How to Claim Good-Faith Transition Relief From IRS Penalty Assessments
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Good-faith transition relief. It’s a term used by the IRS for waiving ACA penalty assessments on employers that can provide legitimate reasons for missing a reporting requirement by the mandated deadlines. What that entails, however, is a little more involved than what you might think.
As a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA’s Employer Mandate, Applicable Large Employers (ALEs) (organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
Employers may sometimes receive relief from failing to comply with the ACA’s Employer Mandate through good-faith transition relief.
There is a common misconception around what “good-faith transition relief” means however. Before you start conjuring up ideas of penalty relief, employers should note that in order to qualify for good faith transition relief, an employer needs to demonstrate that reasonable efforts have been made to comply with ACA regulations and IRS deadlines in a responsible manner. Employers should also note that there is no good-faith relief for failing to furnish ACA filing statements to your full-time workforce (all enrollees if self-funded) as required under IRC 6721.
Every year so far, including the 2019 tax year, the IRS has extended good-faith transition relief. In the tax agency’s most recent notice, it states the following, “[i]n determining good faith, the Service will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting the required information to the Service and furnishing it to employees and covered individuals, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the Service or testing its ability to transmit information to the Service.”
What this means for employers is that if you miss deadlines, or submit inaccurate ACA filings to the IRS, you’re going to need to have good reason as to why if you expect the IRS to grant good-faith transition relief.
Good faith relief does not apply to organizations that are either ignoring or are not trying to comply with ACA regulations, which includes failing to file an ACA information return with the IRS or furnish a statement to employees by IRS deadlines. For updated IRS deadlines and information on penalties that can be levied by the IRS, click here.
Further demonstrating their commitment to ACA enforcement, the IRS has become more stringent in enforcing penalty assessment response deadlines, reducing the additional time provided to employers to one 30-day extension.
As IRS enforcement increases, employers with ACA non-compliance issues will likely need significant substantive evidence in order to claim good-faith transition relief.
Employers should undergo an ACA Penalty Risk Assessment to determine their ACA compliance status and course-correct if necessary. With ACA enforcement projected to increase in severity this year, employers need to take their ACA compliance seriously.
To learn more about ACA compliance in 2021, click here.
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