AFFORDABLE CARE ACT: INTERNAL
REVENUE SERVICE VERIFICATION OF PREMIUM TAX CREDIT
CLAIMS DURING THE 2015 FILING SEASON
Final Report issued on March 31, 2016
Highlights of Reference Number: 2016-43-033 to the Internal Revenue Service Commissioner for the Wage and Investment Division.
IMPACT ON TAXPAYERS
The Affordable Care Act created the refundable Premium Tax Credit (PTC) to help offset the cost of health care insurance for those with low or moderate income. Individuals can receive the PTC in advance or can claim the PTC on their tax return. Individuals who received the PTC in advance are required to reconcile the amount paid on their behalf to the allowable amount of the PTC on their tax return. According to the IRS, almost $11 billion in Advance PTCs (APTC) was paid to insurers in Fiscal Year 2014.
WHY TIGTA DID THE AUDIT
The House Committee on Appropriations requested that TIGTA evaluate the IRS processes to ensure that unauthorized payments or overpayments of the PTC are fully recouped. The objective of this review was to evaluate the effectiveness of the IRS’s verification of PTC claims during the 2015 Filing Season.
WHAT TIGTA FOUND
As of June 11, 2015, the IRS processed more than 2.9 million tax returns involving the PTC, and taxpayers received approximately $9.8 billion in PTCs that was either received in advance or claimed at filing.
TIGTA’s analysis of more than 2.6 million tax returns with a PTC claim that were filed between January 20, 2015, and May 28, 2015, for which the IRS had Exchange Periodic Data (EPD), found that the IRS accurately determined the allowable PTC on more than 2.4 million (93 percent) returns. TIGTA is continuing to work with the IRS to determine the cause for calculation differences in 150,385 of the remaining 182,884 tax returns. Computer programming errors resulted in an incorrect computation of the allowable PTC for 27,827 tax returns. For 4,672 tax returns, the IRS did not have authority to correct the PTC claim during processing.
In addition, Exchanges did not provide the EPD to the IRS prior to the start of the 2015 Filing Season, and IRS system problems prevented the IRS from being able to use the EPD received between January 20, 2015, and March 29, 2015. Without the required EPD, the IRS was unable to perform computer matches to verify filed claims or that individuals who received the APTC filed a tax return as required.
TIGTA verified that the IRS processes to identify potentially fraudulent PTC claims are operating as intended. In addition, the IRS corrected programming errors identified by TIGTA that resulted in tax returns not being identified for further review during processing.
Finally, the IRS sent letters to individuals who received the APTC but did not file a tax return to remind them of the requirement to reconcile APTCs. However, the IRS processes to identify these taxpayers did not use the most current tax filing data.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS review the 27,827 tax returns identified by TIGTA to ensure that these individuals receive the correct PTC. Also, the IRS should modify the Income and Family Size Verification processes to use the most current information available when determining if a taxpayer has reconciled APTCs received in the prior calendar year.
The IRS agreed with both of TIGTA’s recommendations. The IRS stated that it will review the 27,827 tax returns to prioritize them against existing workload demands and resource constraints so that they may be addressed accordingly. In addition the IRS stated that implementation of agreed changes to the Income and Family Size Verification process are subject to budgetary constraints, limited resources, and competing priorities.
READ THE FULL REPORT
To view the report, including the scope, methodology, and full IRS response, go to:
Phone Number / 202-622-6500
E-mail Address / TIGTACommunications@tigta.treas.gov
Website / https://www.treasury.gov/tigta