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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

ALFRED R. COWGER, JR., et al., :

:Plaintiffs, : Case No. 1:14-CV-335

:

v. : Judge Boyko

:

UNITED STATES OF AMERICA, et al., :

:

Defendants. :

STATE DEFENDANTS MOTION TO DISMISS

Pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), Defendants State of Ohio, Governor

John Kasich, and Lieutenant Governor Mary Taylor (collectively, State Defendants)

respectfully move this Court to dismiss them from this lawsuit. Plaintiffs complaint is with the

federal government and the provisions, mechanisms, and implementation of the federal

Affordable Care Act. Plaintiffs have not pleaded the requisite connection between the State

Defendants and the harm alleged to overcome Eleventh Amendment immunity, or to state claims

against the State Defendants on which this Court can grant relief. A memorandum of law in

support of this motion is attached.

Respectfully submitted,

MICHAEL DEWINE

Ohio Attorney General

/s/ Sarah E. PierceSARAH E. PIERCE (0087799)*

*Lead and Trial Counsel

BRIDGET E. COONTZ (0072919)Assistant Attorneys General

Constitutional Offices Section

30 East Broad Street, 16th FloorColumbus, Ohio 43215

Case: 1:14-cv-00335-CAB Doc #: 15 Filed: 03/17/14 1 of 18. PageID #: 71

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Tel: (614) 466-2872; Fax: (614) 728-7592

[email protected]@ohioattorneygeneral.gov

Counsel for State Defendants


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MEMORANDUM IN SUPPORT

I. INTRODUCTION AND BACKGROUNDPlaintiffs liked their health insurance plan, which they maintained for 15 years. Complt.,

13. Neither Ohios insurance laws, nor Ohios definition of marriage, prevent a private insurer

from choosing to include the Plaintiffs in its definition of who is eligible for coverage under a

health policy. With enactment of the federal Affordable Care Act, Plaintiffs couldnt keep their

health insurance plan. Id., 17 (policy terminated in 2013 as not in compliance with the

ACA). Plaintiffs complaint is not with Ohio insurance law, but instead with the federal

government and the provisions, mechanisms, and implementation of the Affordable Care Act.

Ohio insurance law does not prohibit health insurance companies from entering into

private insurance agreements with anyone defined as eligible for coverage under such a policy.

Yet, as set forth in the Complaint, the federal Affordable Care Acts online health insurance

marketplace, established by federal law and administered in Ohio by federal authority (the

federal Exchange), is prohibiting Plaintiffs from obtaining the type of coverage they want.1 A

review of the allegations in Plaintiffs Complaint and of Ohio statute reflects that if Plaintiffs

cannot obtain the health insurance plan they seek, the problem lies with the federal Exchange,

and not with Ohio law.

The Complaint recites that in 2010, before Plaintiffs Cowger and Wesley were married

under the laws of New York, all of the Plaintiffs were on the same Anthem Blue Cross and Blue

Shield of Ohio non-group health insurance plan. Complt. 13. After Plaintiffs Cowger and

1 The online health insurance marketplace in Ohio is operated exclusively by the federal

government. 42 U.S.C. 18041(c). Ohio elected not to establish its own state-run exchange, asallowed by the ACA. 42 U.S.C. 18031; see also Ohio Dept. of Insurance, Federal Health

Reform, http://www.insurance.ohio.gov/Consumer/Pages/FederalHealthReformFAQs.aspx.


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Wesley were married in New York in 2012, that plan remained in effect. Id. Neither Ohios

insurance laws, nor Ohios definition of marriage, prevented the Plaintiffs from maintaining their

health insurance. When the federal Exchange website became operational, Plaintiffs attempted

to reap the purportedbetter rates [and] tax credits to help pay for premiums and certain

statutory protections not found in the private insurance market by purchasing insurance on the

Exchange. Id., 15. Due to the glitches in the website, however, they were unable to

complete any applications, despite hours of trying. Id., 16. In November of 2013, Plaintiffs

received notice that their policy was to be terminated because it was not in compliance with the

ACA. Id., 17. The State of Ohio did not enact the ACA (and indeed was party to litigation

challenging major ACA provisions as unconstitutional, see National Federation of Independent

Businesses, et al. v. Sebelius, 132 S. Ct. 2566 (2012)) and neither Ohios insurance laws, nor

Ohios definition of marriage caused the Plaintiffs insurance to be terminated.

Plaintiffs non-group policy was not cancelled because of any provision of Ohio law, and

Plaintiffs do not allege that it was. Instead, as a result of the ACA, Plaintiffs Anthem policy

was cancelled as being non-compliant with federal law. Id., 17. Anthem offered to sell the

Plaintiffs a new, and presumably ACA-compliant policy, at approximately twice the cost. Id.,

17. Importantly, as Plaintiffs admit in the Complaint, this offer was made by Anthem after

Plaintiffs Cowger and Wesley were married under the laws of New York. Id. Again, and as this

allegation reflects, Ohio insurance law does not prohibit Anthem from selling an insurance

policy to anyone it chooses to define in the policy as eligible for coverage.

According to the Plaintiffs, however, the federal Exchange prevents what Ohio insurance

law does not. Complt. 18. That is, under Ohio insurance law, a private insurance company is

permitted to sell an insurance policy to whomever it pleases. Plaintiffs were able to purchase a


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policy from Anthem before they were ever married in New York. Id., 13. That policy

remained in effect after they were married, and was only cancelled by operation of federal law.

Id., 17. Once it was cancelled, Plaintiffs could not purchase a family policy since their legal

marriage in New York, recognized as valid for federal tax purposes, was not deemed valid to

obtain a family policy under the ACA. Id., 18 (emphasis added). Simply put, and as Plaintiffs

themselves allege, it is the ACA that prevents the Plaintiffs from purchasing the policy they

want. The laws of Ohio do not. And the federal governments myriad deficiencies regarding the

operation (or inoperability) of its Exchange and related website, recounted by Plaintiffs as

excruciatingly frustrating,see id., 18, 19, cannot be attributed to Ohio.

Plaintiffs include the State Defendants in their Complaint, however, under the apparent

misimpression that as a matter of law, Ohios statutory and constitutional provisions prohibiting

recognition of their same-sex marriage somehow affect Plaintiffs insurance status under the

federal ACA. They seek declaratory, injunctive, and compensatory relief from the State of Ohio,

the Ohio Governor, and the Ohio Lieutenant Governor (collectively, State Defendants)

pursuant to 42 U.S.C. 1983. Specifically, Plaintiffs request an injunction that forces the State

of Ohio to recognize their New York marriage in the hope that they can then be deemed

eligible for purposes of the Exchange. Id., 1. But neither Ohios insurance laws, nor Ohios

definition of marriage prevent a private insurer from choosing to include the Plaintiffs in its

definition of who is eligible for coverage under a health policy, as is evidenced by the fact that

they had a policy before the ACA required that it be cancelled. Id., 13, 17. Thus, the

requested relief will not remedy Plaintiffs claimed injury because the State Defendants do not

issue, process, or deny applications for health coverage, or the associated federal tax credits and

subsidies, on the federal Exchange.


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Plaintiffs claims against the State Defendants should be dismissed for at least two

reasons. First, Eleventh Amendment immunity is a jurisdictional bar to Plaintiffs claims against

the State Defendants. Fed.R.Civ.P. 12(b)(1). Plaintiffs sparse and general allegations against

the Governor and the Lieutenant Governor fail to demonstrate any connection between those

Defendants and the alleged constitutional harms. Reference to a state officials general

enforcement power is not enough to overcome Eleventh Amendment immunity, and state

officers can only be enjoined regarding laws they specifically enforce. Because neither the

Governor nor the Lieutenant Governor enforces the laws Plaintiffs challenge, or administers the

benefits that they claim they were denied, Plaintiffs cannot show that relief from either State

Defendant will redress their claimed injuries.

Second, Plaintiffs fail to state a claim against the State Defendants for which this Court

may grant relief. Fed.R.Civ.P. 12(b)(6). Plaintiffs fail to make a legal connection between any

state action and the application of the challenged laws to them. Indeed they cannot, because

Ohio law does not prohibit private insurers from offering coverage to anyone they deem eligible.

