Assessment of Efforts to Implement the Employer Shared Responsibility Provision

The Affordable Care Act’s Employer Shared Responsibility Provision requires employers with an average of 50 or more full-time employees (including full-time equivalent employees) to offer health insurance coverage to full-time employees and their dependents beginning in January 2015.  Employers who did not offer health insurance coverage, or offered health insurance coverage that did not meet minimum requirements or was not affordable, may be subject to an Employer Shared Responsibility Payment.

The office of the Treasury Inspector General for Tax Administration (TIGTA) audit was initiated as part of their coverage of the IRS’s implementation of key Affordable Care Act tax provisions.  This audit assessed the status of the IRS’s preparations for ensuring compliance with the Employer Shared Responsibility Provision and the related information reporting requirements.

WHAT TIGTA FOUND

The IRS implemented processes and procedures in an effort to ensure that employers subject to the Employer Shared Responsibility Provision could comply with information reporting requirements. 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. However, our review identified that 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.

In addition, due to system errors, the IRS was unable to process paper information returns timely and accurately. As of October 28, 2016, almost 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.

Further, the criteria used to identify validation errors in the submissions did not always work as intended. For example, some error codes erroneously generated when no error condition existed, and some error codes did not generate when an error condition existed. 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.

Finally, 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. For example, the IRS’s implementation of the post-filing compliance validation system was initially scheduled for January 2017 but has been delayed to May 2017.

WHAT TIGTA RECOMMENDED

TIGTA made seven recommendations to the Commissioner, Small Business/Self-Employed Division, to improve the processing of Forms 1094-C and 1095-C, including ensuring that paper Forms 1094-C and 1095-C are timely transferred to the ACA Information Returns system for Processing Year 2017. IRS management agreed with six of the seven recommendations.

The IRS did not agree that it should establish a time frame for employers to correct errors identified on Forms 1094-C and 1095-C, but the IRS may reevaluate the need for additional written guidance in the future.

To view the report, including the scope, methodology, and full IRS response, go to:
https://www.treasury.gov/tigta/auditreports/2017reports/201743027fr.pdf.