The Treasury Inspector General for Tax Administration today released The Affordable Care Act: An Improved Strategy Is Needed to Ensure Accurate Reporting and Payment of the Medical Device Excise Tax (2014-43-043):
The Affordable Care Act includes a tax provision that provides for an excise tax equal to 2.3 percent of the sales price for medical devices sold beginning January 1, 2013. Manufacturers, producers, and importers are responsible for collecting the medical device excise tax and must file a Form 720, Quarterly Federal Excise Tax Return. The Joint Committee on Taxation estimated revenues from the medical device excise tax of $20 billion for Fiscal Years 2013 through 2019. ...
Our review found that both the number of Forms 720 filed reporting the medical device excise tax and the amount of the associated revenue reported are lower than estimated. The IRS is attempting to develop a compliance strategy to ensure that businesses are compliant with medical device excise tax filing and payment requirements and has taken several measures to advise medical device manufacturers of the new excise tax. However, the IRS cannot identify the population of medical device manufacturers registered with the Food and Drug Administration that are required to file a Form 720 and pay the excise tax.
In addition, processing controls do not ensure the accuracy of medical device excise tax figures reported on paper-filed Forms 720. Our analysis of 5,107 Forms 720 processed for the quarters ending March 31 and June 30, 2013, identified discrepancies in the amount of the medical device excise tax and/or taxable sales amount captured from 276 paper‑filed tax returns. TIGTA identified medical device excise tax discrepancies totaling almost $117.8 million when comparing the excise tax amount captured by the IRS from the Form 720 to the excise tax amount TIGTA calculated.
Finally, the IRS erroneously assessed 219 failure to deposit penalties totaling $706,753 against businesses filing a Form 720 for the quarters ending March 31 and June 30, 2013, which was designated a penalty relief period. The IRS had reversed 133 of the 219 penalty assessments. When TIGTA alerted the IRS of the remaining 86 penalties, IRS management reversed the penalties and issued apology letters to the affected taxpayers. ...
Our review found that both the number of Forms 720 filed and the amount of the medical device excise tax revenue being reported are lower than estimated. Figure 2 shows that the IRS processed 5,107 Forms 720 with reported excise taxes of $913.4 million for the quarters ending March 31 and June 30, 2013. The IRS estimated between 9,000 and 15,600 quarterly Forms 720 tax returns with excise tax revenue of $1.2 billion for this same period.