IRS won’t withhold tax refunds if Americans ignore ACA insurance requirement

[Abby Normal]

https://www.washingtonpost.com/national/health-science/trump-health-officials-propose-rule-to-shore-up-affordable-care-act-marketplaces/2017/02/15/1f69bd7c-f307-11e6-b9c9-e83fce42fb61_story.html

[Abby Normal]

I wonder what they'd do with an amended return that removes the penalty?

[RitaB]

20 hours ago, Abby Normal said:

I wonder what they'd do with an amended return that removes the penalty?

I have a feeling they would send a wet noodle thru the mail, maybe one to us and one to the taxpayer, and say, "Hit yourself with this, we're not refunding a tax that you owed and paid.  Sorry that your neighbor got out of it.  Don't be hatin."

[BulldogTom]

What are you all going to do when a client comes in and says they heard this on the news and they are not going to pay the penalty?  We discussed it at my office (OK, wife and I discussed) and we decided that the law is still the law and until the penalty tax is removed from the tax code, we are going to file the return according to the tax code.  If they want to walk to a big box that is up to them. 

I hate losing clients, but this crap just doesn't feel right to me.  I just can't stomach the whole mess this thing has become.

Tom
Newark, CA

[jklcpa]

I agree with Tom and I'm not going to tell anyone not to pay that penalty based on a couple of newspaper articles without seeing an official pronouncement from the IRS. All the change means so far is that the return won't reject.

For now I'm going by the page below that the IRS updated on Wed 2/15 that was posted here in another topic:
https://www.irs.gov/tax-professionals/aca-information-center-for-tax-professionals

For those that don't click links:

Quote

 

ACA Executive Order and Current Tax Filing Season

The IRS is currently reviewing the Jan. 20, 2017, executive order to determine the implications. Taxpayers should continue to file their tax returns as they normally would.

The instruction for individual taxpayers involving the Affordable Care Act has been to indicate on their Form 1040 filing whether they had health insurance, an exemption from coverage or made a shared responsibility payment. In recent years, tax returns silent in that regard were still processed.  This year, the IRS put in place system changes that would reject tax returns during processing in instances where the taxpayer didn’t provide that information.

The recent executive order directed federal agencies to exercise authority and discretion available to them to reduce potential burden.‎ Consistent with that, the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn’t indicate their coverage status.

However, legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe‎.

Processing silent returns means that taxpayer returns are not systemically rejected by the IRS at the time of filing, allowing the returns to be processed and minimizing burden on taxpayers, including those expecting a refund. When the IRS has questions about a tax return, taxpayers may receive follow-up questions and correspondence at a future date, after the filing process is completed‎. This is similar to how we handled this in previous years, and this reflects the normal IRS post-filing compliance procedures that we follow.

 

 

[SaraEA]

I too will follow the Code that is in effect when I prepare the return.  "Normal IRS post-filing compliance" just means IRS letters that we will have to answer.  When this mess is settled, I have to hope it will be retroactive and those who followed the law and paid the penalty will be refunded (if that's the outcome).

The executive order that two regulations must be removed for every one implemented is creating a stir in the tax universe.  Does this apply to the IRS?  As we all know, IRS regs tend to be explanatory, showing how the code is to be applied in the real world.  Remember last year when the ACA regs weren't released until March?  Regardless of how many courses we took and how much studying we all did, it was still confusing until those regs came out.  I know when I'm faced with a perplexing mess, I turn to the regs instead of the code because they are written in plain English and give great examples that often contain one that applies to my exact problem.

A Treasury Secretary has finally been confirmed, so after he learns about the purpose of IRS regs hopefully he'll get the president to confirm that his order doesn't apply to the agency, or at least to the type of regs it typically issues.

[Lee B]

From today's IRS enews:

 

 

3.  ACA Silent Returns and the Current Tax Filing Season

---

A recent executive order directed federal agencies to exercise authority and discretion available to them to reduce potential burden regarding the Affordable Care Act.‎ Consistent with that, the IRS has decided to make changes that will continue to allow electronic and paper 1040 returns to be accepted for processing in instances where a taxpayer doesn’t indicate their health insurance coverage status. However, legislative provisions of the ACA law are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they may owe‎. Keep up-to-date on the latest ACA news by visiting our ACA Information Center for Tax Professionals pag

[TAXMAN]

What I noticed was the software. The checking and the efile for that line 61 box was there one day, the next day it was gone and the next day it was back. I wonder what the software providers know that we don't?

[North Idaho Rich]

What I noticed is that the reject is now only a warning about not indicating coverage or non-coverage.

So if you really meant to check the box and didn't, and missed the warning it would still go through.

[Lee B]

1 hour ago, TAXMAN said:

What I noticed was the software. The checking and the efile for that line 61 box was there one day, the next day it was gone and the next day it was back. I wonder what the software providers know that we don't?

ATX announced the change late Wednesday or early Thursday on their Blog and on the ATX Board.

