On September 18, 2015, the Centers for Medicare and Medicaid Services (CMS) published a set of “Frequently Asked Questions Regarding the Federally-Facilitated Marketplace’s (FFM) 2016 Employer Notice Program.” The update is welcome for what it tells us about the subsidy certification appeal process beginning in 2016, summarized below. It’s troubling, however, for its confession that employers will first learn of 2015 subsidy certifications when the IRS contacts those employers about employer mandate taxes triggered by those certifications.

Employers will be denied their statutory right to appeal 2015 subsidy certifications to Healthcare.gov before, and independently of, IRS assessment inquiries. This contradicts both HHS regulations and prior CMS guidance. Under 45 C.F.R. § 155.310(h) and § 155.555, an employer is entitled to appeal its purported employee’s subsidy certification within 90 days of notice from the Exchange. On October 23, 2014, CMS announced that there would be a paper-based employer appeals process for the 2015 benefit year. In fact, there will be no employer appeals process at all. Here’s what the updated guidance tells us about employer appeals for the 2016 benefit year.

“In 2016, [Healthcare.gov] will send notices to employers whose employees received APTC in 2016 and whose employees provided [Healthcare.gov] with a complete employer address.” If your employee did not give Healthcare.gov a complete address, you might hear first from the IRS again in 2017.  There will not be an option for employers to register to receive notices. Healthcare.gov will use only employer names and addresses as provided by applicants.

If an employee drops coverage or loses the reported subsidy, the employer will not be notified. So, notices won’t enable employers to forecast associated tax exposure under 26 U.S.C. § 4980H(b).

Healthcare.gov will mail its first “batch” of notices to employers after 2016 open enrollment closes. Currently, the closing date is January 31, 2016. Smaller (probably) batches will be mailed thereafter throughout 2016.

Once notified, an employer will have 90 days to appeal, by mailing a completed paper form, published on https://www.healthcare.gov/marketplace-appeals/, to Health Insurance Marketplace, 465 Industrial Blvd., London, KY 40750-0061, or faxing the appeal form to 1-877-369-0129.

So how does this change 2015-based employer mandate tax exposure? We have more questions than answers just now.

In § 4980H FAQ guidance (Q27, updated most recently on May 20, 2015), the IRS promised to –

adopt procedures that ensure employers receive certification that one or more employees have received a premium tax credit. The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made. The contact for a given calendar year will not occur until after the due date for employees to file individual tax returns for that year claiming premium tax credits and after the due date for applicable large employers to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).

Just what “procedures” the IRS may “adopt,” we don’t know, because the IRS has not told us. The§ 4980H regulations, published in February 2014, said that –

Any assessable payment under section 4980H is payable upon notice and demand and is assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68 of the Code. The IRS will adopt procedures that ensure employers receive certification, pursuant to regulations issued by HHS, that one or more employees have received a premium tax credit or cost-sharing reduction. 45 CFR 155.310(i). The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made. It is anticipated that additional guidance of general applicability, published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b)), will provide that the contact for a given calendar year will not occur until after employees’ individual tax returns are due for that year claiming premium tax credits and after the due date for employers that meet the 50 full-time employee (plus FTE) threshold to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).

Among existing IRS options, the most analogous may be the process for assessing and collecting other excise taxes related to employer-sponsored employee benefit plans. Of course, the IRS could choose another or could decide to create a new process from scratch. But if IRS adopts the existing benefit plan excise tax process for § 4980H assessments, the first employer notice will come in the form of IRS “Letter 2005,” from a field examiner, saying, among other things:

If you accept our findings, please either file Form(s) 5330 with me, or sign and return the enclosed Form 870. Please return the Form(s) 5330 or Form(s) 870 with your payment within 30 days from the date of this letter to the address listed herein. We have enclosed a return envelope for your convenience.

If you do not agree with our findings, you may either send any information that you want us to consider or you may appeal your case. The enclosed Publication 1020, Appeal Procedures Employee Plans Examinations, explains how to appeal an Internal Revenue Service (IRS) decision. The enclosed Publication 1 includes information on your rights as a taxpayer, and the enclosed Publication 594 includes information on the IRS collection process.

If we do not hear from you within 30 days from the date of this letter, we will assume that the proposed adjustment(s) to your tax return are correct. You will then receive a notice of tax deficiency followed by a final bill for the amount owed. At that point you may still contest the decision in court if you believe you do not owe the additional tax. Please note that interest will continue to accrue on the amount due until the deficiency is paid.

See what just happened? Your 90-day window to appeal a Healthcare.gov subsidy certification notice shrunk to 30 days. We hope the IRS will preserve the 90-day appeal window it if otherwise adopts the current benefit plan excise tax assessment process.

If the employer protests the proposed assessment, the current process provides –

The protest should be sent within the limit specified in the letter you received with the examination report and contain the following:

1. Your name and address,
2. A statement that you want to appeal the examination findings to the Appeals Office,
3. The date and symbols from the letter showing the proposed changes and findings you disagree with,
4. The tax periods or years involved,
5. An itemized schedule of the changes with which you disagree,
6. A statement of facts supporting your position on any issue which you disagree, and
7. A statement stating the law or other authority on which you rely.

You must declare that the statement of facts under (6) is true under penalties of perjury. Do this by adding the following signed declaration: “Under the penalties of perjury, I declare that I have examined the statement of facts presented in this protest and in any accompanying schedules and, to the best of my knowledge and belief, they are true, correct, and complete.” If your representative submits the protest for you, he or she may substitute a declaration stating:

1. That he or she prepared the protest and accompanying documents, and
2. Whether he or she knows personally that the statement of facts in the protest and accompanying documents are true and correct.

We’ll be making related changes to our standard process for appealing 2105 ACA subsidy certifications. If you have discussed that program with counsel, you should renew the discussion in light of the coming amendments.

Our concerns don’t end there, however. We expect this CMS reversal to complicate employer mandate and coverage offer reporting more broadly.

Suppose that you’re just a bit too large to claim the 2015 transition relief for employers of 50 to 100 FTEs. You know that your § 4980H exposure depends on at least one purported full-time employee having received an Exchange subsidy in at least one 2015 month. CMS won’t tell you. Will CMS tell IRS? If not, how will IRS know? If IRS does not know, will they ignore you? Will IRS ignore you even after you file 120 Form 1095-Cs showing no coverage offers? Should you file?

You’re mandated to file and to furnish a Form 1095-C to each full-time employee. If you’re caught ignoring that mandate, you may be penalized $500 per Form. But your § 4980H taxes could approach $2,000 per full-time employee.

We do not recommend or condone evasion of legal obligations and we expect IRS to be able to detect and remedy such evasion. However, it seems to us that CMS has complicated coverage offer reporting enforcement problems for IRS by tempting stressed small employers to take that risk.