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We can expect a blizzard of ACA notices and penalty assessments being sent by the IRS 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. These notices include Letter 5699, Letter 226J and Letter 5005A.
IRS Letter 5699 is a notice sent to employers the IRS believes are Applicable Large Employers or ALEs that failed to file and or furnish the required ACA information by the mandated deadlines under IRC sections 6721/6722. These are employers with 50 or more full-time employees and full-time equivalent employees that should be filing ACA information annually with the tax agency. In Letter 5699, 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. It is a precursor to the possible issuance of ACA penalties to employers.
While businesses have been the primary focus of these ACA notices, churches and other religious organizations will soon start to receive questions from the IRS about potential liabilities under the Affordable Care Act. The Tax Blog reports, “According to Margaret Von Lienen, Director of Exempt Organizations, the IRS has begun targeting churches and other religious organizations as part of a compliance program that will run through August 2019. She made these statements at the TEGE Exempt Organizations Council meeting on June 28, 2019.”
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.
If the IRS determines that an employer is an ALE and has failed to comply with ACA regulations, they may be subject to two types of penalty notices.
IRS Letter 226J is 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 ALEs 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.
IRS Letter 5005A is issued 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.
Employers with 50 or more full-time or full-time equivalent employees that have not filed their 2015, 2016, 2017 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 employers are unsure if they are ALEs for these tax years, they may consider undertaking an ACA Penalty Risk Assessment. This assessment will tell employers if they are ALE and what their risk exposure to receiving ACA penalties from the IRS. Many third-party experts will provide this assessment at no cost.
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.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.