	Background

Beginning with tax year 2014, individuals are to report on their health care  coverage, report exemptions to the coverage requirement, pay the shared  responsibility tax penalty when they file their tax returns, or do some  combination of the above.reporting process. IRS also started verifying taxpayers’ PTC claims using data  from the marketplaces. However, IRS had limited information with which  to verify the information taxpayers reported because complete  marketplace data for most states were not submitted by the due date and  the requirement for health issuers and applicable large employers to  submit information returns was delayed until tax year 2015. Therefore,  according to IRS officials, IRS is using its standard examination  processes to check the information taxpayers report. Incomplete and Delayed Marketplace Data Limited IRS’s Ability to Implement Planned Pre-refund Premium Tax Credit Compliance Checks during the 2015 Filing Season

Although IRS created a new system to verify PTC claims, incomplete and  delayed marketplace data limited IRS’s ability to use the system to verify  claims at the time of return filing. Accuracy of marketplace data. Specifically, as of March 21, 2015, according to IRS  documentation, IRS had processed and made available for verification of  taxpayer PTC claims complete coverage data for the entire January 2014  to December 2014 tax year for 4 of the 51 marketplace states. IRS implemented contingency plans—such as using other  available data and corresponding with taxpayers—to compensate for  missing marketplace data. IRS’s goals include effectively enforcing compliance with tax laws,  reducing taxpayer burden, and encouraging voluntary compliance. Because marketplace data are  incomplete, CMS has not provided IRS the total amount of advance PTC  payments made for 2014 marketplace policies. Without knowing the size of this  gap, IRS does not know the extent of noncompliance with the  requirement for recipients of advance PTC payments to accurately report  those payments on their tax return, a measure that could help IRS assess  the effectiveness of its education, outreach, and compliance efforts. Until it receives complete and accurate  marketplace data, IRS does not know the baseline for the total  amount of advance PTC that taxpayers should have reported on 2014  tax returns. IRS Is Not Evaluating Its Efforts to Coordinate and Communicate with Key Stakeholders, Which May Pose Challenges for Implementing New Requirements for Tax Year 2015

Successful implementation of the PTC and individual shared  responsibility tax provisions requires IRS collaboration with CMS and the  marketplaces. It also requires communication with other stakeholders,  such as tax software companies, employers, and health insurers. IRS  worked to collaborate and communicate with external stakeholders to  implement PPACA requirements for tax year 2014. Without an assessment of its efforts to collaborate and communicate with  key external stakeholders, challenges in implementing the 2014 PPACA  requirements that relied on these groups could also affect new  requirements taking effect in 2015.opportunities for improving return processing and taxpayer experience  related to the shared responsibility and PTC provisions, it is not  evaluating its collaboration efforts. But at the time we  spoke with the officials in January 2015, CMS had not provided this  guidance. If the problems are expected to be an ongoing  challenge, assessing their effects and correction options would help IRS  better target contingency plans and assess the trade-offs among any  correction options. Recommendations for Executive Action

To strengthen oversight of the individual shared responsibility and  premium tax credit provisions, we recommend that the Commissioner of  Internal Revenue take the following five actions:
Assess the costs and benefits of compliance options, such as soft  notices, that could be used beginning in the 2016 filing season to  address the problem of tax returns that do not include at least one of  the following: indication of full-year health care coverage, claim of an  exemption from the requirement to have coverage, or report of a  shared responsibility payment, as required. Assess whether the challenges in getting complete and accurate  marketplace data in time to conduct pre-refund verification of taxpayer  PTC claims are a single year or an ongoing problem and, if they are  an ongoing problem, assess the effects of the problem and options for  correcting it. Work with CMS to get the total amount of advance PTC paid for the  2014 tax year and establish, as a baseline, the aggregate amount of  the gap between advance PTC paid and advance PTC reported for  the 2014 tax year, and track this aggregate gap for future tax years to  help in evaluating the effectiveness of IRS’s PTC education and  compliance efforts. Evaluate IRS efforts to collaborate and communicate with key external  stakeholders to inform efforts related to implementation of the new  2015 PPACA requirements. IRS generally agreed with our recommendations. IRS agreed to  analyze reporting of advance payments of the PTC by the marketplaces. Appendix I: Objectives, Scope, and Methodology

