The IRS and US Department of Treasury have issued final and temporary regulations which address benefit and self-employment tax issues regarding partners in a partnership which is the sole owner of a second, wholly owned legal entity. The regulations are intended to clarify that where the partners are separately working for the second legal entity, such individuals may not be treated as employees, and must be treated as self-employed individuals for both self-employment and employee benefit plan purposes. As a result, the partners may not be provided the tax benefits provided employees with respect to benefit plans such as cafeteria plans, parking and transit benefits, health benefits and health insurance.
As the U.S. Supreme Court weighs whether gay couples are constitutionally entitled to marry, more companies in states with marriage equality have begun to mandate that gay employees marry in order to maintain benefits, including health care coverage. In a recent interview with the Wall Street Journal, McDermott partner Todd Solomon discusses the shifting terrain of coverage and benefits that companies offer unmarried gay partners. McDermott lawyers have been monitoring domestic partnership benefits for almost two decades, and, as Mr. Solomon notes, the landscape is definitely changing.
On May 9, 2014, the Internal Revenue Service finalized regulations that govern the tax treatment of payments made by retirement plans to pay accident or health insurance premiums. Under the final regulations, accident or health insurance premium payments by qualified defined contribution plans are taxable distributions to the participant unless those payments are used to pay premiums for disability insurance that replace retirement plan contributions for disabled employees. The regulations apply for tax years beginning January 1, 2015, although taxpayers may elect to apply them to earlier years.
On September 8, 2011, the U.S. Court of Appeals for the Fourth Circuit dismissed two lawsuits challenging the constitutionality of President Obama’s health care reform legislation, both on procedural grounds. In one case filed by the State of Virginia, the court dismissed a challenge to the legislation’s constitutionality finding that the State of Virginia did not have standing to challenge the law. The State of Virginia argued that the federal health care reform law conflicted with a state law that says no Virginia resident can be forced to buy health insurance. The court found that the only basis for the Virginia state law was “to declare Virginia’s opposition to the federal insurance mandate.” In the second case, the Fourth Circuit dismissed a challenge to the federal legislation’s constitutionality on the ground that the individual mandate was an improper tax on citizens. The court found that it did not have jurisdiction to rule on the case because federal law prohibits challenging a “tax” before it is collected. In this case, one dissenting judge wrote that jurisdiction did exist, but also stated that he would hold that the health care reform law was a constitutional exercise of Congress’ power under the Commerce Clause.
The Fourth Circuit is now the third federal Court of Appeals to rule on the constitutionality of health care reform. Previously, the U.S. Court of Appeals for the Sixth Circuit upheld the constitutionality of the individual mandate under health care reform, while the U.S. Court of Appeals for the Eleventh Circuit struck down the individual mandate requirements as being unconstitutional. There are several other lawsuits pending across the Country. These new decisions, along with the prior decisions from the Sixth and Eleventh Circuits, set the stage for the issue of the constitutionality of the individual mandate under health care reform to reach the Supreme Court of the United States, perhaps as early as its 2012 term.
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