Last year I blogged about one unhappy feature of the Affordable Care Act (ACA): §36B has no wiggle room in it to deal with reasonable taxpayer errors in calculating their Premium Tax Credit (PTC). As a result, taxpayers sometimes get hit with really big deficiencies, even when the error is someone else’s fault.
Section 36B(f)(2)(B) tries to limit the harshness. For families whose income is less than 400% of the relevant poverty line, that provision puts a cap on how much an error will cost them. But that is no help to families who are just outside of the 400% threshold. Nor does the law permit the Tax Court or the IRS to distinguish between good faith errors and taxpayer negligence. I like how Christine Speidel put it in this post: “The problem for taxpayers hoping to avoid strict reconciliation is that section 36B simply does not have a mechanism to consider equity in the reconciliation of APTC.”
The good folks at Procedurally Taxing have really been on top of this §36B problem. Here’s a list of their blog posts on the subject. In particular, Christine Speidel has a good summary of the law here, and Samantha Galvin illustrates two recent §36B cases here.
Two recent Tax Court decisions reveal a new dimension to §36B harshness: it’s interplay with the lump-sum SSI election in §86(e). In Charles W. Monroe and Rebecca A. Monro v. Commissioner, T.C. Memo. 2019-41 (Apr. 24, 2019) (Judge Ruwe), and in Levon Johnson v. Commissioner, 152 T.C. No. 6 (Mar. 11, 2019) (Judge Gerber), the question was whether an SSI lump sum catch-up payment had to be counted in calculating PTC eligibility when the taxpayers had made an election under §86(e) to reallocate the lump-sum payment from current year into prior years. The Court looked at the text of §36B and said “yep, gotta include the lump sum.”
I doubt the Court enjoyed coming to its conclusion because the harsh result turns the tax law into a “gotcha” game that even reasonable taxpayers will lose. But if you learn the lesson these cases teach, you can at least help your clients who are in similar situations.
There was an alternative interpretation here, however, that practitioners might press upon the Tax Court in future cases. A closer look at the §36B language suggests it may well have room for a different "plain language" interpretation consistent with the §86(e) policy. While the Court's holding was not unreasonable, neither was was it desirable, and it was sure as heck not inevitable. Details below the fold.
July 15, 2019 in Bryan Camp, New Cases, Scholarship, Tax | Permalink
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