Tax Court in Brief | Sek v. Comm’r | COBRA, Deficiency for Health Coverage Tax Credit, and Premium Assistance Tax Credit

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The Tax Court in Brief – August 29th – September 2nd, 2022

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Tax Litigation:  The Week of August 29th, 2022, through September 2nd, 2022

Sek v Commissioner, T.C. Memo. 2022-87 | August 29, 2022 | Gale, J.| Dkt. No. 7722-18

Short Summary: This case involves the issuance of a deficiency regarding the eligibility to claim the health coverage tax credit (HCTC) and the premium assistance tax credit (PTC)[1]. In 2015, Jaroslaw Sek (Sek) employment was terminated. He purchased “COBRA” continuation health insurance coverage through his former employer in order he and his family to continue to have health insurance. Under COBRA’s coverage for the years 2015-2016, an employee whose employment was terminated could elect to purchase up to 18 months of “continuation coverage”. As of August 2016, Sek maintained COBRA coverage. As of September 2016, Mr. Sek and his wife (Seks) purchased health insurance coverage through the New York State Health Exchange (NYHE) for they and their family. On Form 8885, petitioners claimed an HCTC and did not claim the PTC. The IRS rejected Seks claim for the HCTC and assessed a deficiency equal to the amount of the disallowed credit. Seks conceded to the IRS that they did not comply with HCTC requirements. However, Seks filed an amended tax return for 2016, stipulating they unduly claimed PTC from COBRA coverage and NYHE for 2016 and filed a Petition for redetermination. IRS indicated Seks were not entitled to claim PTC from COBRA coverage, only for NYHE coverage. Additionally, IRS stipulated the amount of the deficiency assessed should be reduced and conceded Seks were not liable for accuracy penalty under 6662(a). The Tax Court granted IRS Motion and concluded Seks were only entitled to claim PTC from NYHE coverage (last 4 months of 2016), and not liable for an accuracy related penalty under 6662(a).

Key Issues:

Primary Holdings:

Key Points of Law:

Insights:  This case involves the disallowance of the HCTC and PTC, because taxpayers were not properly advised. Taxpayers should comply with the requirements set forth in the law to claim HCTC and PTC, otherwise, IRS will certainly disallow these credits. Before the taxpayers take any credit in connection with health coverage, we recommend to seek out and obtain legal and tax advice to avoid any future tax contingencies with the IRS.

[1] This opinion shall not be treated as precedent for any other case.