United States v. Alicea

United States v. Alicea

Opinion

TRAXLER, Senior Circuit Judge:

When first enacted, the Affordable Care Act ("ACA") included a mandate (now repealed) requiring most individuals to maintain health insurance meeting certain minimum requirements. Individuals covered [*2]  by the ACA who did not maintain the minimum level of insurance were required to pay a "shared responsibility payment" ("SRP") to the Internal Revenue Service through their annual income tax returns. See 26 U.S.C. § 5000A. ] The ACA identifies the SRP as a penalty rather than a tax. See 26 U.S.C. § 5000A(b)(1) ("If a taxpayer [required to maintain insurance] fails to meet the requirement . . . for 1 or more months, then, except as provided in subsection (e), there is hereby imposed on the taxpayer a penalty with respect to such failures in the amount determined under subsection (c).").

In National Federation of Independent Business v. Sebelius, 567 U.S. 519, 132 S. Ct. 2566, 183 L. Ed. 2d 450 (2012) (NFIB), the Supreme Court upheld the constitutionality of the individual mandate. Although the Court determined that the SRP was a penalty, not a tax, for purposes of the Anti-Injunction Act, see id. at 546, it concluded that, as a constitutional matter, the SRP could fairly be read as a tax on the uninsured, which the Court found was within Congress's power to impose, see id. at 574. The question in this case is whether the SRP qualifies as a tax measured by income or as an excise tax entitled to priority in bankruptcy proceedings. See 11 U.S.C. §§ 507(a)(8)(A), 507(a)(8)(E). As we will explain, we conclude that the SRP qualifies as a tax measured by income, and we therefore reverse the judgment of the district court and [*3]  remand for further proceedings.

In 2018, when the ACA's mandate and SRP were still in effect, Fabio Alicea and his wife Sarah Zabek ("Taxpayers") did not maintain the minimum insurance coverage required by the ACA. The taxpayers did not include their $2409 SRP when they filed their 2018 federal tax return. In December 2019, the Taxpayers filed for Chapter 13 bankruptcy protection in the Eastern District of North Carolina.

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