The IRS letter 226J and the accompanying forms state a penalty amount, the IRS is asking employers to confirm, or dispute, the amount in question. This is not an assessment, yet, but it could be.
- Read the letter and forms closely. The letter and forms have specific instructions for how to respond and whom to contact. Don't assume that the IRS necessarily calculated the penalty correctly or has all the facts.
- Mind the deadlines. The IRS letter 226J says a response is due within 30-days of the date of the letter (not the date you received it).
- Gather your documentation. If employers want to contest the penalty amount, you will likely need to prove that the employer offered health coverage to one or more of the employees listed in the IRS forms. Employers will also need to prove that the coverage was “affordable” and “provided minimum value,” as those terms are defined in the ACA. For that, you’re going to need documentation.
- Contact vendors. Some documentation employers may have in their files, but employers may also need documentation from vendors to help round out the response.
- Be organized and explain your response. An organized, professional response will likely go a long way to making this a smooth process.
- Don’t forget about transition relief. The first letters relate to the 2015 calendar year. There were various forms of transition relief that applied in that year which could reduce an employers penalty amount.
- Consider contacting an experienced attorney, accountant, or other tax adviser. If the IRS letter 226J, or the employers response, requires nuance or complexity, or a high volume of records, you may want the assistance of an outside tax adviser.
- IRS’s comments – Pay attention. Reporting for 2018 is closer than you think. If employers receive a letter because of a reporting issue, be sure to review the 2018 reporting to avoid a similar headache down the line.
This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Selerix encourages readers to consult with appropriate legal and/or tax advisers.