The IRS has announced that it will revert to its prior practice and not reject 2016 individual income tax returns that fail to either check the “full year coverage” box on Form 1040 or provide information related to why the shared responsibility penalty will not apply to them. The IRS explanation of this can be found on their website in the article titled “Individual Shared Responsibility Provision.” (version updated February 15, 2017)
The IRS had announced last year that, beginning with 2016 individual returns, the agency would reject tax returns during processing where the taxpayer failed to provide the required health care information. In prior years the IRS had not rejected the returns (referred to as “silent returns” because they are silent with regard to health insurance issues), but continued to process the return and then, if necessary, contact the taxpayers.
The IRS explained that they had reverted to the system used in prior years in response to President Trump’s January 20 executive order (Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal, Executive Order 13765, January 20, 2017).
Section 2 of the order provides:
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.
On the webpage, the IRS notes that:
Consistent with that [Section 2 of the Executive Order], the IRS has decided to 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.
The page goes on to explain:
Processing silent returns means that taxpayer returns are not systemically rejected by the IRS at the time of filing, allowing the returns to be processed and minimizing burden on taxpayers, including those expecting a refund. When the IRS has questions about a tax return, taxpayers may receive follow-up questions and correspondence at a future date, after the filing process is completed. This is similar to how we handled this in previous years, and this reflects the normal IRS post-filing compliance procedures that we follow.
The IRS also includes a warning on the page:
However, 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.
At the moment the sole practical impact of this is that the IRS will process a return that the agency had previously announced would not be processed this year.
That said, it seems likely that further guidance will (eventually) be released in this area which will grant relief for some, or all, who are subject to the individual shared responsibility payment. But that relief was not granted by this action.
So, for now the advice is to “stay tuned for future developments.”