Successful ESRP Avoidance

[Renafesq]

Has anyone been successful in avoiding the proposed ESRP for clients who did not offer coverage?  I know reasonable cause is not an acceptable reason for not offering coverage, but I was wondering if anyone has been successful in either avoiding or reducing a proposed ESRP pursuant to a 226-J letter.  Thanks!

[Flyboyjohn]

We've been very successful in reducing/eliminating ESRPs in cases where the ALE made errors in determining and reporting full-time employees on the 1095-Cs or made errors in reporting offers of coverage on the 1094-C.

If there's any possibility your client made errors in their reporting feel free to call me at 757-624-3003.

If your client simply ignored the employer mandate and the proposed ESRP appears to be correctly calculated your only remaining option is to try the nuclear option (which we haven't had to use yet) of claiming that the ESRP is invalid either for failure to provide the employer with the section 1411 certification or that the entire ACA is unconstitutional per the case pending in the 6th Circuit.

 

[Luke Bailey]

7 hours ago, Flyboyjohn said:

If your client simply ignored the employer mandate and the proposed ESRP appears to be correctly calculated your only remaining option is to try the nuclear option (which we haven't had to use yet) of claiming that the ESRP is invalid either for failure to provide the employer with the section 1411 certification or that the entire ACA is unconstitutional per the case pending in the 6th Circuit.

I believe the reference is to the 5th Circuit case, the decision in which should come any day now. However, because the unconstitutionality argument is based on the repeal of the individual mandate tax as part of TCJA, and the repeal was not effective until 1/1/2019, the complete unconstitutionality of the ACA (if that's what the 5th Circuit holds, and there are a lot of other ways it could come out) will not reach back earlier than that. In any event, a decision by the 5th Circuit that the ACA is now wholly unconstitutional would be appealed to the Supremes and a 5th Circuit judgment of unconstitutionality would be stayed during the appeal.

I should add that the IRS isn't any better at getting blood from a turnip than anyone else. If all else fails for your client, jireh87, and you get the assessment, you can always try to negotiate over ability to pay. If an ALE neither provided coverage nor reported, then you face both the ESRP and 6721 and 6722 penalties. You might get the penalties mitigated. I suspect the only way to reduce the ESRP is based on ability to pay.

[JWK]

So your client filed Forms 1094/1095 but did not offer coverage to employees, correct? 

1. Confirm that the client didn't offer coverage. ALEs can avoid the subsection (a) penalty by offering minimum essential coverage, which includes skinny plans. There's no minimum value or affordability threshold for the subsection (a) penalty. 

2. Confirm client's status as ALE for the year in question. If they are close to the 50 FT employee threshold, maybe re-run the numbers. Make sure your client understands the meaning of FT and FT equivalent.

3. What year is this for? Transition relief was available for ALEs with fewer than 100 FT employees for the 2015 plan year. Your client might qualify for that relief.

4. If your client didn't meet the 95% test, then as you know even one FT employee getting a premium tax credit will trigger the subsection (a) penalty. Look at the penalty notice and confirm that any employee(s) who received premium tax credits were actually FT employees in the applicable month.

5. Confirm that the penalty was calculated correctly. The IRS did not always apply the "minus 30" portion of the subsection (a) penalty formula when calculating the penalty. The "minus 30" (minus 80 for 2015) is automatic--that would reduce the penalty by more than $60,000.