Could the IRS Penalize You for Not Having Health Care?

This is a rush transcript from "On the Record," April 16, 2010. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Well, if you don't buy health insurance under the new health care law, what's going to happen? Are the police coming after you. No. But try this one, the IRS. IRS enforcement official Steve Miller testifying to the Senate Finance Committee.


SEN. CHARLES GRASSLEY, R-IOWA, FINANCE COMMITTEE: What incentives do individuals have to purchase insurance if they know the IRS won't be checking and won't be seeking to collect the individual mandate penalty?

STEVE MILLER, INTERNAL REVENUE SERVICE ENFORCEMENT OFFICIAL: Well, we will be looking, Mr. Grassley. We will be looking. We will have that matching program. We will be corresponding with people. Whether that triggers an examination or not is going to depend on a given case. It's not in all likelihood -- I think what my boss was saying was we -- that is not the kind of case that we send out an agent to pursue. It is the kind of case we correspond with the taxpayer. At the end of the day, again, Congress has limited the tools we can use. But we will be talking to the taxpayer, and we do have a refund offset mechanism in order to enforce that provision. That is in our toolbox.


VAN SUSTEREN: Joining us live is Martin Vaughan, reporter for Dow Jones Newswire. Nice to see you, Martin. All right, so tell me, if I don't buy this health insurance under this new health care program, how do they -- how do they find out? And how do -- what do they do to me?

MARTIN VAUGHAN, DOWN JONES NEWSWIRES: OK. Well, the -- each insurance provider is supposed to send an information return to the taxpayer and also one to the IRS. That way, the IRS is going to match those documents with your tax return and try to determine whether or not you've met this insurance mandate requirement.

VAN SUSTEREN: So they become the police, sort of?

VAUGHAN: Sort of. The -- what the deputy commissioner -- the point that he was trying to make was that the IRS is not going to come to your house, drag you jail if you don't have -- if you don't have health insurance. And they're also...

VAN SUSTEREN: What are they going to do?

VAUGHAN: Well, there's a couple -- there's -- they're constrained by the law. They can't put a levy against your house. They can't put a lien against your boat or your property. One of the tools that they have is they can send you a notice saying, Our records indicate you don't have insurance. You need pay a penalty. But even then, they have limited tools to sort of enforce that or make you pay the penalty. One thing they can do is withhold your refund.

VAN SUSTEREN: That's assuming you have a refund.

VAUGHAN: Correct.

VAN SUSTEREN: If you don't have a refund, they're not -- I mean, they -- they're not going to withholding any refund.

VAUGHAN: Exactly. So if you don't have a refund, then there's not -- there may not be much they can do to enforce this.

VAN SUSTEREN: Why was he testifying before the Senate Finance Committee about that today?

VAUGHAN: Well, he testified before the Senate Finance Committee on tax day about various issues affecting taxpayers. This health care mandate is, of course, front and center on the minds of a lot of people.

VAN SUSTEREN: And so was he quizzed about it? I mean -- I mean, do you have the sense that the IRS is sort of really on top of (INAUDIBLE) good idea of what's going to happen, or are this -- are these sort of uncharted waters and they're just sort of feeling their way through this?

VAUGHAN: I think they're feeling their way through it. I mean, I think that the health care bill creates some new responsibilities for the IRS. It is uncharted waters. There's no doubt about it. And they're being very careful as they go through this not to give the impression that they've suddenly become this new super-cop enforcement agency but that they're going to do what Congress has asked them to do and play a role in this new health care system.

VAN SUSTEREN: See, I don't understand what the incentive is for someone -- let's say you have a single person, 25 years old. I'm not so sure I understand what the incentive is to buy health care insurance until you get sick because you might not get caught by IRS, or if you don't -- if they're not entitled to a refund, they're just going to send you a notice in the mail, which doesn't have much teeth, although it's a little scary to get something from the IRS. And then if you do get sick, then you can run out and get health insurance because of this preexisting condition is no longer an impediment.

VAUGHAN: Right. Well, I mean, they -- this is a very careful balance that they tried to strike in crafting this legislation between not creating something that was so punitive that people would think, you know, the IRS is going to throw me in jail if I don't have health insurance, and at the same time, creating those incentives and letting those incentives be there. I mean, if you saw in the testimony, he didn't rule out that not having health insurance would trigger an examination. He said it's not likely that you're going to get audited.

VAN SUSTEREN: What do you mean by an examination, audit?

VAUGHAN: Yes, that's an audit. You know, that's when the IRS...

VAN SUSTEREN: (INAUDIBLE) so if I don't have health insurance, they're going to audit, like, all my -- all my tax documents.

VAUGHAN: Well, they've said that...

VAN SUSTEREN: Or could, I should say, or considering it.

VAUGHAN: They haven't ruled out that it would be a factor. I think what the IRS commissioner has said is that it's not likely to be the factor that causes the IRS to knock on your door and say, Turn over all your records and we're going to audit your entire tax history. But you know, at the same time, they're charged with enforcing this. And he didn't rule out that it could be a factor.

VAN SUSTEREN: When you think of all the people who have -- you know, who might be -- who have huge tax evasion we should spend time audit (INAUDIBLE) look and you think of the one person that doesn't buy health insurance, using an IRS agent to go audit him seems like a lot of work for nothing, for little, rather. But anyway, Martin, thank you.

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