ACA E-Filing Deadline Passed

June 30, 2016 was the deadline to file ACA information returns for the year 2015 with the IRS through the ACA Information Reporting (AIR) system. In a QuickAlerts Bulletin, the IRS reiterated that:

• The AIR system will continue to accept information returns filed after June 30, 2016.

• If transmissions or submissions were rejected by the AIR system, the filer has 60 days from the date of rejection to submit a replacement and have the rejected submission treated as timely filed.

• If the filer submitted and received “Accepted with Errors” messages, the entity may continue to submit corrections after June 30, 2016.

The IRS has publicly stated in recent months that a filer of Forms 1094-B, 1095-B, 1094-C and 1095-C that miss the AIR filing due date will avoid the late filing penalties under section 6721 if the filer has made legitimate efforts to register with the AIR system and to file its information returns, and it continues to make such efforts and completes the process as soon as possible.

IRS Provides Guidance on ACA Reporting in Working Group Meeting

In its Affordable Care Act (ACA) Information Returns (AIR) Working Group Meeting on June 14, the IRS discussed several outstanding issues related to ACA reporting under Sections 6055 and 6056 of the Internal Revenue Code.  Section 6055 generally requires providers of minimum essential coverage to report health coverage.  Section 6056 generally requires applicable large employers to report offers of coverage to full-time employees.  The telephonic meeting touched on a number of topics:

  • Correction of 2015 Returns. The IRS confirmed that filers are required to correct erroneous returns filed for 2015.  Moreover, the IRS stated that error correction is part of the good faith effort to file accurate and complete returns.  As a result, filers who fail to make timely corrections risk being ineligible for the good faith penalty relief that has been provided with respect to 2015 Forms 1095-B and 1095-C filed in 2016.
  • Correction Timing. Corrections to Forms 1095-B and 1095-C must be made “as soon as possible after [a filer] discover[s] that inaccurate information was submitted and [it] gets the correct information.”  Filers may furnish a “corrected” information return to the responsible individual or employee before filing with the IRS by writing “corrected” on the Form 1095-B or 1095-C.  The copy filed with the IRS should not be marked corrected in that circumstance.
  • TIN Validation Failures. The IRS reiterated that the system will only identify the return that contained an incorrect name/TIN combination.  It will not identify which name/TIN combination on the return is incorrect, a source of frustration for filers because they are not permitted from using the TIN Matching Program to validate name/TIN combinations before filing the returns.  Accordingly, a filer will need to verify the name and TIN for each person for whom coverage is reported on the Form 1095-B or Form 1095-C.
  • TIN Mismatch Penalties. The IRS confirmed that error messages generated by the AIR filing system are not proposed penalty notices (Notice 972CG).
  • TIN Solicitation. The IRS reiterated the TIN solicitation rules first published in Notice 2015-68.  In the notice, the IRS provided that the initial solicitation should be made at an individual’s first enrollment or, if already enrolled on September 17, 2015, the next open season, (2) the second solicitation should be made at a reasonable time thereafter, and (3) the third solicitation should be made by December 31 of the year following the initial solicitation.
  • Lowest Cost Employee Share. Applicable large employers must report the lowest cost employee share for self-only coverage providing minimum value on Line 15 of Form 1095-C.  The IRS clarified that coverage must be available to the employee to whom the Form 1095-C relates at the cost reported.  In other words, if the employee cost share varies based on age, salary, or other factors, the share reported must be the one applicable to the employee for whom the Form 1095-C is being filed.

Reporting Self-Insured Coverage to Non-employees.  An employer that provides self-insured health coverage to non-employees may elect to report coverage on either Form 1095-B or Form 1095-C.  In response to a question, the IRS noted that Form 1095-C may only be used if the individual reported on Line 1 has a social security number.  Accordingly, coverage provided to a non-employee that does not have a social security number must be reported on Form 1095-B.

IRS Webinar Answers ACA Information Reporting Questions

Last week, the IRS released a webinar on identifying and correcting errors on information returns related to the Affordable Care Act (ACA).  The ACA requires health insurers and some employers to file information returns with the IRS and furnish a copy to the recipient.  The 2015 returns are due by May 31, 2016, if filing on paper, or June 30, 2016, if filing electronically through the ACA Information Reporting (AIR) System.  The IRS webinar addressed frequently asked questions on four topics: correcting specific forms; TIN solicitation and correcting TIN errors; correcting AIR filing; and penalties, exceptions, and penalty relief.

