Welcome to another edition of the ONESOURCE Tax Information Reporting Bulletin. Industry news of the past month was more notable for its delays than its enactments. So in addition to a couple news items, this issue contains recaps of the recently announced FATCA and ACA postponements that occupied industry headlines and newsletters in July.
As is the case with all our bulletins, much of the content for this one was gathered using our own cutting-edge research product, Checkpoint. The contents contained in this bulletin are below.
- Affordable Care Act Items
- Premium Tax Credit
- ACA Postponements
- FATCA Items
- FATCA – IRS Newsletters
- FATCA Postponements
- Miscellaneous and Special Report Section
- National Taxpayer Advocate Report
- FBAR E-Filing
We hope you find the information helpful and informative. As always, we welcome your comments.
Dale G Pettit
ONESOURCE Tax Information Reporting Services
FAMOUS TAX QUOTE:
"When there is an income tax, the just man will pay more and the unjust less, on the same amount of income"
AFFORDABLE CARE ACT (ACA) ITEMS
PREMIUM TAX CREDIT
Premium Tax Credit Reporting Requirements for Health Exchanges — Proposed Regulations
In early July, the IRS issued proposed regulations on the information reporting requirements for Affordable Insurance Exchanges relating to the health insurance premium tax credit (Code Sec. 36B). The proposed regulations affect Health Insurance Exchanges that make qualified health plans available to individuals and employers.
Background and Summary of Code Section 36B: The premium tax credit is designed to make health insurance affordable to individuals with modest incomes who are not eligible for other qualifying coverage. The credit applies for tax years ending after Dec. 31, 2013.
In general, an individual may receive health insurance coverage subsidized by the premium tax credit only for months the individual is enrolled in a qualified health plan purchased through a Health Insurance Exchange and is not eligible for other minimum essential coverage, such as Medicare or Medicaid. The Code Sec. 36B credit is designed to work as follows:
- The eligible individual purchases affordable coverage through Health Insurance Exchanges that will make qualified health insurance plans available to individuals as well as small businesses.
- The Health Insurance Exchange makes subsidy payments to the qualified health plan on behalf of the individual. The subsidy payments take the form of an advance credit payment. Using information available at the time of enrollment, the Exchange determines
- whether the individual meets the income and other requirements for advance credit payments, and
- amount of the advance payments.
- At tax return time, the eligible individual reconciles the actual credit for the tax year computed on his tax return with the amount of advance payments paid on his behalf.
New Proposed Regulations
Under the proposed regulations, Health Insurance Exchanges would be required to report information concerning individuals enrolled in qualified health plans, including taxpayer identification numbers (TINs) and any monthly amount of advance credit payments.
The proposed regulations would require Exchanges to report the specified information for each qualified health plan electronically to IRS on both an annual and a monthly basis and specify the information that must be reported in each category.
The monthly report would be due by the 15th day of the month following the month of coverage, and the information reported monthly would be cumulative, containing monthly data for each month beginning with January through the most recent completed month.
The annual report for the calendar year would be due by January 31 of the year following the year of coverage. Information for more than one tax household would be on the same annual report if the individuals enroll in one qualified health plan.
Exchanges would be required under the proposed regulations to provide each taxpayer who enrolled in a qualified health plan through the Exchange, or whose family member enrolled in such a plan, with a written statement that includes the information the Exchange must report to IRS annually. The proposed regulations would permit Exchanges to use Form 1095-A for this statement, which would be due to the taxpayer or responsible adult by January 31 of the year following the calendar year of coverage. Electronic delivery of statements would suffice if the taxpayer or responsible adult consents.
Effective date.The proposed regulations would apply for tax years ending after Dec. 31, 2013. Exchanges and taxpayers may apply the proposed regulations until publication of final regulations or other guidance, at which time the need for additional transition relief will be considered.
IRS clarifies eligibility for minimum essential coverage for premium tax credit purposes
In Notice 2013-41, the IRS provided new guidance on when an individual is eligible for minimum essential coverage (MEC) relating to the premium tax credit subsidy. The notice applies to tax years ending after 12/31/2013.
