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Updated Employer Mandate Tax Assessment Guidance: “Would You Believe …?”

Maxwell Smart, aka “Agent 86” in the 1960’s TV series Get Smart, claimed to have survived “fiendish” water torture – 300 gallons at the rate of one drop a minute.  When disbelieved, he asked, “Would you believe a quart?”  The IRS has a similar credibility problem.  It has warned ambiguously of impending employer mandate tax assessments for so long that many employers have ceased to take the Service seriously.

You have read prior, sketchy, IRS guidance about when and how it will notify ALE Members of potential employer mandate tax assessments. That guidance was updated April 20, thusly.

Click this link, then scroll down to Q. 55, where you will read this:

  1. How will an employer that filed Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, know that it owes an employer shared responsibility payment?

The IRS expects to adopt procedures that ensure ALEs receive certification that one or more full-time employees have received a premium tax credit. The determination of whether an employer may be liable for an employer shared responsibility payment and the amount of the potential payment will be based on information reported to the IRS on Forms 1094-C and 1095-C and information about full-time employees of the ALE that received the premium tax credit. The IRS will contact ALEs that filed Forms 1094-C and 1095-C by letter to inform them of their potential liability, if any. These letters will provide ALEs an opportunity to respond to the IRS before any liability is assessed or notice and demand for payment is made. (These letters are separate from the letters that the IRS may send to employers that appear to be ALEs but have not satisfied the requirement to file Forms 1094-C and 1095-C.)

The contact for a given calendar year will not occur until after both the due date, including extensions, for employees to file income tax returns for that year and the due date, including extensions plus a reasonable time for corrections based on errors identified by the IRS during processing, for ALEs to file Forms 1094-C and 1095-C.

If an employer is part of an aggregated ALE group, the process and rules described above and elsewhere in Making an Employer Shared Responsibility Payment apply separately for each ALE member in the aggregated ALE group.

  1. When does the IRS expect to begin notifying employers that filed Forms 1094-C and 1095-C of potential employer shared responsibility payments?

The IRS expects that the letters informing ALEs that filed Forms 1094-C and 1095-C of their potential liability for an employer shared responsibility payment for the 2015 calendar year (with reporting in 2016) will be issued in 2017.

The IRS expects it will begin issuing letters informing ALEs that filed Forms 1094-C and 1095-C of their potential liability for an employer shared responsibility payment, if any, in the latter part of each calendar year in which reporting was due (for example, in late 2018 for reporting in 2018 for coverage in 2017).

  1. Does the IRS expect to publish more information about the employer shared responsibility payment procedures?

Yes. The IRS expects to publish guidance of general applicability describing the employer shared responsibility payment procedures in the Internal Revenue Bulletin before sending any letters to ALEs regarding the 2015 calendar year. In addition, the IRS expects to supplement that guidance in several different ways, widely distributing the information to ensure that ALEs are properly informed of when and how the IRS will be contacting them.

Our educated guess is that ALE Members are unlikely to receive the referenced IRS letters for 2015 taxes before September 1, 2017.  Here’s why.

“In 2017” literally means at any time, up to and including the last day of the year. Since the IRS must assess such taxes within three years of their accrual, it could hardly wait any longer to assess employer mandate taxes that accrued in January 2015. So, this tells us that IRS may delay as long as possible.

The Internal Revenue Bulletin is published online, normally each Monday.  Through May 22, 2017, there has been no employer mandate tax assessment guidance.  Though the Bulletin expressly states that its guidance applies retroactively, FAQ 57 says that ALE Members will be given a significant lead time to prepare for receipt of these pre-assessment “contact” letters.  First, the Bulletin will announce the procedures, then the IRS will issue supplemental guidance through other channels – perhaps including more FAQ guidance updates.  “Contact” letters mailed as late as possible, in December 2017, would seem to break this promise.  So, we expect to see something in the Bulletin by July or August, then supplemental guidance in August or September, then the promised contact letters going in the mail in September or October 2017.