A high-ranking Internal Revenue Service official told a congressional panel that the agency is not planning to use tactics like tax liens and levies to make sure taxpayers are properly complying with the new health care reform law.
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During a hearing Tuesday before the House Ways and Means Oversight Subcommittee, IRS deputy commissioner for services and enforcement Steven T. Miller told lawmakers that taxpayers will simply get a form at the end of every year from their insurer to use when they prepare their tax returns. “It is important to note that the information that insurers provide to the IRS will show the fact of insurance coverage, and will not include any personal health information,” he added.
“In most cases, taxpayers will file their tax returns reporting their health insurance coverage, and/or making a payment, and there will be no need for further interactions with the IRS," Miller continued. "The IRS process for verifying coverage will be very similar to the one that the IRS has used for years to verify wages and withholding. The follow-up will generally be performed by written correspondence, and will allow taxpayers time to gather the information needed to respond, or get help in understanding the details of the provision.”
Miller said he also wanted to “clear up one misconception.”
“Generally, revenue agents—who are specially trained on more complicated aspects of the Tax Code—would not work on resolving these types of issues, just as they don’t work on resolving mismatches between W-2s and income tax returns today,” he said. “Typically, these issues are addressed and resolved through written correspondence. The law also clearly specifies that the IRS will not use levies or file notices of federal tax lien if taxpayers have unpaid amounts related to the individual coverage provision. Moreover, taxpayers will not be criminally prosecuted for non-payment of this amount.”
Not all of the lawmakers are convinced, however. “The President’s health care law has put the federal government in charge of approving health insurance plans, subsidizing them, punishing those who do not buy government-approved plans, and many other aspects of our health care system,” said subcommittee chairman Charles Boustany, Jr.., R-La., a former surgeon and owner of a small medical practice in Louisiana. “And the Internal Revenue Service has been saddled with the responsibility of carrying out many of these new federal activities. More than creating new burdens on the Internal Revenue Service, the President’s health care law has led to new tax rules and regulations that will pose significant challenges to both individuals and job creators. The administration’s own documents state that the compliance burden of the new rules it has thus far written to pursuant to the President’s health care law will add nearly 80 million man-hours each year to individuals and job creators. Eighty million hours that won’t be spent creating new wealth, providing health care, or doing anything productive. Eighty million hours simply complying with new rules from Washington. This is the burden from just the IRS’s new rules. When you add the new regulations from HHS, the Department of Labor and other agencies, the burden on our sluggish economy goes still higher.”
Kathy Pickering, vice president of government relations at H&R Block and executive director of The Tax Institute at Block, told the subcommittee that the IRS should coordinate with the Department of Health and Human Services to develop consistent processes for income verification and eligibility. She also suggested they encourage all taxpayers to file tax returns in 2013 that can be used to enroll in the state-run health insurance exchanges authorized by the Affordable Care Act in the fall of 2013. However, she also expressed some caveats.
“We are concerned the added strain the ACA places on the IRS may lead to a deterioration of the IRS’ focus on its core functions and its mission to provide taxpayers top quality service,” said Pickering. “We recommend the IRS create public/private working groups to address this concern. We encourage the committee to ensure the IRS has the resources needed to maintain its core functions and mission while implementing and administering the ACA, and to ensure the IRS is using those resources efficiently.”
Rep. John Lewis, D-Ga., the ranking Democrat on the subcommittee, said the IRS needs to have sufficient resources to meet its expanded responsibilities and expressed his concern about budget cuts of $300 million at the agency.
“We must ensure that the Internal Revenue Service continues to move with all deliberate speed to deliver hundreds of billions of dollars of federal tax credits to American families and small businesses, which will make health insurance affordable,” said Lewis. “I am confident that the tax provisions of the Affordable Care Act will be carried out on schedule.”
Fred Goldberg, Jr., a partner at the law firm Skadden, Arps, Slater, Meagher & Flom, and a former IRS commissioner, added a note of skepticism about the IRS’s fitness for handling the new tasks.
“Based on my experience as commissioner, I believe the ACA in its current form will be a needless administrative and compliance quagmire for millions of Americans and that the ACA’s powerful financial incentives will lead to significant unintended consequences that policy makers very much want to avoid,” he said. He noted that the two-year-old tax return information that the IRS will be using to determine a taxpayer’s eligibility to receive tax credits for purchasing health insurance through the exchanges is “virtually certain to be wrong” as people’s financial situations can change drastically in two years’ time. In most cases, he noted, the amount of the tax credit subsidy computed by the government-run exchanges will be wrong.
Scott Hodge, president of the Tax Foundation think tank, also expressed doubts about the Affordable Care Act. “Ironically, while most everyone agrees that the Tax Code is badly in need of simplification and that the IRS is already overburdened, the Affordable Care Act has saddled the agency with duties that are beyond its core competency and has set it up for failure,” said Hodge. “While we can never anticipate every unintended consequence of legislation, it is fairly easy to predict that the ACA will lead to more Americans taken off the tax rolls and made more reliant on the IRS for much of their income. And it will produce more fraud, abuse, and improper payments from programs that should not be delivered through the Tax Code in the first place.”
Seth T. Perretta, a partner at the law firm Crowell & Moring LLP, testified on behalf of the American Benefits Council. He noted that employers have needed to work quickly and continuously since the ACA’s enactment to comply with its provisions. “In the same vein, the IRS has had to work diligently on a near-constant basis to provide timely guidance on a range of issues,” he added.
“The implementation challenges, for employers and the IRS alike, have been very substantial.”
However, Perretta commended the IRS for establishing a deliberative process from the beginning that allows for comments and participation by stakeholders, including employers.