TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

AFFORDABLE CARE ACT:  WITH MINOR EXCEPTIONS, CONTROLS AND PROCEDURES FOR COLLECTION OF THE
 SHARED RESPONSIBILITY PAYMENT AND EXCESS ADVANCE PREMIUM
TAX CREDIT WERE EFFECTIVELY ESTABLISHED

Final Report issued on September 19, 2016

Highlights of Reference Number:  2016-33-071 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.

IMPACT ON TAXPAYERS

The Affordable Care Act (ACA) requires all individuals who receive the Advance Premium Tax Credit (APTC) to file a tax return to reconcile the payments to their allowable credit for the tax year.  If the APTC amount received is more than the allowable credit, taxpayers must repay the excess.  In addition, the individual Shared Responsibility Payment (SRP) may be assessed for taxpayers who do not maintain minimum essential health coverage.  Because the law limits the IRS’s use of traditional enforcement methods for collecting the SRP, there is a higher risk of taxpayer delinquency, taxpayer burden, and inconsistent treatment.

WHY TIGTA DID THE AUDIT

It is important that the IRS properly implement procedures and establish controls to collect taxes related to new ACA provisions.  The overall objective of this audit was to determine whether the IRS has adequate controls and procedures in place to properly collect delinquent SRPs and excess APTC repayments.

WHAT TIGTA FOUND

The IRS timely implemented training, procedures, and controls for collecting delinquent SRPs.  Furthermore, TIGTA did not identify any instances in which the IRS took prohibited enforcement actions to collect delinquent SRPs.

Because the ACA does not restrict the IRS’s collection methods for excess APTC repayment, the IRS treats excess APTC the same way as any other tax debt on taxpayers’ delinquent tax returns.  TIGTA determined that the IRS followed collection procedures and did not identify any instances of improper actions related to repayment of excess APTC.

IRS policy requires SRP liabilities to be included in new, revised, and reinstated installment agreements and new offers in compromise (OIC).  However, unlike other tax liabilities, the IRS decided that new unpaid SRP liabilities would not default taxpayers’ existing installment agreements or OICs.  IRS management believes that because the SRP is not subject to enforcement actions, it should not be the sole reason to take enforcement action on other unpaid liabilities.  It is within the IRS’s authority to make this policy decision.  However, this policy is inconsistent with the IRS’s other policy requiring taxpayers to be in tax compliance prior to entering into installment agreements and increases the risk that taxpayers will accumulate new unpaid SRPs while maintaining an installment agreement.

TIGTA also identified SRP liabilities that were not included in taxpayers’ new, revised, or reinstated installment agreements or new OICs, as required.  However, management has taken corrective action and implemented programming fixes that will correct most of the problems.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS implement a programming fix to include SRP modules that are closed as below tolerance when setting up a new installment agreement for other tax liabilities, and ensure that the Tax Year 2015 SRP modules with misapplied payments are corrected and monitor the situation until it is clear that the problem has been resolved.

In their response, IRS management agreed with TIGTA’s recommendations.  The IRS plans to block SRP modules from being closed as below tolerance.  Also, the IRS stated that it has corrected the Tax Year 2015 SRP modules with misapplied payments and will use existing processes to resolve accounts with outstanding credit balances.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

http://www.treasury.gov/tigta/auditreports/2016reports/201633071fr.pdf.

 

Phone Number   /  202-622-6500

E-mail Address  /  TIGTACommunications@tigta.treas.gov

Website             /  https://www.treasury.gov/tigta