IRS Reviews Implementation of Obama Care

Several IRS tax lawyers were asked the following question about Obama Care:

What should President Obama do now that he’s gotten his healthcare reform legislation written, passed, and defended in the Supreme Court, even though the new law itself won’t work and President Obama no longer has the votes in Congress to make any changes to fix it?

The overwhelming response from the IRS tax lawyers questioned was that President Obama should let the Internal Revenue Service rewrite Obama Care through the rule making process, and pray the words used by the “IRS rule making process” caused eyes to glaze over before too many people start paying closer attention.

According to many IRS tax lawyers, this is what they claimed occurred when the IRS wrote the rule that governed subsidies for exchanges that were run by the federal government.  Significantly however, the IRS tax lawyers claim that in the only discussion of that provision in the Congressional record, Democratic Senator Max Baucus noted clearly that conditions for subsidization were designed with the aim of encouraging states to independently configure their own exchanges. Even though the language and the intent was clear, IRS tax lawyers content that a rule was written by the IRS to allow subsidies in exchanges run by the federal government. Some tax lawyers say this is a classic example of how the IRS rule-making process can be improperly manipulated to repair/replace defective legislation and/or advance changes in a political agenda.

Many IRS tax lawyers and other well-informed tax professionals claim the Agency’s use of the rule making process to fix obviously defective legislation is just plain wrong.  Michael Cannon and Jonathan Adler, of the Cato Institute and Case Western, go so far as to say this makes the rule illegal in an article they wrote together for Health Affairs, a scholarly journal. Many IRS tax lawyers think these experts are correct in their assessment.

IRS tax lawyers maintain that if Cannon and Adler are correct and the rule is illegal, it could be a fatal blow to the Obama healthcare law. According to some IRS tax lawyers, it now appears as if about half (1/2) of states will not set up their own exchanges, leaving the federal government to step in. As noted in The New York Times this past weekend, a number of IRS tax lawyers agree with the newspaper’s ominous editorial remarks- that preparations for implementation of the Obama healthcare law are being secretly undertaken for the most part, which some would argue is a result of the challenges with federal exchanges, a challenge which includes an absence of substantial funds for its operation.

IRS tax lawyers and others have expressed concerns that if the IRS rule is found to be illegal, that it will further complicate the federal exchange implementation process, perhaps to the point of permanent delay. Several IRS tax lawyers note that Representative Scott DesJarlais (R-Tennessee) appropriately framed the issue during his recent testimony at a Congressional hearing on the IRS provision, when he suggested the argument over legality of the IRS rule is “about whether Obama Care can continue to exist.”  Most IRS tax lawyers agree that without the IRS being given a lawful way to fix how Obama Care will work, it will be virtually impossible to implement the new law in any sustainable way.

IRS tax lawyers also point out this is not the only instance in which the IRS has engaged itself in an attempt to rewrite a part of Obama Care that may not be workable. The IRS has also worked on an adjustment to a provision regarding employee mandates- another section in the law, as Mr. Robert Book, of The Heritage Foundation, recently wrote in an article to Forbes.

Most IRS tax lawyers identify the “employer mandate” as one of the best known and “key provisions” in the Obama Care law. In fact, these IRS tax lawyers explain the employer mandate is significant to how Obama Care will work. In it, employers are required to provide “qualified coverage” or else they penalized an amount of $2,000 for each full-time employee. This occurs after the first thirty employees, and only if they have the requisite amount of fifty employees.

Though what IRS tax lawyers are saying is not as widely discussed, there is a special penalty that applies only to companies that do offer coverage. The special penalty is $3,000 per employee who qualify for and accept a federal premium subsidy. This must be purchased through exchanges sponsored by the state. In other words, IRS tax lawyers say an employee is eligible for the federal subsidy. When accepted, this could cause the employer to be penalized if the health insurance premium being offered is deemed “unaffordable.” To determine whether something is “unaffordable,” IRS tax lawyers say it must be more than 9.5% of the family income of the employee, but only if the income is between 138% and 400% of the federal property level (FPL). IRS tax lawyers say that this penalty was put in place to ensure that employers did not “dump” their low-income employees onto the taxpayers by putting a higher premium share into place. Although, IRS tax lawyers argue that the effects of this may be far more detrimental to individuals who come from low-income families, as employers would be less-inclined to hire these individuals.

RS tax lawyers are quick to point out that when informed of the above-provision, employers naturally ask, “How would we be able to discern the family income of employees?”  IRS tax lawyers explain that while employers know exactly what they pay their employees, it isn’t common for them to be aware of their family income situation.