SeeO.R.C. 3101.01(C)(3)(b) (mandating that the same-sex marriage prohibition shall not be

construed to [a]ffect the validity of private agreements that are otherwise valid under the laws

of this state). Indeed, Plaintiffs complaint makes clear that they were able to obtain single-

policy coverage in Ohio, both before and after implementation of the ACA. In addition, because

Plaintiffs are legally married in New York, they are eligible to file a federal joint income tax

statement in 2014, and thus presumably would be eligible for the federal tax credits and subsidies

they seek. Simply put, Plaintiffs were not denied coverage by the actions of any State

Defendant, and Plaintiffs do not allege that they were. The State Defendants have no control

over the federal Exchange, or the associated federal tax credits and subsidies. Therefore, there is


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no relief the Plaintiffs can obtain from the State Defendants, and their claims should be

dismissed accordingly.

For these reasons, and as argued below, the State Defendants respectfully ask this Court

to dismiss Plaintiffs claims against them.

II. LAW AND ARGUMENTA. Standard of reviewFor consideration of a motion to dismiss, factual allegations in the complaint are accepted

as true, although the court need not accept conclusory legal allegations that do not include

specific facts necessary to establish the cause of action. New Albany Tractor, Inc. v. Louisville

Tractor, Inc., 650 F.3d 1046, 1050 (6th Cir. 2011). When a courts subject matter jurisdiction is

challenged under Rule 12(b)(1), the party seeking to invoke jurisdiction bears the burden of

proof. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936). Where, as here,

a Rule 12(b)(1) motion to dismiss questions the sufficiency of the jurisdictional allegations in the

complaint, Gentek Building Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir.

2007), those allegations must be taken as true and construed in the light most favorable to the

nonmoving party using the same standard applied to Rule 12(b)(6) motions, U.S. v. Ritchie, 15

F.2d 320, 598 (6th Cir. 1990).

B. This Court lacks jurisdiction over Plaintiffs claims against the StateDefendants and should dismiss them pursuant to Fed. R. Civ. P. 12(b)(1).

1. Plaintiffs claims against the State Defendants are barred by theEleventh Amendment.

Plaintiffs claim for damages against the State of Ohio, the Governor, and the Lieutenant

Governor are barred by the Eleventh Amendment to the U.S. Constitution and must be dismissed

for lack of jurisdiction. Pursuant to the Eleventh Amendment, federal courts lack jurisdiction to

hear suits for damages by private citizens against a state unless the state unequivocally consents


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to suit, or Congress, pursuant to a valid exercise of power, unequivocally expresses its intent to

abrogate state immunity. See Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 98

(1984) (That a State may not be sued without its consent is a fundamental rule of

jurisprudence); see alsoPort Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 304 (1990).

Thus, where a state has not waived immunity, the Eleventh Amendment acts as a jurisdictional

bar to a lawsuit in federal court against a state. Angel v. Kentucky, 314 F.3d 262, 264-265 (6th

Cir. 2002); Wolfel v. Morris, 972 F.2d 712, 718 (6th Cir. 1992) (internal citations omitted).

Ohio has not waived its sovereign immunity, Wolfel, 972 F.2d at 718, and it is well-

established that 42 U.S.C. 1983 does not abrogate Eleventh Amendment immunity,Hamiltons

Bogarts, Inc. v. Michigan, 501 F.3d 644, 654, n.8 (6th Cir. 2007) (citing Will v. Mich. Dept. of

State Police, 491 U.S. 58 (1989)). Accordingly, pursuant to the Eleventh Amendment,

Defendant State of Ohio must be dismissed from this lawsuit as the Court lacks jurisdiction to

hear Plaintiffs claims against it.

Further, it is well-established that an official capacity suit against a state official is simply

another way of pleading a claim against the state. Will, 491 U.S. at 71; S&M Brands, Inc. v.

Cooper, 527 F.3d 500, 507 (6th Cir. 2008). Plaintiffs have sued both the Governor and the

Lieutenant Governor in their official capacities, and requested compensatory relief from both.

Complt., Prayer 6. Where a plaintiff seeks damages against a state officer in his or her official

capacity, the Eleventh Amendment will bar the suit because the plaintiff is still essentially

making a claim against the state and seeking relief that will come from the states funds.

Brandon v. Hold, 469 U.S. 464, 471 (1985). The same Eleventh Amendment immunity bars

Plaintiffs claims against the State of Ohio and any claims against the Governor and Lieutenant

Governor. Hafer v. Melo, 502 U.S. 21, 25 (1991); S&M Brands, Inc., 527 F.3d at 507.


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Therefore, the claims against both the Governor and Lieutenant Governor must also be dismissed

for lack of jurisdiction.

2. Plaintiffs fail to allege any facts demonstrating a connection betweenthe Governor or the Lieutenant Governor and the challenged laws.

The U.S. Supreme Court has recognized one pertinent exception to this jurisdictional bar:

Eleventh Amendment immunity does not apply to a suit that challenges the constitutionality of a

state officials action while enforcing state law and seeks prospective injunctive relief. See

generally Ex parte Young, 209 U.S. 123 (1908). The Young exception applies, however, only

where the officer being sued has a sufficient connection to enforcement of the challenged act:

In making an officer of the state a party defendant in a suit to

enjoin the enforcement of an act alleged to be unconstitutional, it is

plain that such officer must have some connection with the

enforcement of the act, or else it is merely making him a party as a

representative of the State, and thereby attempting to make the

State a party.

Ex parte Young,209 U.S. at 157; see also Floyd v. Cnty. of Kent, 454 F. Appx 493, 499 (6th

Cir. 2012) (noting for the Young exception to apply, the state official sued must have, by virtue

of the office, some connection with the alleged unconstitutional act or conduct of which the

plaintiff complains). Without this specific connection to enforcement, an official capacity suit

is considered a suit against the state, and is barred by Eleventh Amendment immunity.

Because the Eleventh Amendment is an absolute bar to suit, [c]ourts have not read

Youngexpansively[,] and have routinely dismissed state officials where, as here, the plaintiffs

complaint lacks allegations of the requisite nexus between the challenged statutes and the

defendants enforcement powers. See, e.g., Childrens Healthcare is a Legal Duty, Inc. v.

Deters, 92 F.3d 1412, 1415-1417 (6th Cir. 1996) (dismissing the Ohio Attorney General because

she has no connection to the enforcement of the [challenged] statute); Kelley v. Metro. Cnty.


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Bd. of Ed., 836 F.2d 986, 990 (6th Cir. 1987) (holding suit barred by Eleventh Amendment

where state officials did not threaten to enforce any unconstitutional act); Confederated Tribes &

Bands of the Yakama Nation v. Locke, 176 F.3d 467, 469-470 (9th Cir. 1999) (dismissing the

Washington Governor where the complaint contain[ed] no allegations that the governor is

charged with operating the challenged statutes); Akron Ctr. for Reproductive Health, 633 F.

Supp. 1123, 1129-1130 (N.D. Ohio 1986) (dismissing suit against Ohio Governor and Ohio

Attorney General pursuant to the Eleventh Amendment because they had no connection to the

enforcement of the challenged abortion statute), affd on other grounds, 854 F.2d 852 (6th Cir.

1988), revd on other grounds, 497 U.S. 502 (1990)).

The Sixth Circuit reaffirmed this principle in a recent decision. Top Flight Entmt, Ltd. v.

Schuette, 729 F.3d 623 (6th Cir. 2013). In Top Flight, the Sixth Circuit affirmed the district

courts decision to dismiss the Michigan Attorney General as a defendant to a lawsuit, because a

different state office, and not the Attorney General, was the relevant enforcement officer. The

plaintiff challenged the blanket denial of licenses permitting millionaire parties (gambling

events sponsored by certain educational, religious, and other specified categories of

organizations) to the plaintiffs adult entertainment club. Id. at 627. In the courts view, the

Lottery Commissioner, who possessed the statutory power to issue the millionaire-party licenses

and who allegedly adopted the challenged blanket policy, was an appropriate defendant. Id. at

634. The court failed to find a sufficient nexus to the Attorney General, however, noting that the

complaint failed to allege a sufficient connection between [the Attorney General] and the

alleged unconstitutional acts to sustain [plaintiffs] claims against him in his official capacity.

Id. In reaching this conclusion, the court emphasized that the complaint contained no allegation

regarding how Schuette, as Attorney General, was involved in the issuance of millionaire-party


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licenses or the enforcement of rules under the Bingo Act or that Schuette had knowledge of, or

participated in, . . . [the] alleged policy of denying all millionaire-party license events at Flying

Aces. Id. Accordingly, Attorney General Schuette was entitled to Eleventh Amendment

immunity. Id.

