Michael T. Caracci and Cindy W. Caracci, et al. - Page 44




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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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