IRS Struggles with Employer Mandate Enforcement

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Rest assured all of you large employers out there – the Internal Revenue Service (IRS) feels your pain. Over the last couple of years, large employers have struggled to comply with the Affordable Care Act’s Employer Mandate and the associated reporting on IRS Forms 1094-C and 1095-C. But now that the IRS needs to enforce compliance with these requirements, it is running into its own challenges.

The Treasury Inspector General for Tax Administration (TIGTA) recently released its assessment of the IRS’s implementation of processes and procedures to monitor Employer Mandate compliance. Notably, the report does not address the assessment or payment of penalties under the Employer Mandate. Instead, it focuses on issues surrounding the reporting on Forms 1094-C and 1095-C.

The report found that, as of October 28, 2016, the IRS had processed 439,201 Forms 1094-C and nearly 110 million Forms 1095-C for the 2015 calendar year. However, TIGTA identified several issues with the processing of forms:

  • Some processes did not function as intended, which resulted in the IRS not having sufficient data to identify noncompliant employers that could potentially be subject to an Employer Mandate penalty.
  • The IRS was unable to process paper forms timely. As of October 28, 2016, there were approximately 1.4 million paper Forms 1095-C that had not been processed. Part of the delay was due to resources being diverted to complete processing of other tax forms, such as Forms 1040.
  • Error codes were generated inconsistently and error message descriptions caused confusion among employers filing electronically, which resulted in a large number of calls to the IRS E-help desk.
  • Development and implementation of key systems to identify noncompliant employers has been delayed, not initiated or cancelled. For example, implementation of a post-filing compliance validation system was initially scheduled to be up and running by January 2017 but has been delayed until May 2017. In addition, development of a case management system that would have enabled IRS staff to manage and track cases of noncompliant employers was cancelled after the IRS already spent $7 million in development costs.

TIGTA made several recommendations to the IRS to improve the processing of Forms 1094-C and 1095-C for the 2016 reporting year. The IRS has already taken steps to implement many of these recommendations. But some key questions remain – when exactly will the IRS start to assess and collect payment for penalties under the Employer Mandate? And will they struggle just as much with that process? Or will Congress eventually pass legislation that repeals the mandate altogether?