Incredibly, several IRS tax lawyers assert the answer based on the legislative language is basically, “You aren’t supposed to know – the IRS will tell you when they figure out your penalty.” (Significantly, IRS tax lawyers observe that the law sets up a complex system of reporting and information sharing between employers, insurers, state exchanges, the Department of Health and Human Services, and the IRS, that will allow the IRS to determine which employers owe this penalty for which employees.)  Accordingly, IRS tax lawyers say that employers will have no good means of determining in advance and planning for their tax exposure until after they’ve already incurred that tax liability.

Of course, IRS tax lawyers explain that without the information at the time health insurance premiums are set, it is virtually impossible for employers to accomplish that which the law desires them to do, which is keep premiums low enough that each employee will be ineligible for exchange subsidies. In response, IRS tax lawyers say the Agency sought to address the concern by proposing an “affordability safe harbor.” This would enable employers to avoid being penalized by using information to which they are privy. According to IRS tax lawyers acquainted with the Agency’s position on this issue, employers would not be penalized if they offered coverage to their employees and their dependents, with information specified by the Federal Register.

While most IRS tax lawyers agree that the law does not specify this position, though it may seem to be a practical way to handle things. What’s more, many IRS tax lawyers argue that agencies that are under the executive are not permitted to issue contradictory regulations to those that are enacted by Congress.

IRS tax lawyers point to the foregoing as yet another example of the IRS trying to fix President Obama’s healthcare legislation through the use of the “rules-making process.” Unfortunately, the IRS appears to be doing so in a way which is inconsistent with the language of the legislation itself.  Many IRS tax lawyers question how long the Agency will be permitted to continue acting like a super legislative body untethered by the mandates of Congress and our U.S. Constitution.

In fact, a number of IRS tax lawyers are quite upset the Democrats passed Obama Care quickly, all the while telling citizens they could find out about the legislation after it had already passed and been signed into law by the President. Now it appears that several IRS tax lawyers are claiming that Democrats don’t quite like what was in their bill, and are hoping the IRS can now save them from their own unworkable legislation.

IRS rule-making behind closed doors to fix defective legislation is only part of the Obama Care implementation story.  IRS tax lawyers tracking developments regarding the IRS have learned the Agency is also planning to add literally thousands of new employees to support their new Obama care mission.  According to several IRS tax lawyers, not since withholding taxes were first introduced during World War II has the IRS witnessed such a massive expansion of staff.  Some IRS tax lawyers say the projected growth is arguably necessary to help enforce new tax mandates and penalties included within the new Obama Care law.

In fact, a few IRS tax lawyers noted that a recent analysis that came from the Joint Economic Committee and the House Ways & Means Committee staff includes an estimation for the number of new personnel that the Internal Revenue Service will need to carry out all the functions it requires to monitor compliance that is dictated by the new healthcare law. Up to 6,500 employees would need to be added to the IRS workforce, according to the report. IRS tax lawyers say that despite President Obama’s pledge not to add new tax burdens onto the middle class, many IRS tax lawyers report there are literally scores of new federal mandates and approximately 21 new different tax increases totaling $400 billion under Obama Care.  Perhaps it’s a sign of the times, but IRS tax lawyers report that many of those increases have been hidden from voters.

Further, many IRS tax lawyers have expressed concern that the Agency’s projected increase in staff includes a larger group of investigators whose job will be to, some anticipate, “make cases” in order to increase financial penalties whenever possible.  In addition to more complicated tax returns, IRS tax lawyers say that families and small businesses will be forced to reveal further tax information to the IRS, provide proof of government approved health care and submit detailed sales information to comply with new excise taxes.  Whether these new requirements will cause a higher number of unfiled tax returns remains the subject of some speculation among many IRS tax lawyers.

Unfortunately, several IRS tax lawyers along with the Centre for American Progress have expressed concerns that the IRS’s structure of using private agencies to collect “debts” encourages abuse. Under the current program, IRS tax lawyers explain there will be twelve private collection agencies who will receive up to 25 cents of every dollar collected by their agents, as well as a $100 bonus for any accounts closed on their watch. According to these IRS tax lawyers, both sides of the aisle resisted the IRS’ proposed plan of compensating private debt collectors with a 25% commission at the start. The issue at hand was the rights of taxpayers, which Congressional members and IRS tax attorneys alike, feared would be violated.

Mr. Mike Baker, a political consultant, asserted that the very essence of the program gives collectors an incentive to go right up to the legal limits, with extracting an increase in revenue from targeted taxpayers. Several IRS tax lawyers point to the IRS Restructuring and Reform Act of 1998 that Congress enacted as a preventive measure. It was passed to prevent collectors from becoming too aggressive when collecting, as there could be too much incentive to increase the amount of money collected.

“If Congress believes that incentive-based pay will cause official IRS collectors to cross the line, why would they think private collectors would behave any differently?” Mr. Baker asked the question. He and IRS tax lawyers are wondering how the federal government will react.

