federal agencies, including IRS. For the 

FPLP, FMS matches federal payments to the tax-debt records sent to it by IRS, and when 

a match occurs, FMS offsets (levies) the federal payments and transmits the amount 

levied to IRS to reduce the tax debtor’s outstanding debt and sends the residual to the 

debtor. 

IRS Cannot Currently 

Continuously Levy 

Medicaid Reimbursements 

to Collect Unpaid Federal 

Taxes
 

Page 19 GAO-12-857 Medicaid 

addition, they noted that, unlike Medicare payments, which are disbursed 

by the federal government, Medicaid reimbursements to providers are 

issued by the states, introducing additional legal and operational 

complexities not present under Medicare. A joint task force of IRS, CMS, 

and Department of the Treasury officials studied the matter, and 

concurred with the IRS assertion that since Medicaid is not a “federal 

payment” it cannot be subject to continuous levy. The task force 

considered, but did not conduct, a comprehensive cost-benefit analysis 

considering the potential impact of a change in legislation defining 

Medicaid as a “federal payment.” Since a comprehensive study was not 

conducted, the full costs associated with implementing a continuous levy 

program for Medicaid payments are unknown. Several bills have since 

been introduced that would add Medicaid to the definition of “federal 

payment,” but none have become law.27

For the 7,000 delinquent Medicaid providers we identified in three states, 

if there had been such an automated continuous levy system in place, we 

estimate that between $22 million and $55 million could have been 

collected to offset unpaid federal taxes in 2009.28

 

27Tax Gap Act of 2011, S. 1289, 112th Cong. (2011); Tax Gap Act of 2010, S. 3795, 

111th Cong. (2010); Medicaid Levy Enhancement Act, S. 2843, 110th Cong. (2008); 

Medicaid Levy Enhancement Act, H.R. 5764, 110th Cong. (2008). 

These estimates 

exclude providers who are identified by IRS as currently precluded from 

continuous levy for statutory or policy reasons. Cases excluded from the 

FPLP for statutory reasons include those with tax debt that had not 

completed IRS’s notification process, or tax debtors who filed for 

bankruptcy protection or other litigation, who agreed to pay their tax debt 

through monthly installment payments, or who requested to pay less than 

the full amount owed through an offer in compromise. Cases excluded 

from the FPLP for policy reasons include those tax debtors whom IRS 

has determined to be in financial hardship, those filing an amended 

return, certain cases under criminal investigation, and those cases in 

which IRS has determined the specific circumstances of the cases 

warrant excluding it from the FPLP.

28We compared the outstanding tax debt to the Medicaid reimbursements received in 

2009 for tax modules that were listed as actively referred to FMS for FPLP collections, per 

IRS. 

Estimates Show

Implementing Continuous 

Levy on Medicaid 

Reimbursements Could 

Allow IRS to Collect 

Additional Tax Debt
 

Page 20 GAO-12-857 Medicaid 

The low-end estimate presumes each Medicaid reimbursement to be 

levied at a 15 percent rate; the high-end estimate presumes a 100 

percent levy rate.29

Alternatively, if federal law permitted continuous levy of Medicaid 

payments, manual continuous levies (levies that are physically mailed by 

IRS at its discretion) targeted against only high-reimbursement, high-debt 

Medicaid providers may represent an opportunity to cost-effectively 

increase federal tax collections. We found that a small number of 

providers owed a significant amount of unpaid federal taxes and received 

large Medicaid reimbursements. Specifically, 32 providers each received 

over $1 million in Medicaid reimbursements and had over $1 million in 

total unpaid federal taxes.

However, this estimate does not account for potential 

changes in provider participation after receipt of a notice of levy. For 

instance, officials at one state we spoke to noted that it had seen 

individual providers discontinue services after a levy of a large portion of 

an expected reimbursement. Under ideal circumstances (i.e., 100 percent 

levy with no statutory or policy exclusions and no decrease in provider 

participation), the absolute maximum that IRS could have offset for these 

7,000 providers in 2009 would be about $330 million. These estimates do 

not account for the potential costs associated with implementing a largescale automated continuous levy program for Medicaid reimbursements. 

Because such an estimate is not currently available, while potential for 

extensive collections may exist, further study would be required to 

determine the feasibility of a large-scale automated collection program.

30

 

29Congress authorized IRS to collect delinquent tax debt by continuously levying up to 15 

percent of certain federal payments made to tax debtors in the Taxpayer Relief Act of 

1997. Subsequent legislation increased the maximum allowable levy amount to 100 

percent for payments to federal contractors and other vendors for goods or services sold 

or leased to the federal government.

All five of the states we spoke with already 

have processes to enforce onetime levies on Medicaid reimbursements 

on behalf of IRS and several enforce continuous levies on other state 

payments. These existing processes could potentially be adapted to 

handle enhanced onetime or manual continuous levy programs targeted 

at high-reimbursement, high-debt Medicaid providers with lesser 

30The cumulative 2009 Medicaid payments received by these 32 providers were about 

$310 million and the cumulative unpaid federal taxes were about $241 million. 
 

