CMS Pub. 100-08, ch. 10, § 10.6.4

This section explains the legalities of various types of business organizations that may enroll,

including sole proprietorships. Note that the provider’s or supplier’s (hereafter occasionally

referred to collectively as “provider”) organizational structure can have a significant impact

on the type of information it must furnish on the Form CMS-855 or CMS-20134.

Business organizations are generally governed by state law. Thus, State X may have slightly

different rules than State Y regarding certain entities. (In fact, X may permit the creation of

certain types of legal entities that Y does not.) The discussion below gives only a broad

overview of the principal types of business entities and does not take into account different

state nuances.

Since CMS issues a 1099 based on an enrolled entity’s business structure, providers should

consult their accountant or legal advisor to ensure that they are establishing the correct

business structure.

A. Sole Proprietorships

A business is a sole proprietorship if it meets all of the following criteria:

CP-575 LBN SYSTEMS LBN Exact Match

Rehab and

Health, Inc.

Rehabilitation and

Health, Inc.

No, this is not an exact match because

‘Rehab’ and ‘Rehabilitation are different

words.

The contractor shall ask the provider to

correct its NPPES and PECOS information.

The provider must change its LBN in

NPPES and PECOS to read in accordance

with the IRS CP-575.

Health Systems,

Inc.

HEALTH SYSTEMS,

INC.

Yes, this is an exact match.

The Jones

Hospital, Inc.

Jones Hospital, Inc. Though this is not an exact match, the

contractor shall accept the discrepancy if

the test in subsection (A)(2) above is met.

Smith Home

Health at Town

X, LP

Smith Home Health Town

X, LP

Though this is not an exact match, the

contractor shall accept the discrepancy if

the test in subsection (A)(2) above is met.

The Johnson

Clinic of Town

Y, Inc.

Johnson Clinic for Town

Y, Inc.

This is not an exact match and cannot be

accepted because there are two common

word discrepancies – “The” and “of”/”for”.

James Doctors

With Jones

Hospital, Inc.

James Doctors of Jones

Hospital, Inc.

Though this is not an exact match, the

contractor shall accept the discrepancy if

the test in subsection (A)(1) above is met.

(See (A)(3)(b) above).

• It files a Schedule C (1040) with the Internal Revenue Service (this form reports the

business’s profits/losses);

• One person owns all of the business’s assets; and

• It is not incorporated.

A sole proprietorship is not a corporation. Suppose a physician operates a business as a

home health agency. If it is incorporated, the business becomes a corporation (even though

the physician is the only stockholder). The frequently used term “unincorporated sole

proprietorship” is therefore a misnomer because sole proprietorships by definition are

unincorporated. In addition, merely because the sole proprietor hires employees does not

mean the business is no longer a sole proprietorship. Assume that W is a sole proprietor and

hires X, Y, and Z as employees. W’s business is still a sole proprietorship because W

remains the 100% owner of the business. If, however, W had sold parts of the sole

proprietorship to X, Y, and Z, the business would no longer be a sole proprietorship because

there is now more than one owner.

Note that professional associations (PAs) are generally not considered to be sole

proprietorships; the PA designation is typically used in states that do not allow individuals to

incorporate and form professional corporations. The PA will have its own employer

identification number and is considered (like a professional corporation) to be a legal entity

that is separate and distinct from the individual.

B. Processing Enrollments for Sole Proprietorships

1. Application Form Sections

If the provider indicates in the Identifying Information/Business Information section of the

Form CMS-855A, CMS-855B, CMS-855I, CMS-855S or CMS-20134 that the provider is a

sole proprietor, the contractor shall adhere to the following:

• The legal business name (LBN) in the Business Information section should list the

person’s (the sole proprietor’s) legal name.

• The tax identification number (TIN) in the Business Information section should list

the person’s social security number.

• The Final Adverse Legal Actions/Convictions section of the Form CMS-855A, CMS-

855B, CMS-855I, CMS-855S or CMS-20134 must be completed with information

about the individual’s final adverse action history.

