More Tax Cheats Getting Federal Handouts

(Washington, D.C.) – Today, Citizens Against Government Waste (CAGW) issued a statement in response to the release of a Government Accountability Office (GAO) report on Medicaid providers that receive payments from the federal government. The report, titled “Providers in Three States with Unpaid Federal Taxes Received over $6 Billion in Medicaid Reimbursements,” was requested by Senate Investigations Subcommittee Ranking Member Tom Coburn (R-Okla.) and reviewed the taxes and federal reimbursements of 40 tax delinquent Medicaid providers in Florida, New York, and Texas. Based on that review, GAO estimated that a total of 7,000 Medicaid providers in those three states owe a combined $791 million in unpaid federal taxes, yet have received $6.6 billion in Medicaid reimbursements.

Specifically, the 40 providers investigated by GAO had received $235 million in Medicaid reimbursements but owed approximately $26 million in back taxes as of September, 2011. Worse, since it relies on the amount of unpaid taxes reported by individual providers or uncovered by IRS audits, the report “likely understates the full extent of unpaid taxes owed by these or other businesses and individuals.” GAO, normally reluctant to print opinions, commented that its findings raise “questions about the integrity and fairness of the tax system.”

“What is most frustrating about these findings is that much of the missing money could have been collected if the federal government had applied a continuous levy on the reimbursements being paid to known tax cheats, as is already done for Medicare providers,” said CAGW President Tom Schatz. “Over time, by garnishing a portion of the reimbursements made, these providers’ debt could have been repaid. Instead, responsible taxpayers are on the hook for almost a billion dollars, as much as $330 million of which, according to GAO, could have been collected from deadbeat Medicaid providers. The IRS stated in the report that it agrees with GAO’s recommendation to consider continuous levies for Medicaid providers; this report makes clear that those recommendations need to be implemented as soon as possible.”

While continuous levies are a step in the right direction, they are not a long-term panacea. Medicare, despite its use of continuous levies, is plagued with problems of tax delinquency. A June 2008 GAO report found that unpaid taxes by providers that received Medicare reimbursements surpassed $2 billion for 2006. That number, like the amount owed by Medicaid providers, said GAO, is also likely understated.

Tax cheats seem to have little trouble collecting money from the federal government. A similar report released in May 2012 found that the Federal Housing Administration (FHA) had issued $1.44 billion in mortgage insurance for 6,327 borrowers with an average of $20,340 in tax debt. In that case, FHA issued insurance to thousands of borrowers who should have been ineligible to receive it, since many had not reached repayment agreements with the IRS. Despite the fact that borrowers with tax debt carry foreclosure risk “two to three times” greater than those without unpaid taxes, applicants for FHA mortgage insurance are not required to provide their federal debt status to FHA. In addition, a February 2012 IRS report found that about 98,000 federal employees owed the federal government $1.03 billion in 2010.

Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, mismanagement and abuse in government.