The American Institute of CPAs (AICPA) has scored several tax-related wins. Congress approved, and President Obama signed into law, a change advocated by the AICPA to allow certain small businesses to once again sponsor health reimbursement arrangements (HRAs) without incurring penalties under the Affordable Care Act (ACA). In addition, the IRS adopted the AICPA's recommendations in finalized rules related to the cancellation of debt and instructions for filing estate tax basis Form 8971.
Under the ACA, employer payment plans and similar arrangements for non-employees are considered group health plans subject to the market reform rules of the ACA. The market reform rules prohibit annual or lifetime limitations on benefits and require coverage of preventative services. Since employer payment plans and similar arrangements for non-employees routinely provide for maximum dollar limitations on benefits, they violate the market reform rules.
There are hefty penalties for violating the rules: employers in violation of the rules are subject to the Internal Revenue Code section 4980D nondeductible excise tax of $100 per-employee, per-day, ($36,500 per year) for each individual reimbursed under one of these arrangements.
The AICPA submitted a letter to Congress to urge lawmakers to enact legislation to exempt employer payment plans and similar arrangements that are provided to partners, more than two-percent shareholders of S corporations and sole proprietors, from the group health insurance requirements of the ACA.
As a result, the AICPA was asked to work with offices on the Hill to address the issue as lawmakers developed legislation that lead to the inclusion of a provision in the 21st Century Cures Act to allow certain small businesses to once again sponsor HRAs. Congress passed the 21st Century Cures Act on December 7, and President Obama signed it into law on December 13.
Cancellation of Debt
In a 2013 letter to the IRS, the AICPA wrote, “We suggest that IRS require lenders to issue Form 1099-C only upon the legal discharge of a debt, which will occur at the earlier of the expiration of the applicable statute of limitations or when all collection efforts by the lender or surrogate collection organizations have ceased.” The AICPA letter noted that confusion and misreporting occur because a Form 1099-C can be issued several years after the debt is legally discharged per the 36-month non-payment testing period. The AICPA recommended that the IRS amend the applicable regulations so that a Form 1099-C is issued only for the year that a debt is legally discharged, which would solve the timing problem created by the 36-month testing period.
In 2014, the IRS acted to eliminate the 36-month rule from the list of “identifiable events” under Internal Revenue Code section 6050P that triggers an information reporting requirement for a discharge of indebtedness. The final rules (T.D. 9793) recently issued by the IRS remove the three-year non-payment testing period for cancellation of debt reporting, as recommended by the AICPA.
Estate Basis Reporting Form 8971 Instructions
The revised instructions recently issued by the IRS for Form 8971 reflect some of the changes the AICPA requested in its January 29 comment letter and its June 1 comment letter. Among the recommendations adopted are that the form instructions now:
- Clarify that the Form 8971 is not required if the estate tax return was filed solely to elect portability.
- Provide that if the initial Form 8971 identified several beneficiaries who might receive the same property, the estate may, but isn’t required to, file a supplemental Form 8971.
- Allow the executor to enter “not required” if a foreign beneficiary isn’t required to provide a taxpayer identification number (TIN).
In addition, the instructions now permit attachments to taxpayer returns, which is a major relief to CPAs and other tax practitioners.