By Wolters Kluwer Editorial Staff
The IRS has issued final regulations adopting an intentional or reckless disregard for the facts exception to the 26 U.S.C. §36B eligibility safe harbors for household income below 100 percent of the federal poverty level (FPL), government programs such as Medicaid, and employer-sponsored coverage. The final regulations generally apply for tax years beginning after December 31, 2016 (Final rule, 81 FR 91755, December 19, 2016).
Coverage under an eligible employer-sponsored plan is generally minimum essential coverage. However, an individual who may (but does not) enroll in an employer-sponsored plan is generally considered eligible for that plan only if the plan is considered affordable and provides minimum value. An employer-sponsored plan is not considered affordable for a plan year if, when the employee or a related individual enrolls in a qualified health plan for a period coinciding with the plan year, an exchange determines that the employer-sponsored plan is not affordable for that plan year.
Under existing regulations, the safe harbor does not apply in situations in which an exchange determines that an individual is not eligible for affordable employer-sponsored coverage because an individual, with reckless disregard of the facts, provides incorrect information to the exchange regarding affordability of the plan. The final regulations add two additional intentional or reckless disregard exceptions to provisions regarding eligibility determinations by the exchanges.
First, the final regulations provide that a taxpayer whose household income is below 100 percent of the applicable FPL for the taxpayer’s family size does not receive the benefit of that rule if, with intentional or reckless disregard for the facts, the taxpayer provided incorrect information to an exchange for the year of coverage.
Second, the final regulations provide that an individual who was determined or considered by an exchange to be ineligible for Medicaid, the Children’s Health Insurance Program (CHIP), or a similar program does qualify for the safe harbor if, with intentional or reckless disregard for the facts, the individual (or a person claiming a personal exemption for the individual) provided incorrect information to an exchange for the year of coverage.
The intentional or reckless disregard for the facts exception to the safe harbor apply only when the taxpayer knowingly provides inaccurate information to the exchange or makes little or no effort to determine whether the information provided is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct of a reasonable person. In addition, it applies only to the conduct of the individual attesting to the exchange. Thus, an individual is only responsible for the information that he or she provides to the exchange and is not liable for inaccurate information provided by third parties, such as an employer.
An individual does not act recklessly when following the advice of an authorized advisor, so long as the individual provided the authorized advisor with necessary and accurate information. Whether reliance on advice provided by a person other than an authorized advisor is reckless will depend on all of the relevant facts and circumstances, including whether reliance was reasonable and whether the taxpayer provided necessary and accurate information to the other person.
The Treasury Department and the IRS continue to examine the issues raised by opt-out arrangements and expect to finalize regulations on the effect of opt-out arrangements on an employee’s required contribution at a later time. Until those final regulations are applicable, individuals and employers can continue to rely on the guidance provided in Notice 2015-87, I.R.B. 2015–52, 889, and on the proposed regulations (Proposed rule, 81 FR 44557, July 8, 2016) including transition relief as clarified in preamble to the proposed rule.
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