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Late Or Incorrect Forms 1095-C: The IRS Provides Relief, But Only For Employers Acting In Good Faith To Comply Or Who Missed The Deadline Due To Reasonable Cause

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Many employers struggled to furnish correct Forms 1095-C to employees by the March 31, 2016 deadline.  Section 6721(a)(2) of the Internal Revenue Code provides penalties for failure to furnish Forms 1095-C to individuals by the deadline.  Although the presumptive penalty is $250 for each delinquent or incorrect return, the penalty amount may be reduced if Forms are furnished or corrected within 30 days of the filing deadline.  Correction within 30 days lowers the presumptive penalty to $50 per return.  If a failure to correct is not made within 30 days, but is made by August 1, the presumptive penalty is reduced to $100 per return.  Upon discovering errors, employers should correct them as soon as possible.

Additionally, the IRS has indicated it will not impose penalties for the 2015 tax year for incorrect or incomplete Forms if the employer can demonstrate that it made a good faith effort to comply with the reporting requirements.  See Q&A-3:  This guidance provides that no relief is available for an employer that cannot show a good faith effort to comply with the information reporting requirements or that fails to timely furnish a statement.  In an effort to fall under this relief, many employers rushed to meet the March 31 deadline by sending out Forms by March 31, even if they were incomplete or incorrect.  It’s not clear whether knowingly sending out incorrect or incomplete Forms meets the good faith standard. 

The same Q&A-3 points out that, consistent with existing information reporting rules, employers that failed to timely meet the information reporting requirements still may be eligible for penalty relief if the IRS determines that the standards for reasonable cause under Section 6724 are satisfied.  Hopefully, employers who endeavored to provide correct Forms to their employees, albeit a couple days or weeks late, will fall under this reasonable cause penalty relief.  In Notice 2016-4 the IRS indicates that in determining reasonable cause, it will take into account whether an employer made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the IRS, or testing its ability to transmit information to the IRS. The IRS will also take into account the extent to which the employer is taking steps to ensure that it is able to comply with the reporting requirements for 2016.  And don’t forget, the deadline for furnishing statements for the 2016 calendar year is January 31, 2017.

Employers who intend to rely on either form of relief are wise to keep detailed records of their efforts to comply with the information reporting requirements.  This would include correspondence with service providers showing efforts to meet the deadline or events beyond the employer’s control.