If you plan to file IRS Forms 1095-B and/or 1095-C then this post is for you and your IT department.
The IRS Publication (Pub) 5165 outlines the communication procedures, transmission formats, business rules and validation procedures for returns transmitted electronically through the AIR system.
As I read through the provisions of Publication 5165 I noticed a few highlights that could impact your business.
First, here is a high-level review:
1. There are now different levels for Transmitter Control Codes (TCC). When you request your TCC, you’ll determine if you need an Issuer, Transmitter, or Software Developer.
2. There are prohibited and escaped special characters that could cause file rejection.
3. Once a Transmitter or Issuer submits their 1094/1095 file to the IRS, they will check it for threats. The IRS has 32 different fault codes for the file rejects.
4. AIR validates the transmission and return data. There are 8 different error prefixes that the IRS returns. The one that interests me the most is AIRTN. If you submit a file and receive an AIRTN error, that means the TIN and name do not match IRS records.
5. The IRS assigns a Unique ID for each form and is critical if you have corrections.
Why it’s not that simple
After reading the highlights, you may think these are no big deal. For instance, determining your level of TCC should be fairly simple, right? Don’t you just have to know if you are an Issuer, Transmitter or Software Developer? That may not be clear to everyone. You should of course know if you are a Software Developer so that is easy but are you an Issuer or a Transmitter?
Filing will not be the same as 1099
With XML files, special characters can be troublesome. The IRS has what they call Prohibited Characters. They can reject the entire file if you include a “#” or “–“. Other characters, such as & ‘ “ , must also be handled differently so your file isn’t rejected.
If you include one of those characters, it must be “escaped”. For example, if the company name in Box 10 on the form was Smith & Sons, the “&” must be coded as “&” to explain the ampersand. If the company name was Joe D’s, then you would code it as “&apos” to account for the apostrophe.
The part that gets a little dicey is recognizing there are 32 different elements that can cause file rejection. It is highly recommended filers utilize the IRS testing period to assess your transmission and data. Don’t wait until March to find out your file structure is incorrect!
And now for the big one…
The AIR system will return an AIRTN error for each form that contains a bad Name/TIN combination.
According to the Pub, the IRS expects the filer to provide a correction for the record. This doesn’t necessarily mean you are required to send out more solicitations, but that might be your only way to avoid potential penalty for failing to supply the correct information.
Data correction is a huge undertaking. There are thousands upon thousands of “bad” Name/TIN combinations! While you probably know how many people you don’t have a TIN for, what might surprise you is the large number of mismatches. There are situations where the SSN may be a digit off, or 2 numbers flip-flopped, or the name is a maiden or nickname.
In these cases, the IRS will return an AIRTN error and all you will know is that the name and TIN do not match the IRS records. In cases like this, you’d have to send out a mass mailing once you receive the notification on the bad forms.
But wait, there’s more!
In addition to the data correction undertaking, the IRS also has rules about giving them too much incorrect data. For example, if the issuer Name and EIN on all of your records does not match the IRS records, then they will reject the entire file. The IRS also has a threshold and if you have numerous forms that have bad Name/TINs and the number exceeds the threshold, they will reject your entire file. What is the threshold number? That’s an IRS secret.
Finally we have the Unique ID. It doesn’t sound like a big deal, but you definitely want to be prepared. You can only reference that Unique ID once. When you send your original file, all records are assigned Unique IDs. To correct a form reference its Unique ID. When you send the correction in, the IRS gives you a new Unique ID for that record. If down the road you need to make another correction to that form, you need to reference the new Unique ID. Filers must ensure they track the Unique IDs and that they always capture the most recent information.
Companies that have an abundance of technical resources may not be too concerned, but for companies with thinly stretched resources and budgets, this could become a major headache.
Thomson Reuters ONESOURCE offers comprehensive ACA reporting and compliance solutions to keep you prepared, and prevent filing inaccuracies and penalties so you can continue to ensure your company’s good reporting health.