New guidance (contained in Notice 2013-41)
In determining whether an individual is eligible for coverage in a qualified health plan subsidized by the premium tax credit, the rules below apply. Keep in mind that eligibility for CHIP and Medicaid type programs are disqualifying factors for the premium tax credit subsidy:
- Disenrollment from CHIP or Medicaid for non-payment of premiums. In some states, an individual who loses CHIP coverage due to a failure to pay premiums may not re-enroll in CHIP for a certain period of time (lockout period). Such an individual is treated as eligible for CHIP and is not eligible for qualified health plan coverage subsidized by the premium tax credit during the lockout period. An individual who is terminated from Medicaid or CHIP for failure to pay premiums is treated as eligible for Medicaid or CHIP during any period for which the individual would be eligible for Medicaid or CHIP except for the failure to pay premiums.
- CHIP waiting period. An individual who may not enroll in CHIP during a pre-enrollment waiting period is treated as not eligible for CHIP coverage during the waiting period. Accordingly, the individual may be eligible for qualified health plan coverage subsidized by the premium tax credit during this period.
- Eligibility based on agency determination. In certain situations, eligibility for a government-sponsored program requires a determination of disability or diagnosis of a particular disease. For purposes of the premium tax credit, an individual is eligible for minimum essential coverage under Medicaid or Medicare in the circumstances described below only upon a favorable determination of eligibility by the responsible agency: (i) Medicaid coverage requiring a finding of disability or blindness; or (ii) Medicare coverage based solely on a finding of disability of illness.
- Eligibility based on enrollment. Notice 2013-41 also sets out special rules for determining an individual’s eligibility for minimum essential coverage under the following programs, which present certain administrative difficulties: Medicare part A coverage requiring payment of premiums, state high risk pools, student health plans, and TRICARE programs.
AFFORDABLE CARE ACT POSTPONEMENTS
On July 2, the Administration announced that it would provide an additional year, until Jan. 1, 2015, before the ACA’s mandatory employer and insurer reporting requirements take effect. The announcement further stated that, since the postponement will make it impractical to determine which employers do not provide MEC, and therefore would owe the employer mandate penalty for 2014, the employer mandate penalties won’t apply until 2015. Neither postponement affects any other provisions of the ACA.
As a result of the delay, two information return requirements are postponed:
- Under section 6055, an information return must be filed to the IRS by insurers and self-insuring employers that provide minimum essential health care coverage, reporting information on the individuals they insure.
- Under section 6056, employers must file an information return to the IRS reporting the health coverage offered to their full-time employees, including which employees and dependents are covered. Specific rules and draft forms are expected later this summer.
The Treasury announcement also stated that the Administration will work with employers and insurers and will encourage voluntarily information reporting in 2014.
Transitional relief provided for postponed employer mandate and reporting requirements
Following the Administration’s announcement postponing employer and insurer reporting requirements and employer shared responsibility payments until 2015, the IRS formally provided transition relief for 2014 in the form of a Q&A notice. The Notice emphasized that this postponement and transition relief have no effect on other provisions of the Affordable Care Act, including the individual mandate and the premium tax credit.
As stated in Notice 2013-45 the IRS expects to publish proposed rules for Code Sec. 6055 and Code Sec. 6056 information reporting this summer.
CRS Report — Impacts of Health Care Implementation Delay
On July 16, The Congressional Research Service (CRS) issued a report discussing potential impacts of the Administration’s postponed implementation of the ACA’s employer mandate penalties and some of its employer/insurer reporting requirements.
Among the provisions of the ACA, the following were scheduled to take effect Jan. 1, 2014:
- Employer mandate — Penalties on certain large employers that fail to offer “minimum essential coverage” (MEC) to their full-time employees
- Individual mandate — Penalties assessed to individuals for lack of MEC on themselves or their dependents
- Information reporting — Reporting is required on an annual basis for health insurance issuers, self-insuring employers, government agencies, and other providers of health coverage.
- W-2 Reporting — Employers with at least 250 employees report value of coverage on Form W-2.
- Exchanges — creation of health insurance exchanges to provide small employers and individuals access to affordable health insurance.
- Premium tax credits — Tax credits that reduce the cost of premiums for health insurance for certain low income households or individuals without access to MEC elsewhere.
Potential effects of the postponement: In the report, the CRS notes that one of the potential impacts of the postponement of the employer penalties may be a lower than projected number of “large” employers offering health insurance coverage. This in turn would result in a larger number of workers eligible for premium tax credits in the exchanges in 2014.
Issue Number: 2013-7 (July 12)
This notice provides a six-month extension for when withholding will begin (i.e., payments after June 30, 2014) and for implementing new account opening procedures as well as related requirements to comply with FATCA.
