The Patient Protection and Affordable Care Act's medical device tax failed to bring in the $1.2 billion the Internal Revenue Service expected during the during second and third quarters of fiscal year 2013, a Treasury Inspector General for Tax Administration report has found.
The 2.3 percent excise tax — which took effect in January 2013 — brought in just $913.4 million during those two quarters. The Joint Committee on Taxation had projected the tax would bring in an estimated $20 billion in revenues for fiscal years 2013 through 2019. However, after conducting an audit to assess the IRS processing of tax returns and ensuring compliance, the TIGTA has concluded the IRS has encountered numerous problems in administering the tax.
Manufactures, producers and importers of medical devices are responsible for collecting the tax and filing a Form 720, or Quarterly Federal Excise Tax Return, according to the report. Although the IRS is making an effort to establish a compliance strategy, the agency can't identify the device manufacturers registered with the Food and Drug Administration that must pay the tax and file returns. Additionally, the TIGTA's analysis of 5,107 excise tax returns processed for the second and third quarters of 2013 revealed nearly $117.8 million in medical device tax discrepancies between the amount actually captured by the IRS and the amount TIGTA calculated. Furthermore, the IRS mistakenly administered 219 failure to deposit penalties against businesses that had filed Forms 720, according to the report. While the IRS reversed 133 of those penalties, the TIGTA had to alert the agency to 86 of them.
The TIGTA has suggested that the IRS refine its compliance strategy, review the 276 tax returns with errors, work on a taxpayer correspondence process to retrieve missing taxable sales, and create a procedure to ensure the accuracy of paper-filed tax return amounts. The IRS has agreed with these recommendations, according to the report.
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