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MSP #20: Affordable Care Act (ACA)

The IRS Has Made Progress in Implementing the Individual and Employer Provisions of the ACA But Challenges Remain

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #20-1

Apply the Individual Shared Responsibility Payment (ISRP) overpayment recovery procedures used for TY 2014 to TY 2015 ISRP overpayments and to overpayments made in future tax years.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation not adopted as written, but IRS will consider the NTA recommendation as analysis is completed to determine the appropriate action IRS may take for TY 2015 and forward.  As reported previously, IRS has experienced a significant reduction in the number of over-assessed individual SRPs related to dependents and income below the filing threshold (the two buckets of taxpayers included in the SRP recovery performed during August 2015), from TY 2014 to TY 2015. This can be attributed to significant outreach during 2015 to Tax Practitioners and Software Providers.  As of Cycle 26, first of July 2016, the number of tax returns received related to these two issues dropped from 182,000 in TY 2014 to 6,000 in TY 2015, a 97% reduction.

Update: The IRS reviewed the TY 2015 population and decided to apply the individual Shared Responsibility Payment (ISRP) overpayment recovery procedures used for TY 2014.  On September 20, 2017, 7,228 taxpayer accounts were adjusted to reverse the ISRP.  Consistent with TY 2014, these taxpayers were either dependents on another tax return or had gross income below the filing threshold. The criteria used in the analysis to identify impacted taxpayers was identical to the TY 2014 analysis. Consistent with the prior adjustment, only taxpayers with ISRP amounts of $50 or more were adjusted.  Currently the IRS has plans to review TY 2016 tax returns for similar issues, but has not conducted the analysis at this time.

CORRECTIVE ACTION: The IRS will determine the TY 2015 population impacted by overstatement of the SRP based on the previous overstatement recovery procedures and determine the best course of action for TY 2015 and forward. Complete analysis by September 30, 2017.

TAS RESPONSE: We commend the IRS’s efforts to prevent ISRP overpayments. IRS preventive actions directly resulted in a sharp drop in overpayments in TY 2015 and future years. However, while the number of TY 2015 overpayments is small in comparison to TY 2014, there are still thousands of taxpayers who overpaid  ISRP.  In addition, the IRS already has fully developed and previously implemented ISRP overpayment identification and recovery procedures. Because these taxpayers have a right to pay no more than the correct amount of tax, it is incumbent on the IRS to apply these recovery procedures to any identified ISRP overpayments. 

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

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

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2.

TAS RECOMMENDATION #20-2

Take preventive measures to avoid ISRP overpayments in the future, such as distributing educational notices to preparers associated with overpayments and conducting a comprehensive review and testing of private-sector tax filing software to ensure that the overpayment problems do not recur.

IRS RESPONSE TO RECOMMENDATION: The IRS routinely conducts extensive outreach to both the tax practitioner and software developer communities through routine conferences and provides important MeF updates through IRS quick alerts. The IRS also maintains a dedicated page on IRS.gov, Affordable Health Care, which proves an excellent e-source for taxpayers and tax professionals.  IRS also publishes IRS news releases and tax tips.  The significant reduction in the number of ISRP over-assessments between Tax Year 2014 and TY 2015 highlights the effectiveness of this existing process.

Prior to the start of the 2017 filing season, the IRS hosted various communication events with the tax software developer industry to emphasize the importance of delivering software that made it easy for taxpayers to find the health coverage exemptions they may qualify for and to prepare the Form 8965, Health Coverage Exemptions, accurately through self-guided questions. For example, through its partnership with Free File Inc, IRS ensured that all 12 participating companies asked questions to help taxpayers accurately complete the Form 8965 and to easily answer the exemption question as to whether their  income is below the filing threshold.  The software also asked questions to enable taxpayers to check the 12 month qualifying full year health coverage box. 

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS’s outreach to both preparers and commercial software providers effectively reduced the incidence of ISRP overpayments in TY 2015, and likely TY 2016 returns. We commend the IRS for working closely with the Free File Alliance to ensure the accurate preparation of Forms 8965. However, we believe the IRS should take one step further and require all commercial tax preparation software providers to include prompts and built-in checks to ensure accurate preparation of these forms.

In addition, outreach and education through conferences and digital communications may not reach those preparers who have a history of preparing returns with ISRP overpayments. We encourage the IRS to directly communicate with this preparer population through educational notices to ensure that they avoid repeating such errors in the future. 

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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3.

TAS RECOMMENDATION #20-3

Reject electronic filed returns when the taxpayer received Advance Premium Tax Credit (APTC) and did not reconcile on Form 8962, Premium Tax Credit (PTC), as the IRS plans to do for silent returns that do not include Form 8965, Health Coverage Exemptions.

IRS RESPONSE TO RECOMMENDATION: The IRS cannot reject the Form 8962, Premium Tax Credit (PTC), associated with a taxpayer’s return because it is based on third party data. Under current law, the IRS does not have math error authority to reject returns based on this third-party data.

CORRECTIVE ACTION: N/A

TAS RESPONSE: We appreciate the IRS’s explanation of why it cannot reject electronically filed returns of APTC recipients who do not reconcile on Form 8962. We look forward to further discussing this matter with the IRS to pursue all avenues to relieve the burden on this population of taxpayers.

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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4.

