1 4 9 T.C. No . 9

UNITED STATES TAX COURT

STEVEN A. M CGUIRE AND ROBIN L. M CGUIRE, Pet it i on ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 7 3 12 -1 6
. Fi l edAu gu s t 2 8 , 2 0 1 7
.

Ps recei v edan ad v an ce p rem i um t ax cred i tu n d er t h e Affo rd ab l e Care Act . Th atcred i t was p ai dd i rect l y t o a h eal t h i n s u ran ce p ro v i d er t o redu ce t h e am o u n to f t h e p rem iu m t o b e p ai db y Ps . As a res u l to f a ch an g e i n fi n an ci al ci rcu m s t an ces , Ps u l t i m at el y were n oten t i t l ed to th e p rem i u m t ax cred i t
. Aft er t h e cl o s e o f t h e t ax y ear, Ps d i d n o trecei v e a Fo rm 1 0 9 5 -A, Heal t h In s u ran ce M ark etp l ace St at em en t. Ps d i dn o t rep o rt t h e ex ces s t ax cred i t as an i n creas e t o t ax o n t h ei r retu rn . Hel d : Th e Co u rtd o es n o th av e t h e eq u i t ab l e p o w er t o o v erri d e th e cl ear an du n am

b i g uo u s l an g u ag e o f t he In tern al Rev en u e Co d e. Ex ces s p rem iu m

as s i s tan ce cred it s are an i n creas e i n t ax . I.R.C. s ec. 3 6 B(f)(2 ). Hel d , fu rt h er, Ps are n o tl i ab l e fo r an ad d i ti o n t o t ax .- 2
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St ev enA. M cGu ire an dRo b i n L. M cGu i re, p ro s e. Em m a S. W arn er, fo r res p o n d en t
.

OPINION Back gro u n d BUCH, J u d g e: M r. an d M rs . M cGu i re ap p li edfo r an drecei v edb en efi t s
u n d er wh ati s co m

m o n l y referred t o as th e Affo rd ab le Care Act . Lead i n g up t o 2 0 1 4 , th e y ear i n i s su e, M r. M cGu i re was drawi ng ro u g h ly $ 80 0 p er weekfro m

h i s p art s an ds erv i ce b u s in es s , an dM rs . M cGu i re was n o t wo rk i n g . Onth e b as i s o f th ei r h ou s eh o l d i n co m e, Co v eredCal i fo rn ia, a h eal t h i n su ran ce ex ch an g e creat ed
u n d er t h e Affo rd ab l e Care Act , d et erm i n edth atth e M cGu i res were el i g i b l e fo r an ad v an ce p rem i u m

as s i s t an ce cred i to f $ 5 91 p er m o n t h t o b e ap pl i edt o t h ei r
m o nt h l y h eal t h i n s u ran ce p rem i u m , fo r a t o t al an n u al cred i to f $ 7,0 92 . Th e M cGu i res en ro l l ed i n th e Bl u e Sh i el dSi l v er 7 0 PPO p l an , 1 wi t h a m o n t hl y p rem i u m o f $ 1 ,1 8 1 .9 7 . Aft er ap p li cat i on o f t h e ad v an ce p rem i u m as s i s t an ce cred i t , th e M cGu i res were res po n s i b l e fo r o n l y $ 5 9 0 .9 7 o f t h atp rem i u m .

