Putting PENDING in the Exemption Code?

[ACCURATETAX]

So now we are being told that we can file a return with the word PENDING in the code for hardship as though it has been applied for. Is this ever going to be reconciled and if it is will we have to do a bunch of amendments or is this a FREE PASS to help this year from the irs and they aren't telling
What do you guys think

Mark
accuratetaxfinancial.com

[Koss]

Pending Exemption

I don't have a real answer for you, but I do have one thought...

I'm not sure I would feel comfortable using the pending option unless the client does one of the following:

(i) provides me with a copy of the exemption application that they already mailed, or
(ii) completes an exemption application at my desk and prepares it for mailing as part of the tax return preparation process.

Yes, we do plan to help clients complete the exemption application, and yes, we will charge a reasonable fee for that work.

Ohio is a medicaid expansion state, but Ohio opted not to create its own insurance exchange. Therefore, exemption applications for Ohio residents cannot be completed online, but rather must be mailed.

To address the original question...

If the exemption is granted, then there is probably nothing to do on the back end, as the tax return was accurate.

If the exemption is denied, then it would appear that yes, the taxpayer has to do an amended return, or they'll get an IRS letter, because that means that they now owe a shared responsibility payment that was not reflected on the original return.

But the tax pro will not get a copy of the letter granting or denying the exemption--even if you file a POA. That letter does not come from the IRS.

So the burden falls on the client to come back to the tax pro if the exemption is denied.

I don't really know how all this is going to play out. My comments here are a mix of educated guesswork and common sense.

BMK

[Koss]

Due Process?

But wait, there's more!

My spidey-sense tells me that if the exemption is denied, the taxpayer will probably have the right to appeal the denial...



BMK

[Gretel]

I agree with Burton. I only would use the "pending" if indeed it is pending and not just in the taxpayers head.

[Corduroy Frog]

Maybe I'm all wet...but

I believe this "pending" scenario is possible, but unlikely. They either had insurance or they didn't, and it would appear that any "pending" situation would apply to the future and not to 2014 except under remote circumstances.

In other words, I believe use of the "pending" status is a cop-out for 2014 returns, and whereas it may be possible, 95% of the situations are discernable and it is our job (and the clients') to report correctly.

What am I missing?

[Gretel]

Hi Frog, pending means applied for the exemption at the marketplace for people who did not have insurance for all months in 2014.

[Corduroy Frog]

2014 is gone

Hi Frog, pending means applied for the exemption at the marketplace for people who did not have insurance for all months in 2014.

Understand this, but for how many months was the application pending? Hard to imagine a taxpayer went all year long without insurance and then expects to apply in December, then get bailed out of the responsibility for the entire year.

Maybe I am missing something here - won't be the first time.

[mactoolsix]

I believe this "pending" scenario is possible, but unlikely. They either had insurance or they didn't, and it would appear that any "pending" situation would apply to the future and not to 2014 except under remote circumstances.

In other words, I believe use of the "pending" status is a cop-out for 2014 returns, and whereas it may be possible, 95% of the situations are discernable and it is our job (and the clients') to report correctly.

What am I missing?

I can see the "back room" tax shops using PENDING to complete the return and get the client out the door while avoiding the Shared Responsibility Payment. It's wrong and shouldn't be allowed, but it's too late - the cats already out the door.

[Koss]

Application for Exemption

Understand this, but for how many months was the application pending? Hard to imagine a taxpayer went all year long without insurance and then expects to apply in December, then get bailed out of the responsibility for the entire year.

Maybe I am missing something here - won't be the first time.

A taxpayer can submit an application for exemption for 2014 right now.

It is not an application for an insurance policy. It is an application that asks the Department of Health & Human Services to determine that during 2014, the person qualified for an exemption from the individual mandate. The exemption can be granted, and an exemption certificate number will be issued, based on events that took place in 2014, such as unemployment, death in the family, loss of coverage, etc.

The marketplace is granting an exemption for 2014 based on what happened, or did not happen, during 2014. The application can be filed now.

If the exemption is granted, then this means the taxpayer does not have to pay the shared responsibility fee for the months in question.

Suppose they qualify for an exemption for the months of January and February, 2014.

Frog, are you suggesting that they would have to have applied for the exemption during those months?

That's not what the law requires. They can still apply now for a determination that they were exempt for that period of time.

I don't know when the final deadline for seeking an exemption is, but it hasn't passed yet...

BMK

[Corduroy Frog]

Slender Chance

Frog, are you suggesting that they would have to have applied for the exemption during those months?

