With the IRS making progress on its historic backlog, and ACA enforcement ramping up, employers should keep their eyes peeled for the warning notice, Letter 5699.
It’s in every organization’s best interest to respond promptly and accurately to the notice as it could save you hundreds of thousands of dollars.
What is Letter 5699?
Letter 5699, known as Missing Information Return Form 1094/1095-C, is a notice sent to organizations that the IRS believes were an Applicable Large Employer (ALE) for an identified tax year and did not complete their annual ACA filings.
In the eyes of the IRS officers, the organization needed to file information returns under the ACA’s Employer Mandate but failed to do so.
Letter 5699 is therefore the first step toward the IRS imposing an ACA penalty assessment on an employer that failed to comply with the requirements of the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, ALEs, or 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 employees (and their dependents) whereby such coverage meets Minimum Value (MV); and
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability
Failure to offer healthcare coverage as mandated by the ACA can result in penalties under Internal Revenue Code section 4980H, which can be as much as $4,120 per employee in 2022.
And failing to file your 1094-C and 1095-C can result in a host of additional penalties via Letter 5005-A. For the 2022 tax year, the IRS may assess a $570 per employee filing penalty to organizations that fail to file their information at all.
Why does the IRS issue Letter 5699?
The IRS sends Letter 5699 to prompt employers to take action regarding their ACA filings. It provides organizations with an opportunity to correct any errors associated with the 1094-C and 1095-C filings for an applicable tax year.
Organizations that receive a notice should be grateful, as the agency doesn’t always issue it before the penalty Letter 226J.
What are the options for responding to Letter 5699?
Letter 5699 provides employers with choices regarding their filing situation for an applicable tax year. The letter asks whether the organization:
- Filed the forms under a different EIN and if so, provide the name, EIN, and date for when the returns were filed
- Should have filed the forms, but did not and 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 were not required to file
- Had an “other” reason for not filing
If you are unsure which scenario applies to you, contact a vendor with a proven track record in ACA compliance, like Trusaic. Our ACA Complete solution has prevented over $1 billion in ACA penalty assessments for our clients.
What can we expect from the IRS moving forward?
According to the 2023 Budget of the U.S. Government report, the Biden administration is requesting $14.1 billion in discretionary funding for the IRS, which is $2.2 billion or 18%, more than the 2021 enacted level.
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.
Lastly, the agency is currently working through a backlog, with a projected end date later this year.
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 2019 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 receives a Letter 5699, or another penalty notice, contact us to have your penalty reduced or eliminated. So far Trusaic has helped prevent over $1 billion in ACA penalty assessments.
To understand if your organization is at risk of receiving IRS penalties it’s best to understand the unique intricacies of your business. Get your ACA Vitals score below to find out if there is anything creating a potential risk for your organization.
Undertaking an ACA Penalty Risk Assessment can tell you if your organization is at risk of receiving ACA penalties from the IRS.