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United States Government Accountability Office: 
GAO: 

Report to the Subcommittee on Financial Services and General 
Government, Committee on Appropriations, U.S. Senate: 

June 2011: 

Patient Protection and Affordable Care Act: 

IRS Should Expand Its Strategic Approach to Implementation: 

GAO-11-719: 

Contents: 

Letter: 

Agency Comments and Our Evaluation: 

Appendix I: Briefing Slides: 

Appendix II: Sources Used to Develop Assessment Criteria: 

Appendix III: Scope and Methodology: 

Appendix IV: PPACA Provisions Providing an IRS Role in Implementation: 

Appendix V: Comments from the Internal Revenue Service: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Abbreviations: 

AGI: adjusted gross income: 

CBO: Congressional Budget Office: 

ESC: Executive Steering Committee: 

FSA: Flexible Spending Arrangement: 

FTE: full-time equivalent: 

HHS: Department of Health and Human Services: 

HIRIF: Health Insurance Reform Implementation Fund: 

HRA: Health Reimbursement Arrangement: 

HSA: Health Savings Account: 

IRS: Internal Revenue Service: 

IT: information technology: 

JCT: Joint Committee on Taxation: 

LB&I: Large Business & International: 

MITS: Modernization and Information Technology Services: 

MSA: Medical Savings Account: 

NAS: National Academy of Sciences: 

PMO: Program Management Office: 

PPACA: Patient Protection and Affordable Care Act: 

S&E: Services and Enforcement: 

SB/SE: Small Business/Self-Employed: 

SSA: Social Security Administration: 

TE/GE: Tax Exempt/Government Entities: 

VA: Veterans Affairs: 

W&I: Wage and Investment: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 29, 2011: 

The Honorable Richard J. Durbin: 
Chairman: 
The Honorable Jerry Moran: 
Ranking Member: 
Subcommittee on Financial Services and General Government: 
Committee on Appropriations: 
United States Senate: 

This letter formally transmits the briefing we gave on June 8, 2011, 
as well as subsequent comments from the Internal Revenue Service 
(IRS). We gave this briefing in response to your request that we 
assess IRS's planning to implement its responsibilities under the 
Patient Protection and Affordable Care Act (PPACA).[Footnote 1] 

The objectives of the briefing were to (1) describe IRS's PPACA 
responsibilities and effective dates and (2) assess the extent to 
which IRS, in planning PPACA implementation, is following leading 
practices in four areas--developing an overall management structure 
(including goals and performance measures), estimating and tracking 
costs, assuring compliance with the new law while minimizing burden, 
and managing risk. To conduct this work, we reviewed PPACA, including 
applicable amendments, IRS documents and data, our past reports and 
GAO's Cost Estimating Guide, and Office of Management and Budget and 
IRS guidance. We shared the leading practices with IRS management and 
interviewed knowledgeable IRS officials about IRS's responsibilities 
and progress in following the leading practices. 

We conducted this performance audit from August 2010 through June 2011 
in accordance with generally accepted government auditing standards. 
These standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. We determined 
that the IRS data we used were sufficiently reliable for our purposes. 

In summary, IRS has responsibilities in the implementation of 47 PPACA 
provisions with effective dates through 2018.[Footnote 2] In planning 
to implement these provisions, IRS has generally followed leading 
practices. Top leadership has been involved; cost estimates for 
information technology projects have specified ground rules and 
assumptions, data sources, and supporting calculations; work has 
started on compliance controls; and risks are being identified and 
analyzed at the individual project level. However, IRS could improve 
aspects of its planning, particularly at an agencywide or strategic 
level. IRS defines strategic-level goals and project plans in multiple 
documents without integrating the goals or plans, IRS has no timeline 
for developing performance measures and collecting associated data, a 
cost estimate for all of the PPACA program has not been provided, and 
the risk management framework does not assure that all risks, 
especially strategic-level risks, are identified and analyzed. While 
implementation for some provisions is years away, making improvements 
to the planning process now would reduce risks and might minimize 
future problems. Hence, we are recommending that the Commissioner of 
Internal Revenue take the following four actions: (1) define program 
goals and develop a project plan in one document that effectively 
integrates all aspects of the program; (2) document a schedule for 
developing performance measures that link to program goals; (3) 
develop a more complete cost estimate that is consistent with the GAO 
Cost Estimating Guide; and (4) modify and document IRS's risk 
management approach to have more assurance that all risks, including 
strategic-level risks for the program, are identified and analyzed, 
and that mitigation options are assessed. For a further summary of the 
results of our work, see slides 6 and 7 in appendix I. 

Agency Comments and Our Evaluation: 

In a June 20, 2011, letter responding to a draft of this report 
(appendix V), the IRS Commissioner provided comments on our findings 
and recommendations as well as information on additional agency 
efforts to implement PPACA. 

Stating that GAO provided valuable input on best practices in planning 
and organizing an effort of this scale, the Commissioner's comments 
indicated general agreement with our recommendations. IRS agreed to 
further define program goals and consider the best way to develop an 
overarching program plan that integrates its IT and business planning 
and lays out requirements at a strategic level. With regard to 
performance measures, IRS said it is taking steps to develop 
performance metrics and a corresponding timeline for implementation of 
those metrics, which involves assistance from the agency's Research, 
Analysis and Statistics Division and the use of existing performance 
measures for some provisions. IRS agreed to explore further 
enhancements to its cost estimating process. We note, however, that 
our recommendation called for developing a more complete cost 
estimate, rather than only exploring enhancements. With regard to risk 
management, IRS stated that it is clarifying its risk management 
process to ensure transparency in how strategic-level risks are 
raised, assessed, mitigated, and monitored by top IRS executives. 

We are sending copies of this report to the Chairmen and Ranking 
Members of other Senate and House committees and subcommittees that 
have appropriation and oversight responsibilities for IRS. We also 
will be sending copies to the Commissioner of Internal Revenue, the 
Secretary of the Treasury, the Chairman of the IRS Oversight Board, 
and the Director of the Office of Management and Budget. Copies also 
are available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-9110 or whitej@gao.gov. Contact points for our 
offices of: 

Congressional Relations and Public Affairs are on the last page of 
this report. GAO staff members who made major contributions to this 
report are listed in appendix VI. 

Signed by: 

James R. White: 
Director, Tax Issues Strategic Issues: 

[End of section] 

Appendix I: Briefing Slides: 

Patient Protection and Affordable Care Act: IRS Should Expand Its 
Strategic Approach to Implementation: 

Briefing for Subcommittee Staff: 

June 8, 2011: 

For more information, contact James R. White at (202) 512-9110 or 
whitej@gao.gov. 

IRS Plays a Significant Role in Implementing the Patient Protection 
and Affordable Care Act (PPACA): 

* Implementation of PPACA is a major effort at IRS. 

* More than 40 provisions of PPACA, as amended by the Health Care and 
Education Reconciliation Act of 2010, pertain to IRS. 

* IRS will interact with 3 groups in implementing the law: 
- individuals who have tax reporting responsibilities under the law
- intermediaries (e.g., employers and insurers who help administer)
- administrators (e.g., other federal agencies, such as the Department 
of Health and Human Services (HHS), and states). 

* IRS began its initial implementation in 2010. 

* The fiscal year (FY) 2012 budget request for IRS i included $473 
million and more than 1,200 full-time equivalent (FTE) staff for PPACA 
implementation. 

IRS Plays a Significant Role in Implementing PPACA: 

Based on prior GAO reports and IRS's internal guidance, including the 
Internal Revenue Manual, implementation of a program of this size 
requires: 

* An overall management structure; 

* A cost estimation process; 

* Plans for assuring compliance with the new law while minimizing the 
burden on individuals, intermediaries, and administrators; 

* A risk management framework. 

The Senate Committee on Appropriations, Subcommittee on Financial 
Services and General Government, asked for an interim report on IRS's 
actions in these four areas. 

Objectives: 

1. Describe IRS's new responsibilities set forth in PPACA, including 
effective dates. 

2. Assess the extent to which IRS is following leading practices in 
planning its implementation of PPACA in the following four areas: 

a. Overall Management — establishing program goals, aligning resources 
and workforce, communicating internally, and coordinating with other 
federal agencies; 

b. Estimating and Tracking Costs — creating procedures for cost 
estimating and tracking; 

c. Assuring Compliance while Minimizing Burden — balancing service and 
enforcement, to both assure compliance and minimize the overall burden 
of compliance on society, such as the beneficiaries and intermediaries; 

d. Risk Management Framework — developing a framework to analyze 
risks, tradeoffs, and results in making longer term decisions. 

Scope and Methodology: 

Objective 1 — IRS Responsibilities: 

* Reviewed IRS documentation, legislative language, and analysis by 
Congressional Budget Office, Joint Committee on Taxation, and 
Congressional Research Service to summarize IRS's responsibilities. 

* Interviewed IRS officials and confirmed our summary of IRS's 
responsibilities. 

