If your business recently received IRS Letter 5698, your first instinct might be to panic or assume you are facing an immediate tax penalty. Take a deep breath. Letter 5698 is not a penalty notice on its own. Instead, it is an official warning, a final yellow light from the Internal Revenue Service regarding your Affordable Care Act (ACA) information reporting.
For Applicable Large Employers (ALEs), generally businesses with 50 or more full-time employees, including full-time equivalents, navigating ACA compliance under Internal Revenue Code Sections 6056 and 4980H is complex. When Forms 1094-C and 1095-C are missing, late, or flagged for discrepancies, the IRS initiates an outreach sequence. Letter 5698 is a critical juncture in that process.
At Total Benefit Solutions Inc, we specialize in helping businesses and individuals untangle complex regulatory requirements, government programs, and administrative hurdles. Below, we break down exactly what IRS Letter 5698 means, why it matters to your organization, how the situation escalates if left unaddressed, and what steps you must take right now.
What Is IRS Letter 5698?
IRS Letter 5698 is formally titled or classified as a follow-up notice regarding missing or unverified ACA information returns (Forms 1094-C and 1095-C).
Most employers who receive Letter 5698 have already missed an earlier communication, most notably Letter 5699, which is the IRS's initial inquiry asking whether your company was an ALE and why required filings were not found in their database. When Letter 5699 goes unanswered, the IRS escalates to Letter 5698 to give you one final window to respond before formal enforcement actions begin.
Common triggers for receiving Letter 5698 include:
- Failure to File: The IRS believes you met the ALE threshold for a specific tax year, but no corresponding Forms 1094-C or 1095-C are present in their system.
- Ignored Prior Notices: Your payroll or HR department received Letter 5699 months ago and failed to submit a response within the standard 30-day window.
- Filing Discrepancies: Forms were filed under an incorrect Employer Identification Number (EIN), or the data submitted contained severe formatting or employee classification errors.
Why IRS Letter 5698 Matters
While Letter 5698 does not assess a monetary fine on its own, ignoring it essentially invites the IRS to draw its own conclusions. Under federal rules, the IRS uses your Form 1094-C and 1095-C submissions to enforce both information reporting mandates and Employer Shared Responsibility Payments (the employer mandate).
If you do not reply to Letter 5698, the IRS assumes non-compliance. This assumption opens the door to steep information return penalties for failing to file and failing to furnish required statements to employees. For mid-sized and growing businesses, these per-form penalties can accumulate rapidly, translating into tens or even hundreds of thousands of dollars in proposed liabilities.
The Escalation Stages: From Warning to Enforcement
Understanding how the IRS compliance process unfolds helps contextualize why immediate action is necessary. The escalation path typically follows four distinct stages:
| Stage | What It Means | Possible Impact |
|---|---|---|
| Letter 5698 Notice | The IRS requests confirmation, missing records, or clarification regarding your Forms 1094-C and 1095-C. | Your critical window of opportunity to correct records or explain filing circumstances without penalty. |
| No Response / Silence | The 30-day deadline passes without acknowledgment, explanation, or corrected filings from your team. | The IRS continues enforcement based solely on available government records (such as Form W-2 counts); risk of penalties increases sharply. |
| Formal Penalty Notice | The case is assigned to an examiner who issues a formal notice (such as Letter 5005-A) proposing specific penalties. | Your business must formally dispute, pay, or request penalty relief under "reasonable cause" provisions. |
| Unresolved Balance & Collections | Penalties are assessed, billed, and remain unpaid or unchallenged. | Interest accrues, added late-payment penalties compound, and formal collection pressure intensifies. |
Actionable Steps: How Employers Should Respond Immediately
If Letter 5698 landed on your desk this week, do not set it aside. Time is of the essence. Follow these essential steps to protect your organization:
1. Review the Notice and Deadlines Carefully
Examine the specific tax year in question and note the strict response deadline printed on the letter (typically 30 days from the notice date). Verify whether your business was an ALE (50+ full-time employees including equivalents) during that specific calendar year.
2. Audit Your ACA Filing Records
Pull your internal records or check with your payroll vendor, third-party administrator (TPA), or tax accountant. Determine whether:
- Forms 1094-C and 1095-C were actually prepared and transmitted.
- Employee copies (Form 1095-C) were properly furnished.
- Filings were submitted under the correct legal entity and EIN.
3. Choose the Appropriate Response Category
Depending on your actual situation, your response to the IRS must clearly indicate one of the following scenarios:
- Already Filed: Provide proof of transmission, acceptance confirmation numbers, filing date, and the correct EIN.
- Late Filing: Commit to submitting the missing forms immediately (often within 90 days) and provide a concise explanation for the delay.
- Not an ALE: Submit documentation (such as historical W-2 summaries or payroll records) proving your employee count fell below the threshold for that year.
- Correcting Errors: Prepare and file amended forms immediately, explaining the nature of the corrections.
Turn to Expert Advocacy When You Need It Most
Navigating IRS correspondence, employee benefit compliance, and federal mandates can feel overwhelming, especially when your core focus is running your business. You don't have to face bureaucratic hurdles alone.
At Total Benefit Solutions Inc, we stand beside our clients as dedicated advocates. Whether you need guidance on employee benefits, ACA compliance, or personalized consulting, we are committed to never accepting "no" as an answer when fighting for your rights and organizational well-being. Visit us at www.totalbenefits.net to learn how we can support your business today.
Contact Us
Don't let IRS notices disrupt your business operations. Reach out to our expert team for personalized advocacy and consulting:
- Website: www.totalbenefits.net
- Phone: Contact our office directly for professional health insurance and compliance advocacy.
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