Section 6721 Penalties Against ALEs

Section 6721 Penalties Against ALEs

IRS Enforcing Section 6721 Penalties Against ALEs For Form 1094/1095-C Filing Errors

The IRS recently began enforcing US Code Section 6721 again by issuing Notice 972CG to any Applicable Large Employer (ALE) who incorrectly filed Forms 1094/1095-C for the 2017 tax year.

Section 6721 penalties for 2017 filings will apply in three instances:

  • Late filings
  • Failure to file electronically when required
  • Forms filed with missing or incorrect taxpayer identification numbers (TINs).

For forms relating to the 2017 tax year, the penalty is generally $260 per form, but it increases to $270 per form for the 2018 and 2019 tax years. Keep in mind that even ALEs who completed their reporting during 2018 for the 2017 tax year are receiving these notices. However, ETC anticipates that ALEs whom the IRS has identified as failing to complete reporting for the 2017 tax year in an IRS Letter 5699 will likely also receive Notice 972CG with proposed penalties for late filing once they complete their reporting.

Notice 972CG explains the process that is available to ALEs who want to argue against the proposed penalties. In general, ALEs will have 45 days in which to submit their written response, which should set forth the reasons that they qualify for good faith relief and / or reasonable cause relief, as defined under Treas. Reg. § 301.6724-1.

ALEs can establish good faith relief when they show they made good faith efforts to comply with the reporting requirements. According to IRS Notice 2018-94, ALEs must show that they made reasonable efforts to prepare for reporting, such as gathering necessary data and transmitting it to a third party to prepare the forms or testing the ability to transmit data to the IRS. However, good faith relief is not available to those ALEs that do not make a good faith effort or that fail to timely file or furnish these forms.

In a future article, ETC will address the details of how ALEs establish reasonable cause relief and what ALEs can expect in the process of responding to Notice 972CG. For now, though, the takeaway is that the IRS is serious about enforcing Form 1094 and 1095-C reporting requirements. All ALEs are subject to these reporting requirements, regardless of whether they offer fully insured coverage, self-insured coverage, or no coverage at all.

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