December 8, 2017 

As we previously wrote about, the IRS has begun its enforcement of the Affordable Care Act (“ACA”) employer mandate beginning with calendar year 2015. If you haven’t gotten the IRS Letter 226J yet, but are concerned you may get one, be sure to alert the employees receiving the mail to promptly forward any letters from the IRS to the appropriate party.

If you received an IRS letter 226J (or are concerned you might receive one), these are the top 10 tips for preparing your response.

  1. This is not an assessment (yet). While the IRS letter 226J and the accompanying forms state a penalty amount, the IRS is asking you to confirm, or dispute, the amount in question. Therefore, while you should take this seriously, the fact that you got a letter does not necessarily mean you owe a penalty.
  2. Read the letter and forms closely. The letter and forms have specific instructions for how to respond and whom to contact. Also, don’t assume that the IRS necessarily calculated the penalty correctly or has all the facts.
  3. 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). You may be able to request additional time by following the instructions in the letter and accompanying forms.
  4. Gather your records. If you want to contest the penalty amount, you will likely need to prove that you offered health coverage to one or more of the employees listed in the IRS forms. You 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 records. Your Forms 1095-B and –C, payroll and enrollment records, Summaries of Benefits and Coverage, Summary Plan Descriptions, and other records may be necessary to prove one or more of these points.
  5. Contact vendors. Some records you may have in your files, but you may also need records from vendors to help round out the response. In addition, vendors may have been getting multiple letters for different clients and may have some insight into how best to respond to the IRS. This includes reaching out to your HUB Account Team who may have some of the relevant information (or be able to point you in the direction of someone who does).
  6. Be organized and explain your response. An organized, professional response will likely go a long way to making this a smooth process. Given that payroll and benefits administration systems vary, you will likely need to explain any reports or other information you provide.
  7. 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 your penalty amount.
  8. Consider contacting an experienced attorney, accountant, or other tax advisor. If the IRS letter 226J, or your response, requires nuance or complexity, or a high volume of records, you may want the assistance of an outside tax adviser. Make sure that the individual or company you hire has experience with the ACA employer mandate because the rules are complex. HUB can provide recommendations, if requested.
  9. Tap other resources. HUB has a set of FAQs that can help you in preparing your response and has copies of the model IRS letter and forms. Our Compliance Officers can also offer general guidance or respond to questions about the employer mandate or the assessment process. Vendors and other providers may have additional resources as well. You do not have to do this all by yourself!
  10. Pay attention to the IRS’s comments. Reporting for 2017 is right around the corner. If you received a letter because of a reporting issue, be sure to address it in your 2017 forms to avoid a similar headache down the road.

View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.