Berger: Hello.
I´m Tim Berger,
and I thank you
for attending this session
about the Affordable Care Act.
Today, my copresenter,
Anna Falkenstein, and I
are here to discuss
the correction process
for ACA Information Returns.
Before we get started, let me
tell you a little bit about us.
I´m a tax law specialist
with the tax exempt
and government entities division
of the IRS.
And Anna is a senior
stakeholder liaison
with the small
business/self-employed division.
Okay. Let´s move on.
The information
in this presentation
is current as of April 15, 2016.
For the latest information
about tax provisions
of the Affordable Care Act,
visit IRS.gov/aca.
Today, we will discuss how to
handle ACA Information Returns
that may need correcting.
The Affordable Care Act
requires insurers,
other coverage providers,
and some employers
to file information returns
with the IRS
and furnish a copy
to the recipient.
If you are an issuer
or coverage provider,
you´ll generally report using
form 1095-B or form 1095-C.
Applicable large employers
use form 1095-C.
For more information
regarding reporting requirements
for issuers and employers,
visit IRS.gov/aca.
We are going to cover
information reporting
requirements,
what the IRS means
by a corrected return,
how errors are identified,
what errors require
filing a correction
and examples of how
to correct those errors,
the timing
for making corrections,
the electronic correction
process,
and penalties
for ACA Information Returns.
In particular, this presentation
will address errors on forms
1095-B, 1094-C, and 1095-C
that should be corrected
and when you should
make corrections.
We will not discuss correcting
errors on form 1095-A,
which taxpayers use when
claiming the premium tax credit
on their income tax return.
In addition to
the material provided
during the presentation,
we have a page at the end
with links to resources,
including
relevant legal guidance
that you may want to review
after this presentation.
Okay.
We mentioned that insurers,
other coverage providers,
and some employers are required
to file and furnish information
returns under the ACA.
Let´s talk about the due dates
for the 2015
information returns.
Forms 1095-B and 1095-C
should have been furnished
to the recipients
by March 31, 2016.
If you were unable to meet
the March 31, 2016, due date
for furnishing returns,
furnish the returns
as soon as possible.
If you are filing
a paper return,
the return must be filed
with the IRS
no later than May 31, 2016.
If you are filing
an electronic return,
the return must be filed
with the IRS
no later than June 30, 2016.
It is important to note
these are the deadlines
for filing and furnishing
these returns
in the 2016 filing year only.
Automatic filing extensions
for all reporting entities
were granted
in IRS notice 2016-4.
No further extensions
beyond these extended due dates
are available
under notice 2016-4.
Anyone may file these returns
electronically.
However, if you are filing
250 or more,
you are required to
file electronically.
Generally, you must file
timely and accurate
information returns.
For 2016,
that means you should file
by the extended due dates
stated on the previous slide.
If the returns are not accurate
or timely,
you may be subject to penalties.
To help implement the new
ACA reporting requirements,
the IRS provided relief
for reporting in 2016
for calendar year 2015.
Penalty relief is provided
if you did not file or furnish
accurate returns
but you can show
you made a good-faith effort
to comply with the requirements.
Correcting errors is part
of the good-faith effort
to file accurate and complete
information returns.
Here´s an example of inaccurate
or incomplete filing
that would not meet
the good-faith standard
for penalty relief.
If a filer transmits
a batch of returns
with no health coverage
information
but just names and addresses,
then the good-faith relief
would not be available
for the failure to file accurate
and complete returns.
However, relief may be available
for reasonable cause,
which we will discuss later.
So when do information returns
require replacement
instead of correction?
If your transmission
was rejected by the IRS
when you attempted to file,
you must completely
replace the transmission
rather than use
the correction process.
You must replace all records in
the transmission or submission
that the IRS rejected.
In other words,
you should not file
a corrected return with the IRS
to replace a rejected
transmission or submission.
In addition,
if you already furnished
forms 1095-B or 1095-C
to recipients
and you then determine
the information is incorrect
but you have not yet filed
those returns with the IRS,
then you do not file
a corrected return with the IRS.