• The Organizational Ownership and/or Managing Control section of the Form CMS-

855A, CMS-855B, CMS-855I, CMS-855S or CMS-20134 will not apply unless the

person has hired an entity to exercise operational or managerial control over the

business (i.e., no owners will be listed in the section, for the sole owner has already

reported personal information in the Identifying Information and Adverse Legal

Actions sections).

• No owners, partners, or directors/officers need to be reported in the Individual

Ownership and/or Managing Control section. However, all managing employees

(whether W-2 or not) must be listed.

• If the sole proprietor is not enrolling as a physician or non-physician practitioner via

the Form CMS-855I, the individual may have authorized and delegated officials.

Since most sole proprietorships that complete the Form CMS-855A, CMS-855B, CMS-855I,

CMS-855S or CMS-20134 will also have an EIN, the contractor shall request from the

provider a copy of its CP-575, any federal tax department tickets, or any other preprinted

information from the IRS containing the provider’s EIN.

2. Reassignments of Benefits

If a physician or non-physician practitioner who is currently reassigning all benefits attempts

to enroll as a sole proprietorship or the sole owner of a professional corporation, professional

association, or limited liability company, the contractor shall call or e-mail the old practice

location to determine if the physician or non-physician practitioner is still employed there; if

the individual is not, the contractor shall contact the practitioner to verify that the latter is

indeed attempting to enroll as a sole proprietorship or sole owner.

C. Partnerships

A partnership is an association of two or more persons/entities who carry on a business for

profit. Each partner in a partnership is an owner. If A and B form the “Y Partnership” and

each contributes $50,000 to start the business, each partner owns one-half of Y.

In several respects, a partnership is the opposite of a corporation:

• Each partner is liable for all the debts of the partnership. Using the example above,

suppose the Y Partnership breached a contract it had with X, who now sues for

$10,000. Since each partner is liable for all debts, X can collect the entire $10,000

from A, or from B, or $5,000 from each, etc. This is because, unlike a corporation, a

partnership is not really a separate and distinct entity from its partners/owners; the

partners are the partnership. If Y had been a corporation, the owners (A and B)

would likely have been shielded from liability.

• There is no “double taxation” with partnerships. The partnership itself does not pay

taxes, although each partner pays taxes on any income the partner earns from the

business.

• Unlike a corporation, a partnership generally does not file with the state upon its

creation documents similar to articles of incorporation. Instead, a partnership has a

“partnership agreement,” which amounts to a contract between the partners outlining

duties, responsibilities, powers, etc.

• Each partner has the right to participate in running the business’s day-to-day

operations, unless the partnership agreement dictates otherwise.

An alternative type of partnership is a limited partnership (as opposed to a “general

partnership,” described above). While possessing many of the characteristics of a

general partnership, there are some key differences. First, a limited partnership (LP)

must file formal documents with the state. Second, a LP has two types of partners –

general and limited. The general partner(s) runs the business yet is personally

responsible for all of the LP’s debts; the limited partner(s) has limited liability yet

cannot participate in the management of the business.

D. Limited Liability Companies

A limited liability company (LLC) is a legal entity that is neither a partnership nor a

corporation but has characteristics of both. Its owners have limited liability (as with

stockholders in a corporation). Also, the LLC does not pay federal taxes (similar to a

partnership), although its owners – usually labeled “members” - must pay taxes on any

dividends they earn.

An LLC should not be confused with a limited liability corporation, which is a type of

corporation in some states. A limited liability company is not a corporation or partnership

but a distinct legal entity created and regulated by special state statutes.

Note that certain Form CMS-855 or Form CMS-20134 information is required of different

entities. The primary example of this is in the Individual Ownership and/or Managing

Control section. If the provider is a corporation, it must list its officers and directors on the

form. Partnerships and LLCs, on the other hand, do not have officers or directors and

therefore need not list them.

E. Joint Ventures

A joint venture is when two or more persons/entities combine efforts in a business enterprise

and agree to share profits and losses. It is similar to a partnership and is treated as a

partnership for tax purposes. The core difference is that while a partnership is an ongoing

business, a joint venture is a temporary, one-time business undertaking. A joint venture,

therefore, is to some extent a “temporary partnership.”

