The IRS is currently issuing the Letter 226J proposed employer-shared responsibility payment (ESRP) notice to businesses they suspect of having not complied with the 2017 tax-year Affordable Care Act requirements. The Letter identifies the amount of the proposed penalty that the business would be responsible for paying— an amount which can be steep. CBM has seen penalty amounts ranging from $3,160 to over a million dollars.
CBM advises businesses that receive such a letter to respond promptly, especially since Letter 226J requires a response within 30 days. (The specific response date will be identified in the Letter.) Lack of a timely response on the part of the business will trigger the IRS to promptly issue a notice which assesses and requires payment of the penalty proposed in Letter 226J.
Businesses requiring more than 30 days to respond to Letter 226J are advised to call the IRS to request an extension, indicating the reason for the extension. To date, CBM is aware of instances when the IRS has granted reasonable one-month extension requests. We are not aware of additional extensions, however.
CBM encourages a thorough review of Letter 226J, in order to determine and understand the penalty being proposed. The IRS issues the Letter 226J based partially on information the employer reported previously on Form 1094-C and Form 1095-C, and based partially on employees’ claims for a premium tax credit. A careful review of the IRS’s claims may reveal that the employer’s penalty obligation is overstated, or in some cases not due at all.
IRS Letter 226J includes specific instructions regarding how to reply to the proposed notice and businesses should adhere to those instructions. Responding in the requested fashion is not only required but also allows the IRS to respond quickly, thus reducing or eliminating further questions or notices.
If you are near the response deadline, fax your response to the IRS, to the fax number indicated in the Letter. The IRS is presently processing faxed responses faster than mailed responses. Either way, make sure the IRS receives the response by the due date.
CBM has considerable experience in the area of penalties related to the Affordable Care Act. Please contact Tammy Vonderhorst with any questions via CBM’s online contact form today.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.