Supreme Court decision on Affordable Care Act cuts possibility of tax refunds

The U.S. Supreme Court recently determined that the plaintiffs in California v. Texas lacked standing necessary to challenge the constitutionality of certain provisions of the Affordable Care Act (ACA). The Court’s decision means that all provisions of the ACA remain constitutional. Taxpayers that filed protective claims on the possibility that all or part of the ACA would be deemed unconstitutional should not expect tax refunds from such claims. 

Background

When the ACA was signed into law in 2010, one provision required many taxpayers to obtain a certain minimum health coverage, or otherwise face a monetary penalty (the “individual mandate”). In 2017, the Tax Cuts and Jobs Act (TCJA) effectively removed that penalty. Over a dozen states, as well as two individuals, sued federal officials, stating that requiring individuals to obtain a minimum health coverage without imposing a monetary penalty was unconstitutional. In March 2020, the Supreme Court agreed to hear the case. 

On June 17, 2021, the Supreme Court decided that the plaintiffs lacked standing and therefore would not rule on the constitutionality of the ACA nor on the individual mandate therein. Generally, standing is a legal requirement for parties to a lawsuit. It might generally be thought of as a party’s “legal interest” in the case for which the suit is brought. The Court’s decision means that the ACA and provisions therein remain constitutional. 

What does CohnReznick think?

Certain taxpayers filed protective claims for refund on the possibility that the Supreme Court would rule all or part of the ACA unconstitutional. These protective claims were generally made for taxes paid under certain tax provisions of the ACA during the 2016-2018 tax years. Tax provisions enacted under the ACA include the Net Investment Income Tax (NIIT), Medicare tax, and others. 

Because the tax provisions of the ACA remain valid after the Court’s decision, taxpayers should not expect refunds related to protective claims made for taxes paid under these provisions. Please consult your tax advisor to determine how this may impact you or your business. 

Contact

Patrick Duffany, JD, CPA, Managing Partner, Tax

959.200.7270

Brian Newman, CPA, Partner, Practice Leader, Federal Tax Services

959.200.7009

Dan Wise, CPA, Director, Tax Risk, National Tax Services

973.403.7964

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Brian Newman

Brian Newman

CPA, Partner, Practice Leader, Federal Tax Services
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Patrick Duffany

CPA, JD, Managing Partner - Tax

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Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.