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Why the ACA Executive Order Doesn’t Void the Rules for CPAs

Be sure you put your feet in the right place, then stand firm.

--Abraham Lincoln

ACAOn Inauguration Day, President Trump followed through on his campaign position regarding the Affordable Care Act (“ACA”) and issued an Executive Order (“EO”) with the stated intent of minimizing the economic burden of the Patient Protection and Affordable Care Act (ACA) pending repeal. Sec. 2 of the EO Addresses removing certain burdens from both the government and taxpayers surrounding compliance with the ACA. 

Why the Confusion Exists

The IRS’ recent response to the EO has created confusion for many practitioners. The uncertainty arises from the IRS position that they will “. . . make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn’t indicate their coverage status.”

Line 61 on Form 1040 asks taxpayers to indicate whether they have minimum essential coverage. If the box is not checked, taxpayers are expected to do one of two things:

  1. Claim an exemption from the individual shared responsibility payment on Form 8965; or
  2. Calculate and report their individual shared responsibility payment.

Why Compliance is Still Critical

 

Some believe that this means the return can be filed without the exemption information or individual shared responsibility payment. Our personal opinion (the AICPA has no position on this issue) is that this belief is mistaken from two perspectives:

  1. The purpose of the EO is to cement the Administration’s position that it would like to pursue an ACA repeal. Pending repeal, the Administration has directed its agencies to minimize associated burdens “to the maximum extent permitted by law.” The law still requires: (a) minimum essential coverage (MEC); (b) an exemption from the individual shared responsibility payment; or (c) reporting of the individual shared responsibility payment.

Also, the IRS response is very clear that “. . . legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe.”

  1. The AICPA’s tax ethical standards, the Statements on Standards for Tax Services (SSTS), have several statements that apply to this situation:

 

SSTS No. 1.  Requires substantial authority for the tax position, or reasonable basis with disclosure, when preparing or signing returns. In our personal opinion, the EO together with the IRS response does not rise to the level of reasonable basis.

SSTS No. 2. Provides guidance on answers to questions on a tax return. It is likely that most CPA clients will have minimum essential coverage and will “check the box.”  However, checking the box when you know the taxpayer does not have MEC would likely be a violation. Correctly leaving the box unchecked without providing exemption information or reporting the correct payment would likely be a violation of SSTS No. 1.

 

SSTS No. 3. Concerns the amount of due diligence necessary in tax engagements. For example, are additional steps necessary if your client indicates they do have a Form 1095-A, B, or C? While the CPA may rely on information provided by the client, the CPA should not ignore information available to them, particularly if it contradicts a client assertion.

SSTS No. 7.  States that written documentation of tax advice is always a best practice, but particularly in confusing situations. From a best practice perspective – we suggest that you document conversations and decisions regarding this issue in writing – at least to the client’s file.

The bottom line – as Abraham Lincoln said, is to take a stand. We suggest you explain the EO and the IRS response to your clients, but then follow existing law: (a) minimum essential coverage; (b) an exemption; or (c) reporting the payment. Otherwise, in our personal opinion, you cannot sign the return.

So why did the IRS respond to the EO the way they did? As indicated on their website, the IRS will continue to process returns where coverage status is not indicated to meet the EO’s intent of “minimizing burden on taxpayers, including those expecting a refund.” However, the agency may follow up with taxpayers on these so-called silent returns at a later date.

Abraham Lincoln also said “You cannot escape the responsibility of tomorrow by evading it today.” We suggest you do the right thing today before an IRS notice winds up on your client’s doorstep.

Edward Karl, CPA, Vice President – Taxation, Association of International Certified Professional Accountants

Cari Weston, CPA, Director – Tax Practice and Ethics, Association of International Certified Professional Accountants

ACA courtesy of Shutterstock

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