June 26, 2018
Recently, the IRS posted on its website examples of Affordable Care Act (“ACA”) employer mandate acknowledgment letters. These are not the letters employers initially receive (the Letter 226J) regarding a possible 2015 Employer Shared Responsibility Payment (“ESRP”). Instead, these are the IRS acknowledgment letters (appropriately numbered 227) that are received after an employer has responded (or not responded) to the initial Letter 226J. They are:
- Letter 227-J. The IRS sends this letter if an employer agreed with the IRS’s findings. It basically tells the employer not to send anything else (except payment) and how to pay.
- Letter 227-K. This is the best letter to get. It says the employer argued that it didn’t owe a penalty and the IRS agrees! In that case, no further action is required.
- Letter 227-L. The employer will get this letter if it contested parts of the penalty calculation, provided the IRS with the relevant documentation, and the IRS agreed. In this case, the employer still owes a ESRP, but it’s less than what was in the initial Letter 226J. This letter will contain the revised list of employees and other information on which the penalty is based. The IRS acknowledgment letter tells the employer how to pay if it agrees with the revised calculation. If the employer disagrees, the employer can request a conference with an IRS supervisor or go to the IRS Office of Appeals.
- Letter 227-M. With this letter, the IRS is saying, “Yes, we got your documentation, but we disagree with everything you said and still think you owe us the original amount.” Again, the employer can pay or contest, just like with the 227-L.
- Letter 227-N. This letter is for employers who contested the penalty through the IRS Office of Appeals. This letter says that the Office of Appeals has made its determination. If the employer owes anything, the employer can pay it. No response is required.
As with the Letter 226-J, this is still not a bill (more on that below). An employer can agree or disagree. However, how the employer disagrees will depend on the letter. For the L and M letters, the letters describe how to contest. If an employer wants to contest an N letter, the employer will either need to file in Tax Court or Federal District Court. More information on that process is available from the IRS Taxpayer Advocate Service.
What the Letter 227 Isn’t
As noted above, these IRS acknowledgment letters still aren’t bills. Even though some of the letters say how an employer can pay the penalty, if the employer owes something, the employer will get a separate CP220J once the penalty has been assessed. Of course, part of the reason these are not bills is that the employer can still appeal these determinations if it wants to. The appeals process for these letters is more formal than the process for the Letter 226J, which usually just involves providing information. If an employer wants to contest these letters, the employer will have to talk to a supervisor or go to the IRS Office of Appeals. At that stage, HUB highly recommends engaging experienced outside counsel.
This also isn’t a levy (yet). If the employer doesn’t pay once it gets the bill, the IRS does have the ability to assess a levy. That comes in the form of a Notice CP504J. This gives the IRS the ability to seize the employer’s property to pay the tax debt, if necessary. If the employer doesn’t respond to any of the other IRS correspondence, the employer will get a levy notice. This can create credit issues and become much more difficult to manage than the typical penalty process.
Because of this risk, we highly recommend taking the following steps to ensure an employer receives all IRS correspondence:
- Notify HR and finance employees of the possibility of these letters so they know to look for them.
- Check IRS Forms 1094-C for all prior years. That form includes contact person and address for the company that was provided to the IRS. If that person is no longer with the company, be sure to have any mail forwarded to the appropriate person in the company. If the business is no longer at that address, consider setting up mail forwarding through the US Postal Service, if not done already.
- Open any mail from the IRS immediately. This may seem obvious, but we know that it’s easy sometimes for mail to slip through the cracks due to other priorities. All letters should have the IRS logo next to the return address, so it should be hard to miss.
Finally, given some of the fear around this, note that the IRS will never make its first contact via phone or email, only regular mail. If the company gets a call or email from someone claiming to be from the IRS as its first contact, it is a scam.
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.