The objectives of this report are to (1) assess what the Internal Revenue  Service (IRS) has done and plans to do to implement the premium tax  credit (PTC) and individual shared responsibility tax provisions; (2)  determine the extent to which IRS goals for these tax provisions are  linked to performance measures to evaluate program success; (3) assess  IRS collaboration with government and private sector entities to  implement and enforce these tax provisions; and (4) describe IRS’s  progress in implementing our past recommendations on Patient  Protection and Affordable Care Act (PPACA) implementation. We  assessed the reliability of the data by reviewing related documentation,  testing the data for errors, and interviewing IRS officials.
Why GAO Did This Study

Tax year 2014 marked the first time individual taxpayers were required by the Patient Protection and Affordable Care Act (PPACA) to report health care coverage information on their tax returns. Taxpayers reported on whether they had health care coverage, had an exemption from the coverage requirement, or owed a tax penalty (the SRP). Most taxpayers who received coverage through a health insurance marketplace were also eligible for an advance PTC to make their coverage more affordable. Marketplace customers can choose to have the PTC paid in advance to their insurance company or may claim all of the credit when they file their tax returns. GAO was asked to review IRS implementation of the individual shared responsibility and PTC tax provisions.
Among other objectives, this report examines (1) IRS's implementation of these PPACA requirements; and (2) IRS efforts to collaborate with key external stakeholders. To address these objectives, GAO reviewed documents from IRS and CMS; analyzed preliminary 2014 tax year data; and interviewed officials from IRS, CMS, marketplaces and other key external stakeholders, such as tax preparers and tax software companies.

What GAO Found

In January 2015, the Internal Revenue Service (IRS) began verifying taxpayers' premium tax credit (PTC) claims using marketplace data on enrollments and advance payments of the PTC. IRS is using its standard examination processes to check the coverage, exemption, or shared responsibility payment (SRP) information taxpayers report. IRS's overall goals are to efficiently and effectively enforce compliance with tax laws, reduce taxpayer burden, and encourage voluntary compliance.
Incomplete and delayed marketplace data limited IRS's ability to match taxpayer PTC claims to marketplace data at the time of return filing. Complete marketplace data for the 2014 coverage year were due to IRS in January, but due to marketplace delays in transmitting the data and IRS technical difficulties with processing the data for matching, as of March 21, 2015, IRS had complete data available for verification of taxpayer PTC claims for 4 of the 51 marketplace states (i.e., the 50 states and the District of Columbia). IRS does not know whether these challenges are a single year or an ongoing problem. According to IRS officials, IRS checks the formatting, but not the accuracy of the data. Although IRS implemented contingency plans to compensate for missing and inaccurate data, those processes were more burdensome for taxpayers. Assessing whether the problems with the timeliness and reliability of the marketplace data are expected to be an ongoing challenge, rather than just a first-year problem, would help IRS understand how it can use the data effectively and better target contingency plans.
IRS does not know the total amount of advance PTC payments made to insurers for 2014 marketplace policies because marketplace data are incomplete. Without this information, IRS does not know the aggregate amount of advance PTC that taxpayers should have reported on 2014 tax returns. Thus, IRS does not know the size of the gap between advance PTC paid and reported or the extent of noncompliance with the requirement for recipients of advance PTC payments to accurately report those payments on their tax return, a measure that could help IRS assess the effectiveness of its education, outreach, and compliance efforts.
Successful implementation of the PTC and individual shared responsibility tax provisions requires IRS collaboration with the Centers for Medicare & Medicaid Services (CMS)—which is responsible for overseeing the marketplaces—and the marketplaces, and communication with other stakeholders, such as tax software companies, employers, and health insurers. IRS worked to collaborate and communicate with external stakeholders to implement PPACA requirements for tax year 2014. However, several external stakeholders GAO spoke with reported challenges with IRS collaboration efforts, such as not receiving certain IRS guidance in time for stakeholders to have complete information at the beginning of the filing season. IRS is evaluating opportunities for improving return processing and the taxpayer experience, but is not evaluating its collaboration efforts. Without an assessment of its efforts to collaborate and communicate with key external stakeholders, challenges in implementing the 2014 PPACA requirements that relied on these groups could also affect new requirements taking effect in 2015, including new information reporting requirements for the State-based Marketplaces, issuers of coverage, and applicable large employers.

What GAO Recommends

GAO recommendations include that IRS (1) assess whether marketplace data delays are an ongoing problem, (2) assess the reliability of the data for IRS matching, (3) work with CMS to get complete data and track the aggregate gap between advance PTC paid and reported, and (4) evaluate its collaboration efforts. IRS generally agreed with GAO's recommendations.