As a tax attorney who deals exclusively with resolving tax debts, I see a disproportionately large number of home healthcare providers as clients. Through the many home healthcare clients I have helped, I have learned that there are several aspects of the business model that put home healthcare businesses at high risk of accruing tax liabilities. Worse, the nature of this business model introduces unique challenges in resolving these tax liabilities once the business has fallen behind.
Home healthcare businesses typically receive payment either from the patient’s insurance company or through federal healthcare programs like Medicare and Medicaid. Unfortunately, these payers often impose complex billing requirements that can be very challenging for home healthcare businesses to navigate. Just as frustratingly, these requirements frequently change, forcing businesses to adapt constantly. Even when the business follows all guidelines, delays in payments from insurers and government entities often create a financial bind.
Challenges Unique to the Home Healthcare Industry
Home healthcare providers deliver vital in-home care services to patients, often employing a decentralized model with no central office. Many rely on remote coordination with healthcare professionals via phone, email, and occasionally a central database. Because of this structure, home healthcare companies typically have limited physical assets to offer as collateral, making it difficult to secure loans to cover financial gaps, including unpaid taxes.
In addition to collection challenges, home healthcare companies face significant payroll tax obligations. Healthcare professionals are well-paid due to the critical nature of their work, resulting in large payrolls and substantial payroll tax obligations. This, combined with inconsistent cash flow from payers, can make it seem like these businesses are fighting a losing battle.
Why Home Healthcare Businesses Fall Behind on Taxes
Every home healthcare client I have encountered shares a common story: slow or non-existent payments from accounts receivable, heavy payroll obligations, and an inability to pay the IRS. Most have attempted to borrow against future income or secure loans, only to be turned down due to limited assets and existing tax liabilities, which often serve as a red flag for underwriters.
Steps to Address and Resolve Tax Liabilities
The first step in addressing any tax liability is to “stop the bleeding” and establish current tax compliance. This means prioritizing tax payments to ensure they are made in full and on time moving forward. My initial focus when working with a home healthcare client is on developing a realistic plan to achieve compliance, even in the face of ongoing payment delays from insurers and government programs.
Factoring and Financial Strategy
Some clients consider factoring their receivables as a solution. While factoring can help ease immediate cash flow issues, it reduces net income due to the percentage taken by factoring companies. Often, the best approach is to reduce expenses, enforce strict budgeting, and view tax compliance as non-negotiable. When clients are in compliance, we can shift to a more proactive position to negotiate with the IRS. Until that point, however, our focus is defensive, aiming to prevent or postpone enforced collections.
Importance of Quick Action for Medicare and Medicaid-Dependent Businesses
Achieving compliance and initiating IRS negotiations is crucial for any taxpayer, but especially for home healthcare businesses, where income often derives from federal programs like Medicare and Medicaid. If compliance and resolution efforts are delayed, businesses risk becoming subject to the Federal Payments Automated Levy Program (FPALP), which continuously levies federal payments to settle federal debts.
This program can create a devastating cycle for home healthcare businesses, particularly since FPALP levies are notoriously difficult to stop without a formal IRS resolution agreement, which itself requires current compliance with tax payments. For this reason, addressing tax issues swiftly is imperative for home healthcare providers to avoid potential business shutdowns.
Removing an FPALP Levy
The most effective way to lift an FPALP levy is to enter an Installment Agreement with the IRS or negotiate another form of tax resolution, like an Offer in Compromise. However, businesses must be in compliance with current filings and tax deposits for an agreement to be approved. Meeting these requirements can be particularly challenging if much of the business’s income is already being redirected to the IRS through FPALP.
Addressing Profitability Challenges in Installment Negotiations
Another common issue for home healthcare businesses is low profitability. Taxing authorities often struggle to understand that high gross income in this industry does not equate to high net income, given the industry’s high payroll costs. I have successfully negotiated Partial Pay Installment Agreements or Currently Not Collectible Status for many home healthcare clients based on their financial situation and compliance history.
Working with a Tax Professional to Resolve Tax Issues
Home healthcare companies provide an invaluable service to patients, often with a high degree of care and commitment. Resolving tax compliance issues for these businesses is possible, but it requires knowledge of the industry’s unique challenges. Given these complexities, I strongly recommend that home healthcare providers seek help from a tax attorney experienced in handling IRS tax collection cases as soon as their unpaid tax obligations exceed $10,000.
Our compassionate and skilled tax professionals at Fortress Tax Relief is ready to assess your situation and recommend a realistic resolution plan at no cost. Don’t hesitate to contact us for a consultation.
