TEI urges changes to information reporting for large employers and insurers required by the Affordable Care Act.

• Position: Tax Executives Institute

November 13, 2013

On November 13,2013, Tax Executives Institute filed comments with the IRS and Treasury Department urging a number of changes to the proposed regulations under sections 6055 and 6056. The proposed rules implement the employer and insurer information reporting requirements under the Affordable Care Act and are critical in the administration of the individual and company shared responsibility payments.

TEI's comments were prepared under the aegis of its Federal Tax Committee's Employee Benefits and Payroll Taxes Subcommittee. The chair of TEI's Federal Tax Committee is Gary P. Hickman of Oldcastle Inc. The chair of the Employee Benefits and Payroll Taxes Subcommittee is David E. Sherwood of Microsoft Corporation. Contributing to the development of TEI's comments were Denise Bergevin of Blue Cross/Blue Shield of Minnesota; Robert J. Birch of Wellmark, Inc.; Curtis A. Rouse of John Deere Financial; and Stran T. Summers of Blue Cross & Blue Shield of North Carolina. Jeffery P. Rasmussen of TEI's legal staff coordinated the preparation of the comments.

On September 6, 2013, the Internal 'Revenue Service (IRS) and Treasury Department released two sets of proposed regulations in respect of information reporting requirements under sections 6055 (1) and 6056 (2) of the Internal Revenue Code as enacted by the Patient Protection and Affordable Care Act of 2010 (PPACA). (3) Under section 6055 all providers of "minimum essential coverage" (MEC) must file a return with the IRS to report certain information about the extent to which individuals are covered by MEC during the preceding taxable year. Providers include health insurance issuers and employer plan sponsors (hereinafter collectively referred to as "information reporting entities"). In addition, all information reporting entities must furnish a written statement to each individual listed on the return and show the information reported to the IRS. Section 6056 requires "applicable large employers" (ALEs) to file an information return with the IRS reporting the terms and conditions of the health care coverage provided to their employees during the preceding year. In addition, ALEs must furnish a written statement of the coverage information required to be reported to each full-time employee whose information was reported to the IRS.

Tax Executives Institute

Tax Executives Institute is the preeminent association of business tax executives in North America. Our approximately 7,000 members represent 3,000 of the leading corporations in the United States, Canada, Europe, and Asia. TEI represents a cross-section of the business community, and is dedicated to developing and effectively implementing sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works--one that is administrable and with which taxpayers can comply in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises, including information reporting under various provisions of the Internal Revenue Code. We believe that the diversity and professional training of our members enable us to bring a balanced and practical perspective to the issues raised by the information reporting requirements of sections 6055 and 6056.

Background

Section 6055 was added to the Code to help the IRS administer the individual mandate of the PPACA. Under section 6055 all providers of "minimum essential coverage" (MEC) must file a return with the IRS to report certain information to ascertain whether the individuals are covered by MEC during one or more months of the preceding taxable year. In addition, all information reporting entities must furnish a written statement to each individual listed on the return and show the information reported to the IRS. That information will enable individuals to complete their tax returns and indicate whether they have coverage during one or more months or are subject to the individual shared responsibility payment under section 5000A. Prop. Reg. [section] 1.6055-1(c)(1)(i) states that the reporting entity for MEC for all insured coverage is the health insurance carrier. Prop. Reg. [section] 1.6055-1(c)(1)(ii) states that that plan sponsor (i.e., generally an employer) is the reporting entity for MEC for self-insured employee group health coverage. In addition, where a self-insured group health plan covers employees of related corporations, each employer within the group of related corporations must report for its employees. One member of the group, however, may file returns and furnish statements on behalf of all members.

Section 6056 was added to the Code to assist the IRS in determining whether an employer may be subject to the excise tax (or shared responsibility payment) imposed by section 4980H for failing to offer affordable, minimum value health insurance coverage to full-time employees and dependents. The information will also be used to administer the premium tax credits under section 36B. Section 6056 requires "applicable large employers" (generally employers with 50 or more full-time employees) to file an information return with the IRS reporting the terms and conditions of the health care coverage provided to their employees during the preceding year. An applicable large employer that reports to the IRS must also furnish a written statement of the coverage information required to be reported to the IRS to each full-time employee whose information was reported to the IRS.

Under the PPACA, both reporting requirements were to be effective for periods after December 31, 2013. Thus, the first returns and information statements were to be filed in 2015 for the 2014 calendar year. In Notice 2013-45, the IRS delayed the mandatory reporting for one year but encouraged employers to track the information to prepare for implementation. (4)

TEI commends the IRS for issuing the proposed regulations and for its efforts to simplify the burdensome reporting obligations of large employers and insurance providers imposed by the PPACA. For example, under Prop Reg. [section] 1.6055-1(g), reporting entities are required to furnish information reports only to the responsible individual (generally the primary insured) at each address and are not required to furnish information reports to each covered dependent or spouse. In addition, under Prop. Reg. [section] 301.6056-1(g)(2), the Taxpayer Identification Number (TIN) of the employee (and others in the report) may be truncated in the information statement furnished by the employer thereby affording a measure of privacy and identity protection for the millions of statements that will be issued.

We also commend the IRS for considering ways to streamline the reporting to eliminate potentially duplicative reporting under sections 6055 and 6056. The five alternatives for simplified reporting outlined in the Preamble to the proposed section 6056 regulations represent a good start and each has merit under different circumstances. Finally, TEI applauds the decision to issue Notice 2013-45 affording a one-year delay in the mandatory section 6055 and 6056 reporting requirements thereby giving plan sponsors and health insurance issuers an opportunity to develop, implement, and test system changes and procedures for the collection of data and required information reporting.

Regrettably, the proposed regulations do not yet adopt any simplified reporting methods and more important they remain too narrow to afford broad relief. Absent prompt release of careful regulatory guidance and additional simplified methods, the information reporting requirements will substantially increase large employer and health insurance issuer compliance burdens while also burdening the IRS with a tremendous amount of data that may not be useful in the administration of the individual or employer shared responsibility payments or in reviewing the availability of subsidized premium tax credits for individuals. More detailed comments on the various provisions follow.

Summary of TEI Recommendations

The Institute urges the IRS and Treasury Department to adopt the following recommendations to clarify the proposed regulations and minimize undue administrative burdens and potential information reporting penalties on reporting entities:

1. Expand the TIN matching system to include the health care reporting requirements under sections 6055 and 6056 and permit simplified TIN solicitations. As an alternative to TIN matching, adopt a rebuttable presumption of correctness of TIN information supplied by employees and by employers to insurance companies or third-party administrators.

2. Clarify the application of the section 6721 and 6722 penalties to controlled groups of applicable large employers to eliminate stacking of penalties for duplicate information erroneously furnished under both sections 6055 and 6056. Clarify the return preparer rules so that employees of one ALE member of an ALE group can prepare the information returns for other ALE members without being subject to the preparer rules.

3. Permit reporting entities to use electronic means as the default method to furnish statements to recipients unless the recipient elects out. In other words, reverse the presumption in the proposed regulations that favor furnishing paper statements to recipients. To reduce compliance and administrative costs, employees should opt out of electronic receipt of statements rather than opt in.

4. Announce a delay in the imposition of information reporting penalties under sections 6721 and 6722 for good faith compliance with the section 6055 and 6056 reporting requirements during the first two years of...