IRS to Enforce Health Care Bill Provision for Universal Health Insurance
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The IRS has become the first line of enforcement of a provision in the Health Care Bill that requires everyone in the country to prove they have health insurance, either private or government sponsored, or face a stiff fine depending on their income level. Anybody with income less than 150% of the federal poverty level (typically $30,000 to $50,000 depending on how many kids you have.) is exempt from the provision. The problem is that the IRS can only snatch fines from tax refunds due. They are prohibited by statute from enforcing non tax liabilities or pursuing collections of such. Of course the Massachusetts Department of Revenue does have such collection authorities, and there are fines already in place in the state that match the level of those in the federal bill. Therefore the fine you pay to Massachusetts is deductible on your federal return because it is part of your income tax liability. Confused yet? From USA Today: |
By Sandra Block, USA TODAY
The IRS processed more than 230 million tax returns last year, paid 127 million refunds and received about 68 million phone calls. The agency is responsible for enforcing a tax code that, at 71,000 pages, makes Anna Karenina look like a comic book.
Starting in 2014, the agency will have another task: making sure all Americans have health insurance. Under the law, Americans who can afford health insurance but refuse to buy it will face a fine of up to $695 or 2.5% of their income, whichever is higher. More than 4 million Americans could be subject to penalties of up to $1,000 by 2016 if they fail to obtain health insurance, the Congressional Budget Office said last week.
The IRS will be the enforcer — sort of.
HEALTH CARE LAW: Some trapped in pricey state plans
While the IRS can impose liens or levies, seize property or seek jail time against people who don’t pay taxes, it’s barred from taking such actions against taxpayers who ignore the insurance mandate. In the arsenal instead: the ability to withhold refunds from taxpayers who decline to pay the penalty, IRS Commissioner Doug Shulman said this month.
Still, compliance with the health reform law will be largely voluntary, says Timothy Jost, a law professor at Washington and Lee University. “By taking criminal sanctions and liens and levies off the table, the IRS’ hands are tied, to a considerable extent.”
The IRS is “being put in a position where it will be sending notices that will annoy people” and not much else, says James Maule, professor of law at Villanova University and author of the tax blog MauledAgain. “It’s basically designed for failure.”
Shulman said he believes most Americans will comply with the law. The experience of Massachusetts, which has required residents to have health insurance since 2006, would appear to support that view. In 2008, 98% of state tax filers who were required to provide health insurance information with their state tax returns met that filing requirement, and 96% had coverage, according to a preliminary report issued in December by the Massachusetts Department of Revenue.
But Massachusetts’ health care law gives the Department of Revenue the authority to use its regular tax-collection powers to enforce the insurance mandate, says spokesman Robert Bliss. Through September 2009, the state had collected $12.9 million of the $16.4 million in penalties assessed in 2008.
‘A dangerous expansion of the IRS’ power’
In this political environment, even a defanged IRS stirs up powerful emotions. Among the concerns about the IRS’ role in the health care reform law:
•The law will lead to a dramatic expansion of the IRS. The Congressional Budget Office has estimated that the IRS will need an additional $5 billion to $10 billion over the next 10 years to administer the health care law. That projection has fired up activists who believe the IRS should be downsized, or abolished.
Some Republican lawmakers have extrapolated from that estimate that the IRS will need to hire an additional 16,500 agents to enforce the health insurance mandate. Rep. Dave Camp, R-Mich., ranking minority member of the House Ways and Means Committee, called the law “a dangerous expansion of the IRS’ power and reach into the lives of virtually every American.”
The CBO report refers to the $10 billion figure as “administrative costs” and makes no reference to the number of employees the agency will need to hire. And enforcement is only one part of the IRS’ responsibilities under the law. The agency will also be in charge of providing tax credits to small businesses, along with refundable tax credits to individuals who can’t afford health insurance.
“The IRS is going to need additional resources, but in terms of health reform, probably the main focus is going to be on processing” the credits, Jost says.
The IRS has already started some of its administrative tasks. Last week, it began mailing postcards to more than 4 million small businesses and tax-exempt groups with information about a provision in the law that provides tax credits for small businesses. The tax credit, which takes effect this year, is designed to encourage small businesses to offer health insurance to their employees or keep the coverage they already have.
•The law will make it more difficult for the IRS to carry out its primary job of collecting taxes. Only 64% of taxpayers who called the IRS during last year’s tax-filing season reached an IRS representative, according to a report by the IRS’ national taxpayer advocate. The IRS’ modest goal for this year was to answer 71% of taxpayer calls. Even more callers could have trouble getting through when the IRS takes on its obligations under the health care law, Sen. Charles Grassley, R-Iowa, said at an April 15 Senate Finance Committee hearing.
“Taxpayers trying to do the right thing regarding their tax responsibilities shouldn’t have to be put on hold — or have to call back — because the IRS is now answering questions about health insurance,” Grassley said.