Instead, when you file
those returns with the IRS,
include the correct information
on the returns.
So what is a corrected return?
A corrected return is used
to correct form 1095-B,
form 1094-C
Authoritative Transmittal,
or form 1095-C that has been
filed and accepted by the IRS.
The IRS
may have accepted the return
even if it included errors,
in which case an error report
will be generated.
Forms 1095-B, 1094-C and 1095-C
need to be corrected
if they include
incorrect information.
The form 1094-B Transmittal
does not allow for corrections.
Form 1094-B is merely
a transmittal document.
In addition, the form 1094-C
that is not
the authoritative transmittal
does not allow for correction.
Our next slide covers
how errors are identified.
Errors are found in three ways.
You receive error messages
from the IRS
during the information return
submission process,
you, as the reporting entity,
determine that information
you submitted was incorrect,
or the covered individual
or employee
reports an error to you.
As a best practice,
the reporting entity
should develop
an internal process
for identifying errors,
correcting the errors,
filing corrected returns
with the IRS,
and furnishing corrected
statements to the recipients.
Next, let´s take a look at
how to correct specific forms.
Let´s start with
how to correct a form 1095-B.
The chart on the slide
can be found in the instructions
for forms 1094-B and 1095-B,
and it lists examples of errors.
To file a corrected form 1095-B
with the IRS,
file a complete form 1095-B
with the accurate information
and mark it
as a corrected return.
In other words,
do not file a return
that includes
only the corrected information.
You´ll need to file
a form 1094-B Transmittal
with the corrected forms 1095-B,
but the transmittal itself
is not a correction.
For the recipient,
you should furnish a copy
of the corrected form 1095-B
to the individual who received
the original form 1095-B.
This chart lists examples of the
kinds of errors on a form 1095-B
that need correcting.
If any of the information in
the middle column is incorrect,
then you should file and furnish
a corrected form.
Remember,
as we previously mentioned,
penalty relief is available
for 2015
when good-faith efforts are made
to comply
with the reporting requirements.
Now let´s look at an example
of correcting form 1095-B.
In this example,
Sharon is enrolled in Medicaid
for January through September
2015.
The Medicaid agency
files a form 1095-B
and furnishes a statement
to Sharon
reporting coverage for January
through September 2015.
Then, in April 2016,
Sharon is approved
for Medicaid coverage
beginning retroactively
on November 1, 2015.
The Medicaid agency should file
a corrected form 1095-B
with the IRS
and provide Sharon
with a corrected statement
reporting coverage
for January through September
and November and December 2015.
Sharon did not have coverage
for October 2015.
The top image shows
the original form 1095-B
filed with the IRS
and furnished to Sharon.
You can see that part IV,
column "E"
shows Sharon´s coverage
for January through September.
In the bottom image, you can see
the corrected return.
It shows the months of coverage
checked for January
through September
and November and December.
Remember,
for the corrected return,
you must mark it
as a corrected return.
In addition, the corrected form
must include all the information
that was included on
the original return,
not only the correction
in column "E."
Next, we´ll look at
when corrections are needed
to form 1095-C.
When you are correcting
information on a form 1095-C
that was previously filed
with the IRS,
file a fully completed
form 1095-C,
including
the correct information,
and mark it
as a corrected return.
File the corrected forms 1095-C
with a form 1094-C Transmittal,
but do not mark the transmittal
as corrected.
Next, you must furnish
the employee
a copy
of the corrected form 1095-C.
However, there are special rules
for employers
that are using
the qualifying offer method
or the qualifying offer method
transition relief for 2015.
In certain cases,
those employers are not required
to furnish a copy
of the form 1095-C.
This chart,
which is taken
from the instructions
for forms 1094-C and 1095-C,
list the examples of information
that must be corrected
on the original form 1095-C
filed with the IRS
and furnished to the employee.
If any of the information in
the middle column is incorrect,
then you should file
a corrected form with the IRS
and furnish a copy
to the individual.