TAS RECOMMENDATION #20-4

Develop procedures to perform reviews of cases for which the IRS issued Letter 12C to determine if the Coverage Data Repository (CDR) has been updated with new Marketplace data.

IRS RESPONSE TO RECOMMENDATION: As described, the IRS initially uses the monthly data reported by the Marketplaces to  determine if there are any discrepancies with the information provided on the taxpayer’s return.  Once the letter is issued, the IRS system does not have the capability for employees to do intermittent checks as the return is in suspense status. The tax return is de-activated out of the processing system and until a taxpayer reply is received or the period of time to respond has expired, no actions can be taken until removed from the suspense file.  At that time, the appropriate actions can be taken.

The IRS understands the information may be updated and before initially corresponding with the taxpayer, IRS reviews the Form 1095-A information in Business Objects Enterprise (BOE) also submitted by the Marketplaces.  Submission of an updated Form 1095-A can occur more frequently than the monthly information.  The Form 1095-A the IRS receives is a copy of the information sent to the taxpayer and from which the taxpayer would prepare their Form 8962.  If the IRS finds that the Form 1095-A in our system agrees with the taxpayer’s entries, the IRS does not correspond with the taxpayer but continues to process the return avoiding unnecessary delays and reducing the burden on taxpayers.

CORRECTIVE ACTION: N/A

TAS RESPONSE: We understand the limitations on the system for updating the account while the return is in suspense. However, once the return is no longer in suspense, based on time lapsed or taxpayer response, the IRS should have procedures to immediately check for updates and adjust the account accordingly, if applicable. 

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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5.

TAS RECOMMENDATION #20-5

Ensure instructions to the Form 1040 series returns and the Form 8962 clearly state that the taxpayer cannot file Form 1040EZ if the APTC was paid on the taxpayer’s behalf.

IRS RESPONSE TO RECOMMENDATION: The 2016 Form 1040 series of products and Form 8962 have been revised to inform taxpayers that if they wish to claim the PTC, Form 8962 must be attached to Form 1040, 1040A, or 1040NR whether or not the APTC was paid on their behalf.

The Instructions for Form 1040EZ have a dedicated page for the Affordable Care Act which specifically states in multiple locations that if the taxpayer is claiming the PTC or is required to reconcile advance payments of the PTC, that they cannot file Form 1040EZ.  Furthermore, we have instructions on the back of Form 1040EZ that state that taxpayers claiming the PTC or who have received the advance payment of the PTC must use Form 1040A or Form 1040.  In response to TAS’s concerns, IRS made this statement more visible by converting it into a Caution. IRS also made the same statement more visible in the Instructions to Form 1040EZ by putting it in large, bold font across the top of a full-page graphic on page 4.

Finally, Form 8962 and its instructions identify the tax returns with which it can be filed.  For example, the Instructions for Form 8962 include a Caution on page 2 that states that if you are filing Form 8962 you cannot file Form 1040EZ, 1040NR-EZ, 1040-SS, or 1040-PR.   

CORRECTIVE ACTION: N/A

TAS RESPONSE: We appreciate the IRS’s responsiveness to our concerns. Including the information more visibly on the various instructions and Form 8962 will help prevent APTC recipients from filing Form 1040-EZ in error.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

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

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6.

TAS RECOMMENDATION #20-6

Conduct outreach and education on the consequences of receiving large lump sum SSDI distributions to Advance Premium Tax Credit (APTC) recipients and the Social Security Administration.

IRS RESPONSE TO RECOMMENDATION: Currently there is information on IRS.gov that connects lump sum payments of Social Security benefits to reportable changes in circumstances, as noted below.

https://www.irs.gov/affordable-care-act/individuals-and-families/premium-tax-credit-claiming-the-credit-and-reconciling-advance-credit-payments

IRS Communications & Liaison (C&L) Branch issues Health Care and Summertime Tax Tips that specifically address changes in circumstances and how important it is to report these changes to the Marketplace when they happen. As in the past, we will continue to use these products to highlight that changes in income related to social security payments (including disability payments) should be reported to the Marketplace when they happen.  We will also look for other opportunities to include this information where it is appropriate.

Products that were released last year related to changes in circumstances are presented below.

For this effort, W&I collaborated with National C&L’s ACA Communications Office, Technical Communications Branch (TCB) who owns the content on the IRS.gov web site.  TCB updated the content on the web sites with the links presented below. Specific language was as follows:

  • Increases or decreases in your household income. Events that could result in a significant increase to household income include:
    • Lump sum payments of Social Security benefits, including Social Security Disability Insurance
    • Lump sum taxable distributions from an individual retirement account or other retirement arrangement
    • Debt forgiveness or cancellation, such as the cancellation of credit card debt
    • PTC: Claiming the Credit and Reconciling Advance Credit Payments
    • Questions and Answers on the Premium Tax Credit

CORRECTIVE ACTION: Wage and Investment will review language for tax tips to look for areas to improve language related to changes in circumstances.

TAS RESPONSE: We believe that the IRS communications are helpful, but we also believe that the IRS should work in conjunction with the SSA. If taxpayers receive information about the tax consequences, including the impact on PTC eligibility, when they receive the large lump sum amounts from the SSA, they are more likely to report their changes in circumstances in a timely fashion. The IRS should also work with partner organizations that have experience in distributing information to taxpayers with disabilities.

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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