Code § 4980H: The Tax The Beatles Missed
By R. Pepper Crutcher, Jr. on March 2, 2016 Posted in Affordable Care Act, Government Employers, Private Employers, Taxes
If you drive a car, I’ll tax the street.
If you try to sit, I’ll tax your seat.
If you get too cold, I’ll tax the heat.
If you take a walk, I’ll tax your feet.
“Tax Man,” composed by George Harrison, from The Beatles’ 1966 album “Revolver.”
The Tax Man, it turns out, also may assess you for failing to offer substantially all your full-time employees and their dependents affordable, qualifying group health coverage during 2015. We’re swamped with employer reporting questions just now, but the assessment questions are beginning to trickle in. Who is this Tax Man? How will he notify you of this assessment? When? What are your rights if you disagree? How much time will you have to make what decisions? You deserved answers before you prepared your 2016 budget, but the Tax Man has told us almost nothing so far.
On May 20, 2015, the IRS told us this:
How will an employer know that it owes an Employer Shared Responsibility payment?
The IRS will adopt procedures that ensure employers receive certification that one or more employees have received a premium tax credit. The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made. The contact for a given calendar year will not occur until after the due date for employees to file individual tax returns for that year claiming premium tax credits and after the due date for applicable large employers to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).
How will an employer make an Employer Shared Responsibility payment?
If it is determined that an employer is liable for an Employer Shared Responsibility payment after the employer has responded to the initial IRS contact, the IRS will send a notice and demand for payment. That notice will instruct the employer on how to make the payment. Employers will not be required to include the Employer Shared Responsibility payment on any tax return that they file. As explained in question 2, no Employer Shared Responsibility payments will be assessed for 2014.
Since electronic Forms 1095-C must be filed by June 30, 2016, we read the paragraphs just quoted as telling employers to expect, sometime after June 2016, some sort of IRS “contact” regarding “potential liability,” followed by some sort of process for evaluating employer responses. After some period, the IRS may “send a notice and demand for payment,” including payment instructions. Must you pay first and contest later? Will the IRS serve “no liability” notices? We wish we could tell you.
We know where to look to read the answers to those questions – 26 CFR § 54.4980H-6, “Administration and procedure.” It reads, in relevant part, “(a) In general. [Reserved]”. This end seems ungratefully dead. What follows is abracadabra about what the IRS may be hiding on the dark side of the moon. Pay close attention. Quiz to follow.
The preamble to the employer mandate final rules said:
Any assessable payment under section 4980H is payable upon notice and demand and is assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68 of the Code. The IRS will adopt procedures that ensure employers receive certification, pursuant to regulations issued by HHS, that one or more employees have received a premium tax credit or cost-sharing reduction. 45 CFR 155.310(i). The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made.
79 Fed. Reg. 8,566 (Feb. 14, 2014). However, § 4980H assessments are not penalties; they are non-deductible excise taxes. 79 Fed. Reg. 8,567. The two enforcement processes are not identical. And, as you have read here, HHS decided not to comply, for at least this year, with its obligation to notify employers of subsidy certifications. Apparently, employers will first learn about employees’ 2015 subsidy certifications when contacted by the IRS regarding associated 2016 tax assessments. Can these contradictions be reconciled?
Section 6671 in Code Chapter 68, subchapter B, tells us that, “penalties and liabilities provided by this subchapter shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as taxes.” Section 6672(b) forbids any § 6671 penalty to be assessed until after the Treasury Secretary has notified the taxpayer, in writing by mail. The statute gives IRS the time allowed by § 6501 for mailing this notice, but § 6501 has varying rules for different sorts of taxes, none of them § 4980H assessments. Three years is the general rule. A timely mailed notice opens a sixty-day window for evaluation of taxpayer objections. If none is heard, the Secretary may then serve a “notice and demand.” If objections are made, the Secretary must then make a “final administrative determination with respect to such protest.”
Once a notice and demand is served, we suspect that the IRS may proceed as described in 26 CFR § 601.104:
Under the law an assessment is prima facie correct for all purposes. Generally, the taxpayer bears the burden of disproving the correctness of an assessment. Upon assessment, the district director is required to effect collection of any amounts which remain due and unpaid. Generally, payment within 10 days from the date of the notice and demand for payment is requested; however, payment may be required in a shorter period if collection of the tax is considered to be in jeopardy.
Absent timely payment, the District Director may levy on the taxpayer’s property, after giving a ten-day advance notice.
Adding it all up, IRS may not be bound to assess in 2016 employer mandate taxes that accrued in 2015, despite lots of guidance that it will. Conceivably, it could double-up next year. A proposed assessment probably will arrive in the mail, addressed, we suspect, to the person who signed your 2015 Form 1094-C, at the address shown in Part I of Form 1094-C. You might have 60 days to lodge a protest in some form that we hope will be specified in that mailing. Very probably, you will bear the burden to prove that the proposed assessment is materially incorrect. To do that, you might need ready access to your employee hire and termination dates, hours of service data, your records of group health coverage offered, accepted and declined, your Forms 1094-C and 1095-C, and payroll records. Some employers may need also to prove minimum plan value.
Confused? Most of your employers are! Give us a call we’ll clarify this as much as possible. We want to help with you’re A.C.A. consultative needs!
Rex W. Snyder