New law will help reduce Affordable Care Act liabilities in mergers and acquisitions, but buyers should still…

The recent amendment to the tax code by the U.S. Congress through the Employer Reporting Improvement Act has introduced a significant change that impacts companies involved in mergers and acquisitions (M&A). This amendment adds a six-year statute of limitations on the “employer shared responsibility payments” under the Affordable Care Act (ACA) related to the failure of an employer to provide health insurance that meets the ACA’s requirements. The penalties for non-compliance with the ACA can be substantial, and many employers may not be aware of their liabilities until the IRS conducts a thorough review of their tax records, identifying instances where employees qualified for federal premium tax credits due to a lack of adequate health insurance coverage.

Before this amendment, the lack of a statute of limitations on assessing ACA penalties left many employers vulnerable to potential liabilities. The IRS could take years to notify employers of any penalties, leaving them in limbo. The new six-year statute of limitations introduced by Congress aims to address this issue by imposing a time limit on the assessment of ACA penalties, providing some relief to employers. However, it is essential to note that the statute of limitations only begins after the due date for an employer’s Form 1095-C or when it is actually filed. Therefore, if an employer fails to submit these forms, the clock on the statute of limitations does not start until the filings are made.

In M&A deals, concerns over ACA liabilities often arise when a target company has failed to file Forms 1094-C and 1095-C as required under the ACA. This failure usually stems from a lack of awareness of having employed more than fifty full-time equivalent employees or not counting certain employee classes towards the threshold, resulting in non-compliance with reporting requirements. Buyers should remain cautious and conduct a thorough review of a target company’s ACA compliance, focusing on insurance offerings that meet ACA standards and adherence to filing and reporting obligations.

Despite the introduction of the new statute of limitations, it is crucial for buyers to remain vigilant in assessing potential ACA liabilities in M&A deals. Non-compliance with ACA regulations can lead to significant penalties, and buyers must ensure that target companies have met all ACA requirements to avoid future legal and financial complications. The revised statute of limitations provides some relief to employers, but it does not eliminate the need for careful due diligence and proactive risk management in M&A transactions involving ACA liabilities.