Last updated on April 25th, 2017 at 11:28 am
by Chris Cooley/MyHRConcierge
Special to The Shelby Report
How can the IRS determine if I complied with the Affordable Care Act (ACA)? That is one of the most common questions that I hear regarding ACA. Many have stated they have not heard of penalties being handed out to employers and doubt there will be enforcement of the law.
As you can imagine, developing the enforcement procedures for such a complex law can be extremely difficult. The IRS has to build the infrastructure to not only process the required forms, but also detect those that have not complied with the act’s requirements. It has been a huge undertaking and there is certainly a learning curve. However, the IRS is now implementing new systems to find offenders more effectively.
The Treasury Inspector General for Tax Administration performed an audit of the IRS’s policies and procedures to determine their effectiveness in processing the 1094 and 1095 forms and identifying companies that are not complying with the law. On April 7, it reported the findings of its audit in the “Affordable Care Act: Assessment of Efforts to Implement the Employer Shared Responsibility Provision.”
This audit report outlines the IRS’s methodology to processing the 1094 and 1095 forms and finding those that are not compliant. It also outlines many of the issues the IRS has had related to enforcement and how it intends to correct those issues.
As most businesses owners have surmised, the IRS has had difficulty in processing the forms and therefore determining offenders. A few facts from the report:
• As of Oct. 28, 2016, the IRS estimated approximately 16,000 paper Forms 1094-C and 1.4 million paper Forms 1095-C had not been processed.
• As of Oct. 28, 2016, the IRS had processed 439,201 Forms 1094-C and nearly 110 million 1095-C forms. However, the IRS’s processes were not functioning appropriately to determine those companies that were not in compliance with the ACA.
The IRS’s issues have been both resource and system related. For example, in March and April 2016 many of the agency’s resources were diverted from processing ACA forms to processing Forms 1040, U. S. Individual Income Tax Returns and other information returns. It has also incurred system issues with the programs not processing the forms as intended.
New tools to find noncompliant ALEs
The IRS is in the process of developing systems to enable it to determine companies that are not complying and are subject to penalties. One of its primary weapons to determine offenders is the ACA Compliance Validation (ACV) system. The ACV will be used to identify potential ALEs that did not offer insurance and calculate their potential penalty. The ACV has been in development since July 2015. The tool will be implemented in May 2017.
In addition to the ACV, the IRS also launched an automation tool in March 2017 that identifies:
• ALEs that did not file 1094 and 1095 forms; and
• ALEs that did not offer either affordable coverage as defined by ACA or coverage that met minimum value.
These tools will greatly enhance the IRS’s ability to identify companies that are not complying with the ACA and should increase the enforcement capabilities.
Don’t get lulled into complacency
The cost of administrating and enforcing the ACA has been significant. The government has to recoup that money in some fashion. The Joint Committee on Taxation estimates the penalties to employers relating to the ACA will be $167 billion for fiscal years 2016 through 2025.
Don’t fall into the trap of believing the requirements of the ACA will not be enforced. While the enforcement of the law has had issues to date, the IRS is moving forward with new tools to help it identify companies that are not complying with the ACA.
Chris Cooley is co-founder of MyHRConcierge and SMB Benefits Advisors. Clients rely on him for HR compliance and administration, workforce management and benefits advisory solutions. Cooley’s companies specialize in helping small to medium businesses throughout the U.S. He can be reached at 855-538-6947, ext. 108 or at [email protected].