The IRS Reporting Dilemma
One of the more common questions I’m asked about the Affordable Care Act’s employer mandate is whether the IRS will actually look at the reports employers send them. The Form 1094C and 1095C reporting requirements are notoriously complex, and employers still struggle with filling it out properly. And the thinking is – if we can’t figure these out, how is the IRS going to? Turns out, they’re asking the same question.
On Friday, April 7, the Treasury Inspector General for Tax Administration released a report titled “Affordable Care Act: Assessment of Efforts to Implement the Employer Shared Responsibility Provision” (available here if you want to read all 43 glorious pages). There are some interesting highlights:
- Almost 440,000 1094Cs and 110 million 1095Cs were processed by the IRS as of October 28, 2016
- Some of the data processed didn’t give the results the IRS needed to enforce the mandate due to system issues
- As of the same date, 16,000 1094Cs and 1.4 million 1095Cs had yet to be processed
- The inspector found the IRS didn’t sufficiently test its software with respect to error code reporting, and therefore, the system wasn’t reporting errors on the forms correctly in some circumstances
- The summary concludes with this statement: “Finally, the development and implementation of key systems needed to identify noncompliant employers subject to an Employer Shared Responsibility Payment have been delayed, not initiated, or cancelled. For example, the IRS’s implementation of the post-filing compliance validation system was initially scheduled for January 2017 but has been delayed to May 2017.”
The report goes on to list seven specific recommendations the office made to the IRS. To be clear, the point of this post isn’t to focus on what went wrong on the IRS’ end (okay, yes, one thing they tagged as being a significant issue is the “unknown TIN” error many employers are running into, and the IRS is fairly confident this has been addressed for 2017 reporting). Instead, I think it’s important to know the IRS is indeed evaluating these forms. This report also sheds some light on the process, which is obviously automated to a certain extent. And like any major software system, it had (and likely still has) numerous issues which will get worked out in time. The IRS is essentially facing the same problem many vendors who got into the ACA reporting business ran into – the complexity doesn’t become evident until you start seeing reports from the “real world” and not just nice little testing data sets.
The slow-moving process of repealing and replacing the ACA means the employer mandate is here to stay for the foreseeable future, and the 1094 and 1095 reporting remains the only mechanism you, as the employer, can use to demonstrate to the government that you complied with its requirements. 2017 represents the third year of required reporting, and we’re already a third of the way through the year. Are you confident your employee tracking and reporting are working properly? There’s no more transition relief, no more “good faith effort” compliance, etc. If you need help, contact your Assurance representative today!
Information contained herein is not intended to constitute tax or legal advice and should not be used for purposes of evading or avoiding otherwise applicable regulatory responsibilities as issued by the federal or state government(s) and/or taxes owed under the Internal Revenue Code. You are encouraged to seek advice from your legal or tax advisor based on your circumstances.
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