The Not-So-Mandatory
Individual Mandate
Jordan Barry
Bryan Camp
Patient Protection and
Affordable Care Act (PPACA)
• Major Piece of Legislation (2,400+ Pages)
– Increases Federal Spending on Healthcare for LowIncome Individuals and Families
– Creates Insurance Exchanges
– Incentives for Employers to Provide Employees
Health Insurance
– Prohibits Discrimination Based on Pre-Existing
Conditions
• Adverse Selection
“Individual Mandate”
• Applies to Most U.S. Citizens
– Requires “Minimum Essential Coverage”
– Both for Themselves and Dependents
• Enforced by a Tax Penalty
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
Tax Penalty Issues
• Amount Too Low?
– CBO Estimates 4M People Will Choose to Pay the
Penalty Rather Than Buy Insurance
• Collection?
Tax Collection Tools
• Criminal Penalties
• Federal Tax Lien
• Levies
• Lawsuits
• Offsets
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)
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
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
Lawsuits
• Sections 7401 and 7403
– Reduce Assessments to Judgments
– Foreclose Tax Liens
• Supplement Administrative Remedies
– Extending Collection Period
– Overcoming Joint Ownership
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
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.”
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]”
Tax Penalty Collection: Lien
• Wounded, But Still Alive
• “The Secretary shall not file notice of lien with
respect to any property of a taxpayer by
reason of any failure to pay the [tax] penalty”
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-onthe-Individual-Shared-Responsibility-Provision,
Question 25
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
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
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?
Thank You