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IRS Begins to Issue ACA Penalty Letters

August 23, 2018

This applies to Applicable Large Employers (ALEs) subject to the ACA. 

Overview

Recently, the Internal Revenue Service (IRS) has been sending out penalty letters (Letters 226-J, 227, and 5569) to ALEs to inform them of:

  • Potential penalties
  • Matters regarding an Employer Shared Responsibility Payment (ESRP)
  • Issues with Forms 1094-C and 1095-C

Below we outline the purpose of each of these letters, and the necessary actions to take if you receive one of them. Importantly, if you receive such a letter, please contact your team at Vita for assistance

Letter 226-J

Letter 226-J is issued to ALEs to notify them that they may be liable for an Employer Shared Responsibility Payment (ESRP). The determination of whether an ALE may be liable for an ESRP and the amount of the proposed ESRP in Letter 226-J are based on cross-referenced information from Forms 1094-C and 1095-C filed by the ALE and the individual income tax returns filed by the ALE’s employees.

To reply to the letter, you must complete Form 14764 indicating your agreement or disagreement with the letter. If you disagree with the letter, you should collect supporting documentation to present with your response.

Letters 227

Letters 227 are acknowledgement letters sent to close an ESRP inquiry or provide the next steps to the ALE regarding the proposed ESRP. There are five different 227 letters:

To reply to the letter, you must complete Form 14764 indicating your agreement or disagreement with the letter. If you disagree with the letter, you should collect supporting documentation to present with your response.

Letter 5699

Letter 5699 is sent by the IRS if they have not received or received an incomplete filing for Forms 1094-C and 1095-C. Your filing is not considered sent until the IRS has either accepted the filing with revisions or accepted it outright.

If you received this letter, you will have the opportunity to either:

  • Note that Forms 1094-C and 1095-C have been filed
  • Provide the completed Forms 1094-C and 1095-C
  • Commit to filing Forms 1094-C and 1095-C within 90 days of receiving the letter
  • Make a case as to why you should not be considered an ALE in the noted calendar year or to provide an explanation as to why you have not filed

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