On Aug.13, 2013, the Internal Revenue Service issued final regulations implementing section 6103(l)(21) of the Internal Revenue Code, as added by the Affordable Care Act (ACA). This provision authorizes the IRS – upon written request and subject to strict privacy and security safeguards – to disclose certain taxpayer information for use in verifying eligibility for health care affordability programs. The following questions and answers provide information that may be helpful in understanding the final regulations.
Q1. What do section 6103(l)(21) and the final regulations generally provide?
A1. These provisions provide that officers and employees of the IRS will disclose to HHS, the Marketplace, and state agencies only, upon written request and subject to strict privacy and security rules, certain return information for the reference tax year for each relevant taxpayer on an application, for the purpose of determining eligibility for certain health care affordability programs. The final regulations are effective on Aug. 14, 2013.
Q2. Do these final regulations allow the IRS to access individuals’ health information?
A2. No. Nothing in the ACA allows the IRS to access individuals’ health information, including information about individuals’ health status and any health care services received.
Q3. To whom will the IRS disclose certain return information?
A3. The IRS will disclose this information only to designated officers, employees, and contractors of HHS. HHS, in turn, may disclose this information to the Marketplace and state agencies. This information may not be disclosed to any other entity, including individuals applying at a Marketplace or state agency.
Q4. Who is a “relevant taxpayer?”
A4. A relevant taxpayer is any individual listed, by name and Social Security number, on an application submitted under the ACA for participation in the Marketplace or for an insurance affordability program.
Q5. What is the “reference tax year?”
A5. The reference tax year is the first calendar year prior to the submission of an application under the ACA for participation in the Marketplace or for an insurance affordability program or, where no return information is available for that year, the second calendar year prior to the submission of an application.
Q6. For what purposes will the return information be used?
A6. The information will be used solely for purposes of, and to the extent necessary in: (1) establishing an individual’s eligibility for participation in the Marketplace, including eligibility for exemptions from individual shared responsibility provision; (2) verifying the appropriate amount of any advance payment of the premium tax credit under section 36B or cost-sharing reduction under section 1402 of the ACA; or (3) determining eligibility for certain state health subsidy programs, including a state Medicaid program under title XIX of the Social Security Act, a state’s Children’s Health Insurance Program (CHIP) under title XXI of the Social Security Act, and a Basic Health Program under section 1331 of the ACA, if applicable.
Q7. What return information will the IRS disclose?
A7. Under the circumstances prescribed in the final regulations, the IRS will disclose the following information to the Marketplaces, via HHS, about taxpayers applying for assistance or certain exemptions:
- The taxpayer's filing status.
- The number of individuals on the taxpayer's tax returns.
- Information about the taxpayer's income and the income of dependents claimed on the return.
- If this information is not available, an indication of why.
This information may not be disclosed to any other entity, including individuals applying at a Marketplace or state agency or Navigators, certified application counselors, agents and brokers, or others assisting consumers in the application process.
Q8. Are HHS, the Marketplace, and state agencies receiving return information, required to keep the information confidential and adopt strict security requirements?
A8. Yes. The Internal Revenue Code includes strict privacy and security rules (established by Code section 6103(p)(4)) to safeguard tax information. These rules apply to all entities that will receive information under section 6103(l)(21), including HHS, the Marketplace and the state agencies administering certain state health subsidy programs, as well as their contractors. These safeguarding requirements include strict recordkeeping and proper handling, storage, disposal and computer security requirements, which protect the confidentiality of tax records. The IRS Office of Safeguards has the responsibility for monitoring the federal and state agencies that are permitted to receive tax return data to ensure they are complying with all requirements. IRS Publication 1075, Tax Information Security Guidelines for Federal, State, and Local Agencies, provides detailed background and procedures for data recipients.
Q9. Are HHS and other agencies receiving return information required to submit a Safeguard Procedures Report?
A9. Yes. Before one of these entities can obtain tax return information, it must submit a Safeguard Procedures Report (SPR) to the IRS, and the IRS must approve it. This report details the steps that the entity has established or plans to take to protect the confidentiality of the tax records it will be handling. If any entities fail to establish adequate safeguards, return information will be withheld from them.
Q10. What penalties apply if HHS, the Marketplace, or a state agency improperly uses or discloses tax return information?
A10. Section 7213 imposes criminal penalties (including imprisonment and, for federal employees, termination of employment upon conviction) for certain unauthorized disclosures of return information. Section 7213A imposes criminal penalties for certain unauthorized inspections of return information. Section 7431 generally provides a civil cause of action for individuals whose return information was disclosed or inspected without authorization. In addition to any penalties imposed by the Internal Revenue Code, section 1411(h)(2) of the ACA imposes civil penalties on HHS employees and contractors who improperly use or disclose tax return information.
Q11. Do the final regulations include any significant changes relative to the proposed regulations released in April 2012?
A11. No. These final regulations generally include without changes the rules that were included in the proposed regulations released in April 2012.