The Internal Revenue Service (IRS) may have trouble enforcing the Patient Protection and Affordable Care Act (PPACA) individual coverage mandate rules this year, according to officials at a watchdog agency.
The agency, the Treasury Inspector General for Tax Administration (TIGTA), monitors the performance of the IRS. TIGTA officials discuss concerns about IRS PPACA preparedness in a report on administration of the PPACA minimum essential coverage (MEC) rules and individual shared responsibility requirements.
PPACA drafters require most families to have what the government classifies as a minimum level of major medical coverage, or MEC. The drafters used the term “shared responsibility” to refer to the law’s individual MEC ownership mandate.
Taxpayers who lack MEC for much of the year, and fail to qualify for an exemption from the mandate, may have to pay a shared responsibility penalty. For the 2014 tax year, the penalty for most affected taxpayers ranged from $95 up to 1 percent of income.
For 2015, the penalty is set to rise from a minimum of $325 up to 2 percent of income.
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For a look at what the TIGTA officials see as IRS compliance enforcement challenges, read on.
1. The IRS has not yet developed a special, systematic process for identifying taxpayers who give incorrect information about their health coverage.
PPACA public exchanges have already sent most exchange users standard Form 1095-A coverage information notices for 2014 earlier this year.
The Obama administration has put off requiring insurers to send plan members standard Form 1095-B coverage information notices until 2016. The administration has also put off requiring employers to send Form 1095-C health benefits notices to their employees for another year.
IRS managers told TIGTA that, back of the lack of access to insurer and employer notice data, they have decided to wait until 2016 to develop MEC rule enforcement procedures.
For 2015, “the IRS will assess MEC compliance on Tax Year 2014 tax returns that it identifies through its normal examination compliance activity,” TIGTA officials say.
The result is that some consumers who lied about having MEC, or simply misunderstood the instructions for reporting on MEC, may escape detection this year.
But some taxpayers may already be trying to comply with the penalty requirement.
An official reported in April that 7 percent of the taxpayers who filed returns by March 6 paid MEC penalties. Those filers paid an average of $177 in MEC penalties each.
2. The IRS is keeping its individual mandate penalty calculator to itself.
One challenge consumers and their taxpayers face is a need to calculate MEC penalties.
The IRS built a MEC penalty calculation tool for its own examiners, and it has shared the tool with tax providers. The IRS has not yet put a version of the calculator on its website, TIGTA officials say.
“While we understand the IRS’s decision to partner with the tax return software provider community, we also believe the IRS has an obligation to provide the same level of assistance to all taxpayers, including those who file paper tax returns,” TIGTA officials say.
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3. The IRS has unspeakable problems with determining whether taxpayers really qualify for the individual mandate exemptions they say they have.
Taxpayers who say they should be exempt from paying the MEC penalty can apply for some of the exemptions through the PPACA public exchange system and for some of the exemptions through the IRS.
TIGTA officials say that, as of Jan. 2, 2015, the exchange system had granted at least 351,951 people MEC mandate exemptions.
Officials say the IRS is getting data from the exchange system that it can use to verify whether taxpayers really have exchange-provided exemptions, but TIGTA blacked out large portions of the exemption compliance enforcement section with asterisks. It’s not at all clear from the blacked-out sections what problems TIGTA officials think the IRS has in that area.
An IRS official said in a comment on the TIGTA report that the IRS will use “normal post-filing compliance processes to verify exemptions claimed.”