April 12, 2018
Executive Summary – If an employer receives a TIN error message as a result of an incorrect TIN on a Form 1095-C, the employer can ignore the error message until the IRS provides a formal notice. We are unaware of the IRS providing formal notice to any employer as a result of filing the Forms 1095-C with an incorrect TIN. If an employer receives a TIN error message as a result of a missing TIN, the employer needs to follow the solicitation procedures outlined below.
The deadline to file the Forms 1094-C and 1095-C with the IRS has passed for the third time. Similar to the two previous reporting seasons, many employers are receiving error messages indicating that there is an incorrect taxpayer identification number (TIN) submitted with their 2017 Forms. This is creating confusion as to what actions an employer must take to remedy the TIN errors. Fortunately, the IRS position has not changed and an employer still does not need to go through the solicitation process if it receives a TIN error message for an incorrect TIN! This article is intended to explain how the IRS software searches TINs, the TIN error messages an employer may receive, and what an employer needs to do if it received an error message indicating there is a TIN issue with one (or more) of the Forms 1095-C it submitted to the IRS.
It is important to know an employer submitting a Form 1095-C is subject to the penalty provisions of section 6721 and section 6722 for failure to timely file a correct information return or failure to timely furnish a correct statement to the individual. The penalties under both section 6721 and section 6722 may be waived if the failure to timely file (or furnish) a correct information return (or statement) was due to reasonable cause and not due to willful neglect. Following the procedures discussed in this article will assist employers in avoiding a potential penalty under section 6721 and/or section 6722.
As we discussed in our article last year on this topic, the best place to start is to understand how the IRS verifies TIN numbers. Publication 1586 explains an individual’s TIN is verified by using the first four characters of the individual’s last name. For example, if the IRS was going to verify, “Jean L McGee”, the only characters that would matter are “MCGE”. The IRS verification process would begin by checking the TIN entered for Jean L McGee. If the Social Security Administration (SSA) database does not have the TIN, an error message would appear. However, if the TIN is in the SSA database, the first four characters of the individual’s last name, in this case, “MCGE”, would be checked against the first four characters of the individual’s last name in the SSA database for the TIN entered. If the first four characters from the Form 1095-C and the SSA database do not match, a TIN error message would appear. Alternatively, if the first four characters from the Form 1095-C and the SSA database match, the TIN will be verified.
Now that we have better understanding of how the IRS verification process works let’s examine where an employer could be inserting a TIN on the Form 1095-C. If an employer’s plan is fully insured, the only place the employer will be placing an individual’s TIN on the Form 1095-C is line 2 in Part I of the Form 1095-C. Employers may notice the language for the TIN error message is different for the 2017 Forms compared to previous years. For the 2017 Forms if an employee’s TIN on line 2 in Part I of the Form 1095-C is triggering the alert, the error message reads “1095C-010-01”. An employer sponsoring a fully insured plan should only see the “1095C-010-01” error message.
There are more places that could trigger a TIN error message if the employer is sponsoring a self-insured plan and using the combined reporting. Under the self-insured scenario, not only would an individual’s TIN be entered on line 2 of Part I of the Form 1095-C, but also multiple individuals’ TINs could be entered in column (b) of Part III of the Form 1095-C. The instructions to the Form 1095-C state that among other items the name and TIN must be entered in columns (a) and (b) of Part III of the Form 1095-C. If an employee’s Form 1095-C covers multiple individuals, multiple names and multiple TINs will be listed in Part III of the Form 1095-C. If a covered individual’s TIN is triggering the alert, the error message reads “Shared-008”. Please note an employer who sponsors a self-insured plan could see both the “1095C-010-01” error message and the “Shared-008” error message.
As discussed in our previous publication, footnote 2 in the proposed regulations indicates a TIN error message is neither a Notice 972CG, Notice of Proposed Civil Penalty, nor a requirement that the filer must solicit a TIN in response to the error message. We confirmed with people at the IRS that this footnote in the proposed regulations is still the controlling statement with regard to an employer’s responsibility in the event an employer receives a TIN error message as a result of an incorrect TIN. Therefore, the responsibility for an employer receiving a TIN error message as a result of an incorrect TIN is simple. The employer does not need to do anything.
An employer will still have to fulfill its solicitation obligations for missing TINs. The regulations are clear that a TIN is considered missing if it does not contain nine digits or includes one or more alpha characters (a character or symbol other than an Arabic numeral) as one of the nine digits (see section 301.6724-1(e)(1)). A TIN will likely be considered missing by the IRS if it is obviously incorrect such as repeating digits or ascending or descending digits. If this is the case, the missing TIN solicitation procedures discussed in the proposed regulations should be followed.