2. FATCA Registration Website to Open in August (see section E)
The FATCA registration website is projected to be accessible to financial institutions on August 19, 2013. Other key dates for registration, however, will be extended by six months. After the FATCA registration website opens, a financial institution will be able to begin the process of registering by creating an account and inputting the required information for itself, for its branch operations, and, if it serves as a “lead” financial institution, for other members of its expanded affiliated group. All input information will be saved automatically in the registration system and associated with the financial institution’s account. For more information on the registration through the website, please see section “E” of Notice 2013-43.
Issue Number: 2013-8 (July 19)
FATCA Information Updated on Website
The FATCA web pages have been redesigned and updated. Additions include a new landing page for U.S. financial institutions that addresses their FATCA responsibilities. Another new page provides information for governments interested in Intergovernmental Agreements (IGAs). A link for the FATCA registration website will be added this month, when the registration system opens.
IRS DEFERS FATCA DEADLINES, ISSUES OTHER FATCA GUIDANCE
In Notice 2013-43, the IRS provided revised timelines for implementing FATCA along with additional guidance on the treatment of financial institutions. The FATCA regulations will be amended to reflect these new rules, but taxpayers may rely on the Notice until then.
(Prior) Final FATCA regulations: IRS issued final FATCA regulations on Jan. 17, 2013, that provided for a phased implementation of the FATCA requirements starting in Jan. 1, 2014, and continuing through 2017. The final FATCA regulations provided that withholding agents would generally be required to begin withholding on certain payments made after Dec. 31, 2013. Due diligence for documenting payees and account holders by U.S. withholding agents and participating FFIs would be phased in during 2014 and 2015. Annual reporting by participating FFIs would be phased in starting in 2015, with reporting of the full scope of FATCA information required beginning in 2017.
New guidance. In Notice 2013-43, Treasury and the IRS provide revised timelines for implementing various FATCA requirements. A summary of some of the affected timelines is presented below, but see the Notice for the details:
- FATCA withholding. Postponed by six months to payments after 6/30/14.
- New account opening procedures. Withholding agents generally are required to implement new account opening procedures by July 1, 2014.
- Due diligence on preexisting accounts. The FFI Agreement of a participating FFI that registers and receives a GIIN from IRS on or before June 30, 2014, will have an effective date of June 30, 2014. This effectively results in a six-month postponement of the deadlines for completing due diligence on preexisting obligations. For withholding agents other than participating FFIs, the deadlines for completing due diligence on preexisting obligations is postponed by six months.
- …Due date of first report. Under the new rules, a participating FFI will be required to file information reports on its U.S. accounts for the 2014 calendar year by Mar. 31, 2015.
- …Registration timeline. The FATCA registration website is projected to be accessible to financial institutions on Aug. 19, 2013 (a bit over a month past the original July 15, 2013 date).
- …Expiring Chapter 3 documentation (Forms W-8). For purposes of chapter 3 withholding Notice 2013-43 provides that withholding certificates and documentary evidence that would otherwise expire on Dec. 31, 2013, will generally expire instead on June 30, 2014.
Notice 2013-43 (page 12) also provides guidance on the treatment of financial institutions that are located in jurisdictions that have signed IGAs, but have not yet brought the IGAs into force. Treasury maintains a list of jurisdictions on its website that it treats as having an IGA in force.
A financial institution resident in a jurisdiction that is treated as having an IGA in effect will be permitted to register on the FATCA registration website as a registered deemed-compliant FFI.
SPECIAL REPORTS AND MISCELLANEOUS TOPICS
NATIONAL TAXPAYER ADVOCATE IDENTIFIES PRIORITY ISSUES FOR UPCOMING YEAR
On June 26, National Taxpayer Advocate Nina E. Olson released her mandated mid-year report to Congress. The report identifies the issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year. As mentioned in her previous report, insufficient IRS funding is a primary concern.
Olson also released a special supplemental report examining permissible levels of political activity and the IRS’s use of questionable criteria to screen applicants for tax-exempt status.
Access the full reports and news releases on the Taxpayer Advocate website.
MANDATORY FBAR E-FILING BEGAN JULY 1
As of July 1, 2013, Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), must be filed electronically via the BSA E-Filing System.
Per the IRS eNewz notification on June 29, your FBAR questions can be e-mailed to:
FBARquestions@irs.gov. E-file technical questions can be e-mailed to:
BSAEfilinghelp@fincen.gov or call the BSA E-Filing Help Desk at 1-866-346-9478.