Fraudster Tries Alchemy; Will Have 20 Years to Think That Over

Posted on January 10, 2016 by Russ

I have a degree in chemical engineering. As an undergraduate, I did research into the catalyzed production of methane (CH4) from graphite (Carbon, C) and Hydrogen (H2) using potassium hydroxide (KOH) as a catalyst. That was real chemistry.

Alchemy is a bit different. An alchemist tries to turn lead into gold. With the exception of radioactive elements, chemical elements don’t change. If you have lead, it stays lead and doesn’t change into gold.

Joseph Furando of Montvale, New Jersey thought he had the perfect way of performing alchemy. He took biodiesel fuel that wasn’t eligible for two tax credits and magically turned it into biodiesel fuel that was eligible for the tax credits:

From 2007 through 2012, Indiana-based E biofuels owned a biodiesel manufacturing plant in Middletown, Indiana. Biodiesel is a fuel that can be used in diesel engines and that is made from renewable resources, including soybean oil and waste grease from restaurants. Under the Energy Independence and Security Act, properly manufactured biodiesel was eligible for a dollar per gallon tax credit as well as another valuable credit, called a Renewable Identification Number (RIN) that petroleum refiners and importers could use to demonstrate compliance with federal renewable fuel obligations. These incentives can be claimed once and only once for any given volume of biodiesel.

Furando admitted that sometime in late 2009, he and his companies, New Jersey-based defendants Caravan Trading Company and CIMA Green, began supplying E biofuels with biodiesel that was actually made by other companies and had already been used to claim tax credits and RINs. Because these incentives had already been claimed, Furando could purchase the biodiesel at much lower prices, sometimes for more than two dollars per gallon less than biodiesel that was still eligible for the credits. The conspiracy functioned as follows: Furando supplied the product to E biofuels and his co-conspirators would claim that E-biofuels made the fuel and then they would illegally re-certify the fuel and sell it at the much higher market price for incentivized biodiesel, known as B100 with RINs. Within the circle of those he trusted, Furando referred to this fraud scheme as “Alchemy.”

In two years, that was a profit—albeit an illegal profit—of $145.5 million. It appears that $56 million of this represented fraud, as that is how much restitution Mr. Furando must make. He was also sentenced to 20 years at ClubFed, and must forfeit his Ferrari and other cars, his “million-dollar home,” and other possessions.

I’ll point out (again) that tax credits attract fraudsters like moths to flames. One day, perhaps, Congress will decide that these programs should go in the dustbin of history. Well, there’s always hoping.

Posted in Tax Fraud | Comments Off on Fraudster Tries Alchemy; Will Have 20 Years to Think That Over

1099 Time for 2016

Posted on January 10, 2016 by Russ

It’s time for businesses to send out their annual information returns. These are the Form 1099s that are sent to to vendors when required. Let’s look first at who does not have to receive 1099s:

  • Corporations (except attorneys)
  • Entities you purchased tangible goods from
  • Entities you purchased less than $600 from (except royalties; the limit there is $10)
  • Where you would normally have to send a 1099 but you made payment by a credit or debit card

Otherwise, you need to send a Form 1099-MISC to the vendor. The best way to check whether or not you need to send a 1099 to a vendor is to know this before you pay a vendor’s invoice. I tell my clients that they should have each vendor complete a Form W-9 before they pay the vendor. You can then enter the vendor’s taxpayer identification number into your accounting software (along with whether or not the vendor is exempt from 1099 reporting) on an ongoing basis.

Remember that besides the 1099 sent to the vendor, a copy goes to the IRS. If you file by paper, you likely do not have to file with your state tax agency (that’s definitely the case in California). However, if you file 1099s electronically with the IRS you most likely will also need to file them electronically with your state tax agency (again, that’s definitely the case in California). It’s a case where paper filing might be easier than electronic filing.

If you wish to file paper 1099s, you must order the forms from the IRS. The forms cannot be downloaded off the Internet. Make sure you also order Form 1096 from the IRS. This is a cover page used when submitting information returns (such as 1099s) to the IRS.

Note also that sole proprietors fall under the same rules for sending out 1099s. Let’s say you’re a professional gambler, and you have a poker coach that you paid $650 to last year. You must send him or her a Form 1099-MISC. Poker players who “swap” shares or have backers also fall under the 1099 filing requirement.

