WASHINGTON – The blossoming IRS scandal over the targeting of conservative groups is provoking new scrutiny and terse questions about the agency's role in shaping and implementing the controversial national health care law, with the biggest changes set to begin next year.

The Internal Revenue Service is an important cog in the implementation of the Patient Protection and Affordable Care Act of 2010, commonly shorthanded as Obamacare. The tax agency must act on 47 provisions of the new law, more than half of those already in effect, including the more controversial ones taking effect in 2014 such as the requirement that nearly all non-elderly adults have health care coverage.

The IRS role in Obamacare hadn't been particularly controversial until May 10, when it was revealed that an IRS office targeted conservative groups for extra scrutiny when they applied for tax-exempt status as social welfare organizations.

Many of these groups had been formed in part because they were angered over Obamacare's individual mandate, which requires nearly all adults to have health care coverage starting next year or pay a penalty via taxes. Now, the role of the IRS appears even more inflammatory with the news that the woman who oversaw the IRS office that targeted tea party groups, Sarah Hall Ingram, has since been promoted to lead the tax agency's work in enforcing the health care law.

"The IRS is in charge of administering some of the most important elements of Obamacare. And, for many Americans, that's going to mean submitting to probing questions about their health insurance," Senate Minority Leader Mitch McConnell, R-Ky., said in a heated floor speech Thursday.

For small firms, he said, "the questions are going to be far more extensive, and the consequences for non-compliance far worse – and the agency will have broad discretion to define what constitutes non-compliance, by the way. This is nuts."

The scandal over how the IRS granted tax-exempt status also has dented the perception that the agency operates as a neutral, nonpartisan player. For conservatives, the question of trust is magnified because of Hall Ingram's new role in heading the health care implementation efforts for the agency.

"Are they competent to do it? Are they trustworthy enough?" Rep. Scott DesJarlais, R-Tenn., asked Wednesday.

Many Republicans stoked fears by warning that the IRS was granted access to sensitive medical records and would peer into the private lives of citizens.

"They really won't know anything more than they do now, except whether people are getting health insurance policies. The penalties will be imposed on their tax returns," said Roberton Williams, a senior researcher at the Tax Policy Center, a think tank jointly run by the centrist Urban Institute and the center-left Brookings Institution. "They won't need any more information on people's incomes than is already on the tax forms."

The IRS received about $881 million over the last four years to implement the health care law. Some of the changes the IRS must enact include:

–Impose fines on employers with 50 workers or more that do not offer health care coverage for full-time employees, or meet other criteria.

–Provide refundable tax credits for companies with fewer than 25 workers that do provide health care coverage.

–Provide help for lower-income taxpayers who purchase health insurance from a newly created state-run exchange.

–Develop criteria for taxing qualified individuals who don't purchase health insurance as required.

–Levy a 3.8 percent Medicare contribution tax on unearned income for wealthier seniors, starting in 2013.

With more than 48 million Americans without health coverage, the health care law is designed to move them into the pool of self-purchased health care coverage. The IRS next year will begin giving a subsidy through tax credits or levying tax penalties on individuals and employers, both carrot and stick. It'll offer tax credits for some individuals and smaller employers and tax penalties for non-compliance. Adding to the complexity, it's first year, in 2014, will be based not on the prior year's income but rather on income earned in 2014, with an adjustment to subsidies or penalties in 2015.

"It will be a pain in the neck for the IRS because it's figuring out what the subsidy is for your income two years ago," Williams said.

For Americans whose health insurance coverage now comes through their or their spouse's employer – 155.5 million individuals in 2011, according to the Employee Benefit Research Institute – the IRS is already collecting health care information.

It showed up in their W-2 statement on their 2012 income, in Box 12 with the letters DD. The amount in that box marked DD represented the value of their employer-provided health coverage. In 2018, some part of high-value health plans will be subject to taxation.


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