1 Th e ACA req ui res i n s u ran ce p lan s av ai l ab le fo r p u rch as e t h ro u g h th e h eal th ex ch an g es t o b e cat eg o ri zedb y th e l ev el o f co v erag e th ey p ro v i d e. Pat i en t Pro t ect i on an d Affo rd ab l e Care Act (ACA), Pub . L. No . 1 11 -1 4 8 , s ec. 1 3 0 1(d )(1 ), 1 2 4 St at . at1 6 7 (2 01 0). Th e p l an cat eg o ri es fro m l owes tl ev el t o h i gh es t l ev el o f co v erag e are b ro n ze, s i l v er, g o l d , an dp l at i n u m .- 3
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Aft er t h e el i g i bi li t y

d et erm i n at i o n b u t s ti l l i n 2 0 1 3 , M rs . M cGu i re b eg an
wo rk i n g ata jo b thatp ai dh er $ 6 0 0 p er week . Sh e p ro m pt l y n o t i fi edCo v ered Cal i fo rn i a, ack n o wl ed gi n g th atth i s am ou n t“ n eed s t o b e i n cl u dedi n o ur an n u al i n co m e.” Th i s ch an g e o f i n co m e was s i g n i fi can ti n t h at4 0 0 % o f t h e Fed eral p o v ert y l in e fo r a fam i ly

o f t w o res i d i n g i n Cal i fo rn i a atth e t i m e was $ 6 2 ,0 4 0 , an d M rs . M cGu i re’ s n ew jo b was al m o s tcert ai n t o p u tth e M cGu i res o ver t hatl i m i t
. Sev eral m o n t h s l at er, Co v eredCal i fo rn i a ack n owl ed g edth e ch an g e i n h o u s eh o l di n co m e, s en d i ng a l et t er d at edJ u n e 1 4, 2 0 1 4 , ad v i si n g t h e M cGu i res th atth ey d i dn o t qu al i fy fo r an En h an cedSi l v er Pl an b ecau se t h ei r h o u s eh o l d i n co m e was t o o h i g h. Th at s am e l et t er ad vi s ed t he M cGu ires : Th e Co v eredCal i fo rn i a web s i te s h o ws h ow m u ch y o u r p rem iu m as s i s t an ce l owers y o u r p rem i u m . Yo u r p rem i um as s i s tan ce i s b as ed o n o u r reco rd s an d t he i n co m e y o u p u to n y ou r ap p l icat i o n t h aty ou ex p ectthi s y ear. If y o u t ak e t h e fu l l p rem i u m as s i s t an ce t o p ay

th e p rem i u m , an d y ou r i n co m e i s h i gh er, y o um ay h av e t o p ay

s o m e b ack att ax t i m e. It is u n cl ear fro m

th e reco rdwh et h er t h e M cGu i res wo u l d h av e b een p erm i t t edt o
s wi t ch t o a d i fferen t , l ower co s tp l an , an dth e l et t er fro m Co v eredCal i fo rn i a i s
s i len t o n th e s ub

ject . Ev en i f t h e l et t er h ads p o k en t o thati s s u e, i two u l dn ’ th av e
m at t ered ; th e M cGu i res n ev er recei v ed t h e l et t er.- 4
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Wh ath ap p en edt o th atl et t er i s u n cl ear. Th e reco rd s fro m Co vered Cal i fo rn i a t h at were p ro v id edi n th i s cas e are i n co m p let e. Bu tacco rd i n g t o th e
reco rd s i n ev i den ce, “ du ri n g Co v eredCal i fo rn i a’ s fi rs t o pen en ro l l m en tp eri o d , Co v eredCal i fo rn ia was s o b u s y th ati twas n o t u nco m

m on th atch an g es were n o t i m p l em en t ed .” 2 Wh atth e reco rdm ak es cl ear i s thatth e M cGu i res m ad e rep eat ed effo rt s t o g et Co v eredCal i fo rn i a t o t ak e i nt o acco u n tth e ch an g e i n h o u s eh o l d i n co m e, b u ti t n ev er d i ds o . Th es e m i s s edco m

m un i cat i o n s h adl i ng eri n g effect s . As p arto f t h e s am e
co m m u n icat io ns wi t h Co v eredCal i fo rn i a, t h e M cGu i res al s o at tem pt edt o g etth ei r ad dres s up d at ed . As wi t h th e up d at e t o th e M cGu i res ’ earn i n gs , Co vered Cal i fo rn i a d id n o tup d at e th e M cGu ires ’ ad dres s . Atth e en do f t h e y ear, h eal t h i n s u ran ce ex ch an g es , s u ch as Co v eredCal i fo rn i a, i s s u e an i n fo rm at i on al