These latest developments cause many IRS tax lawyers to question how much authority the private agencies will be given by the IRS to collect taxes. A number of IRS tax lawyers have commented that the IRS’s plan for using these private collection agencies to collect taxes is not well documented and there remain several important unanswered questions about how the government will manage these private collection vendors.

Ultimately, while many Americans applaud the President’s efforts at attempting to craft a national healthcare plan, “the devil is always in the details.”  Literally thousands of IRS tax lawyers across the country are still waiting for details on what may only be described as one of the largest tax increases in history.  And to make things even more complicated, many IRS tax lawyers say you can’t rely on the legislation to advise your clients because the IRS is making up the rules as it goes along trying to figure out how best to implement this monumental new taxing scheme.

Many IRS tax lawyers agreed with Mr. Mike Baker when he said, “It’s a sad situation when the President and Commander in Chief is drastically cutting defense spending, including reducing the size of the military, while at the same time hiring more tax collectors to squeeze every dime — the dime Obama said would never be levied against Americans — out of taxpayers.”

At this stage in the government’s implementation of Obama Care, and pending the outcome of the November 2012 Presidential election, IRS tax lawyers are left in an awkward and much too ambiguous place.  Clients looking for advice from these IRS tax lawyers may be frustrated to learn there are so few implementation details yet known.  This makes future tax planning with your IRS tax lawyer and/or other tax professionals very difficult.  IRS tax lawyers say this is particularly true for small business owners expected to start complying with healthcare law requirements which are still unclear and poorly defined.

IRS tax lawyers also point out there are other criticisms about how the IRS is implementing Obama’s healthcare law.  Many IRS tax lawyers agree with Republican charges that Obama’ s healthcare mandate was written in haste and pushed through Congress with rapidity as the main object. These same IRS tax lawyers also agree that within the bill were additional powers given to the IRS.  IRS tax lawyers say that the new taxes placed on individual taxpayers and private businesses, as well as the trillion dollar subsidies will come under the enforcement of the IRS. It goes without saying that this would more deeply entrench a government agency with few fans in the lives of the average American citizen.

IRS tax lawyers report that recent Congressional hearings made clear the vast amount of information Americans will be mandated to turn over to the government as a result of the new bill. IRS tax lawyers claim that taxpayers will be forced to notify the IRS of the following changes in their lives within 30 days: 1) If and when they receive a salary raises or switch employers; 2) Their marital status; 3) Which family members have moved into or out of the household; and 4) The nature of their employer-paid health care coverage. IRS tax lawyers assert that rather than once a year tax returns, Americans will be forced to report more often throughout the year to the Internal Revenue Service.

During the hearings, IRS tax lawyers report that IRS officials were questioned regarding the progress being made regarding information outreach, or notifying the taxpayers of any additional requirements or penalties. Many IRS tax lawyers expressed concerns that the IRS is not prepared to field questions or disputes that taxpayers will inevitably have at the start of implementation.

Many IRS tax lawyers contend that the law is forcing technology that is out of date to be the foundation of the functions of the IRS. Inaccuracy and unreliability may be the result of this inefficiency in reporting, some IRS tax lawyers claim. If this occurs, IRS tax lawyers worry that no appeals process is in place to deal appropriately with any unjustified payments.

IRS tax lawyers also report the recent hearings were the fourth in a series by the Oversight and Government Reform Committee in holding the Obama Administration accountable for the consequences of the new, massive healthcare program wrought with its flaws and unintended consequences to the American taxpayers. During these hearings IRS tax lawyers monitoring the proceedings reported IRS Commissioner Doug Shulman said words in defense of his workforce and the preparations it was undergone to implement the Affordable Care act when attacked by Republicans who charged that the IRS had accepted an illegal interpretation of the bill, had taken a significant task for which it was unprepared, and risked putting the taxpayer in a situation in which privacy is invaded.

IRS tax lawyers also say that Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, the last hearing to “address concerns about the Big Brother process” created through the implementation of “Obamacare,” which he said “is all about taxes.” IRS tax lawyers go on to say that Issa wanted to explore whether the IRS is equipped for the “massive staffing and technology ramp-ups” that will be required to deliver satisfactory service and to examine “the legality of rules it will enforce and questions about the sacrosanct privacy of personal information once held only by the IRS but now shared with state exchanges.”

Several IRS tax lawyers noted that Republican lawmakers and witnesses were not shy in criticizing a recently published IRS rule interpreting a complicated aspect of the 2010 Affordable Care Act. The rule stated the meaning of section was that government could step in and give individuals the tax credits afforded by the law, despite the fact that some states refused to adopt the exchange.

