What the letters mean
The Letter 226-J is the proposal. IRM 25.21.4.15 lists what follows it. The Letter 5040-J is the “Follow-up letter used when there has been no response to Letter 226-J,” described in the same table as “A follow-up letter to the Letter 226-J sent when there has been no response from the ALE within 30 days.” IRM 25.21.4.14.1: “Letter 5040-J, a copy of Letter 226-J and all attachments will be mailed to the ALE when there is no response to the Letter 226-J. The Letter 5040-J allows the ALE fifteen days to respond. If the ALE does not respond, the case will be prepared for assessment.” It is the last chance to answer before the proposed amount becomes a liability.
The CP220J is the bill. The IRS CP220J page: “We charged you an employer shared responsibility payment (ESRP).” The ESRP questions and answers explain that if the employer does not respond to the 226-J or a Letter 227, “the IRS will assess the amount of the proposed employer shared responsibility payment and issue a notice and demand for payment, Notice CP 220J,” and that the notice “will include a summary of the employer shared responsibility payment and will reflect payments made, credits applied, and the balance due, if any.” The same answer makes a structural point: “ALEs will not be required to include the employer shared responsibility payment on any tax return that they file or to make payment before notice and demand for payment.”
Between the two sits the Letter 227 series, used when the employer did respond: 227-J (agreement), 227-K (reduced to zero), 227-L (revised), 227-M (unchanged) and 227-N (after Appeals). A CP220J without a Letter 227 means the employer never engaged.
Why the client got it
IRM 25.21.4.13: the Letter 226-J “will be issued to an ALE if the IRS determines that, for at least one month in the year, one or more of the ALEs full-time employees were an assessable full-time employee.” The determination is “based on information from Forms 1094-C and 1095-C filed by the ALE and the individual income tax returns filed by the ALEs employees,” specifically employees who were allowed a premium tax credit. An assessable full-time employee is one allowed a PTC for whom no relief under IRC 4980H(a) and no safe harbor or relief under 4980H(b) applies.
IRM 25.21.4.7 describes the two payments. Under 4980H(a), an employer that “did not offer minimum essential coverage (MEC) to at least 95 percent of its full-time employees (and their dependents)” while at least one full-time employee got a PTC owes, per month, the number of full-time employees minus up to 30, times one twelfth of $2,000 as adjusted. Under 4980H(b), an employer that offered coverage that was unaffordable, lacked minimum value or was not offered to the employee who got the PTC owes one twelfth of $3,000 as adjusted per such employee, capped at the (a) amount. The IRS ESRP page lists the adjusted amounts for calendar year 2024 as $2,970 and $4,460 (2023: $2,880 and $4,320); IRC 4980H(c)(5) indexes them by the premium adjustment percentage, rounded down to the next $10.
Deadlines and what happens if they pass
| Letter | Window | If it passes | Source |
|---|---|---|---|
| Letter 226-J | Response date in the letter, generally 30 days | Phone attempt (field) then Letter 5040-J | IRM 25.21.4.13, 25.21.4.14.1 |
| Letter 5040-J | 15 days | Case prepared for assessment | IRM 25.21.4.14.1 |
| Letter 227-L or 227-M | Generally 30 days; Appeals request must be in writing by that date | Case closed on the letter's figures and assessed | IRM 25.21.4.15.2; Q&A 57 |
| CP220J | Pay by the due date on the notice | Interest; lien and levy procedures as for any assessment | CP220J page |
One statutory change sits on top of the IRM's 30 and 15 day windows. IRC 4980H(d)(4), added in December 2024, provides: “The Secretary shall allow an applicable large employer at least 90 days from the date of the first letter which informs the employer of a proposed assessment of the employer shared responsibility payment under this section to respond to the proposed assessment before taking any further action with respect to such proposed assessment.” The effective date note applies it “to assessments proposed in taxable years beginning after the date of the enactment of this Act [Dec. 23, 2024].” The IRM (last revised in 2021) has not been updated for this; for a 226-J issued in a year to which the new rule applies, a 5040-J or assessment inside 90 days of the 226-J date is worth raising directly with the examiner.
The assessment statute also changed. IRC 6501(n), added at the same time: “In the case of any assessable payment under section 4980H, the period for assessment shall expire at the end of the 6-year period beginning on the due date for filing the return under section 6056 (or, if later, the date such return was filed) for the calendar year with respect to which such payment is determined,” effective for returns due after December 31, 2024. For earlier years no specific limitation period applied to the ESRP.
IRC 4980H(d)(1): any assessable payment under the section “shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68.” There is no notice of deficiency and no Tax Court petition. The pre-assessment Appeals conference offered through the Letter 227 is the administrative forum; after CP220J the remedies are payment and a refund claim, or the collection due process route when lien or levy notices issue.
