IRS Letter 5699 (Missing Information Return Form 1094/1095-C)
What to Expect and How to Respond If You Receive This IRS Notice
If the IRS believes that you have not filed Forms 1094/1095-C, the agency will send you Letter 5699. This letter goes out automatically, and it is the first contact the IRS makes with businesses that have not filed these forms. This letter is important, and you should respond promptly.
Here's what you need to know if you received this letter.
What Is Letter 5699?
IRS Letter 5699 is the first letter the IRS sends to businesses that have not filed 1094/1095-C forms. The header on this letter typically says "Request for Employer Reporting of Offers of Health Insurance Coverage (Forms 1094-C and 1095-C)". It explains the filing requirements for these forms and asks why you have not filed.
Do not ignore this letter. If you don't respond, the IRS can escalate the issue and assess penalties.
What Should You Do If You Receive Letter 5699?
IRS Letter 5699 asks why your business hasn't filed Forms 9094/9095-C. You should note the reason you didn't file and follow the IRS's instructions for your situation. Here's what to do based on why you didn't file.
- You just haven't filed yet — File the forms as soon as you can and explain why you filed late. Here are the forms you need to file: Form 1095-C and Form 1094-C.
- You filed under a different employer identification number (EIN) — Send the IRS the EIN you used when you filed as well as the date and business name.
- You're not required to file — Respond to the IRS and provide details about why you weren't required to file these forms.
- You had another reason — The process varies based on your situation and why you didn't file.
Regardless of your situation, make sure you respond to this letter promptly. The IRS can assess heavy penalties for businesses that aren't compliant with this filing requirement.
What Happens If You Ignore IRS Letter 5699?
If you do not respond to Letter 5699, the IRS will issue Letter 5698 along with corrected Forms 1094/1095-C. Keep in mind that when the IRS generates forms for you, they may not be correct. They may have missing information or incorrect details that could increase your tax liability and penalties. You may also receive notice CP215, which will notify you that the IRS is assessing civil tax penalties on your account.
Letter 5698 will also contain instructions on how to respond. If you don't respond to that follow-up letter, the IRS will assign your case to an examiner. They will attempt to contact you by phone, and if they don't reach you or are unable to resolve the issue over the phone, they will open a penalty case against you.
At that point, the IRS will send you Letter 5005-A (Information Return Penalty Cover Letter) along with Form 886-A (Explanation of Items). These notices will outline the facts and laws related to Forms 1094/1095-C. They will also tell you what penalties you owe and outline your resolution steps.
In some cases, you may receive different letters about your penalty assessments. The IRS uses a range of notices.
Penalties for Not Filing Forms 1094/1095-C
The penalty for not filing these forms is $280 per return. There is another $280 penalty for not furnishing the returns to your employees. If you gave your employees their 1095-C forms but didn't file with the IRS, the fee will be $280 for each return. But if you didn't create these forms at all, the penalty will be $560 each.
Note these numbers are current as of 2022. They may be higher in future years. "Luckily", the IRS caps each of these fees at $3,426,000 so your business's total penalty won't be more than $7 million.
On top of that, there can be additional penalties for not offering your full-time employees the right health insurance. Depending on the situation, these penalties can be between $2570 and $3860 per full-time employee.
What to Expect After You Reply to Letter 5699
If you respond to Letter 5699, the IRS can take a range of actions depending on your response. Here are some of the possible outcomes based on your situation.
You filed under a different EIN
If the IRS can verify that you filed under that EIN, they will close your case and send you Letter 5840 (IRC Section 6056 — Information Return Closing Letter). The IRS will contact you for more information if they can't find the returns you filed.
You're filing late.
If you file your 1094/1095-C returns after receiving Letter 5699, include a written explanation of why you're filing late. The IRS will consider this information when deciding whether or not to assess penalties on your account. If you don't give a reason for the late filing, the agency will automatically assess penalties on your account. If the IRS thinks you have a reasonable excuse for filing late, the agency will close your case and issue Letter 5840.
You aren't required to file.
You only need to file these forms if you're a so-called "Applicable Large Employer" or ALE. The IRS looks at your average number of full-time employees from the previous year to determine if you were an ALE. For example, if you had an average of 50 or more full-time employees in 2020, you have to generate Forms 1094/1095-C for your employees for tax year 2021.
If you aren't required to file, you need to explain why in your response to Letter 5699. The IRS will look at the explanation you provided. If it makes sense, the agency will close your case. If not, the agency may ask for more details or consider pursuing penalties against your business.
You are no longer in business.
Again, the IRS will assess your supporting documents. Then, the agency will either close the case or contact you for more information.
Your business is a church.
If you respond to Letter 5699 by saying that your business identifies as a church, the IRS examiner will immediately stop working your case. They will send the case to the Tax Exempt/Government Entities (TE/GE) Division of the IRS.
Why Are So Many Businesses Receiving Letter 5699 Now?
The IRS is sending out a lot of these letters now, and they typically come in a very delayed fashion. For example, in 2019, the IRS sent out over 17,000 letters in relation to tax years 2016 and 2017. These numbers are expected to increase in 2022 and beyond.
The requirement to file Forms 1094/1095-C started in 2015. For the first five years, the IRS extended good-faith transition relief to give businesses time to get used to the new rule. Because 2020 was the last year for this relief, the agency is sending out a lot of 5699 letters now.
Additionally, the IRS is attempting to battle a large tax gap (the difference between the amount of taxes paid and the amount that should be paid). At the time of writing, the Biden administration is pushing to increase IRS funding so the agency can follow up on unpaid taxes. Additionally, from a PR standpoint, it's generally easier for the government to go after large businesses than small businesses or individuals.
Finally, the IRS legal council has declared that there is no statute of limitations on 4980-H penalties. These are the penalties assessed for not complying with ACA mandates.
Get Help With Letter 5699
Do not ignore Letter 5699. The penalties for not issuing or filing informational returns can be very severe. Even if the IRS issued this letter to you in error, you need to respond correctly if you don't want the situation to escalate.
There are local tax pros in your area who can help you respond to this letter or other IRS notices. At TaxCure, we make it easy for you to search for local tax pros who have experience with your specific issue. Get help today — find a local tax pro who can help you with Letter 5699.