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The IRS has started issuing new penalty notices to employers that failed to file forms 1094-C and 1095-C with the federal tax agency or furnish 1095-C forms to employees for the 2017 tax year as required by the Affordable Care Act.
The IRS in January began issuing penalty notices to employers under IRC 6721/6722 for the 2015 and 2016 tax years. These notices focused 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. The penalty assessments are being issued in Letter 5005-A/Form 886-A.
These penalties under IRC 6721/6722 are in addition to penalties issued using Letter 226J for not offering required healthcare coverage to employees under IRC 4980H. A new round of Letter 226J penalty notices is being issued to employers the IRS believes have failed to comply with the ACA in the 2016 tax year. IRS staff is gathering the information to start issuing Letter 226J penalty notices for the 2017 tax year.
The IRS penalty notices are 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 are defined as employers with 50 or more full-time employees and full-time equivalent employees. They 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 IRC 4980H penalties. They also are required annually to file ACA-related information contained in forms 1094-C and 1095-C with the IRS and provide forms 1095-C to employees or be subject to IRC 6921/6922 penalties.
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.
For more information on how to respond to IRC 6721/6722 penalties, click here.
For more information on how to respond to Letter 226J penalty notices, click here and here.
With the IRS continuing with ACA enforcement efforts and the issuance of penalty assessments, some in the tens of millions of dollars, employers may want to consider undertaking an ACA Penalty Risk Assessment to determine if they will be deemed ALEs and are at risk of receiving ACA penalties. 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 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 potential financial exposure.
