How to Respond to IRS Letter 5699 for ACA Non-Filing: A Complete Guide

Introduction: Understanding the Urgency of Your Letter 5699 Response

Receiving IRS Letter 5699 can be an alarming experience for any employer. This notice indicates that the IRS believes your organization failed to file required Affordable Care Act (ACA) information returns—specifically Forms 1095-C and Form 1094-C—for a particular tax year. Understanding how to properly respond to this letter is crucial because your 5699 response directly impacts whether you'll face significant penalties, need to file late returns, or can demonstrate that you actually complied with ACA reporting requirements.

The stakes involved with Letter 5699 are substantial. Under Internal Revenue Code Section 6721, the IRS can assess penalties of up to $310 per return for failure to file information returns (for tax year 2024 filings in 2025), with maximum penalties reaching $3,783,000 per year for large businesses. For an Applicable Large Employer with 500 full-time employees, failing to file Forms 1095-C could potentially result in penalties exceeding $155,000—and that's before considering any Employer Shared Responsibility Payment (ESRP) penalties under Section 4980H that might follow if you truly failed to offer compliant health coverage.

The good news is that many employers who receive Letter 5699 can resolve the matter successfully. Some discover they actually did file but the IRS couldn't match their submission; others realize they need to file late returns (which may qualify for reduced penalties or penalty abatement); and some determine they weren't actually required to file because they didn't meet the Applicable Large Employer threshold. Whatever your situation, taking prompt and appropriate action is essential.

This comprehensive guide explains everything you need to know about responding to IRS Letter 5699, including:

  • What Letter 5699 means: Why you received this notice and what the IRS is requesting
  • Response deadlines: Critical timeframes for responding and filing late returns
  • Step-by-step response process: Exactly what to do based on your specific situation
  • Documentation requirements: What evidence you need to support your response
  • Penalty implications: Understanding potential penalties and how to minimize them
  • Prevention strategies: How to avoid receiving Letter 5699 in the future

What Is IRS Letter 5699?

Understanding the Purpose of Letter 5699

IRS Letter 5699 is an official notice sent to employers who the IRS believes should have filed ACA information returns but either didn't file at all or whose filing couldn't be matched to their Employer Identification Number (EIN). The letter is part of the IRS's compliance enforcement program for the Affordable Care Act's employer mandate provisions. When you receive Letter 5699, the IRS is essentially asking: "We think you were required to file ACA reports, but we don't have a record of receiving them. Please explain or file now."

Letter 5699 differs from other ACA-related IRS notices in important ways:

IRS Letter Purpose When Issued
Letter 5699 ACA information returns appear to be missing When IRS has no record of 1094-C/1095-C filing
Letter 226-J Proposed ESRP penalty assessment When IRS believes you owe Section 4980H penalties
Letter 5005-A Request for additional ACA information When IRS needs clarification on filed returns
Letter 972CG Information return penalty notice When penalties are being assessed for filing failures

Why Did You Receive Letter 5699?

There are several reasons why the IRS might send Letter 5699 to your organization:

1. You Actually Didn't File

The most straightforward reason is that your organization was an Applicable Large Employer (ALE) during the tax year in question but failed to file the required Forms 1095-C and Form 1094-C with the IRS. This could happen due to oversight, confusion about filing requirements, administrative errors, or changes in personnel responsible for ACA compliance.

2. Your Filing Couldn't Be Matched

Sometimes employers actually filed their ACA returns, but the IRS couldn't match the submission to their records. This typically occurs when:

  • The EIN on the filing doesn't match IRS records (transposition errors, wrong EIN used)
  • The business name is significantly different from what the IRS has on file
  • The filing was submitted under a different EIN (controlled group confusion)
  • Technical transmission errors caused the filing to be rejected without the filer's knowledge

3. You Filed Late and the IRS Sent the Letter Before Processing

IRS systems don't always update in real-time. If you filed your ACA returns late, you might receive Letter 5699 because the IRS generated the notice before processing your late submission. In this case, your response simply needs to demonstrate that you did file.