Page 21 GAO-12-857 Medicaid 

investment by state and federal entities than a continuous levy of all 

providers.31

It is not clear what effect a large-scale systematic program for 

continuously levying Medicaid reimbursements would have on Medicaid 

provider participation. When we asked selected states how current 

onetime federal levy or continuous state levy activities affect provider 

participation, four of the five states told us that they did not believe that 

their current levy activities had a broad effect on Medicaid provider 

participation. However, these states also noted that it would be difficult to 

judge based on the infrequency with which such levies are occurring. One 

state suggested that providers could begin billing in another state where 

payments are not offset, or that they may change their TIN to avoid 

levies. As noted previously, one state did note that it had seen individual 

providers discontinue services after a levy of a large portion of an 

expected reimbursement. Two of the states also mentioned that they levy 

Medicaid reimbursements for the collection of state debts without seeing 

a broad effect on provider participation.

Several of the states we spoke with described a trend towards using 

Managed Care Organizations (MCO) to administer Medicaid benefits.32

 

31The states we spoke to also showed support for the Department of the Treasury’s State 

Reciprocal Program (SRP) as another tool for coordinating federal and state debtcollection efforts. SRP allows participating states to submit state debtor information to 

federal collection programs for offset in exchange for using equivalent state collection 

programs to collect for federal debts. However, SRP specifically excludes federal tax 

debts due to disclosure issues, and therefore could not be used as an alternative 

automated continuous levy program at this time. In addition, there is no legal authority to 

use the SRP to levy any state payments to collect federal delinquent tax debts. Some 

states we spoke to also had implemented state-level automated continuous levy 

programs, similar to FPLP, which are used to process Medicaid reimbursements to offset 

state debts, though these systems would likely require further upgrades in order to 

interface directly with federal systems.

Since states pay the MCO instead of the provider that performs the 

services, the only entity that the state could enforce an IRS levy against 

would be the MCO. This would limit the population of Medicaid providers 

eligible for a levy to MCOs and to providers who are paid directly by the 

state. The states expressed concern over the idea of levying Medicaid 

32An MCO is a health care provider or group of medical service providers who contract 

with insurers or self-insured employers to provide a wide variety of managed health care 

services to enrolled individuals through participating panel providers.

Selected States Expressed 

Concerns about the Effects 

of Continuous and 

Onetime Levies
 

Page 22 GAO-12-857 Medicaid 

reimbursements to pay an MCO’s debt when the reimbursement is truly 

meant for services provided by treating providers that have no association 

with the MCO’s tax debt.

The states also expressed concerns related to the existing process for the 

enforcement of IRS onetime levies. For example, several states 

experienced customer service–related challenges when working with IRS 

including difficulty using the IRS customer service hotline, difficulty 

reaching the IRS revenue officer, or problems with IRS sending levies to 

the wrong address. Another state commented that IRS does a poor job of 

releasing levies in a timely manner, especially for uncollectible levies. One 

state noted that it had concerns with applying a levy when the provider 

name or TIN in the state’s Medicaid provider database doesn’t exactly 

match what is provided by IRS. For example, the state explained that 

associating a Medicaid reimbursement with an appropriate tax debtor can 

be a challenge since the state’s system may include more than one TIN for 

a given provider. Should IRS expand levy collection efforts for Medicaid, 

increased centralized coordination with states could ease the process.

Available data indicate that the vast majority of Medicaid providers appear 

to fully pay their federal taxes. However, our work has shown that in 2009 

about 7,000 Medicaid providers in three states had delinquent federal taxes 

while receiving billions of dollars in Medicaid reimbursements, including 

Recovery Act funds. Even though Medicaid providers are relied on to 

deliver significant medical services to those most in need, payment of 

billions of federal dollars to those who do not pay their fair share of federal 

taxes raises questions about the integrity and fairness of the tax system. 

Our cases provide illustrative examples where IRS was able to, in some 

instances, collect delinquent taxes by using onetime levies on Medicaid 

reimbursements, but the process is highly inefficient. While current federal 

law does not permit the continuous levy of Medicaid payments, our 

estimates suggest that expanded use of levies against Medicaid providers, 

specifically an aggressive automated program, has the potential to help 

IRS collect millions of dollars of unpaid federal taxes, though the effect on 

provider participation is largely unknown. Enhanced onetime or manual 

continuous levy programs targeted at high-reimbursement, high-debt 

Medicaid providers could also potentially yield increased tax collections. 

Given that we found over $6 billion of payments made to tax delinquent 

Medicaid providers in just three states, a more rigorous review of the 

potential costs and financial benefits of implementing enhanced continuous 

and other levies of Medicaid payments is warranted.

Conclusions
 

Page 23 GAO-12-857 Medicaid 

We recommend that the Commissioner of Internal Revenue do the 

folllowing:

• Explore further opportunities to enhance collection of unpaid federal 

taxes from Medicaid providers. This should include conducting a costbenefit analysis of the implementation of a continuous levy program 

and expanded use of levies against providers with large Medicaid 

payments and significant unpaid federal taxes. Where appropriate, 

IRS should seek legislation to modify existing law to allow for more 

efficient collection of outstanding tax debts from Medicaid providers 

(i.e., consider taking steps to modify 26 U.S.C. § 6331(h)(2)). In 

addition, IRS should coordinate with CMS and FMS as necessary in 

exploring these opportunities.