For more information,
see the instructions
for forms 1094-C and 1095-C.
Here´s an example
of correcting form 1095-C.
In this example, John is
an employee of company "X."
Company "X´ offered John
minimum essential coverage,
providing minimum value,
and offered at least
minimum essential coverage
to his spouse and dependents.
John and his family members
enrolled in the coverage
from January through August.
John retired on August 31st,
ending coverage
through company "X."
He was not offered COBRA or
other post-retirement coverage.
When company "X"
completed John´s form 1095-C,
it made several errors.
On line 14,
it reported John was offered
coverage for all 12 months.
On line 15, "$200" was entered
in the "all 12 months" box
as John´s share of
the lowest-cost monthly premium
for self-only
minimum essential coverage
providing minimum value.
And on line 16,
it reported John
as enrolled all 12 months.
Company "X" filed the form
1095-C with the IRS
and furnished John a copy.
When reviewing his form 1095-C,
John noticed the errors
on lines 14 and 16
and notified company "X."
Company "X" also determined
that the wrong amount
was entered on line 15.
The next steps for company "X"
are to prepare
a new form 1095-C for John,
correcting the errors
in part II,
file a corrected return
with the IRS,
and furnish John a copy of
the corrected form 1095-C.
Company "X" completes
a corrected form 1095-C.
On line 14, it enters code "1E"
for January through August
to report coverage was offered
for those months
and enters code "1H"
for September through December
to report no offer of coverage
for those months.
On line 15,
the correct amount of $132
is entered
for January through August,
and there is no entry
for September through December.
On line 16, "2C" is entered
for January through August
to indicate that John
was enrolled in coverage
during these months.
For September through December,
code "2A" is entered
to indicate John was not
employed by company "X"
during those months.
Remember,
for the corrected return,
you must mark it as
a corrected return.
Additionally,
you need to include
all required information,
not only the corrections.
Finally, we´ll look at
when you need corrections
for form 1094-C,
the form that is used when
transmitting forms 1095-C.
When correcting information on
the authoritative transmittal,
file a standalone,
fully completed form 1094-C,
including
the corrected information.
Remember to mark it as
a corrected return on line 19.
It is important to note that
you should not file a return
correcting information
on a form 1094-C
that is not
the authoritative transmittal.
This chart, which is taken
from the instructions
for forms 1094-C and 1095-C,
lists examples of errors
that should be corrected
on an authoritative form 1094-C
filed with the IRS.
If any of the information in
the middle column is incorrect,
then you must file a standalone,
corrected transmittal form.
Our last example is for
correcting form 1094-C.
In this example,
company "A" has 500
full-time employees
and files a form 1095-C
for each full-time employee,
along with a single form 1094-C
Authoritative Transmittal.
However, in part III,
column "A,"
they check
the MEC offer indicator
for January through May,
July through August,
and October through December,
but in error
did not check June or September.
This can be seen
by the red circles
in part III
of their original return.
Company "A" notices
that they forgot to check
the MEC offer indicator
for June and September
and decides to correct
their authoritative
form 1094-C Transmittal.
Company "A" then prepares
a new authoritative form 1094-C,
checking the "all 12 months" box
in part III,
row 23, column "A,"
and files the corrected form
with the IRS.
Remember,
for the corrected return,
you must mark it as
a corrected return.
Additionally, the corrected form
must include all required
information for company "A,"
not only the correction
on line 20.
Okay.
I´m now going to hand things off
to my colleague,
Anna Falkenstein,
to continue our discussion.
Anna.
Falkenstein: Thanks, Tim.
So when do corrections
need to be filed?
Remember, you´re expected
to file accurate
information returns with the IRS
and furnish a copy
to the recipient
by the due date.
As mentioned earlier, for 2016,
the due dates for filing
and furnishing these returns
were extended.
Once the information returns
have been filed with the IRS,
you´re expected to file any
corrections as soon as possible.
However, corrections filed prior
to the due date with the IRS
may be filed at any time
prior to the due date.
Corrections filed
after the due date
should be filed
as soon as possible.
