You may have to explain your personnel changes to the IRS

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If you plan to trim your staff numbers to less than 100 employees over the next few years, expect to be questioned by the Internal Revenue Service. The IRS issued a 227-page document in February outlining employer responsibilities with regard to the Affordable Care Act, and part of the document awards the IRS with the authority to require companies to have “bona fide business reasons” for changing employee hours or reducing the size of the workforce.

Presumably, the aim is to discourage businesses from laying off staff merely to avoid ACA obligations – something that many companies have already threatened to do. But the National Federation of Independent Business is accusing the IRS of acting outside their legal authority.

“There is no basis in the PPACA for requiring employers to certify the reasons for which they make personnel changes,” wrote NFIB executive director Karen Harned in a public statement to the IRS. “This raises a further concern that IRS will eventually seek to force businesses to justify decisions to reduce workforce size when the Employer Mandate is fully enforced against businesses with as few as 50 full-time or full-time equivalent employees.”

Economic changes, poor performance, and business division sales are all legitimate reasons for terminations, the IRS document states. However, it does not go into detail about how to prove a termination is unrelated to ACA eligibility.

The IRS has yet to respond and was not available to comment at the time of publication.

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