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Final regs clarify reporting of minimum essential coverage by providers and offer penalty relief

March 7, 2014

T.D. 9660, 03/05/2014; Reg. § 1.6055-1, Reg. § 1.6055-2, Reg. § 1.6081-8, Reg. § 301.6011-2, Reg. § 301.6721-1 , Reg. § 301.6722-1

IRS has issued final regs providing guidance to providers of minimum essential coverage that are subject to reporting requirements under Code Sec. 6055. Significantly, the final regs allow combined reporting under Code Sec. 6055 and Code Sec. 6056 for applicable large employer members and provide limited transitional relief from penalties under Code Sec. 6721 and Code Sec. 6722.

Background. Beginning in 2014, under the Affordable Care Act (ACA), nonexempt individuals have the choice of maintaining “minimum essential coverage” (MEC; as defined in Code Sec. 5000A(f)) or paying an individual shared responsibility payment with their income tax returns. This requirement is generally referred to as the individual mandate. MEC may be health insurance coverage offered in the individual market (such as through an Affordable Insurance Exchange, or “Exchange”), an employer-sponsored plan, or a government-sponsored program.

Effective in 2014, Code Sec. 6055(a) generally requires every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs, and other entity that provides MEC to file annual returns reporting information for each individual for whom MEC is provided. An entity filing an information return reporting MEC must furnish a written statement to each individual listed on the return that shows the information that must be reported to IRS for that individual. (Code Sec. 6055(c)(1)) The purpose of this reporting is to allow taxpayers to establish, and IRS to verify, that the taxpayers were covered by MEC and their months of enrollment during a calendar year. (Separate reporting requirements under Code Sec. 6056 apply to “applicable large employers” subject to the employer mandate—see Weekly Alert ¶  4  02/13/2014 for more details).

Under Code Sec. 6724(d), as amended by the ACA, a reporting entity that fails to comply Code Sec. 6055’s reporting requirements may be subject to penalties for failure to file a correct information return (Code Sec. 6721) and failure to furnish correct payee statements (Code Sec. 6722). However, these penalties may be waived if the failure was due to reasonable cause and not to willful neglect. (Code Sec. 6724(a))

In Notice 2013-45, 2013-31 IRB 116, IRS provided transitional relief by making Code Sec. 6055 information reporting optional for 2014. Accordingly, no penalties will be imposed for failure to timely and accurately report 2014 coverage under that section. (See Weekly Alert ¶  4  07/18/2013 for more details)

In Sept. 2013, IRS issued proposed regs covering the Code Sec. 6055(a) and related requirements. See Weekly Alert ¶  4  09/12/2013.

Final regs issued. IRS has issued final regs relating to the requirement for providers of MEC to report to IRS certain information about individuals covered by MEC and to provide a statement to the individuals. The final regs generally adopt the proposed regs, but with certain revisions in light of comments received. IRS also contemporaneously issued T.D. 9661, 03/05/2013, which provides final regs on employers’ information reporting of health care coverage (see ¶ 27).

The final regs provide guidance on the following areas:

… Coverage subject to reporting. The final regs require Code Sec. 6055 information reporting for all covered individuals. (Reg. § 1.6055-1(a)) IRS rejected comments to exclude individuals who may be exempt from the individual shared responsibility payment under Code Sec. 5000A, noting that providers of MEC may not have the information necessary to determine an individual’s exempt status. (T.D. 9660)

The final regs adopt the provision in the proposed regs that reporting is not required for arrangements that provide benefits in addition or as a supplement to a health plan or arrangement that constitutes MEC. (Reg. § 1.6055-1(d)(2)) IRS further clarified that Code Sec. 6055 reporting is not required for on-site medical clinics, Medicare Part B, wellness programs that are an element of other MEC, or MEC that supplements either a primary plan of the same plan sponsor or government-sponsored coverage. (T.D. 9660)

… Persons required to report. Under the final regs, entities subject to Code Sec. 6055 information reporting include: health insurance issuers, or carriers, for all insured coverage (with limited exceptions); plan sponsors of self-insured group health plan coverage; the executive department or agency of a governmental unit that provides coverage under a government-sponsored program; and any other person that provides MEC to an individual. (Reg. § 1.6055-1(c))

In response to comments, the final regs also clarify that for controlled group members, since most employers that sponsor self-insured group health plans are applicable large employer members (i.e., a person that, together with one or more other persons, is treated as a single employer that is an applicable large employer) required to report under both Code Sec. 6055 and Code Sec. 6056, a single information return (see Combined reporting, below) can be filed that combines reporting under both provisions, with the reporting entities identified under rules in Code Sec. 6056. Employers in controlled groups that are not applicable large employer members may report under Code Sec. 6055 as separate entities, or one entity may report for the group.

The final regs also provide that, although issuers are not required to report under Code Sec. 6055 on qualified health plans enrolled through Exchanges (because the Exchanges are already required to report this information to IRS), they are required to report for coverage obtained through the Small Business Health Options Program (SHOP). In addition, the final regs specify that the rule under which the responsible government department or agency, and not the issuer, is the reporting entity for coverage under a government-sponsored program provided through a health insurance issuer also applies to coverage under the Medicare Advantage program. (Reg. § 1.6055-1(c)(3)(ii))

… Information required to be reported. In general, Code Sec. 6055 calls for the reporting of several data elements that aren’t required by taxpayers for preparing their returns or by IRS for tax administration, and in efforts to simplify, the proposed regs didn’t require reporting of these unnecessary items. The proposed regs did require that the Code Sec. 6055 information return include the name and taxpayer identification number (TIN) for the primary insured or other related person who submits the application for coverage (“responsible individual”), and for each covered individual, but would have permitted reporting entities to report a date of birth if a TIN is not available for that individual. The final regs generally retain this rule, but modify it slightly to allow reporting of dates of birth if the reporting entity is informed that the individual has no TIN or is unable to obtain a TIN after making “reasonable efforts.” (Reg. § 1.6055-1(e)(2))

