June 30, 2026
Employers across the country routinely receive a Letter 226-J from the IRS proposing an Employer Shared Responsibility Payment, often running well into six or seven figures, for a tax year that may be several years in the past. Each of these letters contains a single sentence that the IRS treats as the foundation of the entire assessment. It reads that “this letter certifies, under Section 1411 of the Affordable Care Act, that for at least one month in the year, one or more of your full-time employees was enrolled in a qualified health plan for which a PTC was allowed.” That sentence is boilerplate, identical from one Letter 226-J to the next. It is also legally insufficient. A Letter 226-J is not, and cannot be, the Section 1411 certification that Congress made a precondition to any penalty under Internal Revenue Code section 4980H.
The argument is not new. I have written about it before, and so have others. What has changed is that a federal court has now agreed with it, and the Supreme Court has removed the last interpretive crutch the government relied on to defend its position. In Faulk Company, Inc. v. Becerra, the United States District Court for the Northern District of Texas held that the IRS cannot manufacture the Section 1411 certification through a Letter 226-J, that HHS cannot delegate its certification duty to the IRS, and that the regulation purporting to authorize that delegation is void and unenforceable. And in Loper Bright Enterprises v. Raimondo, the Supreme Court overruled Chevron, stripping the government of any claim to deference on the very question at the center of this dispute. Read together, these two decisions make the case against a Letter 226-J standing in for a Section 1411 notice close to airtight.
This article lays out the statutory framework, explains in detail why a Letter 226-J is not a Section 1411 notice, walks through the Faulk decision, and shows how Loper Bright independently dooms the government’s reading of the statute. It closes with what an employer holding a Letter 226-J should do now.
The Statutory Framework
There are two penalties under IRC section 4980H. The first is assessed against an applicable large employer that fails to offer minimum essential coverage to at least 95 percent of its full-time employees. The statute provides:
(a) Large employers not offering health coverage. If (1) any applicable large employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for any month, and (2) at least one full-time employee of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee, then there is hereby imposed on the employer an assessable payment.
The second penalty is assessed against an employer that offers coverage but that coverage either fails to provide minimum value or is not affordable. It carries the same conjunctive structure:
(b)(1) If (A) an applicable large employer offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage … for any month, and (B) 1 or more full-time employees of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan … then there is hereby imposed on the employer an assessable payment.
See IRC section 4980H. The italicized “and” in each provision is the whole game. Both penalties require two separate things before the Department of the Treasury has the power to assess anything. The employer must have a coverage failure, and the employer must have been certified to the employer under section 1411 with respect to a relevant employee. The statute does not treat the certification as a formality. It treats it as a precondition. No certification, no penalty.
Section 1411 of the ACA, codified at 42 U.S.C. section 18081, supplies the content of that certification. Once an Exchange determines that an individual is eligible for a premium tax credit or cost-sharing reduction because an employer either did not offer coverage or offered coverage that was unaffordable, the statute directs the Exchange to notify the employer:
(iii) Employer Affordability. If the Secretary notifies an Exchange that an enrollee is eligible for a premium tax credit … or cost-sharing reduction … because the enrollee’s (or related individual’s) employer does not provide minimum essential coverage through an employer-sponsored plan or that the employer does provide that coverage but it is not affordable coverage, the Exchange shall notify the employer of such fact and that the employer may be liable for the payment assessed under section 4980H of title 26.
See PPACA section 1411(e)(4)(B)(iii). The statute names a single actor with the duty to notify the employer, and that actor is the Exchange. It does not name the IRS.
Why a Letter 226-J Is Not and Cannot Be a Section 1411 Notice
The IRS asserts that the Letter 226-J itself, presumably through the accompanying Form 14765, satisfies the Section 1411 certification requirement. A close reading of the statute, the regulations, and the government’s own explanatory writings shows that it does not. There are at least four independent reasons a Letter 226-J falls short of a Section 1411 notice, and any one of them is fatal.
