I’ve received a couple of emails asking me to verify a rumor that the IRS is expanding in 2012 due to the new health care law. So, here’s the truth: the IRS is expanding in 2012 due to the new health care law.
The details of the expansion can be found in the IRS budget request (downloads as a pdf). If you don’t want to slog through the entire 199 pages, you can also check out the shorter, 15 page summary (downloads as a pdf).
In the budget request, the IRS is asking for a lot more money in order to hire more full time employees, many of whom will be hired to help administer the new health care bill. There has to be a silver lining in there somewhere, right?
Er, I guess so. The good news is that the extra folks aren’t going to be auditors. Well, not all of them. Most of the increase will be extra IT folks. Many of the others are expected to help administer the new health care plan and “improve taxpayer service.”
This is specifically addressed on page 6 of the full budget request, which states:
The FY 2012 request includes funding for ACA (Public Law 111-148) to administer a premium credit to subsidize the cost of health insurance for Americans who do not have access to affordable coverage; a small business tax credit to encourage employers to provide health insurance coverage for their employees; new information reporting and sharing requirements; an excise tax on tanning services; a new aggregate annual fee on businesses engaged in manufacturing and importing branded prescription drugs sold to specified government programs; new reporting requirements for tax-exempt hospitals; and an individual coverage requirement for employees who can afford health insurance, but fail to obtain minimum essential coverage. These and other provisions of the ACA will require additional resources to build new IT systems; modify existing tax processing systems; provide taxpayer outreach and assistance services; make enhancements to notices, collections, and case management systems to address and resolve taxpayer issues timely and accurately; and conduct focused examinations to encourage compliance. While these activities are spread across the three primary IRS appropriations, the vast majority of the funding request is in the Operations Support account that funds information technology and infrastructure.
The budget request goes on to note that the health care law provides the “largest set of tax law changes in more than 20 years, with more than 40 provisions that amend the tax laws.” The budget notes that the new tax laws are to be phased in over time (some may not even happen at all, like the expanded 1099 reporting requirements) so the impact is not 100% immediate. But it’s clear that the massive scale of the health care act will definitely add to the administrative burden at the IRS – a fact which has not gone unnoticed by the National Taxpayer Advocate.
Here are some of the highlights which touch on health care law compliance:
- Increase Coverage to Address Tax Law Changes and Other Compliance Issues +$96,718,000 / +497 FTE
- Administer New Statutory Reporting Requirements +$58,505,000 / +187 FTE
- Ensure Accurate Delivery of Tax Credits +$260,293,000 / +834 FTE
(FTE = full time equivalent employee)
In addition, there are some necessary changes to the infrastructure as a result of the health care law. The IRS anticipates spending more than $50 million on implementing taxpayer service programs. This includes additional manpower to educate taxpayers about the changes in the law and hiring more employees to answer the phones in contemplation of taxpayer questions; the latter, is of course, a serious concern considering that the IRS can’t keep up with the current volume of calls.
Of course, my favorite increase – as I am sure is Snooki’s, as well – is the additional $11.5 million (+81 FTE) to administer the new tanning excise tax in the health care law.
Some of the provisions in the budget are probably getting more play than perhaps they should because it makes a good story. Any time there’s a change in the Tax Code (something that happens quite a lot), there are going to be corresponding increases to deal with enforcement and infrastructure.
I think what concerns me, as well as many of my colleagues, is that the health care law was never really billed as a significant change to our tax system. Tax felt secondary. But when it comes to the numbers, compliance requirements and the like, it’s quite a monumental shift: even the IRS admits this. And I’m not so sure that the IRS is going to be prepared to deal with it, new hires or no.
Those of us who work in the tax profession understand that the IRS is already completely overwhelmed. Funding tax collections is never popular. Congress would rather do ribbon cuttings at senior centers and hospitals than at tax facilities. And yet, it has to be done. Increasing the scale of what they’re doing without a corresponding budget increase would not make sense.
However, adding this level of complexity to what the IRS is already doing is going to be a challenge. We in the tax profession see it. The National Taxpayer Advocate sees it. I think most of you see it, too.
To be fair, the IRS believes (as does Congress, apparently) that the Revenue collected as a result of the new provisions will more than offset the increased costs. (cough) And maybe that will turn out to be the case. Maybe.