Opinion
Docket No. 18782-19S
04-05-2021
Carmen P. Argenziano & Virginia A. Argenziano, Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph W. Nega in Tallahassee, Florida, containing his oral Findings of Fact and Opinion rendered on February 4, 2021, at the remote hearing at which the case was heard.
In accordance with the oral Findings of Fact and Opinion, an appropriate decision will be entered.
(Signed) Joseph W. Nega
Judge Pages: 1 through 13 Place: Tallahassee, Florida (Remote Proceeding) Date: February 4, 2021 Leon County Courthouse
2nd Judicial Circuit of Florida
301 S. Monroe Street
Tallahassee, Florida 33602
(Remote Proceeding) February 4, 2021
The above-entitled matter came on for bench opinion, pursuant to notice at 10:17 a.m.
BEFORE: HONORABLE JOSEPH W. NEGA Judge
APPEARANCES:
For the Petitioner:
No Appearance
For the Respondent:
No Appearance
PROCEEDINGS
(10:17 a.m.)
THE CLERK: Calling from the calendar docket number 18782-19S, Carmen P. Argenziano & Virginia A. Argenziano.
(Whereupon, a bench opinion was rendered.) Bench Opinion by Judge Joseph W. Nega February 4, 2021 Carmen P. Argenziano & Virginia A. Argenziano v. Commissioner Docket No. 18782-19S
THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion. This Bench Opinion is made pursuant to section 7459(b) and Rule 152, and it shall not be relied upon as precedent in any other case. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar.
This case arises from a petition filed in response to a Notice of Deficiency in which respondent determined a $10,536 deficiency in petitioners' Federal income tax and a $2,107 accuracy-related penalty under section 6662(a) for the 2017 taxable year. Respondent has conceded the accuracy-related penalty of $2,107. Thus, the issue remaining for decision is whether petitioners qualify for the premium tax credit (PTC) under section 36B.
This case was tried remotely on February 1, 2021. Petitioners, Carmen P. Argenziano (petitioner husband) and Virginia A. Argenziano (petitioner wife), appeared pro se. David M. Livermore appeared on behalf of respondent.
FINDINGS OF FACT
Some of the facts are stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by reference. At the time they filed the petition, petitioners resided in Florida.
From January 1 through March 31, 2017, petitioners were enrolled in a health insurance plan through the Florida health insurance marketplace (marketplace). During this period, they received monthly advance payments of the premium tax credit (APTC) of $1,508 to cover the cost of the monthly health insurance premiums. On February 25, 2017, petitioners terminated coverage for petitioner wife through the marketplace. From April 1 through December 31, 2017, petitioner husband received monthly APTCs of $668 to cover a portion of the cost of the monthly insurance premiums. Petitioners received a total of $10,536 in APTCs during 2017.
The Marketplace sent petitioners a Form 1095-A, Health Insurance Marketplace Statement, and a letter dated January 20, 2018, informing them that they were required to complete and file Form 8962, Premium Tax Credit (PTC), with their 2017 tax return. At a time not specified in the record, petitioner wife received from the Social Security Administration (SSA) a Form SSA-1099, Social Security Benefit Statement, stating that she received $166,512 in total Social Security benefits for the 2017 taxable year. The Form SSA-1099 detailed that this total amount included benefits attributable to prior years that had not been paid and $35,221 in attorney fees.
Petitioners timely filed a joint Form 1040, U.S. Individual Income Tax Return, for the 2017 taxable year. On their 2017 tax return petitioners reported adjusted gross income (AGI) of $67,192 and claimed two exemptions for themselves. Petitioners also reported the $166,512 in Social Security benefits, of which $52,152 was reported as taxable income. Petitioners, however, failed to reconcile the APTCs on a Form 8962 and attach it to their 2017 tax return.
