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The evidence continues to mount that the employer mandate in the Affordable Care Act is not going away soon, if ever. And the process of the IRS issuing penalty notices to organizations could be slower than anticipated.
The latest evidence came in recent testimony of Acting IRS Commissioner David Kautter before the U. S. House of Representatives Oversight Committee. Kautter confirmed to the committee members that the IRS was continuing to enforce the ACA employer mandate because it remained part of the healthcare law, unlike changes to the individual mandate that were part of last year’s tax reform legislation. As part of tax reform, Congress decided to eliminate the individual mandate penalty in 2019. The individual mandate’s penalty for Americans who choose not to obtain health insurance remains in place for 2018 and will be enforced by the IRS.
The commissioner said the IRS has issued about 10,000 notices since the IRS began enforcing the employer mandate in November 2017 by sending Letter 226J ACA penalty assessments to organizations it has determined were not in compliance with the ACA in 2015. In a recent article in The New York Times, said the IRS reportedly had sent penalty notices to more than 30,000 businesses.
Sounds like a lot of notices until you dig into the data. According to a report from TIGTA in April 2017, the IRS had processed 439,201 Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and nearly 110 million Forms 1095-C, Employer-Provided Health Insurance Offer and Coverage, as of October 28, 2016. An additional, approximately 16,000 paper Forms 1094-C and 1.4 million paper Forms 1095-C had not been processed by the IRS almost five months after the May 31, 2016 filing deadline for 2015 ACA information filings.
When you look at the 10,000 Letter 226Js sent to date in that context, it’s a drop in the bucket of the organizations with 50 or more full-time or full-time equivalent employees that are required to comply with the ACA. The IRS are sending out only as many Letter 226Js as they have agents to handle. While some of the issues so far have been easily resolved, as the IRS contacts those organizations that have failed to file their ACA information, anticipate that these issues will become more complicated, the penalties more expensive, and the enforcement process even slower.
Bottom line is that you can expect more Letter 226Js to be issued this year.
The commissioner noted that more than 80% of the penalty assessments sent to organizations have been resolved with no fines owed by the employer. Some may argue that this is good news. It means that the majority of organizations filing in 2015 did their filings accurately. Let’s look at this another way. What the acting commissioner has confirmed is that there have been at least 2,000 ACA enforcement penalties collected by the IRS. We have no transparency on how much in penalties were collected. The amount, if not contested properly, could have been huge, as we know organizations have received penalty notices in the millions of dollars.
Our take on all this is that the slow pace of ACA penalty notices being issued by the IRS is a mixed bag.
First, the bad news. There was speculation that the IRS might complete its compliance tracking for 2015 and start issuing notices for 2016 filings by the end of the year. Based on the current pace, organizations could be receiving notices for 2015 over the next two years. Imagine the compliance nightmare of tracking down documents in 2019 that were used to support 2015 filings. It could happen.
And year over year, as they learn from experience, IRS agents will become more sophisticated and educated with ACA rules, and will require more exacting responses to Letter 226J notices than has been the case in what is a transition year for the agency in dealing with the ACA enforcement.
Now, the good news. Organizations have time to find problems in past filings and fix them before the IRS sends them a penalty notice. Organizations will have to review their past 2015, 2016 and 2017 filings to identify data and process errors that may trigger the IRS to issue Letter 226J penalty notices. The questions is how many of these organizations have the in-house expertise to accomplish this. Probably, not many. For most organizations, investing in third-party experts to help with this audit process may be the right path to take. It could reap significant dividends by helping organizations avoid significant IRS ACA penalties. And this type of check-up may cost you nothing. Some of these third-party experts will do these types of audits at no cost to your organization,
If you have received a Letter 226J, you might want to review our updated infographic on how to respond to Letter 226J. You can find it in our ACA Resource Center by clicking here.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.