The Internal Revenue Service (IRS) may not have the funding, the staff, the skills or the data to do a good job of implementing the new personal and employer health coverage requirements.
National Taxpayer Advocate Nina Olson, an IRS official, has included that observation in the National Taxpayer Advocate's 2010 Annual Report.
Section 7803(c)(2)(B)(ii) of the Internal Revenue Code requires the advocate to submit a report each year. In the report, the advocate is supposed to identify at least 20 of the most serious problems encountered by taxpayers and make administrative and legislative recommendations for mitigating those problems.
Olson talked about the ideas in the report, such as the concern that the tax code is so complex that even the IRS has trouble administering it, today at a tax reform hearing organized by the House Ways and Means Committee.
Olson mentioned insurance and estate tax issues only in passing, but she did suggest that policymakers should take a "zero-based budgeting approach" and use as a starting point a theoretical tax code with no exclusions from taxable income and no reductions in income or tax.
In the report, Olson notes that Congress has been requiring the IRS to run more and more social benefit programs, including social benefits programs associated with the Affordable Care Act.
"As part of the recent health care legislation, the IRS will face a number of decisions and guidance projects unrelated to its employees' traditional expertise and skill set," Olson says. "The IRS must administer the following health care provisions: the Premium Assistance Credit, the Individual Penalty for Lack of Coverage, the Employer Penalty, and the Small Business Tax Credit."
Starting in 2014, the Affordable Care Act Individual Penalty for Lack of Coverage could require some individuals who fail to own a minimum level of health coverage to pay a penalty.
When administering the provision, the IRS would "need to determine a taxpayer's compliance with the individual mandate and assess a penalty if coverage is inadequate," Olson says. "This determination is based on a concept of 'household income.' This may differ from the income reported on the taxpayer's return, because it is a composite of all of the income reported by members of taxpayer's household – information that may not be readily accessible to the IRS."
The IRS should revise its mission statement to make it clear that it is administering social benefits as well as collecting revenue.
IRS officials say in a response that the concept of administering economic and social benefits through the tax code is implicit in the IRS's role in running the overall tax system, not something separate and apart.a
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