4. The IRS Has Incorrect Information About Your ALE Status

The IRS may have data suggesting your organization met the 50 full-time employee threshold for ALE status when you actually didn't. This can happen when payroll information is misinterpreted or when the IRS uses industry averages to estimate your workforce size.

The Letter 5699 Response Deadline and Timeline

Understanding Your Response Window

When you receive Letter 5699, you have a limited window to respond. The letter will specify a deadline—typically 30 days from the date on the letter—by which you must respond. This deadline is critical because failing to respond can result in the IRS proceeding with penalty assessments based on the assumption that you didn't file.

Here's what happens on the Letter 5699 timeline:

Timeline Event What to Do
Day 0 Letter 5699 dated by IRS Response clock begins
Days 1-7 Letter in transit Clock is running
Days 7-10 You receive the letter Begin immediate review and action
Days 10-25 Gather documentation, determine status Research your filing history and ALE status
Days 25-28 Prepare response or file late returns Compile documentation and draft response
Day 30 Response deadline Submit response to IRS

What If You Need More Time?

If you cannot complete your 5699 response within the deadline, contact the IRS immediately using the phone number provided on the letter. Request an extension in writing and document your conversation. The IRS generally grants reasonable extension requests when you demonstrate good faith effort to comply. However, don't assume an extension will be granted—continue working on your response while awaiting confirmation.

Step-by-Step Guide: How to Respond to IRS Letter 5699

Step 1: Verify Letter Authenticity

Before taking any action, confirm that the Letter 5699 is legitimate. IRS-related scams are common. Verify:

  • The letter comes from an official IRS address
  • Your EIN and business name match your records
  • The tax year referenced is one for which you would have had filing obligations
  • Contact information matches known IRS phone numbers and addresses

Step 2: Determine Your Actual Filing Status

The most important step in preparing your 5699 response is determining what actually happened during the tax year in question. Ask yourself:

Did you file Forms 1094-C and 1095-C for this tax year?

  • Check your ACA filing software or service provider records
  • Review email confirmations from the IRS AIR system
  • Look for acceptance confirmations or rejection notices
  • Contact your third-party administrator or ACA reporting service if applicable

Were you actually an Applicable Large Employer?

  • Did you have 50 or more full-time employees (averaging 30+ hours/week)?
  • Did you calculate full-time equivalent (FTE) employees correctly?
  • Are you part of a controlled group where combined employees exceed 50?
  • Did your employee count fluctuate above and below 50 during the year?

Step 3: Choose Your Response Path

Based on your findings in Step 2, you'll follow one of these response paths:

Path A: You Did File (IRS Can't Find Your Records)

If you actually submitted Forms 1094-C and 1095-C for the tax year in question, your response should:

  1. State clearly that you did file ACA information returns for the specified tax year
  2. Provide the submission date and confirmation number from the IRS AIR system
  3. Include copies of your filed Form 1094-C (transmittal) as proof
  4. Explain any potential reasons for the mismatch (EIN issues, name variations, etc.)
  5. Request that the IRS update their records to reflect your filing

Path B: You Didn't File But Should Have

If you failed to file required ACA returns, your response should:

  1. Acknowledge the filing obligation
  2. File the missing Forms 1094-C and 1095-C immediately through the IRS AIR system
  3. Consider requesting penalty abatement under reasonable cause provisions
  4. Establish procedures to prevent future non-filing

Path C: You Weren't Required to File

If you weren't an Applicable Large Employer for the tax year in question, your response should:

  1. State that your organization was not an ALE during the specified tax year
  2. Provide documentation of your employee count (payroll records, FTE calculations)
  3. Explain your methodology for determining ALE status
  4. Request that the IRS close this matter without further action

Step 4: Gather Supporting Documentation

Regardless of which path you follow, your 5699 response will be stronger with proper documentation:

