ACA compliance reportingisn't a one and done activity, so be sure to have rock-solidprocess documentation established and shared acrossdepartments.

It's no secret that the IRS is sending out its 226-J letter to companies across America,warning that they face financial penalties for not adhering tofederal ACA employer requirements. Rather than meekly accepting thecoming financial hit, or worse yet, ignoring the letter altogether(yes, some organizations do that), there's a little-known tacticthat employers can use that could save millions of dollars inproposed penalties: Talk to one another!

In today's corporate America, it's not unusual forcross-departmental communication to take a back seat to thestreamlined efficiencies of siloed work processes. That structure,however, comes with risks. In fact, we've had organizations come tous after working with other outside resources and wound up payingas much as $1 million in unwarranted ACA noncompliancefines—because of poor internal communication.

Related: IRS 226J letters: What they are and how torespond

Take a look at the following scenarios to see if one looksfamiliar within your organization:

Scenario 1

One of your benefits staffers dutifully files ACA data per allestablished guidelines. Several months later, she leaves yourcompany for another career opportunity. Because the IRS has threeyears to review the submitted data and issue a penalty warning, anew employee receiving the letter might not recognize it for whatit is and delay dealing with it. Or, the letter could end up in acorporate version of limbo because the mail center is unclear aboutwho the appropriate recipient should be.

Scenario 2

A 226-J letter winds up in the inbox of the tax, finance oraccounts payable department. Because ACA reporting compliance is abenefits administration task, the tax, finance or AP employeesimply sets the letter aside, intending to forward it to yourbenefits department at a later time. And then forgets about it.

Scenario 3

The tax, finance or accounts payable department receives an IRSinvoice for penalties because the company didn't respond to the226-J letter within the timeframe dictated. Assuming theorganization is liable for the full amount of the bill, thedepartment issues a check without discussing the penalty with theright people in the benefits department.

Scenario 4

The 226-J letter arrives in the right mailbox. The benefitsemployee who submitted the data recognizes the IRS warning andopens the letter immediately. After perusing the letter's content,the employee assumes that the government's assessed potentialpenalty is accurate. Without digging into whether simply correctingthe submitted data could lessen or alleviate the penaltyaltogether, the employee initiates the company's internal processfor full payment. No one involved in the payment process questionsit, either.

Scenario 5

The 226-J letter arrives in the right mailbox. The benefitsemployee who submitted the data recognizes the IRS warning andopens the letter immediately. After perusing the letter's content,the employee realizes that the payments are based on data that theemployer has since corrected with the IRS by providing correctionfiles. Based on this realization, the employee takes no action and,in time, receives an IRS invoice.

In each of the above scenarios, the straightforward act ofcommunication—across and within your corporate matrix—could greatlyreduce the risk of paying uncalled-for IRS fines. Therefore, weencourage every employer's benefits department, whether or not theysuspect they could receive a 226-J letter, to:

First, share as much information as possible with your accountspayable, finance and/or tax departments about the ACA reportingprocess, including what information is filed with the IRS and why,along with deadlines the IRS sets for requesting extensions andcorrecting errors. If an employer suspects it could receive a 226-Jletter, be sure to let other areas in your company know to whom inthe benefits department to forward it.

Next, question whether you actually owe the amount of a proposedfine. For example, we've seen cases where a company's reported datamakes it appear that it hadn't reached the required 95 percentthreshold of offers for affordable coverage when, in fact, theemployer was overly generous and offered coverage to more peoplethan was required. What we discovered in these cases is thatwhomever filed the data—either an internal staff member or anoutside vendor—just reported the data incorrectly.

In these cases, doing a little research and checking with theright benefits administrators uncovered information needed tocorrect the data. In the case of an employer who receives a 226-Jletter requesting corrections that the employer believes they havealready submitted, understand that a reply to the 226-J letter isstill necessary, since the government's analysis didn't take intoaccount the submitted corrections.

Third, understand that when communicating with the IRS, timereally is money. 226-J letters are a forewarning that you'llreceive an invoice if you don't provide correction. If you need anextension to comply, you need to tell the IRS as soon as possible,as corrections frequently require the benefits department to dosome research. If a response to the IRS isn't made within specifiedtimelines, it will assess its penalty. If an organization is latein paying a first penalty invoice, it will start accruing penaltyletters and fines. The IRS could even place a lien on companyproperty.

Lastly, ACA compliance reporting isn't a one and done activity,so be sure to have rock-solid process documentation established andshared across departments so that you can readily review data andprovide timely corrections to the IRS, thereby avoiding paymentsyou wouldn't have been liable for had data been correctlysubmitted. Many employers have been able to get proposed penaltieswaived or significantly reduced by properly claiming transitionrelief, correcting full-time employee counts and updatingindividual employee offer of coverage information.

It's never pleasant to find a 226-J letter lurking in yourmailbox. In the event that your organization legitimately owes theIRS, communication among your finance, AP, tax and benefits teamscontinues to play a vital role. For example, informing the benefitsteam about a penalty payment provides them with an important cluethat changes may be needed in making decisions about futurebenefits offerings. In other words, the benefits team can betterunderstand the level of noncompliance risk when it understands howmany employees are not taking company insurance (if and whenoffered), along with how many of those with and without offers optinto federal marketplace plans and apply for the premium taxcredit.

A final piece of advice: Some fortunate employers have theinternal capacity to fulfill that IRS invitation to respond to anIRS inquiry; many, however, must rely on technology from an outsidevendor to research the data, and compile and submit correctedforms. If your organization falls into the second category, it'svital to your financial stability to make sure your vendor providestransparency into your data and potential penalty risk. And, if youreceive a 226-J letter, that it will support you in quicklyresponding to the request for supporting data. In the end, howeveryou manage your ACA responsibilities, you can be sure that a littlecommunication and information sharing with colleagues andco-workers will reduce the hassle.

Kyle Scott is assistant vice president ofcompliance at Health e(fx) where she oversees ACA compliance and226-J response support. Kyle is Certified in Healthcare Compliance(CHC), holds a Certified Health Reform Specialist (CHRS)designation, and achieved certificates in Management InformationSystems, Health Law, and Human Resources Compliance.

Read more: 

• How to help employer clients with IRS Letter226J
• 10 HR compliance issues for 2020
• State ACA reporting compliance: What employers needto know now