A lack of government funding has certainly impacted the IRS over the past several years. If you are a 1099 filer, then you know how simple and antiquated the Filing Information Returns Electronically (FIRE) system can be. It is simple though; right? You follow the IRS Pub 1220 format, create a flat file, and send it off to the IRS. A day or so later you receive a confirmation that the file was accepted or rejected. The process is so simple that even a mainframe can do it.
Over the past several years, the IRS faced budget cuts and no funds for technology upgrades, but they did develop a new system called the Affordable Care Act Information Return System (AIR). It is quite different from the Filing Information Returns Electronically (FIRE) system tax professionals are accustomed to. The new system presents challenges, but it’s more high-tech, secure and ultimately a positive change.
AIR vs. FIRE
AIR has a few features that may leave FIRE in the dust. Forget about that flat file, the new system must be in Extensible Markup Language (XML) format. It also consumes your form data and evaluates it against the IRS records and delivers a response file letting the filer know if any of the information does not match the IRS records. If your file has recipients with bad names or TINS then the IRS lets you know immediately. That is pretty impressive. When you receive that file, you can correct the data long before that CP-2100 Notice is delivered to you. ACA filers are lucky; they will not receive the dreaded CP-2100. Instead, they get the 972CG Penalty Notices. OK, so maybe they are not lucky.
You might ask, “What does AIR have to do with FIRE?” I think it would be safe to assume that once all of the ACA filers file their data, the IRS will consume the files and derive beneficial data on the pros of the AIR system vs. FIRE. If everything goes as planned, I recommend looking at XML programming because that 1220 flat file may hit the legacy wall and be replaced with an AIR-like filing system. In my opinion, it is not a matter of if, but when. The only question that remains is what will they call it? Earth? Wind?…
For more information on the AIR filing process, please check out the whitepaper “Guidance on New Electronic Filing of Affordable Care Act (ACA) Information Returns” or visit tax.thomsonreuters.com/acahealth.