WASHINGTON - The Internal Revenue Service (IRS) correctly implemented a

provision of the new health care law to require taxpayers to pay taxes on indoor tanning

services, but the number of taxpayers filing tax returns that include these taxes is lower

than expected, according to a new report released publicly today by the Treasury

Inspector General for Tax Administration (TIGTA).

The 10 percent excise tax on indoor tanning services (tanning tax) was enacted in March

2010 as part of the Patient Protection and Affordable Care Act and the Health Care and

Education Reconciliation Act. The tanning tax took effect on July 1, 2010. It is paid by

the person receiving the service and is collected by the service provider.

The congressional Joint Committee on Taxation estimated that the tanning tax would

raise less than $50 million in the last quarter of Fiscal Year (FY) 2010 and $200 million

for FY 2011.

According to the report, the IRS received tax returns that reported $17.8 million in taxes

in the final quarter of FY 2010 and $36.6 million in the first half of FY 2011. TIGTA also

found that the IRS took steps to quickly implement the tax by developing an outreach

plan, updating the excise tax form and instructions, and making preparations for receiving

and processing tax returns with the tax.

However, the IRS could have taken more timely actions to contact taxpayers who may

owe the tax but did not file the required tax returns and pay it. By the time notices were

issued, tanning taxes had been due for three quarters. In addition, the information used to

identify these taxpayers appeared to be incomplete.

"The IRS quickly implemented the tanning tax under a tight deadline," said J. Russell

George, Treasury Inspector General for Tax Administration. "Since this was a brand new

tax imposed on a group of businesses and taxpayers with no previous experience with

excise taxes, the IRS should have done more to inform taxpayers of their filing

responsibilities and bring them into compliance in a timely manner," George added.

TIGTA recommended that the IRS perform further analyses of the data sources used,

including records with incomplete address information, to determine whether a large

number of tanning businesses were not identified. TIGTA also recommended that the

IRS monitor the results from the notice mailing to determine whether additional data

sources are warranted, and update the excise tax publication to include tanning tax

information.

IRS officials agreed with TIGTA's recommendations and said they plan to perform the

analysis suggested, monitor the results of the notice mailing, and consider additional

actions based on the results. The excise tax publication (Publication 510) was revised in

July 2011 to include tanning tax information.