IRS Enforcement of Employer Shared Responsibility Provisions
Senior Compliance Attorney
The Internal Revenue Service (IRS) continues to enforce Employer Shared Responsibility (ESR) Provisions under the Affordable Care Act.
Large employers are encouraged to understand the ESR penalty notification and appeal process. Here is a quick overview to ensure your organization remains prepared:
Step One: Employer receives Letter 226J from the IRS
The IRS will inform Applicable Large Employers (ALEs) who they believe are responsible for a penalty payment via Letter 226J. The basis for the penalty demand is based on the IRS determination that for at least one month in 2015 one or more of the large employer’s full-time employees was enrolled in Marketplace coverage, received a premium tax credit (PTC) and the large employer did not qualify for an affordability safe harbor or any other relief.[i]
The letter will contain a payment summary table, a response form (Form 14764), employee premium tax credit list (Form 14765), and full instructions on how to proceed from the IRS.
Step Two: Response to IRS Letter 226J
Employers who receive Letter 226J will have 30 days to respond to the IRS, based on the date of the letter. Employers should complete Form 14764, edit Form 14765 with proper 1095 1 and 2 codes if the codes indicated are incorrect, provide any supporting documentation and mail the response to the IRS.
Step Three: IRS Response to Forms 14764/14765
The IRS will acknowledge the employer response to Letter 226J and provide a letter (Letter 227 – not available yet) with further action required, if any. If the employer disagrees with the information provided in Letter 227, the employer may request a pre-assessment conference with the IRS Office of Appeals. Any requests should be made in writing generally within 30 days of the date of Letter 227.
Response necessary: It should be noted that employers who do not respond to either Letter 226J OR Letter 227, the IRS will assess the amount of payment and issue a notice and demand for payment via Notice CP220J. The employer will need to make its payment following the included instructions.
Key Takeaways
The IRS continues to enforce ESR Provisions under the Affordable Care Act. Large employers are encouraged to understand the ESR penalty notification and appeal process.
Since the implementation of the Affordable Care Act, employers have been encouraged to pay attention to the rules and document all required processes in order to have proof to appeal any IRS assessments. It is imperative that you continue to rely on your tax partner/vendor who have assisted you in the reporting process. And, as always, your M3 team will be available to provide you with necessary compliance support.
The information above is a summary of laws and regulations regarding provisions relating to provisions in the Patient Protection and Affordable Care Act (PPACA). The information should not be construed as legal or tax advice. In all cases, employers should be advised to consult with their accountant or legal counsel for assistance.
