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Fifth Circuit rules ACA mandate unconstitutional

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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).

Contacts:
Jeff Martin
Partner
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

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