What you Need to Know About IRS Letter 5699
2 minute read
With the IRS ramping up enforcement of the ACA, employers should keep their eyes peeled for the penalty warning notice, Letter 5699. Responding promptly and accurately to the notice could save your organization hundreds of thousands of dollars.
What is Letter 5699?
Letter 5699, Missing Information Return Form 1094/1095-C, is a notice sent from the IRS to make initial contact with an organization that the agency believes was an Applicable Large Employer (ALE) for an identified tax year. In the eyes of the IRS officers, the organization was required to file information returns under the ACA’s Employer Mandate but was identified as having failed to do so. Letter 5699 is therefore the first step towards the IRS imposing an ACA penalty assessment on an employer.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs) are employers with 50 or more full-time employees and full-time equivalent employees) and 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.
Failure to offer healthcare coverage as mandated by the ACA yields penalties under Internal Revenue Code section 4980H, which can be as much as $4,060 per employee in 2021. But, the IRS can also levy additional penalties for those ALEs that fail to file Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Return, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, with the IRS. Such penalties can be extremely serious.
For Forms 1094-C and 1095-C due from certain large businesses and government entities in 2022 that are filed up to no more than 30 days late, the IRS may levy a penalty of $50 per information return, up to a maximum penalty of $571,000. This increases to $280 per return, up to a maximum penalty of $3,426,000 if the information returns are filed after August 1. Needless to say, addressing a Letter 5699 quickly and strategically is critical, but proceeding may be difficult without the right tools.
What are the options for responding to Letter 5699?
Letter 5699 provides the employer with choices regarding their filing situation for an applicable tax year. The letter asks the employer whether they:
- Filed the forms under a different EIN (They are asked to provide the name, EIN, and date for when the returns were filed)
- Should have filed the forms, but did not (They are asked to either submit the delinquent forms with the response or provide an explanation of when the returns will be electronically submitted)
- Were not an ALE, and thus not required to file
- Had an “other” reason to not file
If you are unsure which scenario applies to you, contact a vendor with a proven track record in ACA compliance. Trusaic can perform a cost-free ACA Penalty Risk Assessment to help you get started.
What can we expect from the IRS moving forward?
The Biden administration requested $13.2 billion for IRS enforcement in its discretionary funding request for the 2022 fiscal year. In addition, a recent Treasury Inspector General for Tax Administration (TIGTA) recommendation clarified that the IRS should increase its enforcement efforts to ensure ACA non-compliance penalties are being collected, even from those who technically complied, but filed their ACA filings incorrectly. The IRS also clarified that 2020 would be the final year for Good-Faith Relief for reporting and furnishing requirements. Further, the IRS Office of Legal Counsel has stated there is no statute of limitations on 4980H penalties.
These developments all point to one thing: increased IRS ACA enforcement activity, and with greater scrutiny and efficiency.
The IRS is currently issuing Letter 226J penalty assessments for the 2018 tax year, and Letter 5005-A late penalties for the 2017 tax year. More penalties are coming, and earlier years are also fair game as there is no statute of limitations on ACA penalties.
If your organization received Letter 5699, or another penalty notice, contact us to have your penalty reduced or eliminated. So far Trusaic has helped abate over $500 million in ACA penalty assessments.
For more information on ACA penalties, including important 2021 deadlines, penalty amounts, affordability percentages, and steps for responding to IRS penalty notices, download the 2021 ACA 101 Toolkit.
Undertaking an ACA Penalty Risk Assessment can tell you if your organization is at risk of receiving ACA penalties from the IRS.
