Beware of Potential Tax Return Fraud

Many doctors and health practitioners around the nation are experiencing tax return fraud issues. Tax return fraud occurs when another person or entity fraudulently files a tax return for another individual, looking to receive the victim’s refund. Across the nation, over the past two tax years, this has been a growing problem targeting doctors and similar health professionals. In Nebraska, it appears that this could also be a growing trend.

If you attempt to file a return and the Internal Revenue Service rejects it because a return has already been filed under your Social Security number, this signals tax return fraud. In this event, please contact an attorney for guidance.

© 2015 Houghton Vandenack Williams

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New IRS Guidance Clarifies Tax Treatment of HSAs

Health savings accounts (HSAs) are a useful tool for employees and employers because of their tax-favored status. The IRS has recently clarified that certain Affordable Care Act rules will not affect the tax treatment of HSAs.

An HSA must be paired with a high-deductible health plan (HDHP) to receive tax-favored treatment. The Affordable Care Act requires health plans to provide certain preventive services with no deductible or cost-sharing. There was some concern that this rule would result in loss of HDHP status with the effect of HSAs losing tax favorable treatment. The IRS, however, has indicated that HDHPs will not lose their status as HDHPs solely because they offer the preventive services required by the Affordable Care Act. Thus, HSAs will still be a strong, tax-favored tool for dealing with medical expenses.

© 2013 Parsonage Vandenack Williams LLC

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Documentation Is an Important Strategy to Minimize IRS Issues

Many medical and dental practices use multiple entities for a variety of reasons.  A recent Tax Court case emphasized the importance of proper documentation and careful planning to achieve good tax results.  In the recent case, a dentist created a separate business entity to manage operations.  The Tax Court refused to allow him to deduct his management fees because of poor documentation.

If you are using a separate business entity for any reason, adopt the following practices:

• Keep separate and complete records for each entity. Respect the separate existence of each entity.
• Document transactions between the entities, especially payments. Formalize leases and management agreements in writing. Keep entity minutes up to date.
• Be aware of the passive activity rules and consider income types when planning multiple entities.

© 2013 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

IRS: EHR Incentive Payments Are Taxable

The IRS has taken the position that EHR incentive payments are taxable. Because the IRS has a long history of defining what is subject to tax broadly, this is not surprising. However, some of the consequences of this position could be problematic for physicians. Many physicians turn over their payments to a group practice. Physicians doing this could be in for an unpleasant surprise.

Under tax law, taxpayers cannot avoid tax merely by turning income over to somebody else. Thus, suppose a physician earns an EHR incentive payment and turns it over to her practice. Depending on how the plan is structured, she might still have to include the EHR payment on her personal tax return. The IRS allows an important exception. If the physician receives the payment as an agent of the group practice, she does not have to report it on her personal tax return. Because of this issue, physicians who have received or will receive EHR incentive payments should plan to deal with the tax consequences of those payments.

© 2013 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

IRS WILL HONOR MEDICAL RESIDENT FICA REFUND CLAIMS

The Internal Revenue Service has made a determination to accept the position that medical residents are excepted from FICA payroll taxes based on the student exception for tax periods ending before April 1, 2005, when new IRS regulations went into effect.

In recent years, the IRS has been involved in several court cases regarding the question of whether medical residents are eligible for the student exception to FICA. Last year, in Mayo Foundation for Medical Education and Research v. U.S., the Eighth Circuit Court of Appeals reversed two decisions by lower district courts.  The court agreed with IRS regulations limiting the student FICA exception to students who are not full-time employees. However, other lawsuits have been ongoing, and it appears the IRS has decided to change its position.

Within 90 days of its determination on March 2, 2010, the IRS will begin contacting hospitals, universities and medical residents who filed FICA refund claims for these periods to provide more information and procedures. Employers and individuals with pending claims do not need to take any action at this time.

For more information, call (800) 919-1703 or visit www.irs.gov/charities and click on Medical Resident FICA Refund Claims. Taxpayers with currently pending suits should contact the Department of Justice attorney assigned to the case.

© 2010 Parsonage Vandenack Williams LLC

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