Updated March 2018
Last week we wrote about the Boston Business Journal reporting, the employer mandate penalty notices would soon be sent by the IRS. While many may view this as the boy crying wolf yet again, the IRS has updated its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act to expound upon the questions related to Making an Employer Shared Responsibility Payment (see questions 55 through 58). The procedures which were updated on November 2, 2017 are the IRS’ strongest signal that the employer mandate penalties are imminent. This article describes the details the IRS has provided regarding the enforcement of the employer mandate penalties and the corresponding appeals procedures.
If the IRS believes an Applicable Large Employer member (ALE member) owes an employer mandate penalty, the ALE member will first receive a Letter 226J. The IRS plans to provide a Letter 226J to each ALE member who had a full-time employee who received a premium tax credit so long as the ALE member did not qualify for one of the relief provision discussed in the final regulations. The Letter 226J will include the following items:
1. An explanation of section 4980H;
2. A table summarizing the proposed employer mandate penalty for each month including an explanation as to whether the liability is under section 4980H(a), section 4980H(b), or neither;
3. An explanation of the table summarizing the proposed employer mandate penalty;
4. A Form 14765 which will contain a list of each full-time employee who received a premium tax credit for a month that the ALE member did not qualify for an affordability safe harbor or other relief. The Form 14765 will also include the code combinations the employer entered on lines 14 and 16 of the employee’s Form 1095-C;
5. A description of the actions the ALE member should take if it agrees or disagrees with the employer mandate penalty in the Letter 226J; and
6. A description of what will happen if the ALE member does not timely respond to the Letter 226J.
An ALE member will typically have 30 days from the date on the Letter 226J to respond. If the ALE member does not respond to the Letter 226J within the 30 day time frame, the IRS will assess the amount of the proposed employer mandate penalty and issue a notice and demand for payment in the form of a Notice CP 220J. Therefore, any ALE member who receives a Letter 226J must respond in a timely manner.
Fortunately, any ALE member who receives a Letter 226J will be provided an opportunity to respond before the notice and demand for payment is made by the IRS. The Letter 226J will provide the ALE member instructions as to how it should agree or disagree, in whole or in part, with the proposed employer mandate penalty amount. Again, as discussed in the paragraph above, it is critical that this response occurs within the 30 day time frame allowed for a response.
Once the ALE member responds to the Letter 226J, the IRS will reply with a Letter 227. The Letter 227 will be an acknowledgement from the IRS that it received the ALE member’s response to the Letter 226J and describe what further action needs to be taken by the ALE member. Apparently, the IRS has created five different versions of the Letter 227 and the ALE member will receive one of the five depending on how it responds to the Letter 226J.
If the ALE member still disagrees with the position the IRS is taking after receiving the Letter 227, the ALE member can request a pre-assessment conference with the IRS Office of Appeals. To request a pre-assessment conference the ALE member will follow the instructions provided in the Letter 227 and Publication 5. The ALE member must request the pre-assessment conference in writing by the response date shown on the Letter 227 which is generally 30 days from the date on the Letter 227.
If it is determined that an ALE member owes an employer mandate penalty, the IRS will issue a notice and demand for payment in the form of a Notice CP 220J. The Notice CP 220J will include a summary of the employer mandate penalty as well as reflect any payments made, credits applied, and the balance due, if any. The notice will also include instructions on how the payment can be made.
The IRS plans to issue the Letter 226J for the employer mandate penalty corresponding to the 2015 calendar year to ALE members in late 2017. All employers need to be on the lookout for the Letter 226J from the IRS. Even if an employer thinks it has done everything correctly and offered all of its full-time employees a plan that provides minimum value at an affordable price, the employer could still receive a Letter 226J.
Regardless of the reason an ALE member receives a Letter 226J, a timely, accurate response is necessary. It would be prudent for any ALE member responding to the Letter 226J from the IRS to consult with an attorney who is familiar with the Forms 1094-C and 1095-C as well as other pertinent Affordable Care Act provisions. Please contact us if we can assist you in completing your ACA reporting obligations.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC, provides Legal Counsel to Healthcare Compliance Inc. and is a Partner at Health Care Attorney’s P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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