The Internal Revenue Service (IRS) has updated its list of frequently asked questions (FAQs) on the Affordable Care Act’s employer shared responsibility provisions – also known as the “pay or play” mandate. In particular, questions 55 through 58 provide guidance for employers who may be subject to shared responsibility payments. The FAQs indicate that the IRS will begin sending penalty letters to applicable large employers (ALEs) that owe penalties for the calendar year 2015 “in late 2017.” Around this time last year, the IRS had indicated that penalty letters for 2015 would be coming “in early 2017;” however, those letters never materialized. Based on the latest update to its FAQs, it appears that the IRS has worked out the kinks in its systems and is prepared to begin sending penalty letters.
- a brief explanation of the pay-or-play provisions;
- a table itemizing the proposed penalty by month and whether the liability is under the “no coverage” provision, the “unaffordability” provision or neither;
- an employer shared responsibility response form (Form 14764 – ESRP Response);
- a list of full-time employees who received subsidized Marketplace coverage each month (Form 14765 – Employee Premium Tax Credit List) and for whom the ALE did not qualify for an affordability safe harbor or other relief;
- a description of the actions the ALE should take if it agrees or disagrees with the proposed payment amount in Letter 226J; and
- a description of the actions the IRS will take if the ALE does not respond timely.
The response to Letter 226J will be due by the response date shown on that letter, which generally will be 30 days from the date of Letter 226J. The letter will contain the name and contact information of a specific IRS employee that the ALE should contact if it has questions about the letter. At this time, a copy of Letter 226J is not available on the IRS website.
A copy of Letter 226J can be found here: https://www.irs.gov/pub/notices/ltr226j.pdf.
If an ALE agrees with the penalty determination, it must complete and return a Form 14764, ESRP Response, that is enclosed with the letter, and include full payment by check or money order for the penalty amount assessed (or, if enrolled in the Electronic Federal Tax Payment System (EFTPS), pay electronically).
If an ALE disagrees with the penalty determination, the enclosed Form 14764, ESRP Response, will also include a Form 14764 to send to the IRS and it will need to include a signed statement explaining the basis for the disagreement. The ALE may include any documentation (e.g., offer of coverage records) with the supporting statement. The statement must also include what changes the ALE would like to make to the Forms 1094-C and/or 1095-C on the enclosed “Employee PTC Listing.” However, the instructions state that an ALE should not file a corrected Form 1094-C or 1095-C. The Letter 226J includes additional, specific instructions on making changes to the Employee PTC Listing.
If the ALE responds to Letter 226J, the IRS will acknowledge the ALE’s response with one of five versions of Letter 227 (which, in general, acknowledge the ALE’s response and describe further actions the ALE may need to take). If, after receipt of Letter 227, the ALE disagrees with the proposed or revised employer shared responsibility payment amount, it may request a pre-assessment conference with the IRS Office of Appeals. The ALE should follow the instructions provided in Letter 227 and Publication 5 for requesting a conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.
If the ALE does not respond to either Letter 226J or Letter 227, the IRS will assess the amount of the proposed penalty and issue a notice and demand for payment (Notice CP 220J). Notice CP 220J will include a summary of the ALE’s payment responsibility and will reflect payments made, credits applied, and the balance due, if any. The notice will instruct the ALE how to make payment, if any. ALEs will not be required to include the employer shared responsibility payment on any tax return that they file or to make payment before notice and demand for payment. ALEs may have the ability to make installment payments, as described in Publication 594.
Stacy Barrow, Esq. Compliance Director
This alert was prepared by Stacy Barrow. Mr. Barrow is a nationally recognized expert on the Affordable Care Act and BAN’s Compliance Director. His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation and employment law firm. He can be reached at email@example.com.
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