Health Reform WK-EDGE IRS needs to improve controls over financial accounting for premium tax credit
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Friday, March 18, 2016

IRS needs to improve controls over financial accounting for premium tax credit

By Wolters Kluwer Editorial Staff

The controls over financial accounting for the Internal Revenue Code Sec. 36B premium tax credit (PTC) should be improved, according to a report by the Treasury Inspector General for Tax Administration (TIGTA). Individuals who obtain health insurance through the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) marketplace may be eligible for the PTC. The PTC may be paid in advance to the health insurance issuer (TIGTA Report, No. 2016-130-21, March 2, 1016).

Individuals who chose to have advance payments of the PTC sent to a health insurance issuer must file a return to reconcile the advance payment of the credit with the actual amount of the credit they are eligible to receive. To reconcile the PTC, the IRS must adjust the amounts initially recorded for advance payments in its financial records. These amounts, TIGTA explained, are based on taxpayer-estimated income and family size, and must be adjusted to reflect the actual credit amount based on income and number of dependent deductions reported on the taxpayer’s return.

The errors that TIGTA found were due to an IRS programming miscalculation. The miscalculation was not caught because of insufficient testing of the programming, according to TIGTA. Due to this programming error, the IRS understated the amount of disbursements and overstated the balance in its account used to track PTC funds in its financial records, TIGTA reported.

TIGTA recommended that the IRS chief financial officer, in coordination with the chief technology officer, develop procedures requiring the timely and comprehensive review and testing of any changes to the financial system programming used to report outlays related to the PTC. In addition, the chief financial officer, in coordination with the Affordable Care Act Office, should work with CMS to jointly develop procedures for the periodic financial reconciliation. The IRS agreed with the recommendations.

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