Top tax preparation company executives say anti-fraud efforts and Patient Protection and Affordable Care Act (PPACA) complications may have caused a drop in individual return filing volume in the first half of the current tax season.
William Cobb, the president of H&R Block Inc. (NYSE:HRB), and John Hewitt, the chief executive officer of Liberty Tax Inc. (Nasdaq:TAX), talked about the weak first-half return filing numbers last week during conference calls with securities analysts.
If the Internal Revenue Service (IRS) and state tax agencies are doing a better job of keeping unscrupulous people from filing fraudulent returns, some of that return filing reduction may be permanent, the executives said.
Hewitt said filers of fraudulent returns tend to be early filers. ”They all typically file by Feb. 10 or 15,” Hewitt said.
But Hewitt and Cobb said that they think PPACA-related worries, confusion, and plan and employer coverage reporting delays led some consumers to hold back on doing their taxes. If that’s the case, the consumers affected by PPACA will eventually file many of the returns that now appear to be missing, the executives said.
Tax preparers have been counting on PPACA mandates and programs to increase the number of consumers who have to come to them for help with filing tax returns.
PPACA has created an advance premium tax credit (APTC) exchange plan premium subsidy program. The consumers who use the APTC program, who tend to have a low or moderate level of earnings, have to predict what their income will be in the coming calendar year, when they apply for the exchange plan coverage and the tax credit. More than a year later, when the APTC users file their taxes, they have to reconcile the amount of APTC support they received with the amount they should have received.
APTC users who received too little support get cash back from the IRS. APTC users who received too much support are supposed to pay the IRS.
Last year, consumers could use a tax return checkbox to declare that they had the kind of minimum essential coverage (MEC) that a taxpayer now needs to avoid having to pay an “individual shared responsibility” penalty.
This year, for the first time, health coverage issuers are supposed to send enrollees 1095-B forms to document what kind of health coverage the enrollees have. Large employers are supposed to send out 1095-C forms to document whether workers and former workers received offers of affordable coverage with a minimum value. Individual taxpayers are supposed to use the 1095-B forms and 1095-C forms to show the IRS whether they do or do not have to pay shared responsibility penalties.
The IRS pushed the deadlines for sending out this year’s 1095-B and 1095-C forms back to March 31, from Jan. 31.
Some consumers who mean to comply with tax laws may simply be waiting until they get their 1095-B and 1095-C forms to file their tax returns, Cobb said. In other cases, he said, consumers who avoided the uninsured penalty last year by simply checking the MEC box, even if they did not have MEC, may be conscious of the fact that the IRS will now be using the 1095 forms to verify whether they have MEC.
Cobb added that he expects that the average penalty for consumers who lack MEC, or an exemption from the MEC requirement, to climb to about $500 per return this year, from $200 last year.
Consumers who expect to owe the IRS money tend to come in later than consumers who expect to get cash back from the IRS, Cobb said.
“We have to wait and see how the season plays out,” Cobb said. “Frankly, it’s a little hard to read right now.”
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