Employer Shared Responsibility Payment (ESRP)

IRS Determines No Statute of Limitations on Assessment


In Legal Advice 20200801F issued by IRS Field Attorneys (Advice Memo), the IRS has determined that there is no statute of limitations on assessment of the Employer’s Shared Responsibility Payment (ESRP) because there is no tax return filed to report such payment.

Generally, IRC section 6501 provides that taxes imposed by Title 26 must be assessed within 3 years after the tax return was filed.  When interpreting this language, courts have routinely held that the limitations period begins to run when the taxpayer files a tax return.

Employer Shared Responsibility Payment (ESRP) is mandated by Internal Revenue Service

IRC section 4980H, imposes an Employer’s Shared Responsibility Payment (ESRP) on Applicable Large Employers (ALE) who fail to offer minimum essential health insurance coverage to their full-time employees (FTE) when at least one FTE of the ALE enrolls in a health plan for which a premium tax credit (PTC) or any cost-sharing reduction is allowed or paid to that FTE. An ALE is an employer with at least 50 FTEs.

There is no provision in IRC section 4980H that provides for the waiver of an ESRP. The “Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal (January 20, 2017)” directed federal agencies to exercise authority and discretion permitted to them by law to reduce the potential burden imposed by the Affordable Care Act (ACA). But this executive order does not change the law.  The legislative provisions of the ACA are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they may owe. 

IRC section 4980H does not contain a separate limitations period. When Congress has not clearly provided a statute of limitations for a statutory provision, the US Supreme Court has held that no statute of limitations is applicable.

Each year, an ALE is required to file Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Forms 1095-C, Employer Provided Health Insurance Offer and Coverage, for each of its employees. 

The courts have held that the test to determine whether a document is a “tax return” for statute of limitations purposes has several elements: (1) there must be sufficient data to calculate tax liability; (2) the document must purport to be a return; (3) there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and (4) the taxpayer must execute the return under penalties of perjury.

The IRS Advise Memo concluded that the statute of limitations under IRC section 6501 does not apply to the ESRP because ALEs don’t file a document that qualifies as a “tax return.”.

According to the Advice Memo, the information returns, Form 1094-C and Form 1095-C, that ALEs are required to file do not contain enough data to calculate the ESRP an ALE might owe. As a result, filing a Form 1094-C and a Form 1095-C does not start the limitations period running under IRC section 6501, and since Congress did not provide another limitations period for assessing the ESRP, there is none that is applicable. 

If this determination is upheld, the IRS could assess ESRP against ALEs many years down the road at a time when evidence to rebut the assessment has been lost, misplaced or destroyed.  This could be a major problem. 

For more information about ESRP or other aspects of the Affordable Care Act, please contact Jeff Senney at 937-223-1130 or Jsenney@pselaw.com

AUTHOR: Jeff Senney
jsenney@pselaw.com