By: HUB’s EB Compliance Team

Receiving a letter from the IRS is usually not good news, but it demands quick attention. This one is no different.

Per the IRS website, if the IRS receives an ACA reporting document that it cannot process, it will send a Form 1865C. This could happen for a variety of reasons, for example:

  • A typo in your company’s name or EIN
  • A misprint on the form where information does not appear in the proper box
  • Even the font being too small

Unfortunately, IRS Letter 1865C does not do a great job of describing what the issue is. You usually only have 30 days from the date of the letter to submit corrected forms. HUB has seen a few of these letters.

Tips on Responding

In most cases, companies use vendors to perform ACA reporting for them. Step one is to reach out to your vendor to see if they can identify the issue and correct the return. If they cannot do it in time, consider writing to the IRS to request an extension. The Forms do have a phone number to call, but HUB’s experience has been that there is only a recording on the other end of that number.

Tips on Avoiding an 1865C

There are a few steps you can follow to avoid getting one of these letters in the first place.

  1. Look over your vendor’s shoulder. It is not a bad idea to take a look at the forms before they are filed. Your vendor should be able to provide a copy and you can look for misprints and errors before the forms are filed.
  2. Check after filing. Whether you can review the forms before they are filed or not, you may want to spot check them after filing to make sure there are no obvious issues. If you see errors, you may be able to convince the vendor to file corrected returns before the IRS gets around to issuing a Letter 1865C.
  3. Check prior year’s filings. You may not have received a Form 1865C for a prior year yet, but it could be coming. Even if one is not coming, it is worth taking a look at forms from the last year or two. You can check to see if there are any errors or just look at them for consistency with your current forms. Checking for consistency is especially good if you have changed vendors in the last couple of years.

While double-checking your vendor is extra work, doing so can prevent more hassles down the road.  

Other Items to Watch Out For

While you are checking for potential formatting errors, you can also spot check for some potential reporting pitfalls. Based on HUB’s experience, the following are some of the items to look out for:

Form 1095-C:

  1. Ensure that every month has a code in Lines 14 and 16, unless you are using Code 1A in Line 14. Even if you are using Code 1A in Line 14, some vendors may choose to put a code in Line 16. If they do, make sure it is the proper code.
  2. When an employee is hired mid-year, make sure the months the employee was not employed are coded with Codes 1H/2A (these are generally the same codes for employees who terminate employment mid-year).
  3. If you sponsor a non-calendar year plan, make sure the vendor has properly coded each plan year to reflect changes in employee contributions.
  4. When an employee waived coverage, make sure that an affordability safe harbor is reflected in Line 16 (W-2 method - 2F; Federal Poverty Level – 2G; and Rate of Pay – 2H).
  5. Make sure employees who are not “full-time” for any part of the year do not receive a Form 1095-C (unless you are self-funded and they were covered under the plan).
  6. Confirm that Forms 1095-C are being filed for union employees, even if they don’t participate in your medical plans.

Form 1094-C:

  1. Check that a separate Form 1094-C is filed for each company in your corporate family; you cannot file one for all companies.
  2. If you offered at least 95% of your full-time employees Minimum Essential Coverage, be sure that Part III, column (a) states “Yes” for any month you satisfied this requirement, or you could receive a different IRS Letter (226J) stating you owe to an ACA employer mandate penalty, if a single full-time employee goes to the Exchange and receives a premium tax credit (subsidy).

Our Decoding the Codes document can also help you make even more sense of the ACA reporting codes.

If you have any questions, please contact your HUB Advisor. 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.