Objective 2 — IRS Implementation: 

* Reviewed guidance to identify leading practices and related criteria 
for planning new programs (see Appendix IT for specific sources), 
using: 
- GAO reports relevant to leading practices for overall management 
structure, tax compliance, and risk management; 
- GAO Cost Estimating Guide; 
- Internal Revenue Manual;
- IRS's strategic plan; 
- Office of Management and Budget Circular A-123; 
* Shared leading practices and criteria with IRS officials; 
* Compared IRS's progress to criteria by:
- Reviewing IRS documentation and data; 
- Interviewing IRS officials; 
- Identifying gaps between progress so far and the criteria; 
- Looking for IRS's plans to close those gaps, where gaps are 
identified. 

See Appendix III for details on our scope and methodology. 

Results In Brief:  

IRS's Responsibilities: IRS has responsibilities in the implementation 
of 47 provisions with effective dates through 2018, over half of which 
were statutorily effective in or prior to 2010. 

IRS's Planning to Implement PPACA Provisions: 

* Short term implementation and long term strategic planning had to 
proceed simultaneously. 

* IRS has generally followed leading practices in its planning for 
PPACA implementation, such as: 
- Top leadership has been actively involved in designing and 
implementing the management structure, emphasizing communication and 
coordination across IRS. 
= The cost estimate for information technology has specified ground 
rules and assumptions, data sources, and calculations supporting the 
cost estimate. 
- IRS has been creating upfront compliance assurance controls and 
filters. 
- IRS has established multiple frameworks for identifying and 
analyzing risks. 

However, IRS could improve some aspects of its strategic-level 
planning. 

* IRS's strategic-level goals and project plans are defined in 
multiple documents, which do not effectively integrate all PPACA 
efforts. 

* IRS has not established a timeline for developing performance 
measures. 

* IRS has not provided a comprehensive, well-documented, accurate, or 
credible cost estimate for all segments of its PPACA efforts. 

* IRS's risk management framework does not assure that all risks, 
especially strategic-level risks, are identified and analyzed, such as 
those related to determining milestones for its compliance assurance 
work. 

Without more attention to these issues, IRS is more likely to have 
units working at cross purposes, problems measuring performance, an 
incomplete picture of resource needs, and risks that are not mitigated. 

Background: 

PPACA was enacted on March 23, 2010, consisting of provisions that 
would reform the private insurance market and expand health insurance 
coverage to the uninsured. 

It involves all major health care stakeholders, including federal and 
state governments, employers, insurers, and health care providers. 

IRS is one of several agencies with responsibilities to implement the 
legislation. 

We use the term "program" to refer to IRS's overall implementation 
effort as the aggregate of the efforts conducted at the "project" 
level, where teams focus on specific segments of the program. 

IRS focused its resources on near-term projects in 2010, and then 
emphasized long-term planning as implementation of near-term projects 
progressed by 2011. 

IRS's implementation expenses for 2010 and 2011 were funded by 
Department of Health and Human Service's (HHS) Health Insurance Reform 
Implementation Fund (HIRIF): 
- In the Health Care and Education Reconciliation Act of 2010, 
Congress appropriated $1 billion to HIRIF for federal spending to 
implement PPACA. 
- IRS provided quarterly spend plans to HHS to justify receipt of 
HIRIF funds for implementation. 
- IRS officials said they would not use HIRIF funds in 2012 if their 
budget request were fully funded. 

Objective 1: IRS Responsibilities Set Forth in PPACA: 

IRS has responsibilities in the implementation of 47 PPACA provisions. 

IRS's responsibilities can be divided into health care exchange 
provisions and non-exchange provisions: 

* Health care exchanges, to be established by states by 2014, are 
marketplaces for individuals and certain types of employers to 
purchase health insurance. 

* Although IRS is not responsible for establishing health care 
exchanges, IRS officials said the health care exchange provisions may 
be the most challenging for them to administer because they will 
require: 
- new definitions (such as household income); 
- new information technology (IT) systems; 
- a new scale of interagency coordination, such as with HHS. 

Figure: Number of Provisions Affecting IRS by Statutorily  
Effective Date: 

[Refer to PDF for image: vertical bar graph] 

Year: 2010; 
Number of provisions: 25. 

Year: 2011; 
Number of provisions: 5. 

Year: 2012; 
Number of provisions: 1. 

Year: 2013; 
Number of provisions: 7. 

Year: 2014; 
Number of provisions: 8. 

Year: 2018; 
Number of provisions: 1. 

Source: GAO analysis of IRS documents. 

Notes: 

1. For 2010, the number of provisions includes 17 effective on 
enactment, 2 effective later in 2010, and 6 effective retroactively (4 
in 2010 before enactment and 2 in early 2009). 

2. No provisions affecting IRS are effective in 2015, 2016, or 2017. 

3. For some provisions, the statutory effective date may precede 
implementation. 

[End of figure] 

Selected Provisions Affecting IRS: 

To highlight IRS's responsibilities under the legislation, we selected 
provisions that affected IRS and that increased revenues, increased or 
reduced revenue losses, or increased spending by at least $1 billion 
over 2010-2019.[Footnote 3] 

Some provisions affecting IRS are designed to raise revenue and do not 
otherwise relate to health care (e.g., excluding unprocessed fuels 
from an existing tax credit on cellulosic biofuel producers). 

A complete list of provisions affecting IRS, with more details, can be 
found in Appendix IV 

2010: Selected Provisions: 

* Established tax credits for small business employers providing 
health insurance. 

* Extended and increased existing adoption tax credit, also making it 
refundable. 

* Authorized tax exemption for start-up nonprofit health insurers 
providing insurance to individuals or small groups. 

* Authorized an exclusion from gross income for payments by a 
temporary government reinsurance program (Early Retiree Reinsurance 
Program) to health care plans providing retiree health insurance. 

* Codified requirement that business transactions have economic 
substance (i.e. benefits other than solely tax benefits), and imposed 
penalties for underpayments on taxes that would have been owed absent 
the transaction. 

* Excluded unprocessed fuels from an existing tax credit for 
cellulosic biofuel producers. 

* Established an excise tax on indoor tanning salon services. 

* Established federal cost-sharing for eligible individuals to reduce 
annual out-of-pocket deductibles. 

2011: Selected Provisions: 

* Repealed tax exclusion in health flexible spending arrangements in 
cafeteria plans for over-the-counter medicines. 

* Increased additional tax on distributions from certain health 
savings accounts that are not used for qualified medical expenses. 

* Established annual fee on manufacturers and importers of branded 
prescription drugs. 

2012: Selected Provisions: 

* Established annual fee through 2019 on health insurance plans of $2 
per insured individual to fund research into the comparative 
effectiveness of health care interventions (Patient-Centered Outcomes 
Research Trust Fund). 

 Note: All of the PPACA provisions effective in 2012 met our selection 
criteria.  

2013: Selected Provisions: 

* Reduced maximum amount in health flexible spending arrangements in 
cafeteria plans to $2,500. 

* Increased medical expense deduction threshold. 

* Eliminated employer deduction for retiree drug subsidy. 

* Established excise tax of 2.3% on medical devices. 

* Increased Hospital Insurance tax by 0.9% on wages over specified 
threshold. 

* Established Medicare contribution of 3.8% on unearned income over 
specified threshold. 

2014: Selected Provisions: 

* Non-exchange provisions:
- Established annual fee on health insurers proportional to the 
insurer's share of total premium revenue. 

* Exchange provisions: 
- Established refundable premium assistance tax credits for eligible 
individuals purchasing health insurance coverage on state exchanges; 
- Established penalty for individuals without minimum essential health 
coverage; 
- Established penalty on larger employers.with at least one employee 
receiving a premium assistance tax credit or cost-sharing reduction. 

2018: Selected Provisions: 

* Established excise tax on high-cost employer-provided health 
insurance plans. 

 Note: All of the PPACA provisions effective in 2018 met our selection 
criteria. 
 
Objective 2: IRS Has Generally Followed Leading Practices in Planning 
to Implement PPACA: 

IRS involved top leadership and established a network of teams to help 
with implementation, emphasizing coordination and communication among 
teams on technical, procedural, and policy issues. 

Cost estimating techniques for information technology projects 
included some leading practices, such as specifying ground rules and 
assumptions influencing the estimate. 

IRS has put in place some upfront compliance controls and filters to 
identify potential fraud for non-exchange provisions. 

IRS established multiple frameworks for identifying and analyzing 
risks at the project level. 

IRS Could Improve Some Aspects of Its Strategic-Level Planning: 

IRS's strategic-level program goals and project plans are defined in 
multiple documents, which do not effectively integrate all aspects of 
the program. 

IRS has not established a timeline for developing performance measures 
that would indicate whether the program is producing desired results. 

IRS has not provided comprehensive, well-documented, accurate, and 
credible cost estimating activities across all segments of the program. 

IRS's multiple risk management frameworks do not ensure that all 
strategic-level risks are identified and analyzed at the program level. 

Overall Management Structure Leading Practices: 

1. Dedicate an implementation team to manage the process. 

2. Define program goals. 

3. Align workforce to achieve goals. 

4. Establish a performance measurement system. 

5. Establish an internal communications strategy. 

6. Foster partnerships with other federal agencies. 

7. Track and monitor progress of internal and external parties. 

1. Dedicate an Implementation Team to Manage the Process: 

An agency's implementation team formation should include: 

* Transformation driven by top leadership; 

* Establishment of networks to support the implementation team; 

* Selection of high-performing team members. 

