The IRS has been notifying employers of penalty assessments for non-compliance with the Employer Shared Responsibility Provisions of the Affordable Care Act. ACA requires applicable large employers (ALEs) to offer their full-time employees affordable, minimum essential coverage or pay a tax penalty.
Penalty assessments are identified by IRS Letter 227. Since this letter is new, the IRS issued guidance intended to help recipients understand the letter. According to the IRS, there are various Letters 227 which are acknowledgement letters sent to close an Employer Shared Responsibility Payment (ESRP) inquiry or provide the next steps to the ALE regarding the proposed payment. There are five different 227 letters:
- Letter 227-J acknowledges receipt of the signed agreement Form 14764 ESRP Response, and that the ESRP will be assessed. After issuance of this letter, the case will be closed. No response is required.
- Letter 227-K acknowledges receipt of the information provided and shows the ESRP has been reduced to zero. After issuance of this letter, the case will be closed. No response is required.
- Letter 227-L acknowledges receipt of the information provided and shows the ESRP has been revised. The letter includes an updated Form 14765 and revised calculation table. The ALE can agree or request a meeting with the manager and/or appeals.
- Letter 227-M acknowledges receipt of information provided and shows that the ESRP did not change. The letter provides an updated Form 14765 and revised calculation table. The ALE can agree or request a meeting with the manager and/or appeals.
- Letter 227-N acknowledges the decision reached in Appeals and shows the ESRP based on the Appeals review. After issuance of this letter, the case will be closed. No response is required.
A Letter 227 is issued by the IRS after Letter 226. The IRS uses the information provided in the response to Letter 226-J to review the ESRP. The Letter 227 explains the outcome of the review and the available next steps. Letter 227 is not a bill. A bill (CP220J) will be issued only after the final assessment of the ESRP.
The IRS suggests taking the following steps upon receipt of a Letter 227.
- Read your letter and attachments carefully. These documents explain the next steps available and provide information on how the case will be resolved.
- If appropriate, complete the response Form 14764 indicating your agreement or disagreement. If you disagree with the proposed ESRP, you must provide an explanation of why you disagree and/or indicate changes needed on Form 14765. Return all documents as instructed in the letter by the response date. If you agree with the proposed ESRP, follow the instructions to sign the response form and return it with full payment in the envelope provided.