The IRS is Issuing ACA Penalty Letter 5005-A For The 2017 Tax Year
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The IRS has begun issuing Letter 5005-A, Information Return Penalty Notice (Form 1094-C or 1095-C) (“Letter 5005-A”), for the 2017 tax year, demonstrating their efficiency at identifying ACA non-compliance and intensifying enforcement efforts.
Letter 5005-A is issued to Applicable Large Employers (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.
Letter 5005-A is the penalty notice that follows the IRS’ Letter 5699, which is sent to employers that the agency believes are Applicable Large Employers that failed to file and or furnish the required ACA forms 1094-C and 1095-C as required under IRC sections 6721/6722.
In order for the IRS to determine the penalty assessment for an employer who has failed to file or furnish the applicable ACA information, the agency cross-references the number of W-2’s that a particular employer filed that year.
Employers are sent Letter 5699 to determine if they have failed to file or distribute their ACA information returns as required. In this notice, the IRS asks employers to confirm the name they used when filing ACA information returns, provide the Employer Identification Number (EIN) submitted, and the date the filing was made.
Employers should note that if they receive Letter 5699, it’s not too late to avoid the subsequent Letter 5005-A. Letter 5699 provides ALEs with the opportunity 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.
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 should note that the IRS is also issuing Letter 226J’s for the 2018 tax year to employers identified as having failed to comply with the ACA’s Employer Mandate. These penalty notices are separate from Letters 5005-A and are assessed on employers that fail to offer adequate, affordable health coverage to its full-time workforce.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALE) 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 Internal Revenue Code (IRC) Section 4980H penalties.
If you haven’t received a penalty notice from the IRS, you may still get one if you haven’t complied with the requirements of the ACA’s Employer Mandate. Undertaking an ACA Penalty Risk Assessment can tell you if your organization is at risk of receiving ACA penalties from the IRS. Some third-party vendors will undertake this assessment at no cost to your organization.
To learn more about ACA compliance in 2021, click here.
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