IRS Enforcement Efforts – Letter 226J (§4980H Requirements)

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Benefit Comply can review your reporting to help identify where there a risk of penalty under §4980H (the “employer mandate”). More Info >

The IRS is now proposing §4980H (“Employer Mandate”) penalties for applicable large employers who appear to owe penalties for the 2020 calendar year based on their Form 1094-C and 1095-Cs. The IRS proposes these penalties by sending Letter 226Js.

Upon receipt of a Letter 226J, the employer has 30 days to either make payment or appeal the proposed assessment (unless an extension for an additional 30 days is obtained). 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 assisted in preparing appeals for hundreds of applicable large employers over the past couple years, in all cases successfully appealing any proposed assessment that was not reflective of the coverage actually offered by the employer. In other words, submitting an adequate explanation and supporting documentation results in the IRS dismissing the §4980H assessments for applicable large employers who offered coverage in accordance with §4980H requirements.

We strongly recommend that employers get assistance before agreeing to pay any proposed assessment. In many cases, even when there were not 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).

To appeal a proposed assessment under §4980H(a), we suggest submitting the following:

Letter/explanation disputing all or part of the proposed assessment;
Completed Form 14764 indicating disagreement with the assessment and that no payment/partial payment is being sent;
Revised ESRP Summary Table (column (a)); and
Revised coding on Form 14765 for employees listed, if applicable.

To appeal a proposed assessment under §4980H(b), we suggest submitting the following:

Letter/explanation disputing all or part of the proposed assessment;
Completed Form 14764 indicating disagreement with the assessment and that no payment/partial payment is being sent;
Revised coding on Form 14765 for employees listed;
Summary of Benefits & Coverage (SBC) indicating minimum value coverage; and
Employee contribution and pay information to illustrate an affordability safe harbor for employees list on Form 14765, if applicable.

Generally, within 4–6 weeks after IRS receipt of the employer’s appeal to the Letter 226J, the employer will receive a Letter 227K, 227L, or 227M indicating whether the IRS agrees with the appeal. If the IRS agrees with the appeal, no further action is required, unless the employer has agreed to pay some of the proposed assessment. If the IRS only partially agrees, or disagrees completely, the employer could choose to appeal again, perhaps providing a more detailed explanation and additional supporting documentation, or the employer could choose to make payment as assessed.

If assistance is needed in responding to an IRS letter, please visit our 226J website at https://benefitcomply.com/irspenaltysupport/

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 Letter 227 may be found here – https://www.irs.gov/individuals/understanding-your-letter-227