Court Calls ACA Reg ‘Void,’ Orders $200K ESRP Refund for Biz

While the IRS can assess penalties under the Affordable Care Act (ACA), it can’t issue the certifications required beforehand, a court has ruled.

Those certifications must come from the Dept. of Health and Human Services (HHS), according to a federal district court in Texas. After all, the ACA assigned the job of certification to HHS and didn’t provide for delegation – despite the fact that HHS finalized a rule in 2013 turning over the task to the IRS.

Here are the details of the April 10, 2025, ruling: Faulk Co. v. Becerra.

ACA Penalty Assessment

Faulk was an applicable large employer under the ACA. As such, it had to offer its full-time employees at least minimum essential coverage (MEC) through one or more of its health insurance plans.

In 2019, it stopped doing that. So, the IRS issued Letter 226-J, notifying Faulk it was potentially liable for an Employer Shared Responsibility Payment (ESRP). The letter also explained how to appeal that ESRP assessment.

After paying the ACA penalty two years later, “under protest,” the employer filed a claim for a refund. However, the IRS didn’t respond.

As its next step, the company sued HHS. Faulk’s argument: Before receiving penalty information from the IRS, it should have received certification from HHS.

The purpose of that certification, according to Sec. 1411 of the ACA? To inform an employer – which has failed to offer MEC for any month – that during the given month at least one full-time employee enrolled in a qualified health plan through the Health Insurance Marketplace and took the premium tax credit.

The court’s ruling impacted Faulk and employers in general:

• First, the court decided Faulk was due a refund for the ESRP assessed for tax year 2019. That refund amount was $205,621.71.
• Second, the court ordered that the 2013 HHS reg — 45 Code of Federal Regulations Sec. 115.310(i) — be set aside as “void and unenforceable.” So, barring a successful appeal by HHS, the court ruling stands.

Mistakes Can Sneak In

Having a health plan that provides MEC is a crucial step for ACA compliance and can be a key part of the benefits you offer employees.

However, sometimes the problem isn’t an employer’s health plan but, rather, a mistake that occurs when preparing the year-end reports required under the ACA.

Indeed, even a simple mistake — such as leaving a box empty or inputting the wrong code — can make it appear that the offer of coverage has lapsed. Then, if even one employee obtains Marketplace coverage and claims the premium tax credit on his or her personal tax return, your company has to deal with the aftermath.

Some good news: Year-end reporting responsibilities are a little lighter than in the past. Employers that meet certain requirements don’t need to send Form 1095-C to employees — same goes for Form 1095-B. However, the forms are still due to the IRS.