In 2018, the IRS began assessing employer shared responsibility penalties on large employers that failed to offer substantially all of their full-time employees minimum essential coverage. It also began issuing penalties to those large employers that failed to offer affordable, minimum value coverage to employees who then enrolled in marketplace plans and received financial assistance. As a reminder these penalties can be assessed to those employers with 50 or more full-time equivalent employees.
More than 3 years has passed since you filed your 2015 Forms 1094 and 1095 with the IRS, so like many, you may have thought you were in the clear on being assessed shared responsibility penalties. Unfortunately, the IRS issued a Chief Counsel Memorandum on February 21st stating that its position is that there is no statute of limitations on when the IRS can pursue employer shared responsibility penalties against employers. While there is a provision of the Internal Revenue Code that provides that any tax imposed by the Internal Revenue Code shall be assessed within 3 years of the return being filed, the IRS’s position is that there is no filing for the employer shared responsibility tax. Until this memorandum, many believed that the Forms 1094 and 1095 filings would start the statute of limitation running.
The current common law on whether a return has been filed sufficient to start the statute of limitations period is a three prong test, with one of the prongs being that there must be sufficient data to calculate tax liability on the filing. The IRS stated in this memorandum that the Forms 1094 and 1095 do not contain sufficient data to calculate the employer shared responsibility tax.
While this is not great news for employers, it is quite possible that this position will get challenged by an employer if the IRS attempts to assess the shared responsibility penalty back further than the 3-year period. So what should you do as a result of this memorandum? Our recommendation is to keep accurate records of who you offered coverage, the cost of coverage, and who was enrolled in your plan from 2015 on.