2 In re Ro b i n M cGu i re, No . ACA-1 6 1 3 90 2 8 (Cal . Dep ’ t o f Heal t h Care Serv s ., Sep t . 2 6 , 2 0 1 6 ) (ALJh eari n g d en y i n g fo r l acko f juri s di ct i o n ap p eal reg ard i n g Co v eredCal i fo rn i a’ s fai l u re t o red et erm i ne el ig i b i l i t y aft er rep o rt ed ch an ge i n i n co m e). Th e M cGu i res fi l edan ad m i ni s t rat i v e ap p eal wi t h Co v ered Cal i fo rn i a d is p u t i ng a n o t i ce i n fo rm i n g them th atth ey d i dn o tqual i fy

fo r an En h an cedSi l v er Pl an . In a s ub s equ en t h eari n g b efo re an ad m i n is trat i v e l aw ju d g e, a rep res en t at i v e o f Co vered Cal i fo rn i a t es t i fi edas t o th e d el ay s i n up dat i ng i t s reco rd s . Ul t i m at el y , th e ap p eal was d en iedo n p ro cedu ral g ro un d s : “ Th e Ad m i n i s trat i v e Law Jud ge l ack s juri s d i ct i o n t o d eci d e an i s s u e i nv o l v i n g an erro r o n th e p art o f Co v eredCal i fo rn i a fo r fai l u re t o recal cu l at e t h e ap p el l an t ’ s el i g i b i l i ty fo r APTC aft er t he ap p el l an t rep o rt eda ch an g e i n i n co m e i n J an u ary 2 0 1 4 .”- 5
-

s t at em en t , Fo rm

1 0 9 5 -A, Heal th In s u ran ce M ark etp l ace St at em en t , t o an y o n e wh o h as recei ved co v erag e t h ro u gh t h e ex ch an g e. See s ec. 3 6B(f)(3 ); s ec. 1 .3 6 B-5 , In co m e Tax Reg s . Tax p ay ers u s e Fo rm s 1 0 9 5 -A t o cal cu l at e t hei r p rem iu m t ax cred i t s . Th e M cGu i res d i dn o trecei v e a Fo rm 1 0 9 5 -A. Wh en i tcam e t i m e t o fi l e t h ei r 2 0 1 4 Fed eral i n co m e t ax return , the M cGu i res ch eck edth e b o x o n Fo rm 1 0 4 0 , U.S. In d iv i du al In co m e Tax Retu rn , l i ne 6 1 , wh i ch read s “ Heal t h care: i n d i v idu al res p o n s i b i li t y (s ee i ns t ru ct i o ns ) Fu l l

y ear co v erag e”. By

ch eck i n g th i s b o x , th e M cGu ires i n fo rm edth e In t ern al Rev enu e Serv i ce t h atth ey h adi n s u ran ce co v erag e t h ro ug h o u tth e y ear. Hadth ey
n o t , th e i n s t ru ct i o ns fo r Fo rm 1 0 4 0 , l i n e 6 1 wo u l dh av e d i rect edth em t o th e i n s tru ct i o n s fo r Fo rm

8 9 6 5 , Heal t h Co v erag e Ex em p t io n s , wh ich wo u ldh av e
s h o wedth em

h o w t o cal cu l at e t h ei r “ s h aredres p o n s i b i l i ty p aym en t.” See 2 0 1 4 In s tru ct i o n s fo r Fo rm

8 9 6 5 , at6 “ Sh ared Res p o ns i b i l it y Paym en tW o rk s heet ”. Onth ei r retu rn th e M cGu i res l eftb l an kl i n e 6 9 , l ab el ed“Netp rem i u m t ax cred i t . Att ach Fo rm

