The IRS recently began issuing 5699 letters requesting missing Forms 1094-C and 1095-C from Applicable Large Employers (ALEs) for the 2020 tax year. As a reminder, the IRS sends this letter each year to employers it suspects to be ALEs based on Form W-2 information and for whom it has not received this required health coverage reporting.

The penalties for failure to comply with these reporting requirements are subject to indexing for inflation and can be significant. For the 2020 tax year, the penalty for failure to file is $280 per form and the penalty for failure to furnish is also $280 per form.

In prior tax years, the IRS has been focused on compliance with these reporting requirements and has not imposed these failure to file and failure to furnish penalties against ALEs who timely respond to a 5699 letter. While there is no guarantee that the IRS will continue its lax approach, ALEs responding to a 5699 letter should keep the following in mind:

·         Ensure only required Forms 1095-C are filed. The failure to file and failure to furnish penalties apply per form. Accordingly, ALEs should ensure that they are only filing a Form 1095-C when required to do so. The instructions for Forms 1094-C and 1095-C provide guidance on which employees require a form, and the circumstances will differ depending on whether an ALE offers a fully insured or self-insured plan.

·         Failing to timely respond to Letter 5699 will result in IRS collection enforcement. The IRS will assess failure to file and failure to furnish penalties and begin collection enforcement against an ALE who fails to respond to a 5699 letter and follow-up letters (5698, 5005-A). Once collection enforcement begins, the ALE will then be required to make a reasonable cause relief case under Section 6724 of the Code, in addition to completing the health coverage reporting required. Thus far, the collections process has been highly inconsistent and often results in tax withholding headaches that take months to resolve.

If you have received a 5699 letter or suspect past noncompliance with the Form 1094-C and 1095-C health coverage reporting requirements for any tax year, ETC has resources to help. Contact us at Appeals@etctracking.com for more information on how we can serve you.