TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

IMPROVEMENTS ARE NEEDED TO ENSURE THAT EMPLOYER SHARED RESPONSIBILITY PAYMENTS ARE PROPERLY ASSESSED

Final Report issued on June 10, 2020

Highlights of Reference Number:  2020-43-028 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

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.  Employers that did not offer health insurance coverage, or offered health insurance coverage that did not meet minimum value or was not affordable, may be subject to an Employer Shared Responsibility Payment.

WHY TIGTA DID THE AUDIT

This audit was initiated as part of our continued coverage to address the IRS’s implementation of tax law changes.  This audit evaluated the IRS’s processes for assessing and collecting Employer Shared Responsibility Payments to ensure compliance with the Employer Shared Responsibility Provision and related information reporting requirements of the Affordable Care Act.

WHAT TIGTA FOUND

Applicable Large Employers are required to report to the IRS information about the health care coverage, if any, they offered to their full‑time employees.  This information is used to identify whether these employers are subject to an Employer Shared Responsibility Payment.  Our review found that the amount the IRS ultimately assesses is substantially less than its initial calculation of the proposed Employer Shared Responsibility Payment.  For Tax Years 2015 and 2016 cases closed or in process as of July 27, 2019, the IRS initially calculated proposed Employer Shared Responsibility Payments of nearly $17 billion.  However, the IRS assessed only $749 million.  TIGTA found that in most cases, the IRS reduces or eliminates the Employer Shared Responsibility Payments *****************2********************* ************2*********** that health insurance coverage was provided by the employers.

TIGTA’s review of these cases also identified 90 Applicable Large Employers that, based on the name of the entity, may be churches but were not referred to the Tax Exempt/ Government Entities Division, which has experience in handling cases for tax-exempt entities.  Instead, the cases were worked by Small Business/Self-Employed Division examiners.  As such, the IRS did not conduct the necessary in-depth reviews, which ensure compliance with applicable legal provisions and protections, prior to sending the church a proposed assessment.

WHAT TIGTA RECOMMENDED

TIGTA made three recommendations to improve the processes and procedures the IRS uses for Employer Shared Responsibility Payments.  These recommendations include requiring Applicable Large Employers *****************2********************* when they disagree with the proposed Employer Shared Responsibility Payment.

IRS management disagreed with all three recommendations.  Management plans to maintain current practices regarding the *****************2****************** required from Applicable Large Employers when they disagree with the proposed Employer Shared Responsibility Payment.  Management also did not believe the presence, or not, of any particular word in a taxpayer’s name is determinative of status or a claim to status as a church.  Management’s position is contrary to internal guidelines which state that IRS could infer that an entity is a church by the presence of the word “church” in an organizations name.

Redaction Legend:

2 = Law Enforcement Techniques/ Procedures and Guidelines for Law Enforcement Investigations or Prosecutions.

 

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2020reports/202043028fr.pdf.

 

Phone Number   /  202-622-6500

E-mail Address  /  TIGTACommunications@tigta.treas.gov

Website             /  https://www.treasury.gov/tigta