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Petitioners have raised a number of issues concerning the
Sta-Home tax-exempt entities’ MVIC, and we believe that one of
their points has merit. Their principal contention arises from
their concession that the Sta-Home tax-exempt entities’ capital
structure was “different”. They explained that the entities’
practice of requiring employees to forgo paychecks for the first
6 weeks created a pool of approximately $6.1 million. Although
they identified this amount as a current liability in the form of
accrued payroll and accrued payroll taxes, this permanent pool
actually functioned as a source of permanent capital. To prove
their point, they show that their reported current liabilities
for 1995 were 108 percent of invested capital, an amount several
times greater than that of comparable companies. In effect, they
argue, their employees had made a collective long-term loan to
the company. We agree. In operation, much of the $6.1 million
which had been held back from the employees’ payroll and payroll
taxes functioned as a source of long-term financing.
Not all of the withheld payroll, however, is properly
considered long-term financing. Petitioners’ accountant, Hart,
testified that the Sta-Home tax-exempt entities originally had a
“two-week payroll” which was extended to 4 weeks, and then to 6
weeks, as a source of working capital. Hahn’s report states that
Medicare pays home health care agencies no less frequently than
every 2 weeks based on estimated costs. To aid their cashflow
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