IRS Eases Penalties for Late ACA Reports

Agency won’t penalize employers that made ‘legitimate efforts’ to file

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Employers still have an opportunity to submit Affordable Care Act (ACA) information returns without facing penalties, even though the June 30 filing deadline has passed, the Internal Revenue Service (IRS) announced.

Employers that opted to electronically file IRS Form 1094-C (and related forms) were required to do so by June 30, 2016, or face substantial penalties. However, the IRS said that employers won't be penalized if they made "legitimate efforts" to register with the agency and file the forms—and as long as they submit the forms "as soon as possible."

"While it is not clear what counts as 'legitimate efforts' or 'as soon as possible,' the IRS's statement shows a willingness to be flexible with employers during this first reporting year," said Scott Behrens, an Employee Retirement Income Security Act compliance attorney at Lockton Companies in Kansas City, Mo., in a compliance alert.

What constitutes a good-faith effort is always the crux, said Garrett Fenton, an attorney with Miller & Chevalier in Washington, D.C.

Employers will want to document their compliance efforts so they can support the argument that they did all they could, Fenton told SHRM Online. "But there is no magic formula for what 'good faith' means for that purpose."

Lenient Enforcement in First Reporting Period

Under the ACA employer mandate (Internal Revenue Code Section 6056), large employers are required to either offer health coverage to full-time employees or pay penalties. "Large employers" are those with at least 50 full-time or full-time equivalent employees.

These employers are required to file certain IRS forms each year that report data about their health coverage for the previous calendar year. The purpose of these forms is to show that the coverage is compliant with the ACA's requirements.

Large employers must file Form 1094-C with aggregated information about their health coverage, as well as related Form 1095-Cs for each full-time employee and any other employees enrolled in the health plan.

Although the deadline to electronically file these forms (as well as Forms 1094-B and 1095-B) has passed, the ACA Information Returns (AIR) system will continue to accept them.

Filers "that miss the June 30, 2016, due date will not generally be assessed late filing penalties under Section 6721 if the reporting entity has made legitimate efforts to register with the AIR system and to file its information returns, and it continues to make such efforts and completes the process as soon as possible," the IRS said.

Rejected Submissions and Filing Errors

The IRS additionally stated that, if the AIR system rejected a submission, the filer has 60 days from the rejection date to submit a timely replacement.

Furthermore, filers that received an "accepted with errors" message "may continue to submit corrections after June 30, 2016," according to the IRS announcement.

This Year and Next?

"We've seen in other situations under the ACA where there's been a lenient policy for the initial year, as a transition period with soft enforcement, with the next year being ramped up to full-blown strict enforcement," Fenton said.

However, "the lenient policy is sometimes extended to the next year's filing."

"Whether the IRS will do the same with next year's 1094-C filing may depend on how well compliance was achieved this year," Fenton said. "If there are a lot of employers struggling with this, it's possible [that soft enforcement] could be extended by another year or even two.

"In other situations, the IRS has taken a hard line and said, 'We gave you a year, we're not giving you any more,'" Fenton noted. "That's certainly foreseeable, too."

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