That's not what the law requires. I don't know when the final deadline for seeking an exemption is, but it hasn't passed yet...

BMK

I will plead ignorance to the timing of the application process. What I am trying to say is in the vast majority of the cases, we as preparers will know, or will be required to calculate, whether a taxpayer is exempt or not. And that the introduction of a status such as "pending" opens the door for preparers and taxpayers to bail out of their responsibility. I have conceded from the start that there may be relatively few situations where the application process may allow a pending status.

[ACCURATETAX]

Im going to guess that most all my clients have no clue they need a code to choose a hardship exemption meaning they will have to file the application to get the code for the hardship exemption. Yet we do not know how long it will take to get the code back, therefore we file pending in the place of the code per the IRS. We are a state that did not extend medicaid so all clients under the 138% poverty level have a right to be exempted due to no medicaid offered by the state so they deserve it and they will not know they have to file an application for a code to get exempted and therefore the IRS is telling us go ahead and file the return with PENDING in place of the code so they will rightfully not have to pay the penalty and make sure they file for the CODE. This is one code example there are several. So we owe it to our clients to either have them wait until they get the code or give them the option that the IRS is giving and put PENDING in the CODE. My question is if we file pending will we have to file an amendment for this when they get the code or get declined or is the IRS going to let it slide thats what I was asking. People have heard there are exemptions but very few know it takes a code from the healthcare.gov to file for the exemption that they deserve. So if you don't tell them they have this choice or that they should file for the rightful exemption and just charge them the penalty we are not filing a correct return. This has to be a decision of the client I feel, that is to wait or file with pending. THanks all

Copied from IRS.Gov

Marketplace Exemptions
If you are granted a coverage exemption from the Marketplace, they will send you a notice with your unique Exemption Certificate Number or ECN. Keep this notice with other important tax information.
You will enter your ECN in Part I, Marketplace-Granted Coverage Exemptions for Individuals, of Form 8965 in column C.
If the Marketplace hasn’t processed your exemption application before you file your tax return, complete Part I of Form 8965 and enter “pending” in Column C for each person listed. If you claim the exemption on your return, you do not need an ECN from the Marketplace.

[Corduroy Frog]

Exemption Code "G"

I understand an exemption can be applied for but even so it would appear from the information available the preparer can determine whether an exemption would be valid in almost all cases. I would hate to thinking of bailing out of this determination and entering "pending" then having to amend later.

By the way, Tennessee is a state that does not have expanded Medicare coverage. Thus every resident of Tennessee (and over 90% of my clients) can enter "G" in the exemption code. As a matter of fact, I've already seen a number of W-2s from Tennessee employers and Drake is entering "G" automatically on Form 8965. Drake might change the code if I had anything intelligible to enter on their 8965 questionnaire.

In my pea-sized brain, this allows me to believe any Tennessee resident is off the hook for the responsibility of ACA coverage. This sounds too good to be true and I'm wondering what I've missed in our many discussions.

On a related note, Tennessee's governor Haslam is intensely arm-twisting our legislature to expand the Medicare coverage. The legislature is grandstanding, saying they don't know how they're going to come up with the money. I wonder if the fallout from code "G" is bearing down heavy on the Governor.

Shows what I know. Not a lot...

[TaxGuyBill]

By the way, Tennessee is a state that does not have expanded Medicare coverage. Thus every resident of Tennessee (and over 90% of my clients) can enter "G" in the exemption code.

Every resident who is under 138% of the Federal Poverty Level would be able to use Code "G", not EVERY resident.

http://www.irs.gov/pub/irs-pdf/i8965.pdf#page=2

[David1980]

I can see the "back room" tax shops using PENDING to complete the return and get the client out the door while avoiding the Shared Responsibility Payment. It's wrong and shouldn't be allowed, but it's too late - the cats already out the door.

I'd hope the back room tax shops were smarter than that, I mean if you're going to lie at least make the lie that you could reasonably expect the IRS to have no way to verify. If you write in "PENDING" and never apply for an exemption I suspect the IRS potentially could match it up with Healthcare.gov at some point down the road. If you just mark off the box on the 1040 that they have insurance, how the heck would the IRS ever know? No 1095-B or 1095-C this year.

Not that I'm suggesting anyone should lie on a tax return. I just think those that do lie on returns they prepare aren't likely to abuse "pending". The ones that don't understand that the 8965 is not an application for a marketplace exemption might use it incorrectly, but that's more out of ignorance.