The Internal Revenue Service (IRS) made two important announcements regarding the information reporting requirements imposed under the Affordable Care Act (ACA) in Notice 2016-70, released on November 18, 2016. Specifically, the IRS announced:
- That it was extending the due date for furnishing statements to recipients (Forms 1095-B and 1095-C)
- That it was extending good faith transition relief into Tax Year 2016.
Extension of Due Date for Furnishing to Individuals
The IRS has extended the timeline for furnishing statements to the recipient. Prior to this announcement, Forms 1095-B and 1095-C were slated to be due to individuals on January 31, 2017. However, pursuant to this extension, the forms are now due to individuals on March 2, 2017.
The IRS noted that this extension was the result of consultations with multiple stakeholders. Specifically, insurance companies, applicable large employers, and other providers of minimum essential coverage indicated that they needed additional time to gather and analyze the information necessary to properly prepare Forms 1095-B and 1095-C.
It is critical to note that the due dates for filing forms with the IRS remain unchanged. These filings are due on February 28, 2017 when filing via paper and March 31, 2017 when filing electronically.
Extension of Good Faith Transition Relief for Tax Year 2016
The standard against which taxpayers are evaluated with regard to whether or not they have met their reporting obligations under Sections 6055 and 6056 was designated as a “good faith” requirement for Tax Year 2015. The same is now true for Tax Year 2016. In explaining the rationale for extending this good faith standard, the IRS specified that these reporting requirements are still new and that, historically, providing relaxed standards and relief in such situations has been common practice. Specifically, the IRS acknowledged that it recognizes “the challenges involved in developing new procedures and systems to accurately collect and report information in compliance with new reporting requirements.”
However, as was the case last year, the extension of the Good Faith standard does NOT mean that no reporting requirements exist. Organizations that make no attempt to comply or make inadequate attempts may still be penalized.
Good faith means that penalty relief may be extended to incorrect or incomplete returns. It does not apply to late or missing returns and it does not mean that corrected returns are optional. Specifically, a penalty under Section 6721 and 6722 can be abated only if the filer can show that they used good faith in attempting to file and meet the requirements. Examples of activities which may constitute good faith include, but are not limited to:
- Whether filers made reasonable efforts to prepare for reporting the required information to the IRS as well as to employees and covered individuals
- Whether filers gathered and transmitted the necessary data to an agent to prepare the data for submission to the IRS
- Whether filers tested their abilities to transmit information to the Service
- Whether filers are taking affirmative steps to ensure that they will be able to comply with the reporting requirements for Tax Year 2017
- Whether or not filers attempted to address discrepancies by filing corrections if there were errors in the initial filing
The IRS explicitly provided that the extension of time to furnish information statements under 6055 and 6056 and transition relief extend only to Tax Year 2016. They have no impact on the filing requirements as they may exist for Tax Year 2017. In fact, the IRS has specifically stated they do not expect either of these extensions to apply to reporting in Tax Year 2017.
For more information please see the full IRS Notice 2016-70. https://www.irs.gov/pub/irs-drop/n-16-70.pdf
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About the Author
Charles Maniace is the Director of Regulatory Analysis at Sovos. An attorney by trade, Chuck leads a team of attorneys and tax professionals responsible for all the tax and regulatory content that keeps Sovos clients continually complaint. Over his 15 year career in tax and regulatory automation, he has given talks and presentations on a variety of topics including The Taxation of High Tech Transactions, The Taxation of Remote Commerce, The Regulatory Implications of Brexit, The Rise of E-Audits, Form 1042-S Best Practices and Penalty Abatement Practices for Information Returns. Chuck is a member of the Massachusetts Bar and holds a BS in Business Economics from Bentley College, a JD from Boston University School of Law, and an LL.M in Taxation from Boston University School of Law.More Content by Charles Maniace