Fifth Circuit rules ACA mandate unconstitutional

Tax Hot Topics newsletter The U.S. Court of Appeals for the Fifth Circuit concluded in Texas v. United States (No. 19, 10011) on Dec. 18, 2019, that the individual mandate under the Affordable Care Act (ACA) is unconstitutional, but remanded the case to the district court to consider further whether that conclusion invalidates the entire law.

The court based its conclusion on the 2012 landmark ruling in which the Supreme Court found the individual mandate to be a tax penalty, and thus constitutional under Congress’s taxing power. In reaching its decision, the Fifth Circuit concluded that, because the Tax Cuts and Jobs Act (TCJA) reduced the tax penalty for individuals who fail to comply with the individual mandate to zero, the mandate was no longer constitutional as an exercise of Congress’s tax power.

Although the Fifth Circuit affirmed the decision of the district court regarding the constitutionality of the individual mandate, the court remanded the case back to the district court so that it could consider further whether the individual mandate is essential to the entire ACA. The district court had previously ruled that the individual mandate was essential and could not be severed from the entire ACA, and therefore, the ACA should be invalidated in its entirety. The ACA remains valid, however, because the district court issued only a declaratory judgment and did not issue an injunction to enforce its decision.

The Fifth Circuit remanded the case because it concluded that the district court had not considered the issue of “severability” taking into account all of the relevant factors and analysis.

The entire ACA will remain valid until further court proceedings. In this regard, 20 states (including the District of Columbia) filed a petition with the Supreme Court on Jan. 3, 2020, requesting an expedited review of the Fifth Circuit’s decision (even before reconsideration by the district court).

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.