The Patient Protection and Affordability Care Act ("ACA") provides that certain individuals must maintain minimum essential health insurance coverage throughout the year. If a person under the mandate fails to maintain the required insurance for one month or more, a shared responsibility payment ("SRP") is imposed on the taxpayer. The SRP is collected by the Internal Revenue Service ("IRS").
The Tax Cuts and Jobs Act ("TCJA") eliminated the individual mandate and reduced the SRP to zero for 2019 and thereafter. The SRPs for 2018 and prior years must be reported to the IRS on the applicable tax return. Otherwise, the tax return will not be complete. Thus, SRPs owed before 2019 are a liability that the IRS may offset with any tax refund due by a taxpayer. The failure to pay an SRP gives rise to a claim the IRS can assert.
This article examines the potential tax status and priority of the shared responsibility payment under title 11 of the United States Code ("Bankruptcy Code"). Part I examines the tax status of the SRP and Part II analyzes the potential priority of an unpaid SRP as a tax under the Bankruptcy Code.