If you survived the most recent round of proposed penalty letters sent out by the IRS for violations of the Affordable Care Act unscathed, don’t breathe too easily just yet. Another mass mailing is scheduled soon, and it’s best to be prepared in advance.
Under the terms of the Affordable Care Act, all Applicable Large Employers (ALEs) are potentially liable for an Employer Shared Responsibility Payment (ESRP). This determination is based on information obtained from Forms 1094-C and 1095-C, filed by the ALE, and individual tax returns submitted by the ALE’s employees.
Beginning late in 2017 and continuing through this summer, the IRS sent more than 300,000 letters notifying employers who failed to provide adequate health coverage under the shared responsibility provisions of the Affordable Care Act. Some of these penalties were substantial, exceeding $1 million. This definitely is not something your practice should take lightly.
Understanding Proposed Penalties
Keep in mind that, even if you receive a Letter 226-J, this is a proposed assessment rather than a final determination of penalties. Before agreeing to any proposed assessment, it’s a good idea to take the following steps:
- Review all IRS calculations for Forms 1094-C and 1095-C for the applicable year to confirm the information is correct. The IRS relies on this data to calculate your ESRP, so it’s essential there are no errors.
- Keep a copy of the letter and any other documents submitted to the IRS.
- If you have any questions or need additional time to complete your paperwork, contact the IRS directly.
- If applicable, send the IRS a Form 2848 (Power of Attorney and Declaration of Representative). This allows somebody else to contact the IRS on your behalf. Be sure to indicate the specific year this form applies to.
It’s a good idea to consult with a legal professional, such as a benefits attorney, before agreeing to any proposed assessment.
If you determine the information is incorrect, you can challenge the proposed assessment. Many of the penalties are the result of reporting errors, but the IRS has been willing to agree to penalty reductions if you are able to provide a valid explanation for the error. Some of the more common reporting errors include assigning incorrect codes for employees on the premium tax credit list or erroneously omitting employees who received minimum essential coverage.
Nobody enjoys receiving a letter from the IRS, and penalties certainly aren’t fun, but they aren’t going away anytime soon. Preparing in advance for the possibility of an assessment letter can save you a lot of headache down the road.