The Not-So-Mandatory Individual Mandate Jordan Barry Bryan Camp

Patient Protection and Affordable Care Act (PPACA) Major Piece of Legislation (2,400+ Pages) – Increases Federal Spending on Healthcare for Low- Income Individuals and Families – Creates Insurance Exchanges – Incentives for Employers to Provide Employees Health Insurance – Prohibits Discrimination Based on Pre-Existing Conditions Adverse Selection

“Individual Mandate” Applies to Most U.S. Citizens – Requires “Minimum Essential Coverage” – Both for Themselves and Dependents Enforced by a Tax Penalty

Tax Penalty Sole Enforcement Mechanism for Individual Mandate – “Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.” SCOTUS, in HHS v. Florida. – “[I]t is the interpretation of the agencies charged with interpreting this statute, [Treasury and HHS], that there is no other consequence apart from the tax penalty.” S.G. Verilli, Oral Argument

Tax Penalty Issues Amount Too Low? – CBO Estimates 4M People Will Choose to Pay the Penalty Rather Than Buy Insurance Collection?

Tax Collection Tools Criminal Penalties Federal Tax Lien Levies Lawsuits Offsets

Federal Tax Lien Arises Automatically – IRS Makes Proper Assessment – Gives Proper Notice and Demand for Payment – Taxpayer Fails to Pay in Full  No Initial Public Record  Perfected as of Assessment Date Enforceable Against Everyone But “Four Horsemen” – For Them, Need Notice of Federal Tax Lien (NFTL)

Scope of the Federal Tax Lien Touches – All the Taxpayer’s Property – All Her Rights to Property – Any Property Received During the Life of the Lien Duration – Lasts at Least 10 Years – Easily Extendable – Retroactivity Makes It Hard to Avoid

IRS Levies IRS Can Seize and Sell – Anything Subject to the Federal Tax Lien Any of the Taxpayer’s Property Or Rights to Property – Some Exceptions, But Fairly Narrow Can Be in Third Parties’ Possession – Bank Accounts – Future Wages Third Parties Strongly Encouraged to Comply

Lawsuits Sections 7401 and 7403 – Reduce Assessments to Judgments – Foreclose Tax Liens Supplement Administrative Remedies – Extending Collection Period – Overcoming Joint Ownership

Offsets Conceptually Simple – I Have $1K Outstanding Tax Liability from Last Year – I’m Entitled to a Net Refund of $3K This Year  IRS Offsets These, Sends Me $2K Administratively Very Easy Also Used to Collect Non-Tax Payments – Other Amounts Owed to Fed’l or State Gov’t – Past-Due Child Support

Tax Penalty Collection: Criminal Penalties Completely Off the Table “In the case of any failure by a taxpayer to timely pay [the tax penalty], such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.”

Tax Penalty Collection: Levy Completely Off the Table (Probably) “The Secretary shall not” “levy on any” “property of a taxpayer” “with respect to [that taxpayer’s] failure [to pay the tax penalty]”

Tax Penalty Collection: Lien Wounded, But Still Alive “The Secretary shall not file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the [tax] penalty”

Tax Penalty Collection: Lien Somewhat Strange Effects – Questionable Use in Bankruptcy – Enforceable Against Taxpayer – Levy Leftovers? IRS’ ACA Website: “The law prohibits the IRS from using liens or levies to collect any payment you owe related to the individual responsibility provision....” – the-Individual-Shared-Responsibility-Provision, Question 25 the-Individual-Shared-Responsibility-Provision

Tax Penalty Collection: Lawsuits Probably Untouched, But Unimportant – Disfavored by IRS Policy – Requires DOJ Involvement – Amount in Controversy Requirement – Amounts Too Small to Be Cost-Effective In 2010 – 1.1M Notices of Federal Tax Lien – 3.3M Notices of Levy on Third Parties – Lawsuits Under 7403 Produced 46 Judicial Opinions

Tax Penalty Collection: Offsets Expected to Be the Workhorse Relies on Other Overpayments Two Main Ways That Happens – Refundable Tax Credits Mostly Target Low-Income Taxpayers Low-Income Taxpayers Exempted from Tax Penalty – Over-Withholding Currently, Very Common But Generally Avoidable

Key Takeaways The Individual Mandate Is Not Much of a Mandate – But May Not Matter in Practice Collection Provisions Would Benefit from Technical Corrections Bill Value of Having IRS Administer The Tax Penalty?

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