Some individuals mistakenly received the advance premium tax credit

Health care exchanges failed to properly verify the identity and eligibility of all individuals who received the advance premium tax credit, the Treasury Inspector General for Tax Administration (TIGTA) reported. However, in a separate audit of the 2016 filing season, TIGTA found that the IRS accurately determined the amount of the premium tax credit on 97% of returns filed.

Advance premium tax credit

In response to a request of the chairman of the Senate Finance Committee, TIGTA audited the federal, California, New York, and Vermont health care exchanges regarding the effectiveness of processes by which the exchanges verify the identity and qualification of taxpayers receiving the advance premium tax credit. TIGTA provided its findings to the IRS, the Health and Human Services Department, and the Centers for Medicare and Medicaid Services.

A taxpayer who receives an advance premium tax credit (a payment of the premium tax credit allowed under Sec. 36B directly to an insurer to offset part of a taxpayer’s health insurance premium) is required to file a tax return to reconcile the amount advanced during the year with the amount the taxpayer is entitled to. TIGTA identified 283,738 taxpayers (nonfilers) who did not file a return to reconcile the amount.

In addition, the exchanges are required to verify the identity of taxpayers receiving the advance premium tax credit. The exchanges use different methods for verifying taxpayers’ identity, depending on whether they apply online, by phone, by paper, or in person.

The audit revealed that the exchanges did not verify the identity of everyone who received the advance credit. Of the 261,872 nonfilers it reviewed, TIGTA found that the exchanges did not successfully verify the identity of 35,276 (13.5%) individuals. These individuals received more than $112 million in advance premium tax credits during 2014.

TIGTA also found shortcomings in the exchanges’ verification of taxpayers’ eligibility to receive the advance premium tax credit. Out of 178,083 nonfilers (whose identities the exchanges verified successfully) it reviewed, TIGTA determined that 6% (11,388) received $21.8 million in advance premium tax credits even though it appeared that the nonfilers did not meet one or more of the prerequisites to receive the advance premium tax credit. And the exchanges did not verify one or more of the eligibility requirements, or the data provided were blank, for 2,498 (1%) of the 178,083 nonfilers. These nonfilers had $6.9 million in advance premium tax credit paid to insurers.

2016 filing season

According to TIGTA, the IRS received more than 5.2 million tax returns claiming the premium tax credit in 2016. Taxpayers received $20.3 billion in premium tax credits, either as advance payments or claimed on the return.

TIGTA analyzed 4.9 million returns filed by May 1, 2016, and determined that the IRS had correctly determined the allowable amount of the premium tax credit on 97% of those returns. TIGTA found a variety of issues with the other 3%, including programming errors, failure to identify potentially erroneous returns, and failures on the part of health exchanges to provide data to the IRS.

—Sally P. Schreiber (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.