The IRS has begun the ACA penalty assessment process. Penalties are being assessed against those organizations determined not to be in compliance with the ACA, according to the March 2018 report from the Treasury Inspector General for Tax Administration on the Affordable Care Act.
Since November 2017, the IRS has issued more than 30,000 Letter 226J notices containing penalty assessments of around $4.4 billion to employers failing to comply with the employer mandate, also known as the Employer Shared Responsibility Payment (ESRP).
Employers who have not received a 2015 Letter 226J should not breathe a sigh of relief just yet. There are more 226J letters on the way.
The IRS is more prepared than ever to identify organizations that are not complying with the ACA than during the initial enforcement actions for 2015.
For the 2015 tax year, the IRS relied on a computer program to randomly select particular organizations to investigate with no regard to the dollar value of the potential ESRP amount. Going forward, the IRS will not be selecting employers at random.
Instead, the IRS will begin to audit non-compliant organizations, on a “highest value of work” basis using their automated ACA Compliance Validation System, as well as other data points.
ALEs should anticipate a greater regulatory burden to demonstrate ACA compliance. For example, for 2015, ALEs had to offer minimum essential coverage (MEC) to at least 70 percent of their full-time workforce (and their dependents) whereby such coverage meets minimum value and is affordable for the employee or be subject to Section 4980H penalties. That coverage threshold increased to 95 percent for 2016 and beyond.
What this boils down to is this: there are no “passes” for not complying with the ACA’s employer mandate.
Employers should consider the enforcement process for 2015 a “test run.” Expect the IRS processes for identifying ACA non-compliance to be more robust and more efficient.
As employers prepare for what’s to come, remember to check your ACA compliance to-do list. The enforcement action is not going away anytime soon.
Employers who receive Letter 226J should be prepared to:
- Provide information to the IRS by the response date (or request an extension)
- Respond in writing, either agreeing with the penalty assessment or disagree and provide supporting documentation
- Request a pre-assessment conference, if the ALE disagrees with the proposed penalty.
Do not ignore the notice or you will be issued a Notice and Demand for Payment.
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