Opinion
Docket No. 1475-20S.
04-16-2021
KEVIN WESLEY GATES & KATHLEEN KAREN GATES, 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 the parties a copy of the pages of the transcript of the trial in this case before Chief Special Trial Judge Lewis R. Carluzzo at Los Angeles, California, containing his oral finds of fact and opinion rendered at the trial session at which the case was heard.
In accordance with the oral findings of fact and opinion, decision will be entered for respondent.
(Signed) Lewis R. Carluzzo
Chief Special Trial Judge Bench Opinion by Judge Lewis R. Carluzzo March 12, 2021
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 (bench opinion). Unless otherwise noted, section references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period, and Rule references are to the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152.
This proceeding for the redetermination of a deficiency is a small tax case subject to the provisions of section 7463 and Rules 170 through 174. Except as provided in Rule 152(c), this bench opinion shall not be cited as authority, and pursuant to section 7463(b) the decision entered in this case shall not be treated as precedent for any other case.
Kevin Wesley Gates and Kathleen Karen Gates each appeared unrepresented by counsel. Brian P. Beddingfield appeared on behalf of respondent.
In a notice of deficiency dated November 25, 2019 (notice), respondent determined a $14,157 deficiency in petitioners' 2018 Federal income tax.
The issue for decision is whether petitioners are required to repay advance premium tax credit payments.
Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioners lived in California.
In or around December 28, 2017, petitioners moved from Hawaii to California. In January of 2018 petitioners received distributions from their individual retirement accounts. Petitioners used the distributions to make a down payment on a house.
Beginning in February 2018 petitioners enrolled in a healthcare insurance plan through Covered California, a health insurance Marketplace. The insurance premium under the plan was $1,629.52 a month. A representative of Covered California determined that petitioners were entitled to receive a monthly advance premium tax credit (APTC). On that advice, petitioners elected to receive an APTC of $1,573 to cover part of the cost of the monthly premium; this amount was paid on behalf of petitioners directly to their insurer. Petitioners paid the remaining $56.52 monthly premium.
Petitioners' timely filed joint 2018 Federal income tax return shows adjusted gross income of $132,473, of which $120,875 is attributable to the taxable portion of petitioners' income from individual retirement accounts, pensions, and annuities. Petitioners attached to their return a Form 8962, Premium Tax Credit (PTC), on which petitioners reported a household size of 2, modified adjusted gross income of $132,473, and excess APTC of $3,146.
In the notice, respondent determined that petitioners were ineligible for the PTC because their modified adjusted gross income for 2018, $132,473, exceeded 400% of the Federal poverty line amount for their family size.
In general, the Commissioner's determination set forth in a notice of deficiency is presumed correct, and the taxpayer bears the burden of proving that the determination is in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances. Petitioners did not allege or otherwise show that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore, petitioners bear the burden of proof. See Rule 142(a).
Section 36B establishes a refundable premium assistance credit to subsidize the cost of health insurance purchased through a health insurance marketplace for taxpayers meeting certain statutory requirements. See sec. 36B; sec. 1.36B-2(a), Income Tax Regs.; see also McGuire v. Commissioner, 149 T.C. 254 (2017). Eligible taxpayers may claim the premium assistance credit for health insurance covering themselves and their dependents. Sec. 36B(b)(2)(A).
The credit is available to households with incomes between 100% and 400% of the Federal poverty line. Sec. 36B(c)(1)(A), (d)(3)(B). The Federal poverty line is established by the most recently published guidelines in effect on the first day of the regular enrollment period preceding the taxable year. Sec. 36B(d)(3); sec. 1.36B-1(h), Income Tax Regs. The taxpayer's family size is the number of individuals for whom the taxpayer may claim a personal exemption deduction. Sec. 1.36B-1(d), Income Tax Regs. For a two-person household living in California, the Federal poverty line was $16,240 for 2018, and 400% of the Federal poverty line was $64,960.
For eligibility for the section 36B credit, household income is the sum of the taxpayer's modified adjusted gross income plus the modified adjusted gross income of each family member (1) for whom the taxpayer claimed a personal exemption deduction and (2) who was required to file a tax return. Sec. 36B(d); sec. 1.36B-1(e)(1), Income Tax Regs.
Advance payments of the premium assistance credit may be made directly to an insurance provider during the year. ACA sec. 1412, 124 Stat. at 231 (codified at 42 U.S.C. sec. 18082 (2012) ). Taxpayers must report the advance payments on their tax return and reconcile the advance payments with the allowable premium assistance credit as determined on the basis of income reported on their return. Sec. 36B(f)(2); sec. 1.36B-4(a)(1)(ii)(A), Income Tax Regs. If the advance payments exceed the allowable credit, the taxpayer must increase his income tax liability for the year by the excess amount. Sec. 36B(f)(2); sec. 1.36B-4(a)(1)(ii)(A), Income Tax Regs. If household income is greater than 400% of the Federal poverty line, the taxpayer is not eligible for any credit. The taxpayer must repay the entire amount of the advance payments made on the taxpayer's behalf during the year. Sec. 36B(c)(1)(A), (f)(2)(B). Repayment is made by increasing his tax liability by the full amount of the advance premiums. Id.
Petitioners, who have a household size of two persons and were each required to file a Federal income tax return, reported modified adjusted gross income of $132,473; this amount is obviously greater than $64,960, 400% of the Federal poverty line amount applicable for the year in issue. See secs. 1, 36B(c)(1)(A), (d); sec. 1.36B-1(d), (e), (h), Income Tax Regs. Because petitioners' household income for their family size was greater than 400% of the Federal poverty line amount, they do not qualify for the PTC. See sec. 36B(a), (c)(1)(A); sec. 1.36B-2(a) and (b)(1), Income Tax Regs. Since petitioners qualify for no amount of the PTC, they owe the excess of the APTC payments made on their behalf, or $14,157, as an increase to their 2017 tax liability. Petitioners are not subject to the repayment limitation because their household income is greater than 400% of the Federal poverty line amount. See sec. 36B(f)(2)(B)(i); sec. 1.36B-4(a)(3), Income Tax Regs.
At trial it became clear that petitioners do not dispute respondent's determination on technical grounds. Instead, it appears that Covered California incorrectly informed petitioners that they were eligible for the APTC for 2018. According to petitioners, they would not have purchased insurance through Covered California had they known that they would be ineligible for the premium assistance credit and would have had to repay the entire amount of the APTC as tax owed. See sec. 26B(f)(2).
We are not unsympathetic to petitioners' plight; and we fully accept their claim that they would have proceeded differently had they been given the proper advice. We note that petitioners are not the first taxpayers who have found themselves in similar situation faced with unexpected Federal tax consequences because of poor or erroneous tax advice received with respect to the premium tax credit. Nevertheless, we are bound by the statute as written and the accompanying regulations when consistent therewith. Michaels v. Commissioner, 87 T.C. 1412, 1417 (1986); Brissett v. Commissioner, T.C. Memo. 2003-310. The simple facts are that petitioners' modified adjusted gross income exceeded eligible levels and that they must repay the APTC payments made on their behalf. Accordingly, respondent's determination must be sustained.
To reflect the foregoing, decision will be entered for respondent. This concludes the Court's bench opinion in this matter.
(Whereupon, at 8:52 a.m., the above-entitled matter was concluded.)