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Over the past year, the Patient Protection and Affordable Care Act (the “ACA”) has been the center of fierce political debate. Caught in the crosshairs has been the fate of the employer shared responsibility provisions, which provide that employers with more than 50 full-time employees (including full-time equivalent employees) may be subject to significant Federal tax penalties for (1) failing to offer minimal essential coverage to substantially all full-time employees and their dependents (the “A Penalty”), or (2) offering coverage that is either “unaffordable” or does not provide “minimum value” (the “B Penalty”) (referred to collectively as the “ACA Penalties”). The ACA Penalties for an employer are triggered by a full-time employee enrolling in the Health Insurance Marketplace (the “Exchange”) and receiving a Premium Tax Credit. Despite numerous attempts by Congress to repeal or change the ACA, the ACA provisions remain the law – and the IRS has made it clear that it will enforce the ACA Penalties.
On January 20, 2017, the White House released Executive Order 13765, directing applicable agencies to exercise their authority and discretion to reduce potential financial burdens imposed by the ACA while Congress works to repeal and replace the ACA. Between May and September 2017, Republicans in Congress released multiple drafts of legislation, each
IRS LETTER 226J: 30 DAYS TO RESPOND - EMPLOYER ACA PENALTY ASSESSMENTS AND IRS ENFORCEMENT
ISSUE TWO
uIN THIS ISSUE
IRS Letter 226J: Employer ACA Penalty Assessments and IRS Enforcement ................................1-2
Investment-Related VISA Options .........................................2-3
Drug Free Workplaces in the Medical Marijuana Era .............3-4
Alexa ForteDirector and Workforce Solutions Leader
Deputy Chair, Immigration Group412-297-4611
Lawrence M. LebowitzChair, Immigration Group
Robert B. Cottington
Co-Chair, Workforce SolutionsChair, Labor & Employment Group
Bruce G. Gabler
Chair, Employee Benefits and Executive Compensation Group
Jennifer M. Gardner
Deputy Chair, Employee Benefits and Executive Compensation Group
Workforce Solutions
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The B Penalty is calculated
monthly and is equal to the
product of the (i) “applicable
payment amount” and (ii) the
number of full-time-employees
who receive a Premium Tax Credit
in any month. The “applicable
payment amount” for the 2015,
2016, and 2017 calendar years
is equal to $260, $270, and
$282.50 with respect to any
month, respectively.
The A Penalty is calculated
monthly and is equal to the
product of (i) the “applicable
payment amount” and (ii) the
number of full-time employees
employed by the ALE in any
month, less 30 (some employers
are entitled to an 80 employee
reduction for the 2015 calendar
year). The “applicable payment
amount” for the 2015, 2016, and
2017 calendar years is $173.33,
$180, and $188.33 with respect
to any month, respectively.
Therefore, it is imperative that an employer take immediate action to respond to any Letter 226J that it receives.
The past year has proved to be a volatile one for the ACA and this law still faces challenges; however, as long as the employer shared responsibility provisions remain the law, it is paramount that employers continue to take steps to comply, including the following.
• Track which employees are full-time using either the monthly measurement method or the look-back measurement method. Generally, an employee is full-time if he or she works, or works on average, at least 130 hours a month.
• Keep detailed records of which employees are full-time and that demonstrate which individuals received an offer of coverage.
• Confirm that at least one medical plan option offers “minimum value” and is “affordable” for full-time employees.
• Furnish each individual who was a full-time employee during the 2017 calendar year Form 1095-C no later than January 31, 2018 and file Form 1094-C with the IRS (along with the 2017 Forms 1095-C) no later than February 28, 2018 (if filing on paper) or March 31, 2018 (if filing electronically).
• Upon receipt of any Letter 226J, promptly review the Letter and determine whether the employer will accept or contest the proposed penalty amount. Employers have only 30 days to respond.
INVESTMENT-RELATED VISA OPTIONS
Unlike other industrial countries like Canada, the United States does not have a temporary or permanent visa category for investors where an alien can simply write a check in a designated amount and deposit it with a government agency, which then decides how the funds are invested. Instead, the U.S. investment-related options require either that the alien be an employee of the enterprise in which the investment is made or have a “non-passive” role in the enterprise’s management.
The several visa options for alien investors share some common features. The regulations are complicated, the required documentation is voluminous and approval is not assured. The adjudications can be delayed, unpredictable, inconsistent and not in harmony with the enabling statutes.
