Your Guide to Letters from the IRS

As a government contractor, one of your biggest concerns is compliance. As of now, Affordable Care Act penalties are being assessed by the IRS and the hammer is dropping on many organizations who failed to comply with the employer mandate requirements of the Affordable Care Act. This hammer is arriving in the form of Letter 226J and can have serious implications for you and your organization. But what is it? What are your options, should you receive one of these letters? Read on to learn more:

Letter 226J

This is the first letter that the Internal Revenue Service sends out to Applicable Large Employers (ALEs), with the intent of notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP). The IRS uses information from 1094-C and 1095-C forms filed by the ALE and the individual income tax returns of employees of that ALE to make a determination on whether an ALE owes an ESRP and, potentially, the amount that is due. The ACA Times reported letters requiring payments ranging from the tens of thousands of dollars to nearly six million! They’re not calling it the “Million Dollar Letter” for nothing!

If you receive Letter 226J, it is important that you review the data that was submitted as part of your ACA filing with the IRS. Hopefully, this will help you identify any errors that there may be in the IRS letter and you will be able to appeal. Next, you must provide the information requested by the IRS by the response date included in the letter, which is typically 30 days from the date the letter was sent. All contact information will be included in the letter. Respond in writing, either with your compliance to the request or with your disagreement and evidence to back up your request for review.

What if you don’t respond? The IRS will issue a Notice and Demand For Payment.

Letter 227

IRS Letter 227 is sent next, after your organization has received a Letter 226J. Letter 227 is actually five different letters and each different version is used to acknowledge your response to Letter 226J and describes further actions that your organization must take. So, what are these different versions and what do they do?  Two of the five letters are reserved for instances of partial agreement or the need of clarification on a response. The other three are as follows:

1) Letter 227K

This is your best case scenario letter! It confirms that your case has been resolved. The purpose of Letter 227K is to acknowledge that the information you enclosed in your response to the Letter 226J was satisfactory and your organization does not owe an ESRP.

2) Letter 227L

Letter 227L is also a positive. While not a total closing of the case, a Letter 227L means that the IRS has heard your case for a reduced ESRP and agrees with you and the information provided in your response to Letter 226J. An ESRP payment must still be paid but for an amount much smaller than the one originally proposed.

3) Letter 227M

Unfortunately, not all news is good news. When you receive a Letter 227M it means that the IRS disagrees with your Letter 226J response and reiterates the original penalty, no dismissal and no reduction of the ESRP. If your organization still disagrees with the IRS you do retain the right to appeal and prepare a protest. It is recommended to request a pre-assessment conference with the IRS Office of Appeals. This should be requested in writing and sent in by the response date indicated in your Letter 227 (this is typically 30 days from the date of the letter).

The Boon Group has the expertise and resources to help clients address a variety of compliance issues. Our Legal and Compliance services have experience in Affordable Care Act compliance, state mandate requirements, tracking federal regulation and ensuring compliance with new regulations, as they arise.

Have questions about your compliance? Visit us at The Boon Group. Want to stay up to date on the latest industry news? Follow the Boon Group Blog and catch up with Boon on our Facebook, Twitter, and LinkedIn!

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