January 7, 2011
The in-house watchdog for the Internal Revenue Service on Wednesday voiced concern about the tax agency's ability to handle its role in implementing the new health care law the same week House Republicans embarked on their effort to repeal the landmark law and released their own report.
National Taxpayer Advocate Nina Olson, in her annual report to Congress on general tax collection issues, said, "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."
The IRS's ability to administer the law's premium assistance credit, the individual penalty for lack of coverage, the employer penalty, and the small business tax credit "has been questioned from the outset" under its current organization, Olson wrote.
Though she called the IRS the "best-equipped agency to explain the complex tax issues in the new health care law," she said it needed to assess the challenges ahead on health care as well as set up a social benefits administration program office headed by a new deputy commissioner.
More centrally, Olson recommended the IRS broaden its mission statement to reflect its modern role not just as a revenue collector but also as a social benefits provider. She described the agency's "shift from being an enforcement agency that primarily says, in effect, 'you owe us' to an agency that places much greater emphasis on hiring and training caseworkers to help eligible taxpayers receive benefits and work one-on-one with taxpayers to resolve legitimate disagreements."
Newly installed House Ways and Means Committee Chairman Dave Camp, R-Mich., after welcoming the taxpayer advocate's call for general tax reform, on Thursday took on health care implementation by releasing a report by the new House leadership titled "Obamacare: A Budget-Busting, Job-Killing Health Care Law." It complained that $9 billion in discretionary funds was being spent on health care implementation between the IRS and the Health and Human Services Department. The Congressional Budget Office has put the figure for the IRS at $5 billion to $10 billion over 10 years.
The leadership report also reiterated Republicans' long-standing criticism of the health care law's 1099 mandate, a new reporting requirement that businesses file a form for every vendor with which they had more than $600 in transactions in a year and uses the taxpayer advocate's own language from a June 2010 report.
"[The] new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance," Olson said in the June report. "In our view, it is highly likely that the IRS will improperly assess penalties that it must abate later, after great expenditure of taxpayer and IRS time and effort."
The IRS has declined to discuss its preparations for health care implementation, which involve major reworking of computer code, designing new forms, employee training and public outreach. In December 2010, the trade journal Tax Notes Today quoted Richard Skorny, former IRS deputy associate chief information officer, as saying the health care law's implementation "will be bigger than Y2K for the IRS to implement -- it's pretty much unprecedented."
As an example of the new demands, the taxpayer advocate's latest report noted, "[The] IRS will need to determine a taxpayer's compliance with the individual [insurance purchasing] mandate and assess a penalty if coverage is inadequate. 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."
That change will require training in privacy issues to avoid a drop in tax compliance, the advocate's report said, forcing the IRS to balance an employer's need to defend against the penalty with an employee's need to protect confidential health care and household income data.
In its reply to the taxpayer advocate's report, the IRS said it does not agree the wording of its mission statement is one of the "most serious problems" taxpayers face. "The tax system is dynamic and includes myriad provisions that are designed by policymakers to promote economic and social outcomes," the agency said. "The concept of administering economic and social benefits through the tax code is implicit in the IRS's role of running the overall tax system."
January 7, 2011