The IRS has begun the process of collecting penalties under the Affordable Care Act’s (“ACA”) employer shared-responsibility provisions, better known as the “employer mandate.” The IRS has begun mailing letters to employers that potentially owe an employer shared responsibility payment (“ESRP”) for the 2015 calendar year. The letter outlines the IRS’s preliminary calculation of the ESRP owed by the employer based on information contained in the ACA tax forms filed by the employer, and individual income tax returns filed by employees.

If you receive Letter 226-J from the IRS, you will need to act very quickly to either submit payment or dispute the preliminary calculation. There have been reports of letters containing ACA penalties anywhere from the tens of thousands of dollars to nearly $6 million. Surely, some are even higher — and more are on the way. The IRS is allowing 30 days from the date of the letter (not the date the letter is received) for the employer to object to the preliminary determination, explain the basis for the objection and submit supporting documentation. Employers will have the opportunity to request a conference with the IRS prior to the 30-day response deadline. Failure to respond within 30 days — either by paying or objecting to the preliminary determination — will result in a Notice and Demand from the IRS demanding full payment of the ESRP, subject to interest and lien enforcement.

This is often a complex and unexpected financial risk, but it can be handled if addressed quickly. And if you haven’t received notice of a proposed liability, plan now and avoid that risk.