Patient Protection and Affordable Care Act: IRS Needs to Strengthen Oversight of Tax Provisions for Individuals
What GAO Found
In January 2015, the Internal Revenue Service (IRS) began verifying taxpayers' premium tax credit (PTC) claims using marketplace data on enrollments and advance payments of the PTC. IRS is using its standard examination processes to check the coverage, exemption, or shared responsibility payment (SRP) information taxpayers report. IRS's overall goals are to efficiently and effectively enforce compliance with tax laws, reduce taxpayer burden, and encourage voluntary compliance.
Incomplete and delayed marketplace data limited IRS's ability to match taxpayer PTC claims to marketplace data at the time of return filing. Complete marketplace data for the 2014 coverage year were due to IRS in January, but due to marketplace delays in transmitting the data and IRS technical difficulties with processing the data for matching, as of March 21, 2015, IRS had complete data available for verification of taxpayer PTC claims for 4 of the 51 marketplace states (i.e., the 50 states and the District of Columbia). IRS does not know whether these challenges are a single year or an ongoing problem. According to IRS officials, IRS checks the formatting, but not the accuracy of the data. Although IRS implemented contingency plans to compensate for missing and inaccurate data, those processes were more burdensome for taxpayers. Assessing whether the problems with the timeliness and reliability of the marketplace data are expected to be an ongoing challenge, rather than just a first-year problem, would help IRS understand how it can use the data effectively and better target contingency plans.
IRS does not know the total amount of advance PTC payments made to insurers for 2014 marketplace policies because marketplace data are incomplete. Without this information, IRS does not know the aggregate amount of advance PTC that taxpayers should have reported on 2014 tax returns. Thus, IRS does not know the size of the gap between advance PTC paid and reported or the extent of noncompliance with the requirement for recipients of advance PTC payments to accurately report those payments on their tax return, a measure that could help IRS assess the effectiveness of its education, outreach, and compliance efforts.
Successful implementation of the PTC and individual shared responsibility tax provisions requires IRS collaboration with the Centers for Medicare & Medicaid Services (CMS)—which is responsible for overseeing the marketplaces—and the marketplaces, and communication with other stakeholders, such as tax software companies, employers, and health insurers. IRS worked to collaborate and communicate with external stakeholders to implement PPACA requirements for tax year 2014. However, several external stakeholders GAO spoke with reported challenges with IRS collaboration efforts, such as not receiving certain IRS guidance in time for stakeholders to have complete information at the beginning of the filing season. IRS is evaluating opportunities for improving return processing and the taxpayer experience, but is not evaluating its collaboration efforts. Without an assessment of its efforts to collaborate and communicate with key external stakeholders, challenges in implementing the 2014 PPACA requirements that relied on these groups could also affect new requirements taking effect in 2015, including new information reporting requirements for the State-based Marketplaces, issuers of coverage, and applicable large employers.
Why GAO Did This Study
Tax year 2014 marked the first time individual taxpayers were required by the Patient Protection and Affordable Care Act (PPACA) to report health care coverage information on their tax returns. Taxpayers reported on whether they had health care coverage, had an exemption from the coverage requirement, or owed a tax penalty (the SRP). Most taxpayers who received coverage through a health insurance marketplace were also eligible for an advance PTC to make their coverage more affordable. Marketplace customers can choose to have the PTC paid in advance to their insurance company or may claim all of the credit when they file their tax returns. GAO was asked to review IRS implementation of the individual shared responsibility and PTC tax provisions.
Among other objectives, this report examines (1) IRS's implementation of these PPACA requirements; and (2) IRS efforts to collaborate with key external stakeholders. To address these objectives, GAO reviewed documents from IRS and CMS; analyzed preliminary 2014 tax year data; and interviewed officials from IRS, CMS, marketplaces and other key external stakeholders, such as tax preparers and tax software companies.
GAO recommendations include that IRS (1) assess whether marketplace data delays are an ongoing problem, (2) assess the reliability of the data for IRS matching, (3) work with CMS to get complete data and track the aggregate gap between advance PTC paid and reported, and (4) evaluate its collaboration efforts. IRS generally agreed with GAO's recommendations.
Recommendations for Executive Action
|Internal Revenue Service||To strengthen oversight of the individual shared responsibility and premium tax credit provisions, the Commissioner of Internal Revenue should assess the costs and benefits of compliance options, such as soft notices, that could be used beginning in the 2016 filing season to address the problem of tax returns that do not include at least one of the following: indication of full-year health care coverage, claim of an exemption from the requirement to have coverage, or report of a shared responsibility payment, as required.||
IRS developed a process to use during the 2017 filing season to address "silent returns," those on which taxpayers failed to (1) indicate full-year health care coverage, (2) claim an exemption from the coverage requirement, or (3) report a shared responsibility payment. IRS had planned to reject electronically filed silent returns and suspend all paper silent returns and send notices to taxpayers asking them to choose one of the three options noted above. However, an executive order issued in January 2017 directs federal agencies to exercise all authority and discretion available to them to reduce the potential burden of the Patient Protection and Affordable Care Act. In response to this executive order, IRS did not implement its new process in 2017, and will continue processing silent returns.
