IRS Provides Penalty Relief for Balances Resulting from Advance Payment of Premium Tax Credit Reconciliation (Notice 2015-9),(Jan. 27, 2015)
The IRS has provided limited relief for taxpayers who have a balance due on their 2014 income tax return as a result of reconciling advance payments of the premium tax credit against the premium tax credit allowed on the return. If a taxpayer meets certain requirements, the taxpayer is relieved of the penalty under Code Sec. 6651(a)(2) for failure to pay income tax. The relief applies only to the 2014 tax year, and does not apply to any underpayment of the individual shared responsibility payment resulting from application of Code Sec. 5000A.
Beginning in 2014, someone covered under an Affordable Insurance Exchange (Exchange) qualified health plan is allowed a premium tax credit under Code Sec. 36B. The taxpayer must reconcile or compare the amount of premium tax credit allowed on a tax return with advance credit payments. A difference between the advance payments and the credit allowed on the return may result in either a smaller refund or a larger balance due, if the advance payment exceeds the allowed credit, or a larger refund or smaller balance due, if the allowed credit exceeds the advance payment.
The IRS will abate the penalty under Code Sec. 6651(a)(2) for taxpayers who (1) are otherwise current with their filing and payment obligations; (2) have a balance due for 2014 due to excess advance payments of the premium tax credit; and (3) report the amount of excess advance payments on their timely filed 2014 return. The IRS will also abate the penalty for underpayment of estimated income tax under Code Sec. 6654(a) if the taxpayer (1) is otherwise current with filing and payment obligations; and (2) reports the amount of the excess advance credit payment on a timely filed 2014 return.
When responding to a notice demanding payment of a penalty, the taxpayer should submit a letter with the statement, "I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit." Taxpayers who file their returns by April 15, 2015, will be entitled to relief even if they have not paid the underlying liability at the time they request relief. Taxpayers who file their returns after April 15, 2015, must fully pay the underlying liability by April 15, 2016, to be eligible for relief.
To request a waiver of the estimated tax underpayment penalty under Code Sec. 6654(a), a taxpayer should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their return, along with the statement: "Received excess advance payment of the premium tax credit."
Notice 2015-9, 2015FED ¶46,235
Other References:
- Code Sec. 36B
