IRS Revises Enforcement Policy on ACA Individual Mandate Compliance

The IRS has announced that it will not reject 2016 tax returns that do not provide information on whether the individual taxpayer and his family members had qualifying health coverage for 2016. The IRS uses this information to enforce compliance with the Affordable Care Act's ("ACA's") individual mandate provisions. This enforcement policy change comes in the wake of President Trump's Executive Order directing federal agencies to minimize the ACA's financial impact on individuals.

The ACA's individual mandate requires that all non-exempt U.S. citizens and legal residents must either: (1) maintain qualifying health coverage (i.e., minimum essential coverage); (2) qualify for a health coverage exemption; or (3) be subject to a penalty. Individuals who lack access to affordable minimum essential coverage are exempt from the mandate.

IRS Form 1040 instructs taxpayers to confirm whether they (and each member of their family) had qualifying health coverage for the entire tax year. Taxpayers who had qualifying health care coverage for all 12 months check "full-year coverage" (on line 61 of Form 1040), and taxpayers who did not must either claim a coverage exemption by filing IRS Form 8965 (see the Alert of 3/20/2015) or report and pay an individual mandate penalty for each month without coverage.

While Form 1040 requires that individuals provide ACA compliance information, IRS still accepted and processed returns that were silent in this regard. For the 2016 tax year, however, the IRS put in place a system that would reject tax returns without ACA compliance information.

In January, President Trump issued an Executive Order intended to minimize the ACA's economic burden. The Order directs the executive departments responsible for ACA enforcement to waive, defer, grant exemptions from or delay implementation of any ACA provision or requirement that imposes a fiscal burden on a state, or a cost, fee, tax penalty or regulatory burden on individuals, health care providers and purchasers of health insurance, among others.

IRS's Revised Enforcement Policy
Consistent with President Trump's Order, the IRS recently announced on its website that it will continue to accept and process individual taxpayers' returns that do not provide information about ACA compliance.

Interestingly, the same IRS announcement confirms that the ACA's legislative provisions remain in full force until repealed by Congress, meaning that taxpayers must continue to comply with the ACA's individual mandate and pay what they may owe. Nonetheless, the ACA's individual mandate provisions do not expose noncompliant taxpayers to criminal prosecution or penalties for failures to timely pay penalties, and the IRS cannot place a lien or levy on any property of the taxpayer for ACA compliance failures. However, the IRS may offset a taxpayer's liability for the individual mandate penalty against any refund due the taxpayer. 

The IRS announcement is available here.

Please contact your IPS Advisors consultant if you have any questions about this information. 


Source: The Wagner Law Group


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