Editor’s Note: This article was updated on July 17, 2019, to correct information regarding churches with between 2 employees and 50 full-time equivalent employees and what is—or isn’t—required under the Affordable Care Act.
The Internal Revenue Service (IRS) is initiating hundreds of church exams to test compliance with the Affordable Care Act (ACA), a key IRS official overseeing exempt organizations announced late last month.
The update was delivered by Margaret Von Lienen, the Director of Exempt Organizations for the IRS, to the TEGE Exempt Organizations Advisory Council (Council), a national group fostering communication between the IRS and practitioners. I attended the update meeting as a member of the Council.
Von Lienen stressed the IRS would comply with the church audit rules. She said examination notices are currently going out and she expects them to continue through the rest of this year.
Though the total number of audits promised—in the hundreds—still will only affect a small percentage of churches overall, news of this specific enforcement effort should prompt all church leaders to double check whether their churches are compliant.
No one should panic. But everyone should verify all is well under their watch.
Representing a church that received an ACA penalty
I well understand the issues Von Lienen raised in her remarks. My firm represented a church last year that received an ACA penalty notice for more than $100,000 related to violations of IRC Sec. 4980H(a), the provision related to the employer shared responsibility rules. The church sponsored a group health plan, but one of its employees opted out of the church’s group health insurance. After opting out, the employee later signed up for coverage through an insurance exchange and received a related credit—one resulting in a substantial reduction in the cost for health insurance (as opposed to his cost for participating in the church’s group health insurance).