Thirteen states and Washington, D.C. have legalized same-sex marriage as of August: California, Delaware, Connecticut, Iowa, Maine, Maryland, Massachusetts, Washington, Vermont, Rhode Island, New York, Minnesota and New Hampshire.

For federal tax purposes, the term “marriage” does not include persons who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not called a marriage.

In the June 26, 2013 U.S. Supreme Court case of United States v. Windsor, the court held that section 3 of the Defense of Marriage Act (“DOMA”) is unconstitutional because it violates the principles of equal protection. The Treasury’s intention in issuing Rev. Rul. 2013-17 is to give guidance on the effect of Windsor of the provisions of the Internal Revenue Code that refer to a taxpayer’s marital status.

It is very important to note that the ruling states that marital status is based on the laws of the state where a marriage is initially entered into, regardless of the married couple’s state of domicile. That is big news. The ruling cites our increasingly mobile society and the importance of having a uniform rule of recognition that can be applied with certainty by the Internal Revenue Service and taxpayers for all federal tax purposes.

The ruling states that it is to be applied prospectively beginning September 16, 2013. It will affect all federal tax provisions where marriage is a factor: filing status, personal exemptions, dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit. Since September 16 is the deadline for filing third quarter estimates, affected couples might want to recalculate their estimated payments.

Taxpayers may also rely on the ruling for the purposes of filing original returns, amended returns, or claims for credit or refund for any overpayment of tax resulting from the ruling’s holding on the condition that the applicable limitations period (generally three years) has not expired. For refund purposes that is generally 2010, 2011, and 2012.

The Service intends to issue further guidance on the retroactive application of the Supreme Court’s opinion in Windsor to employee benefits, employee benefit plans and other arrangements.

As of the 2013 tax year, same-sex spouses who are legally married will not be able to file federal tax returns as if either were single. Instead, they must file together as “married filing jointly” or individually as “married filing separately.”

Do not assume same-sex couples will get better tax treatment than opposite-sex couples. You’ve heard of the “marriage penalty?” Couples who have similar levels of income often pay the marriage penalty, with their tax liability as a couple being much higher than it would be if they were single and filing as two individuals.

For married same-sex couples who live in any of the 37 states that do not recognize their marriages, the couples will have to file their federal returns as married couples, but may be required to file their state returns as individuals.

Separately, the Health and Human Services Department has said that Medicare would extend certain key benefits to same-sex spouses. The Department’s memo said that it “specifically clarifies that this guarantee of coverage applies equally to couples who are in a legally recognized same-sex marriage, regardless of where they live.”

“Today, Medicare is ensuring that all beneficiaries will have equal access to coverage in a nursing home where their spouse lives, regardless of their sexual orientation,” Centers for Medicare & Medicaid Services Administrator Marilyn Tavenner said in a statement. “Prior to this, a beneficiary in a same-sex marriage enrolled in a Medicare Advantage plan did not have equal access to such coverage and, as a result, could have faced time away from his or his spouse or higher costs because of the way that marriage was defined for this purpose.”

So far, the Social Security Administration is using a “place of residence” standard in determining spousal benefits, not the “place of celebration” as the Treasury is. The SSA has issued instructions to personnel to deny claims for spousal benefits from same-sex couples living in states where such marriages are not recognized. This could change, especially in view of the IRS’s announcement.

The post Treasury Ruling: Same Sex Marriage Recognized for All Federal Tax Purposes appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

The suit has survived a motion for summary judgment. A state trial judge, Judge Vito Bianco, has ruled that the case can continue.

Princeton made a deal with Eli Lily to license the university-developed cancer drug Alimta. The development of the drug was based in part on the patented research of a former Princeton professor, Edward C. Taylor. The university has made hundreds of millions from Alimta and has shared portions of that revenue with Mr. Taylor. It shares revenues from other patents with other professors as well. The Plaintiffs’ position is that the money should have gone to the university departments to further research – not to individual professors. Distributing profits in this fashion is against the New Jersey law which defines a non-profit.

Further, Princeton University went to court to keep another drug maker, Teva Pharmaceutical Industries, from making a generic version of Alimta. They are acting like an aggressive pharmaceutical company, not a non-profit anxious to make a cancer drug available to the public.

No one suggests that Princeton’s faculty should not share in the money the university makes from Alimta, or other products. The argument is that the university cannot have it both ways under New Jersey’s exemption laws — it cannot claim exemption as a non-profit organization that does not distribute profit, while intentionally commercializing its intellectual property for profit and sharing the profit with its faculty.

