The Not-So-Mandatory Individual Mandate

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

2. 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

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

4. 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

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

6. Tax Collection Tools • Criminal Penalties • Federal Tax Lien • Levies • Lawsuits • Offsets

7. 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)

8. 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

9. 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

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

11. 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

12. 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.”

13. 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]”

14. Tax Penalty Collection: Lien • Wounded, But Still Alive • “The Secretary shall notfile notice of lien with respect to any property of a taxpayer by reason of any failure to pay the [tax] penalty”

15. 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 . . . .” • http://www.irs.gov/uac/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision, Question 25

16. 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

17. 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

18. 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?

19. Thank You