[DANRVAN]

16 hours ago, SaraEA said:

I too will follow the Code that is in effect when I prepare the return.  "Normal IRS post-filing compliance" just means IRS letters that we will have to answer.  When this mess is settled, I have to hope it will be retroactive and those who followed the law and paid the penalty will be refunded (if that's the outcome).

The executive order that two regulations must be removed for every one implemented is creating a stir in the tax universe.  Does this apply to the IRS?  As we all know, IRS regs tend to be explanatory, showing how the code is to be applied in the real world.  Remember last year when the ACA regs weren't released until March?  Regardless of how many courses we took and how much studying we all did, it was still confusing until those regs came out.  I know when I'm faced with a perplexing mess, I turn to the regs instead of the code because they are written in plain English and give great examples that often contain one that applies to my exact problem.

A Treasury Secretary has finally been confirmed, so after he learns about the purpose of IRS regs hopefully he'll get the president to confirm that his order doesn't apply to the agency, or at least to the type of regs it typically issues.

I received quite a bit of information on this topic during the week including observations by CHECKPOINT.

At this point, it sounds like IRS  will accept and process refunds if box is left blank.  However, taxpayer might later receive a letter inquiring whether they had HCC. At that point IRS  might attempt collection. It was noted that IRS will have limited tools to collect other than offset  of refunds.

IRS has also stated no knew regs will be issued until the new Treas. Sec. takes over.

My position is to keep the client informed and involved in the decision to check the box or not. Written communication will be kept on file. I need to cover my tail, but at the same time client has the right to be informed of the situation and possible outcomes. My advice will be to hold off on filing for another 30 days and see what happens.

[JohnH]

53 minutes ago, DANRVAN said:

My position is to keep the client informed and involved in the decision to check the box or not. Written communication will be kept on file. I need to cover my tail, but at the same time client has the right to be informed of the situation and possible outcomes. My advice will be to hold off on filing for another 30 days and see what happens.

Smart move.

[Chowdahead]

On 2/17/2017 at 6:28 PM, BulldogTom said:

What are you all going to do when a client comes in and says they heard this on the news and they are not going to pay the penalty?  We discussed it at my office (OK, wife and I discussed) and we decided that the law is still the law and until the penalty tax is removed from the tax code, we are going to file the return according to the tax code.  If they want to walk to a big box that is up to them. 

I hate losing clients, but this crap just doesn't feel right to me.  I just can't stomach the whole mess this thing has become.

Tom
Newark, CA

So the IRS isn't asking.  The software companies aren't asking.  And TurboTax will update their software Mar. 1 to not even ask users  the question.  But you will continue to ask or require them to answer Yes or pay the penalty?  Perhaps they should choose whether the box should be checked. 

I think many people may need that extra $695 or $1390 dollars in their pocket now rather than have to file an amended return in a year to get it back.

[BulldogTom]

12 hours ago, Chowdahead said:

So the IRS isn't asking.  The software companies aren't asking.  And TurboTax will update their software Mar. 1 to not even ask users  the question.  But you will continue to ask or require them to answer Yes or pay the penalty?  Perhaps they should choose whether the box should be checked. 

I think many people may need that extra $695 or $1390 dollars in their pocket now rather than have to file an amended return in a year to get it back.

It is still in the tax code.  Are you going to risk your license?

To each their own, but until the Treasury writes new regulations, I will ask the appropriate questions and make relevant inquiries of my clients for the positions they take on the tax return.  Including the penalty tax related to the ACA.  I will not sign my name to a tax return that I know to include false information. 

Tom
Newark, CA

[Pacun]

A CPA was on the radio today saying that there is no penalty and that the software was not updated but he knew how to make people "NOT" pay the penalty. I guess it is a good business move on his part, he will send the box unchecked and when the letter from the IRS arrive to his clients, he will charge them to answer those letters or to amend.

I am with Bulldog Tom, I will check the box and I will ask clients if they had health insurance. Most of my clients have it so I will check the box. When a penalty needs to be paid, I will ask the people if they want to pay the penalty or if they want to receive a letter from the IRS and deal with it later. Why will I create extra burden on the IRS by not checking the box if I know my client and everybody on the return had health insurance? Why will I leave the box unchecked and have my client receive a letter from the IRS when I settle it with a check mark at the time of creating the efile file? I will waste more time reading the yellow alert than checking the box.

This is the proof I commonly get when getting EIC or CTC:

School records
Vaccination records
Insurance records or cards

So I am getting insurance records or cards already why not send a complete return which will stand no matter where ACA goes?

[JohnH]

What if you find out later that not checking the box would not have generated a letter or a penalty?  How would you explain that to the client when he talks to his co-workers who did not pay the penalty that you unilaterally decided to have him pay?  This could be detrimental to a client relationship unless you give the client all his options and let him make the call on whether to extend or file now.  There's no way I'd make the decision for a client in this uncharted water.

[Pacun]

I said, I will check the box for the people who had insurance all year. That's a no brainer since no matter where ACA goes, that's correct and nothing will change.

[JohnH]

Oh, I scanned when I should have read.  Sorry.

