Dear Commissioner Shulman:
Each year, the federal government makes hundreds of billions of dollars ofpayments to health care providers for both the Medicare and Medicaid programs. Whilemost health care providers under these programs pay their fair share of taxes, the UnitedStates Government Accountability Office (GAO) has reported repeatedly that thousandsof 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 calendaryear 2005 had tax debts totaling over $1 billion. (GAO-07-587T)
? In November 2007, GAO reported that over 30,000 Medicaid providers paidduring 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 duringcalendar 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 payrolltaxes, which are used to fund the Medicare program.
In these reports and testimonies, GAO also discussed the results of its in-depthaudits and related investigations of 90 health care providers with high tax debts. GAOreported, among other things that many of these providers were established businesses(such as corporations) that owed payroll taxes withheld for their employees. Rather thanfulfill their role as “trustees" of this money and forward these funds to the IRS asrequired; these health care providers diverted the money for other purposes.
The GAO went on to state that: “Many of these individuals accumulatedsubstantial wealth and assets, including million-dollar houses and luxury vehicles, whilefailing to pay their fair share of federal taxes." Further, some of these health careproviders received Medicare and/or Medicaid payments even though they had seriousquality-of-care issues, including license reprimands and prior suspensions from statemedical boards, revocations of hospital privileges, and previous exclusions from theMedicare program. Interestingly, for all 90 cases, GAO stated that they referred them tothe Internal Revenue Service (IRS) for further collection activity and criminalinvestigation, as warranted.
Because of the seriousness of the abuses of the 90 health care providers identifiedby GAO, I would like a detailed description of all collection activities and other actionstaken by the IRS subsequent to the GAO referral. The enclosure provides theinformation that I am requesting for each of the 90 cases.
Sincerely,
Chuck Grassley United States Senator Ranking Member of the Committee on Finance
Enclosure
Wednesday, Oct. 16, 2002 Grassley Bill Stops Government Contracts for Expatriated Companies
WASHINGTON ?? Sen. Chuck Grassley, ranking member of the Committee onFinance, today introduced legislation to bar the award of federal contracts to companiesthat create phony foreign “headquarters" to escape U.S. taxes.
“These corporations flee the United States to save millions in taxes, and thencome back into the United States to get fat contracts with the federal government,"Grassley said. “Imagine the nerve. They create phony foreign headquarters in a filefolder or a mail box to escape taxes and then use other peoples’ taxes to turn a profit.That’s really something ?? something we need to stop."
Grassley introduced the Reclaiming Expatriated Contracts and Profits (RECAP) Actwith Sen. Max Baucus, chairman of the Committee on Finance, as the original cosponsor.The bill complements their earlier legislation, the Reversing the Expatriationof Profits Offshore (REPO) Act, to shut down corporate inversions. That bill passed thecommittee in June and is awaiting full Senate consideration as part of a pending bill toincrease charitable giving.
Grassley was the first senator to disclose that inverting corporations receivefederal contracts, in March of this year. The RECAP Act bars future corporate invertersfrom ever receiving federal contracts. For those companies that already have inverted,the RECAP Act makes them send back their ill?gotten tax savings by forcing them tolower their bids to obtain government contracts. These inverters will have to lowertheir bid by 10 percent to be competitive, which will level the playing field for federalcontractors that loyally stay and pay in the United States. The RECAP bill does notunwind federal contracts that were legal when entered into, and therefore, unlike otherproposals, will not cause thousands of Americans to lose their jobs.
Grassley said he waited to introduce his legislation because of the committeesystem. He said he wanted the committees with jurisdiction over government contractsto act on this issue, but they have not. Instead, Grassley said, a series of politicallymotivated amendments have been offered in Congress that would be ineffective, easilyevaded, and, if enacted, could cost thousands of Americans their jobs.
“I read in the paper last week that the defense appropriations conferees droppedone of those amendments rather than try to rewrite it," Grassley said. “I decidedenough is enough. It’s time for serious legislation on this issue."
According to an Oct. 1, 2002, analysis by the General Accounting Office, Tyco hadmore than 1,700 contracts in 2001, worth over $286 million. Accenture had contractsworth nearly $279 million. Ingersoll Rand left the United States for Bermuda, where itreportedly pays less than $28,000 a year to register its phony headquarters and receives$40 million in U.S. tax savings. Ingersoll Rand had government contracts in 2001 worth$36 million.
Grassley said he will work on this legislation in the next Congress if time runs outfor consideration this year.
Thursday, March 21, 2002 Grassley Seeks End to Government Contracts for Corporate Tax Evaders
WASHINGTON - Sen. Chuck Grassley, ranking member of the Committee onFinance, today revealed that several corporations that have set up shop overseas to avoidU.S. taxes enjoy lucrative contracts with the federal government. Grassley pledged towork to end this practice.
“I have no problem with U.S. companies operating in low-tax countries forlegitimate business purposes," Grassley said. “Companies have to compete in theinternational markets. My problem is with companies that set up fictional headquarters inlow-tax countries to escape U.S. taxes. These fictional headquarters are no more than afolder in a filing cabinet. Some of these companies add insult to injury by signing bigcontracts with the federal government. These corporations are skirting their own taxes,yet profiting from other people’s taxes. That’s wrong."
Grassley said the practice of setting up in low-tax jurisdictions to avoid taxes hasgone on for years. For example, for years U.S. insurance companies have been fleeing toBermuda to eliminate U.S. tax on their investments and gain a financial advantage overU.S.-based insurers.
However, the recent spate of relocations are bigger and different, Grassley said.The recent deals could not have been done without the two-year-old recession and thedepressed stock market. Net operating losses have built up during the recession. Thoselosses are used to shield the corporation from tax when it does a purely paper move to thetax haven country. For these deals to work, the stock market must be depressed. Adepressed stock market reduces the tax on the shareholders who approve these deals, andthe stock market has been depressed since the tragic events of Sept. 11, Grassleysaid.
Grassley said after Sept. 11, Ingersoll Rand left the country for Bermuda.According to media reports, it pays less than $28,000 a year to Bermuda and receives $40million in U.S. tax savings. Stanley Works, the American tool maker, has announced it isleaving the United States to go to Bermuda. Stanley has expressed pride in shaving 7percent off of its effective tax rates.
“It’s outrageous that some companies are willing to leave their country during awar and a recession just to save some taxes," Grassley said. “It’s especially shockingwhen those companies are enjoying big government contracts."
Grassley said Stanley Works had 100 government contracts during 2001, andIngersoll Rand had more than 200 government contracts in 2001.
Grassley said he plans to crack down on this abuse. “Let me be clear to everyonedeveloping or contemplating one of these deals, you proceed at your own peril," Grassleysaid. “I’m working on bipartisan legislation to go after not only the corporateexpatriation abuse, but also the abusers who seek big government contracts while skirtingtheir U.S. tax obligations."
Grassley obtained the following statistics from the General ServicesAdministration regarding some federal contractors who have completed a corporateexpatriation transaction, also known as an inversion. GSA is continuing to review othercontractors who have completed inversions.
Ingersoll Rand completed its inversion in December. Stanley Works has not yetinverted, but is in the process of doing so. The following are the annual statistics forthese two federal contractors:
(dollars are in thousands)
Stanley Works FY 2001 100 actions $5,661 FY 2000 59 $3,893 FY 1999 25 $2,143 FY 1998 38 $2,582 FY 1997 no number provided $12,828
Ingersoll-Rand FY 2001 203 actions $12,386 FY 2000 152 $24,442 FY 1999 133 $8,463 FY 1998 86 $6,322 FY 1997 no number provided $10,225
