[Senate Report 114-21]
[From the U.S. Government Publishing Office]


                                                        Calendar No. 44
                                                        
                                                        
114th Congress       }                         {       Report
                                 SENATE
 1st Session         }                         {       114-21
====================================================================
 
   A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO CLARIFY THE 
  SPECIAL RULES FOR ACCIDENT AND HEALTH PLANS OF CERTAIN GOVERNMENTAL 
                    ENTITIES, AND FOR OTHER PURPOSES

                                _______
                                

                 April 14, 2015.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 910]

    The Committee on Finance, having considered an original 
bill, S. 910, to amend the Internal Revenue Code of 1986 to 
clarify the special rules for accident and health plans of 
certain governmental entities, and for other purposes, having 
considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
 I. LEGISLATIVE BACKGROUND............................................1
II. EXPLANATION OF THE BILL...........................................2
        A. Clarification of Special Rule for Certain Governmental 
            Plans (sec. 1 of the bill and sec. 105(j) of the 
            Code)................................................     2
        B. Increase Continuous Levy Authority on Payments to 
            Medicare Providers and Suppliers (sec. 2 of the bill 
            and sec. 6331(h) of the Code)........................     4
III.BUDGET EFFECTS OF THE BILL........................................6

IV. VOTES OF THE COMMITTEE............................................8
 V. REGULATORY IMPACT AND OTHER MATTERS...............................8
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED.............9

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 910, a bill 
to amend the Internal Revenue Code of 1986 to clarify the 
special rules for accident and health plans of certain 
governmental entities, and for other purposes, reports 
favorably thereon without amendment and recommends that the 
bill do pass.

Background and need for legislative action

    Background.--Based on a proposal recommended by Senators 
Cantwell and Crapo, and on S. 2660 (113th Cong., 2nd Sess.) co-
sponsored by Senators Cantwell, Crapo, Risch, Klobuchar, 
Merkley, and Murray, the Committee on Finance marked up 
original legislation (a bill to amend the Internal Revenue Code 
of 1986 to clarify the special rules for accident and health 
plans of certain governmental entities, and for other purposes) 
on February 11, 2015, and, with a majority present, ordered the 
bill favorably reported.
    Need for legislative action.--In general, in order for 
contributions and benefits under an employer-sponsored accident 
or health plan to be excluded from income, the plan must cover 
only employees and their spouses, dependents, and children 
under age 27, or, in the case of a deceased employee, the 
employee's surviving spouse, dependents and children under age 
27. A plan that provides for the reimbursement of the medical 
expenses of any other beneficiary of a deceased employee causes 
the entire plan to lose tax-favored treatment.
    Present law provides a special rule under which tax-favored 
treatment applies to certain governmental accident or health 
plans that, on or before January 1, 2008, provide for the 
reimbursement of the medical expenses of a beneficiary of a 
deceased employee other than a surviving spouse, dependent or 
child under age 27. However, the present-law rule applies only 
to a limited group of accident or health plans, for example, an 
accident or health plan that is provided in connection with a 
public retirement system and has been authorized by a State 
legislature. Expansion of the rule to additional governmental 
accident or health plans will enable these plans to continue 
providing benefits in the manner promised to employees and 
their beneficiaries.
    In addition, it has been reported that many thousands of 
Medicare providers and suppliers have outstanding Federal 
employment and income tax liability, which contribute to the 
tax gap. The permissible percentage of payments to a Medicare 
provider subject to levy should be increased.

                      II. EXPLANATION OF THE BILL


A. Clarification of Special Rule for Certain Governmental Plans (sec.1 
                of the bill and sec.105(j) of the Code)


                              PRESENT LAW

    Reimbursements under an employer-provided accident or 
health plan for medical care expenses for employees, their 
spouses, their dependents, and adult children under age 27 are 
excludible from gross income.\1\ However, in order for these 
reimbursements to be excluded from income, the plan may 
reimburse expenses of only the employee and the employee's 
spouse, dependents, and children under age 27. In the case of a 
deceased employee, the plan generally may reimburse medical 
expenses of only the employee's surviving spouse, dependents 
and children under age 27. If a plan reimburses expenses of any 
other beneficiary, all expense reimbursements under the plan 
are included in income, including reimbursements of expenses of 
the employee and the employee's spouse, dependents and children 
under age 27 (or the employee's surviving spouse, dependents 
and children under age 27).\2\
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    \1\Sec. 105(b). Unless otherwise stated, all section references are 
to the Internal Revenue Code of 1986, as amended (the ``Code'').
    \2\Rev. Rul. 2006-36, 2006-2 C.B. 353. The ruling is effective for 
plan years beginning after December 31, 2008, in the case of plans 
including certain reimbursement provisions on or before August 14, 
2006.
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    Under a limited exception, reimbursements under a plan do 
not fail to be excluded from income solely because the plan 
provides for reimbursements of medical expenses of a deceased 
employee's beneficiary, without regard to whether the 
beneficiary is the employee's surviving spouse, dependent, or 
child under age 27.\3\ In order for the exception apply, the 
plan must have provided, on or before January 1, 2008, for 
reimbursement of the medical expenses of a deceased employee's 
beneficiary. In addition, the plan must be funded by a medical 
trust (1) that is established in connection with a public 
retirement system, and (2) that either has been authorized by a 
State legislature, or has received a favorable ruling from the 
IRS that the trust's income is not includible in gross income 
by reason of the exclusion for income of a State or political 
subdivision.\4\ This exception preserves the exclusion for 
reimbursements of expenses of the employee and the employee's 
spouse, dependents, and children under age 27 (or the 
employee's surviving spouse, dependents, and children under age 
27). Reimbursements of expenses of other beneficiaries are 
included in income.
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    \3\Sec. 105(j).
    \4\This exclusion is provided under Code section 115.
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                           REASONS FOR CHANGE

