IRS Continues Assessing Employer Mandate Penalties

The IRS continues to send out 226J Letters to collect penalties under the §4980H Employer Mandate. Letters are being sent to applicable large employers who appear to owe a penalty based on self-reporting via Form 1094-C and 1095-Cs for the 2015 calendar year — the first year that the Employer Mandate went into effect. Just because an employer hasn’t received a letter yet, doesn’t mean that one is not on the way. The IRS seems to be sending Letter 226Js in batches instead of all at once. Some employers just got their letter in the past couple of weeks. Once an employer receives Letter 226J, they have 30 days to make a payment or appeal the proposed assessment (unless they get an extension for an additional 30 days). The good news is that most employers are able to get proposed penalties waived by providing corrected reporting information. Many of the proposed assessments are the result of a misunderstanding of the offer of coverage requirements and/or employer reporting mistakes. Most employers have the option to appeal, arguing that coverage was offered in accordance with §4980H requirements. Employers should submit the following to appeal a proposed assessment under §4980H(a):

• Letter/explanation disputing all or part of the assessment
• Completed Form 14764 indicating that they disagree with the assessment and are not sending any payment
• Revised Form 1094-C as an illustration of how the reporting should have been handled
• Revised coding on Form 14765 for employees listed, if applicable

Employers should submit the following to appeal a proposed assessment under §4980H(b):

• Letter/explanation disputing all or part of the assessment
• Completed Form 14764 indicating that they disagree with the assessment and are not sending any payment
• Revised coding on Form 14765
• Summary of Benefits & Coverage (SBC) indicating minimum value coverage
• Employee contribution and pay information for employees listed on Form 14765

Generally, within 4 to 6 weeks receiving the employer’s appeal to Letter 226J, the IRS sends the employer Letter 227K, 227L, or 227M indicating whether they agree with the appeal. If they agree, no further action is needed. If the IRS agrees only partially or disagrees completely, the employer has the choice of paying the assessment or appealing again, perhaps providing a more detailed explanation and additional supporting documentation. Additional Resources:

• LISI Compliance Alert – IRS Letter 226J
• An IRS FAQ page about Letter 226J
• An IRS FAQ page about Letter 227

Once the IRS finishes collection efforts for 2015, they are likely to begin the collection process for 2016, 2017, and so on. Although there is proposed legislation to suspend the Employer Mandate penalties, the IRS will continue its efforts to collect penalties. If you have a client who needs help with responding to an IRS letter, please contact your LISI Regional Sales Manager.