Now that we’ve cleared the 2022 halfway mark, it appears the IRS is on track to hit its goal of clearing the historic backlog by the end of the year. The agency has begun auditing ACA filings for the 2020 tax year and is now issuing the non-filing notice, Letter 5699.
Officially known as “Missing Information Return Form 1094/1095-C,” Letter 5699 is a warning sent to organizations. If employers fail to take prompt action, a Letter 226J penalty notice may soon follow.
The IRS issues Letter 5699 to Applicable Large Employers (ALEs) that it believes failed to file applicable ACA Forms 1094-C and 1095-C for a specific tax year as required by the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, ALEs, or employers with 50 or more full-time employees and full-time equivalent employees to:
- Offer Minimum Essential Coverage to at least 95% of their full-time employees (and their dependents) whereby such coverage meets Minimum Value and
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability
We’ve seen Letter 5699 warning notices lead to Letter 226J penalty assessments in the millions of dollars range. Read below to learn about options for responding.
Responding to Letter 5699
The 2020 Letter 5699 instructs employers to verify their ALE status for the 2020 tax year and provides a series of responses to select from. We’ve captured them below:
- I was an ALE for calendar year 2020 and already filed Form 1094-C and Forms 1095-C with the IRS using the following name ——- and employer identification number (EIN) ——- on date ——-
- I was an ALE for calendar year 2020 and have included my Form 1094-C and Forms 1095-C with this letter. (Do not use this box if you are required to file electronically)
- I was an ALE for calendar year 2020 and will file my Form 1094-C and Forms 1095-C with the IRS using the following name ——- and EIN ——- by date ——- (If more than 90 days from the date of this letter, explain below under “Other”) (Explain reasons for late filing below under “Other”)
- I was not an ALE for the calendar year 2020 and explain the reasons below under “Other”
- Other (Indicate below or attach a statement explaining why you haven’t filed the required returns and any actions you plan to take)
Employers must choose one of the options, respond accordingly, and mail the relevant information back to the IRS within 30 days of the date noted at the top of the letter.
Escalating IRS activity
The news of the IRS issuing Letter 5699 notices for the 2020 tax year comes on the heels of new developments within the agency.
Among these new developments is the Biden administration’s request for $14.1 billion in discretionary funding for the IRS, which is over $2 billion more than the 2021 amount. With the additional funding, the agency aims to enhance its IT systems and processes for identifying ACA non-compliance, among other tax requirements.
Additionally, thanks to a recent hiring surge of over 10,000 positions, many of which were IRS examiners in charge of auditing ACA filing submission, the agency is making good on the Treasury Inspector General for Tax Administration’s recommendation to improve processes for identifying ACA non-compliance.
With increased funding on the way, new tax examiners on board, and newly allocated personnel and resources, the IRS is on course to hit the target of clearing the historic backlog later this year.
Employers watching from the sidelines should note that the IRS enforcement activity we are seeing now is just the beginning and more is on the way. If you receive any ACA penalty notice from the IRS, contact Trusaic. We’ve helped our clients prevent over $1 billion in ACA penalty assessments.
If you haven’t received a Letter 5699 or another ACA penalty, best practices encourage getting your ACA Vitals score. ACA Vitals assists with identifying risk areas within your organization and points you in the right direction for improving ACA compliance.
For more information on Letter 226J, including best practices for responding to the penalty notice, download our white paper.