ACA 1095 PITFALL:
MISSING CONTROLLED GROUP MEMBERS
First and foremost, missing controlled group members apply to parent-subsidiary controlled groups, brother-sister controlled groups or both. Said another way, when reviewing the corporate portfolio of operating companies, all of the ACA eligible employees must be included in the IRS ACA reporting as long as there are at least 50 fulltime equivalents spanning the related corporate entities. It is important to note this pitfall does not apply to traditional employers with one EIN or even a group of commonly known EINs to the executive team.
In order to better understand this potential pitfall due to its legal complexities, it is important that we provide a high level definition of parent-subsidiary and brother-sister controlled groups. A parent-subsidiary controlled group exists where a business entity owns at least 80% of the outstanding stock or profits of another business. A brother-sister controlled group exists where the same five or fewer entities own at least 80% of the stock or profits in two or more businesses. In addition, these same owners must also have at least 50% of the stock or profits. Please note there are other rules, but for the sake of keeping this a blog we encourage you to speak with your attorney about this.
Moving right along. Since the ACA requires 1095 and 1094 reporting for controlled groups that have a minimum of 50 fulltime equivalents, it is absolutely essential all of the qualifying entities be included in the reporting. In addition to pre-existing related entities, newly acquired businesses must also be included in the reporting. Regardless of the number of related entities each company within a group must comply separately.
In order to mitigate future risks employers should thoroughly review the legal relationships of its related entities to ensure all qualifying employees do in fact receive their respective forms and a 1094-c has been filed (or will be filed).
Employers have the opportunity to ensure all controlled group reporting is handled correctly and penalties are avoided. As they say, “there’s no time like the present – do it now!”