Understanding IRS Letter 5699: Penalties, Steps to Take, and How United ACA Solutions Can Help

Introduction

The Internal Revenue Service (IRS) takes the enforcement of the Affordable Care Act (ACA) seriously, and employers who fail to comply with its reporting requirements may face significant penalties. One of the ways the IRS identifies non-compliant employers is by sending out Letter 5699, also known as the "Missing Information Return" letter. In this article, we will explain how the IRS determines who should receive Letter 5699, the penalties associated with failing to file, what steps employers should take if they receive one, and how United ACA Solutions can help by preparing and filing prior year 1094-C and 1095-C forms.

How the IRS Determines Who Should Receive Letter 5699

Internal Revenue Service (IRS) follows an internal process which consists of compiling a list of identified information return non-filers, prioritizing the cases in the list, assigning the cases to an internal group who manages each case using the Examination Returns Control System.

If the IRS suspects that an employer has not filed the required ACA information returns 1094-C and 1095-Cs, they may initiate a case, and send Letter 5699 to the employer to request further information or prompt the employer to file the missing forms.

An Applicable Large Employer is generally defined as an employer with 50 or more full-time employees, including full-time equivalent employees, during the previous calendar year. The IRS uses W-2 filings, in conjunction with other sources of information, to help identify ALEs that have not filed the required ACA forms. The IRS does not specify a specific number of W-2 filings that would trigger the issuance of Letter 5699.

Updated: New Information

United ACA Solutions has learned that if an employer identification number (EIN) has 50 or more W-2s but did not file 1094-C forms with the IRS, they may receive Letter 5699 from the IRS. In this letter, the IRS will request further information or prompt the employer to certify that they are not an Applicable Large Employer (ALE) subject to the ACA reporting requirements.

What Employers Should Do If They Receive Letter 5699

If an employer receives Letter 5699, it is crucial to respond promptly and accurately. The letter typically provides 30 days for the employer to respond. Employers should take the following steps if they receive Letter 5699:

• Review the letter carefully to determine which tax year the IRS is inquiring about and which forms are missing.

• Check internal records to verify whether the required forms were filed for that tax year.

• If the forms were filed, provide the IRS with proof of filing, such as a confirmation Receipt or a copy of the submitted forms.

• If the forms were not filed, employers should prepare and file the missing Forms 1094-C and 1095-C as soon as possible to minimize potential penalties.

Penalties Associated with Failure to File by Year Since 2015

Employers who fail to furnish and file the required ACA information returns, specifically Forms 1094-C and 1095-C, may face penalties under Section 6721 and Section 6722 of the Internal Revenue Code.

These penalties have been adjusted for inflation since 2015 and are as follows:

2015: $250 per return, with a maximum annual penalty of $3 million

2016: $260 per return, with a maximum annual penalty of $3.193 million

2017: $260 per return, with a maximum annual penalty of $3.218 million

2018: $270 per return, with a maximum annual penalty of $3.275 million

2019: $270 per return, with a maximum annual penalty of $3.339 million

2020: $280 per return, with a maximum annual penalty of $3.392 million

2021: $280 per return, with a maximum annual penalty of $3.499 million

It is essential to note that these penalties apply separately for each 1095-C form that was not furnished as well as for each missing Form 1094-C and Form 1095-C that was not filed. Furthermore, the penalties may be doubled if the IRS determines that the failure was due to willful neglect, with the maximum annual penalty also doubled in such cases.

How United ACA Solutions Can Help

For employers who have failed to file the required Forms 1094-C and 1095-C for previous tax years, United ACA Solutions offers prior year reporting services. Our team of experts will work closely with employers to gather the necessary data, prepare the forms accurately and efficiently, and submit them to the IRS on their behalf.

United ACA Solutions understands the complexities of ACA reporting and is committed to helping employers stay compliant with their obligations. Our moto is “Give us the data, we’ll take it from there.”

Conclusion

Receiving IRS Letter 5699 can be a wake-up call for employers who have failed to file their ACA information returns, especially considering the potential penalties associated with non-compliance. By understanding the purpose of this letter, the penalties involved, and taking prompt action to address the issue, employers can minimize their risk of penalties and maintain compliance with the ACA. United ACA Solutions is here to help employers navigate the complexities of ACA reporting and meet their obligations, ensuring peace of mind and continued business success.