Acquisitions and ACA Reporting

Apologies. This is perhaps the most indistinct Alert of the past 5 years, yet the issue is arising occasionally and thus warrants addressing. The issue is how mergers and acquisitions affect ACA reporting. The answer is: we don’t really know! IRS has not told us. Indeed, ERISA attorney, Alden Bianchi of the national Mintz-Levin firm, writing on this subject puts it this way, “When it comes to mergers and acquisitions involving at least one applicable large employer…and the rules on reporting…we don’t know how they work.” If you buy a company, say on Aug. 1, how should the employees acquired be treated? Are you responsible for reporting on them for the entire year or only after the date of acquisition?

The IRS has pushed everyone back with a “we’ll get to it later” attitude. In fact we called the IRS Form 1099 help unit, and they emphatically would not discuss the issue with us. We have wondered if there is any difference in an acquisition of the stock of the target company or its assets. As for guessing, one thing we looked at was the COBRA rules. At one place they talk about whether an acquisition makes the buyer large enough to be subject to COBRA (20 or more employees). They state if a stock sale occurs, the purchasing company is considered a successor employer; that basically the two companies are now under common control and become large enough for COBRA. However, if there is an asset sale under the COBRA statutes, the buyer is not considered a successor employer to the seller unless the buyer continues to operate the acquired business as it always functioned without interruption, and the seller of the assets ceases providing health coverage. Following this logic, if you buy the stock of a target company on Aug. 1, you would prepare 1095-Cs for the entire year. If you bought the target company’s assets and merged them into your operation and hired those employees, you would prepare 1095-Cs only for August – December.

Then we stumbled onto an IRS Bulletin from a while back that contained an item about determining applicable large employer status as a result of an acquisition. For this circumstance, IRS said to use the rules on withholding taxes. Those regulations give a somewhat different result than the COBRA regs. They say that if a company acquires “substantially all the property used in a trade or business of another” (which would be the case in either a stock purchase or asset purchase) and hires those employees, the buyer is the successor employer and must deal with withholding on those folks for the entire year.

In the end, the air is fraught with conjecture. We have spoken to a number of practitioners, and everyone is basically in the same boat – one with no compass. We see one philosophy when determining if a business is large enough for COBRA, and yet another one used when determining if a business is large enough for the employer mandate to apply…but nothing on point as yet from IRS. We think IRS will go the route of successor employer for reporting purposes (the withholding methodology), and thus if you do an acquisition, make sure you have good payroll records coming over and be prepared to file a 1095-C on those employees for the entire year, just as if they had been on your payroll. But, your attorney and/or CPA may disagree!



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