ACA Penalty & the Exective Order

[Randall]

Trump has signed an executive order that instructs agencies to stop enforcing the penalty.  I'm not sure of the details.  But I was wondering how that affects us preparing the returns.  Do we calculate the penalty, include it in the clients' returns.  I'm thinking we still have to do so.  I would assume the executive order would have to do with the IRS, not us.  If a client has a refund due of $1000 and has a $200 penalty, would the IRS refund him $1200?  Or if the client owed $1000 and had a $200 penalty, client paid $1000, would the IRS refund him the $200?  Would we even be able to efile the return without the penalty info included?

Edited January 24, 2017 by jklcpa
more descriptive title so not to confuse subject with qualifying for exemption or calc help

[Terry D EA]

I wonder what the effective date is???? If this is an immediate change and the IRS has to implement for this year, what a mess that can cause. I'm all for getting rid of the penalty and it will be interesting to see how this plays out.

[jklcpa]

Below is a safe link to the White House official site of the actual executive order signed.  Sec 2 is the part that pertains to the individual mandate and its penalty. It urges the regulatory agencies in charge of enforcing it to "waive, defer, delay" with the power at their means within the current law.  I think this is a step in that direction, but my understanding at this point is that this officially butts up against the actual ACA laws, and ultimately will need the repeal/replace that is planned before this can be truly legally implemented, but that appears to be covered in Sec 5 that urge agencies to follow this order.  Now the question is whether IRS will choose to not pursue the collection of the penalty and at this moment we don't have an answer to that, not at least one that I've seen.

https://www.whitehouse.gov/the-press-office/2017/01/2/executive-order-minimizing-economic-burden-patient-protection-and

[jklcpa]

For those that don't link clicking the links:

 

The White House

Office of the Press Secretary

For Immediate Release

January 20, 2017

Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal

EXECUTIVE ORDER

- - - - - - -

MINIMIZING THE ECONOMIC BURDEN OF THE PATIENT PROTECTION AND AFFORDABLE CARE ACT PENDING REPEAL

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1.  It is the policy of my Administration to seek the prompt repeal of the Patient Protection and Affordable Care Act (Public Law 111-148), as amended (the "Act").  In the meantime, pending such repeal, it is imperative for the executive branch to ensure that the law is being efficiently implemented, take all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the Act, and prepare to afford the States more flexibility and control to create a more free and open healthcare market.

Sec. 2.  To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.

Sec. 3.  To the maximum extent permitted by law, the Secretary and the heads of all other executive departments and agencies with authorities and responsibilities under the Act, shall exercise all authority and discretion available to them to provide greater flexibility to States and cooperate with them in implementing healthcare programs.

Sec. 4.  To the maximum extent permitted by law, the head of each department or agency with responsibilities relating to healthcare or health insurance shall encourage the development of a free and open market in interstate commerce for the offering of healthcare services and health insurance, with the goal of achieving and preserving maximum options for patients and consumers.

Sec. 5.  To the extent that carrying out the directives in this order would require revision of regulations issued through notice-and-comment rulemaking, the heads of agencies shall comply with the Administrative Procedure Act and other applicable statutes in considering or promulgating such regulatory revisions.

Sec. 6.  (a)  Nothing in this order shall be construed to impair or otherwise affect:

(i)   the authority granted by law to an executive department or agency, or the head thereof; or

(ii)  the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(b)  This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c)  This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

DONALD J. TRUMP

THE WHITE HOUSE,
    January 20, 2017

[jklcpa]

Some of the IRS pages covering this were last updated on 1/10. I think we are going to have to wait for more official announcements and certainly will need program updates IF there will be some allowance made to not include the penalty on affected returns for 2016. At this point wouldn't our software generate an error message that would need recitfying before e-filing would be allowed?  

Sorry for all the posts. I'm on my tablet at the moment and making it harder to include all in one post. 

[Catherine]

It was my understanding (which may be totally wrong) that the under the law as passed the IRS could send letters demanding the penalty be paid, but enforcement/collection was limited to withholding refunds.  I have seen clients who owed both tax and penalty get *two* letters - one for the tax portion, and a separate letter for the aca penalty portion.  Perhaps they will simply stop sending the dunning letters as a cheap first step - and save us all the postage.  What they do with refunds - Magic 8-Ball says "Answer hazy, ask again later"!  

[Roberts]

Very interesting. Going to be hard to over rule the software assessing a penalty - reality is I don't have any clients who don't have insurance.

My office has significant new regulation coming down the pike for later this year- our clearing firm has quietly stopped working on it with the assumption it's dead. They had hired 12 attorneys to work on this and have been having weekly meetings with the DOL to interpret the rules.

[Jack from Ohio]

Nothing is going to change for at least a year.  Just go forward with 2016 as planned.

[David W Ristau CPA]

I agree with Jack from Ohio. 

 

[JohnH]

This issue is very much a moving target and I won't make any assumptions about timing.  The one major experience we have in this area is the silliness that surrounded the $100 per day penalty, which for most employers was rescinded retroactively (although there was no mechanism for initially imposing it, as there is with the coverage penalty). 

If I have any clients who are significantly affected by the penalty, I'm going to suggest that they file an extension and let's see what happens in the coming months.  That will be cheaper for them than paying me to amend a return if the rules change in their favor later in the year.  Of course if they have a significant refund in spite of the penalty, then they probably won't go for that.  But at least they will be on notice that if they just can't wait, and if things subsequently change, the the additional work won't be a freebie. 

[Randall]

I agree John, a moving target.  I think I had 2-3 last year.  I don't think we can do anything other than prepare the returns with the penalty and go forward as Jack said.