How to respond
- On a Letter 5040-J, respond within the 15 days even if only to disagree and request time; silence leads straight to assessment. Use the Form 14764, ESRP Response, that came with the attached 226-J, and check the partial or total disagreement box.
- Get authority in place: a Form 2848 listing Forms 1094-C and 1095-C (IRM 25.21.4.13 has examiners check the CAF for exactly that), or the Authorization section of Form 14764.
- Rebuild the employee list. The Form 14765, Employee PTC Listing, shows each assessable employee by month and the line 14 and 16 codes reported. IRM 25.21.4.14.3.1 says the employer “should provide a signed written statement explaining” any changes to the Forms 1094-C or 1095-C, corrections on Form 14765, or how it qualified for relief, and lists the documents that help: employment contracts showing hire and termination dates and hours, payroll records, and the employee handbook describing offers, waiting periods and cost.
- Argue affordability where it applies. IRM 25.21.4.14.3 says that if the employer requests “affordability verification by providing their computation” under a safe harbor or household income, the examiner recomputes and answers with a Letter 227-K or 227-L.
- If the employer agrees, sign the Form 14764 agreement box; a Letter 227-J follows and the payment is assessed. The CP220J page points to the online payment agreement application for a payment plan.
- If a Letter 227-L or 227-M arrives and the employer still disagrees, request a conference with the examiner's supervisor or Appeals in writing by the letter's date. IRM 25.21.4.15.4: at $25,000 or less for all months of the year a small case request by letter is enough; above that a formal written protest is required. IRM 25.21.4.16 confirms that “Unagreed cases involving a proposed ESRP are subject to pre-assessment appeal rights.”
- On a CP220J, check whether the assessed amount matches the last letter and whether any Letter 227 was ever sent. If the employer never received the 226-J (wrong address), a request for reconsideration is available after assessment: IRM 25.21.4.21.2 has the examiner review information “that was not previously considered,” recalculate if it supports a change, and answer with Letter 2738 (full abatement), Letter 5984 (allowed in part) or Letter 5983 (disallowed), each of the last two carrying Appeals rights. Paying and filing a claim for refund is the alternative. IRM 25.21.4.21.2 also states flatly: “Reasonable Cause is not applicable to ESRP.”
What the IRS does next
A response to the 5040-J is worked under the same rules as a response to the 226-J (IRM 25.21.4.14.1). Agreement produces Letter 227-J and assessment. A disagreement with support produces a recomputation and Letter 227-K, 227-L or 227-M; IRM 25.21.4.14.3.1 adds that “Examiners will not request additional supporting documentation,” so the written response has to be complete on its own. No response produces an assessment on MFT 43 and the CP220J.
After CP220J, the account is an ordinary assessed liability. The CP220J page: “ESRP payments, if assessed, are subject to lien/levy and will be collected in the same manner as other assessments,” and “Interest will be charged on any outstanding balance until the amount is paid in full.” Collection notices, a possible lien and levy notices with CDP rights follow; see the collection process. IRC 4980H(d)(3) also directs the IRS to provide for repayment when an employee's premium tax credit that drove the assessment is later disallowed.
Related notices
- Letter 226-J: the proposed ESRP, the first letter in the sequence.
- CP215: civil penalty assessed, the closest analog for information return penalties on Forms 1094-C and 1095-C.
- LT11 and Letter 1058: the final levy notice that can follow an unpaid CP220J.
Questions practitioners ask
Is 15 days really all the time the client has after a 5040-J?
That is what IRM 25.21.4.14.1 provides. For proposals in tax years beginning after December 23, 2024, IRC 4980H(d)(4) requires the IRS to allow at least 90 days from the first proposal letter before taking further action; raise it with the examiner if the 5040-J or assessment comes sooner.
Can the ESRP be contested in Tax Court?
No. IRC 4980H(d)(1) makes it an assessable payment collected like an assessable penalty, with no deficiency procedures. The pre-assessment Appeals conference through the Letter 227 is the administrative route; after payment, a refund claim and suit.
The CP220J is the first letter the client ever saw. What happened?
The 226-J and 5040-J went to the address on the Form 1094-C and were not answered, so the proposed amount was assessed. Confirm the address of record, get a 2848 covering Forms 1094-C and 1095-C on file, and send a request for reconsideration with the information the examiner never saw; IRM 25.21.4.21.2 provides for it, with Appeals rights if the request is denied in whole or part.
What is the statute of limitations on an ESRP assessment?
For Forms 1094-C due after December 31, 2024, IRC 6501(n) sets six years from the due date or filing date of the Form 1094-C for the year. Earlier years have no specific limitation period in the Code.