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MSP #15: AFFORDABLE CARE ACT – INDIVIDUALS

The IRS Is Compromising Taxpayer Rights As It Continues to Administer the Premium Tax Credit and Individual Shared Responsibility Payment Provisions

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #15-1

Take preventative measures to avoid ISRP overpayments in the future, such as distributing educational notices about exemptions and exclusions to preparers associated with such overpayments and conducting a comprehensive review and testing of tax filing software to ensure that the problems that arose in FS 2015 do not recur.

IRS RESPONSE TO RECOMMENDATION: During 2015, the IRS conducted extensive research in order to evaluate the filing season results for this initial year of implementing the ISRP. When the analysis indicated significant ISRP over-assessments in certain categories of taxpayers, the IRS promptly implemented both corrective and preventative actions. We sent letters to all taxpayers that had over-assessed their ISRP by more than a specific dollar amount.   We conducted specific as well as general outreach and educational sessions with software developers pointing out possible errors in their tax programs. We also highlighted the overstated ISRP calculations in numerous sessions with tax practitioners. For FS 2016, we are again closely monitoring the ISRP assessments on 2015 tax returns. This analysis will be used to measure the effectiveness of our outreach activities and to determine what additional preventative measures may be appropriate.  

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS commends the IRS for providing taxpayers and practitioners with information addressing ISRP overpayments. We encourage the IRS to share its findings from the analysis of TY 2015 returns to determine the efficacy of its previous efforts.  While we believe such outreach activities are crucial, we also believe that the IRS should take systemic actions to proactively correct and prevent such overpayments. Such actions include systemically adjusting ISRP overpayment amounts through programming, if feasible, and conducting a comprehensive review and test of private-sector tax filing software for errors resulting in overpayments.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

2
2.

TAS RECOMMENDATION #15-2

Issue guidance to field compliance employees to assist them in identifying returns with a tax liability resulting from the correction of Forms 1095-A errors in the SLCSP information and not pursuing collection, including blocking the accounts from refund offsets.

IRS RESPONSE TO RECOMMENDATION: The IRS issued the appropriate guidance required to ensure employees appropriately handled the special relief granted to taxpayers during the 2015 FS related to erroneous Forms 1095-A that had errors in the SLCSP amount. On April 10, 2015, the IRS issued Notice 2015-30, providing penalty relief for incorrect or delayed Forms 1095-A for taxpayers who timely filed their 2014 return. This relief applied only for the 2014 taxable year. The IRS also issued internal guidance through the Servicewide Electronic Research Program (SERP). The SERP provided employees with guidance for both taxpayers that had not filed a return and taxpayers that had filed and therefore had the discretion of whether or not to file an amended return. The guidance clearly specified that “collection of any additional taxes from these individuals based on updated information in the corrected forms will not be pursued”.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS commends the IRS for issuing the guidance through SERP to inform employees of the relief provided in Notice 2015-30.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #15-3

Work with the National Taxpayer Advocate on revising Letters 5591, 5591A, and 5596 for FS 2016 to include the exact date by which the taxpayer needs to file in order to automatically reenroll for the APTC the following year.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA.  During 2015, the IRS issued letters to recipients of Advanced Payments of the Premium Tax Credit (APTC) that either failed to file or filed an extension to file their 2015 tax return.  The letters were used to alert the APTC recipients that failure to timely file a tax return reconciling their APTC could result in their loss of eligibility for future health insurance subsidies. The IRS is closely monitoring the filing patterns of APTC recipients during FS 2016 to determine if there will be a need to issue similar letters during 2016, and if so, will provide the NTA the opportunity to review the letter content prior to the issuance of the letters.

Update: The decision was made on August 10 by the Wage & Investment Commissioner to issue letters to recipients of Advance Payments of the Premium Tax Credit (APTC) in TY 2015 that did not receive APTC in TY 2014 and were either non-filers or extension filers.  These TY 2015 APTC recipients were selected since they had never received prior correspondence informing them of the need to reconcile their APTC.  Letters were mailed to non-filers first and then to extension filers.  As noted below, all letters mailings were completed before the end of September 2016 in order to precede the Fall 2016 Health Insurance Marketplace re-enrollment process.

