IRS to Collect Back Taxes by Recouping Medicare Payments

Buried in the Taxpayer Relief Act of 1997 was a little known and seldom enforced section authorizing the IRS to collect overdue taxes through a continuous levy on certain federal payments owed to the taxpayer. This includes federal payments to be made to contractors and vendors, including Medicare providers, doing business with the government. The IRS can reduce the Medicare payments by 15% until the overdue tax is fully paid.

The Treasury Department eventually implemented the law by instituting a Federal Levy Payment Program in 2000, but only now has it attempted to apply the law to Medicare payments processed by carriers and fiscal intermediaries. Effective October 1, 2008, carriers and intermediaries are instructed to withhold 15% of Medicare payments due to taxpayers on the IRS back taxes "list." Thus, if a Medicare provider owes taxes to the IRS, its Medicare payments may be adjusted accordingly.

What is unclear from CMS's description of the program is whether the recoupment rule applies only to the provider that billed the Medicare program (e.g., a medical group) or whether CMS and the IRS will have the ability to trace the actual individual supplier who provided the service that was billed under the number of the medical group. It is possible, therefore, that a medical group or an imaging center billing the Medicare program for services provided by an individual who was subject to an IRS tax recoupment could find its payments reduced by 15%. If such an adjustment is made, the Medicare explanation of benefits will display the code "WU" in the adjustment field. CMS notes that if such a recoupment is made, only the taxpayer may discuss the adjustment and only directly with the IRS. The Medicare carrier will be unable to resolve the matter.