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MSP #6: HEALTH CARE IMPLEMENTATION

Implementation of the Affordable Care Act May Unnecessarily Burden Taxpayers

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #6-1

Educate taxpayers early and repeatedly about the requirement to update their information throughout the year with the exchange, if they are receiving the advanced PTC, to prevent them from owing money to the IRS (or reducing their refunds) or qualifying for too little advance credit during the year.

IRS RESPONSE TO RECOMMENDATION: IRS developed an ACA web page on irs.gov that provides information on the tax provisions under ACA that apply to individuals, employers and other organizations.  Under the Individuals and Families section IRS has information, including questions and answers, on changes in circumstances and how taxpayers should report income and family size changes to the Marketplace throughout the year. Reporting changes will help taxpayers get the proper type and amount of financial assistance and avoid getting too much or too little in advance. IRS developed health care tax tips (specifically 2015-08, 2015-10 and 2015-20), Fact-Sheets (2014-09) and flyers/publications (Pubs 974, 5121, 5120 and 5152) to help educate taxpayers on their responsibilities related to the premium tax credit.  These flyers and publications can be used for a variety of audiences including TAC offices, community-based organizations and IRS partner groups.  IRS also has links to healthcare.gov to direct taxpayers for Marketplace enrollment and other issues. In conducting over 500 outreach activities since October 2014, IRS has consistently emphasized the importance of promptly reporting changes in circumstances to the Marketplace to avoid surprises when the individual reconciles the advance payments of the premium tax credit on their federal tax return.  Some of the partners/stakeholders we have conducted outreach with are community-based organizations,  tax professionals, small business industry, navigators/assisters, individual taxpayers, and congressional offices.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate commends the IRS for prioritizing the education of taxpayers to report their changes in circumstances throughout the tax year.  We appreciate the development of the ACA web page, the numerous flyers and publications, and the outreach activities in which the IRS is involved.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #6-2

For those installment agreements, partial pay installment agreements, and offers in compromise including SRP liabilities, apply payments to the oldest liability first to protect the government’s best interests.

IRS RESPONSE TO RECOMMENDATION: Revenue Procedure 2002-26 sets forth the IRS’s position on the application of partial payments of tax, penalties and interest for one or more taxable periods.  If the taxpayer does not provide specific written instructions as to the application of the payment, the IRS will apply the payments in the order of priority that serves the government’s best interest.  In general, this means that the IRS will apply undesignated payments to the oldest liabilities first (first towards taxes, then penalties, then interest) until the liabilities are fully paid.  The IRS is not planning to revise Rev. Proc. 2002-26 to address the individual shared responsibility penalty. The individual shared responsibility payment will be collected in the same manner as any assessable penalty.  The current payment application rules fully address the Advocate’s concerns. No additional actions are required.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate agrees Revenue Procedure 2002-26 provides that the IRS will apply the payments in the government’s best interests, which is generally to oldest liability first.  She is pleased the IRS has publicly committed to following the approach set forth in this revenue procedure in the context of SRP liabilities.  However, TAS will continue to monitor this issue to ensure payments are not applied to SRP liabilities before older liabilities.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #6-3

Reissue the current white paper addressing the IRS’s authority to include SRP liabilities in installment agreements and offers in compromise in the form of Program Manager Technical Advice to be released to the public.

IRS RESPONSE TO RECOMMENDATION: IRS has incorporated pertinent and relevant points from the white paper into the IRM sections which address inclusion of the Shared Responsibility Payment in Installment Agreements and Offers in Compromise.  Those IRM sections are publicly available, however we will review the referenced paper to determine if release of additional information is warranted.

Update: IRS has reviewed the referenced white paper addressed in the recommendation as well as the applicable IRMs  5.8 1 and 5.19.7.  Based upon this final review, IRS determined that no additional information needs to be released in the form of a Program Manager Technical Advice.

The project office worked the recommendation with Collection and the ACA PMO and believes publishing the white paper is not appropriate since it includes counsel advice to clients on enforcement issues, and substantial portions meet the exclusion requirements of FOIA.

Collection incorporated the pertinent portions in the IRM based on the TAS MSP recommendation.  Collection Policy again cross walked the internal white paper and the IRM and found no salient material excluded.

SBSE  declines to publish the whitepaper that includes policy, legal and risks on alternative treatments, nor incorporate additional details of the white paper in the IRM.

While the NTA may disagree with the declination to adopt their request to make the whitepaper public by publication, we believe that the decision to decline adoption is final.  The action we said we would complete to mitigate that declination was to again scrub the IRM against the white paper to ensure all salient points were included in the IRM, which is publically available.

