Good-Faith No Longer Good Enough to Avoid IRS Penalties
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IRS Notice 2020-76 provided for a 30-day extension for the furnishing deadline of IRS Forms 1095-C and extended “Good-Faith Relief” from penalties under IRC Sections 6721 and 6722 for the 2020 reporting year. With that good news came some bad news. The IRS explicitly stated that Good-Faith Relief would not be extended again.
Good-Faith Relief was intended as transitional relief for employers who report incomplete or incorrect information on their information returns (including missing and inaccurate taxpayer identification numbers or “TINs”). In determining whether Good-Faith Relief applies, the IRS will take into account a number of factors, including whether an employer made reasonable efforts to prepare IRS Forms 1094/1095-c for filing with the IRS and furnishing Forms 1095-C to employees and covered individuals, including the reasonable efforts to gather and transmit the necessary data and to test its ability to transmit the forms to the IRS.
The halt of Good-Faith Relief spells steep penalties for those employers who prepare incomplete and/or inaccurate Forms 1094/1095-C in future years. For deadlines in 2021 (pertaining to the 2020 reporting year) these penalties range from $50 to $270 per return per filing/furnishing obligation, and $550 per return per filing/furnishing obligation for intentional disregard. The caps of these penalties, which range from (a) $194,500 to $1,113,000 for businesses with gross receipts of $5 million or less and (b) $556,500 to $3,339,000 for larger businesses, depending on how late the employer files and furnishes correct and complete forms, do not apply if there is intentional disregard.
For example, if an employer was required to file and furnish 1,000 Forms 1095-C , that employer could be subject to over $500,000 in penalties if that employer furnished and filed complete and accurate Forms 1094/1095-C after August 1.
The Employer Mandate, and its associated IRS Forms 1094/1095-C, has been in effect for five years. Good-Faith Relief will no longer be available. Employers need to ensure that they are compliant or face significant penalties from the IRS.
To learn more about ACA compliance in 2021, click here.
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