What to do if your medical practice tax problems are growing unmanageable
In an article today on CNNMoney, Doctors driven to bankruptcy , Parija Kavilanz, writes about medical practice tax problems:
As many doctors struggle to keep their practices financially sound, some are buckling under money woes and being pushed into bankruptcy.
It’s a trend that’s accelerated in recent years, industry experts say, with potentially serious consequences for doctors and patients. Some physicians are still able to keep practicing after bankruptcy, but for others, it’s a career-ending event. And when a practice shuts its doors, patients can find it harder to get the health care they need nearby.
Kavilanz notes the story of one Florida doctor who has a solo practice in Broward County:
As the economy worsened in the wake of the recession, fewer patients could afford to come in. Cash payments and reimbursements dropped. To come up with money to keep the practice going, she took a second job at a hospital. Still, her debt ballooned. She fell behind on statetax payments.
Two years ago, Florida tax officials showed up at her door to shut the clinic down. She quickly called Langley and he was able to file an emergency bankruptcy for her online while the officials were still in the waiting room. He gave them the bankruptcy case number, and they left without closing the clinic. Langley eventually helped the doctor restructure her debt and the clinic is still open, he said.
Bankruptcy can be a great solution to a medical practice tax problem. But there are instances where it will NOT work. Bankruptcy, if done properly, can wipe out old personal tax liabilities. However, here are four instances where it may be necessary to negotiate with the Federal or state taxing authorities directly for outstanding tax debts.
- Payroll tax debt: If you owe payroll trust fund taxes to the IRS, those taxes can not be discharged (with very few exceptions) in a Chapter 7 bankruptcy.
- Sales and Use taxes: If you owe a state sales taxes, those can not be discharge in bankruptcy and must be negotiated directly with that state taxing authorities.
- Medical Device tax: The ObamaCare medical device tax is a trust tax. It can not be discharged in bankruptcy.
- New 1040s taxes: The rules are complicated, so here is a simplification: On April 16th 2013, you may be able to discharge taxes as recent as debt from tax year 2009. If your tax debts are any newer than this, you will need an interim solution under the time you can file bankruptcy.
But after tax settlement or bankruptcy, then what?
Honestly, solving a back tax problem through direct negotiations or bankruptcy can be the easy part of the solution. But what about going forward? You can’t file bankruptcy every year, and if you run up a new tax debt typically the deal you work so hard to settle is defaulted and you must start anew, this time, with some of the appeals rights, gone. So what does the future for the solo and small-firm doctors look like?
I point to another part of the story:
[Oncologist Dennis Morgan] had a profitable solo practice in Enfield, Conn., for years. Revenues began to fall, he said, when reimbursements for treatment and drugs to oncologists started shrinking. He made cutbacks, but he began having trouble meeting expenses, and his business debt grew. Critical chemotherapy drug and medical supplies providers “eventually cut me off,” Morgan said…For the next two years, his role became “that of a captain of a sinking ship managing the allocation of life boats until rescue arrived,” he said. He redirected patients to other doctors and area hospitals. Early last year, he stopped practicing medicine.
I contacted Dr. Morgan and he was kind enough to elaborate on his position. This is what he told me why the medical profession is where it is:
There is blame enough to share – politicians over-promise and government programs are under-funded, drug companies market “products” not health and commercial insurance carriers don’t have customers but “liabilities.” We physicians have been shamefully willing to abdicate to all of the above the control of our fiduciary responsibility to patients – we allowed ourselves to be treated as “health-care-providers” instead acting as “doctors.”