TAX ALERT: Potential Protective Refund Claims

The Supreme Court agreed to hear the case of California v. Texas (known as Texas v. U.S. in the lower courts), which is challenging the constitutionality of certain provisions of the Affordable Care Act ("ACA"). If the court rules that some or all of the ACA is unconstitutional, taxpayers MAY be able to file an amended return, and request a refund of the taxes imposed by the ACA. If the ACA is held to be unconstitutional it is unclear what the effective date would be. Many believe that the effective date would be January 1, 2019, as on that date the shared responsibility payment became zero under the Tax Cuts and Jobs Act. That arguably eliminated the reason the ACA was held to be constitutional in 2012. The financial penalty for not maintaining a minimum level of coverage was held to be a constitutional exercise of Congress' taxing power, since the penalty raised some revenue. The penalty was eliminated as of January 1, 2019. However, it is not certain that this would be the effective date.

July 15, 2020 is the deadline to file protective refund claims for all 2016 individual and trust returns filed on or before July 15, 2017. It is by no means certain that some or all of the ACA will be held unconstitutional, or that if some or all of it is held to be unconstitutional, that a refund for 2016 will be available.

We are currently assessing the potential impact on our clients and will update you as more information becomes available.

Please direct any questions to your Citrin Cooperman advisor. 

Joe Bublé, CPA  Partner & Tax Practice Leader joeb@citrincooperman.com