John Koskinen, the IRS commissioner, talked about how the structure of a tax credit program can affect the fraud rate Thursday, at a hearing in Washington organized by the Senate Finance Committee.
The committee posted a video recording and a written version of Koskinen’s testimony on the web.
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Under the rules of the ACA advance premium tax credit program, “the money doesn’t go to the taxpayer,” Koskinen said. “The money goes to the insurance company.”
Under the rules of the EITC program, low-income and moderate-income families routinely get cash back from the IRS after they file their federal income taxes, Koskinen said. The tax credit is refundable, meaning taxpayers who qualify for tax credits bigger than their tax payment obligations can get cash back from the government.
Any time taxpayers can qualify for tax credits bigger than their tax obligations, and get the refund cash directly, without the cash being segregated, “it’s a magnet,” Koskinen said. “A target for identity thieves. A target for criminals. A target for preparers who are fraudulent, and hang out signs saying, ‘Come with me; I’ll get you a big refund.’”
Some critics of the ACA have wondered if fraud would be a big problem for the ACA premium tax credit program.
At this point, because the ACA tax credit refund cash goes to the health insurers, not to the taxpayers, ACA premium tax credit fraud has not been as much of a problem as EITC fraud, Koskinen said.
The IRS believes program rules that keep tax credit refund money from simply merging with the rest of a taxpayer’s finances can help reduce fraud risk, Koskinen said.
Koskinen said the IRS is interested in the mechanics of tax credit programs and is neutral on the ACA itself.