In Supreme Linen Services, Inc. v. U.S., 2026 WL 1220078 (S.D. Fla. 2026), an employer sued the federal government after the Internal Revenue Service (IRS) assessed an employer shared responsibility penalty against the company. This type of penalty occurs when a large employer fails to offer minimum essential coverage required under the Affordable Care Act (ACA) after receiving certification that at least one of its full-time employees has enrolled in a qualified health plan.
After the IRS assessed the penalty, Supreme Linen sought a refund. The employer argued that the IRS lacked authority to assess the penalty because neither the U.S. Department of Health and Human Services (HHS) nor a health insurance exchange issued a certification before the penalty was assessed.
In response, the IRS denied a refund of the penalty, stating that the IRS Letter 226-J, which assessed the penalty, operated as the required certification. As a result, the employer filed suit based on an earlier federal court ruling that the HHS has exclusive certification authority, not the IRS.
Despite the earlier ruling, the court found that the IRS has the legal authority to issue the certification needed to assess the penalty and to administer the Internal Revenue Code without an express delegation to another agency. Since the Code contains no express delegation of this task, the IRS can issue the certification. Therefore, the court entered judgment in favor of the IRS in denying the refund claim.
Supreme Linen creates a split among the federal district courts as to whether the IRS or the HHS has the legal authority to issue the certification necessary for assessment of an employer shared responsibility penalty. Employers can expect an appellate decision addressing this issue in the future.
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.