|Internal Revenue Service||To strengthen oversight of the individual shared responsibility and premium tax credit provisions, the Commissioner of Internal Revenue should assess whether the challenges in getting complete and accurate marketplace data in time to conduct pre-refund verification of taxpayer PTC claims are a single year or an ongoing problem and, if they are an ongoing problem, assess the effects of the problem and options for correcting it.||
The Internal Revenue Service (IRS) agreed with GAO's recommendation. Starting with the 2015 tax return filing season and continuing through 2016, IRS put in place procedures to closely monitor the quality of insurance data submitted by the health insurance marketplaces and to coordinate on resolving any anomalies. IRS reviews the incoming data for compliance with formatting requirements and completeness and reports back to each marketplace any errors detected. IRS works to resolve data quality issues specific to each marketplace on an ongoing basis through a continuous communication feedback loop. IRS reports that as a result of this process it is seeing an improvement in both timeliness and quality of marketplace data submissions. IRS also developed mitigation strategies to address marketplace data quality issues during the 2015 filing season to enable it to continue processing tax returns even if marketplace data was delayed or missing. These mitigating efforts, retained during the 2016 filing season, will remain in place as IRS continues to work with marketplaces on improving health insurance coverage data quality.
|Internal Revenue Service||To strengthen oversight of the individual shared responsibility and premium tax credit provisions, the Commissioner of Internal Revenue should assess whether or not the data received from the health insurance marketplaces are sufficiently complete and accurate to enable effective correction of tax returns at-filing based on matching with the marketplace data and, if the assessment determines that such corrections would be effective, seek legislative authority to correct tax returns at-filing based on the marketplace data.||
The Internal Revenue Service (IRS) agreed with GAO's recommendation. IRS reports that the quality of data submitted by health insurance marketplaces has improved since the 2015 return filing season, and it continues to use its correspondence process for resolving discrepancies between marketplace data and data reported by the taxpayer after the return has been filed. In September 2021, agency officials told us they continue to collaborate with health insurance marketplaces on reporting requirements to ensure data is fit for at-filing compliance. IRS has not considered requesting legislative authority to correct tax returns at the time of filing based specifically on discrepancies between the data submitted by the health insurance marketplace and reported by the taxpayer. Agency officials noted that, for several years, a broader legislative initiative was proposed that would grant IRS correctable error authority in cases where the information provided by the taxpayer does not match the information contained in government databases. As of August 2022, such statutory authority has not been provided. Should this broad authority be granted in the future, IRS will then consider how to approach correction of tax returns at the time of filing based on discrepancies with health insurance marketplace data. We will continue to monitor progress on this recommendation.
|Internal Revenue Service||To strengthen oversight of the individual shared responsibility and premium tax credit provisions, the Commissioner of Internal Revenue should work with CMS to get the total amount of advance PTC paid for the 2014 tax year and establish, as a baseline, the aggregate amount of the gap between advance PTC paid and advance PTC reported for the 2014 tax year, and track this aggregate gap for future tax years to help in evaluating the effectiveness of IRS's PTC education and compliance efforts.||
IRS has taken various steps to identify the gap between advanced PTC paid and advanced PTC reported on tax returns. IRS performs reconciliation between CMS actual advanced PTC disbursements from its monthly trial balance summary reports and the advanced PTC data provided by state marketplaces. IRS also has begun comparing CMS's actual disbursements from its monthly trial balance summary reports to Tax Form 1095A, Health Insurance Marketplace Statement, by state. Beginning in 2016, CMS began reporting monthly payments to issuers in a way that aligned with CMS's monthly reporting to the IRS, allowing IRS to allocate PTC payments to the relevant calendar year (e.g., previously, advanced PTC payments issued in December of a given year could be allocated to either that tax year or the subsequent tax year).
|Internal Revenue Service||To strengthen oversight of the individual shared responsibility and premium tax credit provisions, the Commissioner of Internal Revenue should evaluate IRS efforts to collaborate and communicate with key external stakeholders to inform efforts related to implementation of the new 2015 PPACA requirements.||
The Internal Revenue Service (IRS) agreed with GAO's recommendation but did not evaluate its collaboration and communication efforts with external stakeholders. In September 2021, IRS officials told us they worked with software developers and tax practitioners to implement the 2015 PPACA requirements. They said they also held joint webinars with CMS when IRS began providing this data to Marketplaces in 2015, which, they said, is now a well-established and understood data exchange. According to agency officials, with the shared responsibility payment provision being reduced to zero starting in 2019, exemption reporting is a low priority. Given the change in circumstances, IRS does not have any plans to evaluate communications efforts or take further action on this recommendation. According to agency officials, IRS will continue to communicate information when needed and collect feedback through established outreach channels.