Health Reform WK-EDGE Payments made to HHS do not qualify as an internal revenue tax
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Friday, November 2, 2018

Payments made to HHS do not qualify as an internal revenue tax

By Rebecca Mayo, J.D.

Payments made by a group health plan as required by HHS regulation do not qualify as a tax for the purposes of bringing a refund suit in district court. The Fourth Circuit affirmed a district court’s judgment that it lacked subject matter jurisdiction over a claim brought by a group health plan to recover a payment made to HHS. The appellate court held that the district court’s jurisdiction to hear refund suits applies only to taxes and other sums collected by the Internal Revenue Service under the Internal Revenue Code (The Electrical Welfare Trust Fund v. U.S., October 23, 2018, Wilkinson, J.).

ACA. The Patient Protection and Affordable Care Act of 2010 (ACA) created a Transitional Reinsurance Program (TRP) to stabilize the markets after more high-risk individuals entered the insurance market. Under the TRP health insurance issuers and third party administrators on behalf of group health plans are required to pay into a fund that is then reallocated to insurers who covered the new high-risk individuals. The ACA gave HHS the authority promulgate regulations defining who would pay into the TRP.

Payment. The Electrical Welfare Trust Fund (the Fund) is a self-administered, self-insured employee health and welfare benefit plan created under a collective bargaining agreement. The Fund paid in to the TRP in 2014 as required by the HHS regulations, however, later amendments excluded the Fund from the TRP.

The Fund filed a suit in district court seeking a refund of the 2014 payment on the grounds that the initial classification was an impermissible interpretation of the statute. The district court held that because the Fund’s payment was described as a "payment" or "contribution" in the ACA, it was not a tax and the district court lacked subject matter jurisdiction. The district court dismissed the claim without prejudice so the Fund could seek a refund in the Court of Federal Claims. The Fund appealed and also filed an action with the Court of Federal Claims.

Tax. District courts have jurisdiction concurrent with the Court of Federal Claims for civil actions seeking a refund from the United States of an internal revenue tax. While the statutory language granting jurisdiction does not specifically define "internal revenue tax" the Supreme Court has previously instructed that the statue must be read in conformity with other statutory provisions which qualify a taxpayer’s right to bring a refund suit.

Here, the appellate court found that when read in conformity with other statutory provisions, it is clear that a taxpayer must first seek a refund from the Secretary of the Treasury before commencing suit in district court. Since it would make little sense to require exhaustion with the IRS as a precondition to seeking a refund from HHS, the ineluctable conclusion is that internal revenue taxes are those collected by the IRS. Because the payment here was made not to the Treasury, but to HHS, it was not an internal revenue tax. Therefore, the court affirmed the district court’s judgment that it lacked subject matter jurisdiction.

The case is No. 17-1937.

Attorneys: Joseph H. Meltzer (Kessler Topaz Meltzer & Check, LLP) for The Electrical Welfare Trust Fund. Alisa Beth Klein, U.S. Department of Justice, for the United States, U.S. Department of Health & Human Services and Eric Hargan.

Companies: The Electrical Welfare Trust Fund; U.S. Department of Health & Human Services

Cases: CaseDecisions NewsFeed AgencyNews GeneralNews InsurerNews MarylandNews NorthCarolinaNews SouthCarolinaNews VirginiaNews WestVirginiaNews

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