ESR Assessments Are Coming!


ACA Update 2015 ESR assessment coming from IRS

The Fast Facts:

Yes, we are actively preparing for the reportable year 2017 forms release.  No, the IRS has not adjusted the deadlines for the 2017 reporting that is due in early 2018.  What the IRS has done recently, however, is update its guidance on how it intends to assess 2015 employer shared responsibility penalties.  Since this process is new for everyone, we’re taking this opportunity to step through what we know about the impending ESR assessments as of today; read our FAQ below!


When and how will you be notified?

Within the most recent round of Q/A updates, the IRS indicates that it plans to issue notification letters in “late 2017” to inform Applicable Large Employers (ALEs) of their potential liability for the 2015 calendar year.  The letters will presumably be issued to the contact person and address listed on Form 1094.


What does this notification look like?

Letter 226-J will be issued by the IRS to notify ALEs of a proposed Employer Shared Responsibility Payment (ESRP). To access a template version of this letter, visit the “Understanding Your Letter 226-J” link below.

In addition to Letter 226-J, Form 14765 will list the ALE’s employees who were allowed a premium tax credit (in other words, the employees who are triggering this penalty) along with information gleaned from the ALEs ACA information returns.  The IRS will use reported information to calculate a proposed ESRP amount, and this amount will be clearly represented within the letter.

A response form – Form 14764 – will also accompany Letter 226J and is what the ALE will use to inform the IRS if it agrees with the proposed penalty.  These response forms are generally due to the IRS within 30 days of the letter date.

Lastly, the IRS’ acknowledgement of an employer’s response to Letter 226-J will come by way of a version of Letter 227.  This letter will describe any further action the ALE may need to take.  This letter can serve as the basis for the ALE to request a pre-assessment conference with the IRS Office of Appeals.


What do you do if you receive this letter?

The IRS appears ready to begin assessments for penalties under Code § 4980H at any moment. Employers and their Form 1094 contacts should expect such correspondence in the coming weeks and be prepared to begin the review process. To ensure you complete a prompt analysis and are ready to file any challenges to the assessment that you see fit, please assemble the appropriate documentation as soon as possible and have them easily accessible.  Be sure to note and strictly follow any deadline provided for responding.

Given the newness of this process, we first recommend that you immediately fill out and return Form 14765 to the IRS, especially if you do not agree with what it states but even if you need time to make a determination.  Like we’ve seen before, ignorance demonstrated here over time will likely result in a less understanding IRS.  We also recommend that you take a critical look at the employment and eligibility history for the time period in question and in relation to any employees listed on Form 14765.  Depending on the nature of the penalty, identified employees should be reviewed for their status as a full-time employee throughout 2015 and, when appropriate, to determine if they were offered affordable coverage throughout 2015.  Now is not the time to panic, but it is the time to both act and get your act together.


Where can I get more information?

Questions and Answers on Employer Shared Responsibility Provisions Under the ACA
Understanding Your Letter 226-J