Doctors lack standing to challenge delay of employer mandate

BY SALLY P. SCHREIBER, J.D.

The Seventh Circuit affirmed the dismissal of a suit objecting to the IRS’s decision to delay imposing the Sec. 4980H employer mandate penalty until 2015 ( Association of American Physicians and Surgeons, Inc., No. 14-2123 (7th Cir. 9/19/14), aff’g No. 13-C-1214 (E.D. Wis. 3/18/14)).

Under Sec. 4980H, an applicable large employer is subject to a penalty if its employer-sponsored health coverage does not provide “minimum essential coverage” or is not affordable relative to the employee’s household income and at least one full-time employee has been certified as having enrolled in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee. In Notice 2013-45, the IRS announced that it was postponing enforcement of the penalty until 2015 to give employers, insurers, and other providers more time to adapt their health coverage and reporting systems. (The original effective date was 2014.) 
  
The plaintiffs, a group of physicians, many of whom do not accept health insurance, argued that they had standing to challenge the delay in the employer mandate because they claimed that the delay would affect them financially by lessening employees’ ability to be able to afford to purchase medical care from these cash-only doctors. During 2014, they claimed, these employees will either have to purchase their own insurance or pay the penalty imposed on uninsured individuals, which makes them less able to afford to purchase medical care from the plaintiffs. 

In their suit, the plaintiffs asked the courts to enjoin “what they describe as a violation of the separation of powers ... and the Tenth Amendment,” but because they were not complaining about their own taxes, the district court dismissed the suit for lack of standing (slip op. at p. 2). 
 
In response to the plaintiffs’ argument that the lower demand for their services gave them standing, the Seventh Circuit pointed out that this logic would give them standing to challenge any tax policy. If the IRS issued rules forbidding tax shelters, the plaintiffs could challenge those rules even if they had not participated in one, claiming that enforcing the tax shelter rules would leave other taxpayers with less money to buy the doctors’ services.

The Supreme Court has held that taxpayers do not have standing to litigate the amount of another person’s taxes. “The longer the causal chain, the less appropriate it is to entertain standing, the [Supreme] Court explained” (slip op. at 3, citing Allen v. Wright, 468 U.S. 737 (1984)). Furthermore, the appeals court explained that everything is connected to everything else in our economy “through the price system” and to allow such a long, interconnected chain would virtually eliminate the standing requirement (id.).

The plaintiffs argued that their standing claim was different from the one in Allen because Allen involved an equal protection issue, and the present claim involves the separation of powers and the Tenth Amendment. This difference, however, was not relevant, the court held. A different substantive claim will not affect whether “injury in fact, causation, and redressability, the three elements of constitutional standing to sue” are present (slip op. at 4, citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)).  

Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

SPONSORED QUIZ

How well do you know small business?

There are over 30 million small businesses in the U.S., and many of them are optimistic in their outlook. Are you familiar with the obstacles and opportunities they are facing? Test your small business acumen with this quiz sponsored by Chase Ink®.

SPONSORED REPORT

Tax reform complicates year-end tax planning

Get your clients ready for tax season with these year-end tax planning strategies, which address how to make the most of recent tax law changes, such as the new deduction for qualified business income, the higher standard deduction, and the cap on the deductibility of state and local taxes.