On April 7, 2017, the Treasury Inspector General for Tax Administration (TIGTA) published a report on the “Assessment of Efforts to Implement the Employer Shared Responsibility Provision.” This report1 provides clues to the Affordable Care Act (ACA) enforcement initiatives with regard to the employer mandate.
The report stressed that the IRS’ systems to enforce the employer mandate portion of the Affordable Care Act have been delayed – not cancelled -- and could be up and running as early as May 2017.
The report follows TIGTA’s audit of the Internal Revenue Service’s processes for enforcing the ACA’s tax penalties on large employers who failed to offer affordable, minimum value coverage to their full-time employees. TIGTA concluded that the IRS’ enforcement of the employer mandate has been delayed by multiple issues associated with processing the data reported by employers on the annual Form 1095-C.
In particular, the audit revealed that the IRS was slow to process the paper returns, which, in turn, delayed the testing modules for the enforcement systems. According to TIGTA, nearly a third of the 4.8 million paper Forms 1095-C had not been processed as of October 28, 2016. Other factors contributing to the delays included delays during the 1040 filing season and problems identifying valid errors in the ACA reports.
Importantly for large employers, the report also sheds light on the IRS’ process for enforcing the employer mandate penalties:
“The IRS is developing new systems that will use employer-reported information returns as well as other tax data to identify employers that are not compliant with the Employer Shared Responsibility Provision and may be subject to the Employer Shared Responsibility Payment. For example, the IRS is developing the ACA Compliance Validation (ACV) system, which will be used to identify potentially noncompliant Applicable Large Employers and calculate the proposed Employer Shared Responsibility Payments. … However, the implementation of the ACV system has been delayed to May 2017.”
The report does not state whether implementation of the ACV system in May will result in immediate enforcement activity. However, at the very least, this report suggests that employer mandate enforcement has not been shelved or postponed indefinitely.
The report also provides a rough outline of the IRS’ proposed process for notifying employers who may owe an employer mandate penalty.
“[T]he IRS’s compliance plans include the development of a process to contact the Applicable Large Employer about the potential assessment. The contact information will include identifying the employee(s) who have received [subsidized Marketplace coverage] and provide the employer an opportunity to respond to the notice of potential assessment. If the IRS determines that an employer is liable for an Employer Shared Responsibility Payment, the IRS will send the employer a notice and demand for payment.”
According to the Joint Committee on Taxation’s estimate, revenue from the employer mandate could reach $167 billion for the years between 2016 through 2025.