First, the certification has to come from the Exchange. Section 1411(e)(4)(B)(iii) says that the Exchange “shall notify the employer.” A Letter 226-J comes from the IRS. The IRS is not an Exchange, and Congress did not give the IRS the authority to make the determination that drives the notice. That determination, whether an individual qualified for a premium tax credit and whether the employer’s coverage was offered, adequate, and affordable, is an Exchange function under Section 1411. The IRS’s after-the-fact review of Forms 1094-C and 1095-C is a different exercise performed by a different agency under a different statute. Calling the result a Section 1411 certification does not make it one.
Second, a Section 1411 notice carries a separate appeals process that a Letter 226-J does not provide. Section 1411 requires HHS to establish a distinct appeals track for employers who receive the notice. The statute provides:
(2) Employer Liability. (A) In General. The Secretary shall establish a separate appeals process for employers who are notified … that the employer may be liable for a tax imposed by section 4980H … Such process shall provide an employer the opportunity to (i) present information to the Exchange for review of the determination … and (ii) have access to the data used to make the determination … Such process shall be in addition to any rights of appeal the employer may have under subtitle F of such Code.
See PPACA section 1411(f)(2). The phrase “in addition to” is decisive. Congress built two appeal rights, not one. The first is an Exchange-level appeal of the eligibility determination, available before the IRS ever proposes a penalty. The second is the ordinary subtitle F appeal of the assessment itself. A Letter 226-J offers only the second. It collapses a two-track structure into a single IRS proceeding and erases the Exchange-level appeal that Congress guaranteed. The follow-up letters the IRS sends drive the point home. Where the proposed payment exceeds $25,000, the IRS instructs the employer that its only route to an appeals officer is a formal written protest under subtitle F. The earlier, less adversarial Exchange review that Section 1411 promised never happened, because the Exchange never sent the notice.
Third, a Section 1411 notice was supposed to be timely. HHS regulations require the Exchange to notify the employer “within a reasonable timeframe” following the eligibility determination. See 45 C.F.R. section 155.310(h). The timing is not a technicality. A prompt notice lets the employer correct or improve its offer of coverage going forward, and it lets an employee who was wrongly found eligible avoid having to repay a credit. See IRC section 36B(f). A Letter 226-J that arrives years after the tax year, which is the norm, cannot perform either function. It is common for an assessment covering a single tax year not to reach the employer until two or more years later, long after anything about that year could have been fixed. A notice that comes too late to do what the statute designed it to do is not the notice the statute requires.
Fourth, the Section 1411 notice obligation does not track the universe of Letter 226-J recipients. HHS made clear in the preamble to its 2012 final rule that the duty to send the Section 1411 notice applies to every employer of an eligible individual, regardless of the employer’s size:
While we recognize that the employer responsibility provisions of section 4980H of the Code apply only to employers with 50 or more full-time equivalent employees, section 1411(e)(4)(B)(iii) of the Affordable Care Act imposes the obligation to provide the notice regardless of the size of the employer.
See 77 Fed. Reg. 18310, 18356 (Mar. 27, 2012). A Letter 226-J only ever goes to an applicable large employer, because only an applicable large employer can owe a section 4980H penalty. The Section 1411 notice, by contrast, was meant to reach small employers too. Two instruments with different addressees and different purposes cannot be the same instrument.
The most striking concession is the government’s own. When HHS added the regulation the IRS now leans on, the one stating that the IRS would “adopt methods to certify” employer liability, see 45 C.F.R. section 155.310(i), HHS said in the same breath that this IRS method “would be distinct from the notice to employers required by section 1411(e)(4)(B)(iii) of the Affordable Care Act and paragraph (h) of § 155.310.” See 78 Fed. Reg. 42160, 42250 (July 15, 2013). The government has therefore admitted, in the Federal Register, that the IRS certification method is a separate thing from the Section 1411 notice. The IRS cannot now insist that the two are one and the same when its own rulemaking said otherwise.
The IRS Changed Its Position Without the Authority to Do So
The first open break from the statute came in 2015. That year CMS released an FAQ stating that “the IRS will independently determine any liability for the employer shared responsibility payment without regard to whether the Marketplace issued a notice or the employer engaged in any appeals process.” See CMS Employer Notice FAQ (Sept. 18, 2015). The same FAQ acknowledged that the federally run Exchanges would send Section 1411 notices only to a narrow subset of employers, and that the process would be improved in later years. The process was never meaningfully improved.
