The Conversation

IRS Has No 'Fraud Mitigation Strategy' for Obamacare Tax Cheats

The Internal Revenue Service is tasked with calculating tax credits under the Obamacare program but as of yet, does not have a strategy to mitigate tax return fraud on healthcare subsidies.

The Inspector General for the Treasury Department reported that "IRS software has a system to verify tax credit calculations before it issues them to health insurers, but it said the agency may not yet have a system in place to stop tax cheats seeking to underestimate their incomes and fraudulently cash in on health subsidies."

Danny Werfel, the acting IRS commissioner explained, "The IRS has a strong, effective system in place for administering the Premium Tax Credit. We have a proven track record of safely and securely transmitting federal tax information, and we have a robust and secure process in place to deliver this important credit for taxpayers."

But once January rolls around, the IRS will be distributing tax credits and assessing penalties for non-compliance with the healthcare law. Lower income participants are eligible for tax breaks to subsidize their coverage, and these credits can be claimed at the end of the year via one's tax return. 

"The very nature of these credits — pay first, verify a person’s income later — will lead to potentially hundreds of billions of dollars of improper payments and could put millions of Americans’ personal information at risk,” Orrin Hatch (R-UT) said.  Hatch, along with Tom Coburn (R-OK) wrote a letter to Werfel with concerns that the current fraud level on income tax credits is at 25%.  

Refundable tax credits have long been a problem for the IRS. “Refundable credits are fraught with fraud peril,” Robert Kerr, senior director of government relations at the National Association of Enrolled Agents, said in an email.


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