WASHINGTON — The federal excise tax on medical devices is bringing in considerably less money than expected, according to a government report, further fueling efforts to repeal it.
Originally, the Internal Revenue Service estimated it would receive between 9,000 and 15,600 medical device tax forms, raising $1.2 billion in the second and third quarters of 2013. But IRS received about 5,100 forms, bringing in just $913.4 million, according to a report from the Treasury Inspector General for Tax Administration.
On top of a lack of revenue, another problem with the implementation of the tax is that no one seems to be clear on how much or even if they should be paying. Among the 5,100 filings, the Inspector General reported 276 errant tax bills, resulting in a mix of under- and over-payment to the tune of $117.8 million in tax discrepancies.
IRS also erroneously assessed 219 “failure to deposit” penalties for a total of $706,753 in fines against businesses filing the Form 720 quarterly excise tax paperwork over two quarters of 2013 that were actually designated a penalty relief period, according to the TIGTA report. So far, 133 of the penalties have been reversed and when the inspector general alerted IRS brass to the problem the remaining 86 penalties were reversed and apology letters went out.
TIGTA recommended that IRS work on its compliance strategy to identify companies that should be paying the tax, which is part of the 2010 Affordable Care Act and began being implemented as of Jan. 1, 2013.
Before leaving Washington to campaign for the midterm elections in November, the House passed a broad bill to continue tax cuts that expired at the end of 2013, which also included a provision to repeal the 2.3 percent medical device tax. But the Senate took no such action before skipping town.
While 79 senators from both sides of the aisle agreed the medical device tax should be repealed in a nonbinding vote last year, key leaders, including Senate Majority Leader Harry Reid (D-Nev.), have blocked efforts to bring it up. Some GOP lawmakers are eyeing an end-of-year package of “tax extenders” as another chance to try and repeal the measure, similar to the House's earlier move.