We provided a draft of our report to IRS, CMS, and FMS for review and 

comment. In its written comments (see app. III), IRS concurred with our 

recommendation to explore opportunities to enhance collection of unpaid 

federal taxes from Medicaid providers and noted that previous efforts 

have revealed significant operational challenges. Similarly, in its written 

comments (see app. IV), CMS noted that the structure of the Medicaid 

program (wherein the federal government does not have a direct 

relationship with providers or pay them directly) provides a programmatic 

basis for excluding Medicaid from the levy program, and may result in 

significant challenges to the implementation of an FPLP-style levy 

expansion. CMS further noted that any potential legislation related to the 

collection of outstanding tax debts from Medicaid providers may impact 

the basic structure of the Medicaid program. FMS provided technical 

comments by e-mail, which were incorporated into this report. Both CMS 

and FMS noted that they are prepared to coordinate with IRS in exploring 

opportunities to enhance levy collections from Medicaid providers. We 

recognize the challenges expressed by IRS and CMS, and are 

encouraged by the willingness of all parties to work in coordination toward 

an enhanced Medicaid provider levy program that is beneficial to all 

affected agencies. 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 24 GAO-12-857 Medicaid 

As agreed with your offices, unless you publicly release this report’s 

contents earlier, we plan no further distribution of it until 6 days from its 

date. At that time, we will send copies of this report to interested 

congressional committees, the Secretary of the Treasury, the 

Commissioner of the Financial Management Service (FMS), the 

Commissioner of Internal Revenue, the Acting Administrator of the Centers 

for Medicare & Medicaid Services (CMS), and other interested parties.

The report is also available at no charge on the GAO website at 

http://www.gao.gov. If you have any questions concerning this report, 

please contact Richard J. Hillman at (202) 512-6722 or 

hillmanr@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report.

Richard J. Hillman

Managing Director

Forensic Audits and Investigative Service
Appendix I: Objectives, Scope, and 

Methodology

Page 25 GAO-12-857 Medicaid 

Our objectives were to: (1) determine the magnitude of unpaid federal 

taxes owed by Medicaid providers receiving reimbursements during 2009 

in selected states, (2) provide examples of Medicaid providers who have 

significant unpaid federal taxes, and (3) evaluate opportunities and 

challenges related to collecting unpaid federal taxes through a levy 

process designed to offset Medicaid reimbursements.

To determine the magnitude of unpaid federal taxes owed by Medicaid 

providers in selected states receiving reimbursements during 2009, we 

obtained and analyzed annual Medicaid reimbursement information from 

the states of New York, Texas, and Florida. We attempted to obtain data 

from the state of California, but the data we received were determined to 

be unreliable for the purposes of this report. We selected these states 

because they received the most American Recovery and Reinvestment 

Act of 2009 (Recovery Act)–related Medicaid money.1

We also obtained federal tax debt data from Internal Revenue Service 

(IRS) as of September 30, 2011. To determine the extent to which 

Medicaid providers in the selected states who received payment in 2009 

had unpaid federal taxes, we used the taxpayer identification number 

(TIN) as a unique identifier and electronically matched IRS’s tax debt data 

to the population of Medicaid providers.2

 

1

New York, California, Texas, and Florida reported a combined $126.5 billion (35.1 

percent) in Medicaid reimbursements for 2009, of which $12.1 billion was paid with 

Recovery Act funds. New York, California, Texas, and Florida accounted for 13.55 

percent, 11.74 percent, 6.11 percent, and 5.46 percent of the Recovery Act Medicaid 

funds for 2009, respectively.

We included only those unpaid 

federal taxes from 2009 and before to eliminate tax debt that may involve 

matters that are routinely resolved between the taxpayers and IRS, with 

the taxes paid or abated within a short time. To avoid overestimating the 

amount owed by Medicaid providers with unpaid federal taxes and to 

capture only significant unpaid federal taxes, we excluded from our 

analysis tax debts meeting specific criteria to establish a minimum 

threshold in the amount of tax debt to be considered when determining 

whether a tax debt is significant. The criteria we used to exclude tax debts 

are as follows:

2

For the purposes of this report, the term “provider” refers to any individual, business, or 

other entity that received at least one Medicaid reimbursement (e.g., doctors, hospitals, 

home care providers) from at least one of the three selected states.

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 26 GAO-12-857 Medicaid 

• unpaid federal taxes IRS classified as compliance assessments or 

memo accounts for financial reporting,3

• unpaid federal taxes from 2010 and 2011 tax periods, and

• recipients with total unpaid federal taxes of $100 or less.