Finally, there are strict deadlines with information returns. Here are the deadlines for 2014 information returns:

  • Monday, February 1st: Deadline for mailing most 1099s to recipients;
  • Monday, February 29th: Deadline for filing paper 1099s with the IRS (postmark deadline); and
  • Thursday, March 31st: Deadline for filing 1099s electronically with the IRS.

Remember, if you are going to mail 1099s to the IRS send them certified mail, return receipt requested so that you have proof of the filing.

Posted in IRS | Tagged | 2 Comments

Substance Over Form

Posted on January 7, 2016 by Russ

The Tax Court looked today at a worker in Hollywood. He thought he was a contractor; the IRS felt he was an employee. Who was correct?

Our favorite judge of the Tax Court, Judge Mark Holmes, authored the opinion so it’s very readable. The petitioner today was upset about three things that the IRS had changed with has 2009 and 2010 tax returns. First, he filed as an independent contractor in 2008 and the IRS didn’t do anything so his 2009 and 2010 returns shouldn’t be looked at. Second, he feels he was an independent contractor. Third, if he wasn’t an independent contractor he was a statutory employee. The IRS disagrees with all of these.

Judge Holmes quickly disposes of the first issue.

Each tax year stands alone, and the Commissioner may challenge in a later year what he permitted in an earlier one. The Commissioner’s failure to challenge Quintanilla’s status for the 2008 tax year doesn’t disable him from challenging that status for 2009 and 2010.

The second issue has easy law but is difficult in application. “We’ll start with the easy part: An independent contractor is one who works for another but according to his own manner and method, free from direction or right of direction in matters relating to performance of work save as to results.” The key is what did the petitioner really do, not how did he get paid.

We find that the production companies that hired Quintanilla hired him to build sets. They expected him to provide any tools he needed to complete the job. Quintanilla has an enormous collection of tools–which he stores in two 40-foot steel containers–that travels with him to jobsites. These containers are also packed with machinery that Quintanilla uses to fabricate pieces of sets on the spot…Thus, Quintanilla might be paid by the same payroll company for six months, but actually be working on 20 or more projects run by many different production companies.

But Mr. Quantanilla received some W-2s, so he must be an employee, right?

When a production company hired Quintanilla as an individual, it would generally issue him a Form W-2, Wage and Tax Statement. And the company listed on the Form W-2 as the employer was usually a payroll company. Even a tiny bit of questioning showed that his situation is much different from most taxpayers who get a W-2 from their employer, and nobody involved in this case thinks the payroll company had any control whatsoever over how Quintanilla did his work. Indeed, Quintanilla often performed different jobs for different production companies while being paid by the same payroll company. He was hired for more than 80 different jobs by production companies in 2009, but some of these production companies hired him for multiple jobs at different times throughout the year. The same was true in 2010…

We conclude that almost all these facts favor finding that Quintanilla was an independent contractor and not an employee. The most important is that Quintanilla had a large degree of control as to how to accomplish the tasks he had to do throughout the year.

That the petitioner provided his own tools was another factor in his favor. He had a risk of economic loss, another factor in his favor. The IRS tried to argue that he was employed by various payroll companies, and that was clearly not the case. The final argument that the IRS made was that the petitioner was a union member.

Quintanilla credibly explained that he and many of his peers in the industry join unions mainly to obtain health insurance and to a lesser extent to appear on call boards. His experience was typical–he was a member of a union and received his health insurance from it. That union required Quintanilla to show a minimum number of hours to receive this insurance. But neither the union contracts nor the production companies gave him vacation days or sick time. As Quintanilla credibly explained, if he wanted a vacation he would just not answer his phone. And the union contracts even excluded fixed wages and working conditions from their coverage–they expressly reserved the power of employees to cut better deals if they could. Quintanilla testified that all of his jobs came from personal connections and not one came from a union call board…

Quintanilla credibly testified that everything in Hollywood is a negotiation, and contracts are discussed daily. At times a studio even uses another studio’s stage if the price is lower than the rate for its own stage. Continual negotiations and ever-changing contracts are evidence that the studios didn’t intend to make a permanent relationship. Employers don’t negotiate with their employees daily.

So today’s petitioner, who represented himself in Tax Court, won that he was an independent contractor, not an employee. (The statutory employee issue wasn’t reached, as the petitioner won as an independent contractor.) He’s able to take his business expenses on Schedule C rather than Schedule A as he did on his tax returns.

