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Rules and Resources for ACA Due Diligence

Due diligenceThe filing season is upon us and the question practitioners are asking themselves is “What due diligence steps are necessary for getting Affordable Care Act information from clients?”

The ACA provides a new challenge to practitioners in preparing 2014 returns, which will require more due diligence and effort to comply with these new rules.

The IRS, the AICPA, and others have provided many resources to practitioners on understanding the filing requirements of the ACA. In addition to these resources, practitioners should note the due diligence requirements under Circular 230, the AICPA Code of Professional Conduct, and the AICPA Statements on Standards for Tax Services that provide enforceable standards for AICPA members:

  • Circular 230 Sections 10.22 (Diligence as to accuracy) and 10.36 (Procedures to ensure compliance) mandate considerations to be followed in the preparation of federal returns by practitioners.
  • AICPA Code of Professional Conduct Rules 1.100 (Integrity and Objectivity) and 1.300 General Standards (professional competence, due professional care, planning and supervision, and sufficient relevant data) provide rules for AICPA members to follow.
  • SSTSs No.1 Tax Return Positions and No. 2 Answers to Questions on Returns provide more insight into the steps to be taken in the exercise of due diligence in the preparation of returns. Also, SSTS No. 4 Use of Estimates would be applicable for practitioners working with taxpayers claiming the advance tax credit.

Practitioners should also become familiar with the changes to the 2014 Forms 1040, 1040A, Form 1040EZ and Form 8962. Forms 1040, 1040A, and Form 1040EZ contain new lines to reflect the individual shared responsibility payment, excess premium credit and net premium tax credit.

A CPA posed questions about ACA due diligence in a previous blog post, including:

  • Is it good enough to accept the taxpayer’s representation that there was minimum essential coverage (MEC) for taxpayer and dependents?
  • How far do I have to go to protect myself from the IRS and my clients from potential additional tax and penalties?

The AICPA's detailed supplemental ACA checklist to Form 1040 and IRS Best Practices  provide the best answers available at this time to  answer these questions for this filing season.

Just as practitioners have had to educate themselves on the ACA, they will also need to educate clients on their responsibilities and the information needed to complete their income tax returns.  Consider including a note in your tax organizer next year about information required by the ACA for returns, such as:

You may be receiving additional forms this year as a consequence of the Affordable Care Act. These may include Form 1095-A (Health Insurance Marketplace Statement), Form 1095-B (Health Coverage), or Form 1095-C (Employer Provided Health Insurance Offer and Coverage). These are necessary to file your tax return. Please return these to us with the completed organizer.

This is only the first year that taxpayers need to provide health insurance information, so the IRS’s inquiry will be repeating itself as long as the ACA is in the law.

The exercise of due diligence means making the necessary inquiries to determine if the taxpayer had health care coverage for the year of the return being prepared. For example:

  • Did you and your dependents have healthcare coverage for the full year?
  • If you or your dependents did not have health care coverage during the year, do you fall into one of the following exemption categories:  Indian tribe membership, health sharing ministry membership, religious sect membership, incarceration, exempt non-citizen or economic hardship? If you received an exemption certificate, please attach.

Instances in which a taxpayer worked more than one job during the year where health insurance was provided by the employer for part of the year and purchased through an exchange the other part of the year, will require more diligence by the practitioner in completing the return.

While the ACA definitely presents some challenges, the good news is that you don’t have to address these questions alone. The resources I mentioned above and others, such as client handouts, are at the AICPA’s ACA Filing Season webpage.

Gerard Schreiber Jr., CPA, Partner, Schreiber & Schreiber CPAs in Metairie, LA. Gerard specializes in tax, accounting and consulting matters for individuals and small businesses. He serves on the AICPA Tax Practice Responsibilities Committee and has authored numerous courses and articles on various tax subjects.

Due diligence image via Shutterstock

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