The criteria above were used to exclude unpaid federal taxes that might be 

under dispute or generally duplicative or invalid, and unpaid federal taxes 

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 known unpaid 

federal taxes from 2010 and 2011 tax periods to both eliminate tax debt 

that may involve matters that are routinely resolved between the taxpayers 

and IRS with the taxes paid or abated within a short time, and tax debts 

accrued after the Medicaid reimbursement period under review. We 

excluded tax debts of $100 or less because they are insignificant for the 

purpose of determining the extent of known taxes owed by Medicaid 

providers. Using these criteria, we identified about 7,000 Medicaid 

providers with known unpaid federal taxes. Our final estimate of tax debt 

may include some debt that is covered under an active IRS installment plan 

or beyond normal statutory limits for debt collection. Our analysis 

determined the magnitude of known unpaid federal taxes owed by 2009 

Medicaid providers in only New York, Texas, and Florida and cannot be 

generalized to other states or periods.

To provide examples of Medicaid providers who have significant unpaid 

federal taxes, we selected 20 Medicaid providers with unpaid federal 

taxes in the IRS Business Master File (BMF) and 20 Medicaid providers 

with unpaid federal taxes listed in the IRS Individual Master File (IMF) for 

a detailed review. These nonrepresentative selections of providers were 

chosen by using a random sample of the 113 entities in the BMF and 26 

individuals in the IMF with at least $100,000 in Medicaid reimbursements 

 

3

Compliance assessments are unpaid assessments for which neither the taxpayer nor a 

court has affirmed that the taxpayer owes amounts to the federal government. Memo 

accounts are balance-due accounts in IRS records that should not be reported in any of 

the three unpaid assessment categories of taxes receivable, compliance assessments or 

write-offs (e.g., fraudulent/frivolous assessments, assessments clearly made in error, and 

others).
Appendix I: Objectives, Scope, and 

Methodology

Page 27 GAO-12-857 Medicaid 

during 2009, $100,000 in outstanding unpaid federal taxes, and 5 years of 

accumulated unpaid federal taxes (noncontinuous) in or before 2010. In 

addition, we also used open-source information to identify the Social 

Security Number (SSN) for owners and other principals for 600 randomly 

selected known Medicaid providers in the selected states (a random 

selection of 200 per state for New York, Texas, and Florida). We 

electronically matched these individuals with IRS’s tax debt data to 

identify their outstanding tax debts and to confirm their professional 

relationship with a nondebtor Medicaid provider. For these providers, we 

reviewed IRS and public records to develop 10 additional case studies. 

These 50 case studies serve to illustrate the sizeable amounts of taxes 

owed by some Medicaid providers, are among the most egregious 

examples of Medicaid providers with unpaid federal taxes, and cannot be 

generalized beyond the cases presented.

To evaluate opportunities and challenges related to collecting unpaid 

federal taxes through a levy process designed to offset Medicaid 

reimbursements, we interviewed officials from relevant federal agencies 

and from selected states (chosen based on the size of their Medicaid 

programs or their participation in federal debt-collection programs, or 

both).4

We conducted this audit from July 2010 through July 2012.

We also reviewed applicable laws, regulations, and reports related 

to the issues of subjecting Medicaid reimbursements to tax levies, 

including the Federal Payment Levy Program.

5 We 

performed this audit in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our audit findings and conclusions based on our audit objectives. 

We believe that the evidence obtained provides a reasonable basis for 

our findings and conclusions based on our audit objectives.

 

4

We interviewed officials from California, Florida, Kentucky, Maryland, and Texas.

5

Initiation of our review was delayed significantly because California did not comply with 

our request for Medicaid provider payment data for over 8 months. What California 

ultimately provided was not sufficiently reliable for the purposes of our report.
Appendix I: Objectives, Scope, and 

Methodology

Page 28 GAO-12-857 Medicaid 

For the IRS unpaid assessments data, we reviewed the work we 

performed during our annual audit of IRS’s financial statements and used 

a copy of the financial record file reviewed under that audit. While our 

financial statement audits have identified some data reliability problems 

associated with tracing IRS’s tax records to source records and including 

errors and delays in recording taxpayer information and payments, these 

reliability issues are not relevant to our review. On the basis of the 

extensive testing for accuracy, existence, completeness, and timeliness 

of relevant variables, we determined that the IRS data were sufficiently

reliable to address this report’s objectives.6

For the selected states’ Medicaid reimbursement databases from New 

York, Florida, and Texas, we interviewed officials in the selected states 

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. On the basis of our discussions with agency officials, 

review of agency documents, and our own testing, we concluded that the 

data elements used for this report were sufficiently reliable for our 

purposes. We did not include data received from California because we 

were unable to conclude that the data elements we intended to use were 

sufficiently reliable for our purposes. We reached this conclusion because 

we were unable to reconcile the total balance of Medicaid 

reimbursements to the amount of reimbursements published in the state’s 

quarterly expense report filed with CMS.7 When we asked California 

officials why the amounts in the data they provided did not reconcile 

externally published sources, officials told us that they were unable to 

reconcile the data. 

 

6

GAO, Financial Audit: IRS’s Fiscal Years 2011 and 2010 Financial Statements, 

GAO-12-165 (Washington, D.C.: Nov. 10, 2011).

7

We compared the amount of total payments listed in files sent to us by California officials 

to the annual Net Expenditures Reported for 2009 on the CMS-64 Quarterly Expense 

Report and found a $3.4 billion difference. 

