Newburg Update for 7/15/2020 - Affordable Care Act (ACA) Unconstitutional Ruling - Protective Refund Claim

The Affordable Care Act (ACA) is currently under review by the U.S. Supreme Court for being unconstitutional, as found by the 5th circuit court. The decision might have an impact on some of the taxes created to fund the Act, including:

the 3.8% Net Investment Income Tax (tax on interest, dividends, capital gains, etc.)
the .9% Additional Medicare Tax

Both taxes are imposed on those with AGI over $200,000 for single tax payers and $250,000 for married taxpayers.

If the ruling finds the Act and the associated taxes to be unconstitutional, there might be an opportunity of a refund for these particular taxes which had been paid in prior years. For a non-extended 2016 tax return, a claim for an individual or trust must be filed no later than July 15, 2020. (under Notice 2020-23).

The Supreme Court indicated that it is unlikely to reach a decision prior to late 2020 or early 2021 and as such it is not known if the taxes will be repealed for some time to come.

As such, taxpayers who paid significant Net Investment Income tax or Additional Medicare tax on their 2016 returns might consider filing a Protective Refund Claim for the 2016 tax year. Those 2016 tax returns not put on extension would need to file by July 15, 2020 and those on extension three years from the date of actual filing or 10/15/2020 at the latest.

While we consider the likelihood of a positive ruling that will impact your 2016 filing somewhat remote, the pending decision is uncertain. Taxpayers will need to assess the trade-off of extending the open statute on their 2016 personal return with the potential ACA tax related savings should there be a positive ruling.

For more information regarding the protective claim filing please visit …….. IRS Protective Claim Filing Information