Congressional Democrats broadly expanded the powers of the Internal Revenue Service in health reform, says a new analysisfrom ranking Republicans on the House Ways & Means Committee.

Republicans on the Subcommittee on Oversight say that this means the IRS can seize tax refunds and can audit taxpayers in order to enforce the new "individual mandate tax," [IMT] which penalizes taxpayers if they don't buy health insurance.

The IRS could get an estimated 16,500 new workers at an additional taxpayer cost of $10 billion to enforce the insurance mandate, which already faces mounting constitutional challenges, these Republicans say.

The IRS declined comment, pending the enactment of the new legislation. A Joint Committee on Taxation report on the new health reform legislation indicates that it is unclear whether or not the IRS can hit taxpayers with liens or property seizures if they don't pay the mandate penalty (see below).

In addition, the IRS would be required to determine what is "minimum essential" coverage under the new reform bill, a highly subjective area which may involve judgment calls.

For the first time, health insurers, too, would be required to issue 1099-type forms to both the IRS and taxpayers, spelling out taxpayers' health insurance coverage.

That means the US government would get dollar amounts of taxpayer health insurance coverage for the first time, possibly putting US taxpayers one step closer to seeing their health benefits taxed, a feature in earlier versions of health reform.

And the IRS would assess new taxes and penalties on employers for failing to offer "affordable" health insurance, as defined by the government, the Republicans' report notes.

In addition, the IRS would have to verify small business health coverage information, including wage levels and number of employees.

The IRS's powers are effective immediately, as an estimated $400 billion in new taxes and fees kick in starting in 2013.

The insurance mandate takes effect in 2013, too. New coverage subsidies for small businesses begin immediately, and new insurance exchanges start in 2013 as well.

Set aside for now the notion that the IRS is being asked to enforce a health reform bill that many in Congress likely did not read in its entirety.

Broader IRS powers are being enacted despite the news that a growing number of states may mount potential court challenges based on the constitutionality of health reform's insurance mandate, among other things (Click on EMac's January column: “Is Health Reform Unconstitutional?”). Florida, Alabama, Idaho, Nebraska ,Virginia, Texas, Utah and Washington number among the states planning court challenges.

Some legal experts say this fight may reach the level of the US Supreme Court, as it centers on the US constitution's interstate commerce clause. Congressional Democrats say they have the power to mandate that taxpayers must buy health insurance or pay a fine.

Even though legal experts say the US constitution does not force Americans to buy any good or service as a condition of being a citizen, and that the constitution does not let Congress regulate the act of doing nothing, meaning having to pay a fine if you don't buy insurance.  

Also, despite the fact that health reform was largely enacted under the US constitution's interstate commerce clause, the insurance exchanges launched in the bill essentially do not let taxpayers buy health insurance across state lines, although the new law says states may merge their exchanges with neighboring states.

Under the new health reform bill, the IRS will now have the ability to issue seize tax refunds, assess penalties, and verify whether taxpayers' health insurance coverage is "acceptable," these Republicans say.

“One of the most troubling aspects of this new IRS authority is the newly granted power to collect additional taxes from Americans whose health insurance coverage is deemed to be insufficient to meet the definition of minimum coverage, as defined by federal bureaucrats, required to be purchased,” the House Republicans' analysis says.

The report adds: “Disturbingly, the IRS would be in charge of verifying that every American taxpayer has obtained acceptable health coverage for every month of the year. If the IRS determines that a taxpayer lacks acceptable insurance for even a single month, then the IRS would impose a new tax on that taxpayer, even auditing the taxpayer and could assess interest and penalties on top of the tax.”

Rep. Dave Camp, R-Mich., the ranking Republican on the Ways and Means Committee, says the health reform bill "is a very dangerous expansion of the IRS' power and reach into the lives of virtually every American," Rep. Camp said in a statement.

There are conflicting reports on just what powers the IRS now has to enforce this new mandate.

As noted, a report from the Joint Committee on Taxation on the IRS's new responsibilities under health reform says the following about the penalty for not having the "minimum essential coverage":

"Failure to pay the penalty results in the same interest and penalties as apply to unpaid income tax... The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed...the use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty."

But then the report says this: "Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner. No penalty is assessed for individuals who do not maintain health insurance for a period of three months or less during the taxable year."

The report from the Republicans on the Subcommittee on Oversight at Ways and Means says, among other things:

  • IRS agents would be tasked with determining whether Americans had obtained the insurance coverage required under the individual mandate.
  • Individuals could be fined $2,250 or 2% of income, whichever is greater, if you are unable to prove you have "minimum essential coverage."
  • The IRS would be empowered to confiscate tax refunds if necessary.
  • Audits probably would increase as a result of the legislation's new requirements.
  • The budget for IRS operations will balloon by $10 billion in the next decade in order to administrate the new program.
  • Nearly half of the new individual mandate taxes will be paid "by Americans earning less than 300% of poverty, $66,150 for a family of four.