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Obamacare Insurance Subsidy Case to be Reheard by Entire D.C. Circuit Court.
(Parker Tax Publishing September 15, 2014)

On December 17, 2014, the entire panel of the D.C. Circuit Court will rehear the case involving the issue of whether Code Sec. 36B authorizes the IRS to provide tax credits for health insurance purchased on federal Exchanges. Halbig v. Burwell, 2014 PTC 456 (D.C. Cir. 9/4/14).

There have been a number of controversies brewing over the Affordable Care Act also known as "Obamacare." One of the biggest is whether the Code Sec. 36B premium assistance credit is available for insurance purchased through federal Exchanges. Code Sec. 36B includes language that could be interpreted as limiting the availability of the premium assistance credit to taxpayers who enroll in qualified health plans on state-established Exchanges. However, the IRS, in final regulations issued in May 2012, interpreted Code Sec. 36B to allow credits for insurance purchased on either a state or a federally established Exchange. The IRS's broader interpretation of "Exchange" has significant implications with respect to the individual mandate.

The individual mandate requires individuals to maintain "minimum essential coverage" and, in general, enforces that requirement with a penalty. However, the penalty does not apply to individuals for whom the annual cost of the cheapest available coverage, less any Code Sec. 36B tax credits, would exceed 8 percent of their projected household income. Thus, by making tax credits available in the states with federal Exchanges, the IRS rule significantly increases the number of people who must purchase health insurance or face a penalty.

This controversy has led to a conflict in the circuits. The conflicting cases involved individuals in states that had not established a state-run Exchange and were facing penalties as a result of failing to buy comprehensive health insurance. In Halbig v. Burwell, 2014 PTC 363 (D.C. Cir. 2014), rev'g 2014 PTC 23 (D. D.C. 2014), the D.C. Circuit held that Code Sec. 36B, by its plain language, does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges; thus, the court vacated the part of the regulations that allows the credit in such cases. In King v. Burwell, 2014 PTC 364 (4th Cir. 2014), aff'g 2014 PTC 88 (E.D. Va. 2014), the Fourth Circuit reached the opposite conclusion and found that the statute is ambiguous and that the IRS's interpretation is a permissible construction of the statutory language. As such, the court was required to defer to the IRS's interpretation.

Both cases were decided by a three-judge panel and the losing party in either case is entitled to seek a review by the entire court a so-called en banc review. Alternatively, they may appeal to the Supreme Court. In July of 2014, the attorneys representing the losing party in the King decision, asked the Supreme Court for an expedited review. The Supreme Court has not indicated a desire to take on the case.

On September 4, 2014, the losing party in the Halbig decision asked that an en banc panel of the D.C. Circuit review the decision and the court agreed. The D.C. Circuit said it would rehear the case on December 17, 2014.

For a discussion of taxpayers eligible for the health plan premium assistance credit, see Parker Tax ¶102,610. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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