Employers, Brokers, Consultants and Tax Professionals: Billions of Dollars in Tax Year 2016 Penalty Notices are Coming

Employers, Brokers, Consultants and Tax Professionals: Billions of Dollars in Tax Year 2016 Penalty Notices are Coming

Employers, Brokers, Consultants and Tax Professionals: Billions of Dollars in Tax Year 2016 Penalty Notices are Coming

Earlier this year the Treasury Inspector General for Tax Administration’s (TIGTA) report on the Affordable Care Acts stated that the IRS now has the data to begin calculate the potential penalties for Tax Year 2016 to be assessed against those organizations determined to be non-compliant with the ACA. Expect the number of Letter 226J notifications and associated penalties to be greater and larger than what we have seen so far. Tax Year 2017 notices will be on the heels of the 2016 notices. A report from the Congressional Budget Office has stated these penalty assessments could total up to $12 billion in 2018


Why is it Important? -Since November 2017, the IRS has issued more than 30,000 Letter 226J notices related to Tax Year 2015 containing penalties of about $4.4 billion to employers for failing to comply with the employer mandate, also known as the Employee Shared Responsibility Payment. 318,296 organizations were identified as Applicable Large Employers. ALEs are organizations with 50 or more full-time employees and full-time equivalent employees that are required to offer minimum essential coverage to their full-time workforce. TIGTA reports that 49,259 of these were at risk for compliance action by the IRS.


Employers who have not yet received a 2015 Letter 226J notice should not breathe a sigh of relief. TIGTA reports that the IRS has spent over $2.8 million to improve the process for identifying, calculating and processing ALEs that are not in compliance with the ESRP. We can assume that the IRS is now better prepared to identify organizations that are not complying with the ACA than during the initial enforcement actions for 2015.


The IRS will now begin to audit non-compliant organizations, on a “highest value of work” basis using their automated ACA Compliance Validation System, as well as other data points. This means the larger penalties will be prioritized for enforcement. The IRS used a random methodology in the past.


If any organization thought they were getting a pass for not complying with the ACA’s employer mandate because they have yet to receive Letter 226J from the IRS, they may be sorely mistaken! Expect the IRS processes for identifying ACA non-compliance to become more robust, not less. Requirements for complying with the ACA are more stringent for tax years after 2015.

And the IRS is getting better at ACA enforcement. According to the TIGTA report, IRS management has been using the new ESRP case selection methodology to gather data to analyze all segments of the population to assist in future case analysis, selection, and assignment. TIGTA said this will allow the IRS to use the data gathered from working the tax year 2015 cases to further refine case selection methodologies and increase the probability for subsequent tax year case selections to include those with the highest compliance impact.


What Can You Do Now? Assess the potential risk of receiving IRS penalties for not complying with the ACA. Consider doing an Organizational ACA Compliance Assessment that studies your past practices and looks for improvements for Taxy Year 2018.


The ACA is not going away, and neither are the responsibilities of employers to comply with the health care law.


Take the time now to ensure that you’re ready for any potential penalties for past Tax Years and mitigate any future risk through a rigorous Organizational ACA Compliance Assessment. 

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