They’re far they’re near they’re gone they’re here.

They’re quick and slick, they’re insincere.

Beware, beware, be a very wary bear.

A Heffalump or Woozle is very confusel.

“Heffalumps and Woozles,” from “The Many Adventures of Winnie the Pooh.”

So, you were a 2015 Applicable Large Employer. You waited too late to outsource your generation, furnishing and filing of 2015 Forms 1095-C. Fortunately, you believe, you are permitted to file on paper, by May 31, 2016, because you will be filing less than 250 Forms 1095-C. You squeezed under 250 by ignoring employees who averaged less than 30 weekly work hours during 2015. Slick, huh? Maybe. We’re hearing variants of this question too often for comfort. We can’t guarantee that the IRS will share our concern, but here it is.

As usual, the best short summary of the applicable ALE reporting rules is found in the 2015 Instructions for Forms 1094-C and 1095-C. Read the “Full-time employee” definition in the right column on page 13. It ends with this tip:

An employer need not file a Form 1095-C for an individual who for each month of a calendar year is either not an employee of the employer or is an employee in a Limited Non-Assessment Period. However, for the months in which the employee was an employee of the employer, such an employee would be included in the total employee count reported on Form 1094-C, Part III, Column (c). Also, if during the Limited Non-Assessment Period the employee enrolled in coverage under a self-insured employer-sponsored plan, the employer must file a Form 1095-C for the employee to report coverage information for the year.

Some advisors have relied on this to recommend that an ALE generate, furnish and file no 1095-C for an employee who was not “full-time” under the look-back measurement method. Be a very wary bear.

First, “hours worked” is a subset of “hours of service.” Full-time status is based on the latter, which includes all hours for which compensation is due. There are rules for calculating hours of service for salaried and commission-paid employees. In borderline cases, counting only hours worked might misclassify full-time employees. But more troublesome is retroactive reliance on a Limited Non-Assessment Period that was not established properly, or at all, during 2015.

Read the definition’s first paragraph again. That’s “monthly measurement method” language. Monthly measurement is the default option. New hires (people who have served less than one full Standard Measurement Period) reasonably expected to work full-time must be measured that way. For them, the look-back measurement method is not an option. Employers had the option to use the look-back measurement method for part-time and variable hour new hires and for ongoing employees. If so, they may take advantage of the tip regarding months that employees are in a Limited Non-Assessment Period, unless the employees enjoy, in the same month, full-time status due to a preceding Standard Measurement Period. So, let’s read that definition, on page 14 of the Instructions.

Limited Non-Assessment Period. A Limited Non-Assessment Period generally refers to a period during which an ALE Member will not be subject to an assessable payment under section 4980H(a), and in certain cases section 4980H(b), for a full-time employee, regardless of whether that employee is offered health coverage during that period.

The first five periods described below are Limited Non-Assessment Periods only if the employee is offered health coverage by the first day of the first month following the end of the period, and are Limited Non-Assessment Periods for section 4980H(b) only if the health coverage that is offered at the end of the period provides minimum value. For more information on Limited Non-Assessment Periods and the application of section 4980H, see Regulations section 54.4980H-1(a)(26).

  • First Year as ALE Period. January through March of the first calendar year in which an employer is an ALE, but only for an employee who was not offered health coverage by the employer at any point during the prior calendar year. For this purpose, 2015 is not the first year an employer is an ALE, if that employer was an ALE in 2014 (notwithstanding that transition relief provides that no employer shared responsibility payments under section 4980H will apply for 2014 for any employer).
  • Waiting Period under the Monthly Measurement Method. If an employer is using the monthly measurement method to determine whether an employee is a full-time employee, the period beginning with the first full calendar month in which the employee is first otherwise (but for completion of the waiting period) eligible for an offer of health coverage and ending no later than two full calendar months after the end of that first calendar month.
  • Waiting Period under the Look-Back Measurement Method. If an employer is using the look-back measurement method to determine whether an employee is a full-time employee and the employee is reasonably expected to be a full-time employee at his or her start date, the period beginning on the employee’s start date and ending not later than the end of the employee’s third full calendar month of employment.
  • Initial Measurement Period and Associated Administrative Period under the Look-Back Measurement Method. If an employer is using the look-back measurement method to determine whether a new employee is a full-time employee, and the employee is a variable hour employee, seasonal employee or part-time employee, the initial measurement period for that employee and the administrative period immediately following the end of that initial measurement period.
  • Period Following Change in Status that Occurs During Initial Measurement Period Under the Look-Back Measurement Method. If an employer is using the look-back measurement method to determine whether a new employee is a full-time employee, and, as of the employee’s start date, the employee is a variable hour employee, seasonal employee or part-time employee, but, during the initial measurement period, the employee has a change in employment status such that, if the employee had begun employment in the new position or status, the employee would have reasonably been expected to be a full-time employee, the period beginning on the date of the employee’s change in employment status and ending not later than the end of the third full calendar month following the change in employment status. If the employee is a full-time employee based on the initial measurement period and the associated stability period starts sooner than the end of the third full calendar month following the change in employment status, this Limited Non-Assessment Period ends on the day before the first day of that associated stability period.
  • First Calendar Month of Employment. If the employee’s first day of employment is a day other than the first day of the calendar month, then the employee’s first calendar month of employment is a Limited Non-Assessment Period.

Ah, there are the catches. The fourth and fifth scenarios are written in present tense, but apparently referencing 2015, not 2016. Was the ALE actually using lawful initial measurement periods and associated administrative periods for 2015 new hires? Did they produce timely coverage offers to those measured as full-time? If so, but only if so, the Instructions suggest that one full-time month during an initial measurement period would not require the ALE to generate, furnish and file a Form 1095-C for an employee who averaged part time hours over the entire period.

How would the IRS know? Let’s skip the broader reasons why, “what the IRS doesn’t know won’t hurt me” is a bad business plan and dive right into the details. Such people, even for months spent in LNAP status, are to be counted as “employees” reported at Lines 23-35, column “c” of Form 1094-C. The IRS already will have their W-2 Forms, of course. If the column “b” count of full-time employees is just under 250 but the column “c” count exceeds 250, and if a Form W-2 employee not reported on Form 1095-C received a subsidy to buy insurance through an ACA Exchange (reported to the IRS), there may be § 4980H tax and § 6056 reporting inquiries. The employer will bear the burden to prove proper employee classification and reporting.