8 9 6 2 .” Th e i n s t ru ct io n s fo r Fo rm 1 0 4 0 , l i n e 6 9 (fo u n d at p ag e 7 0 ) are s i l en t as t o h ow t h i s l in e m i g h trel at e t o an ad van ce p rem i u m t ax cred i t . Th o s e i n s tru ct i on s read , i n fu ll :- 6
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Li ne 6 9 Net Prem i um Ta x Credi t Yo u m ay b e el ig i b l e t o cl ai m

th e p rem iu m

t ax cred i t i f y o u , y o u r s p o u s e, o r a d ep en d en ten ro l l edi n h eal t h i n s u ran ce t h ro u g h th e Heal t h In s u ran ce M ark etp l ace. Th e p rem iu m t ax cred i t h el p s p ay

fo r th i s h eal t h i n s u ran ce. Co m p l et e Fo rm

8 9 62 t o d et erm i n e t h e am o u n t o f y ou r p rem i u m tax cred i t , i f an y . En t er t h e am o un t , i f an y , fro m Fo rm 8 96 2, l in e 2 6. See Pu b
. 9 7 4 an dthe i n s t ru ct i o n s fo r Fo rm 8 9 6 2 fo r m o re i n fo rm at i o n . Fo l l o wi ng t h e cro s s-referen ce t o th e i n s t ru ct i o n s t o Fo rm 8 96 2 , Prem i u m Tax Cred i t , m i g h tl eada read er t o t h i s p as s ag e o n p ag e 1 o f t h o s e i n s t ru ct i o n s : Adv a nce pa ym ent o f the prem ium ta x credi t (APTC). APTC i s a p aym en tm ad e fo r co v erag e du ri n g t h e y ear t o y o u r i n s u ran ce p ro v i d er th atp ay s fo r p arto r al l o f t he p rem iu m s fo r t h e co v erag e o f y o uo r an i n d i v i du al i n y o u r t ax fam i l y . Yo u r APTC el i g i b i li t y i s b as edo n th e M ark etp lace’ s es t i m at e o f t h e PTC y o uwi l l b e ab l e t o t ak e o n y o u r t ax retu rn . If APTC was p ai dfo r y ouo r an i n d i v idual i n y o u r t ax fam il y , y o u m

u s tfi l e Fo rm

8 9 6 2 t o reco n ci l e (co m

p are) t h i s APTC wi th y o u r PTC. If t h e APTC i s m o re t h an y o u r PTC, y o u h av e ex ces s APTC an d y o u m

u s trep ay t h e ex ces s , s ub

ject t o cert ai n l i m i t at i o n s . If y o u r PTC i s m o re t h an th e APTC, y o ucan reduce y o u r t ax p aym en to r i n creas e y o u r refu n db y t h e d i fferen ce. Th ere i s n o ev i d en ce i n th e reco rdi n d i cat i n g th atth e M cGu i res , wh o ret ai n eda t ax retu rn p rep arer, were m ad e aware o f t h es e v ari o u s i n s t ru ct i o n s . No wh ere o n th ei r retu rn d i dth ey

rep o rtth ei r ad v an ce p rem iu m t ax cred i t o f $ 7 ,0 92
. Th i s o m i s si o n cau g h tth e at ten t i on o f t h e In t ern al Rev en u e Serv i ce. On Au g u s t8 , 2 0 1 6 , th e Co m m i s s i on er i s s u eda n o t i ce o f d efi ci en cy t o t h e M cGu i res .- 7
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Th e o nl y t ax ad j u s t m en t i n th atn o t i ce o f d efi ci en cy was t o d i s al l o w th e $ 7 ,0 9 2 ad v an ce p rem i u m

