by Applicable Large Employers (ALEs) subject to the ACA’s employer shared responsibility and reporting duties are running out of time in which to ascertain whether or not they are part of an “Aggregated ALE Group,” the members of which are treated as a single employer for benefit plan and certain ACA purposes. This in turn requires an analysis under Internal Revenue Code controlled group rules, as discussed below.
A definitive answer to the question of aggregated group status is required in order to file the Form 1094-C transmittal for employee statements (Forms 1095-C), which is due in hard copy by May 31, 2016, or via e-filing by June 30, 2016. (E-filing is encouraged for all ALEs but is mandated for those filing 250 or more Form 1095-C employee statements).
Specifically, Part II of Form 1094-C, line 21 asks whether the “ALE Member” filing the Form is part of an “Aggregated ALE Group,” and if the answer is yes, the ALE Member must identify, in Part III, the name and EIN of all other ALE Members of the Aggregated ALE Group. Form 1094-C, like other IRS forms, must be signed under penalty of perjury.
Some ALEs with fewer than 50 full-time employees, including full-time equivalents (FTEs), are subject to employer shared responsibility only because they are part of an Aggregated ALE Group that collectively employs 50 or more full-time/FTE employees (or, in 2015, 100 or more).
Larger employers that have always had 100 or more full-time/FTE employees of their own may also have had to determine their status as part of an Aggregated ALE Group in order to determine who should furnish Form 1095-C employee statements for employees who worked for more than one aggregated employer during the same calendar month. (Generally the employer for whom the employee worked the most hours of service would be considered the reporting employer for that month.)
In either situation, these ALEs should already know that they are members of an Aggregated ALE Group and be in a position to identify other members of the Group on Part III of Form 1094-C.
However, employers that have always had 100 or more full-time/FTE employees of their own, and who have not shared employees with other group members as described above, may not have had occasion to determine whether or not they are part of an Aggregated ALE Group with other companies related in ownership. Now they must do so in order to accurately complete Form 1094-C.
In addition to Form 1094-C reporting duties, accurate knowledge of controlled group status is necessary in the event an ALE is subject to excise tax penalties under Internal Revenue Code (“Code”) § 4980H(a). Before applying the excise tax rate ($270 per month, in 2016) to all full-time employees, the ALE may subtract the first 30 full-time employees. That “budget” of 30 excludible full-time employees (80, in 2015) must be allocated among members of the Aggregated ALE Group in proportion to their total number of full-time employees.[1]
The three types of Aggregated ALE Groups are:
- a “controlled group” consisting solely of corporations as defined under Code § 414(b);
- a group of trades or businesses that includes partnerships and LLCs, that are under “common control” as defined under Code § 414(c); or
- businesses, usually professional service organizations, that together form an “affiliated service group” (ASG) as defined under Code § 414(m).
The controlled group/common control/ASG rules (collectively, the “common control rules”) have applied for benefit plan purposes for many years but they have achieved new prominence under the ACA employer shared responsibility and ALE reporting rules. Determining whether or not common control exists requires identification and analysis of the relevant facts and application of the law to them, in the form of the above-cited Code sections, related Treasury Regulations, other agency guidance and federal case law. The rules governing common control status are complex and can require a significant amount of factual digging, including when business ownership interests are held by family members or in trust, and where ownership interests must be traced through several layers of entity ownership. Applicable large employers that share ownership with other business entities, particularly those with employees, and that have not already ascertained their common control status for ACA purposes, are encouraged to get this process started without further delay.
[1] Although aggregated group status is used to determine status as an ALE, and in order to allocate the budget of 30 excludible full-time employees, excise tax liability is determined separately for each ALE member within the group.
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