Updated IRS Guidance on ACA Reporting: Draft 2015 Forms and Instructions Released by IRS

The IRS recently issued draft 2015 Forms 1094-B, 1095-B1094-C, and 1095-C. Along with these forms, the IRS issued draft 2015 instructions for completing these forms (which can be accessed here and here). Smith Haughey also previously issued a client alert on the 2014 final forms, which can be found here. The draft instructions and forms are similar to the final 2014 forms and instructions, with some important updates and clarifications. The focus of this client alert is to highlight important updates made to the 2015 1094-C and 1095-C forms and instructions, with a focus on applicable large employers or “ALEs” (i.e. an employer with 50 or more full-time employees, including full-time equivalent employees, in the previous year). Although these are draft instructions and forms, employers will need to immediately review these draft instructions to make sure systems and procedures are in place to account for these changes. 

As noted in our previous client alert, the 1094-B, 1095-B, 1094-C and 1095-C forms have been developed to report the pertinent information required under Code Sections 6055 and 6056. Section 6055 reporting requires that every provider of minimum essential coverage (e.g. coverage under an employer-sponsored plan) report coverage information to the IRS and individuals for purposes of administering the individual mandate under Code Section 5000A.
Section 6056 reporting requires an ALE to file information returns with the IRS and provide statements to full-time employees about health insurance coverage offered to the employee (if any) for purposes of administering the employer mandate provisions under Code Section 4980H and for determining whether an employee is eligible for the premium tax credit under Code Section 36B.
The 1094-B and 1095-B report 6055 information and the 1094-C and 1095-C report 6056 information. For ALE members that sponsor self-insured plans, the 1095-C permits the combined reporting of 6056 (Part II of the 1095-C) and 6055 information (Part III of the 1095-C) on one single form. If the ALE sponsors fully-insured coverage, the ALE will only complete Parts I and II of the 1095-C, and the insurance carrier will prepare the 1094-B and 1095-B to report the 6055 information.
Alternative reporting
If an ALE decides not to use the Forms 1094-C and 1095-C, the IRS is developing Publication 5223 (General Rules and Specifications for Substitute Affordable Care Act Forms 1094-B, 1095-B, 1094-C and 1095-C and Certain Other Information) which can be found in draft form here. This Publication explains the requirements for format and content for substitute forms that an ALE might want to develop to comply with this information reporting. These alternative forms can be designed by the ALE or purchased through a private printer. However, only forms that conform to the official form and specifications in Publication 5223 are acceptable for filing with the IRS.
Extensions and Waivers for Filing with IRS and Recipients
Automatic 30-day extension for filing with IRS
The 2015 draft instructions provide that an employer can receive an automatic 30-day extension of time to file the forms with the IRS by completing a Form 8809 (Application for Extension of Time to File Information Returns). The form may be submitted on paper or through the FIRE System; either as a fill-in form or an electronic file and no signature or explanation is required for the extension. The request for extension must be filed by the due date of the returns (February 28 if by mail (February 29, 2016 for 2015 returns) or March 31 if filing electronically). The instructions indicate that an employer can apply for an additional 30-day extension if certain hardship conditions exist.
Extension of time to furnish statement to recipients (maximum 30 days)
An employer may request an extension of time to furnish statements to recipients by sending a letter to the IRS that includes: (a) the filer’s name; (b) filer TIN; (c) filer address; (d) type of return; (e) a statement that the extension request is for providing statements to recipients; (f) reason for the delay; and (g) the signature of the filer or authorized agent. The request must be postmarked by the date on which the statements are due to the recipients. If the request is approved, generally an employer will be granted a maximum of 30 extra days to furnish the recipient statements.
Waiver from required electronic filing
If an employer that is otherwise required to file its returns electronically (i.e. required to file 250 or more of that type of information return), it can request a waiver to file electronically by filing a Form 8508 (Request for Waiver From Filing Information Returns Electronically) at least 45 days before the due date of the return. Employers can only file a waiver from electronic filing for one tax year at a time. There are additional requirements for waivers from electronic filing with respect to filing corrected returns. If the employer is required to file electronically but fails to do so and does not have an approved waiver, the employer may be subject to a penalty of up to $250 per return for failure to file electronically unless the employer can establish reasonable cause. This penalty would not be imposed on the first 250 returns and applies separately to original returns and corrected returns.
Corrected Returns on Paper Forms
The 2014 instructions reserved the corrected returns portion of the instructions. In the draft 2015 instructions, the IRS has provided detail on how an employer corrects these information returns on paper. For filing corrections electronically, the instructions point filers to section 7.1 of the draft Publication 5165.
Corrected 1094-C
If correcting information on the Authoritative Transmittal 1094-C, file a standalone completed Form 1094-C including the correct information and enter “X” in the CORRECTED checkbox. The draft instructions indicate that an employer cannot file a return correcting information on a 1094-C that is not the Authoritative Transmittal. Additionally, no other documents (e.g. Form 1095-C) should be filed with the corrected Authoritative Transmittal 1094-C.
Corrected 1095-C 
If correcting information on a Form 1095-C that was previously filed the draft instructions indicate that an employer must file a fully completed Form 1095-C, including the correct information and enter an “X” in the CORRECTED checkbox. File a Form 1094-C Transmittal (Do not mark the CORRECTED checkbox on the Form 1094-C) with corrected Form(s) 1095-C.  Furnish the employee with a copy of the corrected Form 1095-C. If the employer is correcting a Form 1095-C that was previously furnished to a recipient but not yet filed with the IRS, write CORRECTED on the new Form 1095-C and furnish to the recipient.
The draft instructions provide additional detail on correcting information statements that are furnished to employees using an alternative furnishing method – i.e. the employer is eligible to use the Qualifying Offer Method or Qualifying Offer Method Transition Relief for 2015.
Reporting multiemployer plan information on the 1095-C
