Outline Transcript Links Bios

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.