ACA Reporting Deadline Extension and Related Penalty Relief
On December 2, 2019, the IRS released IRS Notice 2019-63, extending the deadlines for distributing ACA reporting forms to individuals. The IRS also provided relief from penalties for good faith effort and from the requirement to distribute the Form 1095-B to individuals. As background, the ACA imposed two reporting requirements under Sections 6055 and 6056. Section 6055 requires entities that provide minimum essential coverage to report to the IRS and to covered individuals the months in which the individuals were covered. Section 6056 requires applicable large employers (under the employer mandate) to report to the IRS and full-time employees whether they offered minimum essential coverage that was affordable and minimum value. See below for a description of the deadline and relief provided through the notice.
As the IRS has done for the last four reporting years, they have extended the date by which employers must distribute Forms 1095-B or 1095-C to individuals. Those forms must now be distributed by March 2, 2020 (instead of January 31, 2020). However, as in previous years, this notice does not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. Those dates remain February 28, 2020, if filing by paper and March 31, 2020, if filing electronically.
Good Faith Effort Relief
The IRS is also reinstating relief recognizing good faith effort made by employers that file the 2019 forms. Specifically, employers that timely file and distribute their required Forms 1094-B/C and 1095-B/C will not be subject to penalties if the information is incorrect or incomplete. The relief does not extend to a complete failure to file.
Section 6055 Relief
Notably, this notice also provides penalty relief for employers which will allow them to forego distributing the Form 1095-B to individuals. This comes after the IRS accepted comments on the necessity of the Forms 1095-B now that the individual mandate penalty has been zeroed out. As long as employers post a notice on their website that the document is available upon request, and then fulfill any such request within 30 days – they don’t have to distribute them to covered individuals.
This relief is not available for Forms 1095-C, but can be applied to employees who are not full-time and only receive a Form 1095-C to meet the Form 1095-B reporting requirement. In other words, those employees who are only receiving a Form 1095-C because the employer uses Part III to comply with Section 6055 no longer have to be provided a Form 1095-C.
Employers should keep this guidance in mind as they are preparing their filings and distributions. We will continue to update you on reporting guidance from the IRS.
New Rules for Reportable Policy Sales
On October 31, 2019, the Treasury Department finalized rules detailing the requirements for reportable policy sales (RPS), which were created under the 2017 Tax Cuts and Jobs Act (TCJA) and apply to the direct and indirect transfer of life insurance contracts. Now, when there is an acquisition of an interest in a life insurance contract, in order to ensure that the death benefit retains its income tax-free treatment the acquirer must determine: 1) that there was not a RPS and 2) that an exception to the transfer for value (TFV) rule exists. For more insight as you navigate the RPS rules, we have created this in-depth piece.
These final regulations provide guidance for determining which transfers are considered to be RPS and how to report the policy sale if required. The final regulations also provide clarity for the COLI/BOLI market, which was directly impacted by 101(a)(3). We have created a decision tree to help you navigate the RPS rule and its potential impact on COLI/BOLI insurance policies. You can also review this summary of the final regulations provided by our partners at AALU. The final regulations came into effect on their release date, October 31, 2019, but may be applied to any RPS or any death benefits paid on a life insurance contract that was part of a RPS after December 31, 2017. All reporting statements for transactions occurring between December 31, 2018, and October 31, 2019, must be furnished by February 28, 2020.
Please do not hesitate to contact Kristin Bulat should you have any questions about reportable policy sales and how they may be impacting your clients' insurance transactions.