The speediest adjudications (from which there is no appeal of a denial) are issued by U.S. consulates deciding E-2 treaty investor visa applications. There are 80 E-2 treaties, but none with China or India. The applicant must possess the same nationality as the treaty country. The investor must “develop and direct” the U.S. enterprise and his resume must demonstrate the capability to do so. Employee E-2 visas are available for executives, supervisors and essential skill persons. The funds must be “at risk” and lawfully acquired. Investments in stock or undeveloped land do not qualify.
The investment must be “substantial;” a specific minimum dollar amount is not stipulated. Consular officers determine “substantiality” based upon the nature of the business and its capital needs. Also, the E-2 applicant must establish that the investment is not “marginal” – generating returns only adequate to support the applicant and family – and has the future capacity to yield profits. The submission of
of which sought to repeal the ACA Penalties retroactive to January 1, 2016; however, none had sufficient support to be enacted. Throughout Congress’s deliberations, the Internal Revenue Service (the “IRS”) quietly maintained its commitment to enforcing the ACA Penalties. On April 14, 2017, the IRS Office of Chief Counsel formally announced that Executive Order 13765 did not change the law and that the IRS would enforce the ACA Penalties so as long as the law remains unchanged.
In the fourth quarter of 2017, the IRS announced that it is moving ahead with ACA Penalty assessments against employers. The IRS’s assessments of ACA Penalties for the 2015 calendar year are expected to be mailed out in “late 2017.” The IRS determines which employers may be liable for ACA Penalties by reviewing each employer’s Form 1094-C and Form 1095-C filings and then cross checking that employer’s full-time employees with individuals who received a Premium Tax Credit on the Exchange. Employers who may have liability will receive Letter 226J from the IRS, which includes, among other things, an explanation of the penalty that is being assessed and instructions for either paying or appealing the penalty.
Upon receiving Letter 226J, an employer must respond to the IRS within 30 days, regardless of whether the employer agrees or disagrees with the assessment. Employers that agree with the proposed ACA Penalties must return Form 14764 and pay the applicable penalty amount immediately. Employers that choose to contest all or part of the proposed ACA Penalties must return Form 14764 with a statement and any supporting information as to why the penalty should not apply. If an employer does not respond by the deadline in Letter 226J, the IRS will send a “Notice and Demand” for the full amount of the penalty, the amount due will be subject to IRS lien and levy enforcement actions, and interest will accrue from the date of that demand until the full penalty amount is paid to the IRS.
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Lauren M. CrossettAssociate Employee Benefits and Executive [email protected]
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If your organization receives a
Letter 226J, or if you have any
questions about your current ACA
compliance, we can help.
of this program for Chinese investors, a multi-year waiting period has developed for this group because the 10,000 annual quota has a per-country limitation.
The EB5 investment must be in a “new commercial enterprise” with a complicated regulatory definition. The required investment amount is $1,000,000; the amount is only $500,000 if the “new commercial enterprise” is located in a rural area or a high unemployment area. At least ten full-time jobs for U.S. workers must be created. The lawful acquisition of the invested funds must be carefully documented, which can be a challenge in countries where there is low local tax compliance.
Most EB5 investments are made through Regional Centers, which must be certified by USCIS. Neither USCIS nor any other entity can certify that the Regional Center will invest the funds profitably. EB5 investors often mistakenly assume that USCIS approval of the creation of a Regional Center is also an approval of its investment strategies. The EB5 investor who wants to control the process must personally select the investment and not contract with a Regional Center.
USCIS adjudicates EB5 visa applications. Processing times are slow and filing fees are by far the highest of any visa category. It is likely that Congress will legislate changes in the EB5 eligibility rules in response to some highly publicized fraud in the program.
It is a major understatement to observe that the Immigration and Nationality Act does not make it easy for foreign investors to gain access to the U.S. However, the perennial desirability of the U.S. market continues to attract investors willing to pursue one of the visa routes described above.
DRUG FREE WORKPLACES IN THE MEDICAL MARIJUANA ERA
To date, twenty-nine states have legalized medical marijuana. As laws permitting medical marijuana use go into effect across the county, many employers are left wondering how these laws will impact their drug-free workplace policies and how they will comply with conflicting state and federal laws.
Marijuana use, even for medical purposes, remains illegal under the federal Controlled Substances Act.1 Federal statutes, including anti-discrimination statutes, do not protect medical marijuana use. Importantly, under the Americans with Disabilities Act, employers are not required to accommodate an employee’s medical marijuana use. This means that an employer is not liable under federal law for terminating an employee who legitimately uses medical marijuana.