Plaintiffs complaint, an as-applied challenge, similarly lacks any allegation connecting

the Governor or the Lieutenant Governor to the particular harms alleged. See, e.g., Womens

Med. Profl Corp. v. Voinovich, 130 F.3d 187, 193 (6th Cir. 1997) (In an as-applied challenge,

the plaintiff contends that application of the statute in [a] particular contextwould be

unconstitutional. Therefore, the constitutional inquiry in an as-applied challenge is limited to the

plaintiffs particular situation.) (citations and internal quotation marks omitted). Here, the

Plaintiffs simply do not plausibly allege that the Governor or Lieutenant Governor is applying

(or is threatening to apply) Ohios marriage or insurance laws so as to divest them of insurance

options. As in Top Flight, the Complaint here does not contain any material allegations

regarding a connection between the Governor or the Lieutenant Governor, and the injuries

claimed. Equally absent is any allegation that an injunction against the Governor and/or the

Lieutenant Governor will redress any of the harms alleged. Again, Ohio insurance law does not

prevent Plaintiffs from obtaining the insurance they seek. Because Plaintiffs fail to meet their

burden of alleging facts to overcome the Governors and the Lieutenant Governors Eleventh

Amendment immunity, their claims must be dismissed.

Plaintiffs may be under the misimpression that Ohios prohibition of same-sex marriage

somehow prevented them from obtaining a policy on the federal Exchange and gaining the

attendant federal tax credits and subsidies. Plaintiffs do not, however, allege that the Governor

or Lieutenant Governor has any role with respect to the implementation or operation of the


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federal Exchange, or to the grant or denial of federal tax benefits or subsidies. Even further still,

Plaintiffs also do not allege that the Governor or Lieutenant Governor has any specific authority

for enforcing Ohio Rev. Code 3101.01(C)(3) or (4), or Article XV, 11 of the Ohio

Constitution. To the contrary, the sole allegation in the Complaint with respect to the Governor

states that: Defendant John Kasichimplements and enforces Ohio Rev. Code 3101.01(C)(3)

and (4) and Art. XV, 11 of the Ohio Constitution [and]also oversees the Ohio Department of

Insurance and its Director[.] Complt., 7. Similarly, Plaintiffs sole mention of the Lieutenant

Governor states: Defendant Mary Taylorwas named by Defendant Kasich as the Director of

the Ohio Department of Insurance. In that capacity she supervises the enforcement of all laws in

Ohio pertaining to health insurance policies offered to consumers in Ohio, and develops and

oversees all policy and practices within the Ohio Department of Insurance. Complt., 8.

Neither of these general allegations states a sufficient connection between the Governor or

Lieutenant Governor and enforcement of the challenged law.

An invocation of an officials general enforcement power does not suffice to abrogate the

officials Eleventh Amendment immunity. See, e.g., Childrens Healthcare is a Legal Duty, 92

F.3d at 1416 (General authority to enforce the laws of the state is not sufficient to make

government officials the proper parties to litigation challenging the law.) (citations omitted);

Shell Oil Co. v. Noel, 608 F.2d 208, 211 (1st Cir. 1979) (The mere fact that a governor is under

a general duty to enforce state laws does not make him a proper defendant in every action

attacking the constitutionality of a state statute.);Mendez v. Heller, 530 F.2d 457, 460 (2d Cir.

1976) (an attorney generals duty to support the constitutionality of challenged state statutes

and his duty to defend actions in which the state is interested do not create sufficient

connection to the statute in question). Notably, courts have applied this rule to dismiss state


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officials even where the official has the power to appoint those who bear responsibility for the

challenged conduct. See, e.g., Los Angeles Branch NAACP v. Los Angeles Unified Sch. Dist.,

714 F.2d 946, 953 (9th Cir. 1983) (But, as the NAACP admits, the Governors powers in this

area are limited to making general policy and budget recommendations, as well as administrative

appointments . . . Thus, the Governors general duty to enforce California law under the

circumstances of this case does not establish the requisite connection between him and the

unconstitutional acts alleged by the NAACP.). Because Plaintiffs claims rest solely on such

general enforcement power, they must be dismissed.

Plaintiffs general references to the Governor and Lieutenant Governors supervisory

duties are also insufficient to establish the requisite connection. To establish supervisory

liability, a plaintiff must show that the supervisor directly participated in the alleged misconduct,

or encouraged its commission. McVicker v. Hartfield, No. 2:08-cv-1110, 2009 WL 2431257, *7

(S.D. Ohio Aug. 6, 2009) (citing Sova v. City of Mt. Pleasant, 142 F.3d 898, 904 (6th Cir.

1998)). At a minimum, a plaintiff must show that the official at least implicitly authorized,

approved, or knowingly acquiesced in the unconstitutional conduct. McVicker, 2009 WL

2431257 at *7 (citing Comstock v. McCrary, 273 F.3d 693, 713 (6th Cir. 2001)). As the court

noted inMcVicker, [t]he mere fact that [a] defendant [is] the head of [an] administrative branch

of government in Ohio is insufficient to render him liable for any acts on the part of any of the

other named defendants, even assuming that any of them were [his] employees. McVicker,

2009 WL 2431257 at *7.

These considerations go to the heart of the legal principle underlying Eleventh

Amendment immunity: plaintiffs may not name state officials who are unconnected to the harm

alleged as surrogates for the state itself. Here, Plaintiffs naming of the Governor and Lieutenant


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Governor as defendants, without any allegations of a connection between them and the

challenged statute, demonstrates that Plaintiffs named both to find a surrogate for suing the State.

Plaintiffs are not suing the Governor or Lieutenant Governor because either has committed, or is

about to commit, an unconstitutional act; rather, these Defendants are simply stand-ins for the

State. The Eleventh Amendment forbids this result. Childrens Healthcare is a Legal Duty, 92

F.3d at 1416-1417 (Plaintiffs apparently named the office of the Attorney General in an effort to

obtain a judgment binding the State as an entity, a step that Congress did not authorize when

enacting 42 U.S.C. 1983 and that the Eleventh Amendment does not permit in the absence of

such authorization.) (internal quotations omitted);Los Angeles Branch NAACP, 714 F.2d at 953

(It is obvious, therefore, that the purpose of joining the Governor as a defendant in this suit is

not to remedy the effects of unconstitutional segregation since the Governor lacks the power to

do so, but to use the Governor as a surrogate for the state, and thereby to evade the states

Eleventh Amendment Immunity. This the NAACP cannot do.). Because Plaintiffs complaint

is insufficient to sustain any claim against the Governor or the Lieutenant Governor, both parties

should be dismissed from this lawsuit for lack of jurisdiction.

C. Plaintiffs fail to state a claim on which this Court can grant relief, requiringdismissal of the State Defendants pursuant to Fed. R. Civ. P. 12(b)(6).

Similarly, the allegations in Plaintiffs complaint are insufficient to state a claim against

the State Defendants on which this Court may grant relief. To survive a motion to dismiss under

Fed. R. Civ. P. 12(b)(6), a plaintiff must state a claim to relief that is plausible on its face. Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). Plaintiffs do not meet this threshold

because they fail to state any facts connecting actions of the State Defendants to the harm

alleged. And they cannot: neither Ohios insurance laws, nor Ohios definition of marriage,

prevent a private insurer from choosing to include the Plaintiffs in its definition of who is eligible


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for coverage under a health policy. While the operation (or inoperability) of some federal law,

rule, policy, order, or website apparently has prevented such coverage from being sold on the

Exchange, this discrepancy is not due to the operation of Ohio law or the action of the State

Defendants.

The State Defendants did not prevent the Plaintiffs from obtaining the single-policy

coverage they seek through the federal Exchange. Plaintiffs complaint makes clear that

Plaintiffs have been covered under such a policy in Ohio for a number of years. Complt., 13.

Following the more stringent health insurance coverage requirements mandated by the ACA,

Plaintiffs were unable to keep their previous plan, and decided that the cost of acquiring a new,

ACA-compliant plan on the private market was too high. Complt., 15, 17. Plaintiffs therefore

chose to pursue coverage on the federal Exchange in order to secure the single-policy coverage

they wanted, and the federal tax credits and subsidies they desired to defray costs. Complt., 18.

