IRS Confirms There is No Statute of Limitations for Employer Mandate Penalties

IRS Confirms There is No Statute of Limitations for Employer Mandate Penalties

The Internal Revenue Service (IRS) recently confirmed that there is no statute of limitations for applicable large employer (ALE) penalties for failing to offer appropriate coverage according to the employer-shared responsibility provisions of the Affordable Care Act (ACA). Since employer liability does not stem from a tax return filing, but rather if an eligible employee obtains a premium tax credit through a health insurance exchange, the IRS concluded that they could levy employer mandate penalties at any time.

As a general rule, if the IRS can determine business tax penalty liability solely from a tax return, then a three-year statute of limitations applies.  Employers argued that the health coverage information they give annually to the IRS via Forms 1094-C and 1095-C should be enough to trigger the three-year penalty limitation. Unfortunately, the taxman disagreed!

If your company qualifies as an ALE and has to comply with the ACA’s employer shared responsibility requirements, or if your company is close to the ALE threshold, here are three things to do with this new information.

  1. Make sure that all team members that have decision-making authority related to the benefit plan know that federal employer-shared responsibility penalty liability has no time limit.
  2. Review how your company is maintaining records for each year of ALE status.  Documentation to save includes a history of which employees were offered coverage, eligibility determination records, coverage offer dates, the specifications of the coverage, and related employee premium costs. Retention of employee waiver of coverage documentation is also critical.
  3. Be aware that this new penalty limitation information only applies to the employer-shared responsibility provisions codified under IRC 4980H.  An ALE’s annual obligation to file Forms 1094-C and 1095-C and related penalties for failing to file, late filing or filing errors are not affected by this ruling.  Neither is a self-funded plan’s obligation to file Forms 1094-B or C and 1095-B or C, as appropriate and any related penalties.  It’s unknown at this time if a statute of limitations applies to these penalties or not, so retain records accordingly.