By Brian R. Carnie, David M. Whitaker, Robert C. Schmidt, and Angela W. Adolph

The IRS is starting to notify employers of their potential liability under Obamacare’s employer mandate for the 2015 calendar year.  According to the IRS, the determinations are based on the employer’s 1094-C/1095-C informational returns filed for the 2015 tax year as well as individual tax information filed by the employer’s employees.

The IRS will notify an employer of potential liability for the employer shared responsibility payments (“ESRP”) via Letter 226J, which will set forth the preliminary calculation of the penalties owed and will provide detailed instructions for either paying or contesting all or part of the same.  Employers will have just 30 days from the date the notice was mailed to respond before the IRS will issue a notice and demand (i.e, a bill) for payment.  Failure to timely respond will result in waiver of your defenses to payment.

Given the timing of these initial notices, many employers will receive these during the holidays when offices are short-staffed or perhaps even closed.  The notices may or may not be directed to the appropriate contact person previously identified on the 1094/1095-C forms.

Employers would be wise to take the following immediate steps:

  1. Notify your administrative staff that any letters from the IRS should be forwarded immediately to a designated person for review. Have someone monitor the incoming mail if you will be closed for any significant period of time.
  2. Gather copies of your company’s 2015 ACA reports so that you can quickly compare your entries to that in any penalty notice you may receive.
  3. Make sure you have access to the data necessary to review any purported assessments that are indicated for one or more employees for 2015. If you relied on a third party vendor for reporting purposes, contact the vendor to see if and how they may be able to help and/or for access to their backup data.

The 2015 reports were confusing and there likely will be discrepancies and/or inaccuracies that need to be corrected, especially with the mandated use of indicator codes and the numerous transition relief rules/exceptions that applied in 2015.  You should also expect that one or more employees may have submitted false or inaccurate information when they filed their individual returns or applied for a subsidy on the exchange.  Don’t wait for receipt of the IRS penalty notice before taking the above steps.  You will have very limited time to review and gather lots of information.  We recommend that you get your lawyer or accountant involved at the outset to fully protect your rights and IRS appeal options.

Kean Miller stands ready to help.