IRS Lost $67 Million from Obamacare Slush Fund

Alicé Leuchte | September 26, 2013

A report released by the Treasury Inspector General for Tax Administration (TIGTA) contains findings on the mismanagement of funds by the IRS relating to the implementation of the Affordable Care Act (Obamacare).

Americans for Tax Reform published a brief summary of the specific malfunctions, while Forbes did a short piece on the dysfunctional attitude the IRS maintains concerning the misuse of our tax dollars (which includes a link to a Monty Python sketch).  Both are insightful and one is even entertaining… however, for those of us who want more information, the best source is the report itself.

Let’s get Serious
The report is plainly written, and the core issue is summarized in the Table of Contents:

Some Affordable Care Act Implementation Costs Were Inaccurate or Not Tracked and Supporting Documentation Was Not Always Maintained.

The background section gives a basic, but vital explanation on the various responsibilities of specific government agencies in the Obamacare implementation process, as well as their functions under the new law once it is implemented.

Setting the Stage
While the Department of Health & Human Services (HHS) is the lead on health policies under the ACA, the IRS is responsible for all tax-related regulation changes necessary to execute this law.  They will also be responsible for imposing any penalties against individuals and business that do not comply with the ACA.

Because of the massive effort required to restructure an entire national health system, the legislation established the Health Insurance Reform Implementation Fund (HIRIF) to finance the administrative costs.  The Government Accountability Office (GAO) interpreted the purpose of this fund to be for immediate implementation costs, and not for ongoing needs.

This $1 billion fund is managed by HHS, which makes the necessary allocations to the other agencies involved in the healthcare overhaul.  The IRS received $488 million from the HIRIF between 2010 and 2012, and informed the Treasury that the department would not need further funds after the 2012 fiscal year.  After FY 2012, the IRS would need to draw from its own operating budget to cover any subsequent ACA implementation expenses.  The report continues to say:

It therefore remains critical that the IRS has complete and reliable information regarding all costs associated with the implementation in order to effectively manage taxpayer funds devoted to this effort.  The IRS informed us that it requested $360 million and 859 FTEs for FY 2013 to continue implementation of the ACA.  However, the IRS did not receive this requested amount for FY 2013.

Malfunctions, Recommendations & Responses
The report lays out specific failures of the IRS to properly record and document ACA-related costs.  The main malfunctions are noted as:

Charges to the HIRIF related to direct labor were sometimes inaccurate and not always substantiated by reliable supporting documentation… The IRS did not track all costs associated with the implementation of the ACA.

Among the specific items captured in the meat of this document, the bottom line is:

Our review of the IRS’s records indicated that it did not account for or attempt to quantify any indirect costs during FYs 2010 through 2012.  Based on the IRS’s own internal cost accounting guidelines, the indirect costs associated with these direct labor charges likely totaled approximately $67 million for FYs 2010 through 2012.

The Treasury Inspector General also lays out three specific recommendations for the future, and includes the responses of IRS management to these items.  Definitely worth a look.