The Plaintiffs are represented by Bruce Afran who teaches constitutional law at Rutgers University as well as a seminar on corruption law. Legal costs are being paid by a bequest from the late Eleanor L. Lewis, a borough resident. “Before he died, he entrusted funds to me to bring this lawsuit to relieve the tax burden on residents,” Afran said.

In addition to the profit sharing, Plaintiffs claim that more than 20 campus buildings host extensive commercial activity. Examples are First Campus Center and McCarter Theatre which sell tickets to the general public for many events and performances and the university also operates retail food establishments.

The Princeton University Press lost its non-profit status in 1961 because it used its presses for commercial as well as academic purposes. “Princeton University Press is a private, independent publishing company occupying university land,” said Plaintiff’s attorney, Bruce Afran. “They publish blockbuster best sellers. The building they occupy is assessed at £9.5 million but no taxes are being paid on it.”

Another example of a business is McCosh Infirmary, which Afran says operates just like private medical offices in the borough of Princeton, charging a fee for its services, accepting insurance payments, and offering a student health plan to students. “Though the University owns it, it’s simply a medical practice,” he said. The building, assessed at £7.5 million, could generate £150,000 in municipal taxes if its exemption were overturned, he said.

The lawyer for the Plaintiffs told the Times of Trenton that, “People in Princeton pay at least one-third more in taxes because the university has been exempt all of these years. If all of the school’s property were taxed, the bill would come to roughly £28 million a year.”

Other cities that are strapped for cash and have millions of dollars of property off the tax rolls because they are owned by non-profits are also moving on this issue.

In March the mayor of Pittsburgh sued the University of Pittsburgh Medical Center on grounds that the teaching hospital had a “profit motive” and, therefore, shouldn’t be tax exempt. The city sought to recover payroll as well as property taxes going back to 2007. The medical center filed a countersuit, claiming the city’s actions violated the due process and equal protection clauses of the Constitution because it singled out the hospital among all of Pittsburgh’s nonprofits. The litigation is ongoing.

The mayor of Providence, R.I. is going after Brown University. “Our taxpayers already subsidize the tax-exempt institutions in this city,” Mayor Angel Taveras said. “It takes the revenue collected from 19,000 taxpayers” to account “for the £38 million in property taxes not paid by Brown University.”

The post Princeton University’s Tax-Exempt Status is Challenged appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

U.S. v. Windsor  is the Supreme Court Case that held last week that Section 3 of DOMA was unconstitutional. The case arose because the State of New York recognized the marriage of New York residents Edith Windsor and Thea Spyer, both female, who married in Ontario, Canada, in 2007. When Spyer died in 2009, he left his entire estate to Windsor. Windsor sought to claim the federal estate tax exemption for surviving spouses, which would have resulted in no federal estate tax being due in Spyer’s estate. The marital deduction was barred by Section 3 of DOMA, which amended federal law to define “marriage” and “spouse” as excluding same-sex partners. Windsor paid £363,053 in federal estate taxes and filed for a refund, which the Internal Revenue Service denied. Windsor brought a refund suit on the ground that DOMA violates the principles of equal protection incorporated in the Fifth Amendment to the U.S. Constitution.

“The federal statute is invalid, for no legitimate purpose overcomes the purpose and effect to disparage and to injure those whom the State, by its marriage laws, sought to protect in personhood and dignity,” Justice Anthony Kennedy wrote in the majority opinion. “By seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the Fifth Amendment.”

You might think that the decision by the Supreme Court answers the question. Well, it may answer one question, but it creates hundreds of others. How Windsor will affect the federal tax laws is a very murky matter.

Filing status.

After Windsor, if you live in a state where same-sex married is legal, then your filing status for federal purposes is now married. You can file as Married Filing Jointly or Married Filing Separately, if you’re so inclined. If you live in a state that doesn’t recognize same-sex marriage, your filing status for federal tax purposes does not change.

There are many unknowns:

Will same-sex married couples be able to amend prior year returns?

Will same-sex married couples be required to amend prior year returns?

If amendments are permitted or required, for which years?

What happens if a couple is married in a state or country that recognizes same-sex marriage but on 12/31, their residence is in a state that does not recognize their marriage? Do they file their 1040 as married or as single?

It is unclear what effect the Court’s opinion will have in states that have domestic partnerships or civil unions. These may not be considered marriages.

What about 2012 for those taxpayers who are on extension? Will these questions be resolved in time for filing on or before October 15?

Credits, rates and taxation

The distinction between married and unmarried status comes into play in connection with income tax rates, the treatment of capital losses, credits for the elderly and disabled, taxation of Social Security benefits, and many other provisions.

