Please read our updated view on this issue after our conversation with the IRS after the proposed regulations were released.
One common error an employer received from the Affordable Care Act Information Return system (AIR system) when submitting a packet of Form 1095-Cs was an error reporting that a Form 1095-C was submitted with an incorrect taxpayer identification number (TIN). The error code displayed when this occurs is AIRTN500 which signifies an individual name and TIN does not match the IRS database. Unfortunately, the IRS software does not currently tell the employer which TIN (or TINs) is causing the error message rather the AIR system only tells the employer the UniqueRecordId that is causing the TIN error (each Form 1095-C has its own UniqueRecordId). Consequently, an employer will need to at a minimum verify and correct, if necessary, the name and TIN for each individual included on the Form 1095-C. The purpose of this article is to provide some background on the verification process and to offer a solution which should reduce an employer’s solicitation obligations.
The best place to start is to understand how the IRS verifies TIN numbers. Publication 1586 provides a thorough overview of the regulations and requirements for missing and incorrect TINs. The publication 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 my name, “Ryan P Moulder”, the only characters that would matter are “MOUL”. The IRS verification process would begin by checking the TIN entered for Ryan. If the Social Security Administration (SSA) database does not have the TIN, an AIRTN500 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, “MOUL”, 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, an AIRTN500 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 and it is completing a Form 1095-C, the only place the employer will be placing an individual’s TIN is line 2 in Part I of the Form 1095-C. If an employer only has one TIN on the Form 1095-C, the employer would know the individual who is triggering the TIN error message.
However, things are more complicated if the employer is sponsoring a self-insured plan and using the combined reporting discussed in the final regulations under both section 6055 and section 6056. 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 individual’s 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 people, multiple names and multiple TINs will be listed in Part III of the Form 1095-C. As the IRS’ software is currently programmed, if any one of the names and TINs listed in Part III of the Form 1095-C does not match the IRS’ records, the dreaded AIRTN500 error message will appear. Unfortunately, this error message only tells the employer which Form 1095-C (though the UniqueRecordId) is causing the TIN error as opposed to which individual.
For example, suppose an employer which is an Applicable Large Employer sponsored a self-insured plan. One of the employees, Ryan P Moulder, enrolls in the plan along with his three children Champ D Moulder, Holly D Moulder, and McGee J Moulder. Ryan P Moulder would be entered on line 1 of Part I and his TIN would be entered on line 2 of Part I of the Form 1095-C. Ryan P Moulder would also be entered on line 17 in column (a) and his TIN would be entered in column (b) of Part III of the Form 1095-C. His children, Champ D Moulder, Holly D Moulder, and McGee J Moulder and their respective TINs would be listed on lines 18, 19, and 20 in columns (a) and (b) of Part III of the Form 1095-C. As discussed above, the first four characters of the last name, in all four cases in this example “MOUL”, would be verified against the SSA database. The problem that is occurring is if an employer receives an AIRTN500 error message, the employer is unable to determine which individual is causing the error. In the example above, if Ryan P Moulder’s Form 1095-C triggered an AIRTN500 error message, the employer would have no clue which individual (Ryan, Champ, Holly, or McGee) was causing the error message. Consequently, for the employer to fulfill its solicitation obligationsunder section 301.6724-1(f) the employer would need to solicit TIN information for each individual (Ryan, Champ, Holly, and McGee) included on the Form 1095-C which is causing the AIRTN500 error message. This has led to a lot of outrage from employers.
We share the frustration as the TIN lapse has tripled if not quadrupled an employer’s solicitation obligations. However, the Form 1095-C presented the IRS with the unique challenge of having multiple TINs on the same tax form. The IRS was generous enough to allow self-insured employers to combine their section 6055 and section 6056 reporting obligations onto the Form 1095-C which was a favorable decision made under section 6056(d)(1). An IRS employee told us combined reporting is one of the reasons this TIN issue has arisen. We don’t completely follow the logic, but as he pointed out the extra solicitation obligations being placed on an employer as a result of this TIN issue is miniscule compared to the amount of work and more importantly the cost a self-insured employer would have to perform if the IRS did not allow combined reporting.
In future years we are hopeful the IRS develops software that notifies the employer which TIN is causing the AIRTN500 error message. We do not know the intricacies of how the IRS is verifying TINs entered on the Form 1095-C, but it would appear that individualizing the TIN verification process to individuals listed in Part III would be an easy enough solution. The UniqueRecordId message could be linked to the specific name listed in column (a) of Part III causing the AIRTN500 error message instead of the current process of only linking the AIRTN500 error message to the UniqueRecordId. Another improvement suggested by others is expanding the TIN matching program (which would occur before the employer submits the Forms to the AIR system) to include ACA reporting returns.
The IRS has made it clear to us that in the scenario above, if an AIRTN500 error message is received for a Form 1095-C (through the UniqueRecordId), each individual on that Form 1095-C will need to have his or her TIN verified. For an employer to fulfill its obligations under section 301.6724-1(f) the cumbersome solicitation procedures would need to be followed. The approach suggested in the paragraphs below may be the best way to minimize an employer’s solicitation obligation.
For any UniqueRecordId that an employer receives an AIRTN500 error message, the employer should proceed with an informal verification process. This process could be performed in a variety of manners but would require the employer to go over the names and TINs listed on the Form 1095-C causing the AIRTN500 error message. It is important to understand the informal verification process will not satisfy the employer’s solicitation obligations. In the example above, if the employer received an AIRTN500 error message for Ryan’s UniqueRecordId, the employer would go to Ryan and ask him if the names and TINs match for himself, Champ, Holly, and McGee. If Ryan informs the employer that one of the TINs is incorrect, the employer would then file a corrected Form 1095-C following the correction procedures with the updated information. Typically, the employer would also need to furnish Ryan an updated version of the Form 1095-C. If the employer does not receive an AIRTN500 error message with the corrected return, the employer would not need to follow through with any solicitation procedure as the corrected return has no errors. However, if the corrected return still produces an AIRTN500 error message, the employer could go through the informal verification process again or transition to the formal solicitation process outlined in section 301.6724-1(f) of the regulations.
Alternatively, if Ryan looks at the names and TINs and confirms those are the correct names and TINs, then the employer would need to go through the formal TIN solicitation process for incorrect TINs outlined in section 301.6724-1(f) of the regulations. Admittedly, this is an odd outcome as the solicitation from the employer in this case will not produce a correct TIN. However, this will provide the employer protection as the employer will have fulfilled its solicitation obligation for one year. We understand that this will be a time consuming process but it is necessary to do in order for an employer to avoid the penalties associated with the failure to file a correct information return with the IRS.
We are hopeful the IRS will correct this issue in the near future. However, until further guidance is issued an employer must make sure it is fulfilling its solicitation obligations set forth in the regulations. As burdensome, and, in a way as pointless as the solicitation procedures are, it beats the topic please don’t hesitate to contact us.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a alternative of paying the IRS a penalty. Should you have additional questions on this complicated Partner at Health Care Attorney's 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 newly created 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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