Clients often have questions about errors discovered during or after the filing of forms required by the IRS for purposes of complying with the pay or play mandate under the Affordable Care Act (ACA). In its recent June 14, 2016 webinar presentation in the ongoing ACA Information Returns (AIR) Working Group Meeting series, the IRS provided some additional guidance on the correction of errors on ACA information returns, including Form 1095-C. This should serve as a reminder to applicable large employers (ALEs) who have received error messages with respect to submitted Forms 1095-C or have otherwise detected errors, to file their corrected Forms 1095-C as soon as possible.

Reporting Penalties for Late or Incorrect Forms 1095-C

In the webinar, the IRS reiterated that ACA information returns, such as Form 1095-C, must be filed timely and accurately or reporting penalties may apply. Specifically, an employer that fails to comply with the information reporting requirements may be subject to the general reporting penalty provisions under Code Section 6721 (failure to file correct information returns) and Code Section 6722 (failure to furnish correct payee statement). In 2015, the presumptive penalty for failures related to these forms was increased significantly from $100 per return to $250 per return. ALEs will be notified of such reporting penalties on a Notice 972CG. However, reporting penalties are waived in 2016 for 2015 returns on reporting entities that can show that they have made “good faith efforts” to comply with the information reporting requirements.

Corrections Required to Avoid Reporting Penalties

In order to rely upon the waiver of penalties, the IRS stated that “error correction is part of the good faith effort to file accurate and complete information returns.” The IRS indicated that errors in Form 1095-C must be corrected by filing a corrected Form 1095-C “as soon as possible” after the discovery that inaccurate information was submitted and the employer obtains correct information, although such corrected filing does not need to occur before the due dates for furnishing Form 1095-C to individuals and to the IRS. The IRS has indicated that corrections will be able to be submitted as late as 2017 if the original Forms 1095-C were filed electronically.

The IRS specifically addressed errors involving missing and incorrect name/TINs, directing filers to follow the steps specified in IRS Publication 1586 for requesting a missing or incorrect TIN from an individual taxpayer. Indeed, employers should pay attention to whether any Forms 1095-C they submitted to the IRS were “Accepted with Errors,” or whether they have been notified by the IRS of name/TIN mismatches, which were a common reason for error messages on Form 1095-C. However, the guidance in the webinar should not be interpreted to only apply to name/TIN errors; the penalties will apply to an error in any Form 1095-C field. If an employer becomes aware of other errors in the reporting of coverage, premiums, safe harbor codes, or any other informational field on Form 1095-C, the webinar indicates that the employer should make a good faith effort to file a corrected Form 1095-C as soon as possible after discovery of the error(s), in order to minimize its risk of exposure to information reporting penalties.

The IRS also indicated that there will not be a reporting penalty assessed for failures due to reasonable cause and not willful neglect, consistent with the existing information reporting rules. In order to meet this standard, the filer must show they acted responsibly both before and after the failure. As with its guidance on the good faith effort standard, the IRS emphasized the importance of timely correction and resubmission in a provided example involving a name/TIN mismatch on a Form 1095-C. Finally, the IRS also stated there are also limited exceptions to the reporting penalties for inconsequential errors and a de minimis number of failures.

Webinar Slides and Additional Guidance on ACA Reporting Issues

Slides for the June 14, 2016 webinar, as well as for prior webinars of the AIR Working Group, can be found here.

What Should Employers Do Now?

If you have already received a Notice 972CG, take steps now to determine the cause of the errors and make corrections.