IRS Releases More Details on Letter 227 – Response to Appeal on Employer Shared Responsibility Payment

Late last year the IRS started sending employer potential penalty letters on the Employer Shared Responsibility requirements of the Affordable Care Act (ACA). The penalties were associated with the 2015 Forms 1094 C and 1095 C that employers submitted in 2016. Prior to releasing the penalty letters, the IRS posted guidance on how the penalty process would be managed. The guidance was reviewed in our article, IRS Employer Mandate Penalties.

Penalties are proposed to Applicable Large Employers (ALEs) in a Letter 226J. Included with the letter was a Form 14764.  This is the form ALEs would use to appeal all or a portion of the penalty assessed.

ALEs were given 30 days to respond to a Letter 226J.

The IRS responds to any Form 14764s that ALEs submit. The response is called Letter 227.  The IRS guidance indicated the IRS would create 5 different versions of the Letter 227 to address possible outcomes based on the employer’s appeal efforts.

The IRS recently posted more information about the different versions of Letter 227 on their website at https://www.irs.gov/individuals/understanding-your-letter-227

Different versions of the Letter 227 will either close the Shared Responsibility penalty issue or prompt employers to take additional steps. Additional steps may include paying the penalty or following the instructions provided in Letter 227 or Publication 5 to request a pre-assessment conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.

The five different possible Letter 227s are as follows:

  • Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response. In this case, the employer agreed with the Shared Responsibility penalty that was assessed. The letter provides details on how the ALE can make the required payment. No response is required.
  • Letter 227-K acknowledges receipt of receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS agrees with the ALE’s appeal and indicates the proposed penalty 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 receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS revised the penalty amount based on the ALE’s appeal. The letter includes an updated Form 14765 (list of all FT employees purchasing subsidized coverage in the Marketplace by month) and revised calculation of the penalty. The ALE can agree and arrange to pay the penalty. The ALE can pursue the appeal further by request a meeting with the manager and/or office of appeals.
  • Letter 227-M acknowledges receipt of receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS does not agree with the appeal and is assessing the penalty included in the Letter 226J. The letter provides an updated Form 14765 (list of all FT employees purchasing subsidized coverage in the Marketplace by month) and revised calculation table. The ALE can pursue the appeal further by request a meeting with the manager and/or office of appeals.The response to the IRS conference is Letter 227-N. It acknowledges the decision reached in Appeals and shows the penalty amount based on the Appeals review. After issuance of this letter, the case will be closed. No response is required.

Concluding Thoughts The additional information on Letter 227 is helpful for employers to understand any response they receive to filing the Form 14764 to appeal the proposed penalty.

  • It will be interesting to see if the IRS continues to identify potential penalties from the 2015 Forms or if they start issuing penalty letters for 2016.
  • The IRS has sent several batches of penalty letters to ALEs across the country over the last six months. It is important that you respond to the letter within 30 days as indicated on the Letter 226J. In many cases, ALEs are successfully appealing substantial proposed penalties.
  • Only Letters 227-L and 227-M call for a response, which must be provided by the date stated in the letter. The Letter 227 is not a bill. The IRS will send Notice CP 220J to collect the employer shared responsibility penalties.
  • The last possible Letter 227 is issued after the ALE has participated in a pre-assessment conference with the IRS. This is the next step in appealing the potential 226J penalty if the IRS did not accept the first appeal submitted on the Form14764. ALEs must request this conference.
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