Recognizing the issues that employers and multiemployer plans face for line 14 reporting on the 1095-Cs, the IRS has provided a way for contributing employers to report for line 14 without requiring multiemployer plans to share enrollment and disenrollment information. The draft instructions provide that, for reporting offers of coverage for 2015, a contributing employer to a multiemployer plan, relying on the multiemployer plan interim guidance, should enter code 1H (no offer of coverage) on line 14 for any month for which the employer enters code 2E on line 16 (indicating that the employer was required to contribute to a multiemployer plan on behalf of the employee for that month and therefore is eligible for multiemployer interim relief). For 2015, the contributing employer can enter Code 1H without regard to whether the employee was eligible to enroll in the coverage under the multiemployer plan.
COBRA reporting
The 2015 draft instructions clarify that an offer of COBRA continuation coverage that is made to a former employee upon termination of employment is reported as an offer of coverage using the appropriate indicator code on line 14 only if the former employee enrolls in the coverage. If the former employee does not enroll in the coverage (even if a spouse or dependent of the former employee independently enrolls in the coverage), code 1H (no offer of coverage) should be entered for any month for which the offer of COBRA continuation coverage applies. If COBRA coverage is offered to an active employee (e.g. where the employee’s hours are reduced resulting in a loss of eligibility for coverage), the offer is reported the same as an offer of coverage to any other active employee. The IRS updated its 1094-C and 1095-C Questions and Answers page to provide additional clarifications surrounding COBRA reporting, which can be accessed here.
Clarification regarding breaks in service
The draft instructions for the 1094-C and 1095-C include helpful clarification surrounding how to report breaks in service. The draft instructions highlight the Code Section 4980H regulations and how it treats certain breaks in service – i.e. whether the employer must treat an employee on rehire as an ongoing employee or a new hire for purposes of certain requirements under the Code Section 4980H regulations. Unlike the Section 4980H regulations, the draft instructions clarify that such rules do not impact whether an individual was an employee during the break in service, so the employee should only be treated as an employee for reporting purposes if the individual remains an employee during that period (and had not terminated employment).
Determining employee’s share of the monthly premium cost for line 15 on the 1095-C
The draft instructions provide that, for purposes of determining the amount of the employee share of the lowest-cost monthly premium for self-only coverage for line 15 purposes, an employer may divide the total employee share of the premium for the plan year by the number of months in the plan year to determine the monthly employee contribution for the plan year. This monthly employee contribution would then be reported for any months of that plan year that fall in the 2015 calendar year. For example, if the plan year begins April 1, the employee may determine the amount to report for January through March 2015 by taking the total annual employee contribution for the plan year ending March 31, 2015 and dividing by 12; and may determine the amount to report for April through December 2015 by taking the total annual employee contribution for the plan year ending March 31, 2016 and dividing by 12.
“Plan Start Month” Indicator
The draft Form 1095-C is revised to include a new “plan start month” indicator where the employer will enter a two-digit number (01 through 12) indicating the calendar month during which the plan year begins for the health plan in which the employee is offered coverage (or would be offered coverage if the employee were eligible to participate in the plan). This plan start month indicator is optional for the 2015 forms but will likely be mandatory for 2016 and future reporting forms.
Reporting affordability
For purposes of the affordability safe harbors under Code Section 4980H, the draft instructions indicate that references to 9.5% in the affordability safe harbors and alternative reporting methods may be changed if future IRS guidance provides that the percentage is indexed in the same way that the 9.5% is indexed for purposes of applying the affordability requirements under Code Section 36B. The instructions indicate that this should not affect 2015 reporting.
Increased Penalties for Failure to Report
The draft instructions also detail the information reporting penalties under Code Sections 6721 and 6722 and the potential relief from these penalties under Code Section 6724. Code Section 6721 includes penalties for failure to file information returns timely, failure to include all the required information, or provide incorrect information on the information return. Code Section 6722 includes penalties for failure to timely furnish information returns to an affected employee, failure to include all the required information, or include incorrect information on the information returns.
The penalties under Code Sections 6721 and 6722 were recently increased in connection with the Trade Preferences Extension Act of 2015 and the 2015 draft instructions include these updated penalty amounts. Code Section 6721 and 6722 now each provide for penalties of $250 per return per day, with an annual cap of $3,000,000 for all failures under such provision during a calendar year. If there is intentional disregard of the requirements to furnish statements to an affected employee, there are special rules that increase the per-statement and total penalties.
For 2015 reporting, the IRS is providing relief from these reporting penalties for forms that are incorrect or incomplete, but the filer can show that it made a good faith effort to comply with the information reporting requirements. No relief is provided in the case where the filer cannot show a good faith effort to comply or fails to timely file an information statement or furnish to an affected employee. If the filing is filed late with the IRS or furnished late to the affected employee, the filer may still be eligible for penalty relief if the IRS determines that the standards for reasonable cause under Code Section 6724 are satisfied.
There is no question that these new reporting requirements are complicated and require significant work on behalf of employers and their partners to make sure that 6055 and 6056 reporting is done correctly. With the increase in the penalties under Code Sections 6721 and 6722, the stakes for completing this reporting correctly are now even higher. With the issuance of these draft 2015 instructions and forms, it is imperative that employers review these updated requirements and clarifications so that it can avoid or mitigate any potential penalties under Code Sections 6721 and 6722.
For more information on these new draft instructions and forms for 2015 reporting on the 1094-B, 1095-B, 1094-C and 1095-C, please contact Gabe Marinaro at (231) 486-4540 or gmarinaro@shrr.com.

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