As we reported earlier this year, indications from the IRS pointed to the agency sending enforcement notices by December 2017 to businesses with 50 or more employees – referred to as Applicable Large Employers or ALEs – on what they owe for failing to comply with the Affordable Care Act’s employer shared responsibility mandate for IRS filings related to the 2015 tax year.
That process has now started.
The IRS on Thursday issued guidance on its plans to issue penalty notices to Applicable Large Employers (ALEs) it believes were not in compliance with the requirements of the Affordable Care Act (ACA).
That guidance was made as an update to the IRS’s Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.
The guidance can be found in questions 52 – 58. Specifically, under Question 58, the IRS states: “For the 2015 calendar year, the IRS plans to issue Letter 226J informing ALEs of their potential liability for an employer shared responsibility payment, if any, in late 2017.”
Letter 226J is the communication that will provide the general procedures the IRS will use to propose and assess the employer shared responsibility payment.
Below is a summary of the update quoting liberally from the information provided by the IRS:
The IRS plans to issue Letter 226J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee).
Letter 226J will include:
- an employer shared responsibility payment summary table itemizing the proposed payment by month and indicating for each month if the liability is under section 4980H(a) or section 4980H(b) or neither,
- an employer shared responsibility response form, Form 14764, “ESRP Response”,
- an employee PTC list, Form 14765, “Employee Premium Tax Credit (PTC) List” which lists, by month, the ALE’s assessable full-time employees (individuals who for at least one month in the year were full-time employees allowed a premium tax credit and for whom the ALE did not qualify for an affordability safe harbor or other relief (see instructions for Forms 1094-C and 1095-C, Line 16), and the indicator codes, if any, the ALE reported on lines 14 and 16 of each assessable full-time employee’s Form 1095-C,
- a description of the actions the IRS will take if the ALE does not respond timely to Letter 226J.
ALEs receiving Letter 226J will need to provide information to the IRS by the response date shown in the letter, which generally will be 30 days from the date the letter was issued. The letter will contain the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.
ALEs will have an opportunity to respond to Letter 226J before any employer shared responsibility liability is assessed and notice and demand for payment is made. The letter will provide instructions for how the ALE should respond in writing, either agreeing with the proposed employer shared responsibility payment or disagreeing with part or all of the proposed amount.
ALEs should respond to Letter 226J if there is any disagreement as to the proposed assessment. The IRS will acknowledge any response to Letter 226J with a Letter 227, and will offer further instructions if the ALE disagrees with the proposed or revised assessment. Employers may request a pre-assessment conference and, following such a conference with the IRS, may also ask the IRS Office of Appeals to review the case.
If the employer does not respond, the IRS will assess the amount of the proposed Employer Shared Responsibility payment shown in the Letter 226J, and will issue a Notice and Demand for Payment (Notice CP 220J). This Notice offers directions and alternatives to pay the assessment.
As we have mentioned in many previous blog posts, the ACA remains the law of the land. And all signs continue to point to the IRS enforcing the ACA’s employer shared responsibility mandate, with this latest guidance is the most compelling indication yet.
If you think your company may be receiving a Letter 226J, now may be the time to line up an outside vendor who has the expertise needed to help you provide a timely and complete response to the IRS. Failing to do so could lead to a penalty assessment and, possibly, an IRS audit. Will you be ready?
