Possible impact on the NIIT with Supreme Court’s ACA case

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July 2020

Overview

As mentioned in PwC’s previous Insight, the US Supreme Court has agreed to hear the Affordable Care Act (ACA) case in which several states are arguing that the individual mandate in the ACA (as revised by Congress in late 2017) is unconstitutional. The Supreme Court will hear the case this fall and is expected to render a decision in the first half of 2021. 

A question has arisen whether, if the ACA is found to be unconstitutional in its entirety, the net investment income tax (NIIT), while technically not enacted as part of the ACA, could be impacted. Consequently, taxpayers who paid a substantial amount of NIIT in 2016 and/or 2017 may consider filing a protective claim for these years to protect a potential refund.

The takeaway

For taxpayers who paid a substantial amount of NIIT in 2016 and/or 2017, filing a protective claim for these years to protect a potential refund depending on the Supreme Court’s decision in the ACA case may be advisable. In addition, trustees of trusts that paid NIIT in 2016 and/or 2017 may conclude they have a fiduciary obligation to file a protective claim to protect a potential refund even if the chances of a refund may be remote.

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Frank Graziano

Personal Financial Services Leader, PwC US

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