In addition, in response to a comment, the final regs provide that reporting TINs for responsible individuals not enrolled in coverage is optional (Reg. § 1.6055-1(e)(2)), and clarify that reporting entities are permitted to use truncated TINs on Code Sec. 6055 statements. (Reg. § 1.6055-1(g)(3))

… Time and manner of filing. A reporting entity must file the required return and transmittal form on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which it provided MEC to an individual. (Reg. § 1.6055-1(f)(1))

In response to a comment, the final regs provide that any person required to file under Code Sec. 6055 must file electronically if the person is required to file at least 250 Forms 1095-B or 1095-C. The proposed regs would have required electronic filing if the person was required to file at least 250 returns of any type, but IRS determined that the “no aggregation” method was more appropriate. (T.D. 9660)

The final regs also clarify the rules under the proposed regs on corrected returns. Under the proposed regs, the penalties under Code Sec. 6721 and Code Sec. 6722 for failure to timely report correct information would be reduced by a certain amount if a reporting entity filed a corrected return within 30 days after the required filing date, reduced by a lesser amount if the correction was made by Aug. 1 following the reporting date, or waived altogether if the failure was due to reasonable cause and not willful neglect. Noting that a return or statement may be incomplete or incorrect as a result of a change in circumstances occurring after the coverage year has ended, the final regs clarify that reporting entities that fail to timely file corrected returns and furnish corrected statements when information changes as a result of a change in circumstances have filed returns that are incomplete or incorrect within the meaning of Code Sec. 6721 and Code Sec. 6722. (Reg. § 1.6055-1(h)(2))

… Combined reporting. Applicable large employer members that provide MEC on a self-insured basis are subject to the reporting requirements of both Code Sec. 6055 and Code Sec. 6056. The proposed regs didn’t contain a provision that would permit combined reporting, and a number of commenters noted that there was significant duplication in the information reported under Code Sec. 6056 and Code Sec. 6056 and suggested it. In response, the final regs provide that applicable large employer members will file a combined return and statement for all reporting under Code Sec. 6055 and Code Sec. 6056. Accordingly, an applicable large employer member that sponsors a self-insured plan will report on Form 1095-C, completing both sections to report the information required under Code Sec. 6055 and Code Sec. 6056; an applicable large employer member that provides insured coverage also will report on Form 1095-C, but will complete only the section of Form 1095-C that reports the information required under Code Sec. 6056; and Code Sec. 6055 reporting entities that are not applicable large employer members or are not reporting as employers, such as health insurance issuers, sponsors of multiemployer plans, and providers of government-sponsored coverage, will report under Code Sec. 6055 on Form 1095-B. (Reg. § 1.6055-1(f)(2)) IRS indicated that these forms would be made available in draft form in the near future.

… Statements furnished to individuals. Under Code Sec. 6055, a reporting entity is required to furnish the statement (Code Sec. 6055 statement) on or before January 31 of the year following the calendar year in which MEC is provided. The final regs add procedures for extending the time to furnish the Code Sec. 6055 statement such that entities showing good cause have the flexibility to apply for an extension of up to 30 days. (Reg. § 1.6055-1(g)(4)(B)(i))

The proposed regs provided that, if mailed, the Code Sec. 6055 statement must be sent to the individual’s last known permanent address or, if no permanent address is known, to the individual’s temporary address. The final regs adopt this rule, but also add a rule that a reporting entity’s first class mailing to the recipient’s last known permanent address, or if no permanent address is known, the temporary address, discharges the requirement to furnish the statement, even if the statement is returned. (Reg. § 1.6055-1(g)(4)(B)(ii)) In addition, the final regs provide detailed guidance on when reporting entities can electronically furnish statements electronically. (Reg. § 1.6055-2)

The final regs build on the rule in the proposed regs, that the Code Sec. 6055 statement furnished to a responsible individual must include a contact phone number for the person required to file the return, by clarifying that the statement must only include a phone number for a person designated as the reporting entity’s contact person (in other words, the reporting entity can designate a third party as the contact person).

The final regs also permit the use of substitute statements under Code Sec. 6055 that conform to requirements provided in published guidance, which IRS plans to provide either in published guidance or instructions. (Reg. § 1.6055-1(f)(2)(iii))

… Penalties—transitional relief. Under Notice 2013-45 (above), IRS won’t apply penalties for failure to comply with Code Sec. 6055 for 2014. IRS received additional requests from commentors to further extend the effective date of Code Sec. 6055 reporting and/or to waive penalties for a period of time. IRS noted that, in implementing new information reporting requirements, short-term relief from penalties is often provided. Accordingly, IRS determined that it will not impose penalties under Code Sec. 6721 and Code Sec. 6722 on reporting entities that can show that they have made good faith efforts to comply with the information reporting requirements. Specifically, relief is provided from penalties under Code Sec. 6721 and Code Sec. 6722 for returns and statements filed and furnished in 2016 to report coverage in 2015, but only for incorrect or incomplete information reported on the return or statement. (Reg. § 1.6055-1(j))

Effective/applicability date. The final regs apply for calendar years beginning after Dec. 31, 2014. (Reg. § 1.6055-1(j)) However, even though reporting entities won’t be subject to penalties for failure to comply with the Code Sec. 6055 reporting requirements for coverage in 2014, it encouraged taxpayers to voluntarily comply in order to “contribute to a smoother transition to full implementation for 2015.”