[Pacun]

To lessen the potential for post-filing-season problems for practitioners, Whitlock recommends they have the taxpayer sign the following disclosure if they decide not to check Box 61 on the return:

“In the course of the preparation of my 2016 U.S. Federal Income Tax Return, I have voluntarily chosen not to report whether there are individuals on this return for which the Individual Shared Responsibility Payment (Penalty for Not Having Health Insurance) would apply or that no one on this return had Health Insurance for which the penalty may apply.

“I understand that I may receive a communication from the Internal Revenue Service, experience delayed refunds, and face subsequent collection activity to recoup this payment.

“Although my return preparer has thoroughly explained the issue to me, I have made the decision not to complete Line 61 on the tax form and have so instructed my return preparer.

“I further understand that should I request my preparer’s additional assistance in this matter the fee paid for the preparation of the return does not include representing me in this matter should the need arise. Should I engage my preparer to represent me in the matter, I understand an additional fee will be required and determined at that time.”

 

[Lynn EA USTCP in Louisiana]

2 hours ago, Pacun said:

To lessen the potential for post-filing-season problems for practitioners, Whitlock recommends they have the taxpayer sign the following disclosure if they decide not to check Box 61 on the return:

“In the course of the preparation of my 2016 U.S. Federal Income Tax Return, I have voluntarily chosen not to report whether there are individuals on this return for which the Individual Shared Responsibility Payment (Penalty for Not Having Health Insurance) would apply or that no one on this return had Health Insurance for which the penalty may apply.

“I understand that I may receive a communication from the Internal Revenue Service, experience delayed refunds, and face subsequent collection activity to recoup this payment.

“Although my return preparer has thoroughly explained the issue to me, I have made the decision not to complete Line 61 on the tax form and have so instructed my return preparer.

“I further understand that should I request my preparer’s additional assistance in this matter the fee paid for the preparation of the return does not include representing me in this matter should the need arise. Should I engage my preparer to represent me in the matter, I understand an additional fee will be required and determined at that time.”

 

Not going to happen in my practice.  My client's tax returns will be prepared according to current law, which was not changed by the EO.

All due respect to Beanna Whitlock, but she's come up with some other ideas which OPR stated were unconscionable.

 

[Jack from Ohio]

40 minutes ago, lynn EA in Louisiana said:

Not going to happen in my practice.  My client's tax returns will be prepared according to current law, which was not changed by the EO.

All due respect to Beanna Whitlock, but she's come up with some other ideas which OPR stated were unconscionable.

 

DITTO

[RitaB]

2 hours ago, lynn EA in Louisiana said:

Not going to happen in my practice.  My client's tax returns will be prepared according to current law, which was not changed by the EO.

All due respect to Beanna Whitlock, but she's come up with some other ideas which OPR stated were unconscionable.

 

 

1 hour ago, Jack from Ohio said:

DITTO

 

I have been figuring the SRP, business as usual, but have two that TOLD ME they wanted to wait and see.  Ok, great. 

Now I have another person with the SRP and very upset about it.  He didn't know he'd get a penalty and didn't know to try to get a subsidy, even though he's 38 and lives with mom and dad who DO get the subsidy.  They're retired and he's underemployed.  Exactly who we like to subsidize.  /s   He also got EIC. 

I gave you that background because I'm pretty fed up with how this has all panned out.  Plus, he bitched about my $125 fee.

My question is, do I have an obligation to tell him he can ignore Line 61?  I won't do the return that way for him, but should I tell him?

[Pacun]

Yes, you have the obligation to tell him. There is no way that the penalty will be forgiven, especially when many young people got insurance just to comply with the law.

If he qualified for EIC, wasn't his insurance unaffordable? Check that route.

 

[Jack from Ohio]

1 hour ago, RitaB said:

 

 

I have been figuring the SRP, business as usual, but have two that TOLD ME they wanted to wait and see.  Ok, great. 

Now I have another person with the SRP and very upset about it.  He didn't know he'd get a penalty and didn't know to try to get a subsidy, even though he's 38 and lives with mom and dad who DO get the subsidy.  They're retired and he's underemployed.  Exactly who we like to subsidize.  /s   He also got EIC. 

I gave you that background because I'm pretty fed up with how this has all panned out.  Plus, he bitched about my $125 fee.

My question is, do I have an obligation to tell him he can ignore Line 61?  I won't do the return that way for him, but should I tell him?

Do not tell him he can ignore line 61 or fail to include Form 8965.  The current law says he must pay penalty.  If he doesn't like it... "Call your Congressman."

[JohnH]

Rita, I think you have an ethical obligation to give him his options, the best of which is to file an extension and see what happens.  If he insists on filing now, and he insists on filing a silent return, you can tell him you won't do that and he will have to go elsewhere.  One thing which is lost in this conversation is the fact that our clients trust us to give them all the information available, and that includes information which may be inconvenient to us. If all the taxpayer wants is to have all the lines filled in, he can get that done with Turbo Tax at a fraction of what he pays us.

But I could be wrong....