The Affordable Care Act (“ACA”) requires “Applicable Large Employers” (those with 50+ full-time equivalent employees, on average, in the previous calendar year) to offer affordable health coverage to full-time employees or pay a penalty if at least one employee gains a subsidy through the Health Insurance Marketplace. The IRS uses Letter 226J to notify employers that they may owe a penalty assessment relating to the ACA pay or play mandate provisions. The penalty assessments relate to the information reported on IRS forms 1094-C and 1095-C, as well as information regarding an individuals’s receipt of a premium tax credit. Recently, the IRS began issuing Letters 226J for the year 2015 (based on information reported by employers in 2016). Letter 226J is the initial proposal of the penalty that may be owed; the IRS’ assessment may not be accurate and employers should carefully review the letter and determine how to respond. Employers who want more information about these initial letters should review Understanding your Letter 226J to learn more about their options to respond. Employers have 30 days to respond to penalty letters, using Form 14764 (included with the Letter 226J).
Letter 227 explains the outcome of the IRS’s review of Letter 226J and the Employer’s response and discusses the next steps to fully resolve the penalty assessment. There are five different versions of Letter 227.
Letter 227 – J: acknowledges receipt of the signed agreement Form 14764, ESRP Response, and that the ESRP will be assessed. After issuance of this letter, the case will be closed. No response is required.
Letter 227- K: acknowledges receipt of the information provided and shows the ESRP has been reduced to zero. After issuance of this letter, the case will be closed. No response is required.
Letter 227-L: acknowledges receipt of the information provided and shows the ESRP has been revised. The letter includes an updated Form 14765 (PTC Listing) and revised calculation table. The employer can agree or request a meeting with the manager and/or appeals.
Letter 227-M: acknowledges receipt of information provided and shows that the ESRP did not change. The letter provides an updated Form 14765 (PTC Listing) and revised calculation table. The employer can agree or request a meeting with the manager and/or appeals.
Letter 227-N: acknowledges the decision reached in Appeals and shows the ESRP based on the Appeals review. After issuance of this letter, the case will be closed. No response is required.
Note: The IRS will send Notice CP 220J to collect the employer shared responsibility penalties.
Employer Action Items after Receipt of Letter 227:
- Read the letter carefully and review next steps. If the employer is working with an attorney, the employer should provide the letter to the attorney right away.
- If working with a representative, send the IRS a Form 2848 (Power of Attorney and Declaration of Representative) to allow someone to contact them on your behalf. The Form 2848 must state the year and that it is for the Section 4980H Shared Responsibility Payment.
- The employer can request, in writing, a pre-assessment conference with the IRS Office of Appeals. Conferences generally should be requested by the Letter 227 response date.
- Review the information provided in response to the Letter 226-J to make sure it was interpreted correctly by the IRS.
- Keep a copy of the letter and of any documents you submit.
The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog.