H&W: ACA Play or Pay Penalty Notification and Response Process

In our earlier blog, we discussed how the IRS would be notifying Applicable Large Employers (“ALE”) when they are identified as potentially liable for an employer shared responsibility payment (“ESRP”).  Specifically, we discussed Letter 226J which the IRS will send to ALEs notifying them of a proposed penalty being assessed against them because one of their employees enrolled in a qualified exchange health plan for which a premium tax credit was awarded.  When an ALE receives Letter 226J they are required to respond to the IRS (on Form 14764) stating whether they agree or disagree with the proposed penalty.  Following their receipt of Form 14764, the IRS will generate one of the five possible versions of Letter 227 acknowledging the ALE’s response to Letter 226J and depending on the version of Letter 227, closing the case or providing further instruction or next steps.  There are five different versions of Letter 227 as follows:

Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response, and confirms that the ESRP will be assessed because the ALE agreed with the proposed penalty. After issuance of this letter, the case will be closed.

• No response is required.

Letter 227-K acknowledges receipt of the information provided and shows the ESRP has been reduced to zero meaning the penalty will not be assessed. After issuance of this letter, the case will be closed.

• No response is required.

Letter 227-L acknowledges receipt of the information provided and shows the ESRP has been revised. The letter includes an updated Form 14765 (PTC Listing) and revised calculation table.

• The ALE can agree or request a meeting with the manager and/or appeals.

Letter 227-M acknowledges receipt of information provided and shows that the ESRP did not change. The letter provides an updated Form 14765 (PTC Listing) and revised calculation table.

• The ALE can agree or request a meeting with the manager and/or appeals.

Letter 227-N acknowledges the decision reached in Appeals and shows the amount of the ESRP based on the Appeals review. After issuance of this letter, the case will be closed.

• No response is required.

ALEs will want to read Letter 227 carefully. It along with any applicable attachments explain the next steps available and provide information on how the case will be resolved.  The IRS has also provided additional information about Letter 227 and what to expect.

Common questions and answers provided by the IRS

Why did I receive this letter?

The IRS used the information you provided in response to the initial Letter 226-J to review your ESRP. The Letter 227 version that you received explains the outcome of that review and the next steps to take to fully resolve the ESRP.

Where did the IRS get the information used to compute the ESRP?

The IRS used Forms 1094/5-C filed and the income tax returns of your full-time employees to identify if they were allowed a premium tax credit. If changes to that information were submitted in response to a Letter 226-J, the IRS considered that information and, if needed, updated the proposed ESRP.

Is this letter a bill?

No, the Letter 227 is not a bill.  A CP220J, a bill, will be received after the ESRP has been assessed.

What do I need to do?

Review the letter and attachments carefully and complete and return the Letter 227-L or 227-M by the date provided.

What do I do if the information is wrong or I disagree?

Discuss your issues or concerns with the person working your case.  Use the information provided on the letter to contact us or send us your questions in writing to the address shown on the letter.

Do I have appeal rights?

Yes, the letter you receive will explain all of your rights, including your right to appeal.