In some circumstances,
you may receive error messages
for missing and/or incorrect
information
but you do not have the correct
information available
to correct the return.
A common example of this
would be
if the name and TIN
of the covered individuals
do not match the information
in the IRS system.
The error message is not
a proposed penalty notice.
Whether you have information
available
to make a correction
in response to the error message
depends upon where you are
in the TIN solicitation process
and whether individuals
have declined
to provide their taxpayer
identification number,
also known as a TIN.
For purposes of reporting
the names and TINs
of covered individuals,
IRS regulations provide that
if the TIN is not available,
a date of birth may be entered
on the form 1095-B
or form 1095-C,
if applicable.
However, before using
the date of birth,
the filer must have asked
for the taxpayer
identification numbers
of the covered individuals.
This process
is commonly referred to
as the TIN solicitation process.
In notice 2015-68,
the IRS provided
the following timeline
that filers may use
to solicit the TIN,
if the TIN had not been
previously requested.
The initial solicitation
is made at an individual´s
first enrollment
or, if already enrolled
on September 17, 2015,
the next open season.
The second solicitation
is a reasonable time thereafter.
And the third solicitation
is made by December 31st
of the year following
the initial solicitation.
Thus, when a filer
receives an error message
that there is
a name/TIN mismatch,
the filer may file a correction
if it has the correct
TIN information
or the date of birth,
if the TIN was not provided.
In the event the filer
has not solicited a TIN
because the individual
was already enrolled
on September 17, 2015,
and the next open season is not
until July 2016, for example,
the filer may be unable
to correct the error
before the return filing
deadline.
The filer
should file a correction
when it obtains the TIN
or the date of birth
if the TIN is not provided.
If the filer is unable
to correct the return
before a penalty notice 972CG
is issued,
the filer
will have the opportunity
to establish whether
good-faith relief for 2015
or a reasonable-cause waiver
applies for the 2015 penalties.
For additional information,
see publication 1586
and notice 2015-68.
The next section
in this presentation
will cover the electronic filing
process through the air system.
Before we get into filing
corrections electronically,
here´s a little background on
the electronic filing process.
To electronical file
Affordable Care Act
Information Returns,
you must use the AIR system.
AIR stands for Affordable
Care Act Information Returns.
The only acceptable format for
electronic transmission is XML.
Returns will not be accepted
electronically
in any other format.
Remember, if you are filing
250 or more information returns,
you must file electronically.
Electronic filing is encouraged
if you have fewer than 250.
You must assign
each transmission
a unique transmission I.D.
and submission
and record-level I.D.s.
To do this, sequentially number
each submission
or form 1094 record
within the transmission
starting at 1.
Also, sequentially number
each form 1095 record
within each submission
starting at 1.
For more information on
electronic filing through AIR,
please reference
the AIR web pages on IRS.gov,
publication 5164
and publication 5165.
Now that we´ve covered
some of the general rules
for filing electronic,
let´s look more closely
at what happens
after you file electronically.
When you file returns
with the AIR system,
you will get
one of five responses --
accepted, accepted with errors,
partially accepted,
rejected, or not found
by the AIR system.
Let´s quickly define
some of the characteristics
of a transmission
that was accepted with errors.
When you file, the AIR system
validates the transmission
and the return data
through schema validations,
transmission header,
and manifest validation
and business rule checks.
If your transmission is accepted
with errors,
then it was accepted because AIR
didn´t find any fatal errors,
those that cause
a rejected return,
while processing
the transmission´s metadata.
However, it would be accepted
with errors
if AIR found at least one,
and possibly all,
submissions had errors
that require correction.
It is important to note
that accepted with errors
means no rejections,
AIR did not reject
any submissions
within the transmission.
If AIR does reject some
but not all of the submissions
within the transmission,
you will get
a "partially accepted" response.
Partially accepted is defined as
a transmission that was accepted
and no fatal errors
were identified
while processing the schema
or transmission metadata
but at least one submission
within the transmission
was accepted with
or without errors
and at least one submission
within the transmission
was rejected as unusable data.
