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Well, There’s Your Problem: TIGTA Report Sheds Light On IRS ACA Enforcement Issues

On April 7, 2017, the Treasury Inspector General for Tax Administration (TIGTA) issued results from its audit of the IRS’s implementation of key Affordable Care Act (ACA) provisions. The audit assessed the IRS’s preparedness for ensuring compliance with the Employer Shared Responsibility provision and related information reporting requirements. Since 2015, employers have bemoaned the difficulty associated with proving compliance with the ACA Employer Shared Responsibility requirements – most notably, the ACA information reporting. This most recent TIGTA report sheds some light on why employers and the IRS alike have been on such a bumpy road to ensuring compliance.

During its audit, TIGTA found that some IRS ACA information reporting processes did not function as intended, resulting in inaccurate and incomplete data to identify non-compliance employers. The core findings of the TIGTA audit are that: 1) the IRS was unable to process paper information returns timely and accurately; 2) the process for identifying validation errors in submissions did not always work as intended; and 3) the development and implementation of key systems needed to identify non-compliant employers have been delayed, not initiated, or cancelled. TIGTA made recommendations to the IRS for corrections, all of which the IRS agreed to, except one.

 

Untimely and Inaccurate Paper Returns
Findings

Two Months After 2016 Filing Deadline: 98% of 1094-Cs and 99% of 1095-Cs not processed

Five Months After 2016 Filing Deadline: 24% of 1094-Cs and 34% of 1095-Cs not processed

Underlying Cause
Unable to consistently transfer information from scanned documents in SCRIPS to AIR system
SCRIPS scanning errors Resulted in missing information on returns
Programming error erroneously identified some employers as an Applicable Large Employer
IRS Filing Season Priorities conflicts with individual Income Tax Return Filing Season
TIGTA Recommendations
Ensure that SCRIPS data are timely transferred to the ACA Information Returns system for PY 2017
Ensure the system can adequately handle the capacity of paper Forms 1094-C and 1095-C transmissions for TIN validation
Develop processes to identify and resolve transmission errors and incorrectly formatted data
Ensure Scanning Process Captures Forms 1094-C and 1095-C data
IRS Response

IRS implemented file size limits for SCRIPS transfers and adjusted the ACA Information Returns system to receive and process file sizes up to five gigabytes

IRS made enhancements to the 2017 Filing Season ACA Information Returns Management Console to display schema errors

IRS will review existing processes and determine where they can be enhanced or supplemented to ensure that Forms 1094-C and 1095-C are accurately scanned and transcribed by the SCRIPS.

 

Validation Errors in Submissions
Findings
Erroneous Error Codes When No Issue

Vague TIN Error Code Didn’t Identify Specific EmployeeError Rejection Thresholds Not Followed

Volume & Type of Error Inaccurate in IRS Reports

Underlying Cause
Insufficient programming testing

16 of the 141 total error codes for Forms 1094-C and 1095-C identified as not functioning correctly

31 of 141 Form 1094-C and 1095-C error codes were not tested

IRS did not implement error threshold for fear employers would not file

TIGTA Recommendations
Ensure that all error code business rules function as intended prior to the 2017 Filing Season

Ensure that the description included in the error files contain sufficient information to allow employers to correct errorsEstablish a time frame for employers to correct errors identified on Forms 1094-C and 1095-C

IRS Response
IRS conducted a test to ensure established requirements associated with error code business rules functioned as intended for the 2017 Filing Season

IRS made enhancements to provide a greater level of detail in the error data file for transmittersIRS revised all error reports to assure all error codes pertaining to the Forms 1094-C and 1095-C are accurately reported

IRS will reevaluate the need for additional written guidance should data indicate both increasing penalty application and substantial increase of rejected returns not resubmitted within 60 calendar days

 

Key Systems Delayed or Cancelled
Findings

ACA Compliance Validation (ACV) System intended to identify applicable large employers – Development Started in July 2015, Now Delayed to May 2017

ACA Case Management System for Post-Filing Compliance – Started in Dec. 2014, Cancelled June 2016

Underlying Cause
IRS is incorporating new requirements into ACV systems to address data inconsistencies
Lack of funding

Save funds and reallocate resources

IRS will use existing systems until new IRS-wide Enterprise solution is available

TIGTA Recommendations
Evaluate new automation tool deploying March 2017 and ACV implementation
Evaluate IRS efforts to implement ALE compliance monitoring processes.
IRS Response
IRS to develop an automation tool to identify non-filers and Applicable Large Employers subject to the § 4980H(b) Employer Shared Responsibility Payment
IRS plans to use an existing document control system for case management capabilities, including processes for working the Employer Shared Responsibility Payment cases, as an interim alternative until the Enterprise Case Management system can provide case management for ACA-related compliance activities

 

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