Whatever the practical difficulties, an agency cannot rewrite a statute by FAQ. The conjunctive text of section 4980H and the Exchange-notice command of Section 1411 are products of legislation. Changing them requires Congress to act and the President to sign, not a CMS bulletin announcing that the IRS will proceed “without regard” to a precondition the statute makes mandatory. Employers were given no such grace. They were required to master a complex new reporting regime and to satisfy every statutory requirement to avoid penalties. The government cannot demand full compliance from employers while exempting itself from a protection the same statute wrote in their favor.
Faulk Company v. Becerra: A Court Says the Statute Means What It Says
On April 10, 2025, the United States District Court for the Northern District of Texas decided Faulk Company, Inc. v. Becerra, No. 4:24-cv-00609-P. Faulk, a janitorial services company, stopped offering coverage in 2019. In December 2021 the IRS sent Faulk a Letter 226-J proposing an Employer Shared Responsibility Payment of $205,621.71 for 2019, with the same boilerplate certification language that appears in every Letter 226-J. Faulk paid under protest, was denied a refund, and sued HHS and the IRS, arguing that no penalty could be assessed because HHS never issued the Section 1411 certification the statute requires.
The court agreed. It held that the phrase “certified to the employer under section 1411” in section 4980H refers to the two notices that Section 1411 guarantees an employer, namely notice of potential liability and notice of the right to appeal, and that those notices must come from HHS through the Exchange before the IRS may assess a penalty. The IRS’s Letter 226-J could not serve as that certification. The court further held that nothing in the ACA authorized HHS to delegate its certification duty to the IRS, and it struck down the delegation regulation, 45 C.F.R. section 155.310(i), as “void and unenforceable”. Because the IRS had relied on improperly delegated authority, the assessment could not stand, and the court ordered the IRS to refund Faulk the full $205,621.71. See Faulk Co. v. Becerra, Memorandum Opinion and Order (N.D. Tex. Apr. 10, 2025).
Two features of the opinion matter for every employer holding a Letter 226-J. The court reached its conclusion by reading the statutory text directly and choosing the best interpretation, not by deferring to the agencies. And while the court granted relief only to Faulk and did not enter a nationwide injunction, its reasoning applies to any assessment built on the same defect. The court itself recognized that setting aside the delegation regulation could “inhibit the IRS’s ability to assess the ESRP excise tax until HHS determines the proper way to issue such certification through the Exchange as ACA § 1411 requires.” That is a roadmap. Faulk’s assessment failed because the certification never came from the Exchange. Any assessment built on the same boilerplate Letter 226-J certification shares the same flaw.
Loper Bright Eliminates Any Deference to the Government’s Position
The government’s defense of the Letter 226-J has always rested on agency interpretation rather than statutory text. It depends on the 2013 regulation in which HHS purported to authorize the IRS to “adopt methods to certify” liability, and on the IRS’s own assertion, printed in the Letters 226-J themselves, that those letters are the Section 1411 certification. For years that approach drew whatever strength it had from Chevron deference, under which a court confronting statutory ambiguity would defer to an agency’s reasonable construction of the statutes it administers.
That era is over. On June 28, 2024, the Supreme Court decided Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), and overruled Chevron. The Court held that the Administrative Procedure Act requires a reviewing court to exercise its own independent judgment in deciding whether an agency has acted within its statutory authority. An agency’s reading of a statute may inform that judgment, but only to the extent it has the power to persuade. Statutory ambiguity is no longer a delegation of interpretive power to the agency. The court, not the agency, says what the law is.
Apply that standard here and the government’s position loses its only support. The question whether a Letter 226-J satisfies the Section 1411 certification requirement of section 4980H is a pure question of statutory interpretation. Under Loper Bright, a court must answer it independently, with no thumb on the scale for the IRS. Read that way, the text admits of one answer. Section 4980H conditions any payment on a certification made “under section 1411,” and Section 1411 vests the notice function in the Exchange and pairs it with an Exchange-level appeal that is expressly “in addition to” the employer’s subtitle F rights. Nowhere does Section 1411 mention the IRS, authorize the IRS to certify, or authorize HHS to hand its certification duty to the IRS. An agency cannot create authority that Congress withheld by writing a regulation that assigns that authority to itself or to a sister agency. Only Congress confers delegated power.
