On July 29, 2016, the IRS issued proposed regulations that provide some further guidance for anxious employers that are required to file information returns, Forms 1094/1095.
Under tax code section 6055, which was added by the ACA, employers are required to file information returns and provide taxpayer identification numbers (TINs) for each individual covered by the employer’s plan. After submitting forms 1094/1095 for 2015, many employers received notices from the IRS that their information returns contained missing or incorrect TINs. The electronic filing system used by the IRS is very unforgiving. For example, you may have provided all of the correct information for an employee (correct social security number, first and last name, etc.), but a failure could have resulted from using the wrong middle initial or no middle initial. The IRS uses the taxpayer’s tax return (Form 1040) to verify the information on the Form 1095-C. Because it is impossible for the employer to know how its employees filed their income tax returns, which may vary from year to year, employers may receive numerous error notices from the IRS on an annual basis. Employers should take action to avoid being subject to substantial penalties.
These penalties ($250 for each Form 1095-C with a failure), may be avoided by acting in a responsible manner. The recently issued proposed regulations provide further guidance on what constitutes acting in a responsible manner. The IRS requires employers to make an initial request (when an account is opened) and two subsequent annual requests. There has been some confusion about exactly when an account is considered opened. Under the proposed regulations, the IRS provides some clarification on this issue. An account is opened at the time the employer receives a substantially completed application for coverage, which constitutes the first request, or solicitation for a TIN. If the TIN is missing from the application for coverage, the first annual solicitation (second request) must be made on or before the seventy-fifth day after the date on which the employer received the application for coverage and the third request must be made by December 31 of the year following the year the account is opened. After the third solicitation, the employer should use the individual’s date of birth.
If your information returns are rejected or accepted with errors, you need to act in way deemed by the IRS to be responsible. If you are unsure of how to proceed, we recommend that you seek qualified counsel to help avoid being subject to penalties that can total up to $3M each tax year.