Form-Specific Corrections

To correct errors on Forms 1095-B, 1094-C, and 1095-C, an entity must complete the proper form with the corrected information and mark it as a corrected return.  An entity should not file a return that includes only the corrected information.  Employers used to filing Forms W-2c to correct Forms W-2 will find this approach different from the process with which they are familiar.

To correct a Form 1095-B previously filed with the IRS, an entity should file a complete and corrected Form 1095-B that is marked as corrected, with a Form 1094-B Transmittal (which cannot and should not be marked as corrected).  To correct a Form 1095-C previously filed with the IRS, an entity must file a complete and corrected Form 1095-C that is marked as corrected, with a Form 1094-C Transmittal that is not marked as corrected.  Next, the entity must furnish the employee with a copy of the corrected Form 1095-C.  Employers using the qualifying offer method or the qualifying offer method transition relief for 2015, however, are not required to furnish the copy to the employee in certain cases.

To correct a Form 1094-C that is the authoritative transmittal previously filed with the IRS, an entity should file a standalone Form 1094-C.  An entity need not correct a Form 1094-C that is not the authoritative transmittal.

Some filers have expressed confusion as to why they must file corrected returns given that the IRS has indicated that a recipient of a Form 1095-B or Form 1095-C need not correct their tax return to reflect information reflected on a corrected form.  The webinar makes clear that regardless of that approach, filers must correct returns timely.  In terms of timing, an entity should file a correction as soon as the error is discovered if the filing deadline has already passed.  If an entity has already furnished Forms 1095-B or 1095-C to recipients but finds an error before filing with the IRS, the entity needs to file with the IRS a regular return, i.e., not marked as corrected, containing the accurate information. A new original, i.e., not marked as corrected, form should be provided to the responsible individual or employee as soon as possible.

TIN Solicitation and Error Corrections

In an effort to assuage a key concern of many filing entities, the IRS stated that an error message for missing and/or incorrect information is not a proposed penalty notice.  However, when an entity receives an error message regarding a name/TIN mismatch, the entity should file a correction if it has correct information.  If the entity lacks the TIN, it may use the date of birth and avoid penalties for failure to report a TIN, provided that the entity followed the three-step TIN solicitation process under Notice 2015-68: “(1) the initial solicitation is made at an individual’s first enrollment or, if already enrolled on September 17, 2015, the next open season, (2) the second solicitation is made at a reasonable time thereafter, and (3) the third solicitation is made by December 31 of the year following the initial solicitation.” The webinar is unclear whether the receipt of an error message triggers an obligation for filers to engage in a new round of TIN solicitation.

If an entity has not solicited a TIN, e.g., the individual was already enrolled on September 17, 2015, and the next open season is not until July 2016, the entity may be unable to correct the error before the return filing deadline.  In this case, the entity should still file a correction when it obtains the TIN or the date of birth if the TIN is not provided.  If a Penalty Notice 972CG is issued, the entity will have the opportunity to show whether good-faith relief or a reasonable-cause waiver applies.

AIR Filing Corrections

The IRS also clarified AIR’s transmission responses, which are defined under IRS Publication 5165.  An AIR filing will generate one of five responses: accepted, accepted with errors, partially accepted, rejected, or not found by AIR.  “Accepted with errors” means that AIR found at least one of the submissions had errors, but did not find fatal errors – i.e., the submission had unusable data – which would prompt a “rejected” response.  “Partially accepted” means AIR accepted some of the submissions and rejected others.  If AIR rejected any attempted filings, the entity must cure the problem and transmit the return again rather than use the correction process.

If AIR identifies errors, an entity will receive an acknowledgement in XML with an attached Error Data File.  Again, this error message is not a proposed penalty notice.  Rather, to assist the entity, the Error Date File includes unique IDs to identify the erroneous returns, and error codes and descriptions to identify the specific errors.  After locating and identifying the error, the entity must prepare corrected returns, which must reference the unique IDs of the returns being corrected.  AIR will assign unique IDs to the corrected returns, which the entity can then transmit through AIR.

Penalties and Penalty Relief

ACA-related information reporting is subject to the general penalties under Sections 6721 and 6722 of the Code for failure to (1) furnish correct copies to employees and insured individuals or (2) file complete and accurate information returns with the IRS.  The penalty for each incorrect information return is $260 and up to $3,178,500 for each type of failure, for entities with over $5 million in average annual gross receipts over the last three taxable years.  Only one penalty applies per record, even if the record has multiple errors, such as incorrect TIN and incorrect months of coverage.  For late returns, penalty amounts per return start at $50 and increase to $520, depending when the correction is filed and whether the failure was due to intentional disregard.  Further, a penalty may apply if an entity is required to file electronically because it has 250 or more returns but the entity files on paper and fails to apply for a waiver using Form 8508.

