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Treasury Inspector General for Tax Administration

Press Release

May 3, 2016
TIGTA - 2016-12
Contact: Karen Kraushaar, Director of Communications
(202) 622-6500

Affordable Care Act: IRS Verification of Premium Tax Credit Claims During the 2015 Filing Season

WASHINGTON — In an audit report published today, the Treasury Inspector General for Tax Administration (TIGTA) provided the results of its evaluation of the effectiveness of the Internal Revenue Service’s (IRS) verification of health care tax credit claims during the 2015 Filing Season.

The Affordable Care Act (ACA) created the Health Insurance Marketplace, also known as the Exchange. The Exchange is where taxpayers find information about health insurance options, purchase qualified health plans, and, if eligible, obtain help paying premiums and out-of-pocket costs. The ACA also created a new refundable tax credit, the 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.

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. According to the IRS, almost $11 billion in Advance PTCs (APTC) were paid to insurers in Fiscal Year 2014. 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 were either received in advance or claimed at filing.

The ACA requires Exchanges to provide the IRS with information regarding individuals who are enrolled by the Exchange on a monthly basis. These data are referred to as Exchange Periodic Data (EPD). 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 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 (7 percent) 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.

The Exchanges did not provide the EPD to the IRS prior to the start of the 2015 Filing Season as required. In addition, IRS system issues prevented the IRS from being able to use most of the EPD received between January 20, 2015, and March 29, 2015.

Without the required EPD, the IRS is unable to ensure that individuals claiming the PTC met the most important eligibility requirement – that insurance was purchased through an Exchange. TIGTA’s analysis of tax returns filed between January 20, 2015, and May 28, 2015, identified 438,603 tax returns for which the IRS did not have EPD at the time the tax returns were processed or the EPD were incorrect.

“The IRS did develop manual processes in an effort to verify Premium Tax Credit claims associated with Exchanges that did not provide the required Exchange Periodic Data,” said J. Russell George, the Treasury Inspector General for Tax Administration. “However, these processes resulted in the IRS having to suspend tax returns during processing, which uses additional resources and increases the burden on taxpayers entitled to these claims,” he added.

TIGTA verified that the IRS processes to identify potentially fraudulent PTC claims are operating as intended. In addition, the IRS corrected programming errors that TIGTA identified that resulted in tax returns not being identified for further review during processing.

TIGTA recommended that the IRS review the 27,827 tax returns that TIGTA identified to ensure that these individuals receive the correct PTC, and that the IRS 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 and 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. The IRS also 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 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.