ACA Compliance Validation (ACV) System: Ready for Prime Time?
ACA “repeal” proposals at this point seem like zombie extras – walking dead, and none of them purports to repeal employer mandate taxes that accrued in 2015. Collection is coming; only the timing is in question.
ACV 2.0 is the program designed in 2015 to enable the IRS to identify, starting in early 2017, non-compliant Applicable Large Employers. The April 7, 2017 report of the U.S Treasury Inspector General for Tax Administration (TIGTA) included this summary of its status:
[I]mplementation of the ACV system has been delayed to May 2017. IRS management indicated that the delay is due to incorporating new requirements into ACV system development to address data inconsistencies, i.e., TY 2015 Forms 1094-C and 1095-C containing errors, missing entries, and contradictory form entries. As a result, the IRS is now having to develop an automation tool outside of the ACA system in an attempt to identify the Applicable Large Employers subject to the § 4980H(a) Employer Shared Responsibility Payment. IRS management advised us that as of January 18, 2017, the IRS was testing the automation tool that it developed and planned to deploy it by March 2017.
IRS management also explained that a lack of funding has resulted in the IRS not developing ACV capability to identify Applicable Large Employers not filing Forms 1094-C and 1095-C as required, i.e., nonfilers, or to identify the Applicable Large Employers potentially subject to the Employer Shared Responsibility Payment for offering health insurance coverage in TY 2015 that did not provide minimum value or was not affordable, i.e., § 4980H(b). Management further noted that the complexities associated with developing the programming requirements associated with the § 4980H(b) provision continue to be a challenge. As a result, IRS management indicated that they are also planning to develop an automation tool to identify nonfilers and Applicable Large Employers subject to the § 4980H(b) Employer Shared Responsibility Payment. IRS management advised us that as of January 18, 2017, the IRS is testing the automation tool that it developed and is planning to deploy it by March 2017. As part of our ongoing ACA audit coverage, we will evaluate the effectiveness of the new automation tools and eventual implementation of the ACV system.
ACV 2.0 was designed as a companion to an “ACA Case Management” system that was cancelled in June 2016 after about $7M of sunk development cost. Cancellation was related to development of an IRS-wide Enterprise Case Management system, about which the TIGTA report said:
The ACA Case Management system functional components are being transferred to the Enterprise Case Management system. On November 4, 2016, IRS management explained that it plans to use an existing document control system to provide the needed case management capabilities, including establishing manual processes for working the Employer Shared Responsibility Payment cases, as an interim alternative until the Enterprise Case Management system can provide case management for ACA-related compliance activities. As part of our ongoing ACA audit coverage, we plan to evaluate the IRS’s efforts to implement processes to ensure Applicable Large Employer compliance with the Employer Shared Responsibility Provision and assessment of the Employer Shared Responsibility Payment.
(Emphasis ours.) So, is ACV 2.0 ready for roll-out? And will employer mandate tax enforcers have ECM tools, or will they be using manual processes to generate and follow-up on letters notifying suspected ALEs of suspected employer mandate non-compliance?
Many such letters may be entirely accurate and timely, but neither should be assumed by the recipient.