A brief note on the IRS’ history of confiscating tax refunds

Mike Riggs Contributor
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Gautham Nagesh weighs in with some wisdom:

Judging by the number of comments on my article about the IRS enforcing the individual mandate by confiscating tax refunds, this is a topic that merits further discussion. My sense is that people are understandably perturbed after having been misinformed by the media that enforcement would be essentially non-existent. Of course, there’s also that whole question of what good is a mandate if there’s no penalty for non-compliance. Doesn’t that negate the whole argument about needing healthy people to balance out the risk of the elderly and infirm?

But I’m not an actuary, so let’s focus on the nuts and bolts of the IRS’ chosen route for enforcement. I’ve spoken to someone knowledgeable about the issue and they explained it to me this way: basically there is no specific language in the health-care bill related to using tax refund offsets to penalize people that don’t purchase coverage. But there is a general principle that when an individual owes a debt to the federal government, their refunds may be offset.

Debts to the government aren’t the only thing that can be deducted from a person’s refund – child support payments come to mind as well. But according to legal sources, unless there is specific language barring the government from tapping refunds the general principle allowing offsets applies. While the health-care bill does expressly forbid the government from seizing assets, freezing accounts or pursuing criminal charges, it doesn’t mention offsets. That could have been just an oversight, but considering the care put into the bill that seems somewhat unlikely. The result is that Congress left themselves at least one backdoor through which those supposedly meaningless fines could be collected.

How this will impact the average consumer remains unclear. Most people already have health insurance. A lot of the healthy younger people that ordinarily go without insurance after high school or college will now be able to stay on their parents’ plans until the age of 26. The likely impact will be to encourage more employers to pay hourly workers in cash or under the table so their reported incomes stay low enough to qualify for subsidies. Chances are those folks aren’t expecting large tax refunds anyhow. So it remains to be seen how many fines the IRS collects via offsets. But it’s another one of those interesting nuggets about the health-care bill that somehow didn’t come out during the last year of debate.