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ACA Reporting Error Messages: Handling Missing or Incorrect TINs

Beginning in 2015, it first became mandatory for applicable large employers (ALEs) and self-insured employers of any size to comply with the Affordable Care Act (ACA) reporting requirements in Internal Revenue Code (IRC) Sections 6055 and 6056. For ALEs with more than 250 employees, the reporting is required electronically through the Affordable Care Act information returns (AIR) system, though many smaller employers relying on third parties for reporting also used AIR. One of the more troublesome issues for employers filing under the AIR system has been the “accepted with errors” and “AIRTN500” messages from the IRS, indicating an issue with a Social Security number (SSN) or Taxpayer Identification Number (TIN) listed on the Form 1095-C or 1095-B filed by the employer.

There are many reasons why an employer may receive this error notice with respect to an employee or dependent. First and foremost, the employer may have left off a digit or incorrectly entered the information, and confirmation that the form is properly completed should be the first step in addressing the error message. Of course, many employers are concerned with the possibility that a TIN may be invalid even though the employer has filed Form W-2s for an employee for years with the same TIN and never received an error message. However, an error message could be generated simply due to the way the AIR system matches TINs with the first four letters of an employee’s or dependent’s name, which appears to be particularly problematic with Hispanic names that may be hyphenated or are preceded with “de la,” which the AIR reportedly assumes are the first four letters of the last name.

Employers who are required to file IRS Form 1095-C or Form 1095-B are subject to penalties for failure to promptly correct information on returns and for failure to furnish correct statements to individuals in a timely manner. This correction is required even though the error message indicates that the filing was “accepted.” Although the IRS has stated that the “AIRTN500” error messages are not formal notices of penalties or proposed penalties, this does not mean the IRS will not later assess penalties – as much as $260 per incorrect or incomplete form – if the employer does not follow the proper solicitation procedures and establish that the failure was due to reasonable cause and not willful neglect.

Mismatched TIN

Assuming an employer has a TIN for its employee that has been used previously for tax reporting purposes, the employer has generally satisfied the first solicitation requirement under the proposed regulations. Note that the proposed regulations instruct reporting entities filing a “mismatched” TIN to use a modified version of the general TIN solicitation procedures which were previously released in Notice 2015-68. These rules require employers to conduct an advance solicitation during the initial plan enrollment, or if the individual is already enrolled as of September 17, 2015, during the next open enrollment season. It then calls for a second solicitation at a “reasonable time” thereafter, and a third solicitation by December 31 of the year following the first solicitation.

One area of confusion generated from the proposed regulations is that the filer is not required to make an initial solicitation if the filer has the TIN of the employee and has used that TIN for other information returns. The regulations then provide that no further solicitation is required with respect to such individual unless the employer is notified by the IRS or, in some cases, by a broker, that the TIN is incorrect. Hopefully, the final regulations will clarify whether the AIRTN500 message is considered notice that the TIN is incorrect for purposes of the solicitation requirement. A contrary interpretation of the regulations is that additional solicitation is only required for a mismatched TIN if the employer receives a specific penalty notice from the IRS (Notice 972CG, for example) regarding the TIN.

However, because penalties for failures to report correct information increase as time goes on, employers should consider proceeding with the solicitation process outlined above for mismatched TINs based on the AIR error message to establish reasonable cause and ensure success in having penalties waived. Further guidance from the IRS on this issue would be welcome.

The IRS also established a transitional rule for handling returns with missing TINs that treats individuals who were enrolled in coverage prior to July 29, 2016, as if their accounts were opened (that is, as if the individual submitted a substantially complete application for coverage) on July 29, 2016. According to the rule, the initial solicitation is recognized as long as it was requested as part of an application for coverage or at any point before July 29, 2016. A first annual solicitation should occur after a “reasonable time,” which is now defined as within 75 days from July 29, 2016. A second annual solicitation should occur by December 31 of the year following the initial solicitation. This means that if you reported no TINs for employees or dependents on ACA forms, you should make the first annual solicitation by October 12, 2016. If you do not receive a TIN after that solicitation, you must solicit the TIN again by December 31, 2017, to show reasonable cause.

When approaching employees in the solicitation process, remember that the ACA is not the only law to consider. Care should be taken to ensure that you are satisfying immigration laws and, in particular, the Information Reform and Control Act, which imposes restrictions on asking employees for specific documents. Any solicitation process should be done in consultation with both your immigration and benefits counsel. If you happen to receive an admission from an employee that he or she is not legally using the provided TIN, you should consult with your attorney regarding the obligation to correct not only the Form 1095-C or 1095-B, but other tax filings such as historic Forms W-2 for that individual. Hopefully, future guidance from the IRS will clarify some of the confusion surrounding correction of the TIN error messages, and employers should stay tuned for updates on this issue.

Content included in the Summer 2016 Benefits and Employment Briefing provided by our partner, United Benefit Advisors.