A number of IRS tax lawyers argue that Representative Scott DesJalais was right when he asserted during the hearings that “this wasn’t in the bill, and you were tasked with cleaning up their mess after states didn’t sign up” for the exchanges.  Several IRS tax lawyers say Rep. DesJalais (also a physician) was suggesting by his remarks that the IRS had “bypassed Congress and wrote a new tax law.”  But, IRS tax lawyers watching the hearings noted that Commissioner Shulman sought to defend the interpretation. “Based on a reading of the entire act, our legal experts came down on our side,” he said.

IRS tax lawyers also heard Rep. Ann Marie Buerkle, R-N.Y., a former nurse with extensive knowledge of the present healthcare system, say that the law contained the biggest tax increase since the beginning of the nation. She went on to say that to think that the IRS would provide improvement and access to health programs with a reduced cost is “out of touch with reality.”

IRS tax lawyers say Rep. Buerkle also referred to the Agency as “difficult to deal with and unresponsive.” They warn that is does not have the capacity, with their outdated systems, to handle the large amounts of personal information such a system would require.

Commissioner Shulman testified he wanted to “clear up some misconceptions” about the ability of his agency to handle such an influx of information. He remarked that the threat to the privacy of taxpayers was tremendously exaggerated. The information procedure would be as follows: taxpayers would only have to turn in a form that lets the IRS know whether they have insurance coverage or not, and information about the pricing and providers.

Shulman said. “IRS takes data security very seriously, and we have an excellent track record. It’s not something new to IRS it’s a cornerstone of the tax system.” IRS tax lawyers say Shulman also referenced prior instances when data on child support and Medicaid had been successfully protected.

IRS tax lawyers report that Commissioner Shulman took the position that his Agency had been readying itself with staffing and technology needs immediately after the law was enacted by the administration. IRS tax lawyers relying on representations from Commissioner Shulman, have learned that communications and preparations are continuously being worked on by the Agency.

IRS tax lawyers say the recent hearings were rather contentious along party-lines.  These same IRS tax lawyers report that Rep. Danny Davis, D-Ill., put Republicans at fault for the “unprecedented expansion” of the Internal Revenue Service’s reach. Rep. Davis asked Commissioner Shulman if remarks recently made by the governor of Maine that compared the IRS to the Gestapo were a burden on the Agency.

That was “unhelpful rhetoric,” Commissioner Shulman replied, but that the relationship the Agency had with the taxpayers would speak for itself. IRS tax lawyers noted Commissioner Shulman claimed the IRS had attained a seventy-three percent (73%) approval rate in a survey.

In an attempt to confront other “misconceptions,” IRS tax lawyers report that Commissioner Shulman wholeheartedly denied the rumor that his Agency would hire 16,000 employees. “Revenue agents are trained in complex tax issues [and] are not the ones deciding these” health care issues, Shulman said. IRS tax lawyers maintain that Shulman went on to say that the “IRS has a long tradition of nonpartisan agencies implementing laws Congress passes. My commitment and the agency’s is to do it in a way that minimizes the burden on business and facilitates the flow of information.”

IRS tax lawyers also report the National Taxpayer Advocate, Nina Olsen told Congress that she’d heard 800 to 860 new full-time employees might be needed to make the new healthcare law work. IRS tax lawyers cite Ms. Olsen as saying “It’s not an unprecedented expansion of IRS power, but it is an unprecedented expansion of IRS work.”

Ms. Olsen testified that her office, the Government Accountability Office, and the Treasury Inspector General for Tax Administration have generally commented the IRS is doing a good job implementing the new law. But, IRS tax lawyers note that Ms. Olsen qualified her testimony by raising a few concerns, such as the need to speed communication to the public and to train staff on coaching taxpayers on how to report their insurance status to state exchanges.  IRS tax lawyers also recognize Ms. Olsen’s remarks did not speak to allegations that the IRS is improperly using its internal rule-making process.  It is unclear to these IRS tax lawyers whether further legal challenges will add more complexity and doubt about how and/or if Obama care will be implemented and enforced.

IRS tax lawyers also heard former IRS Commissioner Mark Everson express worries that the new healthcare law had created “so much confusion, so many moving pieces,” that a failure might damage IRS general tax administration. IRS tax lawyers also noted that Mr. Everson was concerned about privacy violations, citing recent hacking of credit card companies and the scandal over WikiLeaks’ publication of secret government documents.

Ultimately, the vast majority of IRS tax lawyers seem to feel there still isn’t enough adequate information available about how Obama care will be implemented and/or enforced.  These same IRS tax lawyers express concerns about how the Agency is rewriting the healthcare law and wonder if future challenges to the Agency’s internal rule-making process might further jeopardize the new healthcare law’s implementation.  Several IRS tax lawyers also question how the 2012 Presidential election might impact the implementation and/or enforcement of the 2010 Affordable Care Act and wonder if a change in political leadership will mean the demise of the new healthcare law.

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