Now that the IRS received an influx of resources, including $80 billion in funding and 87,000 new tax agents, employers should keep their eyes peeled for the ACA 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. Read on to learn about the significance of the ACA letter.
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 file the annual ACA filings.
Based on the information available to IRS officers, the organization needed to file information returns under the ACA’s Employer Mandate but failed to do so.
Before issuing the organization in question an ACA Employer Mandate non-compliance penalty notice, the IRS sometimes issues Letter 5699 as a heads-up.
As a reminder, under the ACA’s Employer Mandate, ALEs, or employers with 50 or more full-time employees and full-time equivalent employees, must:
- 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 $4,320 per year per employee in 2023.
And failing to file the mandated Forms 1094-C and 1095-C with the IRS can result in a host of additional penalties via Letter 5005-A. For the 2023 tax year, the IRS may assess a $580 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 for a specific tax year. In addition to providing organizations with an opportunity to file their forms without penalty, it gives employers a chance 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 issuing a subsequent penalty assessment.
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. So far, we’ve helped prevent over $1 billion in ACA penalty assessments for our clients.
What can we expect from the IRS moving forward?
As part of the IRS’s new resources, the agency has announced renewed attention to tax compliance, including the ACA’s Employer Mandate. It will be able to conduct more tax audits, hire more tax examiners, and update its infrastructure to better support the processing of tax correspondence.
In December, the agency also updated final regulations to confirm that good-faith transition relief would not apply for any tax year after 2020, effectively communicating that ACA filings will need to be accurate and on time, with no exceptions.
What’s more, is how the IRS is going about assessing non-compliance penalties. In response to employer penalty appeal notices, the tax officers began asking organizations to show their work as part of the appeal, specifically asking that they provide detailed calculations regarding their full-time and full-time equivalent counts.
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 and Letter 5699 for the 2020 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 Trusaic to have your penalty reduced or eliminated. To understand if your organization is at risk of receiving IRS penalties, it’s best to evaluate 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.
To understand your organization’s current level of ACA penalty risk, get your ACA Vitals score. The eight-question quiz can you help identify areas within your business that can complicate the ACA compliance process.