Court Vacates HHS Regulation Allowing IRS to Certify Employer Shared Responsibility Penalty Under ACA

May 21, 2025
Hall Benefits Law, LLC

In Faulk Company, Inc. v. Becerra, 2025 WL1085080 (N.D. Tex. 2025), an employer sued the U.S. Department of Health and Human Services (HHS) for failure to offer minimum essential coverage under the Affordable Care Act (ACA). The suit arose after the Internal Revenue Service (IRS) issued a Letter 226-J to the employer, which proposed shared responsibility penalties for this ACA violation.

Before the IRS can propose penalties, the ACA requires the HHS to certify to the employer that one or more full-time employees of the employer were enrolled in a qualified health plan. The HHS issued a regulation delegating this ACA certification requirement to the IRS. As a result, the IRS began issuing Letters 226-J as “certification” to employers before assessing any penalties.

In this case, the employer advised the IRS that it disagreed with the proposed assessment and was paying it under protest. It also filed a refund claim with the IRS. The lack of response to its refund claim resulted in the employer suing HHS, claiming that the agency and the IRS had violated its due process rights by improperly designating the IRS’s Letter 226-J as certification before penalty assessment. The employer argued that it was HHS, not the IRS, that the ACA required to provide the certification and that Letter 226-J lacked notice of potential liability and appeal rights as required by law.

A federal district court agreed with the employer, finding that only HHS, not IRS, can make the certification required by the ACA. Since the HHS did not provide the proper certification to the employer, the court ruled that the employer was entitled to a refund. The court further set aside the HHS regulation that delegated the ACA certification requirement to the IRS as void and unenforceable.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.