This case was an example of a major issue in dealing with the IRS: substance versus form. I have an ongoing issue with a client who received an information return (a 1099) in error, but the IRS refuses to believe the client. All we can provide are negatives–there was no money paid to him in the year in issue. This case is going to head to Appeals soon, and we may prevail there (Appeals now looks at the chance of prevailing in Tax Court, and with information returns the burden of proof is on the IRS, and there’s no proof other than the erroneous 1099).

Here, had the IRS actually looked at what actually was happening with the petitioner, it should have realized what he was saying was true. Unfortunately, that’s a bit too much to ask for when dealing with the IRS today.

Case: Quintanilla v. Commissioner, T.C. Memo 2016-5

Posted in Tax Court | Tagged | Comments Off on Substance Over Form

IRS Errs on Identity Theft PIN Letters

Posted on January 5, 2016 by Russ

One would think that the IRS proofed important letters and notices before they’re finalized. That didn’t happen with IRS Notice CP 01A, the notice used when sending out an Identity Theft PIN (personal identification number).

The IRS announcement is reproduced in full below:

Due to an error, taxpayers are receiving Identity Protection PIN letters with an incorrect year listed. Taxpayers and tax professionals should be advised the IP PIN listed on the CP 01A Notice dated Jan. 4, 2016, is valid for use on all individual tax returns filed in 2016.

The notice incorrectly indicates the IP PIN issued is to be used for filing the 2014 tax return when the number is actually to be used for the 2015 tax return. The IRS emphasizes the IP PIN listed on the CP 01A notice is valid for the 2015 returns. Taxpayers and their tax professionals should use this PIN number for 2015 tax returns, which the IRS will begin accepting from taxpayers starting Jan. 19, 2016.

The IRS apologizes for the confusion and any inconvenience.

For more information, see the questions and answers below.

Q. When were the CP01A notices mailed?

A. The notices are all dated Jan. 4, 2016, but were mailed in late December. Taxpayers are receiving these now through mid-January.

Q. What does an IP PIN do?

A. An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return. When you have an IP PIN, it prevents someone else from filing a tax return with your SSN.

If a return is e-filed with your SSN and an incorrect or missing IP PIN, our system will reject it until you submit it with the correct IP PIN or you file on paper. If the same conditions occur on a paper-filed return, we will delay its processing and any refund you may be due for your protection while we determine if it’s yours.

Q. Does this issue affect anything else involving the IP PIN process?

A. No

The IRS will not be sending out replacement letters. Somehow, this all seems apropos when dealing with the IRS.

Posted in IRS | Tagged | Comments Off on IRS Errs on Identity Theft PIN Letters

My Day on Jury Duty

Posted on January 4, 2016 by Russ

Around Thanksgiving I received a summons for jury duty here in Las Vegas. I was asked to report on a day I had an Appeal scheduled (which had taken lots of negotiating to find a date that worked for everyone), so I had my summons date changed to January 4th. I thought you mind find my day interesting…for those who will be serving.

Back in 1989 I served on jury duty in Van Nuys, California. My then employer paid for wages for up to two weeks of jury duty. The one thing I remember most about the service was “Hurry up and wait.” A 15 minute break routinely lasted 20 – 25 minutes. It was, at times, excruciatingly slow.

Fast forward 27 years and change states. I was summoned for jury duty here in Las Vegas, with a report time of high noon. The first hour included thanking us for coming, instructions on parking, and instructions on what we could and could not do. After watching a video on the court process and a 15 minute break (yes, it ran 20 minutes), 60 of us were called for a criminal panel. (Either 14 or 16 jurors were needed–it’s a little unclear if there would be two or four alternates.)

The judge and the attorneys described the case and witnesses, and asked all of us (in turn) whether any of us had some reason why we couldn’t serve on the trial that would last an estimated four days, and whether we knew any of the witnesses. After questioning all of us generally, we were sent on a 15 minute break…that ran 25 minutes.

We then reentered the court, and the first 24 individuals received more extensive questioning on their backgrounds and whether or not they could fairly try the case. This took ninety minutes, and after that the attorneys began exercising their preemptory challenges on jurors. The preemptory challenges were done so that you didn’t know who was removed; rather, the judge played static (yes, static) on the court speakers so everyone in the court couldn’t hear a thing. The attorneys then went up for a discussion with the judge, then exited the court to talk. After another 15 25 minutes, the judge excused the first 24 prospective panelists with an order to return tomorrow. The other 30 or so individuals left (myself included) were then excused from jury duty. (Nevada has a rule: One day or one trial–if you serve for your one day be it sitting in the jury services room or are called for a case and are not needed, your jury service is done.) So I cannot be called back for jury duty for 18 months.

