In another attempt to ease the filing burden for taxpayers who received late or incorrect Forms 1095-A, Health Insurance Marketplace Statement, the IRS announced that it will provide penalty relief for taxpayers. The incorrect forms generally included the monthly premium amount of the second-lowest-cost Silver plan for 2015 instead of for 2014.
This relief is available for the Sec. 6651(a)(2) late payment penalty, the Sec. 6651(a)(3) penalty for failure to pay upon notice and demand, the Sec. 6654(a) penalty for underpayment of estimated tax, and the Sec. 6662 accuracy-related penalty (Notice 2015-30). It is in addition to the relief previously announced that taxpayers who already filed using the incorrect forms do not have to pay additional tax.
Taxpayers who do not pay tax due by April 15 usually owe a failure-to-pay penalty under Sec. 6651(a)(2), unless they are granted relief for reasonable cause. Sec. 6651(a)(3) imposes a penalty for failure to pay an amount of tax required to be shown on a return that is not shown on the return within 21 days from the date of notice and demand. The penalty is not imposed if the taxpayer shows that the failure to pay was due to reasonable cause and not willful neglect.
Taxpayers who find they underpaid their estimated tax may be subject to the Sec. 6654(a) penalty for failure to pay estimated tax. The IRS can waive this penalty in unusual circumstances to the extent its imposition would be against equity and good conscience.
Sec. 6662(a) imposes a penalty on any portion of an underpayment of tax required to be shown on a return that is attributable to one of the items listed in Sec. 6662(b), including, among others, underpayments attributable to any substantial understatement of income tax (accuracy-related penalty). However, the penalty is not imposed on any portion of an underpayment the taxpayer has shown was due to reasonable cause and not willful neglect.
Relief available
Taxpayers who received incorrect or late forms may find they cannot file an accurate return on time and may be unable to accurately estimate the amount of tax they owe when filing for an extension of time to file. Therefore, the IRS is offering relief, but to qualify for relief, taxpayers must either file by April 15, or file for an extension and file by Oct. 15, 2015.
For the 2014 tax year, the IRS will abate the Sec. 6651(a)(2) and Sec. 6651(a)(3) penalties and waive the Sec. 6654(a) penalty for taxpayers who received a delayed Form 1095-A or a Form 1095-A that the taxpayers believe to be incorrect, if the taxpayers timely file their 2014 federal income tax returns, including extensions.
In addition, the IRS will not impose the accuracy-related penalty on any portion of an underpayment resulting from the receipt of an incorrect or delayed Form 1095-A, but taxpayers may still be liable for the penalty for unrelated amounts. And there is no relief on any interest due on any underpayment.
Additionally, to be eligible for the premium tax credit, taxpayers must be enrolled in a qualifying health care plan. Some taxpayers who were not enrolled in a qualifying plan during 2014 erroneously received a Form 1095-A and may have used it to file their return. Taxpayers in this situation must amend their returns and pay any tax due as a result of that erroneous information by April 15, 2016, to be eligible for penalty relief under this notice.
How to request relief
The IRS automatically assesses the Secs. 6651(a)(2) and (a)(3) underpayment penalties. To request relief from those penalties, taxpayers should respond to those IRS letters by stating, “I am eligible for the relief granted under Notice 2015-30 because I received an incorrect or delayed Form 1095-A.”
To receive relief from the underpayment of estimated tax penalty, taxpayers should check box A to request a waiver in Part II of Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, complete page 1 of the form, and include it with their tax return, with the statement: “Received an incorrect or delayed Form 1095-A.” They do not have to provide any other documentation.
Finally, the IRS notes that it will not assess the accuracy-related penalty on taxpayers who are eligible for relief under this notice. But if taxpayers are mistakenly assessed the penalty on audit, they should notify the agent that they are eligible for relief, and, if they receive a notice imposing the penalty in error, they should respond with the language quoted above.
— Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.
