The Internal Revenue Service has ordered at least two dozen businesses in Maine and New Hampshire to pay fines up to $1 million or more for failing to abide by the Affordable Care Act’s employer mandate.
But legal and accounting experts in Maine say most of the fines are based on errors and should not have to be paid.
“Most of the assessments that we’ve seen so far were in error, and the numbers are not small,” said Bill Enck, a tax group principal at the accounting firm Berry Dunn McNeil & Parker LLC in Portland and a member of the Maine Association of Professional Accountants.
In most cases, the penalties appear to be based on incorrect reporting of employer information to the IRS, and/or incorrect processing of information by the federal agency, Enck said. He and other tax experts have been advising their clients to appeal the fines.
DiMillo’s On the Water owner Steven DiMillo said he received a letter from the IRS in December stating that the business owed a $33,000 “assessment” for failure to comply with the ACA in 2015. However, the penalty was based on a simple mistake, DiMillo said.
“Our payroll company filled out the forms incorrectly,” he said.
Portland attorney Steven Gerlach said ACA penalties assessed against his firm’s clients range from a few thousand dollars to $1.1 million. As many as two dozen clients appear to have been fined incorrectly, he said.
“All of the ones I’ve seen so far dispute the penalty,” said Gerlach, a shareholder at the law firm Bernstein Shur Sawyer & Nelson P.A.
IRS media relations team member Cecilia Barreda said Thursday that the agency isn’t able to say whether it is dealing with a large incidence of employer fines based on inaccurate information regarding ACA compliance in Maine or nationally.
The ACA’s employer shared responsibility provision, more commonly known as the employer mandate, penalizes employers that either fail to offer health insurance coverage to a certain percentage of employees, or fail to offer coverage that meets minimum value and affordability standards. The mandate, which took effect in 2015, applies only to firms with the equivalent of 50 or more full-time employees.
Currently, the mandate requires that employers offer coverage to at least 95 percent of employees, and that the cost to employees does not exceed about 9.5 percent of any employee’s salary. However, 2015 was a transitional year in which employers were only required to offer coverage to at least 70 percent of employees.
Sometime around mid-November, the IRS started sending out notices to Maine businesses alleging noncompliance with the ACA mandate in 2015, Enck said. Those letters continued to arrive at least through mid-December, he said.
IRS penalties received by clients of Berry Dunn range from about $80,000 to $1.2 million, Enck said.
“So they’re not small numbers by any means,” he said.
In all cases, the IRS is alleging that the employer failed to provide coverage to at least 70 percent of employees, Enck said. It’s known as the “A” penalty, he said, as opposed to the “B” penalty, which is for failure to meet coverage affordability and quality standards.
The erroneous fines appear to be based on one of two scenarios, Enck said. Either the employer or its payroll company filed incorrect information to the IRS, making it appear that it did not provide coverage to at least 70 percent of workers, or it filed accurate information electronically, but the information was processed incorrectly by the IRS.
“All of the notices we’ve received so far have been focused on the ‘A’ penalty, which is the more expensive of the two,” Enck said.
In the case of DiMillo’s, it came down to the Portland restaurant’s payroll company checking the wrong box on an IRS form. DiMillo said he has since spoken with an IRS agent, who said the payroll company could simply resubmit the corrected form and the fine would be reversed.
“The IRS agent assigned to our case (is) a super helpful and friendly man,” said DiMillo.
Because 2015 was the first year employers were required to submit information to the IRS under the employer mandate, mistakes were commonplace, Enck said. Employers weren’t used to filling out the forms, and the IRS wasn’t used to processing them.
“We have seen inconsistencies between what the employer reported and how the IRS processed that information,” he said.
Gerlach said there is a process for disputing the penalties, but that it requires the recipient to respond promptly. The appeal process requires a response within 30 days, although the business can request an extension.
“If you get a notice from the IRS, don’t ignore it,” he said. “What happens when you do that is you lose rights.”
Enck said employers should not attempt to dispute the penalties on their own. He recommended they work with an accountant, attorney or tax professional who is knowledgeable about ACA requirements.
So far, the IRS appears open to hearing the arguments of employers who disagree with their fines, he said. However, disputing the fines is a multi-step process, and it remains to be seen how the more formal appeals step of the process will play out, Enck said.
“It’s going to be interesting to see how long that piece takes, and what the employers’ success rate is through the appeals process,” he said.