If errors are identified,
then you´ll receive
an acknowledgement
identifying the error data
if the validation fails.
Ultimately, if the return
is accepted with errors,
you are expected
to make corrections.
For more information
on the transmission statuses,
see IRS publication 5165.
Now, here are some general rules
for making corrections
when using the AIR system.
First, you can only
correct transmissions
that have been either accepted,
accepted with errors,
or partially accepted by AIR.
Second,
you must file the corrections
in a separate transmission
so they do not commingle
correct submissions
and original submissions
in the same transmission.
Also, correction records
will contain both a Record I.D.,
as well as the Unique I.D.
of the 1094 or 1095 record
to be corrected.
For 1094s, use "Submissionid"
and
"CorrectedUniqueSubmissionid".
For 1095s, use "Recordid"
and
"CorrectedUniqueRecordid."
As mentioned previously,
you must always include
the complete record
for the correction.
Do not supply
only the corrected information
when correcting a record.
Finally,
always apply corrections
to the latest record
accepted by the IRS.
Your corrected Record I.D.
must reference the last record
that was accepted by the system.
If a correction
is found to be in error
and needs to be corrected,
submit a correction to the most
recently accepted correction
and remember to file
only one correction
per Unique submission
or Record I.D.
Here is an overview of the
electronic correction process
if the IRS identifies the error.
In the first section,
you can see how the error
is first identified.
You, the transmitter,
will receive an acknowledgement
in XML
for the transmission
containing an Error Data File.
This Error Data File
includes three parts
to help you find the error,
Unique I.D.s to identify
which records had errors
and error codes
and error descriptions
to identify the specific errors
and often identify
the associated data element.
Next, you need to locate
the errors in the data file.
To do so, you locate
the erroneous records
using unique I.D.s
from the Error Data File
as described
in the previous section.
Here in step 3A,
you can see an example
of how the Unique I.D.
includes the "Receiptid,"
"Submissionid," and "Recordsid."
The final step
is for you to prepare
and send the correction
to the IRS.
You will need to generate
a complete record
incorporating all corrections.
Keep in mind
that all correction records
are assigned their own I.D.s,
just like original records.
Also, your correction records
must reference the Unique I.D.s
of the records being corrected.
Once you have completed
the correction
and the I.D. is assigned,
you can transmit
the corrected return
to the IRS through AIR.
Next, we will look at
the process overview
when the reporting entity or the
recipient identifies an error.
This time, the first step is
that the error is identified
by you, as the reporting entity,
or by the recipient,
not by the IRS.
You´ll need to identify
the error
requiring correction
within the transmission.
Once you find the error,
you need to construct
the Unique I.D.
of the record to be corrected.
Again, the slide shows
in step 3A
how the Unique I.D.
is formatted.
The system should then save
any changes to the XML record.
Finally,
prepare the correction file
by generating
the complete record
incorporating all corrections
and then transmit
the correction return
to the IRS through AIR.
Remember, in cases where you
file a correction with the IRS,
you also need to provide a copy
of the corrected return
to the covered individual
or employee.
Okay.
Our final section today
will cover penalties.
Earlier, we discussed
the availability of relief
for information returns
filed in 2016
for good-faith efforts.
So, what is this providing
relief from?
As with other
information returns,
failure to meet requirements
may result in a penalty,
as specified in IRC section 6721
and 6722.
Failure to furnish includes
not providing the statement
in the proper format
or on the proper form.
As mentioned
on a previous slide,
in 2016, returns must be filed
with the IRS by May 31st
if using paper
or June 30th
if filing electronically.
This chart outlines
the various penalty amounts
for returns due on or after
January 1, 2016,
depending on when the correct
information return
is actually filed
and/or furnished.
For late returns,
penalty amounts per return
start at $50
and increase to $520,
depending on the date
when the correction is filed
or if the failure was due
to intentional disregard.
You can see
the maximum penalty amounts
on the lower two lines
of the chart.
The bottom row in the chart
applies for small businesses.
