Finance News & Insights

What can land Finance in an IRS Obamacare audit? 3 red flags

The IRS isn’t putting its ACA audit push on hold just because President-elect Trump promised to “repeal and replace” the controversial law. That means Finance can’t afford to back off its compliance efforts.

Despite President-elect Trump’s promise to “repeal and replace” the ACA, The IRS’ Obamacare audit phase is well underway.

As you know, the agency started mailing out penalty notices, which will be followed up by an aggressive ACA audit push by IRS.

In fact, the agency views the ACA as a major revenue generator and has dedicated a ton of resources to its ACA audit enforcement.

Understanding what is triggering these ACA audits can keep your firm from suffering through an IRS investigation.

And even the unfortunate firms that find themselves facing an IRS visit can prevent a full-scale disaster by taking certain steps right now.

To help, the folks at HUB International listed the following ACA audit triggers, as well as steps employers can take to keep the IRS at bay:

Classic red flags

The triggers that are most likely to set off an IRS audit include:

1. Employee complaints. It doesn’t matter how serious or credible the complaint is, the IRS has made it clear it will take every employee complaint very seriously.

What you can do: Put managers and supervisors on alert – and listen. If any grumblings or complaints are heard, you may be able to nip the situation in the bud before the staffer complains.

In addition, employers should have clear, consistent and regular communication to employees about their status (full-time, part-time, seasonal, etc.) and benefits eligibility.

2. Reporting mistakes. The good new is the IRS says it will show leniency regarding errors and mistakes because this is the first year firms are facing reporting penalties.

The bad news? These reporting failures will still likely raise red flags with the agency and lead to audits.

What you can do: Documentation is paramount. Employers should review all internal and employee communication materials related to benefits to see that you’ve made a good-faith effort to comply with the law – especially regarding questionable issues or gray areas.

In addition, it’s a good idea to do a compliance review of all administrative processes related to the ACA. This should include all third-party agreements, too. Reason: Vendors and businesses with questionable practices you associate with could trigger an IRS investigation of your own firm.

One move that will make administration easier: finding a way to get a monthly feed of employee eligibility, enrollment and plan data from the various systems where
info is stored. Many firms have separate systems house data for payroll, benefits administration, plan data and other functions.

Finally, you should correct any reporting failures or appeal any penalty notices that you believe are a mistake. The sooner you get reporting issues resolved, the more likely you’ll be able to avoid a drawn-out investigation.

Agency agreements

3. Other agencies. The IRS and the DOL have a cross-referral agreement where they’re required to share info about employers’ lack of ACA compliance. That means an IRS audit of your firm could’ve been triggered by something the DOL uncovered and vice versa.

What you can do: Familiarize yourself with all the major agencies’ audit triggers and review your processes to ensure you’re not at risk.

Example: Form 5500 errors are a major audit trigger for the DOL so you’ll want to focus your attention there. The DOL also offers the DOL’s Health Law Self-Compliance Tool, a detailed checklist employers can use to determine any potential compliance issues before the feds come knocking.

Adapted fromThe IRS is Coming: What to Do Before, During and After an ACA Audit,” by Jack McStavrock.

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