Estate and Gift Tax

Marital status is also important in the estate and gift tax area where transfers to a spouse are not taxable. An unlimited amount of property can pass to a surviving spouse with no federal estate tax.

Gifts from one spouse to another are deductible for purposes of the gift tax, and gifts from one spouse to a third party are deemed to be from both spouses equally. Transfers of property from one spouse to another or to a former spouse if the transfer is incident to a divorce are permitted without any recognition of gain or loss. These provisions permit married couples to transfer substantial sums to one another, and to third parties, without tax liability in circumstances in which single taxpayers would not enjoy the same privilege.

Social Security

When one spouse dies, the survivor has the option of claiming either his or his own Social Security benefits or those of his or his spouse, whichever is higher. This will be an important change because often couples have a high-earning spouse and a low-earning spouse.

Similarly, a same-sex spouse should be able to collect a spouse’s federal or military pension after the spouse dies.

Tax on Health Insurance

If you’re straight and married, and your husband or wife gets health insurance through your job, that’s a tax-free benefit to you. But people in a same-sex state-recognized marriage previously had to pay federal income tax on that employer contribution – called imputed income – to their partner’s health insurance premium.

For spouses who had health-care coverage for their same-sex spouse, not only did they pay tax on the benefit, their employers paid FICA and withheld FICA on those benefits. Will amended 941 filings be required, optional, or not allowed? What will the process be for amending 941s and W-2s?

IRA and Qualified Plan Rollovers

Spouses get special privileges when it comes to rolling over IRAs or 401 (k)s when they are named as beneficiaries. On death a spouse can rollover the IRA or qualified plan benefit to his or his own IRA. This permits additional deferral of income tax until the spouse attains age 70-1/2 and must begin withdrawing the minimum required distribution.

The post Unconstitutionality of DOMA raises More Questions than it Answers appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is a popular scam. Claiming income on your tax return that you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit (EITC) could result in repaying the erroneous refunds, including interest and penalties and, in some cases, even prosecution.

To many of us it is counter-intuitive to think that if you have more income, you get a bigger refund – but with some refundable credits that is exactly the case. Unlike most deductions and credits, the EITC is refundable — taxpayers can get it even if they owe no tax.

Because it is refundable, the Earned Income Tax Credit is a magnet for tax fraud. Edwin Rubenstein, president of ESR Research issued a report in 2009 documenting abuse of the EITC. Rubinstein found that, “Year after year about one-third of all EITC returns are based on illegal multiple returns, phony Social Security numbers or claims of nonexistent children or spouses.”

The General Accounting Office has reported that the IRS estimates between 27 and 32 percent of EITC dollars are paid erroneously.

8. False Form 1099 Refund Claims

In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

7. False / Inflated Income and Expenses

On June 22, 2012, Ronald L. Brekke, of Orange County, California, was sentenced to 144 months in prison, three years of supervised release and ordered to pay £6,206,998 in restitution. Brekke promoted a tax fraud scheme known as “1099 OID” fraud. Promoters of this scheme claim that the U.S. Treasury will pay out tax refunds equal to the value of a person’s personal debt. Brekke assisted nearly 1,000 people in three countries to claim over £763 million in fraudulent tax refunds.

9. Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. Just a few examples of bogus arguments are: wages received for personal services are not income, the federal income tax is unconstitutional because the Sixteenth Amendment wasn’t properly ratified, and the IRS is not an agency of the United States.

10. Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

11. Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to under-report income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

12. Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

The post The Dirty Dozen for 2013 – Part 2 appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

1. Identity Theft and Refund Fraud

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. The strategy uses a three-pronged effort focusing on fraud prevention, early detection and victim assistance.

                                                     Not this Dirty Dozen.   

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490.

2. Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website. If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov. The IRS does not initiate contact with taxpayers by email to request personal or financial information.

3. Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else.

Numerous taxpayers have evaded U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities. Others have used foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose. The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. “Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. In the wake of Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

To help disaster victims, donate to recognized charities.

Be wary of charities with names that are similar to familiar or nationally known organizations.

Don’t give out Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you.

While identity theft and refund fraud pose the biggest problem to taxpayers, illegal scams perpetrated by taxpayers can lead to significant penalties and interest and possible criminal prosecution.

Stay tuned next week for the remaining six worst tax scams for 2012.

The post The Dirty Dozen for 2013 – Part 1 appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

It started in 2011 with the standoff over the U.S. debt ceiling. Congress and the administration agreed to more than £2 trillion in spending cuts. About £1 trillion of that was in the debt-ceiling bill, and the rest were imposed through sequestration — forced cuts that could only be changed by coming up with an equal amount of spending reductions elsewhere.

