Once the IRS has your data, the IRS ACA Compliance Validation (ACV) system begins to churn, examining each 1095C that you have filed for errors or mismatches with the data provided by each individual employee on their tax filings. These calculations are designed to determine if any penalties are required.
The ACV is a very robust and sophisticated IRS software system which will identify any potentially noncompliant Applicable Large Employers (ALEs). The employer will then receive Letter 226J, which is the initial letter issued to ALEs to notify them that they may be liable for a penalty called the Employer Shared Responsibility Payment (ESRP).
Once the Letter 226-J has been issued the organization is immediately in a defensive position. The timeframe for a response is very limited (30 days) and may jeopardize an organization’s ability to dispute the penalty. IRS unanswered An unanswered penalty determination will be quickly followed by a penalty demand unless an organization comes forward to contest it and prove otherwise.
As with all tax matters the IRS has prepared a number of pathways to dispute any potential penalty; ranging from written responses to requesting a conference with the IRS Office of Appeals. Needless to say these efforts are adversarial and can become burdensome, time-consuming and expensive. We know because we have helped many organizations with this process.
How you can avoid being caught up in this adversarial process!
BenefitScape’s VeriTracACA© software can provide you with a possible penalty scenario. You can then review these results to make sure that the data you are filing is correct and free of any unnecessary potential penalties before it has been filed. This will put you on the offense and potentially eliminate any need for penalty remediation efforts. If it does appear that an organization will incur certain penalties it is obviously better to be aware of these issues and take steps to remedy them rather than being caught by surprise. Forewarned is forearmed.
Common errors that we see relative to filing data to the IRS air system!
The most common error that we see is where the data is produced by systems of record, payroll and HRIS, and is presumed to be correct without any knowledgeable review. The results are then sent to the IRS by either payroll vendors or tax filers who are not aware of the potential penalty problems. They are simply filing the results that have been given to them much in the same way they do with W-2 and 1099. ACA compliance is another area completely and is generally not their area of expertise. The result is that errors that could’ve been caught by a pre-filing audit are filed and penalties ensue. More information about the use of payroll tax filers is included in our blog.
Pre-filing analysis is emerging as a best practice
The evolution of ACA filing to the IRS has seen a lot of early flexibility and acceptance by the IRS for inaccurate filings for tax year 2015. Since the process was new the IRS adopted a “good faith” standard of compliance where valid attempts to file accurate data were accepted and penalties were not imposed.
This has changed for tax year 2016 and well over 30,000 penalty letters have been sent by the IRS to Applicable Large Employers (ALE). Given this new enforcement standard by the IRS, which was outlined as the IRS posture in their Inspector General’s report, responsible ALE’s are recognizing the value in adopting rigid pre-filing analysis such as that which is provided by BenefitScape’s VeriTracACA© software.
Given the time, expense and risk required to dispute an IRS penalty; best practice dictates that the data be examined carefully before actual filing. BenefitScape’s VeriTracACA© software provides a penalty assessment and insights into what potential risk the organization may have by filing the data without correction. The analysis is FREE. All and employer needs to do is provide the results they are about to file to BenefitScape via our secure portal. BenefitScape will then provide the required analysis…FREE. Should the company wish to make any changes to the data and have BenefitScape e-file it to the IRS; will be pleased to provide a quote as to the cost of the service. More information about the best way to print and file your forms, including use of payroll tax filers, is included in our blog.
From performing an ACA Compliance Assessment, to tracking and calculating eligibility, through IRS coding and employee communications to the final IRS e-Filing, we work seamlessly with any client set-up, all data formats, and at any stage or throughout the compliance process. And, we don't stop when reporting is complete. We assist in necessary corrections, any IRS 226J responses, and establishing go-forward Risk Mitigation plans.
Call BenefitScape Client Services Director Kim Phillips on 508-655-3307.
Or email Kim with your inquiry at firstname.lastname@example.org
You can also connect with Kim via LinkedIn