    In the past, certain governmental accident or health plans 
have provided for the reimbursement, after an employee's death, 
of medical expenses of a beneficiary other than the employee's 
surviving spouse, dependents and children under age 27, in 
order to avoid the forfeiture of unused amounts remaining under 
the plan at the time of the employee's death. Present law 
allows certain governmental plans with this design on or before 
January 1, 2008, to continue using this design, subject to 
eligibility conditions, such as that the accident or health 
plan be provided in connection with a public retirement system 
and have been authorized by a State legislature. However, the 
eligibility conditions under the present-law rule have the 
effect of excluding plans merely because of minor differences, 
for example if the governmental accident or health plan is not 
provided in connection with a public retirement system or is 
established by a local government rather than authorized by a 
State legislature. The Committee considers it appropriate to 
expand the present-law rule by providing alternative 
eligibility conditions, so that the rule applies to additional 
governmental accident or health plans.

                        EXPLANATION OF PROVISION

    The provision expands the exception to apply to plans 
funded by medical trusts in addition to those covered under 
present law. As expanded, the exception would apply to a plan 
funded by a medical trust (1) that is either established in 
connection with a public retirement system or established by or 
on behalf of a State or political subdivision thereof, and (2) 
that either has been authorized by a State legislature or has 
received a favorable ruling from the IRS that the trust's 
income is not includible in gross income by reason of either 
the exclusion for income of a State or political subdivision or 
the exemption from income tax for a voluntary employees' 
beneficiary association (``VEBA'').\5\ The plan would still be 
required to have provided, on or before January 1, 2008, for 
reimbursement of the medical expenses of a deceased employee's 
beneficiary, without regard to whether the beneficiary is the 
employee's surviving spouse, dependent, or child under age 27.
---------------------------------------------------------------------------
    \5\Tax-exempt status for a VEBA is provided under Code section 
501(c)(9).
---------------------------------------------------------------------------
    The provision also clarifies that this exception preserves 
the exclusion for reimbursements of expenses of the employee 
and the employee's spouse, dependents, and children under age 
27, or the employee's surviving spouse, dependents, and 
children under age 27 (referred to under the provision as 
``qualified taxpayers'') and that, as under present law, 
reimbursements of expenses of other beneficiaries are included 
in income.

                             EFFECTIVE DATE

    The provision is effective with respect to payments made 
after the date of enactment of the provision.

B. Increase Continuous Levy Authority on Payments to Medicare Providers 
    and Suppliers (sec. 2 of the bill and sec. 6331(h) of the Code)