Data Reliability 

Assessment
Appendix II: Additional Cases of Medicaid 

Providers with Sizeable Outstanding Federal 

Tax Debt 

Page 29 GAO-12-857 Medicaid 

The following table provides 30 additional examples of 2009 Medicaid 

providers who received American Recovery and Reinvestment Act of 

2009 (Recovery Act) funds, with sizeable outstanding federal tax debt.

Table 2: Additional Cases of Medicaid Providers with Sizeable Outstanding Federal Tax Debt

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 11

Dentist

(Individual)

Medicaid: Over $200,000

Taxes: Over $400,000

• The dentist owes primarily individual income taxes from the 1990s and 

2000s.

• The dentist has submitted multiple offers in compromise which were 

cancelled after that dentist failed to make the payments required by the 

agreement or failed to comply with filing requirements.

• Per Internal Revenue Service (IRS) records, the dentist “may be using 

[offers in compromise] to delay collection.” 

Case 12

Dentist

(Individual)

Medicaid: Over $200,000

Taxes: Over $300,000

• The dentist owes primarily individual income taxes from throughout the 

2000s.

• IRS records noted that the “Taxpayer appears to have history of changing 

business entities and keeping assets out of his/her personal name.” 

• The dentist attempted to negotiate an offer in compromise with IRS multiple 

times, but IRS rejected the offers due to compliance issues or because the 

proposed payments were insufficient considering the dentist’s wages and 

assets. 

• IRS successfully levied a portion of the dentist’s Medicaid payments. IRS 

unsuccessfully attempted to levy the dentist’s assets and other receivables.

• IRS filed federal tax liens against this dentist.

Case 13

Dentist

(Individual)

Medicaid: Over $100,000

Taxes: Over $200,000

• The dentist owes primarily individual income taxes from the early 2000s.

• IRS filed federal tax liens against this dentist.

• The dentist filed for bankruptcy in the mid-2000s.

Case 14

Dentist 

(Individual)

Medicaid: Over $300,000

Taxes: Over $200,000

• The dentist owes primarily individual income taxes from the late 2000s.

• The dentist has missed multiple deadlines for filing tax returns.

• Per IRS records, the dentist owned waterfront property and luxury motor 

vehicles.

• The dentist filed for bankruptcy in the mid-1990s.

Case 15

Doctor

(Individual)

Medicaid: Over $100,000

Taxes: Over $900,000

• The doctor owes primarily individual income taxes from throughout the 

2000s.

• IRS filed federal tax liens against this doctor. 

Case 16

Doctor

(Individual)

Medicaid: Over $200,000

Taxes: Over $200,000

• The doctor owes primarily individual income taxes from the late 2000s.

• The doctor failed to file tax returns for multiple years.

• IRS unsuccessfully attempted to levy the doctor’s bank accounts.

• The doctor filed for bankruptcy in the late 2000s.

• The doctor’s medical business was dissolved involuntarily by state officials. 

The business also owes outstanding tax debt. 

Appendix II: Additional Cases of Medicaid 

Providers with Sizeable Outstanding Federal 

Tax Debt
Appendix II: Additional Cases of Medicaid 

Providers with Sizeable Outstanding Federal 

Tax Debt 

Page 30 GAO-12-857 Medicaid 

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 17

Durable Medical 

Equipment Provider

(Business) 

Medicaid: Over $200,000

Taxes: Over $300,000

• The business owes primarily payroll taxes from throughout the 2000s.

• The business went years without filing necessary tax returns.

• IRS records noted that the business appeared to be filing delinquent returns 

piecemeal as a delaying tactic.

• IRS assessed a trust fund recovery penalty (TFRP) against one of the 

company’s officers.

• The business’ owner was previously involved with another business that 

also failed to pay withheld payroll taxes to IRS.

• GAO’s review found that the business appears to be using multiple TINs, 

names, and Medicaid ID Numbers to bill Medicaid and accumulate payroll 

taxes. We found nominal 2009 Medicaid payments and over $600,000 in 

debt associated with one of these alternate identities. 

Case 18

Home Care Provider

(Business) 

Medicaid: Over $700,000

Taxes: Over $1,000,000

• The business owes primarily payroll taxes from the early 2000s.

• GAO’s review found that the business appears to be using multiple TINs 

and Medicaid ID Numbers, but the same name and National Provider 

Identification number to bill Medicaid and accumulate payroll taxes. The 

provider billed a state Medicaid agency using a different TIN for an 

additional amount in excess of $700,000 (not included in the figure above). 

This second TIN also had over $900,000 in outstanding tax debt.

• IRS filed federal tax liens against this company. 

Case 19

Home Care Provider

(Business) 

Medicaid: Over $3,000,000

Taxes: Over $1,000,000

• The business owes primarily payroll taxes from the late 2000s.

• According to IRS records, the business’s officers told IRS that they were 

unaware of the total outstanding tax balances due. They said they used 

payroll processing companies to manage the company’s payroll.

• The business missed multiple return filings over the course of several years.

• The business entered into and defaulted on an installment agreement.

• IRS filed federal tax liens against this business.