IRS has made progress in dedicating an implementation team: 

* IRS assigned top leadership, including the Commissioner's Chief of 
Staff, two Deputy Commissioners, and high level executives from all 
operating divisions, to oversee implementation through a PPACA 
Executive Steering Committee (ESC); 

* PPACA ESC oversees two Program Management Offices (PM0s), Services & 
Enforcement (S&E) and Modernization and Information Technology 
Services (MITS), that coordinate with Health Care Counsel to lead 
daily implementation efforts; 

* IRS documents emphasize collaboration between S&E and MITS to 
coordinate technical, procedural, and policy issues among a network of 
teams having subject matter experts. 

IRS has assigned lead responsibility for implementing PPACA provisions 
throughout the agency with assistance from MITS: 

* Services & Enforcement — 40 provisions: 
- Wage & Investment (W&I) Division — 17 provisions; 
- Small Business/Self-Employed (SB/SE) Division —10 provisions; 
- Large Business & International (LB&I) Division — 7 provisions; 
- Tax Exempt/Government Entities (TE/GE) Division — 6 provisions. 

* Chief Counsel — 7 provisions. 
                  
1. Dedicate an Implementation Team IRS PPACA Implementation Leadership 
Structure: 
                     
Figure: PPACA Executive Steering Committee: 

[Refer to PDF for image: committee structure] 

Top level: 
PPACA Executive Steering Committee: Oversees implementation and is co-
chaired by the Commissioner's Chief of Staff and two Deputy 
Commissioners. 

Second level: 

Services and Enforcement Operational Divisions Executive Steering 
Committees: 
W&I ESC; 
LB&I ESC; 
TE/GE ESC; 
SB/SE ESC. 
Each ESC is led by an Executive Chair with accountability for specific 
PPACA provisions.   

PPACA Program Management Offices and Implementation Teams: 
MITS PMO; 
S&E PMO; 
Health Care Counsel. 

Third level, under S&E PMO:         
S&E PPACA Business Workstream Teams: 

Oversight and non-exchange provisions: 
Oversees and supports implementation of non-exchange provisions within 
the operating divisions. 

Filing and premium assistance tax-credit: 
Develops verification processes associated with the exchange 
provisions. 

Compliance strategy and policy: 
Develops strategies and tools to encourage compliance and enforce 
penalties. 

Customer and stakeholder engagement: 
Develops strategies and procedures for communication with customer 
segments. 

Source: GAO analysis of IRS documentation. 

[End of figure] 

2. Define Program Goals: 

An agency's program goals should: 

* Link to the agency's mission; 

* Communicate a clear vision of the outcomes to be achieved; 

* Be established by key stakeholders who manage the program. 

PPACA ESC has not established overall program goals that apply to S&E, 
MITS, and Health Care Counsel. 

ESC has allowed the PMOs to separately determine program goals, which 
tend to meet the criteria: 

* S&E PMO Goals — documented goals include effective, accurate, and 
timely implementation in accordance with the IRS mission, along with 
objectives that link to the agency's mission; 

* MITS PMO Goals — documented goal is to develop system solutions to 
support and execute IRS's responsibilities under PPACA. 

Multiple sources of program goals at the project level could cause 
confusion about the overall program's strategic goals. 

3. Align Workforce to Achieve Goals: 

An agency's alignment of its workforce should: 

* Involve top management and employees in developing and implementing 
a workforce plan; 

* Analyze gaps between the workforce that exist and that will be 
needed in the future; 

* Use appropriate strategies to fill workforce gaps; 

* Monitor results and adjust plans as necessary. 

IRS generally has met these criteria in that it: 

* Developed working teams of executives and subject matter experts; 

* Analyzed workforce gaps; 

* Drafted hiring plans to fill needed positions at specific times; 

* Monitored hiring results and analyzed variances. 

4. Establish a Performance Measurement System:  

An agency's performance measures should:  

* Link to program goals, as well as strategic plan and budgets; 

* Be established in time to identify and collect performance data 
needed for evaluating the program. 

S&E and MITS PMOs have not followed these practices yet: 
 
* As stated earlier, overall program goals have not been established; 

* According to IRS officials, the Research, Analysis and Statistics 
unit is advising S&E and MITS on existing IRS data that could be used 
for measuring performance; 

* IRS officials said that the project teams are considering data needs 
and indicators of performance and workload, and that measures would be 
developed in time to evaluate results but they did not provide 
documentation on what is being done or a schedule for completion. 


IRS's ability to evaluate its performance may be hindered if:  

* Performance measures do not link to program goals; 

* Performance measures are not established in time to collect the 
necessary performance data. 

5. Establish an Internal Communications Strategy: 

An agency's internal communications strategy should: 

* Communicate program goals and operational changes before and as 
changes occur; 

* Solicit employee feedback and address concerns; 

* Communicate a consistent message using a variety of media (e.g., e-
mail, web, meetings). 

S&E Project Management Plan has an internal communication strategy: 

* Details frequency and methods of communication in a variety of media; 

* Lists internal stakeholders and corresponding responsibilities; 

* Does not specify how program goals are communicated to the workforce 
or how feedback is solicited and addressed. 

IRS is developing a formal communications plan that is to be completed 
in Summer 2011. 

6. Foster Partnerships with Other Agencies: HHS: 

Agencies coordinating with one another should: 

* Establish common program goals; 

* Agree on roles and responsibilities and leverage resources to 
maximize efficiency; 

* Establish compatible policies, procedures, and other means to 
operate across agency boundaries; 

* Monitor outcomes using performance measures and adjust as 
appropriate based on performance data. 


IRS has made progress on these criteria in working with HHS--the 
agency with whom IRS coordinates most often for PPACA implementation--
focusing on IT systems: 

* PMO executives coordinate in a working group with HHS and other 
agencies on technology interface and data needs; 

* For example, an April 2011 meeting between HHS and IRS documented 
common goals for IT development, outlined roles and responsibilities, 
and established a timeline for major milestones; 

* IRS has established "Guiding Principles" for coordination of data 
and systems with HHS. 

7. Track and Monitor Progress of Internal and External Parties: 

An agency tracking and monitoring its progress should: 

* Develop a project plan that includes milestones for completing key 
activities; 

* Articulate a clear system of coordination among project components; 

* Track results. 

S&E PMO is developing a project plan that considers the tasks and 
milestones of both S&E and MITS while MITS PMO established its 
workstream project plans. 

IRS has not yet developed a comprehensive project plan for all 
segments of IRS's PPACA work that states all assumptions, schedules, 
and deadlines. 

* IRS's efforts to monitor progress may be inhibited absent such a 
comprehensive plan; 

* A comprehensive project plan may enhance collaboration among 
internal segments of IRS and external partners involved in PPACA 
implementation. 

Cost Estimating and Tracking Leading Practices: 

GAO's Cost Guide states that cost estimates should be: 
1. Comprehensive; 
2. Well-documented; 
3. Accurate; 
4. Credible. 

An agency that did not meet these criteria would be at risk of not 
knowing what resources were needed and when the resources would be 
needed. 

1. Comprehensive Cost Estimates: 

Comprehensive cost estimates should: 

* Include all life cycle costs; 

* Completely define the program, reflect the current schedule, and 
capture the complete technical scope of the work to be performed; 

* Contain a logical work breakdown structure (documentation detailing 
the work necessary to accomplish program objectives) that accounts for 
all performance criteria and requirements; 

* Detail all cost-influencing ground rules and assumptions. 

According to documentation provided, IRS has partially acted on these 
practices for developing comprehensive cost estimates for MIL'S except 
that they: 

* did not include the entire life cycle of the program (estimates 
include fiscal years 2010-2012); 

* relied on a high level work breakdown structure; 

* did not include a dictionary that describes how each of the 
subprojects relate to one another in the work breakdown structure. 

We received some cost estimating documentation for S&E on May 23, 
2011, and have not finished reviewing it, but the documentation is 
missing a work breakdown structure to ensure that all costs are 
included and nothing is double counted. 

2. Well-Documented Cost Estimates: 

Well-documented cost estimates should: 

* Identify data sources and reliability of data; 

* Describe all estimating methods for all elements of the work 
breakdown structure; 

* Show step by step calculations of cost; 

* Provide evidence that the estimate was reviewed and accepted by 
management; 

* Discuss how the technical description of the program is incorporated 
into the estimate. 

According to documentation provided, IRS has partially acted on these 
practices for developing well-documented cost estimates for MITS 
except that: 

* the cost model documentation does not discuss the reliability of the 
underlying data and only minimally discusses the technical description; 

* the documentation is missing a technical description of what the 
estimate is based on; 

* some cost calculations were not shown; 

* expert opinion was used with no historical data to support the 
numbers. 

We received some cost estimating documentation for S&E on May 23, 
2011, and have not finished reviewing it, but it is missing a 
technical description of what the estimate is based on. 

3. Accurate Cost Estimates: 

Accurate cost estimates should: 

* Be unbiased and based on assessment of most likely costs; 

* Be based on historical costs and adjusted properly for inflation; 

* Contain, at most, only a few minor mistakes; 

* Be updated regularly; 

* Analyze variances between planned and actual costs. 

According to documentation provided, IRS has partially acted on these 
practices for developing accurate cost estimates for MITS except that 
the estimates: 

* did not properly adjust for inflation; 

* did not clearly track where updates had been made; 

* did not discuss variances and any lessons learned. 

