Contact Paul +

Time limit is exhausted. Please reload CAPTCHA.
IRS clarifies relief available to recipients of late or incorrect 2014 ACA Marketplace statement

IRS Small Business and Self Employed (SB/SE) Division SBSE-20-0216-0385: Notice 2015-30 Penalty Relief (Feb. 24, 2016).

In an internal memo, IRS has clarified the application of Notice 2015-30, which provided penalty relief to taxpayers who received a 2014 Form 1095-A, Health Insurance Marketplace Statement, that was either delayed or that the taxpayer believed to be incorrect.

Background on relevant penalties. Code Sec. 6651(a)(2) imposes a penalty for a failure to pay (on or before the due date for payment) an amount shown as tax on any return. However, the Code Sec. 6651(a)(2) penalty is not imposed if the taxpayer shows that the failure was due to reasonable cause and not willful neglect.

Under Code Sec. 6651(a)(3), a penalty is imposed for failure to pay an amount of tax required to be shown on a return that is not shown on the return, within 21 days from the date of notice and demand. The Code Sec. 6651(a)(3) penalty is not imposed if the taxpayer shows that the failure to pay was due to reasonable cause and not willful neglect.

The Code Sec. 6654(a) penalty applies in the case of an underpayment of estimated tax by an individual. Code Sec. 6654(e)(3) authorizes IRS to waive the Code Sec. 6654(a) penalty in unusual circumstances to the extent its imposition would be against equity and good conscience.

Code Sec. 6662(a) imposes a penalty on any portion of an underpayment of tax required to be shown on a return that is attributable to one of the items listed in Code Sec. 6662(b), which includes, among other items, underpayments attributable to any substantial understatement of income tax. However, under Code Sec. 6664(c), the Code Sec. 6662 penalty is not imposed with respect to any portion of an underpayment if the taxpayer shows that there was reasonable cause for that portion and that the taxpayer acted in good faith with respect to such portion.

Background on Form 1095-A, incorrect data on 2014 forms, and IRS relief. Form 1095-A is used to report certain information to IRS about family members who enroll in a qualified health plan through the Affordable Care Act (ACA) Marketplace. Persons who signed up for coverage through the Marketplace in 2014 should have received their 2014 Form 1095-A statement in the mail in February 2015. (Fact Sheet 2015-9, February 2015)

On Feb. 20, 2015, the U.S. government’s Centers for Medicare and Medicaid Services (CMS) announced that about 20% of the tax filers who had Federally-facilitated Marketplace coverage in 2014 and used tax credits to lower their premium costs received a Form 1095-A with incorrect data.  On Mar. 20, 2015, CMS further announced additional issues with the data used to populate the Form 1095-A that could result in incorrect information on and delays in additional Forms 1095-A.

In Notice 2015-30, 2015-17 IRB, IRS acknowledged that taxpayers affected by errors or delays in their Forms 1095-A might have been unable to file a return accurately reflecting their tax liability by the April 15 deadline. In that notice, IRS said that it would abate for the 2014 tax year the Code Sec. 6651(a)(2) penalty and the Code Sec. 6651(a)(3) penalty, and waive the Code Sec. 6654(a) penalty, for taxpayers who received a delayed Form 1095-A or a Form 1095-A that the taxpayer believed to be incorrect, if the taxpayer timely filed his 2014 Federal income tax return, including extensions. IRS also said that it would not impose the accuracy-related penalty under Code Sec. 6662 on any portion of an underpayment resulting from the receipt of an incorrect or delayed Form 1095-A.

Penalty relief clarified. In its memo, IRS now says that, if any portion of an unpaid balance qualifies for relief under Notice 2015-30, the entire failure-to-pay penalty should be abated, even the portion that is unrelated to the late receipt or incorrect Form 1095-A.

Note: This additional relief applies only to the failure-to-pay penalty and not to the penalty for underpayment of estimated tax or accuracy-related penalty.
Note further: The memo doesn’t indicate whether the additional relief applies to the Code Sec. 6651(a)(2) penalty, the Code Sec. 6651(a)(3) penalty, or both penalties, but it implies that it applies to both. That is, it says that “the entire failure-to-pay penalty should be abated” and earlier in the memo referred to “the penalty for failure to pay tax under Code Sec. 6651(a)(2) and Code Sec. 6651(a)(3),” thus implying that the “failure-to-pay penalty” covers both the Code Sec. 6651(a)(2) and Code Sec. 6651(a)(3) penalties.

The memo also contains a reminder of the following point made in Notice 2015-30: Some taxpayers who were not enrolled in a qualifying plan during 2014 erroneously received a Form 1095-A and may have used it to file their return. To be eligible for the relief, these individuals must amend their 2014 income tax return by Apr. 15, 2016 to reflect that they were not eligible to claim the premium tax credit, and pay any additional tax liability due.

Also note: After the issuance of Notice 2015-30, IRS issued Rev Rul 2015-13, 2015-22 IRB 1011, which provided that 2015 individual income tax returns for residents of states other than Maine and Massachusetts are due on Apr. 18, 2016, and 2015 individual income tax returns for residents of Maine and Massachusetts are due on Apr. 19, 2016. It is unclear whether the above Apr. 15, 2016 date is subject to the rule of Rev Rul 2015-13 and thus actually means Apr. 18, 2016 or Apr. 19, 2016 (depending on the taxpayer’s resident state).

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.

Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

Read More

Connect With Paul on Social Media

Practice Areas & Information

Certifications &
Associations
Member CA Bar Member Orange County Bar US Tax Court Attorney