And while the team of tax attorneys had no doubt that the subsidies should apply to all marketplaces, there was a significant debate inside Treasury and the IRS about how much of their reasoning should be spelled out in public. The agency was sensitive to the legal and political minefield it was navigating.
The passage of the 955-page health-care law required officials to draft some of the biggest changes to the tax code in years. In weekly meetings in a fourth-floor conference room at IRS headquarters on the Mall, government lawyers deliberated over dozens of provisions of what would become Part 36B of the Internal Revenue Code, the rules governing the tax credits.
At first, the team of Treasury and IRS lawyers considered the subsidy question a minor issue, in part because it was widely expected that states would set up their own marketplaces.
“It didn’t occupy a lot of conversation, because it was not at all clear that a lot of states wouldn’t establish their own exchanges,” said Clarissa Potter, a deputy tax director at American International Group who was the IRS’s deputy chief counsel until May 2011.