The first Affordable Care Act (ACA) information reporting season is close at hand! To assist employers and insurers in complying with their filing requirements, the IRS recently issued Notice 2016-4, which extends certain filing dates and provides additional insight into what the IRS will consider for purposes of abating penalties for reasonable cause. This Tax Alert examines Notice 2016-4 in greater detail. For prior coverage of the ACA information reporting requirements and penalties, click here and here.
Employers and Insurers Granted More Time to File ACA Information Returns
Extended Filing Dates
Treasury and the IRS recently announced in Notice 2016-4 that the due dates for ACA information reporting have been extended. While the IRS is prepared to accept information returns beginning this month, the extension will give employers and insurers three additional months to file the information returns with the IRS and two additional months to provide the corresponding statements to individuals.
- The due dates for employers and insurers to file Form 1095-B, Health Coverage (and the 1094-B transmittal), and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage (and the 1094-C transmittal), are extended from February 29, 2016 to May 31, 2016, if not filing electronically, and from March 31, 2016 to June 30, 2016, if filing electronically.
- The due date for providing the information statements to individuals is extended from February 1, 2016 to March 31, 2016.
Standard Extension Procedures Do Not Apply After Extended Filing Dates
The Notice indicates that the normal provisions regarding automatic or permissive extensions will not apply in light of these extended due dates. Previously, employers and insurers could receive 30-day extensions of the deadlines under standard application procedures, however the Notice indicates that no additional extensions will be available after these extended due dates.1
Information Reporting Penalties and Penalty Relief for ACA Reporting Requirements
The Internal Revenue Code imposes penalties for the failure to file correct information returns and for the failure to provide correct payee statements. These penalties are substantial and apply separately to the forms filed with the IRS and furnished to employees. The penalties for the forms filed in 2016 for the 2015 plan year are $500 per return (i.e., $250 for the form filed with the IRS, and $250 for the form provided to the employee), with an annual maximum penalty of $6 million ($3 million for information returns and $3 million for employee statements).
Short-Term Relief for Good Faith Compliance Efforts in 2015
The IRS has stated that it will not impose penalties for 2015 if a reporting entity demonstrates a good faith effort to comply with the law.2 The IRS has further indicated, however, that relief under the “good faith effort” standard will not be available for employers and other reporting entities that fail to timely file a return.
Statutory Relief for “Reasonable Cause”
For taxpayers who cannot meet the good faith standard for penalty relief in 2015 and for tax years after 2015, statutory penalty relief for non-compliance may be available, provided that the failure was due to reasonable cause and not to willful neglect. Under the existing regulations, “reasonable cause” to abate penalties may exist if the reporting entity demonstrates two requirements: 1) there are significant mitigating factors or the failure was due to certain events outside the filer’s control; and 2) the filer acted in a “responsible manner” both before and after the failure occurred to obtain relief. If the IRS determines that the filer satisfies both of these criteria, the IRS may waive the reporting penalties.
Notice 2016-4 provides some guidance on factors the IRS will consider when determining whether to abate penalties for reasonable cause in the ACA reporting context. First, the Notice encourages filing entities that cannot meet even the extended deadlines described above to file the information returns (and furnish the statements to the individuals) when they are able to do so. The Notice indicates that the IRS will take this filing of returns and furnishing of statements into account in determining reasonable cause. The IRS will also consider whether the filing entity made reasonable efforts to prepare for reporting the required information to the IRS and furnishing it to employees and covered individuals, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the IRS, or testing its ability to transmit information to the IRS. The Notice also indicates that the IRS will take into account the extent to which the filing entity is taking steps to ensure that it is able to comply with the reporting requirements for 2016 (to be filed in 2017).