The new responsibilities could also force the IRS to cut back on complex audits of sophisticated tax-avoidance schemes, such as illegal offshore accounts, Maule says. To handle the administrative tasks associated with the law, the IRS may need to divert experienced IRS agents who typically conduct these audits, he says. “This is going to make it easier for people who want to play the audit lottery game to get away with it.”
Another potential problem: Administering the health care law will strain the IRS’ already outdated computer and data-storage systems, says Pete Sepp, spokesman for the National Taxpayers Union, an advocacy group that supports lower taxes. “The IRS customer-service front end is already sagging, and the back end is not looking so hot, either,” he says.
•The IRS does a poor job of managing social programs. Critics of the legislation say problems with the Earned Income Tax Credit, a federal program that provides tax rebates to low-income working families, illustrate the pitfalls of putting the IRS in charge of administering health care reform. The EITC program “has one of the highest fraud and abuse rates of any tax provision out there,” Grassley said at the April 15 hearing. In tax year 2006, the latest year available, IRS made $10 billion to $12 billion in erroneous EITC payments, according to a study by the Treasury Department’s inspector general.
IRS officials argue that the two programs are vastly different. The health care subsidies will go directly to insurers, not taxpayers, giving individuals little incentive to cheat, says IRS spokesman Frank Keith.
Jost maintains that the tax credits could encourage compliance, because taxpayers who refuse to provide information about their health care coverage will be ineligible for federal health insurance subsidies. That subsidy “is going to be pretty significant for lower-income people,” he says.
Under the law, millions of middle- and low-income taxpayers will be eligible for subsidies to help pay for their health insurance. Taxpayers with incomes of up to four times the poverty level — currently $43,320 for an individual and $88,200 for a family of four — would qualify.
Whose Side Are You On the IRS or the IRS Employee? Comment Below
I would say that without receipts you are seriously messed up.
From WebCPA.com:
IRS Employee Has to Pay Taxes on eBay Sales
An IRS employee has been ordered to pay back taxes and penalties after she sold over $36,000 worth of merchandise on eBay without reporting it on her tax returns.
The U.S. Tax Court ruled that IRS revenue officer Andrea Fabiana Orellana failed to report income from sales of various pieces of designer clothing. She had unreported income of $15,320 in 2004 and $21,062 in 2005. Between 2000 and 2005, she was involved in over 7,000 eBay transactions.
“During all or part of the tax years at issue petitioner sold items under several eBay user IDs, including, ‘ambassgwf,’ ‘andreafo,’ ‘askme12go,’ and ‘BlackTheRipper,’ the court said in its ruling. “Petitioner reported no income or expenses from her eBay transactions on her federal income tax returns for the years at issue.”
Orellana characterized the sales as “online garage sales” and said that many of the items were designer clothes that had been sitting in her closet wasting space. Some were wedding gifts or were bought from gift cards received at her wedding. She said she retained few receipts, claiming, “That would be ridiculous, unheard of.”
The court agreed with the IRS’s finding that she owed $14,912 in back taxes and penalties.
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IRS, MA and RI DOR Extend Tax Deadline to May 11 th For Most Residents
The deadlines for individual, partnership and other returns due April 15th have been extended to May 11th for most residents in Eastern Massachusetts and all of Rhode Island due to the recent floods. In addition corporate income, excise and payroll tax returns and payments due on March 15th will be considered timely if filed and paid before March 29th.
From the IRS website about Massachusetts (policies are the same for RI residents):
Massachusetts Severe Storm and Flooding Victims Have Until May 11 to File Their Tax Returns
MA-2010-15, March 31, 2020
Victims of severe storms and flooding beginning March 12 in Massachusetts may qualify for tax relief from the Internal Revenue Service.
The President has declared Bristol, Essex, Middlesex, Norfolk, Plymouth, Suffolk and Worcester counties federal disaster areas qualifying for individual assistance.
As a result, the IRS is postponing until May 11 certain deadlines for taxpayers who reside or have a business in the disaster area. This includes the April 15 deadline for filing 2009 individual income tax returns, making income tax payments and making 2009 contributions to an individual retirement account (IRA).
In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after March 12 and on or before March 29, as long as the deposits were made by March 29.
If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the Postponement Period.
IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.
Covered Disaster Area
The counties listed above constitutes a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.
Affected Taxpayers
Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.
Grant of Relief
Under section 7508A, the IRS gives affected taxpayers until May 11, 2010, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after March 12, 2010, and on or before May 11, 2010.
The IRS also gives affected taxpayers until May 11, 2010, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007), that are due to be performed on or after March 12 and on or before May 11.
This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.
The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits due on or after March 12, 2010, and on or before March 29, 2010, provided the taxpayer made these deposits by March 29, 2010.
Casualty Losses
Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.
Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Massachusetts/Severe Storms and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.
Other Relief
The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.
Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.
Taxpayers may download forms and publications from the official IRS Web site, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.