We received some cost estimating documentation for S&E on May 23, 
2011, and have not finished reviewing it. 

4. Credible Cost Estimates: 

Credible cost estimates should: 

* Include a sensitivity analysis that vary major assumptions and data 
inputs; 

* Conduct a risk and uncertainty analysis; 

* Use more than one methodology in calculating major cost elements to 
determine if the results are similar; 

* Compare results to an independent cost estimate. 

According to documentation provided, IRS minimally acted on these 
practices for developing a credible cost estimate for MITS: 

* While the IRS identified low, most likely, and high ranges of costs, 
it did not examine how changing each variable would affect the overall 
cost; 

* IRS did not perform a risk and uncertainty analysis to determine a 
level of confidence in the estimate; 

* IRS did not provide evidence of cross checking multiple 
methodologies for major cost elements; 

* IRS did not compare its estimate to an independent cost estimate to 
see if the results were similar. 

We received some cost estimating documentation for S&E on May 23, 
2011, and have not finished reviewing it. 

Assuring Compliance While Minimizing Burden Leading Practices: 

1. Foster compliance through taxpayer assistance. 
2. Detect and prevent noncompliance. 
3. Identify barriers to compliance. 

1. Compliance and Burden--Foster Voluntary Compliance Through Taxpayer 
Assistance: 

An agency's efforts to foster compliance through taxpayer assistance 
should include: 

* seeking to minimize burden for all taxpayers; 

* gathering and analyzing data on likely impacts on taxpayers before 
making decisions; 

* issuing clear, timely guidance and outreach based on feedback from 
taxpayers and practitioners; 

* working with software developers and paid preparers to minimize 
taxpayer burden. 

IRS has taken some action to foster compliance through taxpayer 
assistance, including: 

* considering burden in risk assessments; 

* developing online calculators to assist individuals with the premium 
assistance tax credit; 

* seeking feedback from taxpayers and practitioners through issuance 
of draft guidance on the 2014 employer penalty provision; 

* distributing guidance and initiating outreach for provisions already 
implemented; 

* creating a workstream team to plan customer and stakeholder 
engagement for exchange-related provisions; 

* creating a workstream team to plan compliance strategy and policy 
for exchange-related provisions. 

2. Compliance and Burden--Detect and Prevent Noncompliance: 

An agency's efforts to detect and prevent noncompliance should include: 

* Upfront preventive controls to address fraud or abuse as applicable; 

* Aggressive investigation and prosecution of those who commit fraud. 

IRS's planning has led to some efforts to include upfront controls and 
actions: 

* Implemented filters to identify potential fraud for nonexchange 
provisions; 

* Identified and assessed risks of noncompliance; 

* Met with IRS subject matter experts on compliance risks in exchange 
provisions. 

3. Compliance and Burden[[Identify Barriers to Compliance: 

An agency's efforts to identify barriers to compliance should include: 

* Using research to identify barriers to achieving high rates of 
voluntary compliance; 

* Targeting resources of known or potential noncompliance. 

IRS officials said that PPACA working group meetings include IRS 
research officials. 

Risk Management Framework: Leading Practices: 

1. Comprehensively identify and analyze risks. 
2. Develop and implement mitigation strategies. 
3. Build on lessons learned. 

1. Risk Management Framework--Comprehensively Identify and Analyze 
Risks: 

An agency's efforts to comprehensively identify and analyze risks 
should include:
• Establishing a formal risk management procedure
• Analyzing the consequences and likelihood of occurrence of 
identified risks 

Each PMO has established a separate risk management process at the 
project level: 

* Each PMO has a formal risk management plan and office; 

* S&E PMO uses a standard set of questions to identify, analyze, and 
assess risks for each provision; MITS PMO uses a template to identify 
and track risks and mitigations; 

* The two PM0s regularly share information on identified risks and 
mitigations, including risks that cut across projects. 

Each PMO is to elevate risks to the PPACA ESC based on judgment, but 
no formal agency wide process exists to ensure that all external and 
internal program-revel risks have been identified and analyzed: 

* Such a program-level process could, for example, look at risks 
associated with setting common goals for interagency communication and 
determining milestones for its compliance assurance work. 

2. Risk Management Framework--Develop and Implement Mitigation 
Strategies: 

An agency's efforts to develop and implement mitigation strategies 
should include: 

* Assessing alternative mitigation options to determine the extent to 
which risks can be reduced; 

* Incorporating risk-based information in the selection process. 

Risk logs suggest that mitigation strategies have been adopted to 
address identified risks, however we have not seen evidence of 
assessing alternative mitigations or a process for selecting 
mitigation strategies. 

3. Risk Management Framework--Build on Lessons Learned: 

An agency's efforts to build on lessons learned should include: 

* Ongoing monitoring by management to ensure that risks and related 
mitigation strategies are effective; 

* Separate evaluations or different mitigations where problems are 
identified or mitigation strategies do not function properly. 

IRS's risk management process at the project level requires that: 

* Risks for each provision be assessed before implementation and every 
6 months thereafter using a standard set of questions; 

* Risks and mitigations at the project level are to be monitored by 
management through team meetings, review of risk logs, and periodic
reassessment. 

Conclusions: 

PPACA implementation is a massive undertaking for IRS: 

* IRS actions will affect individuals with tax reporting 
responsibilities, intermediaries, and other federal agencies; 

* IRS has to manage its usual tax administration responsibilities as 
well as PPACA. 


IRS necessarily focused on implementing provisions effective in 2010 
and 2011: 

* Short term implementation and long term strategic planning had to 
proceed simultaneously. 

Overall, IRS is following many leading practices for implementing such 
a large program, particularly at the project level and within the 2 
PMOs, such as the risk management plans established by the PMOs for 
use by project teams. 

While effective dates for many provisions are still years away, 
additional attention now in several areas might prevent future 
problems: 

* Much of this is at the program or strategic level, such as the 
absence of a formal, agency-wide process for identifying and analyzing 
strategic-level risks for the program. 

If IRS management at the strategic, or program, level does not clearly 
communicate a clear vision or goals for the program and also 
communicate an IRS-wide project plan, IRS may have lower level units 
working at cross purposes. 

Not having performance measures defined in a timely manner risks not 
being able to collect the data to track performance. 

Without cost estimates that are comprehensive, well-documented, 
accurate, and credible, IRS management and Congress may not have a 
complete picture of the resources needed for the program. 

If risks identified at various levels in the agency and mitigation 
options are not also systematically assessed at the strategic, program 
level, key risks could be overlooked and not mitigated. 

Dealing with these issues will not guarantee smooth implementation of 
the program but could make it more likely. 

Recommendations: 

* IRS should define program goals and develop a project plan in one 
document that effectively integrates all aspects of the program. 

* IRS should document a schedule for developing performance measures 
that link to program goals. 

* IRS should develop a more complete cost estimate that is consistent 
with the GAO Cost Estimating Guide. 

* IRS should modify and document its risk management approach in order 
to have more assurance that all risks, including strategic-level risks 
for the program, are identified and analyzed and that mitigation 
options are assessed. 

Next Steps: 

* Issue interim report by June 29, 2011. 

* Continue our assessment of IRS for the work to be done to develop 
our final report by a date to be negotiated. 

[End of section] 

Appendix II: Sources Used to Develop Assessment Criteria: 

Develop an Overall Management Structure: 

Dedicate an implementation team to manage the process: 

GAO. Implementation Steps to Assist in Mergers and Organizational 
Transformations. [hyperlink, http://www.gao.gov/products/GAO-03-669]. 
Washington, D.C.: July 2, 2003. 

Define program goals: 

GAO. Government Reform: Goal Setting and Performance. [hyperlink, 
http://www.gao.gov/products/GAO/AIMD/GG-95-130R]. Washington, D.C.: 
March 27, 1995. 

Align workforce to achieve goals: 

GAO. Tax Administration: Workforce Planning Needs Further Development 
for IRS's Taxpayer Education and Communication Unit. [hyperlink, 
http://www.gao.gov/products/GAO-03-711]. Washington, D.C.: May 30, 
2003. 

Establish a performance measurement system: 

U.S. Department of the Treasury. Internal Revenue Service. Internal 
Revenue Manual. [hyperlink, http://www.irs.gov/irm/]. Accessed June 1, 
2011. 

GAO. Tax Administration: Planning for IRS's Enforcement Process 
Changes Included Many Key Steps but Can Be Improved. [hyperlink, 
http://www.gao.gov/products/GAO-04-287]. Washington, D.C.: January 20, 
2004. 

Establish an internal communications strategy: 

GAO. Internal Control Management and Evaluation Tool. [hyperlink, 
http://www.gao.gov/products/GAO-01-1008G]. Washington, D.C.: August 1, 
2001. 

GAO. Results-Oriented Cultures: Implementation Steps to Assist Mergers 
and Organizational Transformations. [hyperlink, 
http://www.gao.gov/products/GAO-03-669]. Washington, D.C.: July 2, 
2003. 

Foster partnerships with other federal agencies: 

GAO. Results-Oriented Government: Practices That Can Help Enhance and 
Sustain Collaboration among Federal Agencies. [hyperlink, 
http://www.gao.gov/products/GAO-06-15]. Washington, D.C.: October 21, 
2005. 

