IRS screwing up Obamacare tax collection, audit shows

Posted: Aug 26, 2014 12:25 PM
IRS screwing up Obamacare tax collection, audit shows

By Chris Butler | Tennessee Watchdog

NASHVILLE — Internal Revenue Service officials must enforce a new Obamacare tax designed to collect money from medical device manufacturers, but they’re losing money because they don’t know which companies even qualify for the tax, a new audit shows.

On top of that, the IRS wrongly penalized more than 200 of these companies for not paying their taxes when, in fact, they did pay, the audit from the Treasury Inspector General for Tax Administration reports.

Why doesn’t the IRS know whom to tax?

Medical device manufacturers have to register their products with the Food and Drug Administration.

Photo courtesy of the Internal Revenue Service's official Facebook page

Internal Revenue Service

But the FDA’s registration requirements for medical device manufacturers never quite matched that of the IRS.

Because of the ensuing confusion, tax revenues are far lower than expected, by as much as $117.8 million for one period alone last year.

Members of the Washington, D.C.-based Advanced Medical Technology, a trade association that opposes the tax and wants full repeal, say the findings don’t surprise them.

“We’ve expressed concerns from the outset that the device tax is poorly conceived, applying an excise tax — usually reserved for rubber tires, alcohol and tobacco — to an extremely diverse high-technology manufacturing industry,” said AdvaMed’s Vice President J.C. Scott, in an email to Tennessee Watchdog.

The organization, Scott added, warned the IRS of these potential problems before the law’s implementation.

“The device tax remains a drag on medical innovation and has resulted in the loss or deferral of more than 33,000 industry jobs.”

As previously reported, this Medical Device Tax under Obamacare imposes a 2.3 percent rate directly on a medical manufacturing company’s yearly sales, regardless of whether the company makes a profit. The tax went into effect in 2013 and has already cost Memphis at least 100 jobs.

Under Obamacare, the federal government may tax any devices intended for humans intended for the diagnosis, cure, treatment or prevention of disease.

IRS officials didn’t return requests for comment Monday or Tuesday.

Photo courtesy of Flickr

VALVE: Obamacare has imposed a tax on medical device manufacturers, including heart valves.

Treasury spokesman David Barnes referred all of Tennessee Watchdog’s questions to the audit report.

Forty-one U.S. senators are co-sponsoring legislation to repeal the law, but it’s seen no movement in the U.S. Senate for more than a year.

AdvaMed spokesman Gary Karr said last year the tax will hurt more than most other levies.

“The fact that it is a tax on sales makes it a more broad-based tax, and it makes companies hurt regardless of whether they are successful,” Karr said.

“The smaller medical device companies are putting money into research and development and just building up their businesses, and not necessarily making a profit yet. It is possible that this tax could take away a company’s entire profit margin.”

Contact Christopher Butler at 

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