Employer Payment Letters Sent to Churches Are Routine Requests

Employer Payment Letters Sent to Churches Are Routine Requests

Internal Revenue Service

In generic legal advice, the IRS concluded that letters providing a preliminary calculation of the employer shared responsibility payment that are sent to applicable large church employers are considered routine requests for <a href="/research/federal/usc26/7611" resolve="/lr/resolve/section-7611/cny8" title="section 7611">section 7611</a> purposes. Letter 226-J informs each applicable large employer (ALE) of the IRS’s preliminary calculation of the employer shared responsibility payment imposed by <a href="/research/federal/usc26/4980H" resolve="/lr/resolve/section-4980h/cp1c" title="section 4980H">section 4980H</a>. ALEs must receive that preliminary calculation and a notice and demand for payment from the IRS before they can pay any amounts. The letter also gives ALEs a chance to clarify or correct the information used to determine and calculate the payment, if any.  To provide procedural safeguards to churches, <a href="/research/federal/usc26/7611" resolve="/lr/resolve/section-7611/cny8" title="section 7611">section 7611</a> limits the ability of the IRS to begin church tax inquiries and examinations. <a href="/research/federal/cfr26/301.7611-1" resolve="/lr/resolve/reg-section-3017611-1/cslq" title="Reg. section 301.7611-1">Reg. section 301.7611-1</a>, Q&amp;A-4 provides that routine requests to a church will not be considered to commence a church tax inquiry and won’t require application of the <a href="/research/federal/usc26/7611" resolve="/lr/resolve/section-7611/cny8" title="section 7611">section 7611</a> audit procedures. Based on 2018 advice from the IRS Office of Chief Counsel, the IRS Tax-Exempt and Government Entities Division has been applying <a href="/research/federal/usc26/7611" resolve="/lr/resolve/section-7611/cny8" title="section 7611">section 7611</a> to communications issued to a church taxpayer under the employer shared responsibility payment compliance program, sending Letter 226-J as an attachment to the church tax inquiry notice. The IRS has reconsidered its 2018 advice in light of information obtained from the operation of the employer shared responsibility payment program. According to TE/GE, most churches that receive a Letter 226-J make a clarification or correction that usually results in eliminating the liability that was initially calculated. Further, treating Letter 226-J as a church inquiry subject to <a href="/research/federal/usc26/7611" resolve="/lr/resolve/section-7611/cny8" title="section 7611">section 7611</a> has resulted in substantial delays in providing those letters to church ALEs, as compared with ALEs that are not churches. After further considering Letter 226-J, the applicable regulations, and TE/GE’s experience, the IRS has determined that Letter 226-J is a routine request for purposes of <a href="/research/federal/usc26/7611" resolve="/lr/resolve/section-7611/cny8" title="section 7611">section 7611</a> based on four reasons. First, the letter is an initial communication with an ALE that is necessary for the ALE to know that it may have a tax obligation. Thus, the calculation information provided in Letter 226-J is entirely routine in the context of the employer shared responsibility payment program. Second, the letter provides a preliminary payment that is calculated from the ALE’s own information reporting. The IRS does not use any other information to make that preliminary calculation, and while the letter allows the church to clarify or correct previously reported information, it isn’t focused on obtaining additional information from the church. Third, the fact that the proposed assessment is almost always resolved after an initial round of communication demonstrates the routine nature of the letter. Finally, the letter is like other routine requests, sharing similarities with some examples in the non-exhaustive list of routine requests in <a href="/research/federal/cfr26/301.7611-1" resolve="/lr/resolve/reg-section-3017611-1/cslq" title="reg. section 301.7611-1">reg. section 301.7611-1</a>, Q&amp;A-4.

In generic legal advice, the IRS concluded that letters providing a preliminary calculation of the employer shared responsibility payment that are sent to applicable large church employers are considered routine requests for section 7611 purposes.

In generic legal advice, the IRS concluded that letters providing a preliminary calculation of the employer shared responsibility payment that are sent to applicable large church employers are considered routine requests for section 7611 purposes. Letter 226-J informs each applicable large employer (ALE) of the IRS’s preliminary calculation of the employer shared responsibility payment imposed by section 4980H. ALEs must receive that preliminary calculation and a notice and demand for payment from the IRS before they can pay any amounts. The letter also gives ALEs a chance to clarify or correct the information used to determine and calculate the payment, if any.  To provide procedural safeguards to churches, section 7611 limits the ability of the IRS to begin church tax inquiries and examinations. Reg. section 301.7611-1, Q&A-4 provides that routine requests to a church will not be considered to commence a church tax inquiry and won’t require application of the section 7611 audit procedures. Based on 2018 advice from the IRS Office of Chief Counsel, the IRS Tax-Exempt and Government Entities Division has been applying section 7611 to communications issued to a church taxpayer under the employer shared responsibility payment compliance program, sending Letter 226-J as an attachment to the church tax inquiry notice. The IRS has reconsidered its 2018 advice in light of information obtained from the operation of the employer shared responsibility payment program. According to TE/GE, most churches that receive a Letter 226-J make a clarification or correction that usually results in eliminating the liability that was initially calculated. Further, treating Letter 226-J as a church inquiry subject to section 7611 has resulted in substantial delays in providing those letters to church ALEs, as compared with ALEs that are not churches. After further considering Letter 226-J, the applicable regulations, and TE/GE’s experience, the IRS has determined that Letter 226-J is a routine request for purposes of section 7611 based on four reasons. First, the letter is an initial communication with an ALE that is necessary for the ALE to know that it may have a tax obligation. Thus, the calculation information provided in Letter 226-J is entirely routine in the context of the employer shared responsibility payment program. Second, the letter provides a preliminary payment that is calculated from the ALE’s own information reporting. The IRS does not use any other information to make that preliminary calculation, and while the letter allows the church to clarify or correct previously reported information, it isn’t focused on obtaining additional information from the church. Third, the fact that the proposed assessment is almost always resolved after an initial round of communication demonstrates the routine nature of the letter. Finally, the letter is like other routine requests, sharing similarities with some examples in the non-exhaustive list of routine requests in reg. section 301.7611-1, Q&A-4.

Sec. 4980H Shared responsibility for employers regarding health coverage

Sec. 7611 Restrictions on church tax inquiries and examinations

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Employer Payment Letters Sent to Churches Are Routine Requests