Baker Tilly Vantagen
The fast facts
Yes, employers are actively preparing for the Affordable Care Act (ACA) reportable year 2017 forms release. No, the IRS has not adjusted the deadlines for the 2017 reporting that is due in early 2018. What the IRS has done recently, however, is update its guidance on how it intends to assess 2015 employer shared responsibility mandate penalties. Since this process is new for everyone, we are taking this opportunity to review what we know about it as of today.
When and how will you be notified?
Within the most recent round of Q&A updates, the IRS indicates it plans to issue notification letters in late 2017 to inform applicable large employers (ALEs) of their potential liability for the 2015 calendar year. The letters will presumably be issued to the contact person and address listed on Form 1094.
What does this notification look like?
Letter 226-J will be issued by the IRS to notify ALEs of a proposed employer shared responsibility payment (ESRP). To access a template version of this letter, visit the “Understanding Your Letter 226-J” link below.
In addition to Letter 226-J, Form 14765 will list the ALE’s employees who were allowed a premium tax credit (in other words, the employees who trigger this penalty) along with information gleaned from the ALE’s ACA information returns. The IRS will use reported information to calculate a proposed ESRP amount, and this amount will be clearly represented within the letter.
A response form (Form 14764) will also accompany Letter 226J and is what the ALE will use to inform the IRS if it agrees with the proposed penalty. These response forms are generally due to the IRS within 30 days of the letter date.
Lastly, the IRS’ acknowledgement of an employer’s response to Letter 226-J will come by way of a version of Letter 227. This letter will describe any further action the ALE may need to take. This letter can serve as the basis for the ALE to request a pre-assessment conference with the IRS Office of Appeals.
What do you do if you receive this letter?
The IRS appears ready to begin assessments for penalties under Code § 4980H at any moment. Employers and their Form 1094 contacts should expect such correspondence in the coming weeks and be prepared to review and respond to these letters. To ensure you complete a prompt analysis and are ready to file any challenges to the assessment that you see fit, please assemble the appropriate documentation as soon as possible and allow it to remain readily accessible. Be sure to note and strictly follow any deadline provided for responding. Now is not the time to panic, but it is the time to both act and get your act together.
Given the newness of this process, we first recommend you immediately fill out and return Form 14765 to the IRS, especially if you do not agree with what it states but even if you need time to make a determination. Like we’ve seen before, ignorance demonstrated here over time will likely result in a less-understanding IRS. We also recommend you take a critical look at the employment and eligibility history for the time period in question and in relation to any employees listed on Form 14765. Depending on the nature of the penalty, identified employees should be reviewed for their status as a full-time employee throughout 2015 and, when appropriate, to determine if they were offered affordable coverage throughout 2015.
If your reporting was inaccurate, you may be able to correct it through the response process. If your offer of coverage was off, you will want to understand if your organization was eligible for any transition relief for 2015. You should also prepare to demonstrate any good faith efforts you made to comply with ACA employer mandate and reporting requirements.
Where can I get more information?
For more information, please visit Baker Tilly in the US website.