When contemplating any type of business transaction, especially those in the unique landscape of healthcare, there are tax considerations to keep in mind. While there are several considerations, these six are key to conducting a successful transaction.
Tax Structure: Buyers and sellers have different preferences in a healthcare deal. Generally, the buyer prefers asset transactions to help produce a tax shield, while sellers prefer selling equity to limit future tax liability, increase administrative ease, and secure capital gains tax treatment. Not only should taxpayers consider the type of transaction, but the structure to adhere to in favor of state and federal regulations as many state laws require these entities to be owned by licensed taxpayers.
Related Party Transactions: Within the healthcare industry, it is often seen that organizations engage with related parties. A challenges that come with this is ensuring that transactions are conducted at arm’s length to be compliant with tax regulations, which is crucial for healthcare taxpayers to review.
Accounting Methods: Accounting methods influence the valuation and tax liabilities of the healthcare entity. For example, entities that follow the cash method of accounting still need to consider uncollected receivables or outstanding payables in the overall transaction. Valuations can be affected by differences in revenue income recognition under the different methods of accounting.
Sales Tax: With numerous variations in sales tax regulations and rates, this can make healthcare deals more complicated. Sales tax rules can vary by the nature of the service, medical equipment, or supplies in question. Additionally, review of nexus rules and sales tax reporting is also important to address.
Unclaimed Property: Issues may arise around transactions such as uncashed payroll checks, uncashed accounts payable/vendor checks, and account receivable credit balances. Account reconciliation issues can result from patient refunds, insurance payments and reimbursements, medical equipment deposits, and patient credit balances. The burden to prove whether funds are due or not is on the owner of these funds and can result in penalties and financial consequences.
Payroll Tax: Considering the compensation structures that are found within healthcare organizations is important. All employees or independent contractors should be properly classified for accurate tax withholdings and treated properly under federal and state payroll regulations. Buyers should consider examining the payroll tax structure and eliminate any exposures to error.
Need more insights on what to consider when entering a healthcare-related transaction? We would be happy to discuss these tax considerations and how it could impact your tax situation. Give us a call!
Our Healthcare Team:
Michele Graham, Vice President, Team Leader, Tax Department Co-Leader
Brenda Wallace, CEO of HSC Medical Billing
Karen Schnell, COO of HSC Medical Billing
Kim Kinnaman, Advisory Services Department Vice President
Sarah Wittenbraker, Outsourcing Client Accounting Senior Consultant
Mary Payne, Client Accounting Consultant
Vineet Goyal, Tax Department Manager
Justine Keller, Tax Department Supervisor