F. Corporations

A corporation is an entity that is separate and distinct from its owners (called stockholders, or

shareholders). To form a corporation, various documents – such as articles of incorporation

– must be filed with the state in which the business will incorporate. The principal elements

of a corporation are:

• Limited Liability – This is the main reason for a business’s decision to operate as a

corporation. Suppose Corporation X has ten stockholders, each owning 10% of the

business. X breached a contract it had with Company Y, which now wants to sue X’s

owners. Unfortunately for Y, it can generally only sue X itself; it cannot sue X’s

shareholders. The corporation’s owners are essentially shielded from liability for the

corporation’ actions because, as stated above, a corporation is separate and distinct

from its owners.

Despite the concept of limited liability, there may be isolated instances where a

corporation’s owners/stockholders can be held personally liable for the corporation’s

debts. This is known as “piercing the corporate veil.”

• “Double” Taxation – This is the principal reason for a business’s decision not to be a

corporation. “Double” taxation means that: (1) the corporation itself must pay taxes;

and (2) each shareholder must pay taxes on any dividends the shareholder receives

from the business.

• Board of Directors – Most corporations are run by a governing body, typically called

a board of directors.

(As discussed in section 10.6.7.2 of this chapter, there is an important difference

between the term “director” in the context of board members and someone who has

“director” in the person’s job title (e.g., “Director of Finance”). Simply because an

individual works for a corporation as a director of a department, unit, etc., does not

automatically mean the person is a member of the board of directors. If the entity is a

corporation, and for purposes for the Individual Ownership and/or Managing Control

section of the Form CMS-855 and Form CMS-855, the term “director” means board

members.

Two special types of corporations that contractors may encounter are:

• “Professional Corporation” (PC) - In general, a PC (1) is organized for the sole

purpose of rendering professional services (such as medical or legal), and (2) all

stockholders in a PC must be licensed to render such services. Thus, if A, B, and C

want to form a physician practice (each is a 1/3 stockholder) and only A is a medical

professional, a PC probably cannot be formed (depending, though, on what the

applicable state PC statute says). A PC’s title will usually end in “PC,” “PA”

(Professional Association), or “Chartered.”

• “Close” Corporation (CC) (or “closely-held” corporation) – This type of corporation

has a very limited number of stockholders. Unlike most corporations, a CC’s board

of directors generally does not run the business; rather, the shareholders do. The

stock is typically not sold to outsiders.

Although PCs and CCs are considered “corporations” for enrollment purposes, state laws

governing these entities are often different from those that govern “regular” corporations

(i.e., states have separate statutes for “regular” corporations and for PCs/CCs.) In many

cases, an entity must specifically elect to be a PC or CC when filing its paperwork with the

state.

G. Non-Profit Organizations

The term “non-profit organization” (NPO) can be misleading. It does not signify an

organization that is prohibited from making a profit. Rather, it means that all of the

organization’s profits are put back into the entity to promote its goals, which are usually

political, social, religious, or charitable in nature; an NPO is not organized primarily for

profit but instead to further some other goal. An entity can acquire NPO status by obtaining

an IRS 501(c)(3) certification from the IRS (meaning it is tax-exempt) or by acquiring such

status from the state in which it is located.

NPOs are typically operated and/or managed by a board of trustees or other governing body.

NPO status is important for enrollment purposes because NPOs generally do not have

owners. (See section 10.6.4(D)(3) of this chapter for more information on NPO reporting

requirements.)

H. Government-Owned Entities

For purposes of enrollment, a government-owned entity (GOE) exists when a particular

government body (e.g., federal, state, city or county agency) will be legally and financially

responsible for Medicare payments received. For example, suppose Smith County operates

Hospital X. Medicare overpaid X $100,000 last year. If Smith County is the party

responsible for reimbursing Medicare this amount, X is considered a government-owned

entity.

Note that--

• GOEs do not have “owners.” Thus, the Organizational Ownership and/or Managing

Control sections of the Form CMS-855 or CMS-20134 need only contain the name of the

government body in question. Using our example above, this would be Smith County.

• For the Individual Ownership and/or Managing Control section of the Form CMS-855 or

CMS-20134, the only people that must be listed are “managing employees.” This is

because GOEs do not have corporate officers or directors.

The provider must submit a letter from the government body certifying that the government

entity will be responsible for any Medicare payments.