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8/12/2019 1:14-cv-00335 #15
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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
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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
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
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18
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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1
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.
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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.
September 16, 2013 201338 I.R.B.
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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
201338 I.R.B. 199 September 16, 201
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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
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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).
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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