• IRS recently began pursuing assessed a TFRP against the business’s 

responsible officers. 

Case 20

Home Care Provider

(Business) 

Medicaid: Over $200,000

Taxes: Over $600,000

• The business owes primarily payroll taxes from throughout the 2000s.

• Per IRS records, the business appears to lose money each month; its only 

stated sources of revenue are government funded.

• The business was not compliant with filing and deposit requirements for 

payroll taxes.

• IRS filed federal tax liens against this business.

• The owner of this business is also one of the cases listed in this report. 
Appendix II: Additional Cases of Medicaid 

Providers with Sizeable Outstanding Federal 

Tax Debt 

Page 31 GAO-12-857 Medicaid 

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 21

Home Care Provide

(Business) 

Medicaid: Over $300,000

Taxes: Over $100,000

• The business owes primarily payroll taxes from the late 2000s.

• The business entered into an installment agreement with IRS and 

subsequently defaulted.

• IRS successfully levied the business’s bank account and an insurance 

company.

• IRS moved to assess a TFRP against the company’s sole officer, but 

ceased the collection activity after the officer showed significant hardship.

• IRS filed federal tax liens against this business.

• The business is currently noncompliant with filing and deposit requirements. 

IRS records noted that the business recently bounced checks and missed a 

meeting with IRS.

• A state regulatory body fined the home care provider for violations related 

to the quality of care. 

Case 22

Home Care Provider

(Individual)

Medicaid: Over $600,000

Taxes: Over $100,000

• The taxpayer owes primarily individual income taxes from throughout the 

2000s.

• The taxpayer’s businesses also have tax issues, including owing payroll 

taxes and the improper use of the same EIN for multiple businesses. The 

taxpayer also failed to file required informational returns for a charity that 

he/she runs.

• The taxpayer entered into and defaulted on an installment agreement. 

Case 23

Hospital

(Business) 

Medicaid: Over $600,000

Taxes: Over $500,000

• The hospital owes primarily payroll taxes from the late 2000s.

• A hospital representative told IRS that the services it provides are in limited 

supply in its service area.

• IRS assessed a TFRP against responsible company officers.

• IRS filed federal tax liens against this hospital.

• The hospital filed for bankruptcy in the late 2000s. 

Case 24

Hospital

(Business) 

Medicaid: Over 

$100,000,000

Taxes: Over $200,000

• The hospital owes primarily payroll taxes and miscellaneous penalties from 

the late 2000s.

• The hospital filed for bankruptcy twice during the 2000s.

• IRS records show IRS appears to have initiated a TFRP investigation, 

which ceased when the underlying debts were paid.

Case 25

Management

(Individual)

Medicaid: Over $200,000

Taxes: Over $300,000

• The taxpayer owes primarily individual income taxes from the early 2000s.

• The taxpayer admitted to IRS that he/she simply failed to comply with all 

filing and payment requirements.

• The taxpayer’s business owed payroll taxes and IRS considered assessing 

a TFRP, but decided against it because of the taxpayer’s minimal income 

and lack of assets available for seizure.

• This individual’s business is also one of the cases listed in this report. 

Case 26

Management

(Individual)

Medicaid: Over $200,000

Taxes: Over $100,000

• The taxpayer owes primarily individual income taxes from the early 2000s.

• The taxpayer has missed multiple deadlines for filing tax returns.

• IRS filed federal tax liens against this individual.
Appendix II: Additional Cases of Medicaid 

Providers with Sizeable Outstanding Federal 

Tax Debt 

Page 32 GAO-12-857 Medicaid 

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 27

Nurse 

(Individual)

Medicaid: Over $100,000

Taxes: Over $100,000

• The nurse owes primarily individual income taxes from throughout the 

2000s.

• IRS filed federal tax liens against this nurse.

• IRS attempted to levy the nurse’s bank account and Medicaid payments in 

the late 2000s with negative results. 

• The nurse missed multiple deadlines for filing tax returns.

• IRS records noted that IRS recently decided that the debt could not be 

collected due to hardship. 

Case 28

Nurse 

(Individual)

Medicaid: Over $100,000

Taxes: Over $100,000

• The nurse owes primarily individual income taxes from the 2000s.

• IRS filed federal tax liens against this nurse.

• IRS successfully levied the nurse’s bank account and a portion of the 

nurse’s Medicaid payments.

• The nurse submitted an offer in compromise in the late 2000s, but IRS 

rejected the offer because of the nurse’s failure to remain current with 

estimated tax payments.

• The nurse filed for bankruptcy in the early 2000s. 

Case 29

Nurse 

(Individual)

Medicaid: Over $100,000

Taxes: Over $100,000

• The nurse primarily owed individual income taxes from the mid 2000s.

• The nurse failed to file tax returns in a timely manner.

• IRS filed federal tax liens against this nurse.

• The nurse passed away in 2010.

• IRS successfully levied the nurse’s bank account after her death. 

Case 30

Nursing

(Business) 

Medicaid: Over $1,000,000

Taxes: Over $400,000

• The business owes primarily payroll taxes from throughout the 2000s.

