Will implementation of the Affordable Care Act be a permanent burden on the Internal Revenue Service, an organization already strapped for cash? And how will it affect preparers and taxpayers?

Though clearly not its core mission, the IRS finds itself in the position of being the point man, or agency, in the administration's health care initiative.

In addition to advising clients on the ACA, tax practitioners are questioning the impact of the IRS diversion from its main task of collecting taxes to its role as enforcer of the new system. The questions loom even larger as a result of the recent budget/sequester/shutdown crises, and the backlog of work that led the service to, among other things, announce a delayed start to next year's filing season.

Simply put, does the IRS have the resources to do all that it is charged to do?

"In a word, no," said Marty Davidoff, of Dayton, N.J.-based E. Martin Davidoff and Associates. "They are at least 10 percent underfunded right now. Waits on the phone were an hour for practitioners and two hours for regular taxpayers when the IRS was open. They cannot replace Appeals Offices and other critical employees. The bottom line is that the IRS is unable to collect as much money for the government and when they are doing so, they are treading on taxpayer services and rights."

The IRS is probably in the best position to do enforcement, Davidoff observed. "But whenever they give them something to do, they don't give them enough money to do it, so then they have to cannibalize other resources and reduce other services."

Regarding the recent flap over line dancing and conference videos, the IRS should be congratulated for attempting to use modern management techniques to bring itself into the 21st century, Davidoff noted. "The videos were team-building efforts. They're trying to get their people inspired but they got so shot down and embarrassed by it."

"This will affect preparers," Davidoff asserted. "They're going to do what they have to do to administer the ACA effectively. Everything else will be hurt, because Congress will not give them enough money. When people are hungry, they're meaner, so you'll have a meaner IRS. They will take shortcuts. In the Newark office there are four people with over 35 years of experience. If someone retires, they can't be replaced because of the sequester. The bottom line is you should not cut the budget of your tax collector."

 

CAUGHT IN THE MIDDLE

Every year the tax system is getting more complex, and there are more taxpayers, observed Roger Harris, president of Padgett Business Services. "Yet when you look at the IRS budget and resources, they're not expanding at the same rate," he said. "On top of that, they're asked to play an integral part in the administration of the health care system. You just can't add another layer of responsibility without continuing to exacerbate the crisis that's already there. It's taking an existing problem and making it worse."

And then there are the political issues involved, which make things worse, according to Harris. "One of the ways the House Republicans were trying to attack was to not give the IRS any money for their role, therefore they would have to take resources from somewhere else. If you want the agency to have a major new responsibility put on it, you should give the agency the money to do the job. But they say, 'We don't want you to do that job, so we won't give any money for it.' The IRS is caught up in a political battle as well as a resource battle."

Even if they took the ACA off the table, they still wouldn't have enough funding to do their job, Harris indicated. "Of course, they didn't help themselves with the nonprofits and the videos," he said. "That makes it harder to come to Congress and say they need more money.'"

The majority of Padgett's business clients have less than 50 employees, Harris said. "We're not as impacted with the penalty issues. We just went through notifying the employers about the required notices."

Harris said that he has been using webinars, newsletters, sessions at meetings, and informational e-mails to educate his clients: "So many people don't know what their responsibilities are. We didn't know they would delay the business mandate. We assume they won't delay the individual mandate, but you just don't know."

The real issue is what questions taxpayers will ask during tax season, he suggested: "How far can we go and how far should we go informing taxpayers on something that's not tax-related except for the penalties. I don't claim to be an expert on health care, but I will be asked a lot of questions on it. ... There will probably be more questions on this than on most tax bills - most of our clients don't know when a tax bill passed, but everyone knows something is going on with health care. It's in the news every day."

 

YET MORE ISSUES ...

Just the manpower to define the rules, let alone the consequences of delaying them, have consumed a tremendous amount of man-hours of work on the part of the IRS. Information reporting required under the Internal Revenue Code Sections 6055 and 6056, as well as implementation of the employer's shared-responsibility penalties under Section 4980H, have been delayed for one year.

"As a result, employers largely believe that they have no reporting requirements for 2014, which is technically true," noted Brian Haile, senior vice president for health care policy at Jackson Hewitt. "However, employers face the potential deluge of employee requests to complete the Appendix A of the application form for the insurance affordability programs. Employees that apply for coverage on the insurance exchanges will have to complete this appendix if they work for a company and have an offer of coverage. So that employers won't get swamped with requests by employees for the employer to complete this form, some employers are going ahead and printing a few of these pre-populated forms to have handy, or have a PDF version that they can distribute via e-mail as requested."

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