October 9, 2020
The IRS sends Letter 5699 when it suspects an employer is an Applicable Large Employer (ALE) and has not filed its Forms 1094-C and 1095-C reporting health coverage as required under the ACA. Currently, the IRS is issuing this letter for the 2018 tax year. Given the multitude of avenues the IRS is using to enforce ALE obligations under the ACA, it is vital that ALEs understand the potential implications of their response to Letter 5699.
- Avoid Overreporting: ALEs could be subject to filing failure penalties for their failure to file and furnish Forms 1094-C and 1095-C. For forms required to be filed in 2019 for the 2018 tax year, those penalties are generally $270 per form that the ALE failed to file and furnish as required. Thus, ALEs should ensure they are not submitting more forms than necessary when responding to Letter 5699. Just because an employee received an offer of coverage does not mean the employee requires a Form 1095-C. ALEs should work with a trusted vendor who understands how to minimize this penalty exposure while remaining compliant with Form 1094/1095-C reporting requirements.
- Adhere to Electronic Filing Requirements: The IRS also sends a Notice 972CG proposing Section 6721 penalties against ALEs who fail to comply with electronic filing requirements. As a reminder, ALEs who submit at least 250 Forms 1094-C and 1095-C to the IRS are required to file electronically. Accordingly, any ALE responding to Letter 5699 by filing at least 250 Forms 1094-C and 1095-C with the IRS should ensure they are working a vendor who can electronically file through the IRS ACA Information Return (AIR) system for prior tax years.
- Address Reporting Compliance for Other Tax Years: Often, ALEs receiving Letter 5699 for failure to file Forms 1094-C and 1095-C for one tax year will have failed to complete their reporting obligations for other tax years. These ALEs should work with experienced legal counsel who can provide a clear picture of the full penalty exposure and determine the best course of corrective action.
Clearly, responding to Letter 5699 requires careful thought with the help of experienced professionals. If you have received Letter 5699 and are concerned about your potential penalty exposure, Haff & Raggio can help. Please reach out to us at 210-323-7846 and ask for Heather Garcia. You can also find more information at www.haffraggiolaw.com.