Seventh Circuit Affirms Dismissal of Lawsuit on Employer Mandate Delay

By Sally P. Schreiber, J.D.

Court Decisions

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 for which an applicable premium tax credit or cost-sharing reduction is allowed or paid for 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 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 10th 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)).

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.