According to Plaintiffs, the Exchange itself denied Plaintiffs coverage based on their

marriage status. Complt., 18, 21; cf. O.R.C. 3101.01(C)(3)(b). Plaintiffs were alternately

told by Exchange representatives that they could obtain a family policy on the Exchange, only

to later be told that they could not, in fact, purchase that coverage on the Exchange. Complt.,

18, 21. Plaintiffs do not allege that the State Defendants had anything to do with the denial of

single-policy coverage. The only indication that Plaintiffs were denied coverage pursuant to

Ohio law are representations made by federal Exchange representatives and Medical Mutual of

Ohio. Complt., 18, 20, 21.2 Even if, as Plaintiffs allege, the federal Exchange representatives

2Indeed, it appears that providers on the federal Exchange are prohibited from using marketing

practices and benefit designs that discriminate on the basis of sexual orientation. 45 C.F.R.147.104(e); see also Guidance Document, U.S. Dept. of Health and Human Services, Center for

Consumer Information & Insurance Oversight (Mar. 14, 2014) (attached for the Courts


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attribute the ACAs denial of family coverage to Ohio law, Complt. 21, this obvious

misinterpretation of Ohio insurance law does not give rise to a cause of action against the State

Defendants.

It appears that the Plaintiffs were denied single-policy coverage on the federal Exchange

through the operation or inoperability of a federal law, rule, policy, order, website, or other

ACA-related mechanism over which the State Defendants have no control. For these reasons,

and because the State does not issue the desired insurance or attendant tax subsidies, a

declaration or injunction issued against the State Defendants will not provide the relief that

Plaintiffs seek. Because the State Defendants have taken no action preventing Plaintiffs from

obtaining single-policy coverage on the Exchange, no injunction or declaration concerning the

State Defendants will procure the result Plaintiffs seek.

Finally, and as Plaintiffs acknowledge, Ohio law does not govern federal tax law.

Complt., 18 (Plaintiffs legal marriage in New York [is] recognized as valid for federal tax

purposes). Following the Supreme Courts recent decision in United States v. Windsor, 133

S.Ct. 2675 (2013), the U.S. Internal Revenue Service issued a ruling establishing the eligibility

of same-sex couples married under the law of any U.S. State to file joint federal tax returns.

I.R.C. Rev. Rul. 2013-17, 2013-38 I.R.B. 201-204 (Sept. 16, 2013) (attached at State

Defendants Tab 2). For federal tax purposes, marriage status is now determined based on the

legality of the marriage in the state that married the couple. Id. at 203. Following the IRS

ruling, such couples are treated in the same manner as opposite-sex spouses for purposes of

convenience at State Defendants Tab 1). Pursuant to Fed. Evid. R. 201(b), courts routinely take

judicial notice of public records and government documents, and [t]his includes public recordsand government documents available from reliable sources on the Internet. United States ex rel.

Dingle v. BioPort Corp., 270 F.Supp.2d 968, 972 (W.D.Mich.2003).


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securing federal tax credits and subsidies for participation in the federal Exchange. See id. at

204.3 In short, Plaintiffs Cowger and Wesley presumably are eligible for the federal tax credits

and subsidies they seek based on federal tax law as recently interpreted by the IRS. The

availability of federal tax subsidies is not under the control of the State Defendants, but the

federal Exchange and/or the federal Internal Revenue Service. Again, no declaration or

injunction can issue against the State Defendants that will grant Plaintiffs the relief they seek to

the extent it relates to receiving the tax credits they seek.

III. CONCLUSIONFor the above reasons, Defendants State of Ohio, Ohio Governor John Kasich, and Ohio

Lieutenant Governor Mary Taylor respectfully move this Court to dismiss them from this case.

Respectfully submitted,

MICHAEL DEWINE

Ohio Attorney General

/s/ Sarah E. PierceSARAH E. PIERCE (0087799)**Lead and Trial Counsel

BRIDGET E. COONTZ (0072919)

Assistant Attorneys GeneralConstitutional Offices Section

30 East Broad Street, 16th Floor

Columbus, Ohio 43215Tel: (614) 466-2872; Fax: (614) 728-7592

[email protected]

[email protected]

Counsel for State Defendants

3 See alsoGuidance Document, U.S. Dept. of Health and Human Services, Center for ConsumerInformation & Insurance Oversight (Sept. 27, 2013) (attached for the Courts convenience at

State Defendants Tab 3).


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CERTIFICATE OF SERVICE

I hereby certify that the foregoing document was filed electronically on March 17, 2014.

Notice of this filing will be sent to all parties by operation of the Courts electronic filing system.

/s/ Sarah E. Pierce

SARAH E. PIERCE (0087799)

Assistant Attorney General


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DEPARTMENT OF HEALTH & HUMAN SERVICES

Centers for Medicare & Medicaid Services

Center for Consumer Information and Insurance Oversight

200 Independence Avenue SW

Washington, DC 20201

Date: March 14, 2014

Subject: Frequently Asked Question on Coverage of Same-Sex Spouses

On February 27, 2013, the Centers for Medicare & Medicaid Services (CMS) published final

regulations implementing section 2702 of the Public Health Service Act (PHS Act).1Section

2702 of the PHS Act requires health insurance issuers offering non-grandfathered health

insurance coverage in the group or individual markets (including qualified health plans offered

through Affordable Insurance Exchanges or Exchanges2) to guarantee the availability of

coverage unless one or more exceptions applies. The preamble to the final regulations (78 FR at

13417) indicates that discriminatory marketing practices or benefit designs represent a failure by

health insurance issuers to comply with the guaranteed availability requirements, and the final

regulations at 45 CFR 147.104(e) establish certain marketing and nondiscrimination standards in

the regulation text. The following serves to clarify the meaning of the terms used in 45 CFR

147.104(e) for the purposes of describing the requirements health insurance issuers must meet to

ensure guaranteed availability of coverage.

Q: If a health insurance issuer in the group or individual market offers coverage of an

opposite-sex spouse, may the issuer refuse to offer coverage of a same-sex spouse?

No. Federal regulations at 45 CFR 147.104(e) provide that a health insurance issuer offering

non-grandfathered group or individual health insurance coverage cannot employ marketing

practices or benefit designs that discriminate on the basis of certain specified factors. One such

factor is an individuals sexual orientation. As CMS has used the terms in this regulation, an

issuer is considered to employ marketing practices or benefit designs that discriminate on the

basis of sexual orientation if:

(1) The issuer offers coverage of an opposite-sex spouse; and

(2) The issuer chooses not to offer, on the same terms and conditions as those offered to

an opposite-sex spouse, coverage of a same-sex spouse based on a marriage that was

1Patient Protection and Affordable Care Act; Health Insurance Market Rules; Rate Review, 78 FR 13406 (February

27, 2013).2Exchanges are also known as Health Insurance Marketplaces or Marketplaces.

State Defendants' Tab 1

Case: 1:14-cv-00335-CAB Doc #: 15-1 Filed: 03/17/14 1 of 2. PageID #: 89

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2

validly entered into in a jurisdiction3where the laws authorize the marriage of two

individuals of the same sex, regardless of the jurisdiction in which the insurance

policy is offered, sold, issued, renewed, in effect, or operated, or where the

policyholder resides.

This section does not require a group health plan (or group health insurance coverage provided in

connection with such plan) to provide coverage that is inconsistent with the terms of eligibility

for coverage under the plan, or otherwise interfere with the ability of a plan sponsor to define a

dependent spouse for purposes of eligibility for coverage under the plan. Instead, this section

prohibits an issuer from choosing to decline to offer to a plan sponsor (or individual in the

individual market) the option to cover same-sex spouses under the coverage on the same terms

and conditions as opposite sex-spouses.

CMS is issuing this guidance to clarify the current regulations prohibition against discrimination

based on sexual orientation. This guidance operates to clarify these terms as CMS has used themin 45 CFR 147.104(e). This clarification is consistent with the policy of ensuring that all

individuals have access to health coverage. At the same time, we recognize that some issuers

may not have understood the prohibition as described in this guidance when designing their

policies for the 2014 coverage year. Accordingly, while issuers are encouraged to implement this

clarification for the 2014 coverage year, we expect issuers to come into full compliance with the

regulations as clarified in this guidance no later than for plan or policy years beginning on or

after January 1, 2015. We also expect States4to begin enforcing the regulations in accordance

with this clarification no later than for plan or policy years beginning on or after January 1, 2015.

CMS will not consider a State to be failing to substantially enforce PHS Act section 2702 in

connection with this clarification for earlier policy years.

