HR pros can be forgiven if they’re a bit skeptical about the IRS’ warnings to collect ACA employer mandate penalties. After all, they’ve been saying this for years without actually following through. But with the latest warning, the agency also included some proof that this time it’s for real.
In a recent Q&A on its website, the IRS delved into specifics on how it would begin assessing employer mandates penalties on companies for their 2015 reporting.
A sample of what you’ll receive
Rather than a vague statement about a penalty letter being in the mail, the IRS revealed the specific letter it will issue (Letter 226J), when the letters will be issued (late 2017) and the time frame for which the letters apply (the 2015 calendar year or the reporting that was done in 2016). On top of all that, the agency also released an official sample of the letter it will be using.
The letters are based on info reported to the IRS on Forms 1094-C and 1095-C as well as the agency’s records of who received a premium tax credit.
Who gets a letter and what does it include?
If the feds determine an “applicable large employer” (ALE) company didn’t satisfy the ACA’s offer of coverage rules or had one or more of its full-time employees receive a premium tax credit for at least one month in 2015, the IRS will issue a Letter 226J.
According to the IRS’ Q&A response to Question 55, the letter will include:
- a brief explanation of section 4980H of the ACA,
- an employer shared responsibility payment summary table itemizing the proposed employer payment by month and indicating for each month if the liability is under section 4980H(a) or section 4980H(b) or neither,
- an explanation of the employer shared responsibility payment summary table,
- 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 ALE should take if it agrees or disagrees with the proposed employer shared responsibility payment in Letter 226J, and
- a description of the actions the IRS will take if the ALE does not respond timely to Letter 226J.
The response to Letter 226J will be due by the response date shown on Letter 226J, which generally will be 30 days from the date of Letter 226J.
How to dispute the findings
Getting a letter from the IRS is no doubt a hassle, but employers do have have a few different options:
- Respond before the penalty is assessed. The Letter 226J provides instructions for employers on how to respond (in writing) to state whether they agree with the IRS’ findings or disagree with part or all of the proposed penalty amounts. That letter contains a name and contact info of an IRS employee to follow-up with.
Key: The response must be made by the date shown on the letter — generally 30 days from the date in which the initial letter is dated.
- A pre-assessment conference with IRS. Once employers respond to the 226J Letters, the IRS will follow up with yet another letter, part of its 227 Series for which the agency has created five different letters. If you still disagree with the IRS, you can request a pre-assessment conference with the IRS Office of Appeals. Like the initial letter, the 227 Series will provide detailed instructions. Plus, the IRS’ website also offers “Publication 5, Your Appeal Rights and How To Prepare a Protest if You Don’t Agree,” which includes detailed instructions on all types of appeals.
The conference must also be requested in writing by the response date on the letter, again generally 30 days from the date listed on the letter.
If neither of the above options work, the IRS determines the company is liable for a penalty and will issue a notice and demand for via a Notice CP 220J, which includes detailed instructions for how various payments can be made..
Important: If employers don’t respond to the Notice CP 220J by the deadline, the agency will consider you in agreement and will start assessing penalties.
No time to waste
With year-end being a particularly busy time, this is the last thing HR pros need right now. But unlike previous ACA penalty announcements, this doesn’t have any of the markings of a false alarm.
That means you have little time to prepare for an IRS letter that will demand a timely response. To help, employment attorney Jamie L. Leary offers the following checklist to make the Letter 226J process as painless as possible:
- Take steps to make sure that IRS letters are routed to the right person at your company
- Make sure you have access to all the necessary data from your 2015 ACA reporting process
- Have a speedy process in place to check whether any of the penalties the IRS found actually apply, whether the penalty calculations are accurate, and what your response will be, and
- Have a specialized benefits attorney ready and available to contest penalties if needed.