Notice 2015-68, the controlling notice referenced in the proposed regulations, states an employer will not be subject to the penalties for the failure to report a TIN if the entity follows the regulations set forth at section 301.6724-1(e) with the additional modifications:
- The initial solicitation is made at an individual’s first enrollment or the next open enrollment;
- The second solicitation (please note the proposed regulations refer to this as the first annual solicitation but to prevent confusion we refer to it as the second solicitation) is made at a reasonable time thereafter, and
- The third solicitation (please note the proposed regulations refer to this as the second annual solicitation but to prevent confusion we refer to it as the third solicitation) is made by December 31 of the year following the initial solicitation.
The proposed regulations clarified that for the purposes of the Form 1095-C an account is considered “opened” on the date the filer receives a substantially complete application for new coverage or to add an individual to existing coverage. The proposed regulations indicate the initial solicitation for a missing TIN can be satisfied by requesting the enrolling individual’s TIN as part of the application process which is a common practice. Furthermore, the proposed regulations clarify that the second solicitation (and the initial solicitation for that matter) does not need to occur prior to the first effective date of coverage for a covered individual.
If the initial solicitation for a missing TIN does not produce a TIN, the second solicitation under the proposed regulations must be made within a reasonable time after the initial solicitation. The proposed regulations provide that an employer will satisfy the “reasonable time” standard if it makes the second solicitation no later than 75 days after the date on which the account was “opened” or, if the coverage is retroactive, no later than 75 days after the determination of retroactive coverage is made. The third solicitation for a missing TIN remains unchanged from the current regulations, section 301.6724(e)(1), and must be made by December 31 of the year following the year the account is opened.
For example, if during the open enrollment period for health coverage in 2018 an employee responds with her name, social security number, and other pertinent information but forgets to include the social security number of her husband who is also enrolling in the employer’s health plan, the employer would have the following solicitation obligations under the proposed regulations. First, the employer would have satisfied its initial solicitation obligation when it asked for the husband’s social security number during the open enrollment process.
The clock for the second solicitation would begin on the first effective date of coverage for the husband. For this example, let’s assume this is a calendar year plan and the husband’s first effective date of coverage was January 1, 2018. The proposed regulations state that an employer will satisfy its obligation of making the second solicitation within a reasonable time after the initial solicitation if it is made within 75 days of the first effective date of the coverage for a covered individual. In this case, 75 days from January 1, 2018 is March 16, 2018. If the employer makes its second solicitation by March 16, 2018, it will have fulfilled its second solicitation obligation for a missing TIN. It is unclear how much later than 75 days can still be considered reasonable under the proposed regulations. If your entity has missing TINs, this second solicitation should occur as soon as possible given that the 75th day has already passed for 2018 calendar year plans. Finally, the third solicitation would need to occur by December 31, 2019 to satisfy the proposed regulations.
An employer may satisfy the solicitation requirement discussed above by mail, telephone, or by requesting the TIN in person. However, due to documentation concerns, the mail solicitation or in person solicitation are the most viable options. For that reason the telephone solicitation procedures are not discussed and are not recommended. Publication 1586 also discusses how the solicitation obligation can be handled electronically. However, we are skeptical this is the best route for the typical employee or dependent who has an incorrect TIN because the individual may not have access to the proper technology. Therefore, the procedures for the electronic solicitation are not discussed.
To satisfy the solicitation request via mail an employer must include:
- A letter informing the employee (or other dependents) that he/she must provide a correct TIN and that he/she is subject to a $50 penalty imposed by the IRS under IRC section 6723 if he or she fails to do so;
- A Form W-9 or an acceptable substitute form on which the employee (or other dependents if necessary) may provide a correct TIN; and
- A return envelope for the employee (or other dependents if necessary) to provide the TIN which may include prepaid postage.
The regulation does not provide details on how an in person solicitation should be completed. However, at a minimum it would appear the employer must request the correct TIN and inform the employee (or other dependents if necessary) that he/she is subject to a $50 penalty imposed by the IRS under IRC section 6723 if he or she fails to provide a correct TIN. Additionally, the employer should document it made the in person solicitation.
While there has been a lot of confusion regarding what an employer needs to do when it receives a TIN error message, the IRS’ position for the 2017 Forms is the TIN error message for incorrect TINs creates no solicitation obligation for the employer. Employers who have submitted Forms 1095-C with missing TINs should follow the procedures outlined in this article. Please don’t hesitate to contact us if you need further assistance with this confusing topic.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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