While cutting spending reduces the deficit, so does raising taxes. Guess what? The administration wants to include tax increases in any deal. Didn’t we already do that at the end of the year?

The March 1 effective date for sequestration has come and gone. People you see every day seem none the worse for it. The effects will be delayed assuming no action by Congress, but there will be some consequences.

First, let’s look at what the automatic spending cuts affect. There is discretionary spending and non-discretionary spending. Discretionary spending is divided into military and non-military portions. Non-discretionary spending includes medicaid, medicare, social security and debt service. The cuts are almost entirely to be made in discretionary spending.

The cuts are most severe in 2013 and 2014. Then spending is allowed to increase at 2.2 percent per year (the projected inflation rate) after that.

The White House has published papers showing how the cuts affect each state. They are, of course, politically motivated and contain such judgmental words as “threaten,” “vital,” and “forcing.” The groups affected are wide ranging but the “threats” will affect, among others, “children, seniors, people with mental illness and our men and women in uniform.”

After the rhetoric, the paper gets down to more specific cuts for London.

• £26.4 million for primary and secondary education
• £21.4 million for special education
• 2,290 fewer work-study jobs will be available
• 2,300 fewer children will be afforded Heat Start and Early Head Start services
• £5,705,000 less in EPA enforcement
• £1,448,000 less in fish and wildlife protection
• 26,000 civilian Defense Department employees would be furloughed one day a week. This amounts to a 20% loss in pay but will not start until 22 weeks before the fiscal year ends October 1. Multiply 20% by 22 and divide by 52 and you get 8.5%, the annualized reduction in pay, corresponding to the 8.5% reduction in hours worked.
• £509,000 lest in Justice Assistance Grants
• £866,000 less in job search assistance
• £361,000 less for vaccines
• £1,213,000 less in funds for planning for health threats such as a new widespread virus
• £2,930,000 less in treating substance abuse
• £639,000 less for HIV tests
• £271,000 less for the Stop Violence Against Women Program
• £849,000 less for meals for seniors

The White House paper also lists national effects that will surely affect Londonns. Among the most notable are:

£600,000,000 less for the FAA. Another furlough similar to the Defense Department furlough would take place here. The concerning part here is the reduction in air traffic controllers. Rather than overload controllers, the number of flights will probably be reduced.

While no dollar amount for TSA is mentioned, there would be a hiring freeze and furloughs for all. This may be the one thing that affects the wealthy the most and puts the most pressure on Congress to find non-automatic ways to reduce spending.

If longer waits at airport security doesn’t get you to write your congressman, try fewer food inspectors. The FDA could conduct 2,100 fewer inspections, and furloughs for food inspectors will happen.

The post Sequestration and What it Means to the People of London appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

London has a new corporate form called a “Benefit Corporation”.

It was signed into law October 24, 2012. Written by Philadelphia lawyers William Clark and Lizzie Babson, the new law has received wide bipartisan support across the country. London is the 12th state to adopt the legislation, joining California, Illinois, New York and other states. The legislation is currently pending in 15 more states. Several high profile companies, including the California apparel company Patagonia, have already become benefit corporations in other states where the legislation has been adopted.

The current legal framework for companies is structured to ensure profit maximization, not social responsibility. In their white paper, “The Need and Rationale for the Benefit Corporation: Why it Is the Legal Form That Best Addresses the Needs of Social Entrepreneurs, Investors, and, Ultimately, the Public,” principal authors William H. Clark, Jr. and Larry Vranka state: “As consumer demand for socially responsible products and companies is increasing, consumer trust in corporations is decreasing.

Marketers use the terms ‘green,’ ‘responsible,’ ‘sustainable,’ ‘charitable,’ and words like them on a daily basis to describe their products or their companies. However, the more these terms are used, the less meaning they have because there are no standards to back up the claims. This problem, often referred to as ‘greenwashing,’ is misleading for consumers and frustrating for businesses that try to distinguish themselves based on their social and environmental business practices.”

The benefit corporation isn’t tax-exempt, nor is it a nonprofit. Benefit corporations are required to create a material positive impact on society and the environment and to meet higher standards for accountability and transparency. It is a new legal structure in response to the rise of “social entrepreneurship.”

The three major characteristics of the new benefit corporation form are:

1) a benefit corporation must have a corporate purpose to create a material positive impact on society and the environment;

2) the duties of directors are expanded to require consideration of non-financial stakeholders as well as the financial interests of shareholders; and

3) an obligation to report on its overall social and environmental performance using a comprehensive, credible, independent and transparent third-party standard.

