By Pension and Benefits Editorial Staff
There is no applicable statute of limitations on assessable payments under Code Sec. 4980H because there is no tax return filed to report an employer’s liability for the employer shared responsibility payment (ESRP), according to a memo issued by the IRS’s Office of Chief Counsel.
Assessable payments. Code Sec. 4980H creates two separate assessable payments, one that is applicable when an applicable large employer (ALE) fails to offer its full-time employees (FTE) essential minimum coverage, the other that is applicable when the ALE offers FTEs essential minimum coverage, but at a rate that is not considered affordable to them.
Code Sec. 4980H(a) imposes an assessable payment on ALEs who fail to offer minimum essential insurance coverage to their FTEs and at least one FTE has been certified as having enrolled in a health plan with respect to which the premium tax credit (PTC) under Code Sec. 36B or any cost-sharing reduction under Section 1402 of the Affordable Care Act (or advance payment thereof) is allowed or paid to that FTE. The ALE is not liable for the Code Sec. 4980H(a) payment until at least one FTE is certified as qualified for the PTC.
Code Sec. 4980H(b) imposes a separate payment on ALEs that offer insurance that is unaffordable so that one or more FTEs are certified to the employer as being qualified for PTC. Unlike the Code Sec. 4980H(a) payment, the Code Sec. 4980H(b) payment is derived from the actual number of FTEs who are certified as qualified for the PTC. Therefore, the amount of the payment cannot be determined until it is known exactly how many employees may be entitled to the PTC.
ESRP. Anything that an ALE is liable to pay under Code Sec. 4980H is an ESRP. To determine the ESRP, the IRS collects information from both the ALEs and their FTEs. Specifically, ALEs are required to file Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Forms 1095-C, Employer Provided Health Insurance Offer and Coverage, for each of its employees.
The IRS then takes the information transmitted on those forms and cross references the Forms 1040 filed by the FTEs to determine if any, and how many, FTEs received a PTC for the year. Based on that information, the IRS computes the potential ESRP liability under Code Sec. 4980H owed by the ALE and sends Letter 226-J2 proposing such assessment. It is not possible to determine, using only the information contained on the Forms 1094-C and 1095-C, the amount of an ESRP owed by an ALE, or if such payment is even owed at all. Even though there is no return that can be filed by an ALE to report and pay a determined liability under Code Sec. 4980H, ALE taxpayers have claimed that the filing of required information returns is sufficient to start the statute of limitations under Code Sec. 6501(a).
No limitations period. Although Code Sec. 6501 states that the amount of any tax imposed by the IRC generally must be assessed within three years after the return was filed, Code Sec. 4980H does not have a separate limitations period. Therefore, if there is no return that starts the Code Sec. 6501 limitations period, the IRS would not be subject to any limitations period for assessing the Code Sec. 4980H payments.
The Supreme Court test in Beard v. Commissioner to determine whether a document is sufficient for statute of limitations purposes has several elements:
- there must be sufficient data to calculate tax liability,
- the document must purport to be a return,
- there must be an honest and reasonable attempt to satisfy the requirements of the tax law, and
- the taxpayer must execute the return under penalties of perjury.
The memo indicates there is no return filed by the ALEs that satisfies the first requirement of the Beard test with respect to either Code Sec. 4980H payment, as they do not contain sufficient data to calculate the liability. Neither the Form 1094-C nor the Form 1095-C includes information with respect to FTEs’ eligibility for the PTC, an essential piece of information for either Code Sec. 4980H payment. The IRS determines an ALE’s potential liability for the ESRP using both the information provided on these filed information returns and information contained in Forms 1040 filed by the FTEs. Generally, an ALE will not know whether FTEs are eligible for the PTC, and therefore, it will not know whether it has a potential liability under Code Sec. 4980H at the time it files Forms 1094-C and 1095-C and would have no way of calculating the amount owed. Thus, the filing of those information returns is insufficient to satisfy the Beard test and would not start the statute of limitations for assessment of a payment owed under Code Sec. 4980H. As Congress provided no other limitations period for assessing the ESRP, there is none that is applicable.
SOURCE: Office of Chief Counsel, Internal Revenue Service Memorandum, Release No. 20200801F, February 21, 2020.
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