IRS screwing up Obamacare tax collection, audit shows

TND Guest Contributor:  Chris Butler | 

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.

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.

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.”

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Chris Butler is the Tennessee bureau reporter for Watchdog.org. Chris has nearly a decade of newspaper reporting experience and also has awards from the Louisiana-Mississippi Associated Press as well as the Louisiana Press Association. He earned his bachelor’s degree from Louisiana Tech University and his master’s degree from the University of Louisiana at Monroe. Click the Facebook or Twitter icons below to follow Chris on his official social media accounts.  Contact Christopher Butler at [email protected]

Watchdog.org is an online news organization that publishes articles by independent journalists covering state-specific and local government activity. The program began in September 2009, a project of Franklin Center for Government & Public Integrity, a 501(c)3 non-profit organization dedicated to promoting new media journalism.  This article is reprinted with permission.

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