IRS Faces Potential Tax Issues-Affordable Care Act

The June 28 Supreme Court decision to uphold most of the Affordable Care Act (ACA) has been a hot tax topics in recent weeks. This decision will impact most American taxpayers. As a certified tax resolution specialist that helps clients avoid IRS tax issues, new expanded IRS powers are of particular interest to me. A recent Washington Post article entitled Supreme Court’s decision renews questions about IRS capability to enforce health care mandate outlines the major IRS role in the health care mandate and questions whether the Agency is capable of both “policing” and collecting of necessary taxes to keep the government afloat.

The 5-4 ruling upholds the individual mandate requiring most Americans to get health insurance giving Congress the power to enforce the mandate by imposing a penalty or “tax” for non-participation. This “tax” is to be collected by the IRS.

Based on content from the Post’s article, beginning in 2014, the IRS will:

Provide tax help in the form of tax breaks and incentives to help pay for health insurance
Impose penalties on people who don’t buy coverage and on some businesses that don’t offer it to their employees.

Exemptions to the mandate will be for low income Americans, or because they are members of American Indian tribes or for religious beliefs.

The penalty, phased in by 2016, will be $695 for each uninsured adult or 2.5 percent of family income, whichever is greater up to $12,500. But while the IRS is sure to grow in size to meet the new demands, their power to collect penalties relating to the ACA is limited by the law in the following ways:

There are no civil or criminal penalties for refusing to pay it.
The IRS is not able to garnish wages or levy bank accounts to collect it.
There is no interest accumulation for unpaid IRS penalties making skeptics question if this is a true deterrent.

To enforce the mandate, the IRS is poised to intimidate non-compliant taxpayers by sending threatening letters and withholding tax refunds. Since a large percentage filers get refunds, it’s thought that most taxpayers will comply than face IRS tax problems head on. (According to the Washington Post, 77 percent of the 135 million individual taxpayers qualified for a refund with an average refund topping $2,707)

While the proof of insurance details are still being worked out, the current plan is to have:

Insurance companies send taxpayer information to the IRS each year to verify qualified insurance.
Taxpayers file required IRS forms and submit them with their tax returns.

The IRS would then match the information supplied by the insurance companies and the taxpayer.

The Agency will have to hire thousands of workers; estimates range from 2,700 – to 10,000. But since the IRS is vague and haven’t released their spending plans, it’s tough to determine weather they will be ready in 2014 to provide IRS help and enforce the health care law. If their efforts to go after citizens with offshore bank accounts is an indication of motivation, then there should be no doubt.

As 2014 draws near, there will certainly be more changes to the ACA. From the point of view of a tax professional, there are still potential tax problems and questions that have yet to be discussed let alone answered.

Stay tuned for updates.

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