1094 and 1095 reporting gap in a divestiture

[dabram09]

Hi!

Company A is selling Division Z to Company B with the close date being mid-month.

Company A will stop providing health coverage to Division Z employees mid-month at close. Company B will start providing health coverage to these employees at close (no time without coverage).

However, since Division Z employees were not offered health coverage for each day of the month at Company A, there will be a reporting gap for 1094 and 1095 purposes. Likewise, for Company B.

Has anyone dealt with this before? Is there a workaround here to eliminate the coverage gap, other than requesting company A keep benefits turned on through the end of the month?

[Brian Gilmore]

I have encountered similar issues before.  My position has been that the employer mandate obligations for the buyer (with respect to Z's full-time employees in this example) trigger only as of first of the month following the close.  That's not clear in the rules, but nothing else seems viable/reasonable.  B can't offer coverage for the full month when the employee onboards mid-month.  I therefore treat the first partial month of employment with the buyer in the same manner as a new hire.  In other words, you get a limited non-assessment period (2D in Line 16).

As for the seller, I treat this in the same manner as where an employee terminates mid-month.  So the seller (A in this example) gets to use Code 2B in Line 16 to avoid any potential ACA employer mandate penalty liability for the 1H in line 14.

 

IRS Form 1094-C and 1095-C Instructions:

https://www.irs.gov/instructions/i109495c

2B. Employee not a full-time employee. Enter code 2B if the employee is not a full-time employee for the month and did not enroll in minimum essential coverage, if offered for the month. Enter code 2B also if the employee is a full-time employee for the month and whose offer of coverage (or coverage if the employee was enrolled) ended before the last day of the month solely because the employee terminated employment during the month (so that the offer of coverage or coverage would have continued if the employee had not terminated employment during the month).

...

Limited Non-Assessment Period.

...

• First calendar month of employment. If the employee’s first day of employment is a day other than the first day of the calendar month, then the employee’s first calendar month of employment is a Limited Non-Assessment Period.

[Peter Gulia]

Brian Gilmore’s reasoning makes even more sense if one sees that the typical facts of a sale of business assets (dabram09’s query says A sells “Division Z” to B) is that the workers who relate to the assets sold end employment with the seller, and might become employees of the buyer (or its subsidiary or affiliate).

This is not advice to anyone.

[dabram09]

thanks both for your responses. Very instructive. The nomenclature around the divested employees has been "transferring" rather than "terminating"