September 22, 2017
Over the past six months many employers have received notifications from the IRS that they have failed to file the Forms 1094-C and 1095-C with the IRS. This type of noncompliance is often due to the employer failing to file a Form 1094-C for each Applicable Large Employer (ALE) member. The instructions to the Form 1094-C are clear that each ALE member must file a Form 1094-C. However, many employers only filed one Form 1094-C for all of its ALE members. Employers who filed in this manner are receiving letters from the IRS inquiring where the Forms 1094-C are for the employer’s other ALE members.
Before exploring the issue more thoroughly let’s examine a brief example summarizing the problem. Suppose ABC Inc. has 100 full-time employees and owns 100 percent of DEF Inc. DEF also has 100 full-time employees. ABC decides to file one Form 1094-C for ABC and DEF along with 200 Forms 1095-C for the full-time employees of both ABC and DEF. In patterns similar to the one presented here, the IRS has been contacting DEF asking why a Form 1094-C has not been filed along with the Forms 1095-C for its requisite employees. This article describes the issues employers receiving these letters from the IRS face and provides a solution.
An employer who has multiple ALE members in its controlled group and only files one Form 1094-C with the IRS will have to refile for each of its ALE members. Completing a new Form 1094-C for each ALE member does not create a huge problem. However, employers facing this situation will not only need to file the additional Forms 1094-C but will also need to refile the Forms 1095-C for the employees who were previously filed with the wrong ALE member’s Form 1094-C.
The corrections process will involve four steps. First, each ALE member must file its own Form 1094-C. The information included in parts II and III of the Form 1094-C should only include the information of that ALE member’s employees.
The second step will be filing the correct Forms 1095-C with the appropriate Form 1094-C. The employer information entered on lines 1 through 8 of the Form 1094-C should be identical to lines 7 through 13 of the Forms 1095-C filed with the ALE member’s Form 1094-C (please note the contact person and telephone number can be different on the Forms 1094-C and 1095-C).
The third step involves the ALE member who had previously filed for all of the ALE members to file a corrected Form 1094-C. The previous Form 1094-C will be inaccurate because each ALE member’s employees will be included in parts II and III of the Form 1094-C. Therefore, the corrected Form 1094-C should only account for the employees working for that particular ALE member.
The fourth and final step in the process requires the employer to void the previously filed Forms 1095-C with the IRS which were filed with the incorrect ALE member’s Form 1094-C. This is a necessary step to prevent the IRS from having duplicative Forms 1095-C for a single employee who did not work for multiple ALE members during the year. Unfortunately, the instructions clearly state that the “VOID” box at the top of each Form 1095-C should never be checked. Therefore, an alternative solution is necessary to void the Forms 1095-C that were previously filed with the incorrect Form 1094-C.
The best solution to tell an accurate story to the IRS is filing a corrected Form 1095-C with the IRS for the ALE member which had previously incorrectly filed the Form 1095-C. The ALE member should complete the corrected Form 1095-C using code 1H for line 14, leaving line 15 blank, and using code 2A for line 16. Additionally, all of the month boxes in part III of the Form 1095-C should be left blank on the corrected Form. While a Form 1095-C like this would not normally need to be filed with the IRS, it will tell the IRS that the individual who is on the Form 1095-C did not work for the ALE member during the applicable tax year. This appears to be the only way to cancel a Form 1095-C that had previously been filed with the IRS with an incorrect ALE member. Along with the four steps discussed above, it would be best to have an open dialogue with the IRS regarding the steps being taken to correct the past inaccurate filings.
Assuming DEF Inc. in the example above received a letter from the IRS inquiring as to where its Form 1094-C and Forms 1095-C were with regard to the 2016 tax year (and/or the 2015 tax year) the following actions would need to be taken. First, DEF would need to file a Form 1094-C along with the Forms 1095-C for DEF’s full-time employees with the IRS. The Form 1094-C should only take into account DEF’s employees and not the employees of ABC. Similarly, the employer name, address, and EIN filed on the Forms 1095-C for DEF’s employees should be that of DEF and not ABC. This will accomplish the first two steps discussed above. Next, ABC Inc. would need to file a corrected Form 1094-C and not include DEF’s employees when completing parts II and III of the Form 1094-C. ABC would then file a series of corrected Forms 1095-C for each of DEF’s employees who ABC had previously filed on behalf of incorrectly. These Forms 1095-C should be completed using code 1H for line 14, leaving line 15 blank, and using code 2A for line 16. These codes will tell the IRS that the individual who is on the Form 1095-C did not work at ABC for the applicable tax year. Additionally, all of the month boxes in part III of the Form 1095-C should be left blank.
The best approach is always filing correctly with the initial attempt. However, if you have filed incorrectly using only one ALE member (when multiple ALE members were required), the correction procedures discussed in this article should be followed. Remember, there are separate penalties from the employer mandate for filing incorrect Forms 1094-C and 1095-C with the IRS. Please contact us if you have any questions or you need assistance filing the Forms 1094-C and 1095-C.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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