A cautionary tale worth reading.
In recent months, a number of employers have been surprised to find an ACA penalty notice has arrived in the mail, but was directed to the wrong recipient. By the time the notice landed on the right desk, the deadline for responding had already passed, or was only days away. Employers are inundated with information on “what to do” if they receive an IRS penalty notice, but how can an employer respond timely if the notice gets lost in their mail room?
The IRS has completed the final stage of the Affordable Care Act (ACA) penalty notices for the 2016 tax year and has begun issuing penalty notices for the 2017 tax year. “More than 30,000 notices have been issued since June 2018 representing $4.4 billion in penalty assessments” according to the ACA Times. Hopefully, your organization has completed the ACA filing requirements appropriately and are not on the IRS’ mailing list. However, as a precautionary measure, now is the time to alert your mail room to be on the lookout for anything addressed from the IRS and ensure any notice received reaches your desk in a timely manner. With only 30-days to respond, including requesting an extension, it is vital the notice is forwarded to the appropriate personnel upon receipt.
Unforgiving & Costly Timelines
IRS penalty notices are sent by US mail which leaves your mail room as the first line of defense. Since IRS penalty notices are addressed to the person named on Form 1094-C for a specified tax year, it begs the question: what happens if there has been a staffing change? Changes and delivery errors can cause an IRS penalty notice to fall short of reaching its proper recipient. It is important that the “mail gatekeeper” is advised to be on the lookout for official IRS notices and that “time is of the essence” when it comes to responding to an IRS notice.
What is an IRS Penalty Notice and Why do They Warrant This Call to Action?
Penalty notices are issued by the IRS to employers they believe have failed to comply with the ACA’s Employer Mandate for a specified tax year. The estimated amount of the proposed Employer Shared Responsibility Payments (ESRPs) range from as low as a couple thousand to multi-million dollars penalties.
The most common notice is the IRS Letter 226-J. The penalty notice is issued to Applicable Larger Employers (ALEs) who are believed to have failed to comply with the ACA’s Employer Mandate. Under the ACA’s Employer Mandate, organizations with 50 or more full-time employees, and full-time equivalent employees (FTE), ALEs are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents). The coverage offered must meet the Minimum Value (MV) standard and must be affordable for the employee or be subject to IRS 4980H penalties. The annual penalty of $2,260 (or $188.33 per month) per full-time employee applies to the 31st full-time employee and above; the first 30 employees are exempt from the penalty. Recently the IRS implemented a halt to lengthy extensions, now limiting employers that receive an IRS Letter 226-J penalty notice to one 30-day extension request. That 30-day extension policy applies to each IRS notice received in the penalty process.
Other Common Penalty Notices
Other IRS penalty notices are finding their way into mail rooms; among them are the Letter 5699 and Letter 5005-A with Form 886A. The Letter 5699 penalty notice is being sent to ALEs who have not filed the required annual information returns (i.e. Forms 1094-C and 1095-C). Letter 5005-A with Form 886-A is a new notice as of January 2019. These notices are sent to ALEs who have fail to respond to the IRS Letter 5699, or the follow-up Letter 5698 regarding whether it may be liable for filing required forms 1094-C/1095-C.
The IRS determines if penalty assessments are warranted by cross referencing the number of W-2’s employers filed with the IRS with their 1094-C and 1095-C forms. Inconsistencies can lead to the IRS issuing a penalty notice. An employer’s response to Letter 5699 (or any IRS notice) is vital to help prevent a formal ACA penalty assessment.
Time to Examine the “Snail-Mail” Distribution Process
The IRS penalty notices are time sensitive and can be devastating to an organization’s bottom line if not addressed. Take a moment to examine how official “snail mail” is handled within your organization and most importantly how ACA related staffing changes are addressed in your office. Ensure the mail room staff knows to whom the IRS notices must be delivered. This small step will work to preserve the organization’s ability to respond to IRS notices and can assist in avoiding devastating penalty assessments from the IRS.
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