Some thoughts for prospective jurors:

1. Bring a book, your laptop/tablet, and lots of patience. The legal process reminds me of the IRS Practitioner Priority Service—slow.

2. I had nice conversations with fellow jurors while we were waiting (and waiting). Our panel was really a cross-section of Las Vegas: There were at least two surgeons, a legal counsel for one of the major hotel chains, several dealers (most of whom happen to work for the same hotel), a couple housewives, and several students. We were really diverse (in how we looked, too) and it’s clear to me that the defendant would be tried by a jury of his peers.

3. For a case where you summons a panel at 1:45pm (the time we headed up to the courtroom), realize that it will be impossible to complete voir dire on all 60 people in the three hours you have. Perhaps just taking 30 people and if more are needed, you get those individuals tomorrow? I suspect, though, the procedure in Nevada is to always take a panel of 60 no matter what.

4. I do appreciate the judge, the marshal, and the jury services personnel. All were friendly, and they did answer the questions we had.

So it’s back to the real world tomorrow.

Posted in Las Vegas | Tagged | Comments Off on My Day on Jury Duty

It’s Only Wrong by Three Days

Posted on January 3, 2016 by Russ

Friday’s Las Vegas Review-Journal included a free calendar (with a retail price of $2). Remember the cliche, “You get what you pay for”? Well, that was definitely the case with this free calendar.

Highlighted on Friday, April 15 is “Tax Day.” There’s only one problem with that—Tax Day is Monday, April 18th this year, not Friday, April 15th. Oops.

As the IRS noted,

The filing deadline to submit 2015 tax returns is Monday, April 18, 2016, rather than the traditional April 15 date. Washington, D.C., will celebrate Emancipation Day on that Friday, which pushes the deadline to the following Monday for most of the nation. (Due to Patriots Day, the deadline will be Tuesday, April 19, in Maine and Massachusetts.)

Well, one would hope that the Review-Journal would check with their accounting department or just do a basic search or maybe ask a local tax professional before printing their calendar…and one would be wrong.

Posted in IRS, Las Vegas | Comments Off on It’s Only Wrong by Three Days

Yes, Start Your 2016 Mileage Log Now!

Posted on January 3, 2016 by Russ

I’m going to start the new year with a few reposts of essential information. Yes, you do need to keep a mileage log:

Monday is the first business day of the new year for many. You may have resolved to keep good records this year (at least, we hope you have). Start with keeping an accurate, contemporaneous written mileage log (or use a smart phone app–with periodic sending of the information to yourself to prove that the log is contemporaneous).

Why, you ask? Because if you want to deduct all of your business mileage, you must do this! IRS regulations and Tax Court rulings require this. Written is defined as ink, so that means you need a paper log or must be able to prove your smart phone log is contemporaneous.

The first step is to go out to your car, and note the starting mileage for the new year. So go out to your car, and jot down that number (mine was 40,315). That should be the first entry in your mileage log. I use a small memo book for my mileage log; it conveniently fits in the center console of my car.

Here’s the other things you should do:

On the cover of your log, write “2016 Mileage Log for [Your Name].”

Each time you drive for business, note the date, the starting and ending mileage, where you went, and the business purpose. Let’s say you drive to meet a new client, and meet him at his business. The entry might look like:

1/5 40315-40350 Office-Acme Products (1234 Main St, Las Vegas)-Office,
Discuss requirements for preparing tax return, year-end journal entries

It takes just a few seconds to do this after each trip, and with the standard mileage rate being $0.54/mile, the 35 miles in this hypothetical trip would be worth a deduction of $19. That deduction does add up.

Some gotchas and questions:
1. Why not use a smartphone app? Actually, you can but the current regulations require you to also keep a written mileage log. You can transfer your computer app nightly to paper, and that way you can have the best of both worlds. Unfortunately, current regulations do not guarantee that a phone app will be accepted by the IRS in an audit.

That said, if you backup (or transfer) your phone app on a regular basis, and can then print out those backups, that should work. The regular backups should have identical historical information; the information can then be printed and will function as a written mileage log. I do need to point out that the Tax Court has not specifically looked at mileage logs maintained on a phone. A written mileage log (pen and paper) will be accepted; a phone app with backups should be accepted.

