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.