Letter 5858 went to non-filers; Letter 5862 went to extension filers.  Content was essentially identical to letters mailed last year (Letters 5591/5591a to non-filers; Letter 5596 to extension filers).  Both letters are available on IRS.gov in English and Spanish (see links below).

LETTER 5858 to non-filers: Mailed to 441,131 non-filers , NDC mailing started on August 25 and was completed on September 13, Landing page link: https://www.irs.gov/individuals/understanding-your-letter-5858

LETTER 5862 to extension filers: Mailed to 230,637 extension filers, NDC mailing started on September 14 and was completed on September 22, Landing page link: https://www.irs.gov/individuals/understanding-your-letter-5862

The letter recipients were identified based on Compliance Data Warehouse (CDW) as of Cycle 30, end of July 2016.  The list was derived from Form 1095A data and was scrubbed for invalid name/SSN matches and invalid addresses.

CORRECTIVE ACTION: The IRS is closely monitoring the filing patterns of APTC recipients during FS 2016 to determine if there will be a need to issue similar letters during 2016, and if so, will provide the NTA the opportunity to review the letter content prior to the issuance of the letters.

TAS RESPONSE: TAS appreciates the IRS’s commitment to allow the Taxpayer Advocate Service the opportunity to review any letters issued in response to analysis of the 2016 filing season.  If the IRS does determine that it needs to issue similar letters in 2016, such letters should clearly state the date by which the taxpayer needs to file to avoid any disruptions in receiving APTC.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #15-4

Conduct outreach and education to inform taxpayers early in FS 2016 about the consequences of filing for an extension if the taxpayer received APTC. In particular, the information should provide the taxpayer with a specific date in 2016 by which the taxpayer needs to file the TY 2015 return in order to automatically re-enroll to receive APTC in 2017.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA.  Information on IRS.gov/ACA specifically tells taxpayers that if they miss the April filing deadline or receive an extension to file until October, they should file their return as soon as possible and should not wait to file. Taxpayers are told to file as soon as possible to reconcile any advance credit payments made on their behalf in order to maintain their eligibility for future premium assistance.  In addition to issuing letters, at the end of the 2016 FS, we issued guidance to taxpayers who filed extensions alerting them to file a return as soon as possible if they were a recipient of APTC during calendar year 2015.  While we plan to review the possibility of adding to IRS.gov web content a specific date in 2016 by which the taxpayer needs to file their Tax Year 2015 return in order to avoid eligibility issues for 2017 APTC, we are mindful that defining a specific date could be misleading to the taxpayer due to the complexities of the related processes and systems.

Implemented July 2015, for tax year 2014.  Ongoing-IRS will review to see if disclosure of a specific date is necessary for tax year 2015.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS is pleased that the IRS is considering adding content on the IRS website providing a specific date to file the tax return in order to avoid APTC eligibility problems.  However, the population of APTC recipients may not have the time and ability to research and access the information available online.  The IRS must also use its network to communicate this information in a manner likely to reach this population, such as print, television and radio.  In addition, we understand that determining a specific date might be difficult. However, even a conservative estimate is more informative than “as soon as possible.”

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #15-5

Determine a method to identify all issues relating to a return, as selected by the various filters in the filing season, and include all of the issues in one notice to the taxpayer so that the taxpayer does not have multiple audits with respect to the same return.

IRS RESPONSE TO RECOMMENDATION: We agree with the  goal of minimizing taxpayer burden and confusion and continuously work to refine and improve the efficiency of our compliance processes in an effort to reduce burden to the taxpayer while maintaining adequate revenue protection.  We believe the use of the different processes, such as Math Error, Automated Questionable Credit (AQC) and Exam, to resolve different types of issues remains the most efficient method of resolution since it enables us to resolve certain issues at filing or pre-refund rather than holding all issues until audit selection.  We sought advice that informs us that AQC requests to the taxpayer for additional documentation, such as proof of premium payments or copies of insurance enrollment forms, should not constitute an examination. Requesting this information is a contact designed to verify a discrepancy between the taxpayer’s return and information obtained as part of a matching program.  We therefore disagree that we are subjecting the taxpayers to multiple audits.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate disagrees with the IRS characterization of such pre-refund inquiries. She continues to believe that the AQC process and the documentation requirements imposed on the taxpayers under AQC are substantially similar to those in an examination. In addition, the IRS’s response states that the use of the different pre-refund and post-refund processes “remains the most efficient method of resolution.”  She disagrees that multiple contacts with respect to one return is the most efficient way to resolve the issue.