Track and monitor progress of internal and external parties: 

GAO. 2010 Census: Cost and Design Issues Need to Be Addressed Soon. 
[hyperlink, http://www.gao.gov/products/GAO-04-37]. Washington, D.C.: 
January 15, 2004. 

Estimate and Track Costs: 

GAO. GAO Cost Estimating and Assessment Guide: Best Practices for 
Developing and Managing Capital Program Costs. [hyperlink, 
http://www.gao.gov/products/GAO-09-3SP]. Washington, D.C.: March 2009. 

Assure Compliance While Minimizing Taxpayer Burden: 

U.S. Department of the Treasury. Internal Revenue Service. IRS 
Strategic Plan 2009-2013. [hyperlink, 
http://www.irs.gov/pub/irs-pdf/p3744.pdf]. Accessed June 1, 2011. 

U.S. Department of the Treasury. Internal Revenue Service. Reducing 
the Federal Tax Gap: A Report on Improving Voluntary Compliance. 
Washington, D.C.: August 2007. 

U.S. Department of the Treasury. Internal Revenue Service. National 
Taxpayer Advocate. IRS Oversight Board. Taxpayer Assistance Blueprint 
Phase 2. Washington, D.C.: April 2007. 

GAO. Internal Control Management and Evaluation Tool. [hyperlink, 
http://www.gao.gov/products/GAO-01-1008G]. Washington, D.C.: August 1, 
2001. 

GAO. Standards for Internal Control in the Federal Government. 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 
Washington, D.C.: November 1, 1999. 

GAO. Recovery Act: IRS Quickly Implemented Tax Provision, but 
Reporting and Enforcement Improvements Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-10-349]. Washington, D.C.: February 
10, 2010. 

GAO. Small Businesses: Tax Compliance Benefits and Opportunities to 
Mitigate Costs on Third Parties of Miscellaneous Income Reporting 
Requirements. [hyperlink, http://www.gao.gov/products/GAO-11-218T]. 
Washington, D.C.: November 18, 2010. 

GAO. Tax Gap: Actions That Could Improve Rental Real Estate Reporting 
Compliance. [hyperlink, http://www.gao.gov/products/GAO-08-956]. 
Washington, D.C.: August 28, 2008. 

GAO. Understanding the Tax Reform Debate: Background, Criteria, and 
Questions. [hyperlink, http://www.gao.gov/products/GAO-05-1009SP]. 
Washington, D.C.: September 1, 2005. 

Establish a Risk Management Framework: 

Office of Management and Budget Circular No. A-123. Management's 
Responsibility for Internal Control. [hyperlink, 
http://www.whitehouse.gov/omb/circulars_a123_rev]. Accessed June 1, 
2011. 

GAO. Internal Control Management and Evaluation Tool. [hyperlink, 
http://www.gao.gov/products/GAO-01-1008G]. Washington, D.C.: August 1, 
2001. 

GAO. Standards for Internal Control in the Federal Government. 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 
Washington, D.C.: November 1, 1999. 

GAO. Foreign Assistance: State Department Foreign Aid Information 
Systems Have Improved Change Management Practices but Do Not Follow 
Risk Management Best Practices. [hyperlink, 
http://www.gao.gov/products/GAO-09-52R]. Washington, D.C.: November 
21, 2008. 

GAO. Individual Disaster Assistance Programs: Framework for Fraud 
Prevention, Detection, and Prosecution. [hyperlink, 
http://www.gao.gov/products/GAO-06-954T]. Washington, D.C.: July 12, 
2006. 

GAO. Information Security Risk Assessment: Practices of Leading 
Organizations. [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-33]. Washington, D.C.: 
November 1, 1999. 

GAO. Risk Management: Further Refinements Needed to Assess Risks and 
Prioritize Protective Measures at Ports and Other Critical 
Infrastructure. [hyperlink, http://www.gao.gov/products/GAO-06-91]. 
Washington , D.C.: December 15, 2005. 

[End of section] 

Appendix III: Scope and Methodology: 

To determine the Internal Revenue Service's (IRS) responsibilities as 
set forth in the Patient Protection and Affordable Care Act (PPACA) 
[Footnote 4], as amended by the Health Care and Education 
Reconciliation Act of 2010,[Footnote 5], we asked IRS to provide a 
list of the provisions for which it had identified responsibilities. 
IRS provided this list, which indicated the IRS unit(s) with lead 
responsibility for each PPACA provision. Using this list, we reviewed 
the statutory language and interpretations of the PPACA provisions by 
the Joint Committee on Taxation (JCT) to summarize IRS's 
responsibilities for each provision, as well as the statutorily 
effective dates. We confirmed the final list and our summary of IRS's 
responsibilities with IRS officials. To highlight IRS's 
responsibilities under the legislation, we selected provisions for 
which JCT or Congressional Budget Office (CBO) scorings indicated 
revenue or spending effects of at least $1 billion over the 2010-2019 
time frame and asked JCT and CBO to verify our work. Our list of the 
PPACA provisions for which IRS identified implementation 
responsibilities, IRS's responsibilities for each provision, and the 
statutorily effective dates of the provisions can be found in appendix 
IV. 

To establish a set of leading practices for assessing IRS's 
implementation of PPACA, we reviewed our products on planning and 
implementing new tax administration and other types of programs as 
well as on IRS compliance efforts. A listing of these products can be 
found in appendix II. We identified four areas of leading practices, 
as described below. 

* Developing an Overall Management Structure: dedicating an 
implementation team, establishing program goals, aligning resources 
and workforce, establishing performance measures, communicating 
internally, coordinating with other federal agencies and departments, 
and tracking and monitoring progress. 

* Estimating and Tracking Costs: estimating and tracking costs, 
including assessing the adequacy of any completed estimates of the 
life-cycle costs of implementation. 

* Assuring Compliance while Minimizing Burden: balancing service and 
enforcement, to both assure compliance and minimize the overall burden 
of compliance on society, such as the beneficiaries and intermediaries. 

* Establishing a Risk Management Framework: developing a framework to 
analyze risks, trade-offs, and results. 

We selected the area of assuring compliance while minimizing burden 
because IRS will need to enforce several provisions of the law that 
will affect a broad segment of the public. Our prior work on 
implementing new programs identified the other three areas. 
Information technology (IT) plays a significant role in IRS's planning 
efforts. Our work included IRS's IT efforts within the leading 
practices mentioned above. 

To develop criteria for these four areas, we analyzed our products 
including reports relevant to leading practices for overall management 
structure, tax compliance, and risk management; the GAO Cost 
Estimating and Assessment Guide; Office of Management and Budget 
Circular A-123; the Internal Revenue Manual; and IRS's strategic plan. 
We discussed our draft criteria with GAO staff knowledgeable in 
related areas, IRS officials to obtain input and concurrence, and 
staff from Massachusetts Department of Revenue who helped implement 
state-level health care reform legislation that included similarities 
to aspects of PPACA. 

To apply our criteria to IRS's planning for PPACA implementation, we 
analyzed IRS documentation and data, including planning documents, 
meeting minutes of implementation teams, risk logs, charters, project 
plans, IRS's database of implementation actions planned and taken, and 
presentations given by IRS staff responsible for implementation 
planning. Our analysis is limited by the extent to which IRS 
documentation is not yet developed or available, such as a 
communications plan that will be completed in the summer of 2011. We 
interviewed IRS officials and staff at IRS's National Office, 
including those in the Office of the Chief Financial Officer; Office 
of the Commissioner; the Executive Steering Committee for PPACA; and 
the Services & Enforcement (S&E) and Modernization and Information 
Technology Services (MITS) Program Management Offices (PMO) to clarify 
our understanding of the documentation provided and their views on how 
their actions taken and planned compared to our criteria. We 
identified gaps between progress so far and the criteria and looked 
for IRS's plans to close those gaps. 

As agreed with your offices, our assessment focused on IRS's planning 
for implementing PPACA provisions that were effective after 2011. 
First, provisions taking effect retroactively, on enactment, or in 
2010 after enactment included types of changes in the tax code that 
were relatively familiar to IRS (such as new or modified tax credits) 
compared to provisions effective after 2011 such as those involving 
state exchanges. Second, we sought to avoid duplicating efforts with 
the Treasury Inspector General for Tax Administration, which has been 
evaluating IRS's implementation of several provisions with effective 
dates in 2010. As agreed, we focused on IRS's ongoing planning and 
implementation efforts rather than on IRS's implementation of 
provisions whose effective dates had passed. Similarly, our assessment 
focused on IRS. As a result, we did not contact other federal 
agencies--such as the Department of Health and Human Services--the 
states, or other organizations about coordinating with IRS in 
implementing PPACA. 

This briefing provides a summary of our findings-to-date. We 
summarized the status of IRS's progress in each of the four areas of 
leading practices rather than rating progress against a scale. This 
summary of our work will be updated and included in any associated 
future reports along with our overall findings, conclusions, and 
recommendations. 

[End of section] 

Appendix IV: PPACA Provisions Providing an IRS Role in Implementation: 

Patient Protection and Affordable Care Act (PPACA), Pub. L. No. 111-
148, 124 Stat. 119 (Mar. 23, 2010): 

1; 
Legislation section: 1001; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Prohibits group health plans from 
discriminating in favor of highly compensated individuals; 
Internal Revenue Service's (IRS) role: Issued notice inviting public 
comment on application to group health plans; 
Effective date: 09/23/10. 

