In February 2018, Texas and 19 other states brought a lawsuit against the federal government regarding the constitutionality of the Affordable Care Act (“Obamacare”). After a District Court ruled that the entire Obamacare program was unconstitutional, California and 20 other states appealed. The Fifth Circuit Court of Appeals subsequently ruled that parts of Obamacare may be unconstitutional, but not the entire program. Now the Supreme Court has agreed to hear the case (California v. Texas); however, a ruling is unlikely to be issued until late-2020 or early-2021. If Obamacare is determined to be unconstitutional, then it will potentially impact the following two taxes, which were used to fund Obamacare:
- 3.8% Net Investment Income Tax (NIIT)
- 0.9% Additional Medicare Tax
It is possible, although unlikely, that the court will determine that the above taxes should not have been collected. If this happens, taxpayers will need to file amended returns to claim their refunds. However, the statute of limitations for filing an amended return claiming a refund is generally three years from due date of the original return. This means that a return for tax year 2016, which was due by April 15, 2017, would need to be amended by April 15, 2020 (which has now been extended to July 15, 2020). However, because the case is still pending, refund claims cannot be made by the July 15 deadline. Instead, in order to “pause” the statute of limitations before it expires, the taxpayer will need to file a “protective claim for refund” by July 15, 2020. This filing is not obligatory but keeps the option open for later filing an amended return, should the court rule that these taxes can be refunded.
If you decide that you would like to file a protective claim, you will need to complete, sign, and date the attached one-page template and mail it to the IRS, postmarked on or before July 15, 2020. You should mail it using Certified Mail in order to keep a record of your mailing date. The attached address chart shows which IRS address to use. For example, if you live in Washington, then you should mail your protective claim to:
Department of the Treasury
Internal Revenue Service
Fresno, CA 93888-0422
If you decide to file a protective claim, then be sure to keep copies of both the protective claim and the certified mail receipt for your records.
Please let us know if you have any questions.