[Jack from Ohio]

Too much paranoia about something that will take months or years to affect what we do.

[Chowdahead]

From an opinion piece on Fox News today:

Quote

He ordered that regulations already in place be enforced with a softer, more beneficent tone, and he ordered that no penalty, fine, setoff or tax be imposed by the IRS on any person or entity who is not complying with the individual mandate, because by the time taxes are due on April 15, the IRS will be without authority to impose or collect the non-tax tax, as the individual mandate will no longer exist. Why take money from people that will soon be returned?

http://www.foxnews.com/opinion/2017/01/26/andrew-napolitano-trump-has-committed-most-revolutionary-act-ive-seen-in-45-years.html

 

If a client faces a $695 or +$1,000 penalty, why would they want to pay it with the knowledge that it probably won't be returned to them if they pay it, and it won't be collected if they don't because the ACA is dead? Seems like a hard sell...

[Jack from Ohio]

2 hours ago, Chowdahead said:

From an opinion piece on Fox News today:

http://www.foxnews.com/opinion/2017/01/26/andrew-napolitano-trump-has-committed-most-revolutionary-act-ive-seen-in-45-years.html

 

If a client faces a $695 or +$1,000 penalty, why would they want to pay it with the knowledge that it probably won't be returned to them if they pay it, and it won't be collected if they don't because the ACA is dead? Seems like a hard sell...

Fox is NOT tax authority.

The IRS cannot pursue collection action on the penalties for not having insurance.  This has been in place since the inception of the penalties (tax).

Too much paranoia based overthinking way too soon.

[jklcpa]

I agree with John and Jack that it's too soon to know when this will be put into effect. We can suggest extensions for those clients that may be affected.

[JohnH]

In thinking about this a little more, there is NO WAY I would advise a client to go ahead and file if the return includes a penalty (tax) under ACA.  I'm not going to be the one holding the bag if something happens in the coming months to relieve them of the penalty and for some reason they can't get it back.  I'll suggest an extension and then a "wait and see" approach.  If they choose to go ahead and file, then I've given them the best advice, and they made the potential wrong choice. 

[Terry D EA]

I agree with John and Judy. Sounds like a good plan to me.

[BLACK BART]

2 hours ago, JohnH said:

In thinking about this a little more, there is NO WAY I would advise a client to go ahead and file if the return includes a penalty (tax) under ACA.  I'm not going to be the one holding the bag if something happens in the coming months to relieve them of the penalty and for some reason they can't get it back.  I'll suggest an extension and then a "wait and see" approach.  If they choose to go ahead and file, then I've given them the best advice, and they made the potential wrong choice. 

Well, shoot! After reading this thread I called a broke, poor-devil, one-man-band Schedule C'er who'll have to cough up $695 soon and advised an extension to see how this plays out.  Says he never got one before, is scared to start (superstition rules - what can you say?), hold off 'til 4-15, and he will talk to the preacher about it ("Is it right?").  Sure hope divine intervention from that Troubled Waters, Healing Hands, Rising Sun, and Souls Harbor outfit can do him some good 'cause I cain't.

[JohnH]

Tell him to mention to the preacher that if he saves the $695 that will mean he can put more in the offering plate.  That might help in the decision making process.

[SaraEA]

This memo just came out from one of the insurance companies on the CT exchange.  They probably know more about what's going on than most of us.

We know there has been a lot of news around the president’s Executive Order to Repeal and Replace the ACA or Affordable Care Act (also known as Obamacare).

Here are some facts:

---

>Did the executive order repeal or replace the ACA?
No, it did not.  The ACA has not been repealed or replaced at this time.

---

>How does the executive order affect 2017 coverage?
It Does Not. The Connecticut Insurance Department assures us that plans that customers enroll in during this Open Enrollment will be honored for the entire year according to state regulation.

---

>Do I still need to enroll? 
Yes. The law still requires residents to have coverage.

---

>What happens if I don’t enroll?
You could pay a tax penalty of $695 or more, and you won’t have coverage for your healthcare needs.

[grmy2h]

FWIW here is ADP's opinion. 

https://www.adp.com/tools-and-resources/adp-research-institute/insights/insight-item-detail.aspx?id=6E5431A7-B2DD-4E5F-9C24-F5113672829F

[JohnH]

I think the most likely course of events will be along these lines:

1) Taxpayers who are assessed the penalty (tax) will begin to complain loudly, asserting that "nothing has changed" in spite of the executive order. The news media will be abuzz with stories of this type because it fits their narrative.

2) The administration will recognize that their credibility on this issue is in jeopardy.

3) There will be a strong push for administrative relief and threats that heads will roll if it isn't done.

4) If #3 doesn't achieve results, extreme pressure will be applied to congress to pass legislation granting retroactive relief from the penalty (tax) for individuals.

5) This will play out over several weeks or months, probably at least into mid-year. Depending upon implementation, people who have already filed at that point may find themselves outside the window for relief. Or they may have an option to amend - who knows?

There is a strong sentiment in this country that Washington preens and postures, but nothing favorable to the average taxpayer ever gets done.  They simply cannot allow that perception to continue if they are to maintain any credibility. 

===================

Or I could be wrong...

===================

[RitaB]

23 hours ago, Chowdahead said:

From an opinion piece on Fox News today:

http://www.foxnews.com/opinion/2017/01/26/andrew-napolitano-trump-has-committed-most-revolutionary-act-ive-seen-in-45-years.html

The Judge being interviewed is no slouch.  I have always considered him to be pretty thoughtful.  Even more so than my hairdresser. And my buddy who makes a living selling insurance. I agree, I'm taking a wait and see approach.  It's January, after all.