On October 1, 2019, respondent issued to petitioners a Notice of Deficiency for the 2017 taxable year. In the notice, respondent informed petitioners that they failed to attach a Form 8962 to their 2017 return to reconcile the APTCs paid on their behalf for the 2017 taxable year with their allowable PTCs for that year. Respondent determined that petitioners: (1) received the benefit of $10,536 in APTCs during 2017, (2) were not entitled to a PTC for 2017 because their income exceeded 400% of the Federal Poverty Level (FPL), and (3) were responsible for repaying the excess of APTCs paid on their behalf in 2017 ($10,536) over the PTC to which they were entitled ($0.00).
According to the Health and Human Services Poverty Guidelines, 80 Fed. Reg. 3236, applicable to the 2017 taxable year, the FPL for a family of two residing in Florida was $16,020. Accordingly, 400% of the FPL was $64,080.
On October 17, 2019, petitioners timely filed a petition to commence this case, disputing the determination that they must repay the APTCs paid on their behalf and contending that the marketplace application failed to adequately communicate that back pay from the SSA in the form of a lump-sum payment could push them above the 400% threshold.
OPINION
I. Burden of Proof and Burden of Production
The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer ordinarily bears the burden of proving those determinations erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The burden of proof shifts to the Commissioner under section 7491(a) when a taxpayer comes forth with credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's liability. See Rule 142(a)(2). Petitioners do not contend, and the record does not establish, that the burden of proof shifts to respondent under section 7491(a) as to any issue of fact. Accordingly, petitioners bear the burden of showing that they were entitled to a PTC for the 2017 taxable year. See Johnson v. Commissioner, 152 T.C. 121, 123 (2019).
II. Attorney Fees
Petitioners first argue that the SSA incorrectly reported that petitioners received $166,512 in Social Security benefits because $35,221 of that amount was paid in attorney fees. In effect, petitioners argue that attorney fees should not be included in the computation of their total Social Security benefits.
In general, income is taxed to the person earning it, even if the right to receive the income is contractually assigned to another person before it is earned. Lucas v. Earl, 281 U.S. 111, 114-115 (1930); Kenseth v. Commissioner, 114 T.C. 339, 412 (2000), aff'd, 259 F.3d 881 (7th Cir. 2001); see also S. Rept. No. 98-23, at 26 (1983), 1983-2 C.B. 328 (stating that the total amount of Social Security benefits received by a taxpayer is not to be reduced by attorney's fees). Under this principle, the amount of benefits reported as attorney fees in 2017 is considered an amount received by petitioners, even though the SSA paid an attorney the reported fee amount. Petitioners received the benefit from these funds in the form of payment for services required to obtain petitioner wife's benefits. See Kenseth v. Commissioner, 114 T.C. at 413. Accordingly, we conclude that the SSA did not improperly include attorney fees when computing the total Social Security benefits for the 2017 taxable year.
III. The Premium Tax Credit
Petitioners next dispute whether they should be liable for the tax deficiency of $10,536 for the 2017 taxable year -- i.e., whether they are eligible for the PTC. Petitioners advance they had no knowledge that they would receive back pay from the SSA in the form of a lump-sum payment at the time they were enrolling in the marketplace and that the marketplace instructed them to consider only expected income for 2017 when applying for insurance coverage.
Section 36B allows a PTC to subsidize the cost of health insurance purchased through a health insurance marketplace by taxpayers meeting certain statutory requirements. See sec. 1.36B-2(a), Income Tax Regs. This provision was enacted as the Patient Protection and Affordable Care Act (ACA), Pub. L. No. 111-148, secs. 1401 and 10105(a), 124 Stat. at 213, 906 (2010). The PTC is generally available to individuals with household incomes between 100% and 400% of the FPL. Sec. 36B(c)(1); sec. 1.36B-2(b)(1), Income Tax Regs.
For the purpose of determining PTC eligibility, household income is generally defined as the modified adjusted gross income (MAGI) of the taxpayer plus the aggregate MAGI of family members (1) for whom the taxpayer is allowed deductions for personal exemptions and (2) who were required to file a Federal income tax return under section 1. Sec. 36B(d); sec. 1.36B-1(d) and (e)(1), Income Tax Regs. Section 36B(d)(2)(B) defines MAGI as a taxpayer's AGI increased by "an amount equal to the portion of the taxpayer's social security benefits (as defined in section 86(d)) which is not included in income under section 86 for the taxable year."
