Tax Court in Brief | Manzolillo v. Comm’r | Preclusion for Deficiency Determination, IRS Form 8962 and Premium Tax Credit – Income Tax

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Tax litigation: The week of October 24, 2022 to October 28, 2022

Manzolillo v. Comm’r, TC Memo. 2022-107 | October 24, 2022 | Kerrigan, J. | Dekt. No. 25481-16

Summary: This case concerns a $4,750 deficit for 2015 based on the Advance Premium Tax Credit (APTC) benefits that were applied to the monthly health insurance premium of George Manzolillo and Lucy Manzolillo (Plaintiffs). Prior to their marriage on May 16, 2015, the Claimants separately enrolled in health insurance for the 2015 tax year through Aetna Life Insurance Company, which they purchased through the Health Insurance Marketplace . The applicant’s husband elected to receive APTC payments of $640 per month for 12 months for a total annual credit of $7,680. The applicant’s wife also elected to receive APTC payments of $90 for three months, from January 1 to March 31, 2015, for a total of $270 for the year. The petitioners received a combined APTC benefit of $7,950 in 2015. This amount was paid directly to the petitioners’ insurance company and applied to the cost of their health insurance premiums in 2015. The petitioners timely filed a joint tax return. They attached Form 8962, Premium Tax Credit, to their return, which is used to reconcile the amount of the APTC benefit received with the amount the taxpayer was entitled to receive. They declared a modified adjusted gross income (MAGI) and claimed a PTC of $4,515 for 2015. They falsely claimed that $3,200 was paid on their behalf; it was actually $7,950. The petitioners elected the alternative calculation for the year of marriage but did not complete Part V of Form 8962. After submitting additional information to the IRS, the IRS issued the petitioners a previously frozen refund of 4 $187 plus interest. The IRS then audited the petitioners’ 2015 tax return and denied the PTC of $7,950. The IRS issued a notice of deficiency for $7,550. The petitioners informed the IRS that the notice of deficiency did not reflect their election regarding the alternative calculation of the PTC for the year of marriage. The IRS then adjusted the deficit to $4,750. The petitioners claimed that the IRS was not authorized to issue a notice of deficiency after previously providing a refund.

Key issue: Whether the applicants’ income tax should increase by the amount of the excess early premium tax credit benefit that has been applied to their monthly health insurance premium.

Main holdings

Yes. The IRS correctly adjusted the Petitioners’ impairment, and the Petitioners made no effort to show that the IRS’ determinations are incorrect. The Court rejected the petitioners’ claim that the IRS was not authorized to issue them a deficiency notice because they had received a refund.

Main points of law

Burdens. Generally, IRS determinations set forth in a deficiency notice are presumed to be correct, and taxpayers bear the burden of showing that the determinations are in error. Rule 142(a); Welch versus Helvering, 290 U.S. 111, 115 (1933). In this case, there was no displacement of the load under 26 USC § 7491(a)

Form 8962 and premium tax credit As part of the Patient Protection and Affordable Care Act, Section 36B permits a PTC to subsidize the cost of health insurance purchased through a health insurance exchange by taxpayers meeting certain legal requirements. See Treasures. Reg. § 1.36B-2(a). The PTC is generally available to individuals whose household income is between 100% and 400% of the Federal Poverty Level (FPL) amount for the year in question. Identifier. in § 36B(c)(1)(A), (d)(3)(B); see McGuire v. Commissioner, 149 TC 254, 259 (2017). A taxpayer’s household income is the sum of the MAGI of both spouses. Treasures. Reg. § 1.36B-1(e)(1). Beneficiaries can choose to receive benefits in advance, in which case payments are made directly to the insurer. See McGuire149 TC to 260. At the end of the year, a taxpayer who has received an APTC must reconcile the amount of APTC already received with the amount to which he is entitled. See § 36B(f)(2). The taxpayer can do this by completing Form 8962 and filing it with the tax return. If the APTC is greater than the amount of duty, the taxpayer owes the government the excess APTC, which will be reflected as an increase in tax. § 36B(f)(2)(A); Keel v. Commissioner, Memo TC. 2018-5, at *6.

Alternative calculation for taxpayers who marry during the tax year. The regulations provide an alternative calculation to deal with cases where taxpayers such as the petitioners are unmarried at the start of the tax year, marry during the year and file a joint return for the same tax year. taxation.
See Treasures. Reg. § 1.36B-4(b)(2)(i). Under this method, the taxpayers’ additional tax liability is equal to the excess of the taxpayers’ APTC payments for the tax year over the amount of the “alternate marriage year credit”. ID. to subdiv. (ii)(A).

“Alternate Marriage Year Credit is the sum of the taxpayers’ alternate premium assistance amounts for the months before the marriage and the premium assistance amounts for the marriage months.” ID. The amount of alternative premium assistance for the months preceding the marriage is equal to the excess of each taxpayer’s qualifying health care plan benchmark premium amount over the taxpayer’s required contribution amount. ID. subdiv. (ii)(B). To calculate the premarital contribution amount, each taxpayer uses “one-half of the actual household income for the tax year and treats family size as the number of people in the taxpayer’s family before marriage” . ID. The calculation of months of marriage is similar, except that the amount of the taxpayer’s contribution is determined using the taxpayers’ joint household income and family size at the end of the tax year. ID. subdiv. (ii)(C). Taxpayers calculate the amount of premium assistance for months of marriage for each full month of marriage.
ID.

Estoppel. “A refund does not bind the commissioner in the absence of a closing agreement, a valid compromise or a final decision.” Krantz v. Commissioner, Memo TC. 2018-17, at *4. “It is well settled that the granting of a refund does not preclude the commissioner from issuing a notice of deficiency simply because he accepted a taxpayer’s return and issued a refund.”
ID. at 5. “[R]efunds are subject to final audit and adjustment, and therefore are not final determinations that would preclude subsequent adjustment,” such as a notice of deficiency. ID.

Insight: The mere fact that a taxpayer receives a refund from the IRS does not preclude the IRS from subsequently auditing the taxpayer and determining additional tax liabilities in connection with the tax matters giving rise to the refund.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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