Anthology of the highlights of the last week in regulatory practice is somewhat focuses on some large issues that drew immediate attention, even if the substantive resolutions are many years away. Foremost (of course) is the latest adjustment in Obamacare in Bulletins from the Department of Health and Human Services (HHS) Centers for Medicare and Medicaid Services (CMS) eroding the universality of the statue without regulatory changes and consuming insurance law. The Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (Corps) released a draft revised definition of “waters of the United States” for Clean Water Act (CWA) purposes, setting in motion what will become one of the most debated and litigated issues of the decade. The Internal Revenue Service (IRS) finally provided some guidance on the labyrinthine intersection of virtual currencies and federal taxation, compounding the problems for those who engage in virtual currencies. Finally, the Department of Agriculture (DOA)’s Country of Origin Labeling regulations survived appellate review of a preliminary challenge, adding complexity to the management of herds to the slaughter and the dinner table, but not adding a critical mass to an intercircuit conflict about judicial review.
Obamacare Extension: In new Bulletins on Obamacare (Patient Protection and Affordable Care Act or PPACA) – the 10th “delay” by one account – the Administration announced that individuals who say they tried to sign-up for coverage on a healthcare exchange but could not complete the process on time could have several more weeks to do so. The Bulletins may refine interpretations of existing regulations and the Administration previously hinted that some leeway was coming.
The “in line” guidance is premised on special enrollment periods (SEPs) that permit individuals to enroll in a qualified health plan outside of open enrollment and are common to insurance policies such as significant life events (birth, death, marriage, divorce, etc.), and describes treatment for consumers in the Federally-facilitated marketplaces who are “in line” when the door closes. The “special enrollment period” guidance provides an expansive menu of reasons for a special enrollment period that CMS believes would per eligibility for a special enrollment under the regulations, from natural and personal disasters (e.g. a “temporary cognitive disability”); to Healthcare.gov planned outages, systemic failure, or errors; to bad advice.
► Once again, this elongation of enrollment leaves insurers (who might be able to accommodate some tweaks) with substantial uncertainty about the pool they are insuring and limited ability to accurately set premiums for 2015 that are due to State insurance commissions in the near future. These large loopholes again imbalance insurance risks and may cause substantial changes in policy rates. Moreover, the terms are entirely subjective – the application for extension is premised on nothing more than the individual claiming that they qualify. A number of insurers have cried foul, but whether that foul makes a justiciable difference is yet to be seen.
Waters of the United States: The EPA and Corps released a pre-publication draft proposed Definition of “Waters of the United States” Under the Clean Water Act rule with a suggested 90-day post-publication comment period. The proposed rule seeks to clarify the scope of application of the CWA in light of two United States Supreme Court (SCOTUS) decisions that left the EPA and the Corps to make case-by-case decisions on how far the CWA reaches.
The proposed rule would categorically subject all tributaries, ephemeral and intermittent streams, and adjacent waters (including wetlands – waters created during a wet seasons, or even when it just rains, but are otherwise temporary) to federal oversight without additional analysis. The definition is expansive, but it also deletes from the existing definition an overlay of all other waters that could “affect interstate or foreign commerce” – a phrase of the most expansive reach. At the same time, the proposed rule would allow the agencies to pull back within the jurisdiction of the agencies any water they determine to have a “significant nexus” to a traditional navigable water, interstate water, or the territorial seas. The agencies claim this will track the previous SCOTUS interpretations of the CWA, but public comments will test that claim.
The treacherous shoals of this definitional debate attract immediate attention by a range of interests from the Science, Law & and the Environment, PipelineLaw.com, and Northwest Land Matters blogs – and further reading is appropriate.
► In announcing the proposed rule, EPA argued that the proposed rule does not expand the CWA jurisdiction to cover any new types of water that have not historically been covered under the CWA. The argument, of course, suggest only that the proposed rule lies somewhere within the agencies’ historical omnipresent view of jurisdiction, not an objective geometric / hydrometric analysis of that jurisdiction. The multiple definitions and the ambiguity of each would render no hard and fast jurisdictional rule, but much stuff for public comment and litigation.
► The agencies admit that this proposed rule is economically significant under Executive Order 12866, but certify that it would “not have a significant economic impact on a substantial number of small entities” under the Regulatory Flexibility Act (RFA). The agencies claim that the rule retracts the application of jurisdiction and therefore the impact would not be adverse. Whether the rule is a retraction of jurisdiction with no negative impact is a point of substantial debate – a fundamental point of the public comment period, and the agencies are trying to engage.
IRS Meets Bitcoin: Virtual or crypto-currency it may be, but the taxman cometh in real dollars. IRS Notice 2014-21 states the IRS view that virtual currencies are assets and are taxed as assets, not as a currency. The (non-Federal Register) notice is only the IRS’s interpretation of the Internal Revenue Code applied to general facts, not a regulation, and will be subject to challenge one audit and case at a time. Unsurprisingly, the IRS believes that:
- Wages paid in virtual currency are taxable to the employee, must be reported by an employer on a the ubiquitous IRS Form W-2, and are subject to federal income tax withholding, social security taxes, etc. The converse is also true: “A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.”
- Payments in virtual currency to contractors and other service providers are taxable also and self-employment tax rules generally apply, including reporting on the standard IRS Form 1099.
- A gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset. If someone invests in a Bitcoin, the value goes up, and the Bitcoin is then used to purchase goods or services, the increase in value could be a reportable / taxable capital gain.
- Virtual currency (perhaps like foreign currency) must be converted at fair market value on a regular exchange to United States dollars at the time of the transaction.
► Once again, the volatile nature of the issue draws a diverse range of intersecting interest from Workplace Privacy, to Texas Tax Talk, to Virtual Currency Report. Tax complexities here are multiplied by the nature (and intent) of crypto-currencies creating a recordkeeping nightmare which is why a tax advisor is more appropriate than ever. Virtual currency “miners” may face geometrically more complex issues. All just a reminder that tax day is April 15th.
COOL Regulations Preliminary Injunction Denial Affirmed: The United States Court of Appeals for the District of Columbia Circuit affirmed the denial of a preliminary injunction by the district court in American Meat Institute v. Department of Agriculture, finding on de novo review that plaintiffs had not proven a likelihood of success on the merits of their claim that the DOA’s Mandatory Country of Origin Labeling of Beef, Pork, Lamb, Chicken, Goat Meat, Wild and Farm-Raised Fish and Shellfish, Perishable Agricultural Commodities, Peanuts, Pecans, Ginseng, and Macadamia Nuts (aka Country of Origin Labeling or “COOL”) regulations violated the underlying statute. The regulations require all meat processers to segregate livestock by the country in which the livestock was born, raised, and slaughtered, so that labels can disclose those three facts, and will not be able to commingle livestock in mix products.
► The court pointed out that it again had no reason to consider its participation in the intercircuit conflict of whether “likelihood of success” is an independent threshold for a preliminary injunction or one of four factors that must be considered for a preliminary injunction under a “sliding scale” after Winter v. NRDC. This intercircuit conflict will continue to percolate and limit the availability of judicial review of final agency action until a clear decision (one way or the other) raises the conceptual question to a hard and consequential conflict worthy of certiorari from SCOTUS.