Court Ruling Opens Door for Employers to Claim Refunds on ACA Employer Shared Responsibility Payments

Leo Unzeitig, JD, CPA-San Antonio, Chamberlain Hrdlicka

In a significant decision out of the Northern District of Texas, Faulk Company, Inc. v. Becerra, the district court ruled that the IRS lacked authority to assess Employer Shared Responsibility Payments (ESRPs) under the Affordable Care Act (ACA) without first receiving a proper certification from the Department of Health and Human Services (HHS).

Faulk Company had paid over $200,000 in ESRPs for tax year 2019. Faulk challenged the assessment, arguing that the required employer certification under ACA Section 1411 must come from HHS, not the IRS. The court agreed, emphasizing that the ACA places exclusive authority for such certifications with HHS and does not permit delegation of that responsibility to the IRS. As a result, the court ordered the IRS to refund the full ESRP to Faulk and declared the related HHS regulation void and unenforceable.  

What This Means for Employers

This ruling could have broad implications for other employers who paid ESRPs in the past two years based on IRS Letters 226-J. If those assessments were issued without proper certification from HHS (as the court found), the payments may be invalid. The case is likely to be appealed, but there is no telling who will prevail.

What Employers Should Do

Employers that paid ESRPs recently, particularly within the last two years, should consider filing a protective claim for refund with the IRS. A protective claim preserves your right to a refund while legal uncertainties are resolved and can be especially important given the potential appeal or broader application of the Faulk decision. Think of it as saying to the IRS, “Hey, in case the courts keep going in this ‘Faulk was right’ direction, I would like to reserve my spot in line.” It does not mean you will get paid tomorrow. Or next month. Or, you know, before the national debt gets paid off by accident. But it does keep your case alive.

Claims should clearly state that the ESRP assessment was invalid due to lack of certification under ACA Section 1411, as clarified in Faulk Company, Inc. v. Becerra, and include all relevant documentation. You might also want to include the alternative arguments raised by the taxpayer in the Faulk case that the court never reached.