On the eve of the Supreme Court’s decision on the constitutionality of the Affordable Care Act, a new report questions the Internal Revenue Service’s readiness to handle some specific aspects of the law.
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However, the TIGTA report acknowledged that it is difficult to determine at this point how much additional work will be required of the IRS’s Exempt Organizations function to fully implement controls because legal guidance has not been published.
The Patient Protection and Affordable Care Act contains provisions that have a wide-ranging impact on the IRS and tax-exempt hospitals. The IRS has been tasked with administering various tax credits to help low-income taxpayers and small businesses afford the cost of health insurance, and to evaluate how taxpayers and small businesses qualify for the credits. Another part of its job will be establishing controls for tax-exempt hospitals that will receive funds under the law.
However, those responsibilites may be moot if the law is found to be unconstitutional. The Supreme Court is expected to rule Thursday on whether the individual mandate, which requires individuals to purchase health insurance, complies with the interstate commerce clause of the Constitution. If the individual mandate is ruled unconstitutional, the justices are also expected to determine whether that provision can be severed from the larger Affordable Care Act without rendering the entire law unconstitutional. The individual mandate is part of the funding mechanism of the law, allowing insurance companies to collect premiums from a larger pool of healthier people to provide benefits to those who need health care.
TIGTA initiated its audit as part of its efforts to evaluate the IRS’s plans for implementing the various ACA tax provisions. The overall objective was to evaluate the IRS’s progress in establishing controls to determine whether tax-exempt hospitals comply with select provisions of the ACA.
“While the IRS has made progress establishing controls to assess tax-exempt hospital organization compliance, additional work will be required once legal guidance is published,” said TIGTA Inspector General J. Russell George in a statement. “Until such guidance is published, the public cannot be assured that the IRS has implemented all controls to ensure compliance with ACA provisions designed to protect those served by tax-exempt hospitals.”
The legal guidance, which is currently under review, would provide the Exempt Organizations function with a basis for identifying additional controls needed to determine whether tax-exempt hospitals comply with the ACA.
In addition, the Treasury Department will be required in the near future to send its first annual report to Congress regarding tax-exempt hospitals. The IRS is responsible for working with the Department of Health and Human Services to gather the data for this report. While communication has been established, the format and timing of receipt of data have not been formalized.
TIGTA recommended that IRS management work with the Treasury Department to establish a memorandum of understanding with the Department of Health and Human Services. The memorandum of understanding should take into consideration when information for the annual report to Congress should be received by the IRS and the proper format of the data to ensure it will be timely and usable for the report to Congress.
In response to TIGTA’s report, IRS management agreed with the recommendation. The IRS plans to work with the Treasury to establish a memorandum of understanding with the Department of Health and Human Services that takes into consideration when information for the annual report to Congress should be received and the proper format of the data to ensure it will be timely and usable for the report to Congress.
Joseph H. Grant, the acting commissioner of the IRS’s Tax Exempt and Government Entities Division, said the IRS is focused on timely implementing Section 9007 of the ACA. “To that end, we have made changes to computer systems, created a special group to conduct community benefit activity reviews of tax-exempt hospitals, and carried out internal training and customer education and outreach,” he wrote in response to the report. “As your report notes, we have published Notices and developed draft guidance which has advanced to the review stage. In addition, since March 2011, we have been conducting the reviews of community benefit activities of tax-exempt hospitals that are mandated by the ACA. To date, we have completed more than one-third of these reviews.”