2. I have a second car that I use just for my business. I don’t need a mileage log. Wrong. First, IRS regulations require documentation for your business miles; an auditor will not accept that 100% of the mileage is for business–you must prove it. Second, there will always be non-business miles. When you drive your car in for service, that’s not business miles; when you fill it up with gasoline, that’s not necessarily business miles. I’ve represented taxpayers in examinations without a written mileage log; trust me, it goes far, far easier when you have one.

3. Why do I need to record the starting miles for the year? There are two reasons. First, the IRS requires you to note the total miles driven for the year. The easiest way is to note the mileage at the beginning of the year. Second, if you want to deduct your mileage using actual expenses (rather than the standard mileage deduction), the calculation involves taking a ratio of business miles to actual miles.

4. Can I use actual expenses? Yes. You would need to record all of your expenses for your car: gas, oil, maintenance, repairs, insurance, registration, lease fees (or interest and depreciation), etc., and the deduction is figured by taking the sum of your expenses and multiplying by the percentage use of your car for business (business mileage to total mileage driven). Note that once you start using actual expenses for your car, you generally must continue with actual expenses for the life of the car.

So start that mileage log today. And yes, your trip to the office supply store to buy a small memo pad is business miles that can be deducted.

Posted in Uncategorized | Comments Off on Yes, Start Your 2016 Mileage Log Now!

FTB Wins Gillette Appeal

Posted on January 1, 2016 by Russ

California’s Franchise Tax Board won the appeal of Gillette v. Franchise Tax Board. This opinion covers taxation of multi-state entities in California prior to 2012.

Gillette (and several other companies) argued that the FTB’s weighing of the “sales” factor higher than other factors was discriminatory based on a multi-state compact. (California specifically withdrew from the compact for years after 2011.) The California Supreme Court decided that the FTB’s interpretation of the California legislature is accurate.

Gillette and the other appellants can file a writ of certiorari to the US Supreme Court; however, this does not appear to be the kind of case that the US Supreme Court would take.

Posted in California | Tagged | Comments Off on FTB Wins Gillette Appeal

2015 Tax Offender of the Year

Posted on December 30, 2015 by Russ

Once more it’s time to award that prestigious award, the 2015 Tax Offender of the Year. The winner of this award must do more than just cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Unfortunately, there were plenty of nominations.

Dissatisfied with only winning the Tax Offender of the Year award once, the US Congress made a strong push for the award. However, they snatched defeat from the jaws of victory (which is a good thing; this award really isn’t something to brag about). Just two weeks ago they passed both a budget and tax “extender” legislation, and even codified the Enrolled Agent profession as part of the legislation. That last item eliminated Congress from the running.

The Miccosukee tribe was in the running again. They’ve fought a quixotic battle against the IRS, alleging that their members are exempt from US taxation on their income from a casino. The tribe has been fighting the IRS in court (and losing, time after time). Most recently, the Tax Court ruled that an IRS levy wasn’t an abuse of discretion.

However, that’s not the most recent ruling against the tribe. Just last week the 11th Circuit Court of Appeals ruled against the tribe. The tribe had appealed a dismissal of a lawsuit against former tribal officials, attorneys, a law firm, and an investment firm:

Applying the Rule 9(b) standard to the present complaint, we note that the district court previously afforded the Tribe the opportunity to amend its complaint to add particularity. In doing so, the Tribe submitted a 314-page second amended complaint which, at first blush, appears to contain particularity…The complaint’s 314 pages, therefore, appear largely to be an attempt to create the impression of specificity through page-number “shock and awe.”

Let’s just say that the Court was neither shocked nor awed:

The deficiency of the pleadings exists at a more fundamental level. Looking first at the allegations concerning the attorney defendants, the complaint suffers from a wholesale lack of detail to satisfy the plausibility standard of Iqbal and Twombly or the heightened requirements of Rule 9(b)…No attempt is made, however, to articulate what services were deemed legitimate and proper, what services comprised part of the alleged fraudulent scheme, and what rates were inflated…There is, therefore, insufficient specificity to distinguish between what attorney matters the Tribe deems to have been legitimate and what the Tribe deems to have been illegitimate. Finally, the Tribe alleges a kickback scheme in which the attorneys received payment and refunded money to Cypress, but there are no factual references to support these allegations. [foonote omitted]

The decision of the lower court was affirmed. And, yes, there’s worse to come.

Our final runner up was IRS Commissioner John Koskinen. While I applaud the lead he appears to now be taking on identity theft, Commissioner Koskinen’s reaction to the IRS scandal has been ridiculous. I agree with Joe Kristan’s comment earlier this year:

His glib, arrogant and obstructionist response to the Tea Party scandal, full of denials of the existence of information that subsequently surfaced, has destroyed his credibility. There’s no hope that the IRS will get improved funding as long as he is around to spend it.

