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IRS Releases Guidance on Tax Preparer Best Practices for Determining ACA Penalties.
(Parker Tax Publishing January 16, 2015)

In December, the IRS quietly released "Return Preparer Best Practices" for tax professionals seeking to determine whether clients are subject to penalties in 2014 under the Affordable Care Act's individual mandate (aka, the Code Sec. 5000A penalty).

The two-page IRS Section 5000A Best Practices guide's stated goal is to present best practices for practitioners to gather necessary information to demonstrate a client's compliance with the individual healthcare mandate. It starts by noting that, for practitioners, "[t]here are no special or specific due diligence requirements related to Affordable Care Act (ACA) issues."

Practice Aid: The IRS Section 5000A Best Practices guide. Download Now

The IRS suggests a fairly conventional three-step process for determining if a client is subject to a Code Sec. 5000A penalty: (1) review the client's documentation to determine if the client and all of his or her family members had qualifying health care coverage in place for the entire tax year, (2) for any month coverage was not in place, determine if the client received an Exemption Certificate Number (ECN) from a healthcare Exchange, and (3) to the extent necessary, determine if the client qualified for one of the ACA's exemptions.

In discussing documentation that practitioners should review, the guide starts with the obvious: Forms 1095 and W-2. Next, the IRS provides four specific examples of alternate documentation that may substantiate coverage (implicitly acknowledging that many taxpayers will not receive Forms 1095 for the 2014 tax year). The examples include:

Medical bills showing that during the tax year an amount due was paid by a health insurance company (indicating coverage)

Documentation/statement from an employer indicating health insurance coverage

Medicare card

Record of advance payments of the premium tax credit

The guide goes on to provide a summary of eight of the exemptions available to taxpayers who did not have health coverage in place for all or part of 2014: (1) short coverage gaps of less than three consecutive months, (2) income below filing threshold, (3) certain hardship situations, (4) citizen living abroad or in a U.S. territory, (5) not lawfully present in U.S., (6) member of a Federally-recognized Indian tribe, (7) member of a Health Care Sharing Ministry, (8) incarceration.

The IRS also reminds preparers that while they are not subject to specific due diligence requirements for ACA issues, they are expected to resolve conflicting or contradictory statements from their clients, as they would with any issue during the return preparation process.

For a discussion of the individual healthcare mandate and penalties, see Parker ¶190,100. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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