A Treasury Inspector General of Tax Administration (TIGTA) report provides new insights into how the IRS is enforcing the employer shared responsibility requirements against Applicable Large Employers. Here are the highlights:
- As of July 27, 2019, the IRS closed 48,737 cases related to the 2015 and 2016 tax years resulting in assessed 4980H penalties of $749 million. These numbers are expected to increase, as they do not include cases remaining open in those tax years or any penalties assessed for the 2017 tax year.
- The IRS dedicated more than 50 full-time equivalent employees to the ESRP program for the 2018 fiscal year at an administrative cost of $7 million.
- The penalties assessed thus far are significantly less than the $17 billion the IRS projected over the 2015 and 2016 tax years. TIGTA found this discrepancy particularly troubling given that 4980H compliance is already self-reported on Forms 1094-C and 1095-C and the IRS allows ALEs, who disagree with a proposed ESRP amount in a 226J letter, to submit a written response without supporting documentation. TIGTA cited support for other IRS compliance inquiries where supporting documentation is required, but the IRS currently has no plans to change its 4980H compliance inquiry process.
This report provides a rare glimpse into how current IRS leadership views 4980H enforcement. For now, the IRS will continue to be flexible in terms of accepting written explanations from ALEs who disagree with proposed penalties, which is great news for those wanting to minimize ESRP exposure. However, ALEs should be mindful that if a change in leadership occurs in November with the Presidential election, the IRS may change its approach.
If you require assistance with a 226J letter or have other questions related to your ALE obligations, ETC Companies has resources to help. Through our relationship with the Law Office of Haff & Raggio, PLLC, we have helped ALEs avoid almost $94 million in 4980H penalties to date. We look forward to sharing our knowledge and earning your business!