As TAS stated in the Most Serious Problem, we strongly disagree with the Office of Chief Counsel on its conclusion.  Their response relies on its own administrative guidance provided in Revenue Procedure 2005-32 and does not squarely address the point that the IRS is asking for the exact same information from a taxpayer in a post-refund audit as it asks from a taxpayer in a pre-refund “non-audit.” As we previously stated, the Office of Chief Counsel advice is calling a wolf a lamb because it is wearing a sheepskin on its back. Because in our view the AQC review is an examination, the IRS must follow formal audit reopening procedures if it tried to conduct a subsequent examination on the tax return in question.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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6.

TAS RECOMMENDATION #15-6

Conduct outreach and education on the consequences of receiving large lump sum distributions to APTC recipients as well as other organizations making such distributions, such as the Social Security Administration.

IRS RESPONSE TO RECOMMENDATION: The IRS agrees that outreach and education on the consequences of changes in circumstances is extremely important and has emphasized related messaging in meetings/news releases/alerts directed at external stakeholders (e.g. tax practitioner organizations) and with extensive guidance on IRS.gov.  Currently IRS.gov does list “a lump sum distribution of Social Security benefits” as a change in circumstances that should be reported to help “avoid large differences between the advance credit payment made on your behalf and the amount of the premium tax credit you are allowed when you file your tax return which may affect your refund or balance due when you file your tax return.” IRS.gov also states that “The amount of your excess advance credit payments that you are required to repay may be limited based on your household income and filing status. If your household income is 400 percent or more of the applicable federal poverty line, you will have to repay all of the advance credit payments.”  IRS.gov also has a link to the Taxpayer Advocate’s “Premium Tax Credit Change Estimator”.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS encourages the IRS to continue to perform outreach on the consequences of receiving such large lump sum distributions for APTC recipients.  The IRS has conducted outreach and education on the importance of reporting changes in circumstances to the exchanges.  We believe that these messages should all include a specific reference to Social Security lump sum distributions. Furthermore, because a significant portion of the APTC recipient population, including Social Security Disability Insurance (SSDI) recipients, may not have internet or broadband access, the IRS should determine the best way to communicate these messages to this particular population, which may entail nondigital communication channels such as public service announcements on television or radio about changes in circumstances. The IRS should also partner with the Social Security Administration to reach the SSDI recipient population.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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7.

TAS RECOMMENDATION #15-7

Issue guidance to both taxpayers (on the IRS website as well as in the Form 1095-A instructions) and IRS employees (in the IRM) about how taxpayers can use the look-up tool on Healthcare.gov to find their SLCSP premium amount.

IRS RESPONSE TO RECOMMENDATION: We appreciate the NTA recognizing the value of the SLCSP look-up tool on Heathcare.gov.  Currently on IRS.gov there are multiple links to this look-up tool.  The most direct link is found in the section discussing the Form 1095-A which includes the link in the response to the question:  What is a second lowest cost silver plan shown on my 1095-A? The link is provided indirectly through references to the instructions for Form 8962, Premium Tax Credit, which also includes a link to the look-up tool. The instructions for the Form 1095-A provide guidance to the Marketplace as the  preparer/issuer of this form. For IRS employees, IRMs provide the guidance for  responding to taxpayers with inquiries regarding Form 1095-A or non-receipt of Form 1095-A, to contact their Marketplace through www.Healthcare.gov,  for the look-up tool, or through one of the contact telephone numbers found at The Health Insurance Marketplace.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS continues to believe that the IRM should include specific information on how to access the SLCSP look-up tool.  Specifically, the IRM should include instructions on supporting documentation employees can accept from taxpayers when the SLCSP information on Form 1095-A is blank or incorrect.  TAS received submissions in the Systemic Advocacy Management System (SAMS) regarding IRS employees refusing to accept taxpayer SLCSP documentation that was either not directly provided by the Marketplace or that couldn’t be verified by IRS resources.  Without an IRS-developed tool or guidance on how to use the tool available on Healthcare.gov, taxpayers may continue to run into problems proving the SLCSP amount to the IRS.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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8.

