As employers and other coverage providers are already aware, the Internal Revenue Service (“IRS”) will require that certain information be reported regarding the coverage employers offer or the coverage that is provided to individuals starting in early 2016. The applicable forms generally require a Social Security number or other taxpayer identification number (collectively, “TIN”). But what happens if the individual does not provide his or her TIN?
Generally, if filers submit incomplete or incorrect information reporting, penalties will be imposed. Under Code Section 6721, the IRS can impose a penalty of up to $250 per incomplete or incorrect return which is capped at $3,000,000 a year. If a filer cannot secure the individual’s TIN, IRS regulations allow the penalty to be waived if the failure is due to reasonable cause, meaning there are significant mitigating factors or impediments, and the filer acted in a responsible manner.
A significant mitigating factor could be, for example, the filer’s established history of compliance (if information has been incorrect or incomplete in the past, a consistently lessened rate of error is helpful). Impediments are events beyond the filer’s control; for instance, the failure of the individual to provide the necessary TIN.
However, to take advantage of this, employers and coverage providers must show that they acted in a responsible manner. This includes taking significant steps to mitigate the failure, requesting appropriate extensions of time to file, etc. Specifically with respect to TINs, however, if the filer claims the individual’s failure to provide his TIN is the impediment to the filer reporting the individual’s TIN, the only way a Filer may show it acted in a responsible manner is to prove compliance with the information solicitation requirements in Treasury Regulations Sec. 301.6724-1(e).
Regulation 301.6724-1(e) requires an initial solicitation at the beginning of the relationship, followed by two annual solicitations (by December 31 of the year in which the initial solicitation is made and December 31 of the following year) if the individual’s TIN still has not been secured. As an interesting additional requirement, if the annual solicitations are made by mail or telephone, the individual must be informed that he or she is subject to a $50 penalty imposed by the IRS under Code Section 6723 if he or she fails to provide his TIN. Mail solicitations also must include a Form W-9 and a self-addressed return envelope (which may or may not have postage prepaid). Telephone solicitations must be made to an adult member of the household and you must maintain a contemporaneous record of the phone call. There are also separate rules for make-up solicitations if you did not make an initial solicitation at the beginning of the relationship.
What does this mean for you? If you are a minimum coverage provider or employer required to report certain information because of the Affordable Care Act, you should be prepared to comply with the procedures outlined in Treasury Regulations Sec. 301.6724-1. This means you need to be prepared to solicit TINs initially and annually for two years and, if you solicit by mail or telephone, that you include the necessary disclosures.