Commissioner Douglas Shulman defended the IRS rule that applies the tax credits to federal insurance exchanges, which are the bodies that will be developed to allow those without health insurance to buy it. He testified at a House hearing.
The issue is a new controversy over President Barack Obama's health care law. Several states already have decided not to establish their own insurance exchanges. In those states, federal exchanges would be created.
The credits would help consumers pay for private insurance beginning in 2014.
The IRS had to decide whether the credits would be available in the entire country regardless of whether states or the federal government ran the exchanges.
"Congress writes the laws and we interpret them. If you disagree, there's always the courts," Shulman told the House Oversight and Government Reform Committee.
Overall, Shulman said the tax agency will be ready in 2014 to fulfill its new role of providing tax breaks and incentives to help pay for health insurance. The IRS would impose penalties on some people who don't buy coverage and on some businesses that don't offer it to employees.
During the hearing, Shulman tangled with Rep. Scott DesJarlais, R-Tenn., a physician. DesJarlais accused the IRS of bypassing Congress by trying to expand the subsidies when the law gave the tax agency no authority to do so. "You're trying to twist" the law, he said.
Shulman responded that IRS lawyers "look at the statute and come up with the best interpretation."
The non-partisan Congressional Budget Office and the congressional Joint Committee on Taxation have interpreted the law in the same way as the IRS.
Fourteen states and the District of Columbia are definitely going forward with the insurance exchanges, while many others are deferring until after the November elections. So far, Texas, Florida, Louisiana and South Carolina are among the states that said they would not establish the exchanges.
Shulman also deflected claims by some opponents that the IRS would have to hire tens of thousands of employees to carry out its role in the new law and wouldn't be able to handle the large call volume the law would generate. He said the main IRS role would be gathering information from taxpayers and insurance companies, no more of a burden than obtaining investment information from brokerage houses on a taxpayer's investments. He said the agency is working with tax preparers and tax software companies to provide guidance.
Republicans said the guidance talks about tax subsidies but not about penalty provisions in the law.
Those who don't get qualified health insurance will be required to pay a penalty starting with the 2014 tax year unless they are exempt because of low income, religious beliefs or because they are members of American Indian tribes.
The law, however, severely limits the ability of the IRS to collect the penalties. There are no civil or criminal penalties for refusing to pay, and the IRS cannot seize bank accounts or dock wages to collect the money. The agency can write letters to taxpayers and withhold refunds.
Democrats defended the IRS. Rep. Elijah Cummings, D-Md., said, "I like the can-do attitude."
He said, "This is a considerable undertaking for the IRS. Experts from the Government Accountability Office, the inspector general's office and the National Taxpayer Advocate have reviewed IRS efforts to date, and they have concluded that the IRS is on the right track to successfully implement the law."