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This month we look at two cases of interest from two very different jurisdictions. They both offer hard lessons.
1. The Reach of the IRS:
Lien, Levy, and Leave (No you cannot).
2. Medicaid might not get you.
But the Nursing Home will.
We often get asked what happens if we do not pay taxes? What can the IRS do to us? And we also get asked: Will the State come after us if Medicaid pays for the Nursing Home? Two recent cases illustrate the reach of the IRS, and that it is not necessarily the State you have to worry about when it comes to Nursing Home Debt.
The Reach of the IRS: Lien, Levy, and You Cannot Leave.
In Adams v. Commissioner, Blake Adams takes on the Commissioner of Internal Revenue. It does not go well for Mr. Adams.
Adams the taxpayer did not file tax returns for several years. The IRS claimed he owed $1.2 million in back taxes. Pursuant to the Tax Code, the IRS mailed a notice of deficiency. There was an inadequate response from Adams. The IRS then assessed the tax and sent a second notice to Taxpayer Adams. When Adams did not contest the deficiency, the IRS moved into the collection phase by sending him a notice of a federal tax lien and informing Adam of his right to a hearing. The notice of the right to a hearing is necessary before the IRS levies against a taxpayer’s property. The Federal tax lien is the Government’s legal claim against a taxpayer’s property when one fails to pay a tax debt. A levy is the seizure of the taxpayer's property to satisfy a tax debt.
In this instance, the IRS determined that Taxpayer Adams was seriously delinquent.
There are three requirements as to whether one is seriously delinquent. First, that the tax was assessed. Second, that the debt is greater than $50,000 (adjusted for inflation), and third, that the IRS filed a notice of lien. Once a taxpayer has a seriously delinquent tax debt, the IRS notifies the Treasury Secretary who transmits a certification to the Secretary of State “for action with respect to denial, revocation or limitation” of the taxpayer’s passport. Adams a seriously delinquent taxpayer, was now jammed up. Not only was his property liened upon and levied against, but he could also not leave the country to escape his tax debt.
Adams sued the IRS, arguing that the seriously delinquent taxpayer certification and the subsequent limitation on his passport was an “unconstitutional taking away” of his right to travel. The Tax Court held it lacked jurisdiction to review the Secretary of State’s discretionary determination, upon receipt of a seriously delinquent tax debt certification, to revoke, deny or limit the taxpayer's passport.
Adams appealed.
The District of Colombia Circuit Court was also unsympathetic. The IRS made the assessment, which is an official recording of liability that triggers levy and collection efforts. Thereafter the Treasury Secretary transmitted the delinquency certification to the State Department and Mr. Adams' passport was imperiled.
While not as bad as incarceration, Mr. Adams is stuck having to deal with the IRS.
It is not Medicaid that comes. The Nursing Home Strikes.
Can a child be forced to pay for a parent who is in a nursing home in Delaware? Can the State sue me?
While the State certainly has authority to keep itself from being deceived or cheated, we often do not think of nursing homes and private facilities taking action against children.
Nursing homes and private facilities have a strong recent history of suing children for failing to pay for parent stays at residential facilities. This is particularly true in Pennsylvania and New Jersey, which both have filial support statutes. The Pennsylvania Supreme Court has ruled that parents are responsible for their adult child’s stay in nonprofit residential facilities. Melmark, Inc. v. Schutt, 206 A. 3rd 1096 PA 2019).
Delaware does not have as clear a filial support statute which permits private facilities to sue families who fail to support the relatives as other states. But Delaware Family Court has jurisdiction if a relative does not support a poor
person. The duty to support a poor person rest upon the spouse, parents, or children under Delaware law. 13 Del. C. §503 and 31 Del. C. §511.
In Premier Health Care, Inc. v. Waters, Del. Ch. C.A. No. 2023-1263-BWD (Oct. 4, 2024), then Magistrate Bonnie David, now Vice Chancellor David ruled a complaint alleging unjust enrichment, breach of contract and fraudulent representation were legal claims which could proceed and directed them to be transferred to the Superior Court for further litigation.
Decedent James Bailey transferred his residence to his son and granddaughter for one dollar. A few months later he and his daughter-in-law executed an Agreement under which he would receive long-term care services from Premier Health Care. The Agreement provided that all charges would be paid from Mr. Bailey’s income or resources, and that Premier would be notified immediately and in writing if his resources were depleted. Also, all actions necessary to secure Medicaid coverage would be taken in a timely and proper manner. Finally, the Agreement said no one was to misappropriate income or resources or use the income or resources to benefit someone other than Mr. Bailey. When Mr. Bailey died on December 7, 2023, he owed Premier $94,730.
Premier did not take kindly when it found out that just a few months before Mr. Bailey became a resident at its facility that his house was transferred to his son and granddaughter.
The Court of Chancery case dismissed two of the five counts against the Waters, but kept the three regarding unjust enrichment, fraudulent representation, and breach of contract. Because the Court of Chancery technically did not have jurisdiction over those counts, they were also dismissed but were permitted to be transferred over to the Superior Court which has the authority to hear those claims.
While Premier Health Care did not assert the two Delaware statutes cited above in its complaint, it will not be surprising if they did not in the Superior Court case.
There are proper methods of protecting assets, particularly the home, from the cost of long-term care. We can help plan so that property one has worked hard for all of one’s life is not exposed to the nursing home or long-term care.
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