IRS Concludes No Statute of Limitations for ACA Penalties

March 3, 2020|

The Internal Revenue Service (IRS) recently released a memo eliminating the statute of limitations for penalties imposed by an employer’s failure to offer medical coverage to full-time employees under the Affordable Care Act (ACA). This announcement gives the IRS the flexibility to assess these penalties for an undisclosed number of years.

The employer mandate under the ACA states an applicable large employer (ALE), one with at least 50-full time employees, may be subject to Employer Shared Responsibility Payment (ESRP) penalties if:

  • The employer fails to offer minimum essential coverage to at least 95% of its full-time employers (employees who work 30 or more hours are considered full-time)
  • The employer provides this coverage, but the coverage is not “affordable” under ACA guidelines

Generally, penalties under the Internal Revenue Code are given a three-year statute of limitations period beginning on the date on which a tax return is filed. Many experts assumed filing Forms 1094-C and 1095-C, which is required for ALES under the ACA, would also trigger a similar period for ESRP penalties. However, the memo makes clear that this is not the case for two primary reasons.

First, Congress didn’t set a statute of limitations within the ACA, and several unrelated court cases have interpreted that to mean Congress didn’t intend for there to be a statute of limitations. Second, unlike a tax return, the ACA forms are insufficient on their own for the employer to determine the amount of the ESRP penalty. Thus, the ACA forms cannot start the clock on any statute of limitations period in the same way a tax return does. 

If you receive an ESRP assessment letter, IRS Letter 226-J, contact your licensed attorney and broker and issue a response to the IRS no later than the response date shown on the letter. For more information about responding to IRS Letter 226-J, see our HR News post, “What To Do If You Receive IRS Letter 226-J.” For additional information, visit the IRS’s ACA informational hub

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