ACA 1095 PITFALL:
WRONG OFFER OF COVERAGE CODES
ACA Audit Predictors:
Wrong Offer of Coverage Codes
Relevant Blog Entries
Let’s face it, there were many 1095-C software programs that were late to the 2015 ACA IRS reporting party. You may recall the IRS granted the industry an extension in the late Fall of 2015. Many industry experts suggested the extension was because 1) The IRS itself was not ready, 2) Employers were having a hard time collecting and preparing the data and 3) The software vendors needed more time. This “perfect storm” culminated in a mad rush to “get the forms out the door.” Not surprisingly, there wasn’t very much QA. Interestingly, the entire industry seemed to be more focused on publishing the form, than making the information was accurate.
As the expression goes “haste makes waste.” Case in point. In early July a ERISA attorney contacted us with an interesting, yet disturbing scenario. It turns out his client was being acquired by another company. The buyer’s attorney requested sample 1095-C forms. The buyer’s attorney reviewed the sample forms and determined that the forms had INCORRECT codes! The buyer’s attorney requested sample 1095-C forms. The buyer’s attorney reviewed the sample forms and determined that the forms had INCORRECT codes! As part of the discussion, the buyer’s attorney basically said “either fix the forms” or “we’re paying less for the company.” That’s when the seller’s attorney contacted us and asked us to review the forms.
WARNING! We apologize for the shameless self-promotion. If you would like to stop reading, please skip to the last paragraph.
Upon initial review of the forms we noticed a line 14 and line 16 code conflict. For example, employees with a 1E (not a qualifying offer) in line 14 had a 2D (employee in either waiting period or a Measurement Period) in line 16. Clearly, an employee cannot be offered coverage while in a waiting period. Hence, one of the two codes was wrong.
The seller’s attorney was in disbelief since one of the biggest payroll outsourcing firms in America prepared their forms. The attorney remarked “how could this happen?” Sadly, it’s either due to 1) Bad data, 2) Bad programming, 3) Bad QA (or none for that matter), or 4) All of the above. Regardless, in the event this was not discovered and the errors applied to all 800 employees, the penalty for incorrect codes could approximate $200,000. For a business operating on a 5% profit margin, that translates to $4,000,000 in revenue equivalents.
Since 2015 is a “best efforts” year, it will be interesting to learn whether or not the IRS perceives similar scenarios as “best efforts” or if they’re going to issue penalties. Hopefully (last I checked, hope is not a strategy), the IRS will kindly turn a blind eye and the employer (and third party) worlds will wake up and get it right.
In order to mitigate future risks employers should 1) QA their 2015 forms, 2) QA their current 2016 data (BTW – our company offers both 1095 Audit and 1095 Diagnostic services).
Employers have the opportunity to ensure Line 14 Offer of Coverage Codes are accurate and future penalties. As they say, “there’s no time like the present – do it now!”
- H. Gerver 7/29/16