Employers have started receiving Notice 972CG from the Internal Revenue Service (IRS), which proposes penalties on employers for filing their Affordable Care Act (ACA) reporting late or with mistakes. Employers who receive a Notice 972CG should consult with legal counsel and ensure they respond to the Notice according to the prescribed timeline, which is 45 days from the date of the Notice.
- The IRS has started sending proposed penalties to employers for filing their ACA reporting incorrectly or late.
- Employers must respond to a Notice 972CG within 45 days indicating agreement or disagreement with the proposed penalty.
- Employers can dispute the proposed penalty and should consult with legal counsel on how to respond appropriately.
The Affordable Care Act (ACA) requires certain employers to report information on Forms 1094 and 1095 to the IRS (“ACA reporting”). The required reporting depends on whether an employer is an “applicable large employer” and whether they sponsor a self-insured or fully insured health and welfare plan. For more on ACA reporting, see our blog article.
For the 2018 plan year, the ACA reporting deadlines were as follows:
- Paper Filing: February 28, 2019.
- Electronic Filing: April 1, 2019 (employers must file electronically if submitting more than 250 returns).
Internal Revenue Code (IRC) 6721 authorizes the IRS to assess penalties on employers when reporting is filed:
- after their due date;
- using incorrect media (filed on paper exceeding the threshold of 250 returns); and/or
- with an incorrect or missing TIN.
Employers can face steep penalties for incorrect or late filings. For ACA reporting on the 2018 plan year (which was due in 2019), the penalties are as follows:
- $50 per return if filed within 30 days, up to a maximum of $545,500 ($191,000 for small businesses);
- $100 per return if filed more than 30 days after the due date but by August 1, up to a maximum of $1,637,500 ($545,500 for small businesses); and
- $270 per return if filed after August 1 or if no returns are filed at all, up to a maximum of $3,275,500 ($1,091,500 for small businesses).
For example, an employer who filed 200 returns late on July 30, 2019, could receive a $100 penalty per late return (a total of $20,000 in penalties) because they filed more than 30 days after the reporting deadline but before August 1, 2019.
What is the Notice 972CG?
Notice 972CG, “Notice of Proposed Civil Penalty,” proposes civil penalties on employers who file their ACA reporting late, use the incorrect media, or file with missing or incorrect TINs.
Notice 972CG contains an:
- explanation of the proposed penalty;
- explanation of how to respond to the notice;
- breakdown of each submission that was included in the total penalty;
- list of the information returns filed with missing or incorrect name/TIN combinations (if applicable);
- summary of the proposed penalty;
- response page; and
- payment/correspondence slip.
The IRS usually begins sending Notice 972CG to employers in August. Employers may also receive a Letter 5699, which inquires why an employer had not filed their ACA reporting, prior to receiving a Notice 972CG.
It is important to note that Notice 972CG is different from Letters 226J, which is sent by the IRS to employers for alleged violations of the ACA’s employer mandate. For more on 226J letters, see our blog article.
What should employers do if they get a Notice 972CG?
Employers who receive a Notice 972CG from the IRS must respond within 45 days indicating agreement or disagreement with the proposed penalty. The deadline to respond will be outlined on the notice. If no response is received within the 45-day period, the IRS will send the employer a bill with the proposed penalty amount.
If the employer is disputing the penalty, employers should also provide a signed, detailed explanation why they are disagreeing with the proposed penalty.
Can employers dispute the proposed penalty?
Yes, employers can dispute a part of the penalty or the entire penalty. Employers can dispute the proposed penalty if the mistake was due to “reasonable cause” and they acted in a “responsible manner” before and after the mistake occurred. An employer can establish “reasonable cause” by showing that there were:
- “significant mitigating factors,” such as an established history of compliance; or
- “events beyond their control” that caused the mistake, such as the unavailability of business records or actions taken by other parties.
It is strongly suggested that employers seek legal counsel to help respond to the Notice 972CG.
What should employers expect after responding to a Notice 972CG?
After responding to a Notice 972CG, employers should expect to either receive a:
- Letter 1948C, which will request additional information or chronicle that the penalty was waived; or
- CP 15/215, which will show the amount of the penalty assessed and demand payment.
Employer Next Steps:
Employers who receive a Notice 972CG must move quickly and should strongly consider consulting with legal counsel. Employers should:
- Note the deadline to respond and indicate agreement or disagreement with the proposed penalty within 45 days;
- Determine whether they want to dispute the proposed penalty and collect the appropriate documentation to support their reasoning;
- Provide any additional information requested by the IRS.
- Correction to Penalties Under Section 6721
- Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs
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.