The Internal Revenue Service released a Chief Counsel Memorandum advising that the Affordable Care Act’s Employer Shared Responsibility Payment (ESRP) does not have a statute of limitations. This guidance means the IRS may assess an ESRP penalty on an employer at any time and for any tax year. This is not welcome news for employers.
The IRS takes this position because there is no single tax return from which an ESPRP penalty is calculated. In general, if a statute of limitations is not set in the tax law, the amount of tax imposed by the IRS must be assessed within three years after the return required to be filed by the taxpayer the return is actually filed. The action of filing the return starts the running of the statute of limitations period. The ACA law does not include a statute of limitations period. Since no period is set in the ACA, the IRS looks to the general law imposing a 3 year statute of limitations running from the filing of the return.
The ACA ESRP penalty is calculated based various items and not just one single tax return. The IRS uses Form 1095-B/C, Form 1094-B/C to determine if an applicable large employer (ALE) properly offered its full time employees affordable minimum essential health coverage providing minimum value. The IRS also uses an individual’s Form 1040 to determine if the individual received a tax credit to purchase health coverage through the Marketplace. All of this information is needed in order for the IRS to assess an ESRP penalty.
Because there is no single tax return that includes all necessary information to calculate the amount of an ESRP penalty that could be owed by an employer, there is nothing to start the running of a statute of limitations period for the ESRP. Employers should take note of this and be aware that the IRS can assess a penalty at any time and for any prior tax year.