Although federal law explicitly holds that marijuana use, even for medical purposes, remains illegal, many states are enacting anti-discrimination provisions within their medical marijuana laws. As a result, employers may face significant liability at the state level for terminating or otherwise engaging in adverse action against an employee who legitimately uses medical marijuana. For example, the Rhode Island Superior Court found that an employer unlawfully discriminated against a job applicant when the employer refused to hire the applicant after she revealed that she would not pass a mandatory pre-employment drug test because she legitimately used medical marijuana.2
While the Rhode Island Superior Court, in part, based its decision upon the anti- discrimination language contained directly in Rhode Island’s medical marijuana statute, in states where the legislature did not
a five-year business plan with financial and employment metrics is mandatory.
Conversion of the E-2 visa, often valid for five years, into U.S. permanent residence for the owner is difficult because of the labor certification rule that an owner cannot be an employee. E-2 visa employees can more readily achieve employer-sponsored permanent residence status.
The L-1 intracompany transfer visa is available to all nationalities. There must be a multinational company where the U.S. enterprise is the parent, subsidiary or an affiliate of the foreign company. The applicant must have been continuously employed as an executive, manager or specialized worker by the foreign company for at least one year and must occupy one of those roles with the U.S. enterprise. The foreign company must remain operational after the investor’s transfer to the U.S.
As with the E-2 visa category, the L-1 visa does not require a particular dollar amount of investment, and a detailed business plan must be submitted. Onerous eligibility requirements apply to “new offices,” so it is desirable to delay the application until the U.S. enterprise has been doing business for at least one year.
L-1 visa petitions are filed with the USCIS bureau of the Department of Homeland Security, whose adjudications have become increasingly arbitrary. Appeals of capricious denials are filed with the Administrative Appeals Office.
Conversion of L-1A visa status for executive and manager owners into permanent residence status is readily available in the EB1-C “green card” quota.
The controversial EB5 employment creation visa, unlike E-2 and L-1 visas, is a permanent visa category. The investor receives “conditional” permanent residence for two years and must subsequently file to advance to “unconditional” permanent residence status. EB5 visas are available for all nationalities. Because of the popularity
John S. [email protected]
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procedures. Drug tests generally reveal an employee’s history of drug use, not his or her current impairment. It may be advantageous for employers to move away from standard drug testing that only reveals a history of marijuana consumption and instead focus on an employee’s impairment in the workplace. Further, if an employee reveals that he or she possesses a medical marijuana card, employers should engage in an interactive discussion with the employee before taking any adverse employment actions. Unless state law provides otherwise, it is permissible for an employer to ask an employee for proof that he or she possesses a valid medical marijuana card.
Finally, as with any workplace policy, it is crucial to have a clear and easy to understand provision in an employee handbook that explicitly outlines the employer’s drug policy for medical marijuana users.
specifically include an anti-discrimination provision in the statute, courts may still rule in favor of employees. In Massachusetts, a state whose medical marijuana statute does not contain anti-discrimination language, the Supreme Judicial Court recently held that an employee could still bring a disability discrimination claim based upon state law after her employer fired her for medical marijuana use.3 It should be noted, however, that states are far from uniform in their holdings. For example, in Colorado, the state arguably at the forefront of marijuana legalization and acceptance, the Supreme Court looked to federal law in holding that an employer could lawfully terminate an employee for legitimate medical marijuana use.4
Pennsylvania’s Medical Marijuana Act was signed into law in April 2016, and patients are expected to start receiving medical marijuana in 2018. At this early stage, it is unclear how Pennsylvania courts will interpret the statute, which contains both anti-discrimination language and a provision specifically stating that nothing in the statute requires an employer to violate Federal law.
Unfortunately, there is not sufficient judicial interpretation in most states, including Pennsylvania, to determine unequivocally whether a court will impose liability upon an employer who terminates or otherwise discriminates against an employee who uses medical marijuana. It will take the courts time to resolve the conflict between state and federal law.
There is, however, practical guidance that can benefit all employers. First, it is clear that most states prohibit medical marijuana use while the employee is on the employer’s premises. Moreover, employees, especially those involved in positions with safety requirements, cannot be impaired while on the job.
In states where medical marijuana is legal, it would benefit employers to examine their existing drug-testing policies and
Kelsey J. Gdovin AssociateLabor & [email protected]
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121 U.S.C.A. § 812 (West)
2Callaghan v. Darlington Fabrics Corp., 2017 WL 2321181 (R.I. Super., May 23, 2017)
3Barbuto v. Advantage Sales & Mktg., LLC, 477 Mass. 456, 471, 78 N.E.3d 37, 50 (2017)
4Coats v. Dish Network, LLC, 2015 CO 44, ¶ 22, 350 P.3d 849, 853