House committee spotlights IRS need to prepare for health reform law implementation

The House Committee on Oversight and Government Reform, chaired by Rep. Darrell Issa, R-Calif., held a hearing recently to examine the IRS’s implementation of the Patient Protection and Affordable Care Act (PPACA). Issa said the law "has raised serious concerns about big government intrusion into Americans’ private lives," including questions about the "privacy of personal information once held only by the IRS but now shared with state [health care] exchanges." Issa also raised questions about the ability of Americans to comply with the law’s requirements, such as a requirement to provide, within 30 days, notification to a government agency about "key information": changes in income, household composition, marriage status and insurance coverage.

IRS Commissioner Douglas H. Shulman testified that "important progress on implementation has been made." In response to questioning from Rep. Danny Davis, D-Ill., Shulman said that the IRS will not have access to private health care information and will only get "barebones information. The IRS’s role has been way overstated. The IRS won’t have access to health care information except for the fact of coverage." The information provided will include whether the taxpayer has coverage, how many months the taxpayer has had coverage, and the identity of the insurer, Shulman indicated.

Shulman said that 92 percent of the IRS’s budget request for PPACA implementation for fiscal year 2013 is for operations support, information technology and operations investments. Shulman denied reports that the IRS will be hiring 16,000 agents to verify health insurance coverage and to enforce the health care law. "Generally, revenue agents…would not work on resolving these types of issues. Typically, these issues are addressed and resolved through written correspondence," he said.

Communication, education needed. IRS National Taxpayer Advocate Nina Olson told the committee that "the IRS has made significant progress toward ACA implementation," but "there remain significant concerns." Olson said a top IRS priority should be "communication and outreach to the many Americans who will not interact with the IRS on health insurance for the first time. In particular, these taxpayers may need education on the method by which the premium assistance tax credit is advanced to insurers and later reconciled with their tax returns. Finally, channels must be open for taxpayer referrals where another agency [such as the Department of Health and Human Services] makes a determination that the IRS must execute, and vice versa."

Olson testified that "certain ACA provisions have tax consequences that require Americans to understand their role beyond traditional return-filing at year-end. In particular, taxpayers at certain income levels may qualify for a premium assistance tax credit advanced by the government to their insurer. If their income at year-end turns out to be more than anticipated, the credit may be less than the amount advanced, and the IRS may recover the excess as a tax. To avoid receiving an excess, taxpayers may need to update information if their income or other relevant circumstances change. In effect, the premium assistance tax credit requires not only an initial application and a year-end tax return but ongoing updates on major life changes throughout the year. Because this updating role will be new, education of taxpayers is necessary to avoid unexpected tax consequences."

Former IRS Commissioner Mark W. Everson, vice-chairman of alliantgroup, L.P., Houston, Tex., stated that the need for the updating and timely provision of information will be new for taxpayers. Everson expressed concern that there will be "new players" handling tax-related information, such as exchanges, state governments and insurers, and that it will be challenging for these actors to protect against the improper disclosure of information.

Premium assistance tax credits questioned. Rep. Scott DesJarlais, R-Tenn., and other members of the committee questioned whether the IRS had exceeded its authority by providing for the premium assistance tax credit when taxpayers obtained affordable insurance through an exchange established by the federal government, as opposed to state governments. Shulman defended the IRS regulatory process and the Service’s reliance on career attorneys to draft proper regulations. The committee also heard from Michael Cannon, director of health policy studies, Cato Institute, Washington, D.C., who testified that premium assistance tax credits are not available through federal exchanges, and Prof. Timothy Jost, Washington and Lee University, Lexington, Va., who disagreed with Cannon.