IRS Provides Penalty Relief to Taxpayers Affected by Erroneous Forms 1095-A.

(Parker Tax Publishing April 24, 2015)

The IRS has provided penalty relief for the 2014 tax year for taxpayers who received a delayed or incorrect Form 1095-A, Health Insurance Marketplace Statement. Notice 2015-30.

Background

On February 20, 2015, the Centers for Medicare and Medicaid Services (CMS) announced that it had sent incorrect Forms 1095-A to over 800,000 individuals who had purchased health insurance through a federal exchange.

The errors stemmed from a mistake in the benchmark plan used to calculate the amount of the premium tax credit that enrolled taxpayers were eligible to receive. Approximately 20 percent of Forms 1095-A included the monthly premium amount of the Silver plan for 2015 instead of 2014, leading to incorrect calculations of the tax credit.

Penalty Relief for 2014

In consideration of the difficulties that affected taxpayers may have faced when calculating their tax liabilities, the IRS has provided relief from the Code Sec. 6651(a)(2) penalty for late payment of a balance due, the Code Sec. 6651(a)(3) penalty for failure to pay an amount due upon notice and demand, the Code Sec. 6654(a) penalty for underpayment of estimated tax, and the Code Sec. 6662 accuracy-related penalty. To take advantage of the penalty relief, taxpayers must have filed their 2014 return by April 15th, or have requested an extension by April 15th and file by October 15th, 2015.

Practice Aid: See Parker's SAMPLE CLIENT LETTER for tax practioners: Tax Penalty Relief under Notice 2015-30 Requesting Relief under Notice 2015-30 for Failure to Pay and Accuracy-Related Penalties Due to Incorrect or Delayed Form 1095-A. As discussed under "Procedure for Requesting Penalty Relief" below, the letter is to be sent in response to receiving a penalty notice after a taxpayer's 2014 return is filed.

Practice Aid: See Parker's SAMPLE STATEMENT for tax practioners: Requesting Waiver of Estimated Tax Penalty under Notice 2015-30. It can be attached to a client's 2014 Form 1040 requesting a waiver under Notice 2015-30 of the Code Sec. 6654(a) penalty for underpayment of estimated tax and the Code Sec. 6662 accuracy-related penalty.

The IRS also stated it will not impose the accuracy-related penalty under Code Sec. 6662 for underpayments attributable to an incorrect or delayed Form 1095-A. However, taxpayers may still be liable for unrelated underpayment penalties.

The IRS notes that some taxpayers who were not enrolled in a qualifying health plan during 2014, and thus were ineligible for the premium tax credit, erroneously received a Form 1095-A and may have used it to file their return. To be eligible for the penalty relief, these taxpayers must amend their 2014 income tax return by April 15, 2016 to reflect that they were not eligible to claim the premium tax credit, and pay any additional tax liability due.

Taxpayers should be aware that the penalty relief provided does not extend the time to file a return. Taxpayers who request a filing extension will still be required to pay interest on the balance due from the original deadline, even if they qualify for the penalty relief.

Procedure for Claiming Penalty Relief

Generally, the Code Sec. 6651(a)(2) penalty for late payments and the Code Sec. 6651(a)(3) penalty for failure to pay is automatically assessed against taxpayers and the IRS will send a notice demanding payment. Affected taxpayers who receive these penalty notices should submit a letter to the address listed in the notice with the statement: "I am eligible for the relief granted under Notice 2015-30 because I received an incorrect or delayed Form 1095-A."

Affected taxpayers requesting a waiver of the Code Sec. 6654(a) penalty for underpayments of estimated tax should check box A in Part II of Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, complete page 1 of the form, and include the form with their return, along with the statement: "Received an incorrect or delayed Form 1095-A." Taxpayers requesting this relief do not need to attach supporting documents, and also do not need to calculate the amount of the penalty.

The IRS notes it will not impose the Code Sec. 6662(a) accuracy-related penalty against affected taxpayers eligible for relief. However, if on examination this penalty is proposed for a liability due to the receipt of an incorrect or delayed Form 1095-A, the taxpayer should notify the examiner of his or her eligibility for penalty relief. In addition, taxpayers receiving a notice asserting the Code Sec. 6662 penalty on a liability resulting from an incorrect or delayed Form 1095-A should submit a letter to the address listed in the notice with the statement: "I am eligible for the relief granted under Notice 2015-30 because I received an incorrect or delayed Form 1095-A."

The relief provided in Notice 2015-30 only applies to the 2014 tax year. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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