Obamacare Penalties

[BLACK BART]

Anything new or any comments on this? I read somewhere (maybe here) that the rollback of the penalty is going to be retroactive, but haven't the foggiest if that's true at all.  We are still charging it pending a final say-so.  And I'm not discussing it with clients, at least for now; that would be an all-day conversation and I don't think the thing can be nailed down at the moment.  Questions arise over: charge it now/ don't charge it now/ amend later/ will amending BE possible/ if so, does client pay 1040X or we do it pro bono/  possible IRS billing later (more customer ill-will from paying cash later than deducting from a refund now). 

I checked last week with a big-box outfit; they're still charging it.  What's everybody else doing?

 

[Pacun]

I am telling people that they have to pay for the penalty.  If I have to amend, I will have to charge them. As you know you charge for 1040X based on how big the refund is.

[RitaB]

Still figuring the SRP.  Not discussing it if they don't bring it up.  Overwhelmingly they have not. 

[BHoffman]

The two clients I have who are subject to the mandate tax are not getting a refund, so I'm advising an extension.  The plan says the mandate will be repealed retroactively, effective 01/01/2016. 

[Lee B]

17 minutes ago, BHoffman said:

The two clients I have who are subject to the mandate tax are not getting a refund, so I'm advising an extension.  The plan says the mandate will be repealed retroactively, effective 01/01/2016. 

Interesting, since the proposed bill keeps the Net Investment Income Tax and the medicare surcharge in place thru 12/31/17.

[Lee B]

Hooray, it will also repeal the dreaded Tanning Salon Tax !

[jklcpa]

Keyword:  proposed

Until I know more, I'm still going to suggest an extension but let the client decide. I've only had one so far that owed the penalty and he was still getting a refund. That client chose to allow the penalty and receive the reduced amount. His penalty was prorated and was around $300.

 

[Jack from Ohio]

Until the Congress passes the law change, follow the law as it is written.  Simple.

[Terry D EA]

I am sticking with Judy and Jack and following the same procedures. Until we have a definitive directive or official guidance, I'm charging the penalty or filing the extension if the client chooses.

[GraceNY]

4 hours ago, Jack from Ohio said:

Until the Congress passes the law change, follow the law as it is written.  Simple.

I'm with Jack on this.  Read an article from NAPT.  And, I'll quote some of the relevant information:

"Section 5000A imposes a penalty on taxpayers who failed to maintain minimum essential coverage for him/herself and his/her spouse and dependents (household).  Section 5000A has not been repealed by the executive order."

"In addition, tax professionals are liable for the understatement of tax under §6694 based on an unreasonable position that is not based on tax law.  An unreasonable position exists if it is not based on substantial authority under Reg. § 1.6662-4(d).  The standard is based on objective analysis of law and application of law to the relevant facts.  Under Reg. §1.6662-4(d)(3), which gives greater weight to the code unless it is overruled by a body with the power to modify the authority relied upon, such as the IRS[Reg. §1.6662-4(d)(3)(ii)]."

"Under Circ. 230, Sec. 10.34, a practitioner may not willfully or recklessly sign a tax return that the practitioner knows contains a position that is not reasonable, as defined in §6694, which the regulations refer to §6662."

"A practitioner who calculates the penalty, but finds out later that the IRS issues further guidance that it will not enforce the penalty, can consider amending the tax return to remove the penalty based on further IRS guidance."

Grace

 

 

 

[Terry D EA]

Well put and enough said.

[JohnH]

My responsibility - give the client these options:

1) Extend and wait to see if anything changes by Oct 15

2) File with penalty calculated  (If the penalty is later removed, pay full price for an amended return)

3) Go somewhere else

 

Client's responsibility - Choose one and live with it.

[jklcpa]

9 hours ago, JohnH said:

My responsibility - give the client these options:

1) Extend and wait to see if anything changes by Oct 15

2) File with penalty calculated  (If the penalty is later removed, pay full price for an amended return)

3) Go somewhere else

 

Client's responsibility - Choose one and live with it.

 

If I wasn't clear, those were the choices I gave to my one client so far that had a penalty.  He chose to not extend.  

[RitaB]

21 hours ago, BLACK BART said:

...And I'm not discussing it with clients, at least for now; that would be an all-day conversation and I don't think the thing can be nailed down at the moment.  Questions arise over: charge it now/ don't charge it now/ amend later/ will amending BE possible/ if so, does client pay 1040X or we do it pro bono/  possible IRS billing later (more customer ill-will from paying cash later than deducting from a refund now)... 

I absolutely would rather amend pro bono than have the all day [or 47 minute] conversation where the end result is still, "I dunno."  About the same amount of work to just amend free gratis.  Plus I'm a hero!

I did have one lady that tried to school me on all of it, and I did remove her SRP.  I made it clear to her that she will handle any IRS correspondence regarding the issue pro se.

My biggest fear is the SRP will NOT be removed for 2016, and all the people who skipped out on it cause Lefty guessed correctly will get away with it.  And I look like I'm working for IRS because I prepared a complete and accurate return.   No good deed and all that.

[Jack from Ohio]

10 hours ago, JohnH said:

My responsibility - give the client these options:

1) Extend and wait to see if anything changes by Oct 15

2) File with penalty calculated  (If the penalty is later removed, pay full price for an amended return)

3) Go somewhere else

 

Client's responsibility - Choose one and live with it.

My list includes #2 & #3 ONLY.  

[JohnH]

If I were your client and I understood what you had done, it would definitely be #3.  It would cause me to question what other unilateral decisions you might be making in my behalf without giving me all the info I need to make my own formed decision.  But most clients won't know the difference, so as a practical matter my point is moot.  

[Lion EA]

I haven't had to get into it, so few marketplace clients, and all refunds, but something is in the back of my mind from the inception of Obamacare.  Does the IRS have the authority to collect the non-coverage penalty from the client OTHER than from reducing his refund?  Or, am I thinking about the APTC payback?  Or, just sleep deprived?  Seems like, if the client owes, we can prepare a complete and accurate return and he can choose NOT to pay the penalty portion of his balance due with no consequences to him.  And, we gave him full disclosure.  Is any of that true?  I do have a marketplace client coming in this month, but he was a refund last year and had all months in 2015 so hopefully was covered all of 2016.  And, I have a couple of clients who come in late each season who did change jobs and might have had a gap in coverage....

[BLACK BART]

21 hours ago, Lion EA said:

...something is in the back of my mind from the inception of Obamacare.  Does the IRS have the authority to collect the non-coverage penalty from the client OTHER than from reducing his refund?...Seems like, if the client owes...he can choose NOT to pay the penalty portion of his balance due with no consequences to him...

You're absolutely right! It just rang a bell in my head -- last season I filed three clients who were on Obamacare and had coverage gaps (no exceptions applied). They had said they were NOT on Obamacare and were covered all year by somebody.  I filed all three, no penalty, checked the coverage box.  Ordinarily IRS doesn't write about omissions for 1 1/2 years -- to my surprise all three got five-page IRS letters within TWO weeks demanding they fill out an 8962 and saying their refunds would be held until they complied.  I was astonished to receive an IRS response this quick.  Now, I think your idea is right - IRS wasn't taking any chances about getting their money.