The ACA and Premium Tax Credits

Share this Article
Facebook Icon LinkedIn Icon Twitter Icon
Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

Abrego v. Comm’r, T.C. Memo. 2020-87 | June 16, 2020 | Copeland, J. | Dkt. No. 23713-17

Short SummaryDuring 2015, Mr. Abrego was a driver and, in his spare time, ran a small business preparing tax returns, mostly for friends and family members.  Mrs. Abrego was a housekeeper.  Although Mr. Abrego was eligible for Medicare during 2015, the Abregos nevertheless purchased private health insurance because they expected to receive the premium assistance tax credit (PTC) under the Patient Protection and Affordable Care Act (ACA).  The health plan the Abregos enrolled in required them to pay monthly premiums of $1,029.01.

Under the ACA, the U.S. Department of Treasury offset the cost of the Abregos’ plan premiums by making monthly advance PTC payments to the plan on the Abregos’ behalf.  Thus, Treasury paid the plan 10 monthly installments of $921 for a total of $9,210 during 2015.  During those 10 months, the Abregos paid the difference, or $108.01 per month.

The Abregos filed their 2015 tax return on January 24, 2017.  They did not request an extension of time to file because they expected to receive a refund.  On their return, the Abregos left blank Line 69, Net Premium Tax Credit.  The Abregos also failed to attach to their return Form 8962, Premium Tax Credit, which is used to reconcile the amount of the advanced PTC a taxpayer receives with the amount of the PTC to which the taxpayer is ultimately entitled.

The IRS issued the Abregos a notice of deficiency determining that the Abregos:  (1) received advanced PTC payments of $9,210, but (2) were not entitled to any PTC for 2015, and (3) were responsible for repaying the excess of advanced PTC paid on their behalf for 2015, $9,210, over the PTC to which they were entitled, zero.  Moreover, the IRS determined that the Abregos were ineligible for the PTC because their income exceeded 400% of the federal poverty line for a family of two in California, where they resided.

Key Issue:  Whether the Abregos:  (1) received excess advance payments of the premium assistance tax credit (commonly known as the premium tax credit or PTC) allowed under section 1412 of the ACA, which in turn increased their tax due by the amount of the excess, subject to the limitations set forth in Section 36B(f)(2)(B); and (2) are liable for the addition to tax under Section 6651(a)(1) for filing their 2015 tax return late.

Primary Holdings

Key Points of Law:

Insight The Abregos case shows the difficulty of determining with specificity, at least in some cases, whether a taxpayer qualifies for the advanced PTC and PTC.  In addition, it stands for the position that it may difficult to support a reasonable cause defense for abatement or waiver of penalties where the taxpayer anticipated a refund but that belief later turns out to be untrue.

 

Tax Court Litigation Attorneys

Need assistance litigating in the U.S. Tax Court? Freeman Law’s tax attorneys are experienced litigators with trial-tested litigation skills and in-depth substantive tax knowledge, having collectively litigated hundreds of cases before the U.S. Tax Court. Our tax controversy lawyers have extensive experience in Tax Court matters involving partnership audits and litigation under both the TEFRA and BBA regimes, international tax penalties, foreign trusts, valuation, reasonable compensation disputes, unreported income, fraud penalties, other tax penalties, and many other matters. We draw on our experience and wealth of tax knowledge to advise and guide clients through the entire tax controversy process, building the right strategy to resolve tax controversies from day one. Schedule a consultation or call (214) 984-3000 to discuss your Tax Court concerns or questions.