By: HUB’s EB Compliance Team
Over the last few years, employers that are subject to the Affordable Care Act (“ACA”) employer mandate have seen Employer Shared Responsibility Payment (ESRP) penalties assessed for failure to meet the employer mandate by way of an IRS Letter 226J. Sometimes the IRS has had incorrect information and employers have been able to minimize or eliminate ESRP penalties by correcting the IRS’s information. However, many employers wish that this ESRP assessment would just go away. In a recent information letter, the IRS has confirmed that it cannot just make the employer mandate go away.
Executive Orders Can’t Change the Law
As the letter explains, the law does not give the IRS the ability to waive the ESRP assessment. Further, the President Trump’s 2017 executive order directing agencies, like the IRS, to minimize ACA’s burdens cannot change a law passed by Congress. An executive order is just an expression of intent; it tells federal agencies what the President wants them to do, within the limits of the authority they have. However, that authority is set by the laws Congress passes. By itself, an executive order has no force of law. Therefore, until Congress changes the law, the ESRP penalties will continue to be assessed.
Wait a Minute…
“But,” you may be thinking, “didn’t the IRS delay enforcement and give transition relief when the employer mandate first went into effect?” Yes, it did. The IRS has a long history of delaying implementation and enforcement of its regulations when a law is first passed. This can happen when the IRS may not be quite ready to enforce the law because it doesn’t have the right systems and processes. The IRS will also sometimes give taxpayers a chance to adjust (as they still do from time to time with ACA reporting). Whether this enforcement delay is constitutional is, admittedly, unclear, but it is a common practice, regardless of who occupies the White House.
In fact, in 2014, the then Republican-controlled House of Representatives sued claiming the Obama Administration was violating the Constitution, in part, by delaying enforcement of the employer mandate. The argument was that only Congress has the authority to change the law; the IRS should just be enforcing it. The court, however, did not allow that claim to go forward, saying that it was not really a constitutional claim, but merely a question of applying the statute. This doesn’t mean what the IRS was doing was constitutional; it was just that the House of Representatives didn’t have the ability to sue over the issue. (As an aside, this might be the first time in history anyone has sued claiming the IRS should be collecting more in taxes).
Delay v. Waiver
Some may not see much difference between a delay and a waiver. Both effectively mean the IRS is not enforcing the tax law for a period of time. As a result, the argument goes, the IRS is not really doing its job and is effectively ignoring a mandate from Congress.
However, others would argue there is a difference between delaying when enforcement starts and simply waiving a tax that is due. The argument goes that giving the IRS or taxpayers time to get up to speed on what the law requires supports compliance with the law in the long run. The thinking is that it promotes fair administration of the tax laws because the delay applies across the board, but once enforcement starts, it keeps going. Everyone plays by the same rules and knows in advance what they are.
Those who support the IRS’s ability to delay would argue that a waiver is different. They would say that, if the IRS could simply waive any tax at any time, or on anyone it chose, then no one would ever really know what the tax rules were. As a result, these proponents would argue, we would be living in a sea of constant uncertainty. At the end of the day, they would say, that’s not a result that’s good for taxpayers or the country as a whole.
Where does this leave us? Mostly right back where we started. Employers may not like the ACA employer mandate, but until Congress makes a legislative change, the IRS will continue to enforce it. Therefore, employers who are subject to the mandate should keep an eye on how it is being enforced and prepare using tips we’ve previously provided.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.