IRS Small Business and Self Employed (SB/SE) Division SBSE-20-0216-0385: Notice 2015-30 Penalty Relief (Feb. 24, 2016).
In an internal memo, IRS has clarified the application of Notice 2015-30, which provided penalty relief to taxpayers who received a 2014 Form 1095-A, Health Insurance Marketplace Statement, that was either delayed or that the taxpayer believed to be incorrect.
Background on relevant penalties. Code Sec. 6651(a)(2) imposes a penalty for a failure to pay (on or before the due date for payment) an amount shown as tax on any return. However, the Code Sec. 6651(a)(2) penalty is not imposed if the taxpayer shows that the failure was due to reasonable cause and not willful neglect.
Under Code Sec. 6651(a)(3), a penalty is imposed for failure to pay an amount of tax required to be shown on a return that is not shown on the return, within 21 days from the date of notice and demand. The Code Sec. 6651(a)(3) penalty is not imposed if the taxpayer shows that the failure to pay was due to reasonable cause and not willful neglect.
The Code Sec. 6654(a) penalty applies in the case of an underpayment of estimated tax by an individual. Code Sec. 6654(e)(3) authorizes IRS to waive the Code Sec. 6654(a) penalty in unusual circumstances to the extent its imposition would be against equity and good conscience.
Code Sec. 6662(a) imposes a penalty on any portion of an underpayment of tax required to be shown on a return that is attributable to one of the items listed in Code Sec. 6662(b), which includes, among other items, underpayments attributable to any substantial understatement of income tax. However, under Code Sec. 6664(c), the Code Sec. 6662 penalty is not imposed with respect to any portion of an underpayment if the taxpayer shows that there was reasonable cause for that portion and that the taxpayer acted in good faith with respect to such portion.
Background on Form 1095-A, incorrect data on 2014 forms, and IRS relief. Form 1095-A is used to report certain information to IRS about family members who enroll in a qualified health plan through the Affordable Care Act (ACA) Marketplace. Persons who signed up for coverage through the Marketplace in 2014 should have received their 2014 Form 1095-A statement in the mail in February 2015. (Fact Sheet 2015-9, February 2015)
On Feb. 20, 2015, the U.S. government’s Centers for Medicare and Medicaid Services (CMS) announced that about 20% of the tax filers who had Federally-facilitated Marketplace coverage in 2014 and used tax credits to lower their premium costs received a Form 1095-A with incorrect data. On Mar. 20, 2015, CMS further announced additional issues with the data used to populate the Form 1095-A that could result in incorrect information on and delays in additional Forms 1095-A.
In Notice 2015-30, 2015-17 IRB, IRS acknowledged that taxpayers affected by errors or delays in their Forms 1095-A might have been unable to file a return accurately reflecting their tax liability by the April 15 deadline. In that notice, IRS said that it would abate for the 2014 tax year the Code Sec. 6651(a)(2) penalty and the Code Sec. 6651(a)(3) penalty, and waive the Code Sec. 6654(a) penalty, for taxpayers who received a delayed Form 1095-A or a Form 1095-A that the taxpayer believed to be incorrect, if the taxpayer timely filed his 2014 Federal income tax return, including extensions. IRS also said that it would not impose the accuracy-related penalty under Code Sec. 6662 on any portion of an underpayment resulting from the receipt of an incorrect or delayed Form 1095-A.
Penalty relief clarified. In its memo, IRS now says that, if any portion of an unpaid balance qualifies for relief under Notice 2015-30, the entire failure-to-pay penalty should be abated, even the portion that is unrelated to the late receipt or incorrect Form 1095-A.
The memo also contains a reminder of the following point made in Notice 2015-30: Some taxpayers who were not enrolled in a qualifying plan during 2014 erroneously received a Form 1095-A and may have used it to file their return. To be eligible for the relief, these individuals must amend their 2014 income tax return by Apr. 15, 2016 to reflect that they were not eligible to claim the premium tax credit, and pay any additional tax liability due.