As many of you may recall, in 2016, the Department of Health and Human Services, through the Federal Marketplace, sent out approximately 470,000 notices to employees that one or more of their employees had gone to the Marketplace and received a subsidy. In response, employers were given the option to appeal to the Marketplace’s awarding of the subsidy by providing information that coverage was offered to the employee(s) in question, met the minimum actuarial value, and was affordable. Appeals had to be done within 90 days, and failure to appeal to the Marketplace did not bar the employer from appealing any subsequent IRS determination. The Marketplace appeal was meant to “stop the bleeding,” although it could put the employer at odds with their employee.
The Marketplace appeal process was a failure, to say the least. The letters sent just indicated that a subsidy had been given without providing the months in question. Therefore, if the employee was not eligible for employer benefits for the entire year, it was impossible to appeal partial years of subsidies at the Marketplace. In addition, the Marketplace was not well trained in the appeal process, and it was difficult to get results. The year 2016 was the only year that the Marketplace provided any form of appeal, and employers have not been notified since of employees who enrolled with a subsidy at the Marketplace. The employer is now advised years later only when they get the letter 226J from the IRS. The IRS appeal process must be followed to obtain relief.
Why is this important?
According to section 42 U.S.C. § 18081(f)(2)(A), the Marketplace is required to provide an appeal process, but for the short-lived process in 2016, they have not done so.
Optimal Wireless LLC, which provides wireless services in Texas, New Mexico, Oklahoma, and Louisiana, has challenged the lack of action by the Marketplace. They received 226J letters in 2019 indicating they owed an employer shared responsibility penalty of $395,640.00 for tax year 2016 and $736,286.00 for tax year 2017. Subsequently, Optimal Wireless LLC filed suit in the District Court of Columbia asking for an injunction barring the assessment and collection of the Section 4980H exaction (assessable penalty) due to procedural requirements not met, in part by the Marketplace. The District Court dismissed Optimal Wireless LLC's claim, as did the Appeals Court.
What was the reasoning behind the dismissal?
The case was dismissed on a technicality and not on its merits.
The main issue was the term ‘assessable penalty’ and whether this exaction was indeed a “tax.” This was pivotal because the Anti-Injunction Act provides, with certain exceptions, that“ no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." 26 U.S.C. § 7421(a). In short, an injunction that would limit the IRS’ ability to collect tax cannot be filed. In this case, the District Court and the Appeals Court found that the assessable penalty was indeed a tax, and therefore, the case by Optimal Wireless LLC was dismissed.
However, the court did recognize that while “Optima’s suit falls within the Anti-Injunction Act's jurisdictional bar, we necessarily do not reach the merits of Optima’s challenge to the imposition against it of exactions under Section 4980H. As the government suggests, Optimal may still be able to obtain judicial review of its challenge by bringing a refund suit after it pays any assessed exactions.” In short, Optimal Wireless LLC can pay the penalty and then bring back the suit to be decided on its merits.
Time will tell as to whether, because of this suit, we will once again start to see the Marketplace appeal process come into play. Stay tuned.