Have no fear, say top Democrats: The IRS won’t really enforce the requirement to buy health insurance in the new Obama reforms.
The IRS will still enforce a requirement that, beginning in 2014, individuals must purchase health insurance or face fines up to $2,250 per family. In order for the government to enforce compliance, tax authorities will need information, for the first time, about people’s health care. Collecting that data will require many more IRS agents.
The provisions have led to privacy and other concerns which critics say are exacerbated by a newly aggressive posture by the IRS under the Obama administration.
However, the bill says the IRS may not prosecute individuals criminally or issue liens or levies for failure to pay the fines.
A September letter from a top tax official had said failure to pay the fines could ultimately lead to the most severe penalty under federal law for tax evasion, a $100,000 fine and five years in jail.
Now Democrats are touting protections they have added to limit the reach of the tax man. “The bill specifically prohibits the IRS from confiscating taxpayer assets, from using liens or levies, or imposing criminal penalties of any kind — including jail time — because of a lack of health care coverage,” Speaker Nancy Pelosi’s office said in a statement.
The health care law signed by President Obama Tuesday says that, “notwithstanding” other federal laws, taxpayers “shall not be subject to any criminal prosecution or penalty” for failure to pay the fines.
Besides worries about enforcement, critics of the mandate have said it is unconstitutional. They also fear the Obama IRS will overreach in enforcing the provisions, especially because the agency has already been ramping up audits with the goal of increasing tax revenues.
However, some tax lawyers say the protections are significant.
B.J. Haynes, a defense attorney who specializes in criminal tax investigations and once worked as an IRS enforcement agent, says all the IRS can do now is take your tax refund.
“If you don’t pay it and they can’t prosecute you … and they can’t use liens or levies … if you were due a refund I guess the IRS could … grab your refund. They could send you bills and clog up your mailbox.”
Haynes cautions that one could end up in trouble under another law. “If they ask you for a financial statement to determine whether you can pay this … and you provide a financial statement that is false, ok, then you’re in trouble.”
Rather than conjuring visions of SWAT-style raids, Haynes worries the restrictions may prove unworkable for tax agents seeking to enforce the law.
“Picture yourself as the IRS commissioner. You’ve now got this new obligation to enforce this new provision and on the one hand you’re saying, ‘Well that’s good, I can increase my budget, I can hire more people, I can expand my empire.’ On the other hand, you look at what they’ve done to your normal enforcement powers and — they’ve neutered you. Not a good situation.”
Alan Weisberg, a Miami defense attorney and former federal prosecutor, echoes Haynes’s remarks.
“If they just flat out don’t pay, and that’s all it is, ‘I’m not paying,’ then apparently [the IRS] can’t go criminal, and they can’t do liens and levies. On the other hand, if an agent comes out, and asks you questions and you lie to them, then that could be a crime.”
The lack of penalties may worry insurance companies and others who say the mandate is crucial for other reforms in the bill. For instance, the law bans insurance companies from rejecting would-be clients for pre-existing medical conditions. Without a firm mandate, many fear healthy people will forgo insurance until they’re sick, ultimately raising costs for everyone.
While the provision protects individuals from heading to jail, at least for failure to pay, the law offers businesses, which face far higher fines and taxes, less solace.
Under the law, businesses must pay $750 for every employee to whom they do not offer a health insurance plan that satisfies pending bureaucratic criteria. They must also pay $3,000 for employees whose low wages qualify them for sizable subsidies.
Under the law, providing false information to the IRS about employees’ health insurance can result in a fine up to $250,000. The bill says the IRS cannot issue liens and levies to enforce the provision, but explicitly retains other federal authorities under which such means might be employed.