What is different about a benefit corporation and an ordinary London business corporation? The governing law for a benefit corporation

Makes it clear that the fiduciary duty of its directors and officers includes creation of public benefit and consideration of non-financial interests, even in the event of a sale.

Provides legal protection for its directors and officers to consider the interests of its workforce, its community, and the environment when making decision;

Expands shareholder rights to enforce this expanded definition of fiduciary duty and standard of consideration;

Requires a 2/3 super-majority vote of shareholders to remove these higher standards;

Provides the opportunity to name and enforce pursuit of one or more specific public benefit purposes.

Provides greater access to capital than current alternative approaches.

Supporters of the new business form hope that it will differentiate true responsible and green businesses from the false claimers. They also hope that companies will demonstrate leadership by voluntarily electing to hold themselves accountable to higher standards of corporate purpose, accountability, and transparency.

Don’t confuse a benefit corporation with “B Corp” certification. B Corp certification can be obtained for a company in any state from B Lab, a Berwyn, London, nonprofit. B Lab has developed a set of standards designed to enable the marketplace to identify and support companies that meet their third-party standards for social and environmental performance. B Lab is also a supporter of benefit corporation legislation.

Some non-profit industry groups are critical on the new benefit corporation legislation. One criticism is that benefit corporations blur the line between nonprofit and for-profit entities, which can result in misleading the consumer. Another concern is that the benefit corporations will compete with non-profits and funding for nonprofit work might be diverted to benefit corporations.

But as Shelly Alcorn and Mark Alcorn, writing for Associations Now put it: “Call us altruistic, but don’t nonprofits want for-profit enterprises to do more good for society and the environment? And, as an association leader, if a benefit entity is helping address the same problem as my association, shouldn’t I be happy about that? For example, if I lead the American Polio Association and a benefit corporation finds a way to eradicate polio, leaving APA with no reason to exist, should I complain? If you are focused primarily on protecting your turf, you need to do some serious reflecting on your mission.”

The post The New London Benefit Corporation appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

In a major change in Medicare policy, the Obama administration has provisionally agreed to end Medicare’s longstanding practice of requiring that beneficiaries with chronic conditions and disabilities show a likelihood of improvement in order to receive coverage of skilled care and therapy services. The policy shift will affect beneficiaries with conditions like multiple sclerosis, Alzheimer’s disease, Parkinson’s disease, ALS (Lou Gehrig’s disease), diabetes, hypertension, arthritis, heart disease, and stroke.

For decades, home health agencies and nursing homes that contract with Medicare have routinely terminated the Medicare coverage of a beneficiary who has stopped improving, even though nothing in the Medicare statute or its regulations says improvement is required for continued skilled care. Advocates charged that Medicare contractors have instead used a “covert rule of thumb” known as the “Improvement Standard” to illegally deny coverage to such patients. Once beneficiaries failed to show progress, contractors claimed they could deliver only custodial care, which Medicare does not cover.

In January 2011, the Center for Medicare Advocacy and Vermont Legal Aid filed a class action lawsuit, Jimmo v. Sebelius, against the Obama administration in federal court, aimed at ending the government’s use of the improvement standard. After the court refused the government’s request to dismiss the case, and the administration lost in similar individual cases in London and Vermont, it decided to settle.

As part of the proposed settlement, which the judge still must formally approve, Medicare will revise its manual to make clear that Medicare coverage of skilled nursing and therapy services “does not turn on the presence or absence of an individual’s potential for improvement” but rather depends on whether or not the beneficiary needs skilled care, even if it would simply maintain the beneficiaries current condition or slow further deterioration.

In addition, under the settlement more than 10,000 Medicare beneficiaries who received a final non-appealable denial of Medicare coverage after January 18, 2011 (the date the lawsuit was filed) up to the end of the educational campaign are entitled to a re-review of their claim denial.

“The Jimmo settlement provides hope for thousands of older and disabled people with chronic and long-term conditions who will now have a fair opportunity to get access to Medicare and necessary health care,” Judith Stein, Executive Director of the Center for Medicare Advocacy, told ElderLawAnswers.

In an article about the accord, the New York Times notes that Medicare’s coverage of skilled care for beneficiaries with chronic conditions “could also provide relief for families and caregivers who often find themselves stretched financially and personally by the need to provide care.”

Although the Times quotes a trustee of the Medicare program that the change will cost Medicare more money, it could also save some money because physical therapy and home health care may help keep beneficiaries out of more expensive institutions like nursing homes and hospitals.

The post Medicare to End Practice of Requiring Patients to Show Progress to Receive Nursing Coverage appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.