t ax cred i t, th e effect o f wh i ch was t o i n creas e t hei r t ax l i ab i l i t y i n the am o u n to f t h at d i s al l o wedcred i t . Th e Co m m i s s io n er al s o d et erm i n edan
accu racy -rel at edp en al ty . Whi l e res i d i n g i n Cal i fo rn i a, th e M cGu i res p et i t i o n ed
. Di s cu ss i o n Th ere i s v ery

l i t t l e i n d i s p u t e i n th i s cas e; b ot h th e fact s an dth e l aw are cl ear, an dth e p art i es s eem to b e i n ag reem en t as t o h o w th e l aw ap pl i es t o th e fact s. Befo re turn i n g t o t h e actu al d i s p u t e, we wi l l s umm ari ze th e l aw an dh o w i t ap p li es t o th e fact s. Th e Affo rd ab l e Care Act A s t at edp u rp o s e o f t h e Pat i en tPro tect i o n an dAffo rd ab le Care Act (ACA), Pub . L. No . 1 1 1 -1 4 8 , 1 2 4 St at . 1 1 9 (2 0 1 0), i s t o “ i m p ro v e acces s t o an d t h e d el i v ery o f h eal t h care s erv i ces fo r al l i n d i v i du al s , p art i cu l arl y l ow i nco m e,
u n d ers erv ed , u n in s ured , m i no ri t y , h eal t h d i s p ari t y an dru ral p o pu l at i o n s ”. Id . s ec. 5 0 0 1 , 1 2 4 St at
. at 5 8 8
. 3 To ach i ev e t h is g o al , th e s t atu t o ry s ch em e, am o n g o t h er th i n g s , m an d at es th ati n d i vi du al s m ai n t ai n h eal t h co v erag e, creat es h eal th i n s u ran ce ex ch an g es t o p ro v i d e th atco v erag e, an do ffers a refu n d ab l e t ax cred i tt o

3 Al l s ect i o n referen ces are t o th e In tern al Rev en u e Co d e i n effect fo r t h e y ear i n i s s u e, u n l es s o th erwi se i n d i cat ed
.- 8
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o ffs etth e co s to f h eal t h i n s uran ce fo r t h o s e wh o qu al ify . Id
. s ec. 1 5 01 , 1 2 4 St at . at 2 4 2 ; s ec. 5 0 00 A ; ACA s ec. 1 4 0 1 , 1 2 4 St at . at2 1 3 ; s ec. 3 6 B; ACA s ec. 1 31 1 , 1 2 4 St at . at 1 73 . Th e i n d i v i dual m an d at e i s en fo rcedb y th e i m p o s i t i o n o f a p en al t y

o n i n d i v i du al s wh o d o n o tm ai n t ai n qu al ify i n g h eal t h i n s uran ce co v erag e. Sec. 5 0 0 0 A; ACA s ec. 1 5 01 . Th e ex ch an g es are h eal t h i n s u ran ce m ark et s th atare ad m i n is t eredb y ei th er St at e g o v ern m en t s o r t h e Fed eral Go v ern m en t . ACA s ec. 1 3 2 1 (c), 1 2 4 St at . at1 86 (co d i fi edat 4 2 U.S.C. s ec. 1 8 0 4 1 (c) (Su p p . V 2 0 0 6 )). An dthe t ax cred i ti s referred t o as th e p rem i u m as s i st an ce t ax cred i t
. Sec. 3 6 B. Th e Prem i u m

As s i s t an ce Tax Cred i t Th e p rem i u m

as si s t an ce t ax cred i ti s av ai l ab le t o h o u s eh o ld s wi t h i n co m es b et ween 1 0 0 % an d4 0 0 % o f t h e Fed eral p o v ert y l i n e. Sec. 3 6 B(c)(1 )(A). Ho u s eh o l di n co m e i s s p eci fi cal l y d efi n edfo r t h i s p u rp o se. Sec. 1 .3 6 B-1 (e)(2 ), In co m e Tax Reg s . Th e Fed eral p o v erty l i n e i s d efi nedb y

