Compliance News Week Ending April 18, 2025

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Employer Mandate - Successful Challenge of IRS Collection of §4980H Penalties

An employer that did not offer medical coverage to full-time employees received an IRS Letter 226J proposing an employer shared responsibility payment of approximately $200,000 for 2019. The employer paid the penalty under protest, later requested a refund that was not granted by the IRS, and then filed a claim challenging the IRS' ability to collect such penalty payment.

The employer claimed that the IRS should not have been able to collect the penalty because the employer never received Marketplace certifications notifying the employer of employees who enrolled in subsidized Marketplace coverage. Such a step is technically a required part of the §4980H enforcement process.

A federal court in the Northern District of Texas found in favor of the employer indicating that the failure of the Department of Health & Human Services (HHS) to send Marketplace certifications to the employer did not provide the employer with the required notice and opportunity to appeal, so the IRS penalties were not enforceable.

The employer received a refund.

What will this mean for §4980H offer of coverage requirements and IRS enforcement efforts going forward? It's unclear whether the IRS will be able to enforce §4980H penalties if employers don't first receive Marketplace certifications, but the decision could be appealed to a higher federal court and/or the IRS and HHS could make changes to the current process. This is certainly something to watch, but for now, applicable large employers (50 or more FTEs) should continue to offer minimum value, affordable coverage to full-time employees and their dependent children and report on such offers of coverage using Forms 1094-C and 1095-Cs.

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