“Anyone who has never made a mistake has never tried anything new.” —Albert Einstein
Fortunately, when it comes to ACA reporting, the IRS agrees“. . . the IRS will not impose penalties under Sections 6721 and 6722 on ALE members that can show that they have made good faith efforts to comply with the information reporting requirements” (Internal Revenue Service, Notice 2015-87, Part VI, Q&A 26).
Employers across the U.S. are scrambling to comply with the new Internal Revenue Service (IRS) 1094/1095 reporting requirements for 2015. The IRS recently extended the reporting deadlines, to the relief of many. While the reporting may be delayed, it must still be done, and this reporting can get a bit complicated. According to Health Care Attorneys, P.C., there are 200 possible combinations just for lines 14, 15, and 16 of Form 1095-C. It is safe to assume some filers will make mistakes.
The Bad News:
We previously warned plan sponsors of hefty fines from the IRS ranging from $250 to $6 million for incomplete or incorrect reporting. The reporting is required under Sections 6055 and 6056 of the Internal Revenue Code; the faulty reporting penalties are spelled out in Sections 6721 and 6722. These penalties shouldn’t be confused with employer shared responsibility penalties that will be levied on applicable large employers (ALEs) that do not offer affordable, minimum value health coverage. No, these penalties are simply for messing up the 1094 and 1095 reporting by doing it incorrectly, incompletely, late or not at all. Internal Revenue Procedure 2016-11 contains the latest list of civil penalties for faulty filing.
The Good News:
In Notice 2015-87, the IRS advised relief is available from penalties for incomplete or incorrect returns or statements issued in 2016 for reporting health coverage offered (or not offered) in 2015. Part VI of the notice states, “ . . . the IRS will not impose penalties under Sections 6721 and 6722 on ALE members that can show that they have made good faith efforts to comply, with the information reporting requirements.” The IRS cautions relief is not provided to ALE members that cannot show a good faith effort to comply, or that fail to either file a return or furnish a statement on time. However, if an ALE member is late in issuing information returns or statements, the IRS may grant penalty relief if it determines there was “reasonable cause” for the delay under Section 6724 of the Code.
Notice 2015-87 does not provide relief from penalties for intentional disregard of the filing requirements. Intentional disregard can cost an employer up to 10% of aggregate amount of the items that should have been reported correctly, with no cap on the penalty.
IRS Questions and Answers on Information Reporting by Health Coverage Providers (Section 6055)
IRS Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056)
Lois Mathis-Gleason, CEBS
Manager, Reference/Research Services at the International Foundation