• IRS observed that the company had a history of financial problems, 

specifically instances of bounced checks and a bankruptcy filing in the early 

2000s.

• IRS assessed TFRPs against an officer.

• IRS levied the business’s bank accounts.

• IRS filed federal tax liens against the company.

• IRS records noted that this business claimed to have closed, but a new 

business offering similar services began operating in the same location. 

Case 31

Nursing

(Business) 

Medicaid: Over $2,000,000

Taxes: Over $200,000

• The business owes primarily payroll taxes from the late 2000s.

• IRS assessed a TFRP against an officer, who also failed to file personal 

income tax returns.

• IRS levied the business’s bank accounts and other assets multiple times to 

help collect outstanding tax debt.

• The business entered into and ultimately defaulted on multiple installment 

agreements. IRS did not allow the business to enter into a third installment 

agreement because of the prior defaults. The business recently submitted 

an offer in compromise which was rejected due to compliance issues. 
Appendix II: Additional Cases of Medicaid 

Providers with Sizeable Outstanding Federal 

Tax Debt 

Page 33 GAO-12-857 Medicaid 

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 32

Psychologist

(Individual)

Medicaid: Over $100,000

Taxes: Over $100,000

• The psychologist owes primarily individual income taxes from the late 

2000s.

• Per IRS records, the psychologist had significant alimony and child support 

payments and purchased two expensive vehicles while accruing the tax 

debt. The psychologist also paid for private schooling for his/her children.

• The psychologist had a current installment agreement combining personal 

tax debt and tax debts of his/her business.

• IRS filed federal tax liens against this psychologist.

• The psychologist filed for bankruptcy in the late 1990s. 

Case 33

Social Services

(Business) 

Medicaid: Over $100,000

Taxes: Over $700,000

• The social services business owes primarily payroll taxes from the late 

2000s.

• IRS assessed multiple TFRPs against the business’s officers beginning in 

the late 1990s for prior debts.

• IRS levied the business’s bank accounts and income sources (including 

Medicaid payments) multiple times.

• The social services business entered into and subsequently defaulted on 

multiple installment agreements with IRS.

• IRS filed federal tax liens against this business.

• IRS records stated that this business “does not have a very good record of 

meeting [his/her] commitments.” 

Case 34

Social Services

(Individual)

Medicaid: Over $100,000

Taxes: Over $300,000

• The taxpayer owes primarily individual income taxes from throughout the 

1990s and 2000s.

• IRS filed federal tax liens against this individual.

• The taxpayer filed for bankruptcy multiple times in the 1990s and 2000s. 

Case 35

Social Services

(Business) 

Medicaid: Over $200,000

Taxes: Over $300,000

• The business owes primarily payroll taxes from throughout the 2000s.

• The business’s owner also owes self-employment taxes.

• IRS assessed a TFRP against responsible parties.

• IRS unsuccessfully attempted to levy the business’s bank accounts, but 

successfully levied the business’s Medicaid payments.

• The business entered into an installment agreement, made payments under 

it for over 2 years, and defaulted on it.

Case 36

Social Services

(Business) 

Medicaid: Over $1,000,000

Taxes: Over $300,000

• The business owes primarily payroll taxes from the late 2000s.

• IRS assessed a TFRP against multiple officers.

• IRS filed federal tax liens against this business. 
Appendix II: Additional Cases of Medicaid 

Providers with Sizeable Outstanding Federal 

Tax Debt

Page 34 GAO-12-857 Medicaid 

Case study and 

type of provider

Medicaid reimbursement 

received and delinquent 

taxes outstanding Comments

Case 37

Social Services

(Business) 

Medicaid: Over $200,000

Taxes: Over $100,000

• The business owes primarily payroll taxes from throughout the 2000s.

• IRS levied the business’s bank account multiple times as well as the 

business’s Medicaid payments. IRS records noted that the “state will not 

honor a continuous levy so levy will be required daily” in regard to the levy 

of state payments.

• The business entered into and subsequently defaulted on multiple 

installment agreements. The business submitted an offer in compromise, 

but IRS rejected it as insufficient in consideration of the business’ ability to 

pay.

• IRS assessed a TFRP against the president of the business, who also 

owed personal taxes.

• IRS filed federal tax liens against this business. 

Case 38

Social Services

(Business) 

Medicaid: Over $400,000

Taxes: Over $100,000

• The business owes primarily payroll taxes from the late 2000s.

• IRS noted that the business was filing late tax returns and made insufficient 

deposits to cover expected payroll taxes due.

• IRS issued multiple levies against multiple sources including the business’s 

bank, Medicaid payments, and other business associates.

• The business entered into and subsequently defaulted on an installment 

agreement. The business appeared to fully pay prior tax debts through an 

earlier installment agreement.

• IRS filed federal tax liens against this company. 

Case 39

Therapy

(Business) 

Medicaid: Over $600,000

Taxes: Over $300,000

• The business owes primarily payroll taxes from the late 2000s.

• IRS successfully levied the business’s bank account multiple times.

• IRS filed federal tax liens against this company. 

• IRS recently delayed an installment agreement because the business was 

noncompliant with current tax filings and payments. 

