House Set to Pass Taxpayer Assistance Bill with Benefits-Related Provisions

Written by: Nick Curabba

The House of Representatives today has scheduled a vote on the Taxpayer Assistance and Simplification Act of 2008 (HR 5719).  At least two of the provisions of the bill may be of interest to readers of this blog. 

Section 12 of the bill would allow individuals to recontribute to an IRA amounts that were wrongfully levied against the account.  Under present law, even if the IRS is found to have wrongfully levied against an IRA and ordered to return the money to the taxpayer, the amounts taken from an IRA may not be able to be replaced because of contributions limits.  The provision in HR 5719 will create an exception to the IRA annual limits for amounts improperly levied to be replaced.  The IRS is also required to pay interest on any wrongfully levied amount that it must return.

Section 17 of the bill would require greater substantiation be provided by owners of health savings accounts (HSAs) prior to disbursements.  The bill uses the substantiation standard that is applied to flexible spending arrangements, and will subject any unsubstantiated distributions to income tax and a 10 percent penalty tax.  The provision reflects the general antipathy – if not outright hostility – House Democrats have for HSAs.  Rep. Pete Stark (D-CA), who chairs the Ways and Means Subcommittee on Health, has been quoted as referring to HSAs as a "new billion dollar shelter for the wealthy" and is clearly not going out of his way to encourage their growth. 

The business and benefits provider communities will likely weigh in to oppose this provision, which will generally make it more expensive for trustees and custodians of HSAs to administer the arrangements.  If the bill passes the House (which is likely), however, the substantiation provision will likely be included. Not only is it backed on policy grounds by senior Democratic tax writers, like Stark and Committee Chair Charlie Rangel (D-NY), it also is projected to raise $308 million is additional tax revenues over 10 years.  In the current budgetary framework Congress is working under, a "revenue raiser" like this is gold, making it very difficult to dislodge the provision from the bill.

Even if it passes the House, however, enactment this year seems doubtful.  The Senate has not yet moved on a companion bill, and the White House has registered its "strong opposition" to HR 5719 in a Statement of Administration Position issued to the House Rules Committee yesterday.  The SAP indicated the President would likely veto the bill if it arrived at his desk.