The IRS recently released the sample notice (Notice CP 220J) that it will use to notify applicable large employers (ALEs) of their liability for an employer shared responsibility payment for one or more months in calendar year 2015.
As background, over the past several months, the IRS has been sending Letter 226J as its initial notification of proposed employer shared responsibility penalties to ALEs. These proposed employer penalties have been based on the ALE’s Form 1094-C/1095-C reporting in the 2015 tax year and information provided by the Marketplaces regarding individuals enrolled in subsidized coverage. ALEs receiving Letter 226J, who disagree with the proposed penalties, generally have 30 days to submit a response for IRS review. After reviewing the ALE’s response and supporting documentation, the IRS will issue its initial decision through IRS Letter 227. However, the ALE will have another opportunity to argue against the proposed penalties by requesting a pre-assessment conference with the IRS Office of Appeals.
If the employer is still unsuccessful in eliminating its liability for employer penalties at this stage, the IRS will assess an employer shared responsibility payment amount against the ALE by issuing Notice CP 220J. According to the sample notice, if the ALE continues to disagree with the employer shared responsibility penalty amount after receiving Notice CP 220J, they can file suit in federal court.
The release of this sample notice is further indication of the IRS’ intent to move forward with enforcement of employer shared responsibility penalties for the 2015 tax year. Accordingly, any ALE who receives Letter 226J, as the initial notification of proposed employer penalties, should not take this notification lightly.
Instead, our recommendation is for ALEs to carefully review their Form 1094-C/1095-C reporting for the 2015 tax year, as well as the supporting benefits and payroll data for that period, to determine if they can minimize their penalty exposure. If so, ALE should take advantage of this internal appeals process that the IRS has made available by responding to IRS Letter 226J, and, if necessary, requesting a pre-assessment conference with the IRS Office of Appeals. Often, eliminating or minimizing the proposed penalties simply come down to correcting mistakes in Form 1094-C or Form 1095-C reporting.
ALE’s who do not take this internal appeals process seriously, or ignore it altogether, will likely be left with the lose-lose choice of pursuing expensive litigation in federal court or submitting the employer shared responsibility payment assessed by the IRS. If you have questions about the best way to respond to an IRS notification of proposed employer shared penalties, ETC Companies has the necessary resources to help through all phases of the IRS response process. We can review your Form 1094- C/1095-C reporting for needed corrections, assess your employer shared responsibility penalty liability, prepare your response to mitigate your penalty exposure, and provide representation before the IRS Office of Appeals. For more information, please contact ETC at 844.263.1006 or email: firstname.lastname@example.org.