Nicole Elliott is a Partner for Holland & Knight's Washington, D.C. office.
Christopher K. Buch is an Associate for Holland & Knight's Chicago office
The Internal Revenue Service (IRS) has started issuing the first wave of Letters 226-J informing applicable large employers (i.e., those employers with 50 or more full-time equivalent employees) that they may be liable for an Employer Shared Responsibility Payment (ESRP). Receiving a letter from the IRS, likely with a large proposed assessment, can be a very unnerving process. The IRS determines which employers receive a Letter 226-J and the amount of the proposed ESRP from information that the employers complete on their information returns (IRS Forms 1094-C and 1095-C) and from the income tax returns of their employees.
Next Steps for Employers
In the event you receive a Letter 226-J, there are certain steps you should take to resolve the matter as quickly as possible.
- Review the Letter 226-J carefully. The Letter 226-J will set forth not only your proposed ESRP assessment but will also set forth your rights, including your rights to provide further information should you disagree.
- Keep in mind that you have only 30 days to respond to the IRS. The response date is printed on the top of the Letter 226-J. If you need an extension, reach out to the individual IRS contact listed on the letter and ask for the extension early in the process. Do not wait until the response date. If you fail to respond in a timely manner, the IRS will assess the proposed amount – and a failure to pay such amount could result in additional interest and penalties.
- Provide the information requested. Specifically, Letter 226-J requests that you return Form 14764, ESRP Response and Form 14765, Employee Premium Tax Credit (PTC) Listing to the IRS. Do not forget to return these forms.
- Make sure you have done your homework. Gather your internal records and review the information returns (Forms 1094-C and 1095-C) that you filed with the IRS. Was the information on the returns accurate? Are you truly liable for ESRP? What corrections on the information returns are warranted?
- Keep in mind that there were many transition rules available for ESRP. In 2015, for example, you needed to only offer minimum essential coverage to 70 percent of your full-time employees to avoid the Code Section 4980H(a) penalty.
- Fax and mail any response to the IRS. Keep a copy of the fax confirmation sheet. Also consider following up with the IRS to confirm receipt.
- Consider hiring additional help. It may not advisable, for example, to have the same entity that filed your information returns (Forms 1094-C and 1095-C) to represent you before the IRS.
It is important to note that Letter 226-J is not a bill from the IRS. Rather, it is the IRS' way of notifying you as an employer that one of your employees received a premium tax credit and that you may be liable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.