A series of LLC-formed, Home Health Care agencies was under Internal Revenue Service collection and Medicaid recuperation. Each agency was owned, in part, by one family.
One agency had significant employment tax liability. This IRS back-tax was due to a long-term habit of only issuing net paychecks to employees, but failing to pay over the withholdings. IRS also assessed the Trust Fund Penalty against the common owner, but not against his spouse.
Another agency faced a Medicaid recovery Audit under Department Healthcare and Family Services. It failed to respond to the request for documents issued by Medicaid’s recovery contractor, HMS. The agency’s related payment claims for home health care services were denied. The Schaumburg IL-area home health agency was required to reimburse Illinois for services claims denied under audit.
The owner also newly-created another limited liability company, with his wife recorded as the sole owner. This company had not yet begun any business activity, and had no assets.
The owner sought my IRS tax representation on how to avoid or reduce liability from the audit, reduce the unpaid employment taxes, and avoid personal responsibility for the Trust Fund Tax Penalty.
The owner wanted to transfer both agencies’ Medicaid licenses and operations to the new LLC, owned by his spouse. The idea was to move the cash, receivables, and equipment to a “clean” company, and then dissolve the two agencies that were burdened with debt. There was a problem here.
When an ongoing business operation is transferred to a different organization under the same control, that new company must assume many of the characteristics of the old. I explained that, unless purchased for fair value, if the assets (the best parts) of a business are transferred to another owner, the liabilities (the worst parts) go along as well. Otherwise, the owner creates a “fraudulent conveyance”, or fraudulent transfer. The law treats these transfers as void.
The owner never considered that his wishes created new, more serious problems. As a criminal tax attorney, I saw within his plans strong elements of Medicaid fraud (under 305 ILCS 5/8A-7), and tax fraud/tax evasion (under 26 U.S.C. Sec. 7201). Unfortunately, the owner only wished to transfer all the receivables, licenses, and equipment, but abandon the IRS tax debt and Medicaid reimbursement debt. Those home health care business transfers would be disregarded by IRS and Illinois DHFS.
I structured a tax resolution that would allow the respective agencies to first repay the Illinois Department of Healthcare and Family Services, then IRS, without further enforcement by either. However, for several reasons the companies in this case should not have been combined.
Our tax resolution also included a different process for payroll, to avoid further IRS debt. Any IRS Installment Agreement will default if the home health company accumulated more IRS back tax debt.
Finally, we had to identify the compliance problems with the Medicaid claims. My goal was to remedy the defects in future claims for home care services, especially for DHFS-authorized services.
Attorney Jeffrey Anton Collins is a Naperville IL area Tax Lawyer. He represents clients in matters of tax resolution, business related bankruptcy, Medicaid and Medicare problems. These accounts of past cases are presented here for illustration purposes, and are not intended to provide legal advice. We will never specifically identify any client matter under our past or current representation. If you need an IRS tax attorney in Wheaton, Downers Grove, or anywhere else in the Chicago area, contact Tax Law Offices today!