Couple must repay advance premium tax credit

The Tax Court held that a married couple were required to repay the advance premium tax credit they received despite their unsuccessful efforts to have their state health insurance exchange adjust the subsidy after their income increased. According to the court, it cannot ignore the unambiguous language of the law to achieve an equitable result.

Facts: In 2013, Steven and Robin McGuire purchased coverage for 2014 under the Blue Shield Silver Plan with a monthly premium of $1,182 through Covered California, an exchange created under the Patient Protection and Affordable Care Act of 2010 (PPACA), P.L. 111-148. Based on their projected household income, the exchange determined that the couple were eligible for an advance monthly premium subsidy of $591, reducing their premium payment to $591. Later in 2013, when Robin McGuire began working and the couple’s household income increased, she promptly notified Covered California about their change in income.

Covered California sent the McGuires a letter dated June 14, 2014, stating that they were no longer eligible for the Enhanced Silver Plan because their income now exceeded 400% of the federal poverty level and that they might have to repay part or all of their premium subsidy when filing their 2014 tax return. However, the McGuires did not receive the letter. The couple kept trying to get Covered California to acknowledge their new income level and also to update their address. The couple also did not receive Form 1095-A, Health Insurance Marketplace Statement, at the end of the year. On their 2014 return they did not report their advance premium credit of $7,092 and, in 2016, the IRS issued a deficiency notice for that amount. The McGuires petitioned the Tax Court for relief.

Issues: Under PPACA, taxpayers who purchase health insurance through a health insurance exchange with household incomes between 100% and 400% of the federal poverty line can receive a Sec. 36B premium assistance tax credit based on their income level and the cost of the health insurance. Taxpayers can receive the premium credit in advance in the form of a premium reduction by the insurer, which is then reimbursed by the government. Since taxpayers’ advance payments are based on their projected household income, they must reconcile the difference between the advance payments received and the credit they are eligible for based on their actual income. Taxpayers are sent Form 1095-A at the end of the tax year to help them complete this reconciliation.

The McGuires argued that the court should overturn the deficiency because they repeatedly and unsuccessfully attempted to get Covered California to adjust their advance premium tax credit and would never have selected their chosen plan if no premium assistance credit had been available to them.

Holding: Despite expressing sympathy for the McGuires’ plight, the court held that the deficiency was proper because the Tax Court is not a court of equity and the plain language of Sec. 36B(f)(2) supported the IRS’s deficiency assessment. The court did find that, based on the totality of the facts and circumstances, the couple had acted in good faith and thus were not liable for an accuracy-related penalty.

• McGuire, 149 T.C. No. 9 (2017)

—By Charles J. Reichert, CPA, instructor of accounting, University of Minnesota—Duluth.