IRS Enforcement of ACA Employer Penalty

[Flyboyjohn]

IRS has made several announcements of when they expected to start sending notices to large employers regarding 2015 ACA penalties (originally targeted October 2016 then delayed to March 2017, then June, yada yada).

Has anybody seen an IRS ACA large employer penalty notice for 2015 yet?

Suspicion is they can't get the data matching to work and no employers will ever pay ACA penalties for 2015 (and maybe 2016, etc.). I recall the ACA revenue projection from employer penalties was $3B per year or more.

 

 

[Ryan Moulder]

The IRS has taken several steps recently to signal that the employer mandate penalties are imminent.  First, the Boston Business Journal cited unnamed IRS and White House officials saying the penalties would be issued in November 2017 - https://accord-aca.com/articles/business-journal-reports-employer-mandate-penalties-to-be-issued-in-november .  Then, on November 2, 2017 the IRS updated its website detailing the procedures on how the employer mandate penalty will be assessed - https://accord-aca.com/articles/procedures-for-employer-mandate-enforcement/ .  It is critical any employer who receives a Letter 226J from the IRS (the start of the employer mandate process) act immediately.  I believe it is likely that many employers will incorrectly be assessed penalties but a timely response is still necessary.  

[Flyboyjohn]

IRS "Employer Shared Responsibility Payment" (ESRP) notices for 2015 are starting to roll in (4 were referred to me for response just today).

So far every one has been wrong and the employers do not in fact owe any penalty for 2015, not because the IRS made an error but because the 2015 Form 1094-C was not correctly completed by its preparer.

If the 1094-C preparers made these mistakes on all their clients I anticipate we'll see a lot of erroneous notices requiring response within the short 30 day deadline.

 

[spartytax]

Has anyone had success in challenging these after the initial response date?  

[Flyboyjohn]

Yes, sort of.

When employer failed to respond to letter 226J (the 30 day letter) IRS issued letter 5040J offering a second opportunity to respond, this time within 15 days.

So I believe you get two invitations to respond before they assess the ESRP. 

[Chaz]

I assisted a client in responding to a 226J.  We provided an explanation and evidence that the IRS's assessment was incorrect.  The IRS just responded a day or two ago saying that no further action will be taken in this matter.  We responded in within the 30-day time period.

[Ryan Moulder]

The IRS has been very generous with the clients I have assisted to date in allowing an extension to the original response date providing an additional 30 days to respond.  We have just started to hear back from the IRS and so far have been successful in reducing the section 4980H penalties to $0 for each client. 

I think in future years and once the section 4980H(b) penalty begins to be assessed successful appeals will be much more challenging.  

[Flyboyjohn]

The recent TIGTA report on the ESRP process contained some interesting stats: for 2015 434,507 Forms 1094-C were filed (120 million 1095-Cs) and IRS data-match indicates $4.37 billion of ESRP to be assessed for 2015 alone.

I have to doubt the $4.37B figure because like Ryan the 10 responses I've handled have all resulted in complete abatement.