Mandatory Self-Reporting of Excise Taxes for Group Health Plan Violations Begins in 2010

December 28, 2009

Excise tax requirements for violations of various employee benefit requirements have been in the Internal Revenue Code (the "Code") for many years. However, until now, no regulations existed specifically imposing an obligation to self-report the violation and file the accompanying excise tax return. On September 8, 2009, the Internal Revenue Service issued final regulations providing guidance on reporting and paying excise taxes for various group health plan ("GHP") violations under the Code. As a result, employers and other entities face increased liability for failure to meet these numerous health plan benefit requirements, including penalties and interest for failure to file excise tax returns. The new regulations apply to excise taxes that are required to be reported on or after January 1, 2010 for the following Sections of the Code:

• § 4980B:  Excise tax for failure of a GHP to meet the COBRA continuation coverage requirements;
• § 4980D:  Excise tax for failure of a GHP to meet health plan portability requirements (HIPAA), mental health parity, minimum hospital stays for newborns and mothers, genetic nondiscrimination requirements (GINA), and Michelle's law requirements;
• § 4980E:  Excise tax for failure of an employer to make comparable Archer MSA contributions; and
• § 4980G:  Excise tax for failure of an employer to make comparable health savings account contributions.

This new requirement is ever important in light of the new GINA regulations, discussed in our recent publication, "Genetic Information Nondiscrimination Act ("GINA") Will Greatly Impact Group Health Plans and Wellness Programs" (B&G Publication, December 17, 2009), which became effective for plan years beginning on or after December 7, 2009. GINA generally prohibits a GHP's discrimination based on an individual's genetic information. This includes the prohibition of a GHP from collecting genetic information as part of a wellness program or health risk assessment if offered in connection with a reward, collecting genetic information in any fashion if to be used to determine a participant's premium/contribution or eligibility for benefits, and the collection of genetic information if collected prior to or in connection with enrollment in the GHP. This means that, amongst many other violations, a GHP that had a practice of soliciting such genetic information in the past, and that is currently using that information in violation of GINA, will be required to file excise tax returns and pay excise tax on any such failure as a result of the new self-reporting excise tax law, effective in 2010.

The new regulations provide that these excise taxes must be reported on Form 8928, and provide the due dates for filing such return based upon the identity of the filer and the type of failure resulting in excise tax. The excise taxes under each of these Code sections must be paid at the time prescribed for filing of the excise return Form 8928 (without extensions). The due dates for filing Form 8928 are as follows:

• The excise return under Sections 4980B and 4980D with respect to employers and third parties (such as insurers or third party administrators) must be filed on or before the due date for filing the person's Federal income tax return, and an extension for filing the person's income tax return does not extend the date for filing Form 8928;
• The excise return under Sections 4980B and 4980D with respect to multiemployer or specified multiple employer health plans must be filed on or before the last day of the seventh month after the end of the plan year; and
• The excise return under Sections 4980E or 4980G with respect to noncomparable contributions must be filed on or before the fifteenth day of the fourth month following the calendar year in which the noncomparable contributions were made.

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IRS Circular 230 Disclosure: As required by United States Treasury Regulations, you should be aware that this communication is not intended or written by the drafter to be used, and it cannot be used, by any recipient for the purpose of avoiding penalties that may be imposed on the recipient under United States federal tax laws.