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IRS staff is expected to start issuing Affordable Care Act penalty notices for the 2017 tax year this month.
This comes on the heels of a final round of Letter 226J penalty notices being issued to employers the tax agency believes has failed to comply with the ACA’s Employer Mandate in the 2016 tax year.
The IRS letter 226J penalty notices for the 2016 and 2017 tax years are being issued to employers the agency refers to as Applicable Larger Employers (ALEs) as part of the effort to enforce the ACA’s Employer Mandate. Under the ACA’s Employer Mandate, ALEs, organizations with 50 or more full-time employees and full-time equivalent employees, are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to IRS 4980H penalties.
The tax agency recently said it would be limiting employers that receive IRS Letter 226J penalty notice to one 30-day extension request for additional time to respond. That 30-day extension policy would be applied to each IRS notice received in the penalty process.
The IRS has also started issuing ACA penalties to ALEs that failed to file forms 1094-C and 1095-C with the IRS or furnish 1095-C forms to employees under IRC 6721/6722 for the 2017 tax year, in addition to notices being sent to employers for the 2015 and 2016 tax years. These notices focus on the failure to distribute 1095-C forms to employees and to file 1094-C and 1095-C forms with the federal tax agency by required deadlines. These penalties are in addition to penalties for not offering the required healthcare coverage under IRC 4980H.
The IRC 6721/6722 penalty assessment process is the follow-up to information employers provided to IRS Letter 5699, which essentially states that the IRS believes that a particular organization was an ALE and failed to file ACA information returns as required by the ACA. The Letter 5699 notice asks the employer to (1) confirm that the employer was an ALE for the reporting year, and if so, either (a) confirm that the returns were already submitted, along with the name and Employer Identification Number (EIN) used to submit the returns and date of submission, (b) provide the returns as part of the response to the Letter 5699 or (c) the name and EIN intended to be used when submitting the returns and the anticipated date of such submission, or (2) deny that the employer is an ALE with an explanation. The Letter 5699 also provides for an “Other” response to explain late filings or late filings of more than 90 days to respond to the Letter 5699. Failure to timely respond to Letter 5699 may result in the penalty assessment being issued in Letter 5005-A/Form 886-A.
Despite legal challenges and other chatter about the ACA in Washington, D.C., it’s clear that the IRS is continuing with its ACA enforcement efforts, with some of the penalty assessments being in the tens of millions of dollars.
With so much at stake, employers should consider undertaking an ACA Penalty Risk Assessment to learn if they will be deemed ALEs and are at risk of receiving ACA penalties from the IRS. Some outside experts may offer to undertake this assessment at no cost to employers. Such a review can reap dividends by helping organizations avoid significant IRS ACA penalties.
If you are an employer that should be filing ACA-related information with the IRS and have not complied, you should immediately seek assistance to submit filings for the 2015, 2016 and 2017 tax years to mitigate your organization’s potential financial exposure.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.