Daily Tax Update - March 1, 2016: Senate Finance Committee Holds Hearing on Multiemployer Pension Plans

Senate Finance Committee Holds Hearing on Multiemployer Pension Plans:  Today, the Senate Finance Committee held a hearing to examine the multiemployer pension plan system and its effect on unions, employers, workers, retirees, and taxpayers.  In his opening statement, Senate Finance Committee Chairman Orrin Hatch (R-UT) noted that “[t]his is a sobering moment for our country, the pension community, and retirees.  And beyond the hardship for retirees in multiemployer plans, this moment also highlights the challenge of delivering on the promise of pensions in defined-benefit plans across the board, both public and private, and the stakes for retirees if these systems fail.” 

DC Circuit Determines DC Health Benefit Exchange ‘Assessment’ is a Tax, Not a Fee:  Today, the US Court of Appeals for the District of Columbia (DC Circuit) determined in American Council of Life Insurers v. D.C. Health Benefit Exchange Authority that the district court lacked jurisdiction to hear the case because the “assessment” levied by the District of Columbia’s Health Benefit Exchange Authority (the Authority) was a tax rather than a fee.  (The Authority was created under the Patient Protection and Affordable Care Act.)  Under the Tax Injunction Act, federal district courts are barred from granting injunctive or declaratory relief in suits challenging taxes imposed by the states.  In DC, Congress has vested the Tax Division of the DC Superior Court with exclusive jurisdiction over challenges to taxes imposed by the District.

To cover a funding shortfall, the Authority, with emergency authorization from the Council of the District of Columbia, levied a charge on all insurance policies above a certain premium threshold sold by health carriers in DC.  The American Council of Life Insurers raised several statutory and constitutional challenges to the charge on behalf of insurers whose products are not sold on the Authority’s exchange but who, as a result of the charge, are forced to bear its operating costs.  The DC Circuit ultimately concluded that the charge was a tax, in part, because there was not “a close correlation between the payers’ burdens under the charge and their benefits from its application.”

Miscellaneous Guidance:
Revenue Ruling 2016-08 removes certain restrictions on income earned in Cuba.  The previously applicable restrictions denied a foreign tax credit for income taxes paid to Cuba and disallowed deferral on income earned in Cuba through a controlled foreign corporation.  This ruling modifies Revenue Ruling 2005-3 with respect to countries subject to special rules under sections 901(j) and 952(a)(5).