3For purposes of this guidance, the term jurisdiction means any domestic or foreign jurisdiction having the legal

authority to sanction marriages.4For purposes of this guidance, the term State means each of the several States, the District of Columbia, Puerto

Rico, the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands.



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Bulletin No. 2013-3September 16, 201

HIGHLIGHTS

OF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

T.D. 9630, page199.These final regulations address concerns that taxpayers aretaking unreasonable positions with respect to the determina-tion of discount rates in applying the income method to deter-mine taxable income in connection with cost sharing arrange-

ments. The final regulations provide guidance on a discountrate-related specified application of the income method and adiscount rate-related best method consideration for evaluatingan application of the income method.

REG11379213, page 211.These proposed regulations provide guidance on the tax creditavailable to certain small employers that offer health insurancecoverage to their employees under section 45R of the Code,enacted by the Patient Protection and Affordable Care Act.Comments requested by November 25, 2013.

Rev. Proc. 201333, page 209.This revenue procedure provides domestic asset/liability per-centages and domestic investment yields needed by foreignlife insurance companies and foreign property and liability in-surance companies to compute their minimum effectively con-nected net investment income under section 842(b) of theCode for taxable years beginning after December 31, 2011.

EMPLOYEE PLANS

REG11379213, page 211.These proposed regulations provide guidance on the tax creditavailable to certain small employers that offer health insurancecoverage to their employees under section 45R of the Code,

enacted by the Patient Protection and Affordable Care AcComments requested by November 25, 2013.

ADMINISTRATIVE

Rev. Rul. 201317, page201.This revenue ruling amplifies and clarifies Revenue Ruli5866. In Revenue Ruling 5866, 19581 C.B. 60, the Intnal Revenue Service determined the status of individuals liviin a common-law marriage for Federal income tax purposeThis revenue ruling determines the status of individuals of tsame-sex who are lawfully married under the laws of a stathat recognizes such marriages for Federal tax purposes.

T.D. 9631, page 205.These final regulations authorize the Secretary of the Treasuto furnish, upon written request by the Secretary of Commercadditional return information as the Secretary of Treasury m

prescribe by regulation to officers and employees of the Breau of the Census for the purposes of, but only to the extenecessary in, the structuring of censuses and conducting lated statistical activities authorized by law.

Notice 201355, page 207.This notice updates the appendix to Notice 20131, which listhe Indian tribes who have settled tribal trust cases againthe United States. Notice 201260 originally was publishedI.R.B. 201241 (October 9, 2012). Notice 201260 was sperseded by Notice 20131 I.R.B. 20133, and the appendto Notice 20131 was superseded by Notice 201316 (I.R201314), which was superseded by Notice 201336. Fo

additional tribes have settled cases against the United Statsince the publication of Notice 201336 so the appendix to Ntice 20131 is updated and Notice 201336 is superseded

(Continued on the next pag

Finding Lists begin on page ii.



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Rev. Proc. 201331, page 208.This procedure publishes the amounts of unused housingcredit carryovers allocated to qualified states under section42(h)(3)(D) of the Code for calendar year 2013.

Announcement 201340, page 226.This announcement contains information about how to obtainPublications 1220, 1187, 1239, 4810 and 1516, updates theelectronic filing (FIRE) testing date, and advises customers of

the redesigned website.

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The IRS Mission

Provide Americas taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-

force the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.

All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayersare published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutory

requirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautionagainst reaching the same conclusions in other cases unlethe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.1986 Code.This part includes rulings and decisions based on provisions the Internal Revenue Code of 1986.

Part II.Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart Tax Conventions and Other Related Items, and Subpart B, Leislation and Related Committee Reports.

Part III.Administrative, Procedural, and MiscellaneouTo the extent practicable, pertinent cross references to thesubjects are contained in the other Parts and Subparts. Alincluded in this part are Bank Secrecy Act Administrative Rings. Bank Secrecy Act Administrative Rulings are issued the Department of the Treasurys Office of the Assistant Sectary (Enforcement).

Part IV.Items of General Interest.This part includes notices of proposed rulemakings, disbment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indfor the matters published during the preceding months. Themonthly indexes are cumulated on a semiannual basis, and apublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropria

201338 I.R.B. September 16, 201



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Part I. Rulingsand Decisions Under the Internal Revenue Codeof 1986Section 42.Low-IncomeHousing Credit

Allocation rules for post-1989 state housing credit

ceiling amounts. Guidance is provided to state hous-

ing credit agencies of qualified states that request an

allocation of unused housing credit carryover under

section 42(h)(3)(D) of the Code. See Rev. Proc.

2013-31, page 208.

Section 482.Allocationof Income and DeductionsAmong Taxpayers

T.D. 9630

DEPARTMENT OF THETREASURY

Internal Revenue Service26 CFR Part 1

Use of Differential IncomeStream as an Application ofthe Income Method and as aConsideration in Assessingthe Best Method

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations and removalof temporary regulations.

SUMMARY: This document contains final

regulations that implement the use of the

differential income stream as a considera-

tion in assessing the best method in con-

nection with a cost sharing arrangement

and as a specified application of the in-

come method.

DATES:Effective Date:These regulations

are effective on August 27, 2013.

Applicability Dates: For dates of appli-cability, see 1.4827(l).

FOR FURTHER INFORMATION

CONTACT: Mumal R. Hemrajani, (202)

6223800 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

Final cost sharing regulations were

published in theFederal Register (76 FR80082) (REG14461502) (TD 9568) on

December 22, 2011 (final cost sharing

regulations). Corrections to the final

cost sharing regulations were published

in the Federal Register (77 FR 3606, 77

FR 8143, and 77 FR 8144) on January

25, 2012, and February 14, 2012. Cer-

tain guidance regarding application of the

differential income stream approach was

reserved in the final cost sharing regula-

tions because the Treasury Department

and the IRS believed it was appropriate

to solicitpublic comments on that subjectmatter.

Temporarycost sharing regulations and

a notice of proposed rule making on ap-

plication of the differential income stream

approach were published in the Federal

Register(76 FR 80249 and 76 FR 80309)

(REG14547411) (TD 9569) on Decem-

ber 23, 2011 (temporary and proposed

regulations). Comments were submitted,

which we address in this Preamble. No

request for a public hearing was received.

The Treasury Department and the IRS are

finalizing the proposed regulations with-

out change.

Explanation of Provisions

The Treasury Department and the IRS

were aware that some taxpayers were tak-

ing unreasonable positions in applying the

income method by using relatively low

licensing discount rates, and relatively

high cost sharing discount rates, without

sufficiently considering the appropriate

interrelationship of the discount rates

and financial projections. This practice

gave rise to material distortions and the

potential for PCT Payments not in accor-

dance with the arms length standard. To

address these problems, the temporary

and proposed regulations provided addi-

tional guidance on evaluating the results

of an application of the income method

(1.4827T(g)(2)(v)(B)(2) (Implied dis-

count rates) and (g)(4)(vi)(F)(2) (Use of

differential income stream as a consid

eration in assessing the best method)

and provided a new specified application

of the income method for directly deter

mining the arms length charge for PCT

Payments (1.4827(g)(4)(v) (Application of income method using differentia

income stream)).

Comments noted tha

1.4827T(g)(4)(vi)(F)(2) explicitly pro

vides that the implied discount rate ma

be used to evaluate the reliability of th

corresponding actual discount rates asso

ciated with the licensing and cost sharin

alternatives, but no similar explicit pro

vision is contained in 1.4827(g)(4)(v

regarding the use of actual discoun

rates to evaluate the reliability of th

corresponding implied discount rate

Thus, the comments suggested that suc

an explicit provision be adopted. Th

Treasury Department and the IRS agre

that, depending on facts and circum

stances, separately derived discount rate

pursuant to a general application of th

income method may yield a more reliabl

measure of an arms length result tha

a proffered discount rate pursuant to

differential income stream application o

the income method in a particular case. In

such a case, however, the best method rulalready would require a determination o

PCT Payments under the method, and th

application of such method, that, unde

the facts and circumstances, provides th

most reliable measure of an arms lengt

result. See, for example, 1.4821(c)(1

and 1.4827(g)(4)(vi)(A). Accordingly

the suggested change was not adopted.

