ACA Penalties Lurking for Unsuspecting Employers
By: Derek B. Wheeler, Esq.
It has now been more than a decade since the Patient Protection and Affordable Care Act (ACA) was signed into law by President Obama. Among the many requirements the law placed on taxpayers was requiring many businesses to offer minimum essential coverage to its employees. While much has been made of the substantive requirements of the ACA, less has been said about the reporting requirements of the ACA. As vast portions of the law are administered under the Internal Revenue Code, reporting obligations under the ACA, if neglected, can result in crippling penalties assessed by the IRS. Businesses need to be wary not just of complying with their substantive obligations under the ACA, but of their reporting obligations as well.
IRC §6056 requires applicable large employers (ALEs) to report certain health insurance information to the IRS and furnish forms to their employees containing this information. Under the ACA, ALE’s are defined as any company or organization that has an average of at least 50 full-time employees or “full-time equivalents” or “FTE.” Failing to comply with reporting obligations under the ACA can result in penalties under IRC §6721 and IRC §6722. While the penalty assessed under IRC §6722 results from the failure to furnish the correct forms, the penalty assessed under IRC §6721 results from failure to file the forms’ information with the IRS. The standard penalty for each of these provisions is $250, adjusted for inflation, for each failure. Therefore, if a business with 50 employees fails to file the forms, the IRS can assess a penalty of $12,500. Furthermore, the IRS has taken the position of assessing the penalties under IRC §6721 and IRC §6722 concurrently, essentially doubling the penalty amount on the business. This occurs despite failing to file and failing to furnish being two distinct actions. Adding insult to injury in these cases is that the IRS treats the business’s failure to respond to the initial letter regarding non-compliance as an excuse from needing managerial approval of the penalties normally required under IRC §6751. While one would think the determination of such a large penalty on a seemingly unsuspecting business must have managerial approval of the penalty, the IRS’ position is that failure to respond to the initial notice regarding non-compliance means the IRS can automatically calculate the penalty through electronic means. Therefore, it is incumbent upon taxpayers to ensure they are compliant with not only the substantive provisions but also the reporting provisions of the ACA.
So, what should you do if you are a business in this position? If the IRS issues a notice regarding the failure to file and/or failure to furnish any information returns, the business should always respond to the IRS in writing. Also, the business should double check their e-filing confirmations to ensure returns were filed and furnished. While it is possible the IRS has made an error in issuing the notice to the business, it is also likely there was an issue in the filing or processing of the information submitted by the business. If a business realizes they have failed to file or furnish forms to their employees, they should seek to rectify the situation as soon as possible. Both IRC §6721 and IRC §6722 provide safe harbor provisions for businesses to rectify the filing and furnishing errors within 30 days. Further, the penalties are reduced if the issue is resolved before August 1st. However, if the IRS has sent a notice regarding the issue, it is likely to have occurred beyond those timeframes.
Andreozzi Bluestein has extensive experience representing businesses seeking penalty abatement from IRC §6721/6722 penalties, and has had tremendous success having these penalties successfully eliminated. If the IRS has asserted or assessed penalties against you or a client related to IRC §6721/6722 and you would like to discuss your options with us, please call today for a no obligation consultation.
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