Federal Court Upholds IRS Authority on ACA Penalty Certification

A federal court in the Southern District of Florida recently created a split at the trial court level by upholding the IRS' authority to certify ACA penalties. The ACA employer shared responsibility payment (ESRP) can only be applied after an employer has received certification that at least one employee has enrolled in a qualified health plan. In this case, Supreme Linen Services, Inc. v. U.S., the employer sued for a refund of the ESRP, claiming that it had not received certification from the Department of Health and Human Services (HHS) or an exchange. The IRS denied the refund claim on the grounds that its Letter 226-J constituted the required certification. By way of background, The U.S. District Court for the Northern District of Texas, in Faulk Company, Inc. v. Xavier Becerra et al., previously invalidated an ACA employer mandate penalty assessment and the regulations under which the IRS assesses the ESRP. The Florida court disagreed, finding that the IRS has authority to administer the IRC absent an express delegation of authority to another agency--and that the authority had not been delegated here. The court further reasoned that the HHS regulation that the Texas court set aside does not prove that the HHS is responsible for the certification. Thus, the court found that the IRS Letter 226-J was the required certification. For more information on the ESRP notice requirements, visit Tax Facts Online. Read More: Link to Q8875. Note: Q is updated.