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For Immediate Release
December 15, 2009

Grassley seeks action against tax delinquent federal contractors

            WASHINGTON --- Following Monday’s report that federal workers collectively owe more than $3 billion in income taxes from 2008, Senator Chuck Grassley is asking the Commissioner of the Internal Revenue Service about unpaid taxes by government contractors who receive hundreds of billions of dollars every year in payments from Medicare and Medicaid.

            Reports from the Government Accountability Office last year and previously indicate that these contractors owe over $1 billion in unpaid taxes each year, including the payroll taxes used to fund Medicare and Medicaid.

            Grassley said these reports raise a tax fairness issue.  “It’s not right for a few to shirk their obligations, and it’s especially offensive that these tax delinquencies come from federal employees and contractors,” he said.

            Grassley said he’s asked the IRS for an accounting of what the agency is doing to collect these taxes and to coordinate enforcement efforts with the federal agency that runs the Medicare and Medicaid programs.

            Grassley is the Ranking Member of the Senate Committee on Finance, which is responsible for tax policy and legislation and oversight of the Medicare and Medicaid programs.  The text of his letter to the IRS Commissioner is here.

December 14, 2009

The Honorable Douglas H. Shulman
Internal Revenue Service
United States Department of the Treasury
1111 Constitution Avenue, NW
Washington, DC 20224

Dear Commissioner Shulman:

            Each year, the federal government makes hundreds of billions of dollars of payments to health care providers for both the Medicare and Medicaid programs.  While most health care providers under these programs pay their fair share of taxes, the United States Government Accountability Office (GAO) has reported repeatedly that thousands of health care providers had significant amounts of unpaid federal taxes.  Specifically:

• In March 2007, GAO testified that over 21,000 physicians, health professionals, and suppliers paid under Medicare Part B during the first 9 months of calendar year 2005 had tax debts totaling over $1 billion.  (GAO-07-587T)

• In November 2007, GAO reported that over 30,000 Medicaid providers paid during fiscal year 2006 had over $1 billion of unpaid federal taxes.  (GAO-08-17)

• In June 2008, GAO reported that over 27,000 Medicare providers paid during calendar year 2006 owed over $2 billion in federal taxes.  (GAO-08-618)

            Much of the unpaid taxes owed by these health care providers consisted of payroll taxes, which are used to fund the Medicare program.

            In these reports and testimonies, GAO also discussed the results of its in-depth audits and related investigations of 90 health care providers with high tax debts.  GAO reported, among other things that many of these providers were established businesses (such as corporations) that owed payroll taxes withheld for their employees.  Rather than fulfill their role as “trustees” of this money and forward these funds to the IRS as required; these health care providers diverted the money for other purposes.  

            The GAO went on to state that: “Many of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their fair share of federal taxes.”  Further, some of these health care providers received Medicare and/or Medicaid payments even though they had serious quality-of-care issues, including license reprimands and prior suspensions from state medical boards, revocations of hospital privileges, and previous exclusions from the Medicare program.  Interestingly, for all 90 cases, GAO stated that they referred them to the Internal Revenue Service (IRS) for further collection activity and criminal investigation, as warranted.

            Because of the seriousness of the abuses of the 90 health care providers identified by GAO, I would like a detailed description of all collection activities and other actions taken by the IRS subsequent to the GAO referral.  The enclosure provides the information that I am requesting for each of the 90 cases.


Chuck Grassley
United States Senator
Ranking Member of the Committee on Finance