United States: ACA Reporting On Forms 1094-C And 1095-C, AIRTN500 Error Messages, And Incorrect And Missing Taxpayer Identification Numbers (Tins)—What's An Employer To Do?

Last Updated: September 26 2016
Article by Alden J. Bianchi

Employer-sponsored group health plans and health insurance issuers (or carriers) are subject to information reporting requirements under the Affordable Care Act (ACA), including the obligation to report taxpayer identification numbers (TINs) of covered employees and their spouses and dependents. But how should employers and carriers respond when notified that a TIN is either missing or incorrect? The regulators have on more than one occasion provided an answer, most recently in a proposed regulation issued July 29, 2016 and published in the Federal Register on August 2, 2016. This post endeavors to explain how employers and carriers ought to handle missing or incorrect TINs under these proposed rules.

Background

The ACA generally provides "applicable large employers" (i.e., employers with 50 or more full-time and full-time equivalent employees on business days during the previous year) the choice between offering group health plan coverage to substantially all full-time employees and paying an assessable payment to the government. These rules, which take the form of amendments to the Internal Revenue Code, are referred to generically as the ACA's employer shared responsibility rules. The ACA imposes information reporting requirements—using IRS Forms 1094-C and 1095-C—which provide the IRS with information necessary to enforce the employer shared responsibility requirements. (We provide a comprehensive explanation of the ACA employer shared responsibility rules and the reporting rules in prior posts.) Penalties are imposed for failure to timely file the required information returns, failure to timely furnish statements, failure to timely file a corrected information return, or failure to timely furnish a correct statement to an affected individual.

Under a separate set of rules, the ACA obligates providers of "minimum essential coverage" to report coverage information by filing an information return with the IRS, on Form 1094-B, and furnishing a statement to individuals, on Form 1095-B. "Minimum essential coverage" includes coverage under an employer-sponsored group health plan. In the case of a fully-insured plan, the carrier is usually the reporting entity; but in the case of a self-funded group health plan, the plan sponsor is typically the reporting entity. While these two sets of information reporting requirements are technically separate, they are commingled in the case of a self-funded plan, since the information ordinarily provided on Form 1095-B is instead reported in Part III of Form 1095-C. Whether reported on Form 1095-B or 1095-C, filers are required to report taxpayer identification numbers (TINs) for the covered employee and any other covered individuals (e.g., spouse and dependents). Thus, the proposed regulations apply only to Form 1095-B and Part III of Form 1095-C.

To facilitate information reporting under the employer shared responsibility rules, the IRS created a new electronic filing system, referred to as the AIR system. (We describe this system in a previous post.) The AIR system has not been without its challenges. One particularly common error code, AIRTN500, advises filers that an individual's name and taxpayer identification number (TIN) does not match the IRS's records. Maddeningly, the AIR system's error message merely advises that there is a problem with an employee TIN; it does not identify which employee or dependent TIN is causing the error message. (It will in most cases be a dependent TIN.)

Recognizing that the information reporting under the employer shared responsibility rules might pose a challenge, the Treasury Department and the IRS previously announced a good faith compliance standard for 2015. In addition, penalties for failing to timely file or correct information returns or for failing to furnish statements or corrected statement to individuals may be waived where "the failure is due to reasonable cause and not due to willful neglect." This requires the employer to demonstrate "that it acted in a responsible manner and that the failure is due to significant mitigating factors or events beyond the reporting entity's control."

The preamble to the proposed regulations explains the connection between acting in a responsible manner, on the one hand, and the need to properly solicit TINs on the other. Penalties can be waived where a reporting failure is due to reasonable cause and not due to willful neglect. To qualify for relief under this standard, a reporting entity must demonstrate that it "acted in a responsible manner and that the failure is due to significant mitigating factors or events beyond the reporting entity's control." A reporting entity is treated as acting in a responsible manner for this purpose if it complies with prior rules [§ 301.6724–1 of the Treasury Regulations] for handling missing and incorrect TINs.

But does the failure to promptly correct missing or incorrect TINs mean that an employer forfeits the right to the waiver of penalties? As we explain below, the answer is likely "no" provided the employer follows a prescribed TIN solicitation process. Also, does the receipt of an AIRTN500 notice itself trigger the obligation to file a corrected form and issue a corrected statement? Again, and as we also explain below, the answer is (or at least appears to be) no.

The TIN Solicitation Process

The prior law penalty waiver rules referred to above were adopted before the ACA, and they were intended principally for financial institutions. Under these rules, a reporting entity is deemed to act in a responsible manner in soliciting a TIN if the reporting entity makes (1) an initial solicitation when an account is opened or a relationship is established, (2) a first annual solicitation by December 31 of the year the account is opened (or January 31 if the account is opened in December), and (3) a second annual solicitation by December 31 of the following year. Thus, this regulation does not fit neatly into the group health plan context: one opens a brokerage or bank account; one enrolls in a group health plan. Notice 2015–68 addresses this disconnect. It provides that, pending the issuance of additional guidance, reporting entities will not be subject to penalties for failure to report a TIN if:

  1. The initial solicitation is made at an individual's first enrollment or, if already enrolled on September 17, 2015, the next open season;
  2. The second solicitation (the first annual solicitation) is made at a reasonable time thereafter; and
  3. The third solicitation (the second annual solicitation) is made by December 31 of the year following the initial solicitation.