The IRS has provided good-faith relief to entities that file or furnish incorrect or incomplete – but not late – information, including TINs or dates of birth, if the entity can show that it made a good-faith effort to comply with the requirements.  Good-faith relief does not apply to egregious mistakes, e.g., where an entity transmits returns with just names and addresses and no health coverage information.  Further, good-faith relief does not excuse an entity from the continuing obligations to identify and correct errors in returns previously filed with the IRS.  An entity must correct errors within a reasonable period of time after discovering them (corrections must be filed within 30 days).  Importantly, if subsequent events, such as a retroactive enrollment or change in coverage make the information reported on a Form 1095-B or Form 1095-C incorrect, the entity has an affirmative obligation to correct the return even though it was correct when initially filed.

In addition to the good-faith relief, inconsequential errors and omissions are not subject to these penalties.  An error or omission is inconsequential if it does not stop the IRS from correlating the required information with the affected person’s tax return, or otherwise using the return. Errors and omissions are not inconsequential, however, if they pertain to the TIN and/or surnames of the recipient or other covered individuals, or if the return furnished to a recipient is not the appropriate form or substitute form.  Many errors relating to addresses or to an individual’s first name may be inconsequential, and are not required to be corrected.

Another exception is available for a de minimis number of failures to provide correct information if the filing entity corrects that information by August 1 of the calendar year to which the information relates, or November 1 for 2016.  For a calendar year, penalties do not apply to the greater of 10 returns or half a percent of the total number of returns the entity is required to file or furnish.

Finally, a filer may qualify for a reasonable cause waiver under Section 6724 of the Code for a failure that is due to a reasonable cause and not willful neglect.  To establish “reasonable cause,” an entity must show that it acted responsibly before and after the failure occurred and that the entity had significant mitigating factors or the failure was due to events beyond its control.  Significant mitigating factors include, for instance, that an entity was not previously required to file or furnish the particular type of form, and that an entity has an established history of filing complete and accurate information returns.  Events beyond an entity’s control include fire or other casualty that make relevant business records unavailable and prevent the entity from timely filing.

ACA Filing Update: AIR Program, Penalties and Corrections

According to recent comments from IRS staff, the launch of the Affordable Care Act Information Returns (AIR) program for electronic filing of ACA-related forms (Forms 1095-B and -C and Forms 1094-B and -C) has been successful.  On March 22, Melodye Mitchell, Chief of Modernized e-File Development Services at the IRS Wage and Investment Division, said that the AIR program has received several million ACA-related forms for the 2015 tax year and has rejected less than two percent of them.  The low rejection rate is good news for practitioners and filers who have been concerned that the system would reject entire filings due to errors based on IRS comments.

With perhaps 100 million total returns expected to be filed and most forms required to be filed electronically, the AIR program should see millions of additional forms filed over the next few months.  Notice 2016-4 extended the deadline for employers and health insurers to file 2015 Forms 1095-B and 1095-C with the IRS until June 30 through the AIR program.  An earlier deadline applied for very small filers that are permitted to file paper returns with the IRS.  Copies of the forms are required to be provided to employees and insured individuals no later than March 31 of this year, rather than the standard deadline of January 31 for furnishing such returns.

The ACA-related forms—the first filed for most employers and insurers—will likely contain many errors.  Under the Internal Revenue Code, ACA-related information reporting is subject to the general penalties for failure to (1) furnish correct copies to employees and insured individuals or (2) file correct information returns with the IRS.  However, the Notice 2016-4 provided “good faith relief” from these penalties to filers that make a “good faith effort to comply” with the requirements and “act[] in a responsible manner” if “the failure is due to significant mitigating factors or events beyond the reporting entity’s control.”  This relief only applies to incorrect or incomplete—rather than late—furnishing or filing of information.  In the absence of relief, the penalty for each incorrect statement or information return is $260 and up to $3,178,500 for each type of failure for taxpayers with over $5 million in average annual gross receipts over the last three taxable years.  Reduced penalties may apply if errors are corrected before certain deadlines.

To ensure eligibility for the good-faith relief, a filer should ensure that it acts in a responsible manner.  That includes correcting errors within a reasonable period of time after discovering that the information reported on a return was incorrect (corrections must be filed within 30 days).  Importantly, if subsequent events, such as a retroactive enrollment or change in coverage make the information reported on Form 1095-B or -C incorrect, the filer has an affirmative obligation to correct the return even though it was correct when initially filed.