Treasury Inspector General for Tax Administration
October 13, 2011
TIGTA - 2011-67
Contact: Karen Kraushaar
WASHINGTON – The Internal Revenue Service (IRS) correctly implemented a provision of the new health care law to require taxpayers to pay taxes on indoor tanning services, but the number of taxpayers filing tax returns that include these taxes is lower than expected, according to a new report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).
The 10 percent excise tax on indoor tanning services (tanning tax) was enacted in March 2010 as part of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act. The tanning tax took effect on July 1, 2010. It is paid by the person receiving the service and is collected by the service provider.
The congressional Joint Committee on Taxation estimated that the tanning tax would raise less than $50 million in the last quarter of Fiscal Year (FY) 2010 and $200 million for FY 2011.
According to the report, the IRS received tax returns that reported $17.8 million in taxes in the final quarter of FY 2010 and $36.6 million in the first half of FY 2011. TIGTA also found that the IRS took steps to quickly implement the tax by developing an outreach plan, updating the excise tax form and instructions, and making preparations for receiving and processing tax returns with the tax.
However, the IRS could have taken more timely actions to contact taxpayers who may owe the tax but did not file the required tax returns and pay it. By the time notices were issued, tanning taxes had been due for three quarters. In addition, the information used to identify these taxpayers appeared to be incomplete.
“The IRS quickly implemented the tanning tax under a tight deadline,” said J. Russell George, Treasury Inspector General for Tax Administration. “Since this was a brand new tax imposed on a group of businesses and taxpayers with no previous experience with excise taxes, the IRS should have done more to inform taxpayers of their filing responsibilities and bring them into compliance in a timely manner,” George added.
TIGTA recommended that the IRS perform further analyses of the data sources used, including records with incomplete address information, to determine whether a large number of tanning businesses were not identified. TIGTA also recommended that the IRS monitor the results from the notice mailing to determine whether additional data sources are warranted, and update the excise tax publication to include tanning tax information.
IRS officials agreed with TIGTA’s recommendations and said they plan to perform the analysis suggested, monitor the results of the notice mailing, and consider additional actions based on the results. The excise tax publication (Publication 510) was revised in July 2011 to include tanning tax information.
Read the report.
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