March 30, 2010 -- Ask critics of the Democrats' health care overhaul about the law's impact, and among the "horrors" they may describe is an army of Internal Revenue Service agents with "dangerously expanded authority."
Republicans on the House Ways and Means Committee warn that as many as 16,500 new IRS auditors and investigators -- or 17 percent of the agency's current work force -- could be needed to administer and enforce new health insurance rules under the law.
That could mean more audits, confiscated refunds and incursions into details of individuals' health insurance plans -- all at a cost of up to $10 billion over 10 years, they said in a report published last week.
"When most people think of health care reform, they think of more doctor exams, not more IRS exams," said Rep. Kevin Brady, R-Texas, ranking member on the House Joint Economic Committee. "Isn't the federal government already intruding enough into our lives?"
The Patient Protection and Affordable Care Act authorizes the IRS, the agency that collects taxes and enforces internal revenue laws in the U.S., to collect penalties imposed on individuals for not having health insurance, and on companies for not offering it when the mandates take effect in 2014.
But IRS Commissioner Douglas Shulman said taxpayers have nothing to fear.
"I think there have been some misconceptions out there," Shulman told a House committee last week, insisting the new law will not fundamentally alter the relationship between the agency and taxpayers.
Shulman said the new health care law puts the onus on taxpayers to report their insurance coverage on tax forms much as they report income and interest earnings.
"All that will happen with the IRS is similar to a current 1099, where a bank sends the IRS a statement that says 'here's the interest' someone owes, and they send it to the taxpayer," he said. "We expect to get a simple form that ... says this person has acceptable health coverage."
He said the Department of Health and Human Services will set guidelines for what constitutes "acceptable" health coverage.
But just how the mandate will be enforced if a taxpayer doesn't report coverage -- or reports unacceptable coverage -- is unclear. Details of how the provision will work, and IRS's role in how it will work, are still being determined.
IRS Needs More "Resources" Under Health Reform Law
While insurance information provided on tax forms would presumably be subject to review in an audit, the IRS is prohibited from criminally prosecuting taxpayers who don't comply with the mandates or issuing liens or levies as a penalty under the new law.
"It's premature to be speculating about numbers of employees the IRS will need, and what they will be doing," a Treasury Department spokesperson told ABC News. "Any analysis that assumes the IRS would dedicate most of its administrative expenses to investigating taxpayers is fundamentally flawed."
The Congressional Budget Office estimates that administrative costs associated with implementing the health reform law could cost the IRS between $5 billion and $10 billion over 10 years. It does not say how the money would be spent, although some of the funds would likely help acquire more employees.
Shulman said the agency "will need resources," but that they will largely be acquired to "serve the American people."
The agency said it would need to undertake awareness campaigns to promote new affordability tax credits to families and health tax credits to small businesses. Changes to the tax code will also necessitate greater staffing of call centers and building online self-help tools, the agency said.
Rep. Charles Boustany, R-La., a member of the Ways and Means Committee, said any expansion of the tax agency as part of health reform amounts to greater incursion into citizens' lives.
"The legislation envisions the IRS having a central role in administering a new national health insurance system and enforcing its rules," he said in a statement.
President Obama's budget for FY 2011 gives a $450 million increase for the IRS and describes the agency's $8 billion allocation for enforcement and modernization programs to support "significant new revenue-generating initiatives that will target critical areas of non-compliance."
Of the nearly 199 million income tax returns filed with the IRS last year, more than 1.5 million -- or just below 1 percent -- were reviewed by agency auditors.