June 28, 2022
In our previous publication we explored the uncertainty surrounding a scenario where a non-applicable large employer (non-ALE) acquires an ALE in the middle of a year. While it is clear that a controlled group is treated as one employer for determining ALE status, the details of how a merger operates with ALE status midyear is far from clear. The IRS recognized all of the unanswered questions surrounding mergers and acquisitions related to the ACA so it released Notice 2014-49 which overviewed some of the issues and solicited comments. Unfortunately, the IRS has not issued additional guidance since the Notice. Regardless of the position the IRS takes, it is clear there is currently not sufficient detail in Part IV of the Form 1094-C to accurately account for the details of an employer’s controlled group.
Part IV of the Form 1094-C is completed by employers who state that there are other employers who are part of the same controlled group on line 21 of the Form 1094-C. If an employer checks “Yes” to the controlled group question on line 21, then it lists all employers who are part of the controlled group in Part IV of the Form 1094-C on lines 36 through 65. Each of these lines allow the employer to place the employer’s name and in a separate column the employer’s EIN. If an employer only supplies this information, the IRS has no way to account for mergers and acquisitions that occur midyear.
A simple example from our previous publication highlights the potential issue. Suppose, Small Inc., an entity which is not an ALE, acquires 100 percent of the stock of Large Inc., an ALE, on March 15, 2021. One of the questions, which we explored in our previous publication, is how does the merger impact the ALE status of the two entities. Regardless of how the IRS eventually answers that question, there would be no argument that Small Inc. was an ALE prior to the merger and, as we argued in our previous publication, the most logical conclusion is Small Inc. would not be an ALE until the year following the merger. The problem is there is no way to signify the merger occurred midyear even though Small Inc. should clearly be listed in Part IV of the Form 1094-C completed by Large Inc. This would most likely lead to Small Inc. receiving a letter 5699 from the IRS inquiring as to why it had not filed the Forms 1094-C and 1095-C with the IRS. It is far from clear that Small Inc. would have any reporting obligations for the year.
One solution to this problem is simple. Add another column where an employer can state the month when an employer became part of the controlled group. This could be accomplished by adding an additional column for lines 36 through 65 in which the employer would place the month, stated as 01 to 12, the employer became part of the controlled group for the year. An overwhelming majority of employers listed in Part IV will be part of the controlled group for the entire year and that could even be the default if the column is left blank. An alternative solution would be to only list employers who are part of the controlled group for the entire year in Part IV of the Form 1094-C. Regardless of which option is selected, either approach would add clarity for employers who have midyear mergers.
As we stated in our previous publication, we encourage the IRS to finally release ACA guidance on mergers and acquisitions. We believe amending the instructions for the Form 1094-C with one of the two alternatives discussed above would assist employers in accurately describing their controlled group to the IRS. Should you have any additional question, please don’t hesitate to contact us.
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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