Special Analyses

It has been determined that this Trea

sury decision is not a significant regula

tory action as defined in Executive Orde

12866. Therefore, a regulatory assessmen

is not required. It has been determined tha

section 553(b) of the Administrative Pro

cedure Act (5 U.S.C. chapter 5) does no

apply to this regulation, and because th

regulation does not impose a collection o

information on small entities, the Regula

tory Flexibility Act (5 U.S.C. chapter 6

does not apply. Pursuant to section 7805(f

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of the Internal Revenue Code, these reg-

ulations have been submitted to the Chief

Counsel for Advocacy of the Small Busi-

ness Administration (CCASBA) for com-

ment on their impact on small business.

CCASBA had no comments.

Drafting Information

The principal author of these regula-tions is Mumal R. Hemrajani, Office of the

Associate Chief Counsel (International).

However, other personnel from the

Internal Revenue Service and the

Treasury Department participated in the

development of the regulations.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended

as follows:

PART 1INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.4827 is amended by

revising paragraph (g)(2)(v)(B)(2), adding

paragraph (g)(4)(v), revising paragraphs

(g)(4)(vi)(F)(2), (g)(4)(viii) Example 8,

addingExample 9, and revising paragraph

(l).

1.4827 Methods to determine taxableincome in connection with a cost sharing

arrangement.

* * * * *

(g)* * *

(2)* * *

(v)* * *

(B)* * *

(2)Implied discount rates. In some cir-

cumstances, the particular discount rate or

rates used for certain activities or transac-

tions logically imply that certain other ac-

tivities will have a particular discount rateor set of rates (implied discount rates). To

the extent that an implied discount rate is

inappropriate in light of the facts and cir-

cumstances, which may include reliable

direct evidence of the appropriate discount

rate applicable for such other activities, the

reliability of any method is reduced where

such method is based on the discount rates

from which such an inappropriate implied

discount rate is derived. See paragraphs

(g)(4)(vi)(F)(2) and (g)(4)(viii),Example 8

of this section.

* * * * *

(4) * * *

(v)Application of income method using

differential income stream. In some cases,

the present value of an arms length PCT

Payment may be determined as the present

value, discounted at the appropriate rate,of the PCT Payors reasonably anticipated

stream of additional positive or negative

income over the duration of the CSA Ac-

tivity that would result (before PCT Pay-

ments) from undertaking the cost sharing

alternative rather than the licensing alter-

native (differential income stream). See

Example 9of paragraph (g)(4)(viii) of this

section.

* * * * *

(vi) * * *

(F) * * *(2) Use of differential income stream

as a consideration in assessing the best

method. An analysis under the income

method that uses a different discount rate

for the cost sharing alternative than for the

licensing alternative will be more reliable

the greater the extent to which the implied

discount rate for the projected present

value of the differential income stream is

consistent with reliable direct evidence of

the appropriate discount rate applicable for

activities reasonably anticipated to gener-

ate an income stream with a similar riskprofile to the differential income stream.

Such differential income stream is defined

as the stream of the reasonably anticipated

residuals of the PCT Payors licensing

payments to be made under the licensing

alternative, minus the PCT Payors cost

contributions to be made under the cost

sharing alternative. See Example 8 of

paragraph (g)(4)(viii) of this section.

* * * * *

(viii) * * *

Example 8. (i) The facts are the same as in Ex-ample 1, except that the taxpayer determines that the

appropriate discount rate for the cost sharing alterna-

tive is 20%. In addition, the taxpayer determines that

the appropriate discount rate for the licensing alter-

native is 10%. Accordingly, the taxpayer determines

that theappropriatepresent value ofthe PCTPayment

is $146 million.

(ii) Based on the best method analysis described

in Example 2, the Commissioner determines that

the taxpayers calculation of the present value of the

PCT Payments is outside of the interquartile range

(as shown in the sixth column of Example 2), and

thus warrants an adjustment. Furthermore, in eval-

uating the taxpayers analysis, the Commissioner

undertakes an analysis based on the difference in

the financial projections between the cost sharing

and licensing alternatives (as shown in column 11

of Example 1). This column shows the anticipated

differential income stream of additional positive

or negative income for FS over the duration of the

CSA Activity that would result from undertaking the

cost sharing alternative (before any PCT Payments)

rather than the licensing alternative. This anticipateddifferential income stream thus reflects the antici-

pated incremental undiscounted profits to FS from

the incremental activity of undertaking the risk of de-

veloping the cost shared intangibles and enjoying the

value of its divisional interests. Taxpayers analysis

logically implies that the present value of this stream

must be $146 million, since only then would FS have

the same anticipated value in both the cost sharing

and licensing alternatives. A present value of $146

million implies that the discount rate applicable to

this stream is 34.4%. Based on a reliable calculation

of discount rates applicable to the anticipated income

streams of uncontrolled companies whose resources,

capabilities, and rights consist primarily of software

applications intangibles and research and develop-

ment teams similar to USPs platform contributions

to the CSA, and which income streams, accordingly,

may be reasonably anticipated to reflect a similar risk

profile to the differential income stream, the Com-

missioner concludes that an appropriate discount rate

for the anticipated income stream associated with

USPs platform contributions (that is, the additional

positive or negative income over the duration of the

CSA Activity that would result, before PCT Pay-

ments, from switching from the licensing alternative

to the cost sharing alternative) is 16%, which is sig-

nificantly less than 34.4%. This conclusion further

suggests that Taxpayers analysis is unreliable. See

paragraphs (g)(2)(v)(B)(2) and (g)(4)(vi)(F)(1) and

(2) of this section.

(iii) The Commissioner makes an adjustment of$296 million, so that the present value of the PCT

Payments is $442 million (the median results as

shown in column 6 ofExample 2).

Example 9. The facts are the same as in Exam-

ple 1, except that additional data on discount rates are

available that were not available inExample 1. The

Commissioner determines the arms length charge for

the PCT Payment by discounting at an appropriate

rate the differential income stream associated with

the rights contributed by USP in the PCT (that is,

the stream of income in column (11) ofExample 1).

Based on an analysis of a set of public companies

whose resources, capabilities, and rights consist pri-

marily of resources, capabilities, and rights similar to

those contributed by USP in the PCT, the Commis-sioner determines that 15% to 17% is an appropriate

range ofdiscountrates touseto assessthe value ofthe

differential income stream associated with the rights

contributed by USP in the PCT. The Commissioner

determines that applying a discount rate of17% to the

differential income stream associated with the rights

contributed by USP in the PCT yields a present value

of $446 million, while applying a discount rate of

15% to the differential income stream associated with

the rights contributed by USP in the PCT yields a

present valueof $510million. Because the taxpayers

result, $464 million, is within the interquartile range

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protection. It concluded that this section

undermines both the public and private

significance of state-sanctioned same-sex

marriages and found that no legitimate

purpose overcomes section 3s purpose

and effect to disparage and to injure those

whom the State, by its marriage laws,

sought to protect[.] Windsor, 133 S. Ct.

at 269495. This ruling provides guidance

on the effect of the Windsordecision on

the Services interpretation of the sections

of the Code that refer to taxpayers marital

status.

2. Recognition of Same-Sex Marriages

There are more than two hundred Code

provisions and Treasury regulations re-

lating to the internal revenue laws that

include the terms spouse, marriage

(and derivatives thereof, such as marries

and married), husband and wife, hus-band, and wife. The Service concludes

that gender-neutral terms in the Code that

refer to marital status, such as spouse

and marriage, include, respectively,

(1) an individual married to a person of the

same sex if the couple is lawfully married

under state law, and (2) such a marriage

between individuals of the same sex. This

is the most natural reading of those terms;

it is consistent with Windsor, in which the

plaintiff was seeking tax benefits under a

statute that used the term spouse, 133 S.

Ct. at 2683; and a narrower interpretationwould not further the purposes of efficient

tax administration.

In light of the Windsor decision and

for the reasons discussed below, the Ser-

vice also concludes that the terms hus-

band and wife, husband, and wife

should be interpreted to include same-sex

spouses. This interpretation is consistent

with the Supreme Courts statements about

the Code in Windsor, avoids the serious

constitutional questions that an alternate

reading would create, and is permitted by

the text and purposes of the Code.First, the Supreme Courts opinion in

Windsorsuggests that it understood that its

decision striking down section 3 of DOMA

would affect tax administration in ways

that extended beyond the estate tax refund

at issue. See 133 S. Ct. at 2694 (The par-

ticular case at hand concerns the estate tax,

but DOMA is more than simply a determi-

nation of what should or should not be al-

lowed as an estate tax refund. Among the

over 1,000 statutes and numerous Federal

regulations that DOMA controls are laws

pertaining to . . . taxes.). The Court

observed in particular that section 3 bur-

dened same-sex couples by forcing them

to follow a complicated procedure to file

their Federal and state taxes jointly and

that section 3 raise[d] the cost of health

care for families by taxing health benefits

provided by employers to their workers

same-sex spouses.Id. at 26942695.

