On August 2, 2016, the Internal Revenue Service (IRS) issued proposed regulations entitled “Information Reporting of Catastrophic Health Coverage and Other Issues Under Section 6055.” These proposed regulations contain important clarifications relating to, among other things, the responsibilities of Applicable Large Employers (ALEs) and/or insurance providers in soliciting Taxpayer Identification Numbers (TINs).
Background
Internal Revenue Code (IRC) Section 6056 under the Affordable Care Act (ACA) requires ALEs to report to the IRS whether they offer their full-time employees and their employees' qualified dependents the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan. An ALE is an employer that employed (any combination of workers within a controlled group) an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year.
ALEs that fail to comply with the filing and statement furnishing requirements of Section 6056 may be subject to penalties for failure to file timely a correct information return (Section 6721) or failure to furnish timely a correct statement (Section 6722). The penalty for a failure under either section is currently $260 per statement, and potentially $520 per statement if both sections apply, up to a maximum of $6,357,000 annually. (These amounts are also indexed and may change periodically.)
However, such penalties may be waived if the failure is due to reasonable cause and is not due to willful neglect (i.e., if an ALE can demonstrate that it acted in a responsible manner). The proposed regulations clarify the steps that, if followed by an ALE, will be considered as acting in a responsible manner.
In the context of employment, a TIN denotes the Social Security Number (SSN) of employees. However, self-insured ALEs must report the names and TINs of non-employees, such as spouses and dependents, and in this context, a TIN could include an Individual Taxpayer Identification Number (ITIN) or Adoption Taxpayer Identification Number (ATIN[1]).
Treatment of Missing TINs
Solicitation of a TIN involves an initial solicitation and two subsequent annual solicitations. Generally, for missing TINs, an initial solicitation must be made when the relationship between the reporting entity and the individual is established. If the reporting entity does not receive the TIN, the first annual solicitation is generally required by December 31 of the year in which the relationship with the taxpayer begins (January 31 of the following year if the relationship begins in December). If the TIN is still not provided, a second annual solicitation is required by December 31 of the following year. Similar rules apply to information reports with incorrect TINs. However, the proposed regulations modify these solicitation rules as they relate to reporting on Forms 1095-C and 1095-B.
Under the proposed regulations, with respect to missing TINs:
- For purposes of ACA reporting, an account is considered “opened” on the date the filer receives a substantially complete application for new coverage or to add an individual to existing coverage.
- Employers and health coverage providers may generally satisfy the requirement for the initial solicitation by requesting enrollees’ TINs as part of the application for coverage
- The first annual solicitation must be made no later than seventy-five days after the date the filer received an application for coverage, or if the coverage is retroactive, no later than the seventy-fifth day after the determination of retroactive coverage is made.
- The deadline for the second annual solicitation (third solicitation overall) remains December 31 of the year following the year the account is opened.
For individuals already enrolled in coverage before July 29, 2016, the account is considered opened on July 29, 2016. Employers have satisfied the requirement for the initial solicitation as long as they requested enrollee TINs either as part of the application for coverage, or before July 29, 2016. (In which case the first annual solicitation should be made within a reasonable time after July 29, 2016; making the first annual solicitation within 75 days of the initial solicitation and will be treated as having been made within a reasonable time. The second annual solicitation must be made by December 31, 2017.) Employers that did not ask for TINs before July 29, 2016 should make a first annual solicitation within a reasonable time soon after July 29, 2016. (The second annual solicitation must be made by December 31, 2017.)
The proposed regulations provide that the second annual solicitation relates to failures on returns filed for the year immediately following the year to which the first annual solicitation relates, and succeeding calendar years. Thus, once an ALE has completed the initial solicitation of enrollees’ TINs; the first annual solicitation (generally within 75 days of the initial solicitation), and the second annual solicitation by December 31 of the year following the initial solicitation, it is not necessary to continue making such requests, as long as filers can demonstrate that they performed the three required solicitations. However, it may be appropriate from a business perspective to continue such requests in order to minimize potential penalty notices.
Treatment of Name and/or TIN Errors
A footnote in the preamble to the proposed regulations clarifies that an error message received from the IRS (i.e., indicating that a TIN and name provided on a Form 1095-C does not match IRS records) does not trigger the requirement to solicit a TIN under the TIN solicitation rules:
A filer of the information return required under Section1.6055-1 may receive an error message from the IRS indicating that a TIN and name provided on the return do not match IRS records. An error message is neither a Notice 972CG, Notice of Proposed Civil Penalty, nor a requirement that the filer must solicit a TIN in response to the error message.
Thus, it appears that an ALE is not required to solicit a corrected TIN or name in response to an error message. However, if an employer receives a Notice 972CG, Notice of Proposed Civil Penalty, from the IRS, it would have to solicit the TIN to fall within the reasonable cause exception. Practically speaking, employers should, at a minimum, check their files carefully to determine whether the related names and TINs reported matched those provided by the employee (i.e., on the application for coverage, the employee’s Form W-4, etc.). It may also be appropriate to ask the employee to double-check the accuracy of any names and TINs provided to the employer.
TIN Solicitations Made to “Responsible Individuals” Are Deemed to Include All Covered Individuals
For purposes of the penalties under Section 6722, the furnishing of a statement to the responsible individual (e.g., the employee) is treated as the furnishing of a statement to a covered individual (e.g., the spouse and/or dependent(s) of the employee). The proposed regulations provide that TIN solicitations (both initial and annual) made to the responsible individual are treated as TIN solicitations of every covered individual on the health care policy or plan. The filer does not need to make separate solicitations from the responsible individual for each covered individual, nor does it need to separately solicit the TINs of each covered individual by contacting each covered individual directly.
The one exception is for individuals added to a policy after the TIN solicitations. When a new individual is added to a policy, the individual is new to the filer and it is the filer’s responsibility to solicit that individual’s TIN.
Annual solicitations must include a return envelope. However, filers may request more than one TIN at the same time and do not need to send separate envelopes with each request. For example, on a renewal application requesting the TINs for all covered individuals, filers need only provide one return envelope for that application or request.
IRS Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs (including instructions for reading CD/DVDs), provides that filers may establish an electronic system for payees (including covered individuals) to receive and respond to TIN solicitations, provided certain listed requirements are met.
[1] An ATIN is issued by the Internal Revenue Service (IRS) as a temporary taxpayer identification number for a child in a domestic adoption where the adopting taxpayers are unable to obtain the child's Social Security Number (SSN).