Washington, D.C. (November 10, 2011)

By Michael Cohn, Accounting Today

The Republican leader of the House Ways and Means Oversight Subcommittee plans to hold a hearing to probe the efficacy of the Small Business Health Care Tax Credit in the aftermath of a report that found a disappointing number of small businesses taking advantage of the tax break in the health care reform law.

Charles Boustany

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Rep. Charles Boustany, R-La., who chairs the Oversight Subcommittee on the tax-writing Ways and Means Committee, announced the hearing Tuesday. It came in response to a report released Monday by the Treasury Inspector General for Tax Administration that found only 228,000 taxpayers had claimed the credit as of May, a far lower number than had been anticipated despite extensive outreach efforts by the Internal Revenue Service to small businesses (see Claims for Small Business Health Care Tax Credit Much Lower than Expected).

The hearing is scheduled for Tuesday, November 15, and comes amid efforts by the Republican majority in the House this year to repeal or defund the controversial health care reform law.

“Much of the President’s new health care law will be administered by the IRS, and this is the first credit provision to come into effect,” Boustany said in announcing the hearing. “With small businesses hurting from a stalled economy and rising health insurance premiums, the Oversight Subcommittee will explore whether the Small Business Tax Credit is providing meaningful help to employers or if it is opening the door to more improper payments.”

The Patient Protection and Affordable Care Act included a limited-time tax credit to encourage small businesses to provide health care coverage to employees. The Small Business Health Care Tax Credit is available to certain small businesses and covers 35 percent of an eligible small employer’s contribution to employee health insurance premiums for each tax year from 2010 to 2013. After 2013, the credit amount increases to 50 percent, but a taxpayer may only elect to take the credit for two consecutive tax years. The calculation to determine eligibility is a complex sliding scale involving employee hours of service and wages, along with certain exclusions.

As the costs of health insurance continue to rise, it remains unclear whether the tax credit is beneficial to a meaningful number of small businesses or whether the IRS is administering the credit appropriately, Boustany’s announcement noted. Due to the complex calculations associated with the tax credit, government watchdogs have warned that it leaves room for calculation error and opens the door to potential tax fraud. The TIGTA report found that only 228,000 taxpayers took advantage of the credit as of May 2011, despite earlier claims by the Obama administration that 4 million employers would be eligible. The Inspector General also found that the manner in which the IRS is administering the credit has created concerns over tax compliance.

Currently, an Illinois tax return is required for an estate that is valued at $2,000,000 or above. We suggest that Federal Form 706 be completed and sent to the Internal Revenue Service even for those estates valued under the Federal filing requirement of $5,000,000 and above, whenever the decedent is survived by a spouse. This creates a permanent record that can later be referenced in order to meet the code 2010(c)(5) requirements in order to later apply the Portable Exclusion.