The Affordable Care Act (ACA) may provide more affordable health care, but the new IRS information reporting penalties for non-compliance just got less affordable. You may already know this, but Congress recently passed new legislation mandating new tax provisions including an increase in penalties under Section 6721 for failing to file correct information returns and provide payee statements.
These penalties cover various IRS forms, including ACA, and could be costly to filers not complying with the information reporting rules and regulations.
A little background
Since 2010, the IRS budget has been slashed more than $1 billion, resulting in nearly 13,000 employee layoffs. And now, like other major corporations, they’re forced to do more with less. When companies are faced with large budget cuts, they certainly can’t eliminate hardware or infrastructure, so they look for alternative cost cutting measures. In many cases, cost cutting falls on personal, and in this case, auditors.
The IRS audited 1.4 million people last year. While that hardly seems like small potatoes, it’s the lowest number in 5 years. The cash crunch has caused layoffs and early retirement offers, leaving fewer people to perform audits.
The IRS side of this story
The concern is that the continual reduction in auditors will enable companies to ride the gray line and maybe not be totally honest in their reporting. To combat this, the IRS increased penalties to ensure correct filing of information returns.
Simply put, the IRS can’t afford non-compliance.
I met with IRS Commissioner John Koskinen last year and he explained IRS penalties. It is not to punish those following the reporting rules nor is it a means for the IRS to generate additional revenue. He said the penalties are designed to encourage compliance. We should think of them as a way for the IRS to keep honest people honest and encourage the not so honest to become honest.
He also said that the IRS understands mistakes happen and, believe it or not, they can waive penalties if they believe a company acted in good faith. The penalty abatement process is designed to allow the payer the opportunity to explain their process. If you construct your abatement properly, there is a good chance that you will win. On the other hand, if you failed to report and have no substantiated reasoning, then you may have a difficult time getting out of costly penalties.
The bottom line
In summary, if you’re complying with the regulations and keep up with the changes, you’ll most likely be fine, not fined. For those that want to fly under the radar and maybe not report everything, there may not be any mercy. Many taxpayers would probably agree that’s not necessarily a bad thing.
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. For more information and resources to help with your ACA reporting and compliance, visit tax.thomsonreuters.com/aca.