Expect Increased IRS Scrutiny, Audits & Penalty Letters on ACA Compliance

The IRS has been sending ACA penalty letters at an accelerating pace. With upgraded technology and agent support, the IRS has signaled that it will be significantly ramping up efforts to assess penalties for non-compliance with the ACA employer mandate (also known as Employer Shared Responsibility Payment, or ESRP). Going forward, expect IRS staff to begin scrutinizing the methodology and data underlying employers’ ACA filings to provide a deeper level of review than may have been undertaken for previous tax years.

In addition, the IRS is expected to become more aggressive in issuing penalty assessments associated with failure to furnish & file forms 1094-C and 1095-C as IRS staff believes that many employers have not made required ACA filings for the 2015, 2016 and 2017 tax years. The IRS is issuing preliminary Letters 5699 to those ALEs the IRS believes should have been filing ACA information annually with the tax agency.

With the pace of outgoing penalty letters set to increase substantially, it is more important than ever that employers are properly prepared to avoid significant IRS ACA penalties.

ACA Statistics:

  • IRS data shows about 1 in 6 Applicable Large Employers are currently at risk for compliance action.
  • 300,000+ ALE’s identified by the IRS in the 2015 tax year reporting
  • 30,000+ ESRP Letter 226Js sent out to ALEs for 2015.
  • $4.5B in “ESRP” penalties for 2015, alone.
  • $228B+ ESRP penalties expected by 2026.
  • $2.5+ million IRS investment dollars put toward enforcement 
  • Reports digitally cross- referenced by IRS to identify compliance issues (W2s, 5500s, 1040s and others).
  • June 2019, the IRS began sending Letters 226J for proposed 2017 ESRP penalties.
  • IRS increasing efforts to identify potential non-filers via Letter 5699.

With so much at stake, employers should consider undertaking an ACA Penalty Risk Assessment to learn if they are at risk of receiving ACA penalties from the IRS. 

Marshall & Sterling can help! For any questions or a complimentary risk assessment and consultation on the ACA or corresponding penalty letters, contact Dannielle Mattes at (845) 226-3083, x-2452 or at dmattes@marshallsterling.com