Second, an interpretation of the gen-

der-specific terms in the Code to exclude

same-sex spouses would raise serious con-

stitutional questions. A well-established

principle of statutory interpretation holds

that, where an otherwise acceptable con-

struction of a statute would raise serious

constitutional problems, a court should

construe the statute to avoid such prob-

lems unless such construction is plainly

contrary to the intent of Congress. Ed-ward J. DeBartolo Corp. v. Fla. Gulf

Coast Bldg. & Constr. Trades Council,

485 U.S. 568, 575 (1988). This canon

is followed out of respect for Congress,

which [presumably] legislates in light of

constitutional limitations, Rust v. Sul-

livan, 500 U.S. 173, 191 (1991), and

instructs courts, where possible, to avoid

interpretations that would raise serious

constitutional doubts, United States v.

X-Citement Video, Inc., 513 U.S. 64, 78

(1994).

The Fifth Amendmentanalysisin Wind-sor raises serious doubts about the con-

stitutionality of Federal laws that confer

marriage benefits and burdens only on op-

posite-sex married couples. In Windsor,

the Court stated that, [b]y creating two

contradictory marriage regimes within the

same State, DOMA forces same-sex cou-

ples to live as married for the purpose

of state law but unmarried for the pur-

pose of Federal law, thus diminishing the

stability and predictability of basic per-

sonal relations the State has found it proper

to acknowledge and protect. 133 S. Ct.at 2694. Interpreting the gender-specific

terms in the Code to categorically exclude

same-sex couples arguably would have the

same effect of diminishing the stability and

predictability of legally recognized same-

sex marriages. Thus, the canon of consti-

tutional avoidance counsels in favor of in-

terpreting the gender-specific terms in the

Code to refer to same-sex spouses and cou-

ples.

Third, the text of the Code permits a

gender-neutral construction of the gender-

specific terms. Section 7701 of the Code

provides definitions of certain terms gen-

erally applicable for purposes of the Code

when the terms are not defined otherwise

in a specific Code provision and the def-

inition in section 7701 is not manifestly

incompatible with the intent of the spe-

cific Code provision. The terms husband

and wife, husband, and wife are not

specifically defined other than in section

7701(a)(17), which provides, for purposes

of sections 682 and 2516, that the terms

husband and wife shall be read to in-

clude a former husband or a former wife,

respectively, and that husband shall be

read as wife and wife as husband

in certain circumstances. Although Con-

gresss specific instruction to read hus-

band and wife interchangeably in those

specific provisions could be taken as an in-dication that Congress did not intend the

terms to be read interchangeably in other

provisions, the Service believes that the

better understanding is that the interpretive

rule set forth in section 7701(a)(17) makes

it reasonable to adopt, in the circumstances

presented here and in light ofWindsorand

the principle of constitutional avoidance, a

more general rule that does not foreclose a

gender-neutral reading of gender-specific

terms elsewhere in the Code.

Section 7701(p) provides a specific

cross-reference to the Dictionary Act, 1U.S.C. 1, which provides, in part, that

when determining the meaning of any

Act of Congress, unless the context indi-

cates otherwise, . . . words importing the

masculine gender include the feminine as

well. The purpose of this provision was

to avoid having to specify males and fe-

males by using a great deal of unnecessary

language when one word would express

the whole. Cong. Globe, 41st Cong., 3d

Sess. 777 (1871) (statement of Sen. Trum-

bull, sponsor of Dictionary Act). This

provision has been read to require con-struction of the phrase husband and wife

to include same-sex married couples. See

Pedersen v. Office of Personnel Mgmt.,

881 F. Supp. 2d 294, 30607 (D. Conn.

2012) (construing section 6013 of the

Code). The Dictionary Act thus supports

interpreting the gender-specific terms in

the Code in a gender-neutral manner un-

less the context indicates otherwise. 1

U.S.C. 1. Context for purposes of the

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Dictionary Act means the text of the Act

of Congress surrounding the word at issue,

or the texts of other related congressional

Acts. Rowland v. Cal. Mens Colony,

Unit II Mens Advisory Council, 506 U.S.

194, 199 (1993). Here, nothing in the

surrounding text forecloses a gender-neu-

tral reading of the gender-specific terms.

Rather, the provisions of the Code that use

the terms husband and wife, husband,

and wife are inextricably interwoven

with provisions that use gender-neutral

terms like spouse and marriage, indi-

cating that Congress viewed them to be

equivalent. For example, section 1(a) sets

forth the tax imposed on every married

individual (as defined in section 7703)

who makes a single return jointly with his

spouse under section 6013, even though

section 6013 provides that a husband and

wife make a single return jointly of in-

come. Similarly, section 2513 of the Codeis entitled Gifts by Husband or Wife to

Third Party, but uses no gender-specific

terms in its text. See also, e.g., 62(b)(3),

1361(c)(1).

This interpretation is also consistent

with the legislative history. The legisla-

tive history of section 6013, for example,

uses the term married taxpayers inter-

changeably with the terms husband and

wife to describe those individuals who

may elect to file a joint return, and there

is no indication that Congress intended

those terms to refer only to a subset ofindividuals who are legally married. See,

e.g., S. Rep. No. 82781, Finance, Part 1,

p. 48 (Sept. 18, 1951). Accordingly, the

most logical reading is that the terms hus-

band and wife were used because they

were viewed, at the time of enactment, as

equivalent to the term persons married to

each other. There is nothing in the Code

to suggest that Congress intended to ex-

clude from the meaning of these terms any

couple otherwise legally married under

state law.

Fourth, other considerations alsostrongly support this interpretation. A

gender-neutral reading of the Code fosters

fairness by ensuring that the Service treats

same-sex couples in the same manner as

similarly situated opposite-sex couples. A

gender-neutral reading of the Code also

fosters administrative efficiency because

the Service does not collect or maintain in-

formation on the gender of taxpayers and

would have great difficulty administer-

ing a scheme that differentiated between

same-sex and opposite-sex married cou-

ples.

Therefore, consistent with the statutory

context, the Supreme Courts decision inWindsor, Revenue Ruling 5866, and ef-

fective tax administration generally, the

Service concludes that, forFederal tax pur-

poses, the terms husband and wife, hus-

band, and wife include an individual

married to a person of the same sex if they

were lawfully married in a state whose

laws authorize the marriage of two individ-

uals of the same sex, and the term mar-

riage includes such marriages of individ-

uals of the same sex.

3. Marital Status Based on the Laws of

the State Where a Marriage Is Initially

Established

Consistent with the longstanding posi-

tion expressed in Revenue Ruling 5866,the Service has determined to interpret the

Code as incorporating a general rule, for

Federal tax purposes, that recognizes the

validity of a same-sex marriage that was

valid in the state where it was entered into,

regardless of the married couples place of

domicile. The Service may provide ad-

ditional guidance on this subject and on

the application ofWindsorwith respect to

Federal tax administration. Other agen-

cies may provide guidance on other Fed-

eral programs that they administer that are

affected by the Code.

Under this rule, individuals of the same

sex will be considered to be lawfully mar-

ried under the Code as long as they were

married in a state whose laws authorize

the marriage of two individuals of the

same sex, even if they are domiciled in a

state that does not recognize the validity of

same-sex marriages. For over half a cen-

tury, for Federal income tax purposes, the

Service has recognized marriages based

on the laws of the state in which they

were entered into, without regard to sub-sequent changes in domicile, to achieve

uniformity, stability, and efficiency in

the application and administration of the

Code. Given our increasingly mobile so-

ciety, it is important to have a uniform rule

of recognition that can be applied with

certainty by the Service and taxpayers

alike for all Federal tax purposes. Those

overriding tax administration policy goals

generally apply with equal force in th

context of same-sex marriages.

