SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH PLAN REQUIREMENTS.
Title[ Title IV\Subtitle A Contents
(a) In General.--Chapter 43 of the Internal Revenue Code of 1986
(relating to qualified pension, etc., plans) is amended by adding after
section 4980C the following new section:
``SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN REQUIREMENTS.
``(a) General Rule.--There is hereby imposed a tax on any failure of
a group health plan to meet the requirements of chapter 100 (relating to
group health plan portability, access, and renewability requirements).
``(b) Amount of Tax.--
``(1) In general.--The amount of the tax imposed by
subsection (a) on any failure shall be $100 for each day in the
noncompliance period with respect to each individual to whom
such failure relates.
``(2) Noncompliance period.--For purposes of this section,
the term `noncompliance period' means, with respect to any
failure, the period--
``(A) beginning on the date such failure first
occurs, and
``(B) ending on the date such failure is corrected.
``(3) Minimum tax for noncompliance period where
failure discovered after notice of examination.--Notwithstanding
paragraphs (1) and (2) of subsection (c)--
``(A) In general.--In the case of 1 or more failures
with respect to an individual--
``(i) which are not corrected before the date
a notice of examination of income tax liability is
sent to the employer, and
``(ii) which occurred or continued during the
period under examination,
the amount of tax imposed by subsection (a) by reason of
such failures with respect to such individual shall not
be less than the lesser of $2,500 or the amount of tax
which would be imposed by subsection (a) without regard
to such paragraphs.
``(B) Higher minimum tax where violations are more
than de minimis.--To the extent violations for which any
person is liable under subsection (e) for any year are
more than de minimis, subparagraph (A) shall be applied
by substituting `$15,000' for `$2,500' with respect to
such person.
``(C) Exception for church plans.--This paragraph
shall not apply to any failure under a church plan (as
defined in section 414(e)).
``(c) Limitations on Amount of Tax.--
``(1) Tax not to apply where failure not discovered
exercising reasonable diligence.--No tax shall be imposed by
subsection (a) on any failure during any period for which it is
established to the satisfaction of the Secretary that the person
otherwise liable for such tax did not know, and exercising
reasonable diligence would not have known, that such failure
existed.
``(2) Tax not to apply to failures corrected within certain
periods.--No tax shall be imposed by subsection (a) on any
failure if--
``(A) such failure was due to reasonable cause and
not to willful neglect, and
``(B)(i) in the case of a plan other than a church
plan (as defined in section 414(e)), such failure is
corrected during the 30-day period beginning on the
first date the person otherwise liable for such tax
knew, or exercising reasonable diligence would have
known, that such failure existed, and
``(ii) in the case of a church plan (as so defined),
such failure is corrected before the close of the
correction period (determined under the rules of section
414(e)(4)(C)).
``(3) Overall limitation for unintentional failures.--In the
case of failures which are due to reasonable cause and not to
willful neglect--
``(A) Single employer plans.--
``(i) In general.--In the case of failures
with respect to plans other than specified
multiple employer health plans, the tax imposed by
subsection (a) for failures during the taxable
year of the employer shall not exceed the amount
equal to the lesser of--
``(I) 10 percent of the aggregate
amount paid or incurred by the employer
(or predecessor employer) during the
preceding taxable year for group health
plans, or
``(II) $500,000.
``(ii) Taxable years in the case of certain
controlled groups.--For purposes of this
subparagraph, if not all persons who are treated
as a single employer for purposes of this section
have the same taxable year, the taxable years
taken into account shall be determined under
principles similar to the principles of section
1561.
``(B) Specified multiple employer health plans.--
``(i) In general.--In the case of failures
with respect to a specified multiple employer
health plan, the tax imposed by subsection (a) for
failures during the taxable year of the trust
forming part of such plan shall not exceed the
amount equal to the
lesser of--
``(I) 10 percent of the amount paid
or incurred by such trust during such
taxable year to provide medical care (as
defined in section 9805(d)(3)) directly
or through insurance, reimbursement, or
otherwise, or
``(II) $500,000.
For purposes of the preceding sentence, all plans
of which the same trust forms a part shall be
treated as one plan.
``(ii) Special rule for employers required to
pay tax.--If an employer is assessed a tax imposed
by subsection (a) by reason of a failure with
respect to a specified multiple employer health
plan, the limit shall be determined under
subparagraph (A) (and not under this subparagraph)
and as if such plan were not a specified multiple
employer health plan.
``(4) Waiver by secretary.--In the case of a failure which
is due to reasonable cause and not to willful neglect, the
Secretary may waive part or all of the tax imposed by subsection
(a) to the extent that the payment of such tax would be
excessive relative to the failure involved.
``(d) Tax Not To Apply to Certain Insured Small Employer Plans.--
``(1) In general.--In the case of a group health plan of a
small employer which provides health insurance coverage solely
through a contract with a health insurance issuer, no tax shall
be imposed by this section on the employer on any failure which
is solely because of the health insurance coverage offered by
such issuer.
``(2) Small employer.--
``(A) In general.--For purposes of paragraph (1),
the term `small employer' means, with respect to a
calendar year and a plan year, an employer who employed
an average of at least 2 but not more than 50 employees
on business days during the preceding calendar year and
who employs at least 2 employees on the first day of the
plan year. For purposes of the preceding sentence, all
persons treated as a single employer under subsection
(b), (c), (m), or (o) of section 414 shall be treated as
one employer.
``(B) Employers not in existence in preceding
year.--In the case of an employer which was not in
existence throughout the preceding calendar year, the
determination of whether such employer is a small
employer shall be based on the average number of
employees that it is reasonably expected such employer
will employ on business days in the current calendar
year.
``(C) Predecessors.--Any reference in this paragraph
to an employer shall include a reference to any
predecessor of such employer.
``(3) Health insurance coverage; health insurance issuer.--
For purposes of paragraph (1), the terms `health insurance
coverage' and `health insurance issuer' have the respective
meanings given such terms by section 9805.
``(e) Liability for Tax.--The following shall be liable for the tax
imposed by subsection (a) on a failure:
``(1) Except as otherwise provided in this subsection, the
employer.
``(2) In the case of a multiemployer plan, the plan.
``(3) In the case of a failure under section 9803 (relating
to guaranteed renewability) with respect to a plan described in
subsection (f)(2)(B), the plan.
``(f) Definitions.--For purposes of this section--
``(1) Group health plan.--The term `group health plan' has
the meaning given such term by section 9805(a).
``(2) Specified multiple employer health plan.--The term
`specified multiple employer health plan' means a group health
plan which is--
``(A) any multiemployer plan, or
``(B) any multiple employer welfare arrangement (as
defined in section 3(40) of the Employee Retirement
Income Security Act of 1974, as in effect on the date of
the enactment of this section).
``(3) Correction.--A failure of a group health plan shall be
treated as corrected if--
``(A) such failure is retroactively undone to the
extent possible, and
``(B) the person to whom the failure relates is
placed in a financial position which is as good as such
person would have been in had such failure not
occurred.''.
(b) Clerical Amendment.--The table of sections for chapter 43 of
such Code is amended by adding after the item relating to section 4980C
the following new item:
``Sec. 4980D. Failure to meet certain group health plan requirements.''.
(c) Effective <<NOTE: 26 USC 4980D note.>> Date.--The amendments
made by this section shall apply to failures under chapter 100 of the
Internal Revenue Code of 1986 (as added by section 401 of this Act).
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