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The Uncertain Future of the IRS and the ACA

Recently, the state of Oklahoma won a lawsuit (Pruitt v. Burwell) against the United States Secretary of Health and Human Services challenging the legality of the IRS’s handling of Affordable Care Act subsidies to be paid out. Oklahoma State Attorney General Scott Pruitt successfully argued that that tax subsidies should not be issued to states such as Oklahoma that did not have a state-based healthcare exchange. Pruitt also was fighting against the employer penalties in those states.

internal revenue serviceThe lawsuit was not contending the legality of the ACA, but rather the IRS’s management of it. According to how the Affordable Care Act is actually worded there should only tax subsidies and tax penalties issued and assessed in states with state-based health care exchanges. Oklahoma’s case is one of four questioning the legality of the IRS’s actions regarding the ACA. Two of these cases have already reached a conclusion. In King vs. Burwell, the court ruled in favor of the defendant. In Halbig vs. Burwell, the court ruled in favor of the plaintiff. However, the D.C. Circuit decided to overturn that verdict. Now, that Pruitt vs. Burwell has reached a verdict, everyone is watching to see what the verdict of Indiana vs. IRS will be. However, this may not be the last dispute with the IRS enforcing ACA rules, since 36 states currently do not have state-based healthcare exchanges.

Meanwhile, the IRS carries on with business as usual. It is currently busy updating all of its paperwork for the 2014 tax return filing season which starts in January of next year. Prominently among those changes are the recent releases of new forms for many taxpayers to fill out in relation to the Affordable Care Act. These include Form 8962 for those looking to benefit from the Premium Tax Credit granted to those who purchased insurance through the Health Insurance Marketplace, as well as Form 8965 for those claiming exempt from the shared responsibility payment which must be paid by those who have no health insurance coverage at all.

Besides the new forms, the IRS Commissioner John Koskinen recently reported IRS progress on many ACA related changes that will influence the 2014 tax return filing season to a congressional subcommittee. Koskinen announced that there will be tools and techniques in place to detect noncompliance with the new ACA rules. The IRS will be able to tell who has signed up with insurance through the Health Insurance Marketplace and who has not. However, the methods the IRS employs will not be made public at this time.

Despite the recent ruling, it is unlikely that the IRS will put a halt to the sweeping changes they are making to integrate ACA credits and penalties into the 2014 tax code. However, Pruitt vs. Burwell may be a sign that there will be enough legal resistance to remove these changes from future tax years.