The Internal Revenue Service (IRS) has begun assessing Employer Shared Responsibility Payments (ESRP) for the 2015 tax year.
The ESRP is assessed to applicable employers who either did not meet the requirements to offer coverage to the required number of full-time employees, or offered coverage that did not meet affordability and adequacy standards under the Patient Protection and Affordable Care Act (ACA).
When will an employer receive Notice CP 220J?
After the IRS determines an employer mandate penalty is owed, it will issue Notice CP 220J. This applies in two circumstances:
- A large employer fails to offer coverage to at least 70% (after 2015 95%) of full-time employees and their dependent children, and at least one full-time employee receives a premium tax credit to help with the cost of coverage.
- A large employer offers coverage to at least 70% (after 2015 95%) of full-time employees and their dependent children, but at least one full-time employer receives a premium tax credit to help with the cost of coverage that was not offered, was inadequate, or was unaffordable.
Will the employer receive any prior notice that an ESRP may apply?
Yes. Before issuance of Notice CP220J, employers should have received Letter 226J from the IRS. Letter 226J is the initial letter notifying an employer that a payment may be due. Employers can contest the proposed penalty by submitting Form 14764 and supporting documentation by the deadline stated in the letter. The IRS will respond with yet another letter, Letter 227, describing additional steps the employer may need to take.
What happens if we do not respond?
If an employer fails to respond to IRS correspondence, Notice CP 220J will issue automatically. By far, the best time to deal with mistakes is while the penalty is still proposed and before the assessment of the ESRP is made. Employers are urged to pay close attention to IRS correspondence and to take care to submit all information by the stated deadlines.
Can an employer appeal the IRS’ decision?
Yes. If an employer disagrees with the penalty proposed by the IRS after following the response process outlined in Letter 226J, it may request a pre-assessment conference with the IRS Office of Appeals. After the employer’s response is complete and the pre-assessment conference (if requested) concludes, the IRS will determine liability. If the IRS decides the employer owes a penalty, it will issue Notice CP 220J indicating the assessed ESRP.
What happens next?
Notice CP 220J outlines additional procedures to submit questions about the ESRP calculations, request abatement, or challenge the assessment in court.