On November 1, 2021, the Tax Court issued a Memorandum Opinion in the case of Amburgey v. Commissioner (T.C. Memo. 2021-124). The primary issue presented in Amburgey was whether the petitioners were required to repay an advance premium tax credit, or whether requiring them to do so was unconstitutional.
Held: Pay up, petitioners.
The petitioners, a married couple, reported an adjusted gross income of $181,183 on their joint Federal income tax return for 2018. The petitioners also obtained health insurance for 2018 through the Health Insurance Marketplace, and their health insurance premium was $1,772 per month. They received an “advanced premium tax credit” benefit of $1,279 per month, which was paid directly to the petitioners’ health insurer and applied to the cost of their premiums.
The petitioners filed their return ten days late, showing a tax liability of $12,821 for 2018. However, not only was the return late, but it also failed to include a Form 8962 (Premium Tax Credit), which is used to reconcile amount of APTC a taxpayer received with the amount he or she is entitled to receive.
The IRS issued the petitioners a Notice of Deficiency in November 2019, determining that the petitioners were not “entitled” to any premium tax credit (PTC) and that they must repay the advance premium tax credit (APTC) paid on their behalf in 2018. Why were they petitioners not entitled to a PTC? Well, you see, to be eligible for a PTC, your income must be less than 400% of the Federal poverty line, which in Florida was $16,240 (for a family of two) in 2018. Some quick math shows that the petitioners’ AGI of $181,183 is a skosh higher than $64,960 (400% of the Federal poverty line). Some more math tells us that the petitioners’ AGI was 1116% of the federal poverty line…or, a smidge over a skosh at that point…
The Advanced Premium Tax Credit
The PTC offsets the cost of health insurance. A recipient of the PTC can choose to receive the payments in advance—an APTC. These payments are paid directly to the insurer. At the end of the year a taxpayer who received an APTC is required to reconcile the amount of the PTC already received with the entitlement amount. A taxpayer reconciles these amounts by completing Form 8962 and filing it with his or her tax return. If the APTC is more than the entitlement amount, the taxpayer owes the Government the excess APTC, and it is reflected as an increase in tax.
As noted above, a taxpayer with income greater than 400% of the Federal poverty line (FPL) is not eligible for the PTC, meaning the full amount of the APTC received during the tax year must be included as a tax liability on the taxpayer’s tax return. Household income, as relevant to the petitioners, is defined as modified adjusted gross income. Because the petitioners were not entitled to the PTC in 2018, any APTC received is excess APTC and must be repaid to the Government. As such, the Tax Court held that the petitioners were liable for a $15,348 deficiency, or the amount of the annual APTC.
The Constitutional Argument
As I have mentioned previously, Constitutional arguments fare about as well in Tax Court cases as a beached blue whale, but nonetheless, the petitioners tried their hand at one in Amburgey v. Commissioner. Specifically, the petitioners claimed that the IRS could not assess a deficiency based on excess APTC because the “tax is void and of no effect as in violation of the Constitution of the United States.” Judge Kerrigan did not mince words, when she stated only:
The Constitutionality of the Affordable Care Act and the APTC
In Nat’l Fed’n of Indep. Bus. v. Sebelius, the Supreme Court held that the Affordable Care Act’s (ACA) penalty-backed individual shared responsibility payment is constitutional. The petitioners argue that a subsequent opinion, Texas v. United States, renders the individual shared responsibility payment and associated penalty invalid. Judge Kerrigan, employing the royal “we” with great aplomb, noted that the Tax Court was “not persuaded.”
In Texas the Fifth Circuit dealt with 2017 amendments to the ACA that reduced the individual shared responsibility payment under IRC § 5000A(c) to zero. These 2017 amendments were not effective until after December 31, 2018. Unfortunately (for the petitioners), the deficiency at issue here stems from an increase in tax due to excess APTC paid throughout 2018 before the ACA amendments discussed in Texas took effect. Therefore, the reasoning of the Fifth Circuit in Texas does not apply.
What’s more, on June 17, 2021, the Supreme Court vacated the judgment of the Fifth Circuit in Texas and remanded the case with instructions to dismiss.
Consequently, the petitioners suffered the fate of so many tax protesters before them. They failed to meet their burden that the provisions of IRC § 36B violate the inviolate U.S. Constitution.
Note on IRC § 6751(b)(1) and the IRS’s Automated Underreporter Program
As we discussed in a previous post, there remained a question that was, perhaps, answered in Amburgey v. Commissioner—to wit, whether IRC § 6751(b)(1)’s requirement for prior supervisory approval applied to accuracy related penalties when such penalties were “automatically calculated” under IRC § 6751(b)(2)(B).
As we observed in Ball v. Commissioner, The IRS’s burden of production under IRC § 7491(c) includes making a prima facie case that IRC § 6751(b)(1)’s requirement for written supervisory approval has been met. Nevertheless, IRC § 6751(b)(2)(B) provides an exception from the requirement for penalty approval for a “penalty automatically calculated through electronic means.”
As in Ball, the examination of the petitioners’ return in Amburgey v. Commissioner was processed through the IRS’s “Automated Underreporter Program” (the AUR program). That software program automatically calculated the substantial understatement of income tax penalty through electronic means. Thus, the penalty is within the exception provided under IRC § 6751(b)(2)(B), and the IRS was not required to establish that written supervisory approval had been obtained.
For an interesting read on the “disproportionate effects” of IRC § 6751(b)(2)(B) on poorer taxpayers, take a look at this Procedurally Taxing post, which links to an article written for the Minnesota Law Review on the subject.
- See IRC § 36B; McGuire v. Commissioner, 149 T.C. 254, 260 (2017). ↑
- See IRC § 36B(f)(2). ↑
- See IRC § 36B(f)(2)(A); Keel v. Commissioner, T.C. Memo. 2018-5, at *6. ↑
- IRC § 36B(c)(1)(A); IRC § 36B (f)(2)(B); see also Treas. Reg. § 1.36B-4(a)(4), Ex. 5. ↑
- See IRC § 36B(d)(1); IRC § 36B(2)(A). Modified adjusted gross income means gross income adjusted by certain items, including Social Security benefits, not included in gross income. See IRC § 36B(d)(2)(B)(iii). ↑
- 567 U.S. 519 (2012). ↑
- 945 F.3d 355 (5th Cir. 2019), rev’d and remanded sub nom. California v. Texas, 141 S. Ct. 2104 (2021). ↑
- See Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, § 11081, 131 Stat. at 2092. ↑
- See Texas, 141 S. Ct. at 2120. ↑
- See Conard v. Commissioner, 154 T.C. 96, 103 (2020) (rejecting taxpayer’s constitutional challenge of a Code provision because taxpayer failed to negate “every conceivable basis which might support” the legislation (quoting Estate of Kunze v. Commissioner, 233 F.3d 948, 954 (7th Cir. 2000), aff’g T.C. Memo. 1999-344)). ↑
- T.C. Memo. 2020-152 (Nov. 10, 2020). ↑
- See Kestin v. Commissioner, 153 T.C. 14, 28 (2019); Graev v. Commissioner, 149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.C. 460 (2016). ↑
- See Walquist v. Commissioner, 152 T.C. 61, 73-74 (2019). ↑