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February 2016

Affordable Care Act Documentation

This is the first year nearly all taxpayers will receive forms to report continuous minimal essential health coverage on their individual returns. The IRS created Forms 1095-A, 1095-B and 1095-C for insurance providers, employers and taxpayers to meet the Affordable Care Act (ACA) filing obligations. Generally, Form 1095-A is filed by the marketplace, while 1095-B is filed by other insurers and 1095-C by certain employers. The forms include the type and period of coverage, dependent coverage, etc.

It is important for tax preparers to verify that their clients are in compliance. This is easily accomplished if the client includes the appropriate Form 1095 with the preparation materials. However, the IRS has extended the due date until Mar. 31, 2016, for insurers and companies to issue Forms 1095-B and 1095-C to individuals. Recognizing a potential “pile up” problem, the IRS provided Fact Sheet FS-2016-10 with the following:

  • Some taxpayers may not receive a Form 1095-B or 1095-C by the time they are ready to file their 2015 tax return. It’s not necessary to wait for these forms in order to file. Taxpayers may instead rely on other information about their health coverage and employer offer to prepare their returns.
  • These new forms should not be attached to the income tax return.

The ACA box on the 1040 return can be checked to indicate that medical coverage was adequate based upon the client’s representation. However, it would be prudent to have the client sign a statement to that effect for the preparer’s files. A taxpayer’s failure to meet health care reform standards is subject to substantial penalties, unless they are eligible for certain hardship exceptions or short-coverage gap exemption.

https://www.irs.gov/uac/Newsroom/Affordable-Care-Act:-Tax-Facts-for-Individuals-and-Families

https://www.irs.gov/uac/Recent-Development-2015-12-29-2015-Forms-1095B-1094B-1095C-and-1094C

 


Major Changes are in Store for the Partnership Audit Rules

By Jason B. Freeman, JD, CPA

The partnership audit rules are in for a major overhaul. The recently-enacted Bipartisan Budget Act of 2015 (BBA) is replacing the existing partnership audit framework with a new regime. The new rules, however, are not immediately mandatory—they will generally apply “to returns filed for partnership taxable years beginning after Dec. 31, 2017.” So, for many partnerships, now is the time to review their current agreements and to plan for (or around) the new rules.

While the new legislation affects partnerships generally, it is particularly aimed at addressing the IRS’ struggles to audit large partnerships. Large partnerships (that is, partnerships with 100 or more partners and $100 million or more in assets) have proliferated in recent years, and they have become an increasingly important structure in our economy. However, perhaps surprisingly, they are rarely audited. There are a number of reasons for this, but not least among those reasons is the difficulty presented by the current partnership audit rules. 

The current partnership audit framework was largely enacted as part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Under TEFRA, the IRS generally audits a partnership at the entity level, and then (if the audit results in adjustments) the IRS makes “flow through” assessments to each partner. This procedure, however, has proven extremely difficult and resource-intensive—particularly when it comes to large partnerships with many partners. 

The BBA, in an effort to address this challenge, takes a different approach. It generally allows the IRS to directly assess the partnership itself, rather than requiring “flow through” assessments to its partners. That is, the BBA generally allows the IRS to impose entity-level liability where an audit results in adjustments. This entity-level liability is imposed in the year of the adjustment. This represents a major change, and in some cases, this procedure could prove quite inequitable. For instance, if the partnership’s partners have changed (as will often be the case), the new partners may ultimately bear the economic burden of the assessment, even though the old partners may have enjoyed the economic benefit of the partnership’s prior tax treatment.

As this demonstrates, the BBA will dramatically change the nature of many partnership audits in the future. There will be many other changes too, including changes to the “tax matters partner” concept, the ability to “opt-out” of the partnership procedures, and the governing statute of limitations. While the act’s overall impact remains to be seen, practitioners can certainly expect to see an uptick in the audit rate for large partnerships, along with a host of procedural changes.

To read the BBA language, please click here


Delayed Implementation of Estate Basis Reporting

The IRS has further delayed from Feb. 29, 2016 to Mar. 31, 2016, the due date for filing or furnishing statements that an executor must provide under Internal Revenue Code Section 6035 to the IRS and specified beneficiaries (see Notice 2016-19). The new basis reporting rules under Section 6035 require executors who must file a return under Section 6018(a) and (b) to provide to the beneficiaries and the IRS a statement of the property’s value within 30 days after the return’s due date or filing date. Notice 2016-19 further recommends that executors and other persons who are required to file an estate tax return wait to prepare the statements required under Section 6035 until the Treasury Department and IRS issue further guidance.

On Dec. 15, 2015, the TSCPA Federal Tax Policy Committee issued comments to the IRS on the consistency provisions for reporting values of assets received from a decedent. The committee agrees with the objective of consistent reporting. However, it believes additional guidance should be issued allowing extension relief, simplified reporting procedures, and automatic reasonable cause penalty relief for complex estate scenarios, where appropriate.

Notice 2016-19 will be published in IRB 2016-09, dated Feb. 29, 2016.

The Federal Tax Policy Committee’s prior comments are available for review at https://www.tscpa.org/eweb/pdf/ResourceCenter/2015/LtrEstateBasisReporting.pdf.


Transitional Section 4980D Penalty Relief for Higher Education Institutions, but Not for Small Businesses

In Notice 2016-17, the IRS has provided transitional relief for colleges and universities offering student health coverage arrangements that do not meet ACA market reform requirements. These qualifying arrangements will not be subject to the Code Section 4980D excise tax of $100 per day per applicable individual. The relief applies to plan years beginning before Jan. 1, 2017. However, the IRS has not issued any additional relief for small businesses with similar penalty concerns. 

https://www.irs.gov/pub/irs-drop/n-16-17.pdf