IRS Clarifies “Letter 227” & Releases Sample Letters
The IRS has created a webpage on understanding Letter 227, which certain applicable large employers (ALEs) may receive in connection with the assessment of employer shared responsibility penalties (aka Pay or Play penalties). As background, the IRS uses Letter 226J to notify an ALE of a proposed penalty assessment. ALEs have 30 days to respond, using Form 14764 to indicate their agreement or disagreement with the proposed penalty amount. Letter 227 acknowledges the ALE’s response to Letter 226J and explains the outcome of the IRS’s review and the next steps to fully resolve the penalty assessment. There are five different versions of the letter (samples are provided of each version on the IRS website):
Letter 227-J states that the proposed penalty amount will be assessed because the ALE agreed with the proposed penalty. No response is required to this version of the letter, and the case is deemed closed.
Letter 227-K shows that the penalty amount has been reduced to zero. No response is required to this version of the letter, and the case is deemed closed.
Letter 227-L shows that the proposed penalty amount has been revised. This version of the letter includes an updated Form 14765 (PTC listing) and revised calculation table. The ALE can agree with the revised penalty amount, request a meeting with the IRS, or appeal the determination.
Letter 227-M shows that the penalty amount did not change. This version of the letter also includes an updated Form 14765 (PTC listing) and revised calculation table to the extent any data used in the computation of the proposed penalty amount changed based on information provided by the ALE. The ALE can agree with the revised penalty amount, request a meeting with the IRS, or appeal the determination.
Letter 227-N acknowledges the decision reached by the IRS appeals office and shows the resulting penalty amount. No response is required to this version of the letter, and the case is deemed closed.
Only Letters 227-L and 227-M call for a response, which must be provided by the date stated in the letter. The IRS stresses that the Letter 227 is not a bill. Notice CP 220J is used to collect the employer shared responsibility penalty payment.