Rather than require an eligible individual to wait until after filing a tax return to realize the benefit of the PTC, the ACA provides for APTCs if the individual qualifies under an advance eligibility determination. McGuire v. Commissioner, 149 T.C. 254, 260 (2017) (citing ACA sec. 1412(a)(3), 124 Stat. at 232 (codified at 42 U.S.C. sec. 18082 (2012))). The APTCs are paid directly to the insurer. 42 U.S.C. sec. 18082. Sometimes circumstances change, however, and a taxpayer's actual annual income might be more than that estimated in making the eligibility determination for the APTC. In that event the APTCs made on an individual's behalf must be reconciled with the PTC for which that individual is actually eligible for the taxable year. Sec. 36B(f). Any excess of APTCs is then reflected as an increase in the individual's income tax liability for that taxable year. Sec. 36B(f)(2); see McGuire v. Commissioner, 149 T.C. at 261.
In Johnson v. Commissioner, 152 T.C. 121, 128 (2019), the Court held that MAGI, as defined under section 36B, includes all Social Security benefits received during the taxable year, regardless of whether a taxpayer makes a section 86(e) election to exclude a lump-sum payment of Social Security benefits received during the taxable year but attributable to a prior year. The Court emphasized that the "year of receipt, as opposed to the year to which the Social Security benefits are attributable", is the operative year for purposes of section 36B. Id. at 127 (emphasis in original). Accordingly, petitioners' MAGI is calculated by increasing their AGI by the portion of Social Security benefits received in 2017 that are not included in their gross income. See id. at 126 (citing sec. 36B(d)(2)(B); sec. 1.36B-1(e)(2)(iii), Income Tax Regs.).
Petitioners reported on their 2017 tax return AGI of $67,192 and total Social Security benefits of $166,512, of which $52,152 was reported as taxable income. Thus, petitioners' MAGI for the 2017 taxable year was $181,522. Because petitioners' MAGI exceeds 400% of the FPL ($64,080), they are ineligible for the PTC, and the full amount of the APTCs they received during 2017 must be included as a tax liability on their 2017 tax return. Sec. 36B(c)(1)(A), (f)(2)(A); sec. 1.36B-4(a)(4), Income Tax Regs. Accordingly, we sustain respondent's determination.
Petitioners' remaining contentions involve their rights as taxpayers and the alleged lack of accurate information provided by the ACA marketplace application process. Although we are sympathetic to petitioners' situation, we are not a court of equity, and we cannot ignore the law to achieve an equitable end. Commissioner v. McCoy, 448 U.S. 3, 7 (1987); Stovall v. Commissioner, 101 T.C. 140, 149-150 (1993); Paxman v. Commissioner, 50 T.C. 567-576-577 (1968), aff'd, 414 F.2d 265 (10th Cir. 1969). The statute is clear: excess APTCs are treated as an increase in the individual's income tax liability for that taxable year. Sec. 36B(f)(2)(A). Petitioners received APTCs to which they were ultimately not entitled as a result of the lump-sum payment from the SSA. Thus, they are liable for the $10,536 deficiency.
IV. Conclusion
A decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. In reaching our holding herein, we have considered all arguments made, and, to the extent not mentioned above, we conclude that they are moot, irrelevant, or without merit.
Decision will be entered under Rule 155.
(Whereupon, at 10:35 a.m., the above-entitled matter was concluded.)
CERTIFICATE OF TRANSCRIBER AND PROOFREADER
CASE NAME: Carmen P. Argenziano & Virginia A. Argenziano v. Commissioner DOCKET NO.: 18782-19S
We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 13 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Bruce Carlson on February 4, 2021 before the United States Tax Court at its remote session in Tallahassee, FL, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording.
/s/_________
Meribeth Ashley, CET-507
Transcriber
__________
2/10/21
Date
/s/_________
Lori Rahtes, CDLT-108
Proofreader
__________
2/10/21
Date