On March 2, 2020, the U.S. Supreme Court agreed to hear a challenge to the constitutionality of the Affordable Care Act (“ACA”) in the matter of California v. Texas (known as Texas v. United States in the lower courts). Oral arguments have not been scheduled yet, but the Court will hear the matter during the October 2020 term and issue an opinion before the end of the term in June 2021.
If the ACA is ruled unconstitutional, then certain ACA-related taxes may also be unconstitutional; specifically, the 0.9% additional Medicare tax, the 3.8% net investment income tax, as well as the shared responsibility payment (i.e., the insurance mandate penalty).
The statute of limitations (“SOL”) to claim a refund of 2016 taxes will soon expire for many taxpayers. Taxpayers that timely filed and paid their 2016 taxes on or before April 15, 2017 have until July 15, 2020 to file a claim for refund (as extended by IRS Notice 2020-23). Taxpayers that filed their 2016 tax returns on extension generally have until 3 years after the date the return was actually filed.
In order to preserve your right to claim a refund for tax year 2016 should the ACA be deemed unconstitutional, you must file a Protective Claim for Refund (“PCR”) on or before the expiration of the SOL. A PCR preserves a taxpayer’s right to claim a refund when the right to such refund may not be established until after the expiration of the SOL (such as when litigation is pending). You may also file a PCR for tax years 2017, 2018, and – if you have already filed and paid your taxes – 2019.
We do not know if the challenge to ACA will be successful. Many legal scholars have opined that it is unlikely. However, while the outcome of the case is unclear, it is certain that you will not be eligible for a refund of these ACA-related taxes if you have not filed a PCR before the expiration of the SOL for the affected year.
If you wish to discuss or pursue a PCR for one or more tax years, please contact us immediately so that we may get underway.
We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this may impact you.