The IRS announced that there is no statute of limitations for ACA penalties. What does that mean exactly? Simply put, it means that the ACA non-compliance penalties for any reporting year can be issued at any time in the future. This is a significant development affecting employers’ compliance strategies across the U.S.
Yep, that’s right. In a field notice issued by the IRS Office of Chief Counsel, the agency makes clear that the Employer Shared Responsibility Payments (ESRP) imposed by section 4980H are not subject to a statute of limitations. Here’s an example of how that could impact your business.
Let’s say your organization didn’t comply with the ACA’s Employer Mandate for the 2015 tax year. The IRS generally limits a taxpayer’s statute of limitations to three years, which means the agency would have until 2018 to audit your organization and issue an ACA penalty assessment, but since there is no statute of limitations for ACA penalties, the IRS will be able to audit 2015 ACA filings and issue a Letter 226J penalty at any time thereafter, forever. And if your organization doesn’t pay an ACA penalty assessment, the IRS may use its levy or lien powers against your business or property
Section IRC 4980H penalties are issued via Letter 226J to employers identified as having failed to comply with the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs) are employers with 50 or more full-time employees and full-time equivalent employees) and 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.
While we recently announced that the IRS is issuing Letter 226J penalty notices for the 2018 tax year, the IRS’ notice of no time limitations for ACA penalties means that prior year ACA non-compliance penalties are fair game. And the passing of time will not grant a reprieve for employers that did not comply with the ACA.
If your organization didn’t receive an ACA penalty for a previous year, and you know your organization filed incorrectly, best practices suggest addressing the issue proactively. A free ACA Penalty Risk Assessment can help your organization identify potential risks in your ACA filings and allow you to make corrections.
The ACA’s Employer Mandate reporting requirements were first required in 2015, and the requirements were met with some apprehension as employers were unsure of how diligent the IRS would be in its assessment of non-compliance. A number of developments have happened since then however and should be indicators that the IRS is coming for your organization if you disregard the healthcare law compliance and reporting requirements.
For example, a recent Treasury Inspector General for Tax Administration (TIGTA) report found that the IRS calculated over $15 billion in Employer Shared Responsibility Payments (ESRPs) for the 2018 tax year. That’s nearly double the amount calculated in 2015. While the total amounts actually collected from employers identified as having failed to comply with the ACA were lower, TIGTA has since recommended that the IRS do more to 1) improve its process for identifying non-compliance and 2) issue penalties to employers who were in compliance but filed incorrectly.
In addition, the agency announced that 2020 would be the final year for Good-Faith Transition Relief. As a reminder, Good-Faith Transition Relief was historically extended every year and provided relief to employers who report incomplete or incorrect information on their ACA returns.
To amplify the situation, President Biden requested additional funding for the agency’s tax enforcement efforts for the 2022 fiscal year. This will provide the agency with more resources and tools for identifying ACA non-compliance.
This progress illustrates the importance of sound ACA compliance processes, and just as importantly, accurate filings.
If your organization is unsure of your previous years’ filings, contact us to have a free ACA Penalty Risk Assessment performed. Doing so will provide your organization with complete visibility into IRS penalty exposure and allow you to take action before the agency assesses a penalty. And since there is no time limit on when the agency can issue a penalty, the question you should ask yourself is “when” will it audit your business and not “will.”
The ACA reporting requirements are growing in complexity each year, due to the introduction of new 1095-C codes, individual ACA state reporting requirements, and greater scrutiny from the IRS. If you need assistance with your ACA compliance strategy, download The 2021 ACA Essential Guide for Employers for best practices for complying, reporting requirements, and important ACA state filing deadlines.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.