We completed that process and determined no additional data or information should be included in the IRM.

CORRECTIVE ACTION: The ACA PMO with the assistance of SBSE Collection Policy will review the white paper for information in the white paper that is relevant to our authority for the inclusion of the SRP in installment agreements that is not already included in the IRM for any additional relevant information that should be included and the proper venue for dissemination if necessary.

TAS RESPONSE: The National Taxpayer Advocate commends the IRS for committing to review the issue of addressing the IRS’s authority to include SRP liabilities in installment agreements and offers in compromise.  However, the IRS should not merely address this issue in an IRM provision.  Taxpayers have the right to be informed, and the IRS should make publicly available the discussion included in the white paper in the form of Program Manager Technical Advice.  Taxpayers are more likely to understand the IRS’s reasoning if issued in such a format rather than just a declaratory statement with no explanation in an IRM provision.  Accordingly, TAS will continue to monitor the IRS actions and will discuss any further issues in our 2015 Annual Report to Congress.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #6-4

Include information about TAS and Low Income Taxpayer Clinics in 30-day letters that include both the preliminary audit report and describe the taxpayer’s appeal rights.

IRS RESPONSE TO RECOMMENDATION: Although we believe the inclusion of Notice 1214 with the SNOD, complies with the Section 1102(b) RRA 98 requirement, when resources (budget, and staffing) are available to make the changes necessary to print the local TAS office directly on the face of the SNOD, we will take steps to ensure, as best we can, that information about the local TAS office is provided to taxpayers in a consistent manner.  We will coordinate with the NTA’s staff on this matter.

CORRECTIVE ACTION: N/A

TAS RESPONSE: This recommendation  addressed combo letters and 30-day letters, not statutory notices of deficiency.  Further, TAS disagrees with the IRS over the fundamental interpretation of the IRC Section 1102(b) requirement to put TAS contact information on the statutory notice of deficiency.  RRA 98 requires the IRS to place this information on the notice.  However, we are pleased the IRS appears willing to work with us to add this language on the SNODs themselves, although we note the IRS has not committed to do so via an action item.  We will continue to advocate for inclusion of both local TAS office and LITC information on combo and 30-day letters.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #6-5

Expand the tax identification number matching program to include health insurers and self-insured employers that are required to file Form 1095-B, Health Coverage.

IRS RESPONSE TO RECOMMENDATION: IRS does not have the statutory authority to disclose social security inforamtion to health insurers and self-insured employers.

CORRECTIVE ACTION: N/A

TAS RESPONSE: After receiving further clarification from the Office of Chief Counsel, it is our understanding the IRS takes the position it does not have the authority to expand TIN matching to health insurers and self-insured employers.  The program was created under the authority of IRC § 3406 and was strictly limited to payments subject to backup withholding.  According to the IRS position, an expansion of the program would violate IRC § 6103.  TAS will explore the issue further and make any necessary legislative recommendations to enable the IRS to take this action.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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6.

TAS RECOMMENDATION #6-6

Provide additional guidance to employers on how to calculate the number of full-time equivalents for purposes of meeting the minimum essential coverage requirements.

IRS RESPONSE TO RECOMMENDATION: IRS has not adopted this recommendation at this time, but is looking into the issue. In effect this recommendation requests additional guidance in computing hours of service for  those employees whose hours of service are difficult to identify or track, the final regulations issued under section 4980H on February 14, 2014, specify that there are many categories of employees whose hours of service will be particularly challenging to identify or track, including adjunct faculty, commissioned sales persons and airline personnel.  The final regulations provide that Treasury and the IRS are continuing to consider additional rules for those employees identified above and specify  that until further guidance is issued employers may use a reasonable method of crediting hours of service that is consistent with section 4980H.   Further guidance has not been issued therefore, employers have the flexibility to determine hours of service using any  reasonable method consistent with 4980H. 

CORRECTIVE ACTION: N/A

TAS RESPONSE: Our final recommendation was for the IRS to provide additional guidance to employers on how to calculate the number of full-time equivalent employees for purposes of meeting the minimum essential coverage requirements.  Until the final regulations provide more detailed guidance for these taxpayers, we concur flexibility is necessary in this complex environment.  The National Taxpayer Advocate encourages the IRS to regularly update its guidance as we see instructive examples of what constitutes reasonable methods to compute the number of full-time equivalents.  The IRS should also develop a method of notating the date of any revisions to FAQs and other flexible guidance, so taxpayers can track what changes have occurred.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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