Keep An Eye Out for IRS Letter 5699
3 minute read:
It’s summer, but we can expect a blizzard of ACA penalty notices being sent by the IRS this month as the tax agency steps up its ACA enforcement activities with those employers it has determined failed to comply with the ACA in the 2017 tax year.
This will include Letter 226J, the penalty notice issued by the IRS to those employers the tax agency believes has failed to comply with the ACA’s Employer Mandate. This mandate requires all employers with 50 or more full-time employees and full-time equivalent employees, 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. These employers are considered to be Applicable Large Employers, or ALEs.
The IRS also is issuing Letter 5005-A with Form 866-A to ALEs that failed to furnish 1095-C forms to employees under IRC 6721/6722 or file forms 1094-C and 1095-C with the IRS for the 2017 tax year. These notices focus on the failure of ALEs to distribute 1095-C forms to employees and to file 1094-C and 1095-C forms with the federal tax agency by required deadlines.
You also can expect to see the IRS issuing the Letter 5699, officially titled, “Request for Employer Reporting Offers of Health Insurance Coverage (Forms 1094-C and 1095-C).” This notice is sent to employers the IRS believes are ALEs and that should be filing ACA information annually with the tax agency. In this letter, the IRS asks employers to confirm the name the ALE used when filing its ACA information, provide the Employer Identification Number (EIN) submitted, and the date the filing was made. We’ve seen some of these letters already issued this month.
It appears that the agency is determining if penalty assessments are warranted for certain employers by cross referencing the number of W-2s employers filed with the IRS with their 1094-C and 1095-C forms. If this information is not consistent, it will lead to the IRS issuing the ALE a penalty notice. Replying to Letter 5699 is crucial if you have already filed information with the IRS because the information you provided should have prevented your organization from receiving an ACA penalty notice.
If you are an ALE that has not filed for the 2017 tax year, Letter 5699 provides the opportunity to ALEs to provide their Form 1094-C and Forms 1095-C in their response to the IRS if they are not required to file electronically. Currently, employers that are required to file at least 250 Forms 1095-C must file electronically. ALEs that have not filed can commit to filing Form 1094-C and Forms 1095-C by a specific date, preferably within 90 days of receiving Letter 5699.
The IRS also will provide employers with the opportunity to make a case as to why they should not be considered ALEs for the reporting year at issue or to provide some other explanation as to why they have not filed.
Employers with 50 or more full-time or full-time equivalent employees that have not filed their 2015, 2016, or 2018 tax year ACA information with the IRS should file as soon as possible using IRS Schedules 1094-C and 1095-C to minimize potential IRS penalties.
The IRS has made it clear that there will be no waivers provided for ALEs that have not filed their ACA information.
If you haven’t begun tracking the ACA-related data for the 2019 tax year for filing with the IRS, it’s time to start.
To learn more about ACA compliance for the 2019 tax year, click here.
For ACA reporting deadlines in 2020 for the 2019 tax year, organizations should review this link for important dates and requirements.
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