Case 40

Therapy

(Individual)

Medicaid: Over $800,000

Taxes: Over $300,000

• The taxpayer owes primarily individual income taxes from the early 2000s.

• The taxpayer went over a decade without filing or paying taxes.

• The taxpayer did not agree with the assessed taxes once the returns were 

filed and stated that the tax amount should be substantially reduced. 

Source: GAO analysis of IRS and Medicaid records. 
Appendix III: Comments from the Internal 

Revenue Service 

Page 35 GAO-12-857 Medicaid 

Appendix III: Comments from the Internal 

Revenue Service
Appendix III: Comments from the Internal 

Revenue Service 

Page 36 GAO-12-857 Medicaid 
Appendix III: Comments from the Internal 

Revenue Service 

Page 37 GAO-12-857 Medicaid 
Appendix IV: Comments from the Centers for 

Medicare & Medicaid Services 

Page 38 GAO-12-857 Medicaid 

Appendix IV: Comments from the Centers for 

Medicare & Medicaid Services
Appendix IV: Comments from the Centers for 

Medicare & Medicaid Services 

Page 39 GAO-12-857 Medicaid 
Appendix IV: Comments from the Centers for 

Medicare & Medicaid Services 

Page 40 GAO-12-857 Medicaid 
Appendix IV: Comments from the Centers for 

Medicare & Medicaid Services 

Page 41 GAO-12-857 Medicaid 
Related GAO Products

Page 42 GAO-12-857 Medicaid 

Recovery Act: Tax Debtors Have Received FHA Mortgage Insurance and 

First-Time Homebuyer Credits. GAO-12-592. Washington, D.C.: 

May 29, 2012.

Recovery Act: Thousands of Recovery Act Contract and Grant Recipients 

Owe Hundreds of Millions in Federal Taxes. GAO-11-485. Washington, 

D.C.: April 28, 2011.

Federal Tax Collection: Potential for Using Passport Issuance to Increase 

Collection of Unpaid Taxes. GAO-11-272. Washington, D.C.: 

March 10, 2011.

Medicare: Thousands of Medicare Providers Abuse the Federal Tax 

System. GAO-08-618. Washington, D.C.: June 13, 2008.

Tax Compliance: Federal Grant and Direct Assistance Recipients Who 

Abuse the Federal Tax System. GAO-08-31. Washington, D.C.: 

November 16, 2007.

Medicaid: Thousands of Medicaid Providers Abuse the Federal Tax 

System. GAO-08-17. Washington, D.C.: November 14, 2007.

Tax Compliance: Thousands of Organizations Exempt from Federal 

Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes. 

GAO-07-1090T. Washington, D.C.: July 24, 2007.

Tax Compliance: Thousands of Organizations Exempt from Federal 

Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes. 

GAO-07-563. Washington, D.C.: June 29, 2007.

Tax Compliance: Thousands of Federal Contractors Abuse the Federal 

Tax System. GAO-07-742T. Washington, D.C.: April 19, 2007.

Medicare: Thousands of Medicare Part B Providers Abuse the Federal 

Tax System. GAO-07-587T. Washington, D.C.: March 20, 2007.

Internal Revenue Service: Procedural Changes Could Enhance Tax 

Collections. GAO-07-26. Washington, D.C.: November 15, 2006.

Tax Debt: Some Combined Federal Campaign Charities Owe Payroll and 

Other Federal Taxes. GAO-06-887. Washington, D.C.: July 28, 2006.

Related GAO Products
Related GAO Products

Page 43 GAO-12-857 Medicaid 

Tax Debt: Some Combined Federal Campaign Charities Owe Payroll and 

Other Federal Taxes. GAO-06-755T. Washington, D.C.: May 25, 2006.

Financial Management: Thousands of GSA Contractors Abuse the 

Federal Tax System. GAO-06-492T. Washington, D.C.: March 14, 2006.

Financial Management: Thousands of Civilian Agency Contractors Abuse 

the Federal Tax System with Little Consequence. GAO-05-683T. 

Washington, D.C.: June 16, 2005.

Financial Management: Thousands of Civilian Agency Contractors Abuse 

the Federal Tax System with Little Consequence. GAO-05-637. 

Washington, D.C.: June 16, 2005.

Financial Management: Some DOD Contractors Abuse the Federal Tax 

System with Little Consequence. GAO-04-414T. Washington, D.C.: 

February 12, 2004.

Financial Management: Some DOD Contractors Abuse the Federal Tax 

System with Little Consequence. GAO-04-95. Washington, D.C.: 

February 12, 2004.

Debt Collection: Barring Delinquent Taxpayers From Receiving Federal 

Contracts and Loan Assistance, GAO/T-GGD/AIMD-00-167, Washington, 

D.C.: May 9, 2000.

Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty 

Assessments Are Owed. GAO/AIMD/GGD-99-211. Washington, D.C.: 

August 2, 1999.

Tax Administration: Federal Contractor Tax Delinquencies and Status of 

the 1992 Tax Return Filing Season. GAO/T-GGD-92-23. Washington, 

D.C.: March 17, 1992.

(192361)
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