Lost amid the confusion of the federal government shutdown this year was a new set of penalties the IRS began to issue as part of the agency’s ongoing enforcement of the Affordable Care Act.
In the final days of 2018, the agency started issuing notices to assess penalties against employers that failed to file Forms 1094-C and 1095-C with the IRS or to furnish 1095-C forms to employees under IRC Sections 6721 and 6722 for the 2015 or 2016 tax year. These penalties are separate from the IRC Section 4980H penalties for failing to offer the required healthcare coverage.
It appears the IRS is calculating these IRC 6721 and 6722 penalty assessments for certain employers based on the number of W-2s the employers filed with the IRS. These IRC 6721/6722 penalty assessments are proposed using Letter 5005-A and Form 886-A.
This penalty assessment process is a follow-up to Letter 5699. The IRS sends Letter 5699 to employers that did not file any ACA information returns (i.e., 1094-C/1095-C schedules) for a reporting year. The employer must, in essence, respond to (1) confirm the name the employer used when filing its ACA information returns and identification information for tracking, (2) provide the ACA information returns or indicate when they will be submitted, or (3) explain why the employer is not an Applicable Large Employer, which is an employer with 50 or more full-time employees and full-time equivalent employees. Failure to respond to Letter 5699 or to take action to address any filing issues resulted in the penalty assessment being issued in Letter 5005-A/Form 886-A.
The penalties for failing to file and furnish are indexed each tax year. For the 2018 tax year, penalties for failing to file and furnish can be as much as $540 per return. The penalties for the 2016 tax year can be as much as $520 per return.