• David Woods, EA

Obamacare Fight Redux

Regardless of which side of the fence you fell on the implementation or even the existence of the Patient Protection and Affordable Care Act (commonly known as Obamacare), we thought the fighting long since over after Justice Roberts issued his 5-4 decision in 2012, and definitely thought it dead and buried after Congress repealed the Shared Responsibility Penalty (SRP) with TCJA in 2017.


Well, not so much. Apparently some clever legal minds in the State of Texas believed that the changing of the SRP to $0 with the passage of TCJA effectively changed the nature of that penalty from being a tax, and in so doing, changed its very nature as determined in Justice Roberts's opinion many years ago. As such, the contention was where the mainly contested item in Obamacare is now null and void, the entire law should be null and void and therefore unconstitutional. The US District Court for the Northern District of Texas agreed. The US Department of Justice agreed and did not appeal the decision. However the State of California along with other like minded states as well as the House of Representatives chose to appeal the decision. Near the end of 2019, the Fifth Circuit Court of Appeals generally upheld the decision as being "potentially unconstitutional".


The US Supreme Court has decided to hear the appeal of that decision, is expected to do so later this year and will issue an opinion sometime early next year.


Ok, so now you're probably wondering why I'm bothering to write this to you. Well sometimes court decisions have tax ramifications. For years 2014-2018, a penalty was imposed on individual taxpayers who did not have qualifying health insurance coverage. Pending the final outcome of this litigation, this penalty amount for all years will be null and void. Generally, most taxpayers are only going to be able to claim a refund of this penalty for years 2016-18. The problem you have is two-fold:


1) The litigation isn't final yet, which means IRS isn't going to just write a check for the penalty plus interest simply because you ask them to.

2) For most taxpayers, the statute of limitations to claim a refund for year 2016 is going to expire shortly on July 15, 2020, about six weeks from now. This is a problem even if SCOTUS upholds this result, because it won't happen in that time frame.


The solution is to file a protective claim for refund for each of the years you may have paid a penalty. This preserves your right to the refund if the litigation is successful down the road and puts the IRS on notice of the claim and the reason for it.


If you think you paid a penalty for not having insurance in these years, you need to contact me ASAP so we can get the protective claim done and in the mail before the statute of limitations expires.

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