Sep 11, 2018
Most of us are well aware that the IRS is actively collecting employer shared responsibility payments from applicable large employers (ALE) who failed to comply with the Section 4980H offer of coverage requirements during the 2015 calendar year. The process typically begins with a proposed assessment via Letter 226J. From there, the employer may appeal or make payment. Rumor has it that the IRS is wrapping up collections and will be moving on to the 2016 calendar year by this fall. In advance of the actual Letter 226Js for 2016, the IRS has recently been sending out Letter 5699 for 2016. The Letter 5699 is sent to employers whom the IRS thinks are likely ALEs, and for whom the IRS does not have a Form 1094-C and associated Form 1095-Cs.
- A response to Letter 5699 is required within 30 days, just like for Letter 226J (subject to any extension granted).
- In response to Letter 5699, the employer must indicate whether they are an ALE, whether filing was submitted, and if not, why not.
- If the employer is not actually an ALE or is filed under the wrong tax ID, the employer can simply let the IRS know.
- However, if the employer is an ALE and did not report, they may face some significant penalties, in addition to any penalties that may be owed for failing to comply with the Section 4980H offer of coverage requirements. The 1094-C and 1095-C instructions indicate the penalty structure is as follows for 2016 and 2017 (patterned after what applies for Form W-2 filings):
- Penalty for failure to file with the IRS = $260 per form
- Penalty for failure to distribute Form 1095s to individuals = $260 per form
We don’t have much experience yet with how stringent the IRS will be with these reporting penalties. For ALEs who failed to report, the best chance of minimizing the penalty risk is certainly reporting sooner rather than later, in addition to providing a response to Letter 5699 along with an explanation. We recommend that employers consult their tax adviser or legal counsel who can represent them before the IRS when responding to Letter 5699 because the issue is a failure to file required tax forms, not compliance with the Section 4980H employer shared responsibility rules.
