Letter 226J is the very first letter that is issued to the ALEs (Applicable Large Employers) in order to notify of the fact that there is a possibility that liability for ESRP (Employer Shared Responsibility Payment) is present. All the information that is present in the IRS letter 226J comes from the forms 1095-C and 1094-C that are submitted by ALE and individual income tax returns that were filed by their employees. This is what is used to determine liability.

What Has To Be Done

When an IRS letter 226J is received, there are some specific things that have to be done:

  • Read the letter and all attachments. The documents do explain the entire ESRP process and will show business managers how received information is affecting computation. This does include the necessary steps to follow when there is disagreement and agreement with information presented inside the letter.
  • When you do not agree with the ESRP liability that is proposed, full disagreement explanation should be provided or/and indicate the changes that are needed in the PTC Listing form 14765.
  • Response Form 14764 needs to be completed, including disagreement or agreement with what was written in the received letter.
  • When you agree with what was proposed, there are instructions that should be followed and data about how to return full payment, usually done through the provided envelope.

Things That You Should Consider Doing

If IRS letter 226J is discussed, most people think that the options available are highly limited. This is not actually the case. There are some things that you should seriously consider doing, like:

  • Review all information that is reported on 1094-C and 1095-C forms in order to confirm that IRS information filed was accurate. That is the information that is utilized in order to compute final ESRP.
  • Always keep copies of the documents and letters that are submitted.
  • Contact the IRS with the information included in the letter whenever there is more time needed for a response or if questions exist.
  • If you want to have someone else take care of everything, like an attorney or a representative, the form 2848 needs to be sent. This should specifically state year covered.

Other Things You Should Know About IRS Letter 226J

You receive this letter because of the information that is present in Forms 1094-C and 1095-C. The IRS determines if there is ESRP liability that applies. ESRP computing was done through the data in the forms together with individual income tax returns that were submitted by the full-time employees. This identifies if premium tax credit was allowed. This letter is not a bill. It is just ESRP initial proposal.

Businesses that receive the letter have to review it and then response until the deadline listed. Instructions are presented and the IRS practically wants to know if you agree with the initial assessment or not. If you do not, you have to take the needed steps to prove that the IRS was wrong. This is not as easy to do as it might seem. You may need to work with an attorney or a corporate tax specialist that can analyze documents and find potential discrepancies.

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