th e Offi ce o f M an ag em en t an d Bu dg etan di s up d at edb y th e Secret ary

o f Heal th an dHu m an Serv i ces . Sec. 3 6 B(d )(3 ); 4 2 U.S.C. s ec. 1 3 9 7 jj(c)(5 ) (Sup p . V 2 0 0 6 ); 4 2 U.S.C.
s ec. 9 9 02 (2 ) (2 0 0 6). Du ri n g 2 0 1 4 th e Fed eral p o v ert y l i n e was $ 1 5,5 1 0 fo r a t wo p ers o n h o u s eh o l d i n Cal i fo rn i a, an d4 0 0% o f t h e Fed eral p o vert y l i n e was $ 6 2 ,0 4 0 . To qu al i fy

fo r t he cred i to n e m

us tb e a ci t i zen o r n at i o n al o f t h e Un i t ed St at es o r l awfu l l y

p res en t i n th e Un i t ed St at es . Sec. 3 6 B(e)(2 ). El i g i b i l it y fo r t h e- 9
-

cred i ti s al so co n t i n g en to n en ro l l m en t i n a qu al i fi edh eal t h p l an . Sec. 3 6 B(b )(2 )(A). A qu al i fi edh eal t h p l an i s d efi n edas ei t h er an i n di v i du al h eal t h i n su ran ce p l an o r a g ro up heal th p l an t h atm eet s a ran ge o f s t atu t o ry req u i rem en t s . ACA s ec. 1 3 0 1 , 1 2 4 St at
. at 1 6 2 (co d i fi edat4 2 U.S.C. s ec. 1 8 0 21 (Supp . V 2 0 0 6 )). Inth e
cas e o f a qu al i fi edi n d i v i du al h eal t h p l an , th e p lan m us tb e m ad e av ai l ab l e fo r p u rch as e o n an ex ch an g e, m u s tm eet m i n im

u m co v erag e req u irem en ts , an dm u s t b e o ffered b y

an i ns u rer wh o i s l i cen s edi n th e St at e wh ere t h e p l an i s o ffered an d i s i n g o o ds t an d i n g t o offer h eal t h i n s uran ce u n d er ap p l i cab l e St at e an dFed eral
s t an d ard s . Id .; ACA s ec. 1 3 0 2 , 1 2 4 St at . at 1 6 3 (co d i fi edat 4 2 U.S.C. s ec. 1 8 0 2 2 (Sup p. V 2 0 0 6 )). Pl an s are cat eg o ri zedb as edo n th e l ev el o f co v erag e th ey p ro v id e. ACA s ec. 1 3 0 2(d )(1 ), 1 2 4 St at . at 1 6 7. Th e co v erag e l ev el s fro m l o wes t t o h i g h es tare b ro n ze, s i l v er, g o l d , an dp l at i n u m . Id
. Th e am ou n to f t he cred i t i s b as edo n b o t h t h e t ax p ay er’ s i n co m e an d t h e
co s to f t he b en ch m ark qu al ifi edh eal t h p l an . Sec. 3 6 B; s ec. 1 .3 6 B-3 (f), In co m e Tax Reg s . Th e b en ch m ark qu al i fi edh eal t h p l an i s th e “ s eco n d l o wes tco s ts i l v er p l an o f th e i nd iv i du al m ark eti n t h e rat i n g area i n wh i ch th e t ax p ay er res i d es .” Sec. 3 6 B(b )(3 )(B); s ec. 1
. 3 6 B-3 (f), In co m e Tax Reg s . Cred i treci pi en t s are req u i redt o p ay

a p ercen tag e o f t h ei r h o u s eh ol di n co m e t o wardthei r i n s u ran ce- 1 0 -

