Lower-than-expected filings and revenue, erroneously assessed penalties and inability to identify manufacturers subject to the tax are among the reasons cited in a new report that says the IRS needs to improve its strategy on Obamacare’s medical device excise tax.
The report is from the Treasury Inspector General for Tax Administration. It says the IRS expected between 9,000 and 15,600 tax returns with excise tax revenue of $1.2 billion for the quarters ending March 31 and June 30, 2013. What it actually got was 5,107 returns with reported excise taxes of $913.4 million.
A provision of Obamacare, the tax is 2.3 percent of the sales price for medical devices sold since Jan. 1, 2013. Its estimated revenues through 2019 are $20 billion.
“Businesses involved in the production and distribution of medical devices intended for commercial distribution in the United States are required to register annually with the FDA,” the report says. However, that data isn’t definitive for these purposes, because it doesn’t include Employer Identification Numbers and “specific exemptions, other safe harbors, and retail exemptions apply.”
“For example,” the report continues, “the IRS evaluated the FDA’s registration data as of May 21, 2013, and identified 16,370 businesses with registered medical devices but estimated that only 4,500 to 7,800 of these businesses may sell taxable medical devices.”
Manufacturers are required to submit semimonthly payments when their medical device tax liability is $2,500 or more for a quarter, but a regulation granted companies temporary relief from the deadlines in the first three quarters of 2013 if they showed a good-faith effort to comply.
According to the report, the IRS erroneously assessed 219 penalties totaling $706,753 on companies that didn’t make quarterly payments by June 30, 2013. Upon discovering the problem, it reversed the penalties and issued apology letters, the report says.