The Affordable Care Act’s Reporting Requirements for Carriers and Employers (Part 2 of 24): Yikes! The Costs of Failing to Comply Just Doubled
Alden Bianchi, Chair of Mintz Levin's Employee Benefits & Executive Compensation Practice, will provide a weekly installment on the complex reporting obligations outlined by the Affordable Care Act for health insurance carriers and employers. In this 24-week series, Alden will explain key requirements as he counts down to the January 2016 ACA reporting deadlines. This is the second installment of the series.
The Affordable Care Act (ACA) imposes information reporting rules on providers of minimum essential coverage, e.g., insurance carriers and self-funded plans, and on applicable large employers, i.e., those employers that are subject to the ACA’s employer shared responsibility rules. (For a description of the rules governing information reporting under the ACA, please see last week’s post.) Internal Revenue Code sections 6721 and 6722 impose penalties for violations of the information reporting rules, including failing to timely file or for filing incorrect or incomplete information returns and/or payee statements. These provisions of the Code apply to a variety of information reporting requirements including Forms 1094-B, 1095-B, 1094-C, and 1095-C, which are the ACA reporting forms under Code sections 6055 and 6056. A new law, the Trade Preferences Extension Act of 2015, has doubled the size of the applicable penalties.
Background
A penalty is imposed under Code section 6721 in the case of a provider of minimum essential coverage under Code section 6055 that fails to file timely information returns, fails to include all the required information, or includes incorrect information on the return. A penalty is also imposed under Code section 6722 in the case of a provider that fails to furnish timely the statement, fails to include all the required information, or includes incorrect information on the statement. Thus, for each affected employee, there are two possible violations. Code section 6724 provides rules under which penalties may be waived upon a showing of reasonable cause. Relief under this provision is at the discretion of the Service, however. It is unlikely to be available to any employer who ignores the reporting requirements.
Similar penalties are imposed on applicable large employers for failing to timely file information returns or furnish timely the statements, respectively, required by Code section 6056. Again, there are two possible violations for each affected employee. As in the case of Code section 6055, Code section 6724 provides rules under which penalties may be waived upon a showing of reasonable cause.
Under both sets of rules, the penalties for non-compliance were, until recently, $100 for each return for which the failure occurs—i.e., per covered individual, with an annual cap of $1,500,000. Thus, the penalty in the case of the failure to both furnish statements and file the required return was $200 per affected employee up to a maximum of $3,000,000. (These penalties are reduced somewhat where the failures are corrected within a short period of time.)
The Trade Preferences Extension Act of 2015
The Trade Preferences Extension Act of 2015 extends a trade agreement with certain sub-Saharan African partners and prevents trade partners from undercutting United States businesses with artificially low prices. The law also includes Trade Adjustment Assistance help for workers and companies affected by trade policies. One of the law’s revenue offsets includes a provision that increases penalties for incorrect information returns, including those required by the ACA, to $250 per day (from $100 per day) with an annual cap of $3,000,000 (up from $1,500,000). Thus, for example, if an applicable large employer fails to file an information return and fails to furnish timely the statement to a single employee, the penalty is $500.
The “good faith compliance” transition rule
In the final regulations issued under Code sections 6055 and 6056, the IRS provided relief that is intended to allow “additional time to develop appropriate procedures for collection of data and compliance with the new reporting requirements.” Specifically, the IRS has announced that it will not impose penalties under Code sections 6721 and 6722 on issuers of minimum essential coverage (Forms 1094-B and 1095-B) or applicable large employers (Forms 1094-C and 1095-C) that can show that “they have made good faith efforts to comply with the information reporting requirements.” The relief is available, however, only where compliance is timely.
The significance of the good faith standard should not be underestimated. It means that carriers and employers that endeavor in good faith to comply will not be subject to penalties if their efforts fall short. Carriers and employers that fail to file on time may still be eligible for penalty relief under Code section 6724 (explained above), but only if the IRS determines that the standards for reasonable cause are satisfied. Thus, late filers will have a more difficult time getting penalties waived or abated.
Conclusion
The Code section 6055 and 6056 filing requirements are complicated. It will be difficult, particularly for 2015 (the first year for which reporting is required) to get it right on all counts. This is especially true since the software that is being created to assist carriers and employers to comply is currently untested. The 2015 good faith compliance transition rule provides room for error. It does so, however, only for carriers and employers that are paying attention and who file on time.
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For a thorough treatment of the Code § 6055 and Code § 6056 reporting requirements please see Information Reporting Under the Affordable Care Act: I.R.C. §6055 and §6056