Jeremy J. Sharp, a partner with the law firm Walter & Haverfield in Cleveland, Ohio, wrote about the recently issued audit guidelines for IRS auditors who review group health plans.
After a 10 year task force study, the IRS is making COBRA compliance a focus and Sharp believes (along with other industry professionals) most employers will have some sort of COBRA failure, inadvertent or otherwise. These failures, even if unintentional, carry stiff penalties.
Sharp provides an example where an employer completely failed to give notice of COBRA enrollment rights to three families following a termination of employment, for which the COBRA maximum coverage period is 18 months. The employer could face a potential excise tax penalty of $328,000!
That is a $200 maximum per day per family* x 3 families x 730 days (or 18 months).
*Section 4980B of the Internal Revenue Code imposes an excise tax for failure to comply with COBRA continuation coverage obligations and requirements. The $100 excise tax is assessed for each qualified beneficiary for whom the failure occurs, with a maximum of $200 per family.
Sharp goes on to provide additional details on the various fines and penalties associated for compliance mistakes.
How a proactive, self-audit would work
Sharp recommends employers take a proactive route and perform a “self audit” to discover any compliance issues that would be found during an IRS COBRA compliance audit and correct any violations that you might discover in the process.
He believes performing an audit of your current practices will minimize the risk of noncompliance going forward and keep costly audit-generated penalties at bay.
Source: TLNT Jeremy J. Sharp