When filing your 2016 federal income tax return, you may be subject to a penalty for failure to maintain minimum essential coverage health insurance. Line 61 of the federal tax return, which is in the “other taxes” section of the return, has a box to check if you have full-year coverage.
For pre-2016 tax years, the IRS processed tax returns even if there was no information provided about the taxpayer’s compliance with the Affordable Care Act’s coverage requirement. The IRS then said that, for 2016, it would not process any returns that failed to provide information about the taxpayer’s compliance with the ACA coverage requirement.
The IRS has now announced that it will process 2016 returns, just as they had in the past, even if no information is provided about ACA coverage. This simply means the IRS will handle such returns the same way it has in the past.
However, the ACA coverage requirement is still law and there is still a penalty for failure to maintain coverage. The failure to report compliance, or to pay the penalty, with the tax return will be handled just as it had in past years.
This means that you will receive a letter from the IRS after filing the return asking for information about ACA compliance.
Many people do not like the ACA’s requirement that health insurance be purchased. Knowing that the IRS will process their return even if no ACA information is required may embolden them to simply provide no ACA information.
The taxpayer may find that his or her tax preparer may be less willing to sign a tax return that fails to provide ACA compliance information. The preparer’s professional obligations may not permit such an omission.
I am a CPA. To comply with my responsibilities under New Mexico Board rules, I must also comply with the AICPA Code of Conduct. This code includes something known as the Statements on Standards for Tax Services.
SSTS No. 2 deals with answers to questions on a tax return. It says that a CPA must make a reasonable effort to obtain the information required to provide answers to all questions asked on the return. This includes the line 61 box to be checked for full-year insurance coverage.
The SSTS recognizes that the preparer may not have the information to answer some questions because “genuine uncertainty exists” as to the proper answer. Those questions need not be answered.
A CPA cannot fail to provide an answer simply because the answer would be disadvantageous to the taxpayer (ACA shared responsibility penalty).
If you prepare your own return, you can make your own decisions with respect to the line 61 ACA question. The decision may not be yours alone if you use a professional tax return preparer.
Q: I am a self-employed consultant and I travel for consulting work. I file a Schedule C and deduct my out-of-pocket expenses, including any unreimbursed travel. Last year, I had a return flight canceled when Southwest’s computer system went down nationally. Southwest refunded the ticket cost, but I had to catch another flight at a much higher fare because I had an important meeting the following day. The IRS Publication says business expenses must be “reasonable.” Is the higher fare ($648 one-way) considered reasonable (the original fare was $218)?
A. Yes. There will be no specific authority that lists “reasonable” air fares. What is reasonable is based on facts and circumstances.
You do not need to seek the lowest possible fare to have a deductible expense. You do not need to book the trip a certain number of days in advance to obtain the best fare. You can even deduct the cost of business class or first class airfare.
The most important issue in your situation is whether the expense was “ordinary and necessary,” which the tax law defines to be “commonplace” and “appropriate and helpful.”
The “reasonable” standard typically applies when there may be an alternative motivation for payment — such as compensation paid to the owner of a business
No one would argue that you deliberately paid an airline more than was necessary for the travel that you were required to take. I think you’re fine.
James R. Hamill is the director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@ rhcocpa.com.