COBRA is a law with a double bite: both the DOL and the IRS routinely conduct COBRA audits and issue penalties. The IRS recently published a checklist of what it examines in these audits.
The IRS document is officially called “Audit Techniques and Tax Law to Examine COBRA Cases (Continuation of Employee Health Care Coverage).” This audit technique guide describes the IRS’ examination procedures, how it calculates the excise tax for noncompliance, the major requirements for COBRA and some key definitions like the terms group health plan, qualified beneficiary, and qualifying event.
Highlights from the guidance include:
· A list of documents that the IRS typically reviews, including a procedures manual, COBRA form letters, audit procedures, data related to qualifying events, elections and payments, federal and state employment tax returns and documentation related to any gross misconduct determinations
· A notice that the excise tax ($100 per day, per qualified beneficiary, $200 per day family maximum) can be applied for a period of up to six months beyond the maximum coverage period (i.e., 18, 29 or 36 months) for failures to offer COBRA
· A description how election waivers work
· Confirmation that COBRA coverage is required for the following non-employees if they were actually covered under a group health plan by virtue of their performance of services for an employer maintaining the plan:
o Self-employed individuals
o Agents and independent contractors
o Corporate directors
o Partners in a partnership
Infinisource, of course, has been providing full COBRA services for more than two decades and has a specially design COBRA audit kit for just this purpose. In addition, we have developed a separate audit checklist, available to clients and non-clients, based on our years of experience in handling these types of audits. We recommend that you read through the audit technique guide yourself to see how prepared you would be for a COBRA audit by the IRS.
What preparations have you made for a possible COBRA audit? Are there any documents on the checklist that would be challenging to provide at a moment’s notice? Please comment below.