Guest Article

(From the October 10, 2011 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Updates Form 8928 for Reporting Excise Taxes on Group Health Plans

A September 2011 version of Form 8928 - Return of Certain Excise Taxes under Chapter 43 of the Internal Revenue Code was released by the IRS for employers, group health plans, plan administrators and plan sponsors to report failure to comply with certain group health plan requirements.

As summarized in the Instructions, Form 8928 must be filed in connection with:

For failures that trigger liability under Code §§ 4980B or 4980D, the Form is due on or before the due date for filing the person's federal income tax return (except for failures by a multiemployer or multiple employer plan, which must be reported by last day of the seventh month following the end of the plan year). For failures that trigger liability under Code §§ 4980E or 4980G, the Form is due before the 15th day of the fourth month following the calendar year in which the non-comparable contributions were made. A six-month filing extension can be obtained by filing Form 7004, although no extension is available for the payment of the related excise tax..

Incentive for Monitoring and Correcting Failures

The Instructions explain that no excise tax is due under Code §§ 4980B or 4980D if it is established to the satisfaction of the Treasury Secretary that no one liable for the tax knew (or exercising reasonable diligence would have known) that the failure occurred—or, if the failure was due to reasonable cause and not willful neglect and was corrected within thirty days after anyone liable for the tax knew (or, exercising reasonable diligence, should have known) that the failure existed. These failures are nonetheless disclosed on the Form, although they are associated with a zero tax liability. In contrast, if such a "reasonable cause" failure is not corrected before the IRS sends a notice of examination and the failures continued during the examination period, the minimum excise tax is $2,500 for each qualified beneficiary for whom a failure occurred (or $15,000 if the failures are determined to be more than de minimis).

Similarly, excise taxes under Code §§ 4980E and 4980G are imposed at a rate of 35 percent of the aggregate amount contributed that year by the employer to its employees' MSAs or HSAs, respectively. If the failures are due to reasonable cause and not willful neglect, however, the Treasury Secretary may waive all or part of the excise tax to the extent it would be excessive relative to the failure.

With such a structure for imposing—and waiving—these excise taxes, employers, plan sponsors, and plan administrators of group health plans have a clear and pressing incentive to establish reasonable procedures for ensuring that their health plans comply, and for promptly identifying and correcting noncompliance.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2011, Deloitte.