p rem i u m s. Sec. 3 6 B(b )(3 ). Th e p rem i u m as s i s t an ce t ax cred i ti s equ al t o th e
am ou n to f t h e ex ces s co s to f t h e b en ch m ark qual i fi edh eal t h p l ano v er t h e t ax p ay er’ s req u i red co n tri b ut i o n . Sec. 1 .3 6 B-3 (g ), In co m e Tax Reg s . Th e p ercen t ag e u s edt o d et erm i n e t h e t ax pay er’ s s h are o f t h e p rem i u m s v ari es , wi t h l o wer i n co m e h o u s eh o l d s p ay i n g a s m al l er p ercen t ag e o f t hei r h o u seh o l d i n co m e t o ward th ei r p rem i u m s . Sec. 3 6 B(b )(3 )(A)(i ). Th e p ercen t ag es ran ge fro m 2 % t o 9 .5 % . Id . Th e am o u n to f t h e cred i ti s th e l es ser o f ei t h er t he m on t h l y p rem i u m fo r th e qu al i fi edh eal t h p l an o r t h e ex ces s o f t he m o n th ly p rem iu m fo r t h e b en ch m ark qu al i fi edh eal t h p l an o v er o n e-twel ft h o f t he t ax p ay er’ s req u i reds h are o f t he
an n ual p rem i um . Sec. 3 6 B(b )(2 ); s ec. 1 .3 6 B-3 (g ), In co m e Tax Reg s . Th e ACA t as k s t h e Secret ary o f Heal t h an dHu m an Serv i ces wi th
es t ab l i s h in g a p ro g ram

t o d et erm i n e wh et h er ap p l ican t s are el i g i b l e fo r p rem i u m
as s i s tan ce t ax cred i ts an dth e am o u n t s o f t h o se cred i t s . ACA s ec. 1 4 1 1 (a)(2 ), 1 2 4 St at . at 2 24 . Th e ex ch an g e i s res p o n s i b le fo r co l l ect i n g n eces s ary el i g i b i l it y i n fo rm at i o n s u ch as h o u s eh o l d i n co m e an dfam i l y s i ze fro m

th o s e s eek i n g p rem i u m as s i s t an ce t ax cred i t s. Id . s ec. 1 4 1 1(c)(1 ), 1 2 4 St at . at2 2 6 . On ce
co l l ect ed , th e ex ch an g e m u s ttran sm i tth ati n fo rm at i o n t o th e Secret ary o f Heal t h
an d Hu m an Serv i ces fo r v eri fi cat i o n . Id . On ce v eri fi ed , th e Secret ary o f Heal t h- 1 1 -

an d Hu m an Serv i ces m

u s tn o t i fy th e ex ch an g e, an dth e i n di v i du al ’ s el i g i b i l i t y t o
en ro l l i s s at i s fi ed . Id
. s ec. 1 41 1(e)(2 ), 1 2 4 St at . at2 2 7
. Ad v an ce Prem i u m

Tax Cred i t s If s o m eo n e can no t affo rdm o n th l y h eal t h i ns u ran ce p rem i u m s du ri n g th e y ear, d o l i n g o u ttho s e t ax cred i t s aft er t h e en do f th e y ear i s o f l i t t l e u s e. Fo r t h i s
reas on , th e ACA al l o w s fo r t h e ad v an ce p aym en t o f t h e p rem i u m as si s t an ce t ax cred i t“ i n o rd er t o redu ce p rem i u m s p ay ab l e b y i n d iv i du al s el ig i bl e fo r [p rem i u m
as s i s tan ce t ax cred i ts ] ”. Id . s ec. 1 4 1 2 (a)(3 ), 1 2 4 St at . at2 3 1 -2 3 2 (co d i fi edat4 2 U.S.C. 1 8 0 8 2 ). Th e “ ad v an ce p rem i u m t ax cred i t s ” are p ai dd i rect ly t o t h e i n s u rer i n the fo rm

