“Whoaaa, Nellie!” Before Submitting Form 14765 …

by Balch & Bingham LLP
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Entering a football stadium many years ago, your nimble correspondent encountered unarmed security contractors wearing uniforms featuring the company logo – a big, red bull’s-eye – on the front of the baseball cap and on the left breast pocket of the shirt.  Similarly, IRS Form 14765 may invite some employers to target themselves for IRS information reporting penalties.  Here’s how.

Starting in November 2017, IRS mailed Form 14765, “Employee Premium Tax Credit Listing,” along with Letter 226J and Form 14764 to notify employers of proposed employer mandate tax assessments for 2015.  Letter 226J notifies an Applicable Large Employer (or Member) that the IRS intends to assess 2015 employer mandate taxes in stated amount, unless the employer responds by submitting with Form 14764 (hyperlink currently disabled) its valid objections.  The employer typically must deliver this within thirty days of the mailing date shown on Letter 226J.  Such taxes may be assessed under Code § 4980H only for months in which at least one ALE Member full-time employee received an ACA subsidy for insurance coverage purchased through an ACA exchange – Healthcare.gov, for example.  Form 14765 lists those tax-triggering employees, along with relevant information that the employer reported about them when it filed its 2015 Forms 1095-C.    The employer might conclude that Letter 226J was provoked by its erroneous reporting.  For example, a “smaller large employer” of 50 to 100 FTEs may have failed to claim available 2015 transition relief.  Form 14765 invites the recipient of Letter 226J to claim that relief by entering the correct codes in rows underneath the reported information shown.

However, Letter 226J also instructs such a recipient: “Do not file corrected Forms 1095-C with the IRS to report requested changes to the Employee PTC Listing ….”  Standing alone, that can be understood in at least two materially different ways: (1) the information reporting penalty and ESRP assessment processes are independent, so filing corrected Forms 1095-C might help you avoid information reporting penalties but it won’t help you in the ESRP process; or (2) the IRS wants to have to analyze only one set of proposed corrections, so please don’t file a duplicate set; say what you want solely on Form 14765.

In many, perhaps most situations, confessing material reporting errors on Form 14765 may be an excellent idea, but there is some ciphering to be done first.  Did the erroneous reporting expose the employer to penalties under Code § § 6721 and 6722?  Those penalties may reach $500 per errant Form 1095-C and, though IRS announced a broad range of planned lenience for good faith mistakes in 2015 information reporting, it warned that known errors left uncorrected could lead to penalty assessments.  So, what did you know about these errors and when did you know it?  More to the point, how much § 4980H tax might you avoid by admitting to how much penalty exposure? And will the IRS recognize the 2015 reporting errors and impose penalties even if you don’t confess?

This is just one collateral exposure that could be created depending on what actions an employer takes based on receipt of Letter 226J. If you goofed 2015 information reporting because you failed to get well-informed advice, don’t repeat that error and put a target on your forehead.

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