Welcome back to the third and final segment of our 3-part discussion of the ACA reporting and disclosure forms. In Part 1, we focused on the basics: identifying the various forms, the reporting entities (focusing on employer as filers), and deadlines for filing. In Part 2, we discussed the differences between the draft and final forms. In Part 3 we will focus on the penalties for failing to file. For purposes of the following discussion, we will assume the reporting entity is an employer.
Penalties for Non-Compliance: The penalty for failure to comply with the ACA reporting and disclosure requirements is substantial. A separate penalty is assessed for each failure to file a return and each failure to provide information statements on a timely and accurate basis.
These penalties are $100 for each unintentional failure and $250 for each intentional failure. Penalties in a single calendar year may not exceed (i) $1,500,000 for information return failures; and (ii) $1,500,000 for information statement failures.
The way that these penalties would be assessed in a calendar year are as follows. An employer who inadvertently failed to report a full-time employee would incur a $100 penalty. If the employer also inadvertently failed to provide a statement to that employee, it would incur an additional $100 penalty. If such failures were intentional, the employer’s penalty would be $250 per failure ($500 total). Assuming similar violations occurred with respect to other full-time employees, the maximum combined penalty for both violations would be $3,000,000.
Penalty Relief: The employer may obtain a waiver of these penalties if it can establish, to the satisfaction of the IRS, that the failure was due to reasonable cause. In addition, an employer may be entitled to penalty relief with respect to 2015 coverage (reported in 2016) if (i) the returns and statements were timely filed and (ii) the employer made a good faith effort to comply, but, notwithstanding such effort, the returns and statements were incorrect or incomplete.
Third Party Preparer: Generally, an employer may contract with a third party to satisfy its filing and notice obligations, however the employer remains liable for any failures and resulting penalties. Of course, if the employer incurs penalties, it may pursue contractual remedies against the third party preparer to the extent available under the terms of the service agreement.
Additional Guidance: For further details, employers may consult IRS Publication 5196, “Affordable Care Act: Reporting Requirements for Applicable Large Employers.” Employers should also be on the watch for additional guidance, particularly the previously mentioned FAQs.