It’s official, friends, the Grinch who stole Christmas has just arrived—and in a very big way.
The IRS has now begun a significant effort at forcing employers with 50+ employees to become compliant with the mandates of Obamacare. Companies are receiving notices from the IRS alleging large amounts are owed for 2015. Many companies are understandably concerned about IRS demands for years 2016 and 2017 as well.
In the world of business, these IRS mandates can be a catastrophic event for employers and employees, so today we’re going to briefly address where we are.
1. Brief History
All of us can recall President Obama promoting healthcare for all. He sold his bill politically by arguing it was not a tax at all, but a healthcare bill (interestingly, the statute refers to itself as a tax).
Most tax lawyers and accountants knew right away that it was a tax bill. There was little discussion among tax professionals that it was anything other than a tax bill.
You may also recall that the Supreme Court put this issue to rest by explicitly ruling that Obama and Congress did not have the constitutional authority to impose healthcare upon the American public. However, the Supreme Court also ruled that this bill was clearly a tax and thus under the tax provision of the US Constitution, Congress did have the authority to force citizens to make those payments. And so the bill became the law of the land.
- Individual Mandate
The Obamacare statute provides that every individual must purchase certain minimum medical insurance coverage or else be subjected to a fine. Millions of individuals, especially the young and healthy, chose to pay the fine rather than pay for expensive medical insurance.
However, the individual mandate is not enforceable. That’s correct—the IRS cannot enforce that portion of the statute. Millions of individuals who are paying the penalty are unaware that they cannot be forced to do so.
The new Republican tax law specifically removes this individual mandate. This means that there will be millions of young and healthy people, and others as well, who now have a choice and will choose not buy expensive Obamacare or perhaps any medical insurance and will no longer be fined for that choice.
3. Large Employer Mandate
An entirely separate statute provides that employers with more than 50 employees must provide minimum medical coverage for their workers. I think that the statute is poorly written, and I am not alone in this opinion. The statute’s provisions are very complicated, and key items in this law are undefined—it’s in need of either repeal or significant revamping.
The Internal Revenue Service has recently undertaken a massive effort to tax employers that don’t provide the minimum coverage according to its understanding of the statute. In the last few weeks, letters of proposed deficiencies have been sent to many of these employers alleging that enormous amounts are owed for their failure to comply with one or more provisions within this complex statute. I have several clients who are panic-stricken because the deficiencies claimed by the IRS may put them out of business.
The good news is the IRS has no more idea what the statute says than the lawyers who are defending these employers. There are numerous provisions that are undefined. There are also several “safe harbor” provisions for employers within the statute that are potentially helpful to employers in defending against these mandates.
To summarize, Obamacare is a tax. It is being enforced by the IRS and collected by the IRS under the federal tax code. Its administrative and judicial provisions are all set forth in federal tax code.
It also appears that Obamacare may be in a major death spiral. The individual mandate has been repealed, and millions of people will elect not to purchase expensive medical insurance. This may have the effect of significantly defunding Obamacare.
However, the large employer mandate has not been repealed, and those funds will be crucial to life support for Obamacare. I suspect that a very reluctant IRS will be forced to aggressively collect those employer mandate amounts.
The large employer mandate is a complicated tax law that carries all kinds of risks for employers. It is therefore important to be prepared in advance against these large tax liabilities that are now in play and being pursued vigorously be the IRS. There are some safe harbor provisions and defenses available, and I strongly advise employers to talk to your tax professionals about the present and future risks of these IRS mandates to your business.
And if you receive an ESRP (Employer Shared Responsibility Payment) letters, contact a tax advisor right away before contacting the IRS.
David Leeper is a Board Certified federal tax attorney with 38 years of experience. He can be reached at 915-581-8748 or by email at firstname.lastname@example.org