Treasury Inspector General for Tax Administration
April 29, 2015
TIGTA - 2015-11
Contact: David Barnes
WASHINGTON Ė The Internal Revenue Service (IRS) needs to do a better job of ensuring that health insurance policy issuers and self-insured plan sponsors are paying a fee required under the Affordable Care Act.
That is the conclusion of a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
The Affordable Care Act includes a tax provision that provides for an excise tax equal to one or more dollars based on the average number of lives covered under a specified health insurance policy or self-insured health plan during a specific year. The new Patient-Centered Outcomes Research (PCOR) fee is used to offset the costs of the PCOR Institute, which funds research that will provide information to assist patients and their healthcare providers make more informed health care decisions.
The overall objective of this review was to evaluate the IRSís implementation of the ACA Section 6301 dealing with the PCOR Trust Fund.
TIGTA found that 72,035 health insurance policy issuers/self-insured plan sponsors filed a Form 720, Quarterly Federal Excise Tax Return, with PCOR fees totaling $114 million for Tax Year 2012. Of these filers, 30,996 (43 percent) paid a PCOR fee of less than $4.25, which is the IRSís cost to process these returns.
The IRS developed a PCOR compliance plan that states it will use third-party data sources to identify potential nonfilers. The IRS is in the process of analyzing this information for use in evaluating Tax Year 2012 return filing compliance. However, the data that the IRS obtained do not include the necessary information to calculate the potential PCOR fees owed by these nonfilers.
TIGTA reviewed additional data from these third-party sources and identified 25 health insurance policy issuers and 1,753 self-insured health plan sponsors that potentially did not file a Form 720 reporting a PCOR fee in Tax Year 2012 as required.
For the quarter ending June 30, 2013, TIGTA also found 2,242 transactions had transcription errors which resulted in an overstatement of approximately 359 million average lives covered. While the average number of lives recorded in the Business Return Transaction File is not reliable, these errors do not affect the PCOR fees paid.
"The Patient-Centered Outcomes Research fee is an important source of funds for research that will enable people to make more informed healthcare decisions," said J. Russell George, Treasury Inspector General for Tax Administration. "As such, it is important for the IRS to take the steps we have recommended to ensure that the applicable health insurance policy issuers and self-insured plan sponsors comply with the requirements in the law."
TIGTA recommended that: 1) the IRS obtain the data needed to identify noncompliance with the filing and payment requirements for PCOR fees; 2) based on these results, identify nonfilers, send notices as appropriate, and determine if additional enforcement actions are required; 3) alert and instruct employees on how to avoid the significant Form 720 transcription errors that materially affect the accuracy of the average number of lives covered for the PCOR fees; and 4) establish a systemic error report for the Form 720 with a PCOR fee and refer accounts for possible examination that do not match.
IRS officials agreed with three recommendations but disagreed with the fourth recommendation to establish a systemic error report, stating that they have limited Information Technology resources and funding available. However, TIGTA believes establishing a systemic error report that generates when the PCOR fee and/or tax payments do not match for Forms 720 with a PCOR fee will have minimal impact on IRS resources, as well as allow the IRS to improve its monitoring of PCOR fee reporting and payment compliance.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
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