A penalty letter doesn’t mean the IRS is correct, but it’s important you know what to do to avoid paying an erroneous penalty.
As we’ve written about recently, the IRS has sent out penalty letters to businesses, non-profits, and government agencies indicating they are not in compliance with the ACA employer mandate for 2015.
The letters usually take the position that the employer owes a penalty based on information examined by the IRS, unless the employer can prove otherwise. This puts employers on the defensive, often based on incorrect facts.
Letters we’ve reviewed all assessed significant penalties against the employers. In two of the cases, penalties were more than $500,000. In these cases it appears that companies incorrectly stated that they didn’t offer health insurance coverage to at least 70% of full-time employees. Given the potential penalties involved, you cannot risk a sub-standard response to the IRS.
Because the process is new and there are many unknowns, including IRS errors in processing and interpretation of the forms, be prepared. If your company receives a penalty letter, here’s what we recommend to get you on the right track for working through the process:
- Find and review your original 2015 Forms 1094-C and 1095-C that you or your payroll company
submitted to the IRS.
- Determine when you must respond to the IRS. You have 30 days from the date on the penalty notice letter to file a response.
- The employer penalties and how to address them are a tax matter. Get qualified tax advice from an outside expert who understands both tax and the ACA. Fortunately, we meet those criteria and would be delighted to help you.
Even if you don’t receive one of the first penalty notices, it’s wise to keep abreast of the ACA issues. Sign up here to receive alerts from our tax and ACA experts. Questions? Contact me or Bill Enck for more information.