TAS RECOMMENDATION #15-8

Provide a similar IRS tool to ensure IRS employees can look-up the SLCSP amount and verify the amount provided by the taxpayer. The IRS should provide employees training on the use of the tool.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by National Taxpayer Advocate.  We agree with the National Taxpayer Advocate that certain IRS employees may need access to SLCSP information to verify the amount provided by the taxpayer that may be missing from the Form 1095-A. Currently the information is available to employees with web access through the IRS.gov link to the look-up tool on Healthcare.gov. We continue to evaluate the use of the SLCSP information by employees in the various processing, customer service, and examination functions within the IRS to assess whether currently available information, tools, and guidance are sufficient.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS disagrees with the IRS’s categorization of their response.  We recommended that the IRS develop a tool to look up the SLCSP amount.  The IRS has not developed such a recommended tool and is not taking actions to address the need for this tool.  We believe that an IRS-provided tool for use by IRS employees could resolve any confusion regarding sufficient documentation to support the SLCSP amount.  TAS received submissions in the Systemic Advocacy Management System (SAMS) regarding IRS employees refusing to accept taxpayer SLCSP documentation that was either not directly provided by the Marketplace or that couldn’t be verified by IRS resources.  An IRS-developed tool and associated training would alleviate this problem and enable the IRS to process impacted returns quicker.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

9
9.

TAS RECOMMENDATION #15-9

Reform the rules for exchange reporting on Form 1095-A and require the Marketplace to provide the SLCSP amounts on all such forms.

IRS RESPONSE TO RECOMMENDATION: While we agree with the NTA that requiring the Marketplace to provide the SLCSP premium amount on all Forms 1095-A could reduce the burden of certain taxpayers, it is important to note that the reduction in burden would be more than offset by increased burden on the part of taxpayers that purchase health insurance coverage from the Marketplace without ever pursing any financial assistance. The reason for this increased burden is that in order for the Exchange to report the SLCSP, the enrollee cannot use the currently available “streamlined” application but must complete the entire application that requests certain household and financial information that leads to the appropriate SLCSP calculation. In order for HHS to provide the “streamlined” application, an exception to the SLCSP reporting requirement was granted in the regulations that allows an Exchange to satisfy SLCSP reporting requirement if, by January 1 of each year, the Exchange provides a reasonable method by which the SLCSP premium can be determined in order to calculate the PTC on the tax return. Under this special rule, HHS established the current tax tool on its website at https://www.healthcare.gov/tax-tool/ where taxpayers in a federally-facilitated marketplace can input some basic information about their family and obtain their SLCSP premiums. While the IRS and Treasury Department may have legal authority to repeal this special rule related to the SLCSP, the rule allows a streamlined application process that is beneficial to many taxpayers.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS appreciates the IRS’s explanation regarding the rationale behind the current exchange reporting rules.  We agree that the reduction of burden on one group should not create excessive and unnecessary burden on the remainder of the population.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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10.

TAS RECOMMENDATION #15-10

Expand the TIN matching program to include health insurers and self-insured employers that are required to file Form 1095-B, Health Coverage.

IRS RESPONSE TO RECOMMENDATION: We appreciate the NTA’s recognition of the value of the IRS’s Taxpayer Identification Number Matching Program (TMP). The TMP was established for payers of Form 1099 income subject to the backup withholding provisions of section 3406(a)(1)(A) and (B) of the Internal Revenue Code. The IRS has both an Interactive and a Bulk TIN Matching Programs.  These programs are established under the authority of Revenue Procedure 2003-9.  Revenue Procedure 2003-9 and IRC Section 6050W expanded the IRS’s authority provided under Revenue Procedure 97-31, to allow the on-line matching of taxpayer identifying information as provided by payers of income reported on Forms 1099 B, DIV, INT, K, MISC, OID, and PATR. The program is limited to the forms specified and cannot be expanded without legislation. It should be noted that employers can already validate the TINs of current or past employees through a website offered by the Social Security Administration.  The Department of Treasury has put forth a legislative proposal that expand the TMP beyond forms where payments are subject to backup withholding.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS appreciates the IRS’s analysis of the absence of authority to expand the TIN Matching program as recommended. We are pleased that the Department of Treasury has already made a legislative proposal to expand TIN Matching.  Because administrative change was questionable, we also included a legislative recommendation on this topic in our 2015 annual report.  Legislative action would alleviate the burden on health insurers, self-insured employers, and impacted taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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