How Will IRS and Taxpayers Deal with the Administration’s Newfound View that the Entire ACA Is Unconstitutional?

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Today we welcome back guest poster Tom Greenaway. Tom is a principal in KPMG’s Tax Controversy Services practice. Tom raises a question about a potential collateral consequence of the Administration’s new litigating position in the ongoing Affordable Care Act litigation. For background on the case and additional implications, I recommend Katie Keith’s Health Affairs blog post. Christine

Last week the Department of Justice signaled that the United States now thinks that the entire Affordable Care Act (Obamacare) is unconstitutional, in a filing in the Texas v. United States case. Eventually that position will be tested and decided by the appellate courts–again–but in the meantime, what will federal agencies like the IRS do?

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For instance, the 3.8 percent tax on net investment income was added to the Internal Revenue Code by the ACA. It generates about $20 billion in revenue each year. Will IRS put out guidance saying that taxpayers don’t need to pay that tax anymore? Doubtful.

Generally, both practitioners and the IRS dismiss, as frivolous, arguments that the federal tax laws are unconstitutional.

Nevertheless, some taxpayers may take the view that if both a district court and DOJ think the entire ACA is unconstitutional, there must be at least a reasonable basis, if not substantial authority, for that position. If so, taxpayers who decline to pay net investment income tax this filing season may avoid penalties in the event that they (and the administration) are proven wrong on the constitutional question.

Does it seem fair for the IRS to impose accuracy-related penalties on taxpayers who take the exact same position on an issue as DOJ?

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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.

©2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Comments

  1. Norman Diamond says

    I see, “substantial authority” is here:
    https://www.law.cornell.edu/cfr/text/26/1.6662-4

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