When President Obama's Patient Protection and Affordable Care Act (PPACA, aka "Obamacare") goes fully into effect in 2014, the American people will only then begin to see the implications of its thorough government takeover of health care, in all its glory. But what they are not expecting is the massively expanded role of the Internal Revenue Service ("IRS") in our lives, as the IRS is the chief agency responsible for enforcing the Act.
That is explained in a new paper by Dan Pilla, just published by the Heartland Institute, "Implementing the Patient Protection and Affordable Care Act." Pilla is a tax litigation consultant and a national leader in taxpayer rights defense, authoring 11 books on IRS defense strategies. His new paper explains "how the IRS can be expected to play an ever-growing role in your life and in the day-to-day affairs of every business in the nation as the tentacles of the PPACA wrap themselves around the most important and personal elements of your life."
Pilla estimates that it will take a minimum of 5,000 and perhaps as many as 16,000 additional IRS employees to carry out the "massive expansion of the power and reach of the Internal Revenue Service" under the PPACA.
Perhaps the most important and complex new IRS responsibility is to enforce the act's individual and employer mandates requiring individuals and employers to buy the health insurance not that they want, but that the federal government says they must have. This will effectively be a new burdensome payroll tax on the middle class and working people, and on job creators, as politics will force every politically correct benefit to be included in the required insurance, causing its cost to soar. That health insurance will likely cost $20,000 per year per family to start, rising rapidly after that. President Obama's 2008 campaign promise not to raise taxes on singles making less than $200,000 a year, and couples making less than $250,000, has been thrown aside and forgotten, with the Supreme Court ruling that the individual mandate is constitutional precisely because it is a tax.
Individuals who fail to comply and buy the health insurance chosen for them by Kathleen Sebelius will be subjected to a penalty of $695 per person per year, up to a maximum of $2,085 per family, or 2.5% of household income, whichever is greater. Pilla explains that "The gross applicable penalty is pro-rated to apply on a monthly basis 'for any month during which any failure' to have adequate coverage exists."
The PPACA precludes the IRS from using its levy power or filing tax liens to collect these penalties on individuals. But Pilla notes the IRS can offset the penalties against any federal income tax refund owed to you. The IRS can also seize any state or local tax refund you are due as well. And if you send any payment to the IRS that is not specifically designated in writing as applying to a specific IRS debt, the IRS can apply it to your health insurance penalty, and you will not be able to get it back.
The employer mandate is a new vicious tax on job creation that is already causing employers to cut back on hiring. Employers can either pay $20,000 a year or so for the family coverage Kathleen Sebelius chooses for them, required by the PPACA not only for their workers but for all of their dependents as well, or they can start paying the tax penalties. That includes for those with 50 or more full-time employees a penalty of $2,000 per year per full time worker (minus 30 employees), if they offer no insurance. But even if the employer does provide employee health insurance, the employer is assessed a penalty of $3,000 per employee if the worker nevertheless qualifies to purchase his or her own health insurance on a state health insurance exchange and does so.
Under these incentives, even employers who have provided employee health insurance for years are likely to drop the coverage. The bottom line is that $2,000 per worker is a lot less than insurance costing $20,000 per family, with possible further penalties of $3,000 per worker. That is why top economists are predicting that tens of millions will lose their employer-provided coverage as a result.
Former CBO Director Douglas Holtz-Eakin calculates that this will probably be the case at least for all workers earning less than $60,000 per year, because employers will figure those workers are eligible for substantial subsidies for health insurance that they'll then go buy on the state Exchanges. That is why he is estimating that 43 million workers will lose their employer-provided health insurance under the PPACA. So much for President Obama's promise that if you like your health insurance you can keep it.
But you can also expect employers with just a little more than 50 employees to start layoffs to get below the 50 employee threshold. Also expect many employers to reduce their work force and hire more independent contract employees not eligible for any benefits, paid under a 1099 rather than a W-2.
IRS CharityOnce your employer dumps you on the Exchange, where you will have to find and pay for your own health insurance to comply with the individual mandate, you will be eligible for Obamacare tax credits to help you pay that $20,000 a year in insurance costs. But to do that you will have to prove you qualify under the new definition of "household income" enforced by the IRS, which is not the same as your taxable income on your return. As Pilla explains, household income includes the income of all other members of the "household" that live with you, which means anyone who qualifies as a dependent under IRS Code section 151. That can include the income of a mother-in-law or grandchild.
Pilla explains that the "exchange, not the IRS, determines who is eligible for the credit and the amount of the credit. Thus, under the PPACA, citizens have to apply for coverage and in doing so, report to their respective exchanges their family size and household income. They will have to provide copies of their tax returns and whatever other additional information the exchange requires."
In addition, "The IRS must verify household income and family size. But these things change on an ongoing basis." Consequently, you are "required to report to the exchange any changes during the year as they happen." If the IRS later determines that your tax credit was too large, you will have to pay the excess back. Or the IRS will go after you to collect it. Pilla warns that "citizens will likely end up talking with [IRS] computers about their health insurance issues to an even greater extent than we currently talk with IRS computers about tax problems."
IRS DataTo enforce all of these obligations, the IRS will need mountains of new data. The IRS must determine whether the health insurance you have satisfies all of the requirements of the individual mandate. Therefore, Pilla explains, "the IRS must proactively engage in collecting data from private insurance companies -- something never before done." The IRS will need at a minimum:
• The costs and benefits under your policy;
• Who's covered under the plan and the periods of coverage;
• The household income reported to the insurance company;
• Whether you were offered insurance by your employer.
If you were offered insurance by your employer, then the IRS will need to know:
• How many employees the company has;
• The costs and benefits of the employer-offered policy;
• Who's covered under that plan;
• The period of coverage.
Pilla rightly asks, "Where does the citizen go when there is a discrepancy in the information reported to the IRS by the insurance company? What will be the level of run-around one is forced to deal with and where will the appeals process lie?"
Then the IRS must administer the employer mandate penalties. For this the IRS will need to know:
• The number of employees and their dependents;
• The number of full-time employees and their dependents;
• The nature, scope and cost of the insurance offered to the employees;
• The periods of time that insurance is in effect; and
• Whether one or more employee qualified for coverage through an exchange.
Pilla observes that tax code section 6103 provides that a person's tax return and return information must be kept confidential by the IRS. But Pilla concludes, "Given the sheer scope of the information needed to enforce and administer the act, I believe I can say with confidence your privacy is a thing of the past."
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