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IRS offers preview of proposed regs on health insurance coverage reporting

Notice 2015-68, 2015-41 IRB

In a Notice, IRS has advised taxpayers of its intent to issue proposed regs under Code Sec. 6055 that would, among other things, clarify reporting requirements with respect to catastrophic health insurance plans enrolled in through an Exchange and modify the existing “supplemental coverage rule.”The Notice also provides penalty relief for certain Code Sec. 6055 reporting failures.

Background—MEC and reporting requirements.Under Code Sec. 5000A, nonexempt individuals have the choice of maintaining minimum essential coverage (MEC) or making an individual shared responsibility payment with their income tax returns.MEC includes: health insurance coverage offered in the individual market (such as a qualified health plan offered through an Exchange); an employer-sponsored plan; government-sponsored programs such as Medicare, Medicaid, CHIP, and TRICARE; and other health benefits coverage as designated by the Secretary of Health and Human Services (HHS).Under Code Sec. 5000A(f)(4), bona fide residents of U.S. possessions or territories are treated as having MEC.

Code Sec. 6055 requires all providers of MEC to file annual information returns with IRS reporting information about the coverage and about each covered individual, including each covered individual’s taxpayer identification number (TIN) and months of coverage, and to furnish a statement to the taxpayer, in order to allow taxpayers to establish and IRS to verify that individuals have MEC.

Other current rules that pertain to the new guidance include:

…Reporting is required by: plan sponsors of self-insured group health coverage, the executive department or agency of a governmental unit that provides coverage under a government-sponsored program, and the applicable state agency that administers the Medicaid program or the CHIP program. (Reg. § 1.6055-1(c))
…Health insurance issuers and carriers reporting coverage under insured group health plans are required under Code Sec. 6055 and its regs to report information about the employer sponsoring the plan, including its employer identification number (EIN), to IRS, and to furnish a statement to a taxpayer providing information about the filer and the covered individuals. The TIN of a person other than the filer, including an EIN, may be truncated on statements furnished to taxpayers unless otherwise prohibited. Reg. § 1.6055-1(g) allows filers to truncate the TINs of individuals identified on the statement (but the use of a truncated TIN, or TTIN, for the employer has not yet been addressed).
…Filers of information returns under Code Sec. 6055 may furnish a statement to an individual in an electronic format only if the individual affirmatively consents (Reg. § 1.6055-2), but a recipient of a Form 1095-B reporting MEC under an expatriate health plan is deemed to consent to electronic delivery absent an explicit refusal.
…Every MEC provider generally must report information for every covered individual, but reporting isnotrequired for MEC that supplements or provides benefits in addition to other MEC if (1) the primary and supplemental coverage have the same plan sponsor, or (2) the coverage supplements government-sponsored coverage such as Medicare (the “supplemental coverage rule”). (Reg. § 1.6055-1(d)(2))
…Information reporting under Code Sec. 6055 is subject to the penalty provisions of Code Sec. 6721 and Code Sec. 6722 for failure to file a correct information return or to furnish a correct statement, but penalties may be waived if the failure is due to reasonable cause and not willful neglect (generally, if the reporting entity acted responsibly). Under Reg. § 301.6724-1(e), a reporting entity is considered to act in a responsible manner in soliciting a TIN if it makes (1) an initial solicitation when an account is opened or a relationship is established, (2) a first annual solicitation by Dec. 31 of the year the account is opened (or Jan. 31 if the account is opened in December), and (3) a second annual solicitation by Dec. 31 of the following year.
…The Affordable Care Act (ACA) allows states to establish a “Basic Health Program,” which provides an additional option to provide health coverage to certain individuals not eligible for Medicaid and which is designated as MEC.

Anticipated proposed regs.Notice 2015-68 indicates that IRS intends to issue proposed regs that would:

…Require catastrophic plan issuers to report the coverage on Form 1095-B, applicable to coverage in 2016 and to returns and statements filed and furnished in 2017 (issuers are also encouraged to report on 2015 catastrophic coverage but aren’t required to do so).
…Clarify that health insurance issuers and carriers reporting on insured group health plans may use the TTIN of the employer sponsoring the plan on the statement furnished to the taxpayer.
…Provide that statements reporting coverage under an expatriate health plan may be furnished in electronic format unless the recipient affirmatively refuses consent or requests a paper statement, effective for coverage under expatriate health plans that are issued or renewed on or after July 1, 2015.
…Replace the existing supplemental coverage rule, which has proven to be confusing, with rules providing that: (1) if an individual is covered by multiple MEC plans or programs provided by the same provider, reporting is required for only one of them; and (2) reporting generally is not required for an individual’s MEC for which an individual is eligible only if the individual is covered by other MEC for which Code Sec. 6055 reporting is required.

Other guidance.In addition to previewing the proposed rules outlined above, Notice 2015-68 also provides that:

…Pending the issuance of additional guidance, reporting entities will not be subject to penalties for failure to report a TIN if they comply with the requirements of Reg. § 301.6724-1(e) (above), with the following modifications: (1) the initial solicitation is made at an individual’s first enrollment or, if already enrolled on Sept. 17, 2015, the next open season, (2) the second solicitation is made at a reasonable time thereafter, and (3) the third solicitation is made by Dec. 31 of the year following the initial solicitation. Additionally, a reporting entity is not required to solicit a TIN from an individual whose coverage is terminated.
…Because bona fide residents of U.S. possessions or territories are treated as having MEC, Medicaid and CHIP agencies in U.S. possessions or territories are not required to report this coverage under Code Sec. 6055.
…Although the “Basic Health Program” is not identified in Code Sec. 5000A(f) as a government-sponsored program, it closely resembles government-sponsored coverage (e.g., Medicaid and CHIP), so the state agency that administers the Basic Health Program is similarly the entity that must report that coverage under Code Sec. 6055.

References:For return requirements for providers of minimum essential coverage, see FTC 2d/FIN ¶  S-3321  et seq.; United States Tax Reporter ¶  60,554  ; TaxDesk ¶  812,314  et seq.; TG ¶  60245  .

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