What Is IRS Letter 5699 and How Do I Respond?

IRS Letter 5699 is an informational notice sent to employers regarding potential Affordable Care Act (ACA) obligations. The IRS sends this letter to businesses it believes were required to file health care information returns for a specific tax year but did not. This correspondence is a request for information, not a bill or a formal penalty assessment. It provides an opportunity for employers to clarify their reporting status before the IRS takes further action.

Understanding Why You Received Letter 5699

You may receive Letter 5699 if the IRS identifies your organization as a potential Applicable Large Employer (ALE) that failed to file the required ACA information returns, Forms 1094-C and 1095-C, for a specific year. An employer qualifies as an ALE if it had an average of 50 or more full-time employees, including full-time equivalent employees, during the preceding calendar year. The IRS uses data, such as the number of W-2s an organization filed, to identify potential ALEs.

The letter is a preliminary inquiry that asks you to confirm your ALE status and explain why the required forms were not filed. Responding correctly allows you to provide facts and potentially correct a misunderstanding about your status before the IRS proceeds with any penalty assessments.

How to Formulate Your Response

To respond, you must first determine your organization’s ALE status for the year in question. The letter provides a response form with a series of checkboxes to explain your situation.

Based on your ALE status, you will select the appropriate option on the response form. Common options include:

• You already filed the required Forms 1094-C and 1095-C.
• You will file the required forms by a specific date or have included them with your response.
• You were not an ALE for the year in question and had no filing requirement.
• You have another reason for not filing, which you must explain.

If you determine that you were required to file, you must do so promptly to resolve the matter.

How to Submit Your Response

You must submit your response to the IRS within 30 days of the date printed on Letter 5699. Missing this deadline can lead the IRS to assume its information is correct and proceed with penalty assessments.

Your completed response form should be mailed to the IRS address specified on the letter. It is advisable to use a mail service that provides tracking and delivery confirmation for your records.

After the IRS reviews your response, it may close the case if it accepts your explanation, such as you were not an ALE. If you indicated you will file the missing forms, the IRS will expect you to do so. A separate penalty process may be initiated later if your filed forms show a failure to offer qualifying health coverage to employees.

Consequences of Not Responding

If an employer ignores Letter 5699, the IRS will proceed with its investigation based on the information it already has. The agency will likely conclude that the employer failed to comply with ACA reporting requirements.

This inaction can lead to a formal penalty assessment for failure to file. The IRS may also propose an Employer Shared Responsibility Payment (ESRP) by issuing Letter 226J if its data shows an employee received a premium tax credit.

By not responding, an employer misses the opportunity to provide correcting information, such as proving they were not an ALE for the year in question. Ignoring the initial inquiry can lead directly to proposed financial penalties.