A new report released today by the Treasury Inspector General for Tax Administration (TIGTA) says that the IRS needs to improve its strategy for ensuring accurate reporting and payment of the Medical Device Excise Tax that is included in the Affordable Care Act.
Apart from all the tax credits and other tax law changes included in the ACA, the most controversial one is perhaps the Medical Device Excise Tax.
This is an excise tax of 2.3 percent of the sales price for medical devices sold starting from January 1, 2013.
Manufacturers, producers and importers of medical device goods are now responsible for collecting the tax and filing Form 720 as their quarterly federal excise tax return.
Estimated revenues from this tax were pegged at $20 billion for the period from fiscal year 2015 to 2019.
TIGTA’s review found the number of forms 720 filed and the amount of revenue reported were much lower than expected.
TIGTA’s analysis of 5,107 forms 720 that were processed for the first half of 2013 identified discrepancies totaling almost $117.8 million compared to what the IRS toted up from the forms.
TIGTA says the IRS is trying to come up with a compliance strategy for this tax, but the agency is apparently still unable to identify the medical device manufacturers registered with the Food and Drug Administration who need to file Form 720 and pay the medical device excise tax.
“While the IRS has taken steps to educate medical device manufacturers of the medical device excise tax during implementation, it faces challenges to definitively identify manufacturers subject to the medical device excise tax reporting and payment requirements,” said J. Russell George, Treasury Inspector General for Tax Administration.
As if identifying the companies that need to pay the tax wasn’t hard enough, the agency went ahead and stiffed $706,753 out of businesses through 219 failure-to-deposit penalties for the first six months of 2013, which was supposed to be a designated penalty relief period.
The IRS then backtracked on 133 of these penalty assessments, but left the others stand. When TIGTA notified the IRS about the remaining 86 penalty assessments, they were also reversed and the IRS wrote them apology letters.
TIGTA included several recommendations in the report for the IRS, including that the agency continue refining its compliance strategy for identifying noncompliant manufacturers, establish a process for verifying the tax amount for paper-filed Forms 720, and initiate correspondence with taxpayers for obtaining missing taxable sales or tax amounts.
The IRS agrees with TIGTA’s recommendations, and is planning to develop alternative strategies for identifying the medical device makers and ensuring compliance and payment of the medical device excise tax.
Read the full TIGTA report – Download (pdf)
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