For IRC 6721 and 6722 purposes,
a company is a small business
if average annual gross receipts
for the three
most recent tax years,
or the period you were
in existence, if shorter,
ending before the calendar year
in which the information returns
were due are $5 million or less.
It is important to note
that these due dates
are different
for ACA Information Returns
in 2016,
as outlined in the table.
For more information
on these penalty amounts,
see IRS publication 1586.
There are a few other additional
penalty rules that may apply.
If you are required
to file electronically
because you have 250 or more
records
but you file on paper
and fail to apply for a waiver
using form 8508,
request for waiver
for filing information returns
electronically,
a penalty may be imposed.
Certain errors
on information returns
will not result in a penalty.
For example, an inconsequential
error or omission
is not considered a failure
to include correct information.
The term "inconsequential"
means an error or omission
that doesn´t stop the IRS
from processing,
correlating required information
with the affected individual´s
tax return,
or otherwise putting the return
to its intended use.
For example, in the case of
the forms 1095-B and 1095-C,
if the recipient´s first name
is William
and it was misspelled
on the return as W-I-L-L-A-I-M,
that error does not prevent
either the IRS or the recipient
from using the return
for its intended use.
Errors or omissions
that are never inconsequential
include TIN and/or surname
of the recipient
or other covered individuals.
In addition,
it is never inconsequential
if the return
furnished to the recipient
is not the appropriate form
or an appropriate substitute.
There is also an exception
to the penalty
for a de minimis number
of failures
to include correct information
if the filer corrects
that information
by August 1st
of the calendar year,
to which the information
relates,
or November 1st for 2016.
For a calendar year,
this penalty will not apply
to the greater
of 10 information returns
or one half of 1%
of the total number of returns
the filer is required to file
or furnish.
Additionally,
filers may be subjected
to increased penalties
for intentional disregard
of the requirement
to file and furnish timely and
accurate information returns.
For additional information
on the exceptions
and the intentional
disregard standards,
see publication 1586.
Finally, there is only
one penalty per record,
even if the record
has multiple errors,
such as incorrect TIN and
incorrect months of coverage.
There is relief for 2015 returns
filed in 2016.
As previously mentioned, the IRS
will not impose penalties
for filing incorrect or
incomplete information returns,
including TINs or date of birth,
when reporting entities show
they made good-faith efforts
to comply.
However, this relief
is not available
for returns
that are not timely filed.
In addition to
good-faith effort,
there is
a Reasonable Cause Waiver
for a failure that is due to
a reasonable cause
and not due to willful neglect.
For reasonable cause to apply,
you would need to establish
that you acted responsibly
before and after
the failure occurred
and that you had significant
mitigating factors
or the failure was due to
events beyond your control.
Examples of significant
mitigating factors
are situations like
you weren´t previously required
to file or furnish
the particular type of form
or you have
an established history
of filing
correct information returns.
Events beyond
the filer´s control
include situations like a fire
or other casualty
that made relevant
business records unavailable
and prevented you
from timely filing.
For additional information
on reasonable cause,
see the regulations
under section 6724
of the internal revenue code.
Okay.
Let´s summarize the key points
from today´s presentation.
Corrections are used
to fix incorrect information
on a return or transmittal
that you filed and the IRS
accepted with or without errors.
Who can identify
a need for a correction?
The IRS, you
as the reporting entity,
or the recipient
of the statement.
You should file
corrected information returns
with the IRS
as soon as possible.
Remember, you also need to send
a copy of the corrected return
to the individual.
Consider developing
an internal review process.
This is a best practice
for filers.
You can file corrections
electronically
using the AIR system.
For more information
on this process,
see publication 5165.
Information returns must be
filed timely and accurately,
or penalties may apply.
Finally,
relief for information returns
filed in 2016
for good-faith efforts
is available.
As mentioned earlier
in this presentation,
here is a list
of reference materials
you may want to check out
for further information
on ACA Information Returns
and the correction process.
On behalf of myself
and Tim Berger,
we want to thank you
for viewing this presentation.