The IRS is now issuing new penalty notices to employers that failed to file forms 1094-C and 1095-C with the federal tax agency of furnish 1095-C forms to employers for the 2017 tax year that was required by the Affordable Care Act.
In January the IRS started to issue penalty notices to employers under IRC 6721/6722 for the 2015 and 2016 tax years. The notices focused on the failure to distribute 1095-C forms to employees and to file 1094-C and 1095-C forms with the federal tax agency by the required deadlines. Once the IRS has come into the knowledge that the employer did not submit these forms, the penalty assessments are starting to be issued in Letter 5005-A/Form 886-A.
These penalties under IRC 6721/6722 are also used in addition to penalties being issued using Letter 226j for not offering healthcare coverage to employees under IRC 4980H. Employers are starting to receive a new round of Letter 226J penalty notices for employers who the IRS believes have failed to comply with the ACA in the 2016 tax years. Currently, IRS staff is gathering the information to start issuing Letter 226J penalty notices for the 2017 tax years. Employers can expect these penalty letters to start being sent in the fourth quarter of the 2019 fiscal year.
The IRS penalty notices that are being issued to employers the agency refers to as Applicable Larger Employers (ALEs) as an effort to enforce the ACA’s Employer Mandate. Under the ACA’s Employer Mandate, ALEs are defined as employers with 50 or more full-time employees and full-time equivalent employees. These employers are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) coverage that meets Minimum Value (MV) and is affordable to employees or be subject to IRC 4980H penalties. Employers are3 also required to annually file ACA-related information contained in forms 1094-C and 1095-C with the IRS and provide forms 1095-C to employees or be subject to IRC 6921/6922 penalties.
The IRC 6721/6722 penalty assessment process is the follow-up to information that employers provided to IRS letter 5699, which states that the IRS believes that a particular organization was an Applicable Larger Employer and failed to file ACA information returns as required by the ACA. The Letter 5699 notice asks the employer to (1) confirm that the employer was an Applicable Larger Employer for the reporting year, and if so, either (a) confirm that the returns were already submitted, along with the name and Employer Identification Number (EIN) used to submit the returns and date of submission, (b) provide the returns as part of the response to the Letter 5699 or (c) the name and EIN intended to be used when submitting the returns and the anticipated date of each submission, or (2) deny that the employer is an Applicable Larger Employer with an explanation. The letter 5699 also provides for an “Other” response to explain late filings or late filings of more than 90 days to respond to the Letter 5699. Failure to timely respond to Letter 5699 may result in the penalty assessment being issued in Letter 5005-A/Form 886-A.