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The Paperwork Burden Reduction Act (PBRA) and the Employer Reporting Improvement Act (ERIA) will provide employers, especially small business owners, greater ease in complying with the Affordable Care Act (ACA) reporting requirements and relief from potential inconsistent practices of the IRS.
Reducing the Burden
Plan sponsors of group health plans with more than 50 full-time equivalent employees typically must annually file Forms 1095-B and 1095-C while providing a paper copy of the form to employees. Although employees could affirmatively consent to receiving an electronic copy under the prior law, paper copies were and still are the norm, creating a lot of administration burden for employers.
The PBRA will reduce this administrative burden. Now employers may distribute paper forms only if the employee requests a copy. This requires the employer to provide employees with a “clear, conspicuous, and accessible notice” informing them that they can request a copy of the form. No model notice has been provided, so employers need to develop their own until more guidance is published by the IRS. If an employee asks for a paper form, the employer shall provide it within 30 days of the request. These changes apply to the 2024 calendar year and forward. Employers do need to be aware that some states may require paper forms for state law mandates.
The ERIA is easing employer compliance by making it simpler to comply with ACA requirements, for example, allowing employers to substitute an employee’s name and date of birth for their TIN/SSN on ACA forms when the TIN/SSN is not provided timely. Employers also may now send the forms to employees electronically. This will require employee consent annually, and employers should consider how to do this. Any employee communication around a group health plan will typically be subject to ERISA and create fiduciary concerns, and employers are advised to get legal help in drafting employee consents.
From a tax controversy perspective, the ERIA protects employers by providing them more time to respond to an IRS notice (Letter 226-J) related to ACA “assessable payments” or “shared responsibility payment.”
Now employers have 90 days instead of 30 to respond to a Letter 226-J dated after December 31, 2024. Further, there is now a statute of limitations for shared responsibility payment assessments related to Internal Revenue Code § 4980H. Before the ERIA, there was no statute of limitations, so the IRS could review for ACA noncompliance back to the first day a shared responsibility payment issue existed. The six-year statute of limitation begins to run on the latter of the employer’s form’s due date or the actual filing date. This change applies to shared responsibility payments imposed after December 31, 2024, and employers may still face ACA assessable payments for violations older than six years prior to this date.
The 4980H Response Unit: A Model for Compliance Enforcement
Going forward, employers are protected from an aggressive IRS audit of ACA excise tax violations. However, we have seen that the employer shared responsibility division of the IRS (also known as the 4980H response unit) could be a model of how the IRS handles small employer taxation compliance. We must compliment this unit of the IRS for being knowledgeable, helpful, taxpayer-friendly, and trying to administer a complicated law in a way that is fair but enforces the law.
In this time of reevaluating efficiency within federal agencies, it would be helpful for government decision-makers to study and copy what the 4980H response unit is doing. First, it is accessible. We as practitioners can contact and discuss each shared responsibility payment matter with a qualified IRS agent. The taxpayer then has a dedicated agent who can follow the ACA issues through to a closing letter.
Second, the IRS agents in the 4980H response unit are well-versed in ACA and form compliance. We find that they will help us to get the taxpayer the best result under the facts.
Third, the 4980H response unit will typically rely on the information we as practitioners represent to be true and accurate and do not require a lot of superfluous paperwork to get an employer’s shared responsibility payment properly filed. Taxpayers are given the benefit of the doubt.
One area for constructive improvement that is not addressed by the recent legislative changes is the way the IRS uses a matching system to enforce ACA compliance. The current system is rife with errors, presuming that any employer with many filed W-2s but no filed Forms 1095 must not be in compliance. It then assesses giant civil penalties based on the taxpayers’ W-2s, which often are not representative of the number of required Forms 1095, thus creating a large error in favor of the IRS.
While the 4980H response unit does a great job of working with practitioners to help employers get through ACA compliance with less bureaucracy and few-to-no IRS horror stories, it should carry that same taxpayer-focused service to filing penalties.
Moving Forward
Employers who receive ACA-related letters should contact a qualified professional who can guide them through the tax controversy process. Employers who wish to avoid getting a letter from the IRS should consider hiring a qualified professional now to review their ACA compliance and perfect how they file the ACA forms. This compliance strategy will save employers from having to deal with the IRS, even if the 4980H response unit is a “kinder and gentler” version of the agency.
Joshua Sutin, a shareholder at law firm Chamberlain Hrdlicka, counsels businesses and not-for-profit organizations on the full range of tax and employee benefits issues. He may be reached at joshua.sutin@chamberlainlaw.com.
Leo Unzeitig is a shareholder at Chamberlain Hrdlicka who handles federal tax controversy and litigation matters before the IRS and federal courts and advises on tax planning and transaction matters. He may be reached at leo.unzeitig@chamberlainlaw.com.
Jeffrey Della Rocco, an associate at Chamberlain Hrdlicka, guides businesses and nonprofit employers through employee benefit and executive compensation issues. He may be reached at jeffrey.dellarocco@chamberlainlaw.com.
*This article was first published on HR Daily Advisor.