                              PRESENT LAW

In general

    Levy is the administrative authority of the IRS to seize a 
taxpayer's property, or rights to property, to pay the 
taxpayer's tax liability.\6\ Generally, the IRS is entitled to 
seize a taxpayer's property by levy if a Federal tax lien has 
attached to such property,\7\ the property is not exempt from 
levy,\8\ and the IRS has provided both notice of intention to 
levy\9\ and notice of the right to an administrative hearing 
(the notice is referred to as a ``collections due process 
notice'' or ``CDP notice'' and the hearing is referred to as 
the ``CDP hearing'')\10\ at least 30 days before the levy is 
made. A levy on salary or wages generally is continuously in 
effect until released.\11\ A Federal tax lien arises 
automatically when: (1) a tax assessment has been made; (2) the 
taxpayer has been given notice of the assessment stating the 
amount and demanding payment; and (3) the taxpayer has failed 
to pay the amount assessed within 10 days after the notice and 
demand.\12\
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    \6\Sec. 6331(a). Levy specifically refers to the legal process by 
which the IRS orders a third party to turn over property in its 
possession that belongs to the delinquent taxpayer named in a notice of 
levy.
    \7\Ibid.
    \8\Sec. 6334.
    \9\Sec. 6331(d).
    \10\Sec. 6330. The notice and the hearing are referred to 
collectively as the CDP requirements.
    \11\Secs. 6331(e) and 6343.
    \12\Sec. 6321.
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    The notice of intent to levy is not required if the 
Secretary finds that collection would be jeopardized by delay. 
The standard for determining whether jeopardy exists is similar 
to the standard applicable when determining whether assessment 
of tax without following the normal deficiency procedures is 
permitted.\13\
---------------------------------------------------------------------------
    \13\Secs. 6331(d)(3), 6861.
---------------------------------------------------------------------------
    The CDP notice (and pre-levy CDP hearing) is not required 
if: (1) the Secretary finds that collection would be 
jeopardized by delay; (2) the Secretary has served a levy on a 
State to collect a Federal tax liability from a State tax 
refund; (3) the taxpayer subject to the levy requested a CDP 
hearing with respect to unpaid employment taxes arising in the 
two-year period before the beginning of the taxable period with 
respect to which the employment tax levy is served; or (4) the 
Secretary has served a Federal contractor levy. In each of 
these four cases, however, the taxpayer is provided an 
opportunity for a hearing within a reasonable period of time 
after the levy.\14\
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    \14\Sec. 6330(f).
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Federal payment levy program

    To help the IRS collect taxes more effectively, the 
Taxpayer Relief Act of 1997\15\ authorized the establishment of 
the Federal Payment Levy Program (``FPLP''), which allows the 
IRS to continuously levy up to 15 percent of certain 
``specified payments'' by the Federal government if the payees 
are delinquent on their tax obligations. With respect to 
payments to vendors of goods, services, or property sold or 
leased to the Federal government, the continuous levy may be up 
to 100 percent of each payment.\16\ For payments to Medicare 
providers and suppliers, the levy is up to 15 percent for 
payments made within 180 days after December 19, 2014. For 
payments made after that date, the levy is up to 30 
percent.\17\
---------------------------------------------------------------------------
    \15\Pub. L. No. 105-34.
    \16\Sec. 6331(h)(3).
    \17\Pub. L. No. 113-295, Division B.
---------------------------------------------------------------------------
    Under FPLP, the IRS matches its accounts receivable records 
with Federal payment records maintained by Treasury's Bureau of 
Fiscal Service (``BFS''), such as certain Social Security 
benefit and Federal wage records. When these records match, the 
delinquent taxpayer is provided both the notice of intention to 
levy and the CDP notice. If the taxpayer does not respond after 
30 days, the IRS can instruct BFS to levy the taxpayer's 
Federal payments. Subsequent payments are continuously levied 
until such time that the tax debt is paid or the IRS releases 
the levy.

                           REASONS FOR CHANGE

    It has been reported that many thousands of Medicare 
providers and suppliers have outstanding Federal employment and 
income tax liability, which contribute to the tax gap. 
Consequently, the Committee believes that it is appropriate to 
increase the permissible percentage of payments to a Medicare 
provider subject to levy.

                        EXPLANATION OF PROVISION

    Under the provision, the present limitation of 30 percent 
of certain specified payments is increased by an amount 
sufficient to offset the estimated revenue loss of the 
provision described in Part A, above.

                             EFFECTIVE DATE

    The provision is effective for payments made after 180 days 
after the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 308(a)(1) of the 
Congressional Budget and Impoundment Control Act of 1974, as 
amended (the ``Budget Act''), the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the bill to amend the Internal Revenue Code of 
1986 to clarify the special rules for accident and health plans 
of certain governmental entities, and for other purposes, as 
reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2015-2025:


                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that no provisions of the bill as reported 
involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that certain provisions affect the levels of 
tax expenditures (see revenue table in part A., above).

            C. Consultation With Congressional Budget Office

    In accordance with section 402 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority present, the bill to amend the Internal Revenue Code 
of 1986 to clarify the special rules for accident and health 
plans of certain governmental entities, and for other purposes, 
was ordered favorably reported by voice vote on February 11, 
2015.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill.

Impact on individuals and businesses, personal privacy and paperwork

    The bill expands the scope of a special rule under which 
medical expense reimbursements under certain governmental 
accident or health plans are excluded from income. It also 
increases the IRS's continuous levy authority on payments to 
Medicare providers and suppliers. The provisions of the bill 
are not expected to impose additional administrative 
requirements or regulatory burdens on individuals or 
businesses.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the tax provisions of the 
reported bill do not contain Federal private sector mandates or 
Federal intergovernmental mandates on State, local, or tribal 
governments within the meaning of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. The staff of the Joint Committee on Taxation has 
determined that there are no provisions that are of widespread 
applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  [all]