On March 1, 2018, the IRS released sample Notice CP 220J, which will notify applicable large employers (ALEs) that the IRS has charged them an employer shared responsibility payment (ESRP).
As background, this notice was preceded by the release of Letter 226J, which is the initial letter sent by the IRS notifying ALEs of a proposed ESRP (see the Nov. 14, 2017, edition of Compliance Corner for more information), and Forms 14764 (ALE's response to a proposed ESRP) and 14765 (list of employees receiving premium tax credit). (Ask your advisor for a copy of our ESRP Process white paper for more information.)
So, if the IRS concludes that an ALE in fact owes an ESRP, the IRS will send Notice CP 220J, soliciting the payment. Specifically, Notice CP 220J will show the assessed tax amount and provide the ALE with payment instructions. The ALE should carefully read the notice for the due date, amount due and payment options. The ALE won't have to submit payment before the notice is sent. In a situation similar to other assessed taxes, the ESRP will be subject to an IRS lien and the IRS may levy enforcement actions. Additionally, interest will accrue from the date of the notice and demand and will continue until the total amount due is paid in full.
Finally, if an ALE disagrees with the ESRP assessment being made by the IRS, various options are discussed on page two of the notice, including filing suit in a U.S. District Court and the opportunity to ask questions about the ESRP calculations.
Considering what we've seen in regards to these ESRP assessments, there are some compliance responsibilities ALEs should keep in mind for future filings. ALEs should make sure that offers of coverage are documented every year during open enrollment and that signed waiver forms are collected from any FTEs who decline the group health coverage. Additionally, employers should keep important records, such as payroll records, variable-hour tracking calculations, signed enrollment forms and copies of enrollment materials showing employee costs and coverage options.
Finally, ALEs should carefully consider and select a vendor, if appropriate, to populate and file Forms 1094-C and 1095-C. They also shouldn't assume the vendor will correctly populate the forms without any employer oversight. Generally, this means the ALE should ensure all IRS instructions for completing the forms are properly followed, that the indicator codes used in Lines 14 and 16 are correct before filing any 1095-C forms with the IRS and that filing and employee distribution is completed by the IRS deadlines each year. While a vendor may assist an employer with its reporting requirements, the responsibility and liability for such compliance remains with the employer.
Sample Notice CP 220J »
Understanding Your CP220J Notice »