As a consequence, carriers and self-funded plans may satisfy the requirement for the initial solicitation by requesting enrollees' TINs as part of the application for coverage.

The Proposed Regulations

The proposed regulations retain the approach taken by Notice 2015-68 with some important changes and some useful transition relief. The regulation also complicates matters by distinguishing between and providing different rules for, missing vs. incorrect TINs.

The initial solicitation

The proposed regulations follow Notice 2015-68 by treating an account as opened "at the time the reporting entity receives a substantially complete application for coverage (including an application to add an individual to existing coverage) from or on behalf of an individual for whom the reporting entity does not already provide coverage." An employer or carrier satisfies the initial solicitation requirement with respect to already enrolled individuals if TINs were requested at any time before July 29, 2016. According to the preamble to the proposed regulation, an employer of carrier that failed to make an initial solicitation before July 29, 2016 should make the solicitation within a reasonable time of July 29, 2016. In addition, and consistent with Notice 2015-68, a filer is deemed to have satisfied the initial, first annual, and second annual solicitations for an individual whose coverage was terminated before September 17, 2015.

First annual solicitation

Under existing rules, the first annual solicitation must be made by December 31 of the year the account is opened (or January 31 if the account is opened in December). The proposed regulation modifies this rule in the case of missing, but not for incorrect, TINs.

  • A TIN is "missing" if the employer or carrier fails to obtain a TIN for a covered individual. In the case of missing TINs, the first annual solicitation must be made on or before the seventy-fifth day after the original receipt of the application for coverage (or, in the case of retroactive coverage, the seventy-fifth day after the determination of retroactive coverage is made). The period from the date on which the reporting entity receives an application for coverage to the last day on which the first annual solicitation may be made is the "first annual solicitation" period. For 2016, the initial solicitation was required to the made by July 29, which means that the first annual solicitation should be made by October 12, 2016.
  • To ensure that reporting entities that make the initial solicitation and first annual solicitation are eligible for relief in the correct period, the proposed regulations make a further modification. The initial and first annual solicitations relate to failures for the year that includes the day that is the first effective date of coverage for a covered individual. The preamble to the propose regulation helpfully points out that, the existing rule if not modifies "could provide relief for the wrong year when combined with the proposed definition of account opening under section 6055." For example, if the initial solicitation and the first annual solicitation, which is 75 days later, both occurred in year one, there would be no relief in year two. This special rule is not necessary nor is it provided in the case or incurred TINs.
  • A TIN is "incorrect" where the IRS notifies employer of an incorrect TIN through a Form 972-CG or a Form 1095 filing AIRTN500 error message (indicating that a TIN and name provided on the return do not match IRS records). In the case of an incorrect TIN, the existing rule is unchanged. The first annual solicitation must be made on or before December 31 of the year in which the employer was notified of the incorrect TIN unless the employer was notified of the incorrect TIN in December in which case the employer's solicitation must be made by January 31 of the following year.

Second annual solicitation

In the case of a missing TIN, the second annual solicitation must be made by December 31 of the year following the year of the initial solicitation TIN. (This result is mandated under the prior law rules [Treas. Reg. § 301.6724–1(f)]). In addition, the special timing rule described above to ensure that relief is provided in the proper year applies as well to the second annual solicitation. The rules for the second annual solicitation for an incorrect TIN remain unchanged. The second annual solicitation must be made by December 31 of the year following the year of the initial solicitation.

AIR System Messages

A footnote in the preamble appears to address the question of whether the receipt of an error message triggers the obligation to file a corrected reporting forms and issue corrected statements. It reads:

A filer of the information return required under § 1.6055–1 may receive an error message from the IRS indicating that a TIN and name provided on the return do not match IRS records. An error message is neither a Notice 972CG, Notice of Proposed Civil Penalty, nor a requirement that the filer must solicit a TIN in response to the error message.

There is some disagreement among the commentators as to what this footnote means, exactly. The problem is that the 2015 Instructions for Forms 1094-C and 1095-C appear to support the categorical position that the employer is not required to file a corrected return. Our sense is that this statement is incomplete. That is, the employer must still comply with separate rules governing missing or incorrect TINs. (For a thoughtful discussion of this footnote, the statement in the Instructions, and other guidance, please see, R. Moulder, Proposed Regulations Clarify TIN Responsibilities and Create New Important Questions available here.) So what steps must an employer or carrier take when confronted with an AIRTN500 error message? It strikes us that there is no requirement to add an additional solicitation or immediately file a correct form, but there is a requirement to follow the process laid out in the proposed regulations (or the process laid out in Notice 2015-86) for missing and incorrect TINs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alden J. Bianchi
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions