The Supreme Court and Affordable Care Act Constitutionality - Protecting Your Ability to Recover Prior Year Federal Taxes

The U.S. Supreme Court has agreed to hear a case regarding the constitutionality of the Affordable Care Act (ACA).  Without going into all the details, two of the questions before the Court are whether the Tax Cuts and Jobs Act (TCJA) rendered the ACAs individual mandate unconstitutional and, if yes, whether the rest of the ACA is also unconstitutional.  The case is not expected to be heard until later in 2020, possibly not even until after the election, and a decision by the Court could come as late as June 2021.  The importance of the decision affects not only the workings of the health care system in the U.S. but could impact the liability for certain taxes imposed on many higher income taxpayers.  

As part of the ACA, the Net Investment Income Tax and the Additional Medicare Tax were added to the Internal Revenue Code and affect higher income taxpayers.  If the Supreme Court should rule that the entire ACA is invalid, these two taxes would also be invalid, and taxpayers could be in position to claim a refund of these taxes for tax years still open under the Statute of Limitations.

Unfortunately, there can be no degree of certainty as to how the Supreme Court will decide.  Even if the court finds the ACA unconstitutional, it could only impact returns filed in earlier years if it is declared unconstitutional in periods before the TCJA enactment.  At this time, it appears unlikely that the finding would be retroactive to periods preceding the TCJA and therefore no immediate action would be required. 

However, while waiting for a decision, taxpayers with substantial ACA related tax liabilities may still desire to protect their ability to receive refunds for the above taxes before the statute of limitations closes with respect to open tax years.  This protection is obtained by filing a timely protective refund claim with the Internal Revenue Service. 

The Statute of Limitations for the 2016 tax year will close on July 15, 2020 for taxpayers filing their original 2016 return by April 15, 2017.  For taxpayers filing extended returns, the 2016 statute will generally be open for 3 years from the filing date of their 2016 return.  For 2017 returns, the statutes will not begin to close until 2021 so additional time is still available to make that decision. 

If you would like to discuss this issue and opportunity further, please contact your Schneider Downs tax advisor. 

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

Executive Order Deferring Withholding of Employee Social Security Taxes
Treasury Issues Final FDII Regulations
Ohio Sales Tax Holiday 2020
Use It or Lose It…Maybe: Gift Planning Considerations in an Unpredictable Election Year
Changes to Form 1023, Application for Tax Exemption under Section 501(c)(3)
PA Unemployment Compensation Covid-19 Relief

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

contactsd@schneiderdowns.com
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

contactsd@schneiderdowns.com
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102