2; 
Legislation section: 1102; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Establishes a temporary reinsurance program to 
provide reimbursement for a portion of the cost of providing health 
insurance coverage to early retirees; 
Internal Revenue Service's (IRS) role: Ensure payments received for 
submission of claims for health coverage to early retirees are not 
included in the gross income of the employment-based plan; 
Effective date: 03/23/10; Until; 01/01/14. 

3; 
Legislation section: 1104; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Imposes a penalty on health plans identified in 
an annual Department of Health and Human Services (HHS) penalty fee 
report, which is to be collected by the Financial Management Service 
after notice by the Department of the Treasury (Treasury); 
Internal Revenue Service's (IRS) role: Draft guidance or regulations, 
according to IRS; 
Effective date: 03/23/10. 

4; 
Legislation section: 1311; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Requires state exchanges to send to Treasury a 
list of the individuals exempt from having minimum essential coverage, 
those eligible for the premium assistance tax credit, and those who 
notified the exchange of change in employer or who ceased coverage of 
a qualified health plan; 
Internal Revenue Service's (IRS) role: Coordinate with HHS on drafting 
guidance or regulations, according to IRS; 
Effective date: 03/23/10. 

5; 
Legislation section: 1322; 
Internal Revenue Code (IRC) section: 501(c)(29); 
Provision description: Provides tax exemption for nonprofit health 
insurance companies receiving federal start-up grants or loans to 
provide insurance to individuals and small groups; 
Internal Revenue Service's (IRS) role: Ensure tax exemption for 
certain nonprofit health insurers receiving loans or grants under the 
Consumer Operated and Oriented Plan as established by HHS to provide 
insurance in the individual and small-group market; 
Effective date: 03/23/10. 

6; 
Legislation section: 1341; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Provides tax exemption for entities providing 
reinsurance for individual policies during first 3 years of state 
exchanges; 
Internal Revenue Service's (IRS) role: Ensure tax exemption for 
entities providing reinsurance for individual health insurance 
policies during the first 3 years of state exchanges; 
Effective date: 03/23/10. 

7; 
Legislation section: 1401; 
Internal Revenue Code (IRC) section: 36B; 
Provision description: Provides premium assistance refundable tax 
credits for applicable taxpayers who purchase insurance through a 
state exchange, paid directly to the insurance plans monthly or to 
individuals who pay out-of-pocket at the end of the taxable year; 
Internal Revenue Service's (IRS) role: Prescribe regulations governing 
the reconciliation of advance payment amounts with authorized credits 
and where taxpayer's filing status differs from what was used to 
determine credit eligibility; 
Effective date: 01/01/14. 

8; 
Legislation section: 1402; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Provides a cost-sharing subsidy for applicable 
taxpayers to reduce annual out-of-pocket deductibles; 
Internal Revenue Service's (IRS) role: Prescribe regulations with the 
Secretary of HHS on calculating family size and household income; 
Effective date: 03/23/10. 

9; 
Legislation section: 1411; 
Internal Revenue Code (IRC) section: 36B; 
Provision description: Outlines the procedures for determining 
eligibility for exchange participation, premium tax credits and 
reduced cost-sharing, and individual responsibility exemptions; 
Internal Revenue Service's (IRS) role: Verify household income and 
family size for purposes of eligibility for the tax credit and cost-
sharing reduction; 
Effective date: 03/23/10. 

10; 
Legislation section: 1412; 
Internal Revenue Code (IRC) section: 36B; 
Provision description: Allows advance determinations and payment of 
premium tax credits and cost-sharing reductions; 
Internal Revenue Service's (IRS) role: Make advance tax credit 
payments directly to issuer of a qualified plan on a monthly basis. 
Collect information from exchanges on individuals' participation, 
including the plan purchased and amounts advanced; 
Effective date: 03/23/10. 

11; 
Legislation section: 1414; 
Internal Revenue Code (IRC) section: 6103; 
Provision description: Authorizes IRS to disclose certain taxpayer 
information to HHS for purposes of determining eligibility for premium 
tax credit, cost-sharing subsidy, or state programs including 
Medicaid, including (1) taxpayer identity; (2) the filing status of 
such taxpayer; (3) the modified adjusted gross income of taxpayer, 
spouse, or dependents; and (4) tax year of information; 
Internal Revenue Service's (IRS) role: Disclose certain taxpayer 
information to HHS officers, employees, and contractors on any 
taxpayer whose income is relevant to determining their eligibility for 
the premium tax credit, cost-sharing subsidy, Medicaid, state 
Children's Health Insurance Program, or a basic state health program 
established under PPACA; 
Effective date: 03/23/10. 

12; 
Legislation section: 1421; 
Internal Revenue Code (IRC) section: 45R; 
Provision description: Provides nonrefundable tax credits for 
qualified small employers (no more than 25 full-time equivalents (FTE) 
with annual wages averaging no more than $50,000) for contributions 
made on behalf of its employees for premiums for qualified health 
plans; 
Internal Revenue Service's (IRS) role: Administer tax credit for small 
employers who contribute to health insurance premiums for their 
employees; 
Effective date: 01/01/10. 

13; 
Legislation section: 1501; 
Internal Revenue Code (IRC) section: 5000A; 
Provision description: Requires all U.S. citizens and legal residents 
and their dependents to maintain minimum essential insurance coverage 
unless exempted starting in 2014 and imposes a fine on those failing 
to maintain such coverage; 
Internal Revenue Service's (IRS) role: Collect penalties incurred by 
individuals who do not have minimum essential health insurance 
coverage, using limited collection methods including offsetting 
penalty amounts against refunds or credits; 
Effective date: 01/01/14. 

14; 
Legislation section: 1502; 
Internal Revenue Code (IRC) section: 6055, 6724(d); 
Provision description: Requires every person who provides minimum 
essential coverage to file an information return with the insured 
individuals and with IRS; 
Internal Revenue Service's (IRS) role: Prescribe the form and manner 
of the information return required to be filed by January 31 by all 
insurers, including employers that provided minimum essential health 
coverage to individuals in the preceding year. Apply penalties where 
an insurer does not file the information return. Notify individuals 
filing tax returns who do not have minimum essential health coverage 
that they can be penalized and provide information on the individual's 
state exchange; 
Effective date: 01/01/14. 

15; 
Legislation section: 1513; 
Internal Revenue Code (IRC) section: 4980H; 
Provision description: Imposes a penalty on large employers (50+ FTEs) 
who (1) do not offer coverage for all of their full-time employees, 
offer unaffordable minimum essential coverage, or offer plans with 
high out-of-pocket costs and (2) have at least one full-time employee 
certified as having purchased health insurance through a state 
exchange and was eligible for a tax credit or subsidy; 
Internal Revenue Service's (IRS) role: Collect penalties assessed 
annually, monthly, or periodically and repay any penalty including 
interest where the premium credit or cost sharing is subsequently 
disallowed; 
Effective date: 01/01/14. 

16; 
Legislation section: 1514; 
Internal Revenue Code (IRC) section: 6056, 6724(d); 
Provision description: Requires information reporting of health 
insurance coverage information by large employers (subject to IRC 
4980H) and certain other employers; 
Internal Revenue Service's (IRS) role: Prescribe the form of the 
information return to be filed by large employers and other employers 
offering minimum essential health coverage certifying that coverage 
was offered and providing information on the individuals covered, and 
impose penalties on those failing to submit returns; 
Effective date: 01/01/14. 

17; 
Legislation section: 1515; 
Internal Revenue Code (IRC) section: 125(f)(3); 
Provision description: Offers tax exclusion for reimbursement of 
premiums for small-group exchange-participating health plans offered 
by small employers to all full-time employees as part of a cafeteria 
plan; 
Internal Revenue Service's (IRS) role: Ensure tax exclusion for 
employers offering exchange-participating health plan in an employee 
cafeteria plan; 
Effective date: 01/01/14. 

18; 
Legislation section: 1563; 
Internal Revenue Code (IRC) section: 9815; 
Provision description: Subjects new group health plans to certain 
Public Health Service Act requirements and imposes the excise tax on 
plans that fail to meet those requirements. (conforming amendment); 
Internal Revenue Service's (IRS) role: Impose the excise tax for 
failure to meet Public Health Service Act requirements on new group 
health plans under PPACA; 
Effective date: 03/23/10. 

19; 
Legislation section: 3308; 
Internal Revenue Code (IRC) section: 6103; 
Provision description: Authorizes IRS to disclose certain taxpayer 
information to the Social Security Administration (SSA) regarding 
reduction in the subsidy for Medicare Part D for high-income 
beneficiaries. (conforming amendment); 
Internal Revenue Service's (IRS) role: Disclose certain taxpayer 
return information to SSA under IRC 6103; 
Effective date: 03/23/10. 

20; 
Legislation section: 5605; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Requires the independent institute partnering 
with the National Academy of Sciences (NAS) to implement a key 
national indicator system to be a nonprofit entity under section 
501(c)(3); 
Internal Revenue Service's (IRS) role: Enable the independent private 
organization partnering with NAS to create the key national indicator 
system to be a nonprofit entity under IRC 501(c)(3); 
Effective date: 03/23/10. 