Yet Mr. Koskinen’s bad leadership pales to the amazing tale I’m about to tell.

Stillwater, Minnesota is like many small cities in the midwest. It’s a popular day trip for residents of the Twin Cities (Minneapolis and St. Paul), and it’s largest industry appears to be tourism.

In 2006, Kenneth Harycki owned Customized Payroll Solutions in Stillwater and was its mayor. He was a CPA and had a nice business. He took on new clients in 2007, Thurlee and Roylee Belfrey (brothers) who ran some home health care businesses. So far, nothing out of the ordinary.

Unbeknownst to Mr. Harycki, the Belfreys allegedly ran their business as their own personal piggy bank. That supposedly including defrauding the US Department of Health and Human Services and skimming off payroll tax deposits. Mr. Harycki discovered this after he took the Belfreys on as clients:

Within the first few payroll cycles for Model Health Care, Harycki “concluded that while payroll taxes were being withheld from the wages of employees, those taxes were not being paid over to the government,” according to his guilty plea.

Now, when I discover a defalcation against a client I will, of course, report it to them. If I discover a client is committing payroll tax fraud (thankfully, I’ve never had this happen), I’m required to tell them to stop, and to drop them as a client. Mr. Harycki, a CPA, certainly understood the ethical requirements of his profession.

Well, maybe not.

Mr. Harycki had other ideas of what to do. Back in January when I first reported on this, I gave the three choices that could have been considered:

(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy.

Yes, Mr. Harycki decided to join the conspiracy. And boy did he do so!

According to the defendant’s guilty plea, on February 18, 2010, HARYCKI created the entity MKH Holdings, Inc., to assume control over bank accounts used to fund businesses operated by the co-conspirators. The entity was used to cause funds falsely reported on income tax returns to be paid to the co-conspirators and others. During the course of the conspiracy, HARYCKI also incorporated other businesses, obtained employer identification numbers, paid for personal expenses, filed false tax returns, and opened and used numerous bank accounts for the benefit of the separately charged co-conspirators in order to avoid payment of taxes.

There’s not much to add here. Mr. Harycki should have, once he discovered the fraud, told them of the law violations and quit the engagement. The only good that is coming from this is that Mr. Harycki appears to be cooperating with the Department of Justice in the cases against the Belfreys (who are now also facing a tax fraud charge).

That’s a wrap on 2015! While I’m hopeful that 2016 will find me bereft of candidates for the Tax Offender of the Year award, I suspect my cup will again run over.

I wish you and yours a happy, healthy and prosperous New Year.

Posted in Tax Fraud | Tagged | Comments Off on 2015 Tax Offender of the Year

IRS: We’ll Trust You on Health Insurance for 2015 Because…

Posted on December 28, 2015 by Russ

Earlier today I saw a tweet from Joe Kristan:

The delay didn’t surprise me; I felt that given this was the first year that Form 1095-B and 1095-C were required that there would be issues. But I felt that taxpayers would eventually need to provide the forms to tax professionals.

I was wrong.

From Notice 2016-04:

Similarly, some individual taxpayers may be affected by the extension of the due date for providers of minimum essential coverage to furnish information under section 6055 on either Form 1095-B or Form 1095-C. Individuals generally use this information to confirm that they had minimum essential coverage for purposes of sections 36B and 5000A. Because, as a result of the extension, individuals may not have received this information before they file their income tax returns, for 2015 only individuals who rely upon other information received from their coverage providers about their coverage for purposes of filing their returns need not amend their returns once they receive the Form 1095-B or Form 1095-C or any corrections. Individuals need not send this information to the Service when filing their returns but should keep it with their tax records. [emphasis added]

Do note that taxpayers aren’t getting a complete free ride here. The IRS reserves the right to challenge taxpayers who say they had coverage but didn’t (which is why the notice states to keep the information with the tax returns). However, given that the IRS can’t force taxpayers to pay penalties regarding health insurance coverage, it’s possible the IRS won’t be looking at this for 2015.

This is good news for tax professionals and taxpayers in another regard. We won’t have delays regarding filing returns because taxpayers haven’t received Forms 1095-B or 1095-C as long as they’re aware of their health insurance coverage. That’s a very good thing for all.

Posted in IRS | Tagged | Comments Off on IRS: We’ll Trust You on Health Insurance for 2015 Because…