IRS Updates Due Diligence Guidance on the Individual Shared Responsibility Payment

Kristine A. Tidgren
March 7, 2017

There's been a lot of talk about whether taxpayers should really pay the 2016 individual shared responsibility payment in light of President Trump's January 20, 2017, executive order. IRS further muddled the issue when it posted an update on February 15 stating that it was going to accept returns that did not report health coverage information. Earlier in the year, IRS had decided that it would begin rejecting such returns for the 2016 tax year. On March 1, IRS posted an updated document, Return Preparer Best Practices for the Affordable Care Act - Individual Shared Responsibility Provision–§5000A. This document may raise even more questions about IRS expectations for 2016. In this document, IRS reiterates that, while there are no special due diligence provisions for Affordable Care Act requirements (as there are, for example, for the Earned Income Tax Credit), "general due diligence requirements on filing a complete and accurate tax return continue to apply." The guidance states, "Preparers are expected to resolve conflicting or contradictory statements from their clients during the return preparation process, as they do today."

This guidance is an update from a similar December 2016 document. The March 1 update, however, removes this paragraph:
 
For Tax Year 2016, the IRS will not consider a return complete and accurate if the taxpayer does not report full year coverage,an exemption or a payment. Most taxpayers have qualifying health care coverage for all 12 months in the year, and will check the "Full-year coverage" box on Form 1040,1040A, or 1040ES.
 
The document goes on to instruct preparers on the detailed procedures for completing the health coverage questions, including what to do if your client did not have coverage or an exemption: If no, your client must calculate and pay the ISRP.
 
It is important to note that the Republican proposal for a replacement of the Affordable Care Act unveiled on March 6 would eliminate the ISRP for tax years 2016 and forward.
 
We'll keep you posted.
 

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