21; 
Legislation section: 6301; 
Internal Revenue Code (IRC) section: 4375, 4376, 4377, 9511; 
Provision description: Imposes a fee through 2019 on specified health 
insurance policies and applicable self-insured health plans to fund 
the Patient-Centered Outcomes Research Trust Fund to be used for 
comparative effectiveness research; 
Internal Revenue Service's (IRS) role: Administer fee on insured and 
self-insured health plans equal to $2 per individual insured ($1 in 
plan years ending during fiscal year 2013) to be used by Patient-
Centered Outcomes Research Trust Fund for comparative effectiveness 
research; 
Effective date: 10/01/12. 

22; 
Legislation section: 9001; 
Internal Revenue Code (IRC) section: 4980I; 
Provision description: Imposes a 40 percent excise tax on high cost 
employer-sponsored health insurance coverage on the aggregate value of 
certain benefits that exceeds the threshold amount; 
Internal Revenue Service's (IRS) role: Administer excise tax on high-
cost employer-sponsored health insurance coverage and impose penalties 
on employers, or the plan sponsor for multiemployer plans, for failure 
to properly calculate amount of the excess benefit subject to the tax; 
Effective date: 01/01/18. 

23; 
Legislation section: 9002; 
Internal Revenue Code (IRC) section: 6051; 
Provision description: Requires employers to disclose the value of the 
employee's health insurance coverage sponsored by the employer on the 
annual Form W-2; 
Internal Revenue Service's (IRS) role: Administer change to W-2 
reporting to include the value of employer-sponsored health coverage 
excluding any flexible health spending arrangements; 
Effective date: 01/01/11. 

24; 
Legislation section: 9003; 
Internal Revenue Code (IRC) section: 105, 106, 220, 223; 
Provision description: Repeals the tax exclusion for over-the-counter 
medicines under a Health Flexible Spending Arrangement (FSA), Health 
Reimbursement Arrangement (HRA), Health Savings Account (HSA), or 
Archer Medical Savings Account (MSA), unless the medicine is 
prescribed by a physician; 
Internal Revenue Service's (IRS) role: Administer change to qualified 
expenses that can be reimbursed by a health FSA or HSA to include only 
prescription drugs and insulin; 
Effective date: 01/01/11. 

25; 
Legislation section: 9004; 
Internal Revenue Code (IRC) section: 220, 223; 
Provision description: Increases tax on distributions from HSAs and 
Archer MSAs not used for medical expenses; 
Internal Revenue Service's (IRS) role: Administer increase to tax on 
distributions from HSAs and Archer MSAs that are not used for 
qualified medical expenditures; 
Effective date: 01/01/11. 

26; 
Legislation section: 9005; 
Internal Revenue Code (IRC) section: 125; 
Provision description: Limits health FSAs under cafeteria plans to a 
maximum of $2,500 adjusted for inflation; 
Internal Revenue Service's (IRS) role: Administer reduction in health 
FSA amounts to a maximum of $2,500 adjusted for inflation; 
Effective date: 01/01/13. 

27; 
Legislation section: 9007; 
Internal Revenue Code (IRC) section: 501(c)(29), 4959, 6033; 
Provision description: Imposes additional reporting requirements for 
charitable hospitals to qualify as tax-exempt under IRC 501(c)(3) and 
requires hospitals to conduct a community health needs assessment at 
least once every 3 years and to adopt a financial assistance policy 
and policy relating to emergency medical care; 
Internal Revenue Service's (IRS) role: Ensure compliance with 
additional requirements for charitable hospitals to qualify as 
501(c)(3) organization, review community benefit activities at least 
once every 3 years, impose penalties for failing to conduct community 
needs assessment, issue guidance on what constitutes reasonable 
efforts to determine patient eligibility for financial assistance 
under the hospital's policy, and annually report to Congress on levels 
of charity care provided and costs of care incurred; 
Effective date: 03/23/10; Community assessment: 03/23/13. 

28; 
Legislation section: 9008; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Imposes a fee on each covered entity engaged in 
the business of manufacturing or importing branded prescription drugs; 
Internal Revenue Service's (IRS) role: Calculate the fee amount and 
collect fee on manufacturers of branded prescription drugs sold to 
Medicare Parts B and D; Medicaid; Department of Veterans Affairs (VA); 
TRICARE; or other Department of Defense or VA programs; 
Effective date: 01/01/11. 

29; 
Legislation section: 9010; 
Internal Revenue Code (IRC) section: [Empty]; 
Provision description: Imposes an annual fee on any entity that 
provides health insurance for any U.S. health risk with net premiums 
written during the calendar year that exceed $25 million; 
Internal Revenue Service's (IRS) role: Calculate and collect annual 
fee on certain health insurance providers and administer penalties for 
entities who fail to report the amount of their net premiums for the 
calendar year, or report inaccurately; 
Effective date: 01/01/14. 

30; 
Legislation section: 9012; 
Internal Revenue Code (IRC) section: 139A; 
Provision description: Allows the deduction for retiree prescription 
drug expenses only after the deduction amount is reduced by the amount 
of the excludable subsidy payments received; 
Internal Revenue Service's (IRS) role: Ensure amount of deduction for 
retiree prescription drug expenses has been reduced by any subsidy 
payments received; 
Effective date: 01/01/13. 

31; 
Legislation section: 9013; 
Internal Revenue Code (IRC) section: 213; 
Provision description: Increases the threshold for the itemized 
deduction for unreimbursed medical expenses from 7.5 percent of 
Adjusted Gross Income (AGI) to 10 percent of AGI (unless taxpayer 
turns 65 during 2013-2016 and then threshold remains at 7.5 percent); 
Internal Revenue Service's (IRS) role: Ensure itemized deductions for 
unreimbursed medical expenses by taxpayers meet the 10 percent AGI 
threshold; 
Effective date: 01/01/13. 

32; 
Legislation section: 9014; 
Internal Revenue Code (IRC) section: 162; 
Provision description: Denies the business expenses deductions for 
wage payments made to individuals for services performed for certain 
health insurance providers if the payment exceeds $500,000; 
Internal Revenue Service's (IRS) role: Ensure deductions for 
remuneration exceeding $500,000 are not allowed for certain insurance 
providers; 
Effective date: 01/01/13: For services performed after 12/31/09. 

33; 
Legislation section: 9015; 
Internal Revenue Code (IRC) section: 1401, 3101, 3102; 
Provision description: Imposes an additional Hospital Insurance 
(Medicare) Tax of 0.9 percent on wages over $200,000 for individuals 
and over $250,000 for couples filing jointly; 
Internal Revenue Service's (IRS) role: Collect additional Hospital 
Insurance Tax to remit to the hospital insurance trust fund; 
Effective date: 01/01/13. 

34; 
Legislation section: 9016; 
Internal Revenue Code (IRC) section: 833; 
Provision description: Limits eligibility for deductions under section 
833 (treatment of Blue Cross and Blue Shield) unless the organizations 
meet a medical loss ratio standard of at least 85 percent for the 
taxable year; 
Internal Revenue Service's (IRS) role: Issue guidance on determining 
medical loss ratio and ensure that proper deductions are allowed under 
IRC 833; 
Effective date: 01/01/10. 

35; 
Legislation section: 9021; 
Internal Revenue Code (IRC) section: 139D; 
Provision description: Allows an exclusion from gross income for the 
value of specified Indian tribe health care benefits; 
Internal Revenue Service's (IRS) role: Ensure that the value of 
specified Indian tribe health care benefits is not included in gross 
income; 
Effective date: 03/23/10. 

36; 
Legislation section: 9022; 
Internal Revenue Code (IRC) section: 125; 
Provision description: Allows small businesses to offer simple 
cafeteria plans--plans that increase employees' health benefit options 
without the nondiscrimination requirements of regular cafeteria plans; 
Internal Revenue Service's (IRS) role: Ensure compliance with 
requirements of "simple cafeteria plans" for small businesses; 
Effective date: 01/01/11. 

37; 
Legislation section: 9023; 
Internal Revenue Code (IRC) section: 48D; 
Provision description: Establishes a 50 percent nonrefundable 
investment tax credit for qualified therapeutic discovery projects; 
Internal Revenue Service's (IRS) role: Award certifications with HHS 
for qualified investments and distribute the $1 billion provided for 
2009 and 2010 as tax credits or grants; 
Effective date: 01/01/09. 

38; 
Legislation section: 10108; 
Internal Revenue Code (IRC) section: 139D; 
Provision description: Requires employers to provide free choice 
vouchers to certain employees who contribute over 8 percent but less 
than 9.8 percent of their household income to the employer's insurance 
plan to be used by employees to purchase health insurance though the 
exchange; 
Internal Revenue Service's (IRS) role: Ensure that taxpayers receiving 
vouchers do not get the premium assistance tax credit or cost sharing 
subsidy and do not include the amount of the free choice voucher in 
calculating gross income, and allow employers to deduct cost of 
voucher as a business expense; 
Effective date: 01/01/14. 

39; 
Legislation section: 10907; 
Internal Revenue Code (IRC) section: 5000B; 
Provision description: Imposes a tax on any indoor tanning service 
equal to 10 percent of amount paid for service; 
Internal Revenue Service's (IRS) role: Ensure tax is collected and 
remitted to IRS at time and in manner specified; 
Effective date: 07/01/10. 

