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Jones Day Seeks Expedited Appeal before Supreme Court on Obamacare Subsidies Issue. (Parker Tax Publishing August 26, 2014)

Attorneys for the losing party in King v. Burwell have petitioned the Supreme Court for an expedited review of whether the IRS can issue regulations extending tax-credit subsidies to coverage purchased through federally run insurance Exchanges (King v. Burwell Supreme Court Petition).

Last month, two appellate courts reached opposite conclusions on the legality of health insurance subsidies in states with federally run insurance Exchanges. The issue before the courts involved Code Sec. 36B, which was enacted as part of the Patient Protection and Affordable Care Act (ACA). That provision authorizes federal tax credit subsidies for health insurance coverage that is purchased through an "Exchange established by the State under section 1311" of the ACA. Regulations under Code Sec. 36B say that the provision also applies to insurance purchased on federal Exchanges.

The D.C. Circuit Court, in Halbig v. Burwell, 2014 PTC 363 (D.C. Cir. 7/22/14), held that the ACA unambiguously restricts the insurance subsidy to insurance purchased on state Exchanges. Since only 16 states plus the District of Columbia have elected to set up their own Exchanges, with the rest using federal Exchanges, the decision has the potential to severely undermine the effectiveness of the ACA. Hours later, the Fourth Circuit, in King v. Burwell, 2014 PTC 364 (4th Cir. 7/22/14), held that, because the statutory language of Code Sec. 36B is ambiguous and subject to multiple interpretations, deference should be given to the IRS guidance under Code Sec. 36B as a permissible exercise of the agency's discretion. Both decisions came down along party lines. The D.C. Circuit opinion was approved by a 2-1 vote, with the dissenting vote cast by the lone Democrat. The Fourth Circuit opinion was approved 3-0, with all judges having been appointed by a Democratic President.

Commentators wondered what was next. Often, when circuit courts rule differently on an issue, that issue winds up before the Supreme Court. While the Supreme Court upheld the legality of the ACA in 2013, it's doubtful the Administration wants to take their chances with the Supreme Court again. Instead, the Administration said it would appeal the D.C. Circuit court's decision to the entire panel of judges sitting on the D.C. Circuit bench, by asking for an en banc review. Since more than a majority of the judges were appointed by Democratic presidents, it is assumed by many that the decision will be reversed; thus, no circuit split.

However, there's another option. The losing party in the Fourth Circuit decision can petition the Supreme Court to hear an expedited appeal. And that's exactly what Michael Carvin of Jones Day has done. Carvin, who represented David King and others in their challenge to the IRS guidance under Code Sec. 36B, filed a 43-page Petition for a Writ of Certiorari with the Supreme Court. The petition presents the court with the following question: Can the IRS issue regulations to extend tax-credit subsidies to coverage purchased through Exchanges established by the federal government under Section 1321 of the ACA?

According to the Carvin, the reasons for granting the petition are simple and compelling. Two federal Circuits have divided over whether the IRS has authority to spend tens of billions of dollars per year to subsidize health coverage in 36 states. According to the petition, if the ACA means what it says, as the D.C. Circuit held, the consequences are profound: It means millions of people are ineligible for subsidies and exempt from the ACA's individual mandate penalty. It means hundreds of thousands of employers are free of the Act's employer mandate. It means a fundamental change in the health insurance market in two-thirds of the country. And it means that the IRS is illegally spending billions of taxpayer dollars every month without congressional authority. Uncertainty over this issue, the petition states, is simply not tenable. Thus, the petition urges the Supreme Court to grant an expedited review of the case now and resolve the matter in its current term, regardless of whether the D.C. Circuit grants en banc review of Halbig. (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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