Frustration with the Premium Tax Credit, Designated Orders 11/19/18 – 11/23/18

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We welcome Professor Samantha Galvin from the Sturm Law School at the University of Denver who brings us this weeks designated orders. She focuses on Premium Tax Credit disputes and the possibility of success in some cases where an insurance company or health insurance marketplace erred. Professor Galvin’s success in the second clinic case she describes makes me hopeful that the final thoughts in this post on APTC and third-party fraud were not entirely off the mark. Christine

Only four orders were designated during the week of Thanksgiving. I discuss one in detail and summarize the others below.

Frustration with the Premium Tax Credit

Ovid Sachi & Helen Sachi v. CIR, Docket No. 12032-17 (here)

This first order and decision was issued in a case involving the premium tax credit (“PTC”) under section 36B. Christine Speidel and I authored the Affordable Care Act (“ACA”) chapter in the most recent edition of Effectively Representing Your Client before IRS and it was my introduction to all things ACA.

A search of Tax Court opinions reveals that only ten cases, so far, mention the PTC. I anticipate that we will see more PTC related cases as time goes on, but it is still very much a developing area and this decision seems consistent with the others. Two early cases were discussed on PT here.

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For those of you who may not know, the PTC is a credit available to taxpayers to whose incomes fall between 100% – 400% of the federal poverty line. It is intended to offset the cost of insurance premiums and make health insurance more affordable for middle and low-income taxpayers. The credit can be paid, either in part or in full, to the insurance company in advance and then taxpayers must reconcile the advance payments on form 8962 when they file their tax returns. Depending on the amount of credit received and the taxpayer’s modified adjusted gross income, the reconciliation may result in a refund if taxpayers were entitled to a larger credit than they received, or a balance due if taxpayers were entitled to a smaller credit or not entitled to any credit. I’ll avoid going into any further detail about the mechanics of the PTC, but for those looking for more information I encourage you to check out Chapter 29 in the 7th Edition of Effectively Representing.

This order itself is somewhat unexciting; respondent moves for summary judgment and petitioners do not respond. The Court goes on to provide some background information: petitioners received the PTC in 2015, but only reported half of their advance credits on  form 8962. Worse, the form’s reconciliation calculation showed that their income was higher than 400% of the federal poverty line rendering them ineligible for any credit. In their petition the taxpayers did not dispute the material facts (the total PTC amount and their modified adjusted gross income) but expressed frustration with the application process and confusing correspondence from the insurance company, the health insurance marketplace, and the IRS.

The order does not provide any information about whether the taxpayers correctly reported their anticipated income to the marketplace, or if they earned more income than expected – but these facts wouldn’t change the outcome of the case because the taxpayers are still responsible for repaying any excess credit in those situations. See McGuire v. C.I.R, 149 T.C. No. 9.

Taxpayer frustration in this area is sadly a common occurrence. We have had two Tax Court cases dealing with the PTC in my clinic. One case involved an incorrect form 1095-A which the marketplace refused to correct, but we were successful because the clients had documentation and receipts which allowed us to prove to the IRS what a correct form 1095-A would have looked like. The case was conceded by the IRS after we submitted this documentation to Appeals.

The other case involved advance PTC that was paid for a married couple; however, the insurer only effectuated a policy for the husband. The wife’s policy was never effectuated as evidenced by documentation provided to us, somewhat surprisingly, by the (now defunct) health insurance company. In other words, the Treasury was paying a credit to an insurer for a policy that did not exist, and as a result, the taxpayer never received any benefit. We were successful at the Appeals stage in the Tax Court process in this case as well.

We will see what happens in this area as it continues to develop, but it seems that success may be possible in cases where a taxpayer proves that the marketplace or insurance company made a mistake and the taxpayer did not benefit from the mistake.

Now, a summary of the other orders:

  • Napoleon v. Irabago & Zosima Irabagon v. C.I.R., Docket No. 1594-16L (here): This order and decision involves a sad instance of petitioners failing to understand their obligations in the Tax Court process and losing the opportunity to present evidence to reduce their liability. Petitioners initially petitioned the Tax Court on a notice of deficiency for 2010 and 2011. The petition was timely received but petitioners failed to pay the $60 filing fee despite being ordered to do so, and their case was ultimately dismissed. The IRS collection process proceeded, and eventually the taxpayers requested a collection due process hearing and then petitioned the Court on the notice of determination attempting to maintain their original argument (that they have proof of their expenses). Unfortunately, the Court no longer has jurisdiction to hear it.
  • Marvel Thompson v. CIR, Docket No. 29498-12 (here): This order grants respondent’s motion for summary judgment after the petitioner failed to respond. Although the Court said it could grant the motion without further analysis, it proceeds to discuss the merits of the case. Petitioner earned rents and royalties but didn’t file a return for tax years 2007 and 2008. I thought the case might take an interesting turn when petitioner stated that he had been incarcerated since 2004, so he could not have earned income, but in the end the Court finds that he has not met the burden of proving he did not earn the rent and royalty income while incarcerated.
  • Sue Hawkins v. CIR, Docket No. 19223-17 (here): After a decision was rendered in her case, petitioner wrote a letter to the Court which was accepted as a motion for reconsideration. The Court orders the IRS to respond and include information about how much of petitioner’s liability has been paid thus far. The Court also specifically orders petitioner to communicate and cooperate with the IRS as they prepare to respond to her motion and goes even further ordering that she answer their calls and letters. If she fails to do so, the initial decision will stand.

 

 

 

Samantha Galvin About Samantha Galvin

Samantha Galvin is an Associate Professor of the Practice of Taxation and the Assistant Director of the Low Income Taxpayer Clinic (LITC) at the University of Denver. Professor Galvin has been teaching full-time at the University of Denver since October of 2013 and teaches courses in tax controversy representation, individual income tax, and tax research and writing. In the LITC, she teaches, supervises and assists students representing low income taxpayers with controversy and collection issues.

Comments

  1. Steve Milgrom says

    At the LITC in San Diego we had a case where the insurance company added a child who had aged out in the prior year (turned 26) back to the father’s policy so they could retain the PTC overpayment from the Treasury. Appeals conceded the case in a very short phone call. I wonder if they ever bothered asking the insurance company for a refund of the PTC.

  2. Norman Diamond says

    “I thought the case might take an interesting turn when petitioner stated that he had been incarcerated since 2004, so he could not have earned income, but in the end the Court finds that he has not met the burden of proving he did not earn the rent and royalty income while incarcerated.”

    Incarcerated or not, how does someone prove that they didn’t have income that they’re alleged to have? By producing a bankbook that doesn’t contain relevant deposits? So someone with two bank accounts can present the bankbook that doesn’t have the deposits, but someone without a bank account can’t prove anything?

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