40; 
Legislation section: 10908; 
Internal Revenue Code (IRC) section: 108(f)(4); 
Provision description: Excludes from gross income amounts received by 
a taxpayer under any state loan repayment or loan forgiveness program 
that is intended to provide for the increased availability of health 
care services in underserved or health professional shortage areas; 
Internal Revenue Service's (IRS) role: Ensure that student loan 
repayments or forgiveness for certain health care professionals 
working in certain areas are excluded from gross income; 
Effective date: 01/01/09. 

41; 
Legislation section: 10909; 
Internal Revenue Code (IRC) section: 23, 137; 
Provision description: Increases the maximum adoption tax credit and 
the maximum exclusion for employer-provided adoption assistance for 
2010 and 2011 to $13,170 per eligible child; 
Internal Revenue Service's (IRS) role: Facilitate the expansion of the 
already established adoption credit and exclusion for the adoption 
assistance program; 
Effective date: 01/01/10. 

Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-
152, 124 Stat. 1029 (Mar. 30, 2010): 

42; 
Legislation section: 1004; 
Internal Revenue Code (IRC) section: 105, 162, 401, 501; 
Provision description: Extends the exclusion from gross income for 
reimbursements for medical expenses under an employer-provided 
accident or health plan to employees' children under 27 years; 
Internal Revenue Service's (IRS) role: Ensure that taxpayers properly 
exclude (or deduct, in the case of self-employed taxpayers) amounts 
paid by employers for health insurance for employees' older children; 
Effective date: 03/30/10. 

43; 
Legislation section: 1402; 
Internal Revenue Code (IRC) section: 1411; 
Provision description: Imposes an unearned income Medicare 
contribution tax of 3.8 percent on individuals, estates, and trusts on 
the lesser of net investment income or the excess of modified adjusted 
gross income (AGI + foreign earned income) over a threshold of 
$200,000 (individual) or $250,000 (joint); 
Internal Revenue Service's (IRS) role: Ensure collection of unearned 
income Medicare contribution tax on net investment income or modified 
adjusted income of certain individuals, trusts, or estates; 
Effective date: 01/01/13. 

44; 
Legislation section: 1405; 
Internal Revenue Code (IRC) section: 4191; 
Provision description: Imposes a tax of 2.3 percent on the sale price 
of any taxable medical device on the manufacturer, producer, or 
importer; 
Internal Revenue Service's (IRS) role: Ensure payment by 
manufacturers, producers, or importers of a 2.3 percent sales tax on 
certain medical devices (does not include eyeglasses, contact lenses, 
hearing aids or other devices excluded by IRS); 
Effective date: 01/01/13. 

45; 
Legislation section: 1408; 
Internal Revenue Code (IRC) section: 40; 
Provision description: Amends the cellulosic biofuel producer credit 
(nonrefundable tax credit of about $1.01 for each gallon of qualified 
fuel production of the producer) to exclude fuels with significant 
water, sediment, or ash content (such as black liquor); 
Internal Revenue Service's (IRS) role: Ensure that tax credits for 
cellulosic biofuel are not allowed for fuels with significant water, 
sediment, or ash content; 
Effective date: 01/01/10. 

46; 
Legislation section: 1409; 
Internal Revenue Code (IRC) section: 6662, 6662A, 6664, 6676, 7701; 
Provision description: Clarifies and enhances the applications of the 
economic substance doctrine and imposes penalties for underpayments 
attributable to transaction lacking economic substance; 
Internal Revenue Service's (IRS) role: Impose penalties for 
underpayments, nondisclosed transactions, and erroneous claims for 
refund or credit relating to non-economic-substance transactions; 
Effective date: 03/30/10. 

47; 
Legislation section: 1410; 
Internal Revenue Code (IRC) section: 6655; 
Provision description: Increases the required payment of corporate 
estimated tax due in the third quarter of 2014 by 15.75 percent for 
corporations with more than $1 billion in assets, and reduces the next 
payment due by the same amount; 
Internal Revenue Service's (IRS) role: Ensure payment of estimated 
taxes by certain corporations is increased for the filing in July, 
August, or September 2014; 
Effective date: 03/30/10. 

Source: GAO summary of PPACA and Reconciliation Act provisions 
affecting IRS. 

Notes: IRS identified 47 provisions in PPACA and the Reconciliation 
Act that provide an IRS role in implementation. GAO did not 
independently determine whether any additional provisions affect IRS. 

The chart lists the statutory effective date of the provisions; 
however, some provisions will not need to be immediately implemented. 
For example, the federal cost-sharing subsidy provision was effective 
upon enactment of PPACA, but will not be available to the taxpayer 
until 2014 as a companion to the premium assistance tax credit. 

The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange 
Subsidy Overpayments Act of 2011, Pub. L. No. 112-9, signed by the 
President on April 14, 2011, repealed the requirements of section 9006 
of PPACA that expanded information reporting to payments made to 
corporations and to payments for property and other gross proceeds. 
Section 9006 is not included in GAO's summary. 

[End of table] 

[End of section] 

Appendix V: Comments from the Internal Revenue Service: 

Department Of The Treasury: 
Commissioner: 
Internal Revenue Service: 
Washington, D.C. 20224: 

June 20, 2011: 

Mr. James R. White: 
Director, Tax Issues: 
Strategic Issues Team: 
U.S. Government Accountability Office: 
441 G Street, NW — Room 2440C: 
Washington, D.C. 20548: 

Dear Mr. White: 

We appreciate GAO's assessment of our ongoing efforts to implement the 
tax law changes included in the Affordable Care Act (ACA). Both short-
term implementation and long-term planning began immediately upon 
passage of the legislation. Our efforts focused on ensuring tax law 
changes which were retroactive or immediately effective were 
implemented in a timely fashion and a structure and process was in 
place to begin planning for provisions with effective dates in future 
years. 

Your team provided valuable input on best practices in planning and 
organizing an effort of this scale, which we will consider as we move 
forward in the implementation process. Our comments to your specific 
recommendations are outlined in the enclosure. Our efforts, including 
those we have taken or are planning to take in response to your 
recommendations, will position us well for successful implementation 
of the tax law provisions of the ACA. 

Sincerely, 

Signed by: 

Douglas H. Shulman: 

Enclosure: 

[End of letter] 

Enclosure: 

GAO Recommendations and IRS Responses to GAO Draft Report, Patient 
Protection And Affordable Care Act: IRS Should Expand Its Strategic 
Approach to Implementation: GA0-11-719. 

Recommendation: 

IRS should define program goals and develop a project plan in one 
document that effectively integrates all aspects of the program. 

Comments: 

We agree, and will consider the best way to capture an overarching 
program plan that integrates our IT and business planning to date and 
lays out the needs and requirements for implementing tax law 
provisions of ACA from a corporate and strategic level. Further 
definition around our overall program goals will be provided. 

Recommendation: 

IRS should document a schedule for developing performance measures 
that link to program goals. 

Comments: 

Development of performance metrics, including an appropriate timeline, 
will be a mandatory element of the implementation plan for each 
provision. We are already working with our Research, Analysis and 
Statistics Division to obtain and develop comprehensive metrics for 
exchange and non-exchange provisions. In addition, existing program 
performance measures, such as telephone level of service, will be 
useful for some provisions. 

Recommendation: 

IRS should develop a more complete cost estimate that is consistent 
with the GAO Cost Estimating Guide. 

Comments: 

We appreciate GAO's thorough review of the cost estimates, and while 
we believe that they are sound and supported by substantial data and 
analysis, we agree with your recommendation to further explore 
enhancements, particularly those that extend beyond FY 2012. 

Recommendation: 

IRS should modify and document its risk management approach in order 
to have more assurance that all risks, including strategic-level risks 
for the program, are identified and analyzed and that mitigation 
options are assessed. 

Comments: 

We are clarifying our risk management process to ensure transparency 
in our process of having strategic-level corporate risks raised and 
assessed by top IRS executives and the development and monitoring of 
appropriate mitigation strategies. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James R. White, (202) 512-9110, whitej@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Thomas Short, Assistant 
Director; Linda Baker; Amy Bowser; Dean Campbell; Jennifer Echard; 
Meredith Graves; Sairah Ijaz; Paul Middleton; Donna Miller; Edward 
Nannenhorn; Melanie Papasian; Sabine Paul; Marylynn Sergent; and 
Cynthia Saunders made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010) as amended by 
the Health Care and Education Reconciliation Act of 2010 (Pub. L. No. 
111-152). PPACA includes a number of provisions to reform the private 
insurance market and expand health insurance coverage to the 
uninsured. It affects all major health care stakeholders, including 
federal and state governments, insurers, employers, and providers. 

[2] Provisions of the law affect virtually all types of taxpayers. To 
implement the provisions, IRS's budget for fiscal year 2012 requested 
$473 million and more than 1,200 full-time equivalent (FTE) staff. 

[3] As scored by the Congressional Budget Office and the Joint 
Committee on Taxation. See CBO Publications Related to Health Care 
Legislation 2009-2010 (Washington, D.C.: December 2010). 

[4] Pub. L. No. 111-148. 

[5] Pub. L. No. 111-152. 

[End of section] 

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