Employer Mandate Provisions Implemented but Need Improvement, TIGTA Finds
April 21, 2017
A newly released Treasury Inspector General for Tax Administration (TIGTA) report found that, although the IRS has implemented processes and procedures in an effort to ensure that employers subject to the Employer Shared Responsibility Provision of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) could comply with information reporting requirements. However, some of the processes did not function as intended, which resulted in the IRS not having accurate and complete data for use in its compliance strategy to identify noncompliant employers potentially subject to the Employer Shared Responsibility Payment. TIGTA also found that, due to system errors, the Service was unable to process paper information returns timely and accurately (TIGTA Report, No. 2017-43-027, April 7, 2017).
As of October 28, 2016, the IRS had processed 439,201 Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and nearly 110-million Forms 1095-C, Employer-Provided Health Insurance Offer and Coverage. Also as of that date, nearly five months after the May 31 filing deadline, the IRS estimated that approximately 16,000 paper Forms 1094-C and 1.4-million paper Forms 1095-C had not been processed.
The criteria used to identify validation errors in the submissions did not always work as intended, according to the report, which cited examples of erroneously generated error codes when no error condition existed, and error codes not being generated when an error condition did exist. As of August 25, 2016, the IRS reported 16 of the 141 total error codes for Forms 1094-C and 1095-C on the known issues report. Several of the error codes did not function as intended because the IRS did not sufficiently test its error code programming.
The report also noted that the development and implementation of key systems needed to identify noncompliant employers subject to an Employer Shared Responsibility Payment have been delayed, not initiated or cancelled. The IRS’s implementation of the post-filing compliance validation system was initially scheduled for January 2017; however, it has been delayed to May 2017.
TIGTA made seven recommendations to the commissioner, IRS Small Business/Self-Employed Division, to improve the processing of Forms 1094-C and 1095-C, which included ensuring that paper Forms 1094-C and 1095-C are timely transferred to the ACA Information Returns system for Processing Year 2017. IRS officials agreed with six of the seven recommendations but did not agree that it should establish a time frame for employers to correct errors identified on Forms 1094-C and 1095-C. The Service may reevaluate the need for additional written guidance in the future.