Those words from much more exalted sources than Congress, Treasury, or even Tax Court will never be questioned by me, but today Judge Gerber finds some who claim to be laborers aren’t, so it’s profit they got, and not their hire.

Here’s Home Team Transition Management, 2017 T. C. Memo. 51, filed 3/28/17.

HTTM is a for-profit MO C corp. “Petitioner provides at-home aid services to assist clients in their daily living tasks such as bathing, eating, cooking, and grocery shopping.  Petitioner also offers brief visits from a nurse to set out regular medications, monitor vital statistics, and conduct a range of body exercises with a client.” 2017 T. C. Memo. 51, at p. 3.

Judge Gerber points out, without elaboration, that “(D)uring the years at issue petitioner’s clientele was 65%-70% Medicaid funded, 10% Veterans Affairs funded, and 20%-25% privately funded.” 2017 T. C. Memo. 51, at p. 3.

It seems that the four shareholders in the C corp holding company that owned HTTM took out hefty loans from the holding company, which was paid management fees by HTTM, but those loans were transmuted into management fees paid to the shareholders.

You can read for yourself the corporate finagling, somewhat less than adroitly carried on.

Judge Gerber blows it up.

“In this case, we have four individuals who were equal corporate shareholders in a home care business, petitioner….During [year at issue] the same four shareholders incorporated another corporation, [holding corp], in which they were equal shareholders, and [holding corp] acquired ownership of petitioner, the existing home healthcare business.  Two of the shareholders were employees of petitioner, and they were paid for their services, which included day to-day operation of petitioner.  The other two shareholders were not employees of petitioner.  None of the four shareholders were employees of [holding corp], and no one, including the four shareholders, was paid a salary for any services rendered to or on behalf of [holding corp].  Periodically, the four shareholders of [holding corp] were paid equal amounts as director’s fees.  There is no credible evidence showing that any management services were performed by the shareholders or other employees of [holding corp] for petitioner.” 2017 T. C. Memo. 51, at p. 10.

It gets better (or worse, depending upon your point of view). “Exacerbating those circumstances are the facts that the alleged management fees were originally booked as loan payments and that the amounts corresponded to petitioner’s ability to pay; i.e., they varied depending on petitioner’s revenues.  We accordingly hold that respondent’s disallowance of the management fee deductions that petitioner claimed…is not in error and is sustained.” 2017 T. C. Memo. 51, at p. 11.

Maybe so the Medicaid IG and the VA IG might want to check these dudes out.