The point is reinforced by the government’s own words. As noted above, when HHS promulgated 45 C.F.R. section 155.310(i), it described the IRS certification method as “distinct from” the Section 1411 notice. The regulation the IRS relies on therefore cannot bear the weight the IRS puts on it, and after Loper Bright there is no deference doctrine left to paper over the gap. The Faulk court applied exactly this independent-judgment framework when it held the regulation void and the assessment unauthorized. Any other court reviewing the same question must do the same.
This is why the long-running debate over the Section 1411 notice is now close to academic. The issue used to turn on whether a court would defer to the agencies’ workaround. After Loper Bright, it does not. A final, unreviewable decision of the Supreme Court has removed the deference that was the workaround’s only foundation, and Faulk shows what a faithful, de novo reading of the statute produces.
What Employers Holding a Letter 226-J Should Do
An employer that received a Letter 226-J without first receiving a genuine Section 1411 notice from its Exchange has a strong argument that the proposed assessment rests on a missing precondition. Several practical steps follow.
An employer should respond on time and preserve the argument. A Letter 226-J, and any follow-up Letter 5040-J, carries a hard response deadline. The employer should complete Form 14764, state in a signed statement that it disagrees with the proposed payment, and raise the absence of a valid Section 1411 certification as a ground for the disagreement. If there are other arguments for why the proposed penalty should not be assessed those should also be stated as it may allow for the matter to be resolved in a more prompt manner.
Obviously, the employer should determine whether any Exchange ever sent the employer a Section 1411 notice for the employees listed on the Form 14765, and for which months. In most cases the answer is that no notice was sent, which is the heart of the argument. However, I have seen a few section 1411 notices in my private practice which dates back to 2015.
An employer who previously paid an ESRP penalty should consider a protective refund claims. There is a valid argument that there is no statute of limitations on these claims as the IRS never met the preconditions to penalize an employer. I am currently representing several clients making this argument to recoup the money the IRS improperly collected. None of this is a substitute for tailored legal advice, and an employer should involve counsel familiar with Forms 1094-C and 1095-C and with the Section 1411 framework before responding.
Conclusion
The statute is not ambiguous, and even if it were, ambiguity no longer hands the agencies the answer. Section 4980H allows a penalty only where the employer has been certified under Section 1411, and Section 1411 places that certification with the Exchange, on a timely basis, accompanied by a separate appeals right. A Letter 226-J does none of those things. The IRS’s own rulemaking called its certification method distinct from the Section 1411 notice, Faulk held the delegation regulation void, and Loper Bright took away the deference that was the government’s last line of defense.
Employers are entitled to the protection Congress wrote into the Affordable Care Act. The IRS should stop treating a Letter 226-J as a Section 1411 certification, and employers who have paid penalties without ever receiving a proper Exchange notice should be made whole. If you or a client received a Letter 226-J without the required Section 1411 notice, or paid a section 4980H penalty in any prior year, it is worth a hard look at whether the assessment can stand. Please contact me if you would like to discuss this matter in more detail.
Note from the author - Since 2012, when I was a freshly minted LL.M. graduate still searching for my footing in the employee benefits world, David and Lois Baker opened the pages of BenefitsLink to my writing and gave me an audience I had not yet earned. Over the years that followed, they published piece after piece of mine, including more than a few that waded into the detailed and obscure corners of the Affordable Care Act. Their willingness to trust my work, and to keep trusting it issue after issue, did more for my career than they likely ever realized. As BenefitsLink sends out its final newsletter on June 30, 2026, I want to thank David and Lois for their generosity, their judgment, and their decades of steady service to this community. I intend to keep writing and sharing my work through other channels, but I will always be grateful for the audience BenefitsLink allowed me to reach.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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