IRS Enforcing Affordable Care Act Employer Penalties

It has been reported that the IRS has started mailing Employer Shared Responsibility Payment (ESRP) notices to employers that it believes failed to comply with the Affordable Care Act (ACA) coverage requirements in 2015. Employers who were subject to the ACA coverage requirements in 2015 (generally, all employers with 50 full-time or full-time equivalent employees) should review their 2015 ACA filings for accuracy, as some employers receiving the notices may have actually complied with the ACA requirements in 2015, but the IRS received inaccurate or incomplete information which caused it to incorrectly identify the employer as failing to satisfy the ACA coverage requirements.

Should an employer receive an ESRP notice (IRS Letter 226J), it must dispute the IRS penalty within 30 days of the date of the notice. In responding, the employer should either agree with the proposed ESRP or disagree with part or all of the proposed penalty assessment. Once the response has been submitted, the IRS will acknowledge same with a Letter 227. There are different versions of the Letter 227 which describe additional actions that may be required of an employer to address its proposed ESRP.

Failing to reply to a Letter 226J or any of the variations of Letter 227 has serious implications and might prompt the IRS to formally assess the amount of the proposed ESRP and issue the employer a notice and demand for payment (Notice CP 220J). 

Any notice received should be taken seriously and requirements should be followed closely, as failing to do so could result in a large IRS assessment penalty or, possibly, an IRS audit.