Apr 16, 2021
Many employers have recently received a Letter 226J from the IRS proposing that an employer shared responsibility payment (ESRP) is owed for the 2018 calendar year, which means the IRS has wrapped up most collections for 2017 and is now focusing on 2018.
Upon receipt of a Letter 226J, the employer has 30 days to either make payment or appeal the proposed ESRP (unless an extension is requested). Since many of the proposed assessments are the result of a misunderstanding of the offer of coverage requirements and/or employer reporting mistakes, most employers have the option to appeal, arguing that coverage was actually offered in accordance with §4980H requirements. We have worked on appeals for several hundred employers at this point, in all cases successfully appealing any proposed ESRP that was not reflective of the coverage actually offered by the employer. In other words, submitting an adequate explanation and supporting documentation to the IRS should result in a dismissal of the proposed ESRP. We strongly recommend that employers get assistance before agreeing to pay any proposed assessment. In many cases, even when there weren’t any significant reporting errors, there is room to argue that the assessment should be reduced (e.g., because of over-reporting full-time employee counts or confusion as to how to apply the affordability safe harbors).
One of the biggest mistakes that we continue to run into is a failure to indicate on the Form 1094-C that minimum essential coverage (MEC) was offered to at least 95% (or all but 5, if greater) of full-time employees and their dependents for each month. If an employer failed to mark “Yes” in Part III, column (a) of the Form 1094-C for all 12 months and at least one full-time employee enrolled in subsidized coverage through a public Exchange, the IRS will assess a penalty under §4980H(a).
To appeal a proposed ESRP under §4980H, we suggest submitting the following:
- A letter/explanation disputing all or part of the assessment;
- A completed Form 14764, with signature, indicating disagreement with the assessment and that no payment is being sent in; and
- Revised coding on Form 14765 for employees listed, including supporting documentation, if applicable.
If you have a client who needs help appealing a proposed ESRP set forth in an IRS letter, please contact us or visit BenefitComply's IRS Penalty Support
An IRS FAQ page specific to Letter 226J may be found here:
https://www.irs.gov/individuals/understanding-your-letter-226-j
An IRS FAQ page specific to Employer Shared Responsibility Provisions may be found here:
https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act
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