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I frequently meet with insurance brokers, CPAs and business owners who are interested in the latest on the IRS’s efforts to enforce the Affordable Care Act. In recent meetings, I have been telling them to expect the IRS to become more assertive in efforts to enforce the Affordable Care Act this summer. IRS staff will be digging deeper than ever into potential ACA violations, and putting the onus on employers to prove they have complied with the law.
Here’s why I am telling them this:
- IRS ACA enforcement activities are escalating. The IRS has started issuing Letter 226J penalty notices for ACA non-compliance under IRC Section 4980H for the 2017 tax year. The tax agency just completed sending its Letter 226J penalty notices to employers for the 2016 tax year. This is the quickest we have seen the tax agency transition from issuing penalty notices for one tax year to the next.
- There will be less leeway in responding to Letter 226J and other penalty notices. The IRS has indicated it is now limiting extension requests to one 30-day extension for each IRS penalty notice received in the ACA penalty process. This means that insurance brokers, CPAs and business owners will need to act with even more urgency in responding to a penalty assessment notice, either for their clients or their businesses.
- IRS staff will be giving greater scrutiny to the methodology and data underlying employers’ determination of full-time employees. This is a deeper level of review than undertaken for previous tax years. Inaccurately providing full-time employee counts has been a trigger for ACA penalties.
- Employers will face additional paperwork burdens. The IRS will be cracking down on individuals who have received Premium Tax Credits (PTCs) to offset health insurance purchased through government exchanges. The IRS is asking individual taxpayers to obtain documents from their employers to prove that they are entitled to their PTCs, which means more work for already busy HR teams.
- Employers will need proof they have filed ACA information with the IRS. Over the past few years, many employers relied on do-it-yourself software and payroll companies to submit ACA information to the IRS on their behalf. In some cases, the software and payroll companies thought they submitted the information electronically to the IRS, not realizing the submissions were never accepted. They never confirmed whether they received the submission acceptance notices from the IRS to prove that the ACA information filings had been received by the tax agency. Now, many employers are realizing that the IRS never received their submissions and, as a result, are being issued ACA penalty notices. Expect IRS staff to insist that employers obtain these submission acceptance notices to prove they filed with the IRS as part of their defense to have ACA penalty assessments dismissed.
With the IRS becoming more assertive in its enforcement activities and with ACA penalties in the millions of dollars, employers may want to undertake an ACA Penalty Risk Assessment to determine if they are considered to be an Applicable Large Employer (ALE) by the IRS, and if they are at risk of receiving IRS penalties. Some outside experts may offer to undertake this assessment at no cost.
Now is the time for employers to review their ACA compliance process, including their document management strategy, to ensure they will not have to pay significant financial penalties to the IRS because they have failed to comply with the ACA.
