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IRS enforcement of the ACA is going to increase throughout the remainder of the year and well into 2022, as President Biden’s FY 2022 discretionary request alludes to.
On April 9, President Biden submitted to congress a request for discretionary funding for the 2022 fiscal year, and among his requests was $13.2 billion in funding for the IRS. This is roughly $1.2 billion or 10.4% more than what was available for the 2021 fiscal year.
What specifically will the IRS use the additional funds for? According to the discretionary request, the IRS will “increase oversight of high-income and corporate tax returns to ensure compliance, provide new and improved online tools for taxpayers to communicate with the IRS easily and quickly, and improve telephone and in-person taxpayer customer service, including outreach and assistance to underserved communities.”
In addition to increasing its base enforcement funding, the 2022 discretionary request provides an “increase of $417 million in funding for tax enforcement as part of a multiyear tax initiative that would increase tax compliance and increase revenues. Altogether, the 2022 discretionary request would increase resources for tax enforcement by $0.9 billion.”
That means the IRS will have more resources for assessing employers’ non-compliance with tax requirements, like the ACA’s Employer Mandate.
Under 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.
As we predicted last year, the IRS has been consistent in increasing its enforcement efforts of the ACA. The agency clarified that 2020 would be the final extension of Good-Faith Relief for reporting and furnishing under Sections 6055 and 6056. The IRS General Counsel also clarified that there is no statute of limitations for Employer Shared Responsibility Payment (ESRP) penalties. That means moving forward, there should be an increase in the amount in penalty assessments via Letter 226J and in the volume of penalties being issued. The IRS is currently issuing Letter 226J penalty notices for the 2018 tax year.
A recent audit report from the Treasury Inspector General found the IRS had calculated proposed ESRPs of over $15 billion in penalties for 2018, more than double the amount calculated in 2015. That same TIGTA report also recommended that the IRS increase its enforcement efforts to ensure they are collecting penalties, even from those who complied but filed inaccurate reports.
With more funding available for IRS enforcement efforts, the agency should be able to make good on TIGTA’s recommendation to increase its enforcement efforts of ACA penalty assessments.
To add to the severity of the situation, the IRS made it known that employers that fail to pay ACA penalties could have their property levied and or liened against them. An IRS levy permits the legal seizure of property to satisfy a tax debt. The agency can take money in financial accounts, seize and sell your vehicle(s), real estate, and other personal property. If your organization is owed a tax refund, Trusaic has seen situations where the agency offset the ESRPs with a tax overpayment.
Since ACA reporting was first required from employers in 2015, the IRS has been strengthening and refining its process for identifying non-compliance. It should come as no surprise that as time progresses, the agency is becoming more efficient in the way that it assesses ACA penalties and identifies non-compliance triggers. The ACA Compliance Validation (ACV) System too should become more robust with the additional funding that Biden is requesting for FY 2022.
With the Biden administration also focusing on bolstering many aspects of the ACA as a priority for healthcare reform, employers would be wise to revisit their ACA compliance strategy. It’s clear the law is here to stay and enforcement is ramping up from the IRS.
If your business needs assistance complying with the ACA’s Employer Mandate, download the 2021 ACA Essential Guide to understand what is expected of your organization and leverage best practices to minimize IRS risk.
For more information on Letter 226J, including best practices for responding to the penalty notice, download our white paper.