In most Federal tax contexts,

state-of-domicile rule would present seri

ous administrative concerns. For example

spouses are generally treated as relate

parties for Federal tax purposes, and on

spouses ownership interest in propert

may be attributed to the other spouse fo

purposes of numerous Code provisions. I

the Service did not adopt a uniform rul

of recognition, the attribution of propert

interests could change when a same-se

couple moves from one state to anothe

with different marriage recognition rules

The potential adverse consequences coul

impact not only the married couple bu

also others involved in a transaction, en

tity, or arrangement. This would lead t

uncertainty for both taxpayers and th

Service.

A rule of recognition based on the statof a taxpayers current domicile woul

also raise significant challenges for em

ployers that operate in more than one state

or that have employees (or former em

ployees) who live in more than one state

or move between states with different mar

riage recognition rules. Substantial finan

cial and administrative burdens would b

placed on those employers, as well as th

administrators of employee benefit plans

For example, the need for and validity o

spousal elections, consents, and notice

could change each time an employee, former employee, or spouse moved to a stat

with different marriage recognition rules

To administer employee benefit plans

employers (or plan administrators) woul

need to inquire whether each employe

receiving plan benefits was married and

if so, whether the employees spouse wa

the same sex or opposite sex from the em

ployee. In addition, the employers or pla

administrators would need to continuall

track the state of domicile of all same-se

married employees and former employee

and their spouses. Rules would also neeto be developed by the Service and admin

istered by employers and plan administra

tors to address the treatment of same-sex

married couples comprised of individual

who reside in different states (a situatio

that is not relevant with respect to oppo

site-sex couples). For all of these reasons

plan administration would grow increas

ingly complex and certain rules, such a

those governing required distribution

201338 I.R.B. 203 September 16, 201



8/12/2019 1:14-cv-00335 #15

29/32

under section 401(a)(9), would become

especially challenging. Administrators of

employee benefit plans would have to be

retrained, and systems reworked, to com-

ply with an unprecedented and complex

system that divides married employees

according to their sexual orientation. In

many cases, the tracking of employee

and spouse domiciles would be less than

perfectly accurate or timely and would

result in errors or delays. These errors

and delays would be costly to employers,

and could require some plans to enter the

Services voluntary compliance programs

or put benefits of all employees at risk.

All of these problems are avoided by the

adoption of the rule set forth herein, and

the Service therefore has chosen to avoid

the imposition of the additional burdens on

itself, employers, plan administrators, and

individual taxpayers. Accordingly, Rev-

enue Ruling 5866 is amplified to adopt ageneral rule, for Federal tax purposes, that

recognizes the validity of a same-sex mar-

riage that was valid in the state where it

was entered into, regardless of the married

couples place of domicile.

4. Registered Domestic Partnerships,

Civil Unions, or Other Similar Formal

Relationships Not Denominated as

Marriage

For Federal tax purposes, the term

marriage does not include registered do-mestic partnerships, civil unions, or other

similar formal relationships recognized

under state law that are not denominated

as a marriage under that states law, and

the terms spouse, husband and wife,

husband, and wife do not include

individuals who have entered into such

a formal relationship. This conclusion

applies regardless of whether individuals

who have entered into such relationships

are of the opposite sex or the same sex.

HOLDINGS

1. For Federal tax purposes, the terms

spouse, husband and wife, husband,

and wife include an individual married

to a person of the same sex if the individ-

uals are lawfully married under state law,

and the term marriage includes such a

marriage between individuals of the same

sex.

2. For Federal tax purposes, the Ser-

vice adopts a general rule recognizing a

marriage of same-sex individuals that was

validly entered into in a state whose laws

authorize the marriage of two individuals

of the same sex even if the married couple

is domiciled in a state that does not recog-

nize the validity of same-sex marriages.

3. For Federal tax purposes, the terms

spouse, husband and wife, husband,

and wife do not include individuals

(whether of the opposite sex or the same

sex) who have entered into a registered

domestic partnership, civil union, or other

similar formal relationship recognized un-

der state law that is not denominated as a

marriage under the laws of that state, and

the term marriage does not include such

formal relationships.

EFFECT ON OTHER REVENUE

RULINGS

Rev. Rul. 5866 is amplified and clar-

ified.

PROSPECTIVE APPLICATION

The holdings of this ruling will be ap-

plied prospectively as of September 16,

2013.

Except as provided below, affected tax-

payers also may rely on this revenue rul-

ing for the purpose of filing original re-

turns, amended returns, adjusted returns,

or claims for credit or refund for any over-

payment of tax resulting from these hold-

ings, provided the applicable limitations

period for filing such claim under section

6511 has not expired. If an affected tax-

payer files an original return, amended re-

turn, adjusted return, or claim for credit or

refund in reliance on this revenue ruling,

all items required to be reported on the re-

turn or claim that are affected by the mari-tal status of the taxpayer must be adjusted

to be consistent with the marital status re-

ported on the return or claim.

Taxpayers may rely (subject to the con-

ditions in the preceding paragraph regard-

ing the applicable limitations period and

consistency within the return or claim) on

this revenue ruling retroactively with re-

spect to any employee benefit plan or ar-

rangement or any benefit provided there-

under only for purposes of filing original

returns, amended returns, adjusted returns,

or claims for credit or refund of an over-

payment of tax concerning employment

tax and income tax with respect to em-

ployer-provided health coverage benefits

or fringe benefits that were provided by the

employer and are excludable from income

under sections 106, 117(d), 119, 129, or

132 based on an individuals marital status.

For purposes of the preceding sentence,

if an employee made a pre-tax salary-re-

duction election for health coverage under

a section 125 cafeteria plan sponsored by

an employer and also elected to provide

health coverage for a same-sex spouse on

an after-tax basis under a group health plan

sponsored by that employer, an affectedtaxpayer may treat the amounts that were

paid by the employee for the coverage of

the same-sex spouse on an after-tax basis

as pre-tax salary reduction amounts.

The Service intends to issue further

guidance on the retroactive application of

the Supreme Courts opinion in Windsor

to other employee benefits and employee

benefit plans and arrangements. Such

guidance will take into account the poten-

tial consequences of retroactive applica-

tion to all taxpayers involved, including

the plan sponsor, the plan or arrangement,employers, affected employees and ben-

eficiaries. The Service anticipates that

the future guidance will provide sufficient

time for plan amendments and any nec-

essary corrections so that the plan and

benefits will retain favorable tax treatment

for which they otherwise qualify.

DRAFTING INFORMATION

The principal authors of this rev-

enue ruling are Richard S. Goldstein

and Matthew S. Cooper of the Office ofAssociate Chief Counsel (Procedure &

Administration). For further information

regarding this revenue ruling, contact

Mr. Goldstein and Mr. Cooper at

2026223400 (not a toll-free call).

September 16, 2013 204 201338 I.R.B.



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30/32

1

DEPARTMENT OF HEALTH & HUMAN SERVICES

Centers for Medicare & Medicaid Services

Center for Consumer Information & Insurance Oversight

200 Independence Avenue SW

Washington, DC 20201

Date: September 27, 2013

From: Gary Cohen, CMS Deputy Administrator and Director

Center for Consumer Information and Insurance Oversight

Subject: Guidance on Internal Revenue Ruling 2013-17 and Eligibility for Advance

Payments of the Premium Tax Credit and Cost-Sharing Reductions

Purpose and ScopeOn June 26, 2013, in United States v. Windsor, 570 U.S. __, 133 S. Ct. 2675 (2013), the

Supreme Court held section 3 of the Defense of Marriage Act (DOMA), which prohibited federalrecognition of same-sex marriages, unconstitutional. In light of this holding, on August 29,

2013, the Internal Revenue Service (IRS) issued Internal Revenue Ruling 2013-17 (Ruling)

(available at http://www.irs.gov/pub/irs-drop/rr-13-17.pdf). The Ruling provides that:

(1) For Federal tax purposes, the terms spouse, husband and wife,

husband, and wife include an individual married to a person of the same sex

if the individuals are lawfully married under state law, and the term marriageincludes such a marriage between individuals of the same sex.

(2) For Federal tax purposes, the Internal Revenue Service adopts a

general rule recognizing a marriage of same-sex individuals that was validly

entered into in a state whose laws authorize the marriage of two individuals of thesame sex even if the married couple is domiciled in a state that does not recognize

the validity of same-sex marriages.

(3) For Federal tax purposes, the terms spouse, husband and wife,

husband, and wife do not include individuals (whether of the opposite sex or

the same sex) who have entered into a registered domestic partnership, civilunion, or other similar formal relationship recognized under state law tha

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