If You Did File:

  • AIR system confirmation: The receipt ID and acceptance confirmation from your electronic filing
  • Copies of filed forms: Your Form 1094-C transmittal and representative 1095-C forms
  • Filing service records: Documentation from your ACA software provider or third-party filer
  • Transmission records: Any technical documentation showing successful submission

If You Need to File Late:

  • Employee records: Payroll data, hours worked, and full-time status determinations
  • Health coverage records: Plan enrollment information, offer documentation, employee contributions
  • 1095-C coding data: Information needed to complete Lines 14, 15, and 16

If You Weren't an ALE:

  • Payroll records: Monthly employee counts showing fewer than 50 full-time employees
  • FTE calculations: Worksheets showing how you determined full-time equivalent employees
  • Hours tracking: Documentation proving employees worked fewer than 30 hours per week on average

Step 5: Prepare Your Written Response

Your Letter 5699 response should be a formal business letter that clearly addresses the IRS inquiry. Include:

Header Information:

  • Your business name and EIN exactly as shown on the IRS letter
  • The Letter 5699 date and any reference numbers
  • The tax year in question
  • Your business address and contact information

Body of Response:

  • A clear statement of your position (you did file, you're filing now, or you weren't required to file)
  • Specific facts and dates supporting your position
  • Reference to enclosed documentation (list each attachment)
  • Any request for penalty abatement if applicable

Closing:

  • Request for written confirmation of receipt and resolution
  • Contact information for follow-up questions
  • Signature of an authorized company representative

Step 6: Submit Your Response

Send your 5699 response via certified mail with return receipt requested. This provides proof of delivery, which is crucial for demonstrating timely compliance. Keep copies of everything you send, including the certified mail receipt and tracking information.

Filing Late ACA Returns After Receiving Letter 5699

The Late Filing Process

If you determine that you should have filed ACA information returns but didn't, you need to file the missing forms as quickly as possible. Late filing won't eliminate penalties entirely, but it can significantly reduce them and prevent additional compliance issues.

Steps to File Late:

  1. Gather employee and coverage data: Compile all information needed to complete Forms 1095-C for each full-time employee during the tax year
  2. Prepare Form 1094-C: Complete the transmittal form with aggregate employee counts and coverage offer percentages
  3. Use ACA filing software: Platforms like BoomTax can help ensure accurate form completion and electronic submission
  4. Submit electronically: File through the IRS AIR (ACA Information Returns) system—paper filing is not accepted for late submissions
  5. Distribute employee copies: Provide Forms 1095-C to employees as required

Reduced Penalties for Late Filing

The IRS applies reduced penalties when you file late but before certain deadlines. For late-filed information returns:

Filing Timeline Penalty Per Return (2024) Maximum Penalty
Filed within 30 days of deadline $60 per return $630,500
Filed after 30 days but by August 1 $120 per return $1,891,500
Filed after August 1 or not at all $310 per return $3,783,000
Intentional disregard $630 per return (minimum) No cap

Small business exception: Businesses with gross receipts of $5 million or less have reduced maximum penalties—$220,500 for 30-day late filings, $630,500 for August 1 late filings, and $1,261,000 for later filings.

Requesting Penalty Abatement for Letter 5699

Reasonable Cause Defense

If you're facing penalties due to late filing or non-filing discovered through Letter 5699, you may be able to request penalty abatement based on "reasonable cause." To succeed with this defense, you must demonstrate that:

  1. You exercised ordinary business care and prudence: You had systems in place for compliance but something unexpected happened
  2. Circumstances beyond your control caused the failure: Death, serious illness, unavoidable absence, or destruction of records
  3. You acted in good faith: You didn't intentionally disregard the filing requirement

Examples of reasonable cause that may support penalty abatement:

  • Death or serious illness of the person responsible for ACA filing
  • Natural disaster, fire, or other casualty that destroyed records
  • Erroneous advice from a tax professional or the IRS
  • First-time penalty with a history of compliance
  • Systems failure at your e-filing provider with documented evidence

First-Time Abatement

The IRS offers first-time penalty abatement (FTA) for taxpayers with a clean compliance history. To qualify, you generally must have:

  • Filed all required returns for the previous three years
  • Paid or arranged to pay any tax due
  • No prior penalties for the same type of violation in the prior three years

First-time abatement doesn't require reasonable cause—it's based purely on your prior compliance record. Include a specific request for FTA in your 5699 response if you believe you qualify.

