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The government shutdown is over, at least for now, and IRS staff is back to work. Get ready for a flurry of Affordable Care Act penalty notices in the next couple of weeks.
IRS staff indicates that the first priority for the ACA enforcement team is to catch up on the six-week backlog of activities that grounded to a halt with the government shutdown. One of the top items is updating the ACA penalty notices that were scheduled to be issued, but did not make it into the mail before the federal government closed.
These include both penalty assessments being sent using Letter 226J and Letter 5005-A/Form 886-A.
The IRS is issuing Letter 226J penalty notices to employers the agency refers to as Applicable Larger Employers (ALEs) as part of the effort to enforce the ACA’s Employer Mandate. Under the ACA’s Employer Mandate, ALEs, 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 IRS 4980H penalties. The Letter 226J penalty notices currently being issued are focused on non-compliance in the 2016 tax year.
The IRS is also issuing ACA penalties to ALEs that failed to file forms 1094-C and 1095-C with the IRS or furnish 1095-C forms to employees under IRC 6721/6722 for the 2015 and 2016 tax years. These notices focus on the failure to distribute 1095-C forms to employees and to file 1094-C and 1095-C forms with the federal tax agency by required deadlines. These are penalties in addition to penalties for not offering the required healthcare coverage under IRC 4980H.
The IRC 6721/6722 penalty assessment process is the follow-up to information employers provided to IRS Letter 5699, which essentially states that the IRS believes that a particular organization was an ALE and failed to file ACA information returns as required by the ACA. The Letter 5699 notice asks the employer to (1) confirm that the employer was an ALE for the reporting year, and if so, either (a) confirm that the returns were already submitted, along with the name and Employer Identification Number (EIN) used to submit the returns and date of submission, (b) provide the returns as part of the response to the Letter 5699 or (c) the name and EIN intended to be used when submitting the returns and the anticipated date of such submission, or (2) deny that the employer is an ALE with an explanation. The Letter 5699 also provides for an “Other” response to explain late filings or late filings of more than 90 days to respond to the Letter 5699. Failure to timely respond to Letter 5699 may result in the penalty assessment being issued in Letter 5005-A/Form 886-A.
It’s clear that the IRS is continuing with its efforts to enforce the ACA with some of the penalty assessments being in the tens of millions of dollars.
With so much at stake, staying on top of the filing and furnishing deadlines is one way to help prevent your company or client from being issues an IRS penalty assessment for the ACA.
Employers also should consider undertaking an ACA Penalty Risk Assessment to learn if they will be deemed ALEs and are at risk of receiving ACA penalties from the IRS. Some outside experts may offer to undertake this assessment at no cost to employers. Such a review can reap dividends by helping organizations avoid significant IRS ACA penalties.
If you are an employer that should be filing ACA-related information with the IRS and have not complied, you should immediately seek assistance to submit filings for the 2015, 2016 and 2017 tax years to mitigate your potential financial exposure.
