IRS Audits Under the Affordable Care Act (ACA): Key Risks for Employers

The Internal Revenue Service (IRS) is prioritizing Affordable Care Act (ACA) compliance in 2024. Employers that are subject to the ACA’s health insurance coverage requirements are at increased risk of facing scrutiny, and penalty audits under the ACA are leading to substantial liability in many cases. What do you need to know if the IRS is auditing your company under the ACA? Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

5 Risks in IRS Penalty Audits Under the ACA

While complying with the ACA’s health insurance requirements can present a variety of challenges for covered employers, these challenges are not excuses for non-compliance (at least according to the IRS). With this in mind, some examples of common issues that can present risks during IRS penalty audits under the ACA include:

1. Failure to Obtain (or Maintain) ACA-Mandated Health Insurance

For employers covered under the ACA’s health insurance mandate, failure to obtain the required coverage can present substantial exposure in the event of an IRS penalty audit. Any lapses in maintaining the required coverage can present risks as well.

2. Failure to Provide “Minimum Essential Coverage” or “Minimum Value”

Under the ACA, covered employers are required to provide at least “minimum essential coverage,” and their health insurance offerings must provide at least “minimum value” to their employees. Failure to meet either of these requirements for any length of time can trigger penalties during an IRS audit.

3. Failure to Provide “Affordable” Coverage Options

Covered employers’ health insurance plans must also provide their employees with “affordable” coverage options. This target has shifted over the years since the ACA took effect; and, while there are “safe harbors” available, employers must be able to affirmatively demonstrate compliance with an applicable safe harbor in order to avoid penalties.

4. Failure to Make All Required Federal Filings

Employers covered under the ACA’s health insurance mandate owe additional filing obligations to the IRS. Failing to make all required filings (or submitting inaccurate information to the IRS) can trigger penalty liability regardless of whether an employer has provided the requisite coverage to its workforce.

5. Inability to Clearly Demonstrate ACA Compliance

When facing scrutiny from the IRS, being prepared to affirmatively demonstrate statutory compliance can substantially reduce the costs and risks involved. Conversely, insufficient documentation of compliance can raise red flags, and this can make it more challenging (and more costly) to execute an effective audit defense.

Again, these are just examples. The IRS is auditing employers’ compliance with all applicable provisions of the Affordable Care Act—and it is not solely focusing on ACA compliance during these inquiries. If your company is facing an IRS penalty audit, we encourage you to contact us promptly for more information.

Schedule a Confidential Consultation with Washington D.C. Tax Attorney Kevin E Thorn

Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, has extensive experience representing companies in ACA-related matters. To schedule a confidential consultation, please call 202-349-4033 or contact us confidentially online today.