o f m on t h l y p aym en t s b as edo n ad v an ce el i g i b i li t y d et erm i n at i o n s . Id
. s ec. 1 4 12 (c)(2 )(A), 1 24 St at . at2 3 2 (co d i fi edat4 2 U.S.C. 1 8 0 8 2(c)(2 )). Th e i n s u rers wh o recei v e t he p aym en t s are req u ired t o reduce t he p rem iu m ch arg edt o th e i n s u redb y

the am o u nto f t he ad v an ce p rem i u m t ax cred i t recei v ed
. Id . s ec. 1 4 1 2 (c)(2 )(B). Th e i ns u rers al s o m us t n o ti fy th e Secret ary

o f Heal t h an dHu m an Serv i ces an dthe rel ev an tex ch an g e o f t h e reduct i o n i n p rem iu m s an di ncl u d e t h e
am ou n tb y wh i ch th e p rem i u m was redu cedas a res u l to f t h e ad v an ce p rem i u m t ax cred i t . Id . s ec. 1 4 1 2(c)(2 )(B)(i ), (i i ), (i i i ).- 1 2 -

Reco n ci l i n g th e Cred i t Recei v edW i t h th e El i g i b l e Am o un t So m et i m es ci rcu m s t an ces ch an g e, an da t ax pay er’ s an nu al i n co m e m i g h tb e
m o re o r l es s th an th e es t i m at e th atwas u s edwh en t h e ad van ce p rem i u m t ax cred i t
was d et erm i n ed . So atth e en do f t h e y ear, a t ax p ay er wh o recei v es an ad v an ce p rem i u m t ax cred i tm

u s treco n ci l e t h e am o u n to f t h e cred i trecei v ed(i .e., th e p rem i u m s p ai dwi t h t h e ad v an ce cred it s ) wi t h t he el ig i bl e cred itam ou n t. Sec. 3 6 B(f). Th i s i s d o n e wh en th e t ax pay er fi l es h i s o r h er an n ual i n co m e t ax retu rn . If t h e am o u n to f t h e ad v an ce p rem i u m t ax cred i ti s m o re t han th e am o u n tt o wh i ch th e t ax p ay er i s u l t i m at el y en ti t led , th e t ax p ay er o wes th e ex ces s cred i tb ackt o th e Go v ern m en t , an di t i s refl ect edas an i n creas e i n t ax . Sec. 3 6B(f)(2 ). Fo r a t ax p ay er wi t h i n co m e b el o w 4 0 0 % o f t h e Fed eral p ov ert y l in e, th e am o u n t o f t h e t ax i n creas e i s l i m i t ed t o $ 2 ,5 0 0 . Sec. 3 6 B(f)(2 )(B). Fo r a t ax p ay er wi th i n co m e g reat er t h an 4 0 0 % o f t h e Fed eral p o v ert y l i n e, t h ere i s n o l i m i tt o th e am o un to f th e t ax i ncreas e. Sec. 3 6 B(f)(2 ); s ec. 1 .3 6 B-4 (a)(4 ), Ex am pl e (5 ), In co m e Tax Reg s. Su ch a t ax p ay er i s n o t el i g i b l e fo r t h e cred i t , an dth e fu l l am o u n to f t h e ad v an ce p rem i u m

t ax cred i t recei v eddu ri n g t he y ear m u s tb e i n cl u d edas a t ax l i ab i l i ty w i t h th e t ax retu rn . Id
.- 1 3 -

Th e M cGu i res Th i s b ri ng s u s t o th e M cGu i res . Th e M cGu i res s o u g h tan drecei v edan ad v an ce p rem i u m

t ax cred i t. Th ei r adv an ce p rem iu m t ax cred i t was b as edo n M r. M cGu i re’ s i n co m e. Bu tth en M rs . M cGu i re fo u n d wo rk , an dwi th th e ad d it i o n o f h er i n co m e t h e M cGu i res ’ h o u s eh o l di n co m e fo r 2 0 1 4 ro s e ab o v e 4 0 0 % o f t h e Fed eral p o v ert y l i n e. Becau s e t