Multiple sources have reported that the IRS is sending notices to a “few hundred” large churches addressing compliance with provisions of the Affordable Care Act (ACA). According to Exempt Organization Tax Review (EOTR), Margaret Von Lienen, director of exempt organizations with the IRS, confirmed on June 28 at a meeting of the Tax Exempt and Governmental Entities Exempt Organizations Council in Washington that such notices are being sent. Von Lienen stated that the notices include amounts a church may owe based on information provided to the IRS, according to the August 1 EOTR article. A separate recent article in Church Law & Tax confirmed the report.
I spoke with attorney Danny Miller, an employee benefits law attorney who practices extensively in the church arena, about the notices. (Miller is an attorney in the Washington, D.C. office of the law firm Conner & Winters.) Miller stated that the notices are going to churches that are “applicable large employers” (generally, employers with at least 50 full-time-equivalent employees) for whom the IRS has information that they may not be in compliance. “In some cases, the issue seems to be that the church made an error in completing the ACA forms submitted to the IRS,” said Miller. “That can cause the IRS to believe that the church may have a liability.”
Miller added that the notices appear to be addressing whether the church has a liability for the “employer shared responsibility payment” for not fully complying with the ACA’s requirements for offering healthcare coverage to employees. In one case of which Miller is aware, a church received an IRS notice indicating that it might owe an employer shared responsibility payment in excess of $200,000. In that case, it appears that reports filed by the church contained an error that resulted in the IRS sending the notice. Miller said the liability will likely be zero once the church files a corrected form.
Churches that receive such a notice from the IRS shouldn’t panic. We recommend that any church receiving such a notice engage experienced tax counsel to represent them. In the case of inquiries or examinations of churches (or associations of churches), a special law (the Church Audit Procedures Act, Section 7611 of the Internal Revenue Code) includes certain protections. Tax counsel can help the church avail itself of those protections.
“This is a complex area of the law,” said Miller. “I’m not surprised that these kinds of issues are arising. Hopefully, in most cases, the results will be like the church I mentioned and a simple fix in the form will make the liability go away.”
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