Common Mistakes When Responding to Letter 5699

Mistake 1: Ignoring the Letter

The worst response to Letter 5699 is no response at all. Ignoring the letter tells the IRS you have no defense, and they will proceed with penalty assessments. Even if you're unsure how to respond, submit something by the deadline and request more time if needed.

Mistake 2: Responding Without Documentation

Simply stating "I did file" or "I wasn't required to file" without proof is insufficient. The IRS needs evidence to update their records or close the inquiry. Always include supporting documentation with your 5699 response.

Mistake 3: Assuming You Weren't an ALE Without Verification

Some employers assume they weren't Applicable Large Employers because they have "fewer than 50 employees." However, the ALE calculation includes full-time equivalents (FTEs) from part-time workers and considers controlled group aggregation rules. Verify your ALE status using proper methodology before claiming you weren't required to file.

Mistake 4: Not Filing Immediately When Required

If you discover you should have filed, don't wait until after responding to Letter 5699 to submit your late returns. File immediately—every day of delay potentially increases penalties and demonstrates less good faith to the IRS.

Mistake 5: Failing to Address All Issues

Letter 5699 may reference multiple tax years. Make sure your response addresses each year mentioned. A response that only covers one year when multiple years are questioned may not fully resolve the matter.

The Connection Between Letter 5699 and Letter 226-J

How These Letters Relate

Letter 5699 and Letter 226-J are related but address different compliance issues. Letter 5699 concerns whether you filed ACA information returns at all, while Letter 226-J proposes Employer Shared Responsibility Payment (ESRP) penalties for failing to offer compliant health coverage.

Here's how they connect:

  • If you receive Letter 5699 because you didn't file, and you file late returns showing inadequate coverage offers, you may subsequently receive Letter 226-J proposing ESRP penalties
  • Non-filing identified through Letter 5699 can trigger IRS review of your ACA coverage compliance, leading to Letter 226-J
  • Resolving Letter 5699 by filing accurate returns helps prevent future Letter 226-J issues by ensuring the IRS has correct data

For employers who receive both notices, addressing Letter 5699 first (by filing or demonstrating you filed) is essential before you can effectively respond to Letter 226-J.

Preventing Future Letter 5699 Notices

Best Practices for ACA Compliance

The best 5699 response is never receiving the letter in the first place. Implement these practices to ensure ongoing ACA compliance:

1. Monitor Your ALE Status Annually

  • Calculate full-time equivalent employees at the end of each year
  • Consider controlled group aggregation rules for related businesses
  • Document your ALE determination methodology

2. Track Full-Time Employee Status Monthly

  • Monitor which employees average 30+ hours per week
  • Use look-back measurement periods appropriately for variable-hour employees
  • Document status changes (new hires, terminations, hours changes)

3. Maintain Complete Coverage Records

  • Document every coverage offer to every full-time employee
  • Track employee responses (enrollment, waivers, declinations)
  • Record employee contribution amounts for affordability calculations

4. Use Reliable Filing Systems

5. Know Your Deadlines

Penalties Associated with Letter 5699

Information Return Penalties (Section 6721/6722)

The primary penalties associated with Letter 5699 are information return penalties under IRC Sections 6721 (failure to file with IRS) and 6722 (failure to furnish to recipients):

Violation Penalty (2024/2025) Notes
Failure to file Form 1095-C with IRS $60-$310 per form Depends on how late; up to $3.78M max
Failure to furnish Form 1095-C to employee $60-$310 per form Separate penalty from failure to file
Failure to file Form 1094-C $310 per transmittal One penalty per EIN
Intentional disregard $630+ per form No maximum cap; plus potential criminal penalties

Potential ESRP Penalties

Beyond information return penalties, failing to file may expose you to Employer Shared Responsibility Payment (ESRP) penalties if you also failed to offer compliant health coverage. For 2025:

  • Section 4980H(a): $2,970 per full-time employee (minus 30) if you failed to offer coverage to at least 95% of full-time employees
  • Section 4980H(b): $4,460 per employee who received premium tax credits because your coverage was unaffordable or didn't provide minimum value

Frequently Asked Questions About IRS Letter 5699

What is IRS Letter 5699?

IRS Letter 5699 is a notice sent to employers who the IRS believes failed to file required Affordable Care Act information returns (Forms 1095-C and Form 1094-C) for a specific tax year. The letter requests that you either file the missing returns, explain why you already filed, or demonstrate why you weren't required to file. It's an inquiry—not yet a penalty assessment—giving you the opportunity to respond before penalties are formally imposed.

How long do I have to respond to Letter 5699?

Letter 5699 typically provides 30 days from the date on the letter to respond. This deadline is calculated from the letter date, not when you receive it. If you need additional time, contact the IRS phone number on the letter immediately to request an extension. Missing the deadline without communication may result in the IRS proceeding with penalty assessments.

What happens if I don't respond to Letter 5699?

Failing to respond to Letter 5699 tells the IRS that you have no defense against the allegation that you didn't file required ACA returns. The IRS will likely proceed with assessing penalties under IRC Sections 6721 and 6722, which can reach $310 per form with annual maximums up to $3.78 million for large employers. Additionally, non-response may trigger further scrutiny of your ACA coverage compliance.

Can I file my ACA returns late after receiving Letter 5699?

Yes, you can and should file late ACA returns as quickly as possible if you determine you were required to file but didn't. Late filing may still incur penalties, but they're typically lower than penalties for not filing at all. File through the IRS AIR system electronically—paper filing isn't accepted for late ACA returns. Include documentation of your late filing with your 5699 response.

What if I already filed but the IRS says they don't have my returns?

If you filed your ACA returns but the IRS can't find them, your 5699 response should include proof of filing: your AIR system receipt ID, acceptance confirmation, copies of filed forms, and any documentation from your filing software or service provider. Explain any potential reasons for the mismatch (EIN errors, name variations, controlled group issues) and request that the IRS update their records.

How do I know if I was an Applicable Large Employer?

You were an Applicable Large Employer (ALE) if you had an average of at least 50 full-time employees (including full-time equivalents) during the preceding calendar year. Full-time employees are those averaging 30+ hours per week. FTEs are calculated by adding the total hours of part-time employees (up to 120 hours each per month) and dividing by 120. Related businesses under common control must combine employee counts.

Can I get penalties waived for Letter 5699?

Yes, you may request penalty abatement based on reasonable cause (circumstances beyond your control, ordinary business care exercised) or first-time abatement (clean compliance history for prior three years). Include your abatement request with your 5699 response and provide documentation supporting your claim. Success depends on your specific circumstances and compliance history.

What's the difference between Letter 5699 and Letter 226-J?

Letter 5699 addresses missing ACA information returns—the IRS believes you didn't file Forms 1095-C and 1094-C. Letter 226-J proposes Employer Shared Responsibility Payment (ESRP) penalties for failing to offer compliant health coverage. You can receive Letter 5699 without 226-J (filing issue only), Letter 226-J without 5699 (you filed but coverage was non-compliant), or both (didn't file AND coverage was inadequate).

Should I get professional help responding to Letter 5699?

Professional assistance is advisable for complex situations: if you're uncertain about your ALE status, have multiple EINs or controlled group issues, face potentially large penalties, or need to reconstruct records from prior years. Tax professionals, benefits attorneys, and ACA compliance specialists can help ensure your response is accurate and complete.

Does Letter 5699 mean I'll also get ESRP penalties?

Not necessarily. Letter 5699 only addresses whether you filed ACA information returns—it doesn't assess ESRP penalties. However, if you didn't file because you also didn't offer compliant health coverage, resolving Letter 5699 by filing late returns may reveal ESRP liability. If your late-filed forms show coverage gaps, you may subsequently receive Letter 226-J proposing ESRP penalties. Filing accurate returns is still better than not filing, as it gives you the opportunity to demonstrate compliance or dispute any proposed penalties.

How can I prevent receiving Letter 5699 in the future?

Prevent future Letter 5699 notices by: monitoring your ALE status annually, using reliable ACA filing software with data validation, meeting all filing deadlines, verifying electronic filing acceptance, keeping copies of filed returns and confirmation receipts, and maintaining comprehensive employee and coverage records throughout the year.

What if Letter 5699 references multiple tax years?

If your Letter 5699 references multiple tax years, your response must address each year separately. Determine your filing status and ALE status for each year mentioned. You may have filed for some years but not others, or your ALE status may have changed between years. Provide documentation for each tax year and clearly organize your response by year to avoid confusion.

How BoomTax Helps You Respond to Letter 5699

When you need to prepare a 5699 response, having accurate records and reliable ACA filing capabilities makes all the difference. BoomTax provides comprehensive ACA compliance solutions that help you both resolve current issues and prevent future notices:

  • Late filing support: File Forms 1095-C and 1094-C electronically through BoomTax, even for prior tax years, with comprehensive data validation that ensures accurate submissions
  • Historical data access: If you've used BoomTax previously, access your filing history and confirmation receipts to prove you complied
  • Code guidance: Built-in assistance for Line 14, 15, and 16 codes ensures your late-filed forms accurately reflect coverage offers and safe harbor provisions
  • Unlimited corrections: File corrected forms at no additional cost if you need to amend previously filed returns
  • Bulk data import: Import employee data from payroll systems to streamline late filing for multiple employees
  • State filing support: Handle state ACA filing requirements for California, New Jersey, Rhode Island, D.C., and Massachusetts alongside federal filings
  • Compliance monitoring: Track deadlines and receive reminders to prevent future missed filings

For employers who prefer hands-off compliance, BoomTax also offers full-service ACA reporting where our team handles the entire process—from data collection to filing to employee distribution.

Facing Letter 5699 or want to ensure you never do? Get started with BoomTax today and file your ACA forms with confidence.

Conclusion: Taking Action on Your Letter 5699 Response

Receiving IRS Letter 5699 is serious, but it's also manageable when you understand what the letter means and take appropriate action. The key to a successful 5699 response is prompt attention, thorough documentation, and clear communication with the IRS about your actual filing status and ALE obligations.

Key takeaways for responding to Letter 5699:

  • Don't ignore the letter: Respond within the 30-day deadline or request an extension immediately
  • Determine your actual status: Verify whether you filed, should have filed, or weren't required to file
  • Gather documentation: Support your response with proof of filing, ALE calculations, or employee records
  • File late if necessary: If you should have filed but didn't, submit your returns as quickly as possible
  • Request penalty abatement: If penalties apply, explore reasonable cause or first-time abatement options
  • Keep copies of everything: Maintain records of your response and all supporting documentation
  • Implement prevention measures: Use reliable ACA reporting software and processes to avoid future issues

Whether you need to demonstrate that you already filed, submit late returns, or prove you weren't an Applicable Large Employer, the key is providing clear, documented evidence to support your position. Taking the time to prepare a thorough 5699 response now can save significant penalties and compliance headaches later.

If you're uncertain about your ACA obligations or need assistance filing late returns, consider working with a qualified tax professional or using comprehensive ACA reporting software like BoomTax to ensure accuracy and compliance.

References and Additional Resources

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