On February 21, 2020, the Internal Revenue Service (IRS) released a memo to address whether the Employer Shared Responsibility Payment (ESRP) imposed by Internal Revenue Code (IRC) section 4980H is subject to any statute of limitations.
In a surprising decision, the IRS concluded there is no statute of limitations on assessment because there is no tax return filed to report an employer’s liability for the ESRP. In other words, the filing of Forms 1095-C and 1094-C does not start a statute of limitations on the ESRP assessment, and family businesses will continue to have exposure to liability under the Affordable Care Act (ACA) employer mandate even after the standard three-year IRS statute of limitations has expired.
Maintain ACA Employer Mandate Compliance or Risk ESRP
As a refresher, under IRC section 4980H, the IRS assesses an ESRP when an employer of at least 50 full-time and full-time equivalent employees (an Applicable Large Employer or ALE):
- Fails to offer health coverage to at least 95 percent of its full-time employees or fails to offer health coverage that is affordable or minimum value; and
- At least one full-time employee applies for and receives a premium tax credit from the state exchange.
ESRP assessments can quickly accumulate into million dollar problems, so family businesses that are ALEs must ensure compliance with the ACA’s employer mandate and complete Forms 1095-C and 1094-C accurately. This is true even if a business engages a payroll company or other third-party vendor to complete its ACA reporting.
For smaller family businesses near the 50 full-time employee threshold, businesses should also confirm they have properly been treated as an exempt small employer. The IRS memo reinforces that the IRS intends to review and enforce ACA compliance and clarifies that employers cannot rely on having escaped prior years without assessment.
ACA Employer Mandate Hangs in the Balance
Is there any relief ahead for family businesses under the employer mandate?
Maybe. On March 2, 2020, the U.S. Supreme Court agreed to review a lower court's determination that the ACA's individual mandate is unconstitutional. If the U.S. Supreme Court confirms that the individual mandate is unconstitutional, it will then determine whether other provisions of the ACA, including the employer mandate, are also invalid.
Although it is anticipated that the U.S. Supreme Court will hear oral arguments in its next term, which starts in October 2020, a ruling is not expected until 2021. The possible results of the Supreme Court's review vary greatly – from upholding the ACA to finding the entire ACA invalid – and family businesses should follow the U.S. Supreme Court’s review closely.
In the meantime, with the knowledge that all years (starting with the 2015 tax year) remain open to ESRP assessments, family businesses must keep records on an indefinite basis showing:
- How full-time status is determined;
- Who receives an offer of health coverage;
- Any applicable waiting periods;
- Offers and, if feasible, waivers of compliant health coverage; and
- How affordability and minimum value are determined.
Businesses may also wish to revisit their filings for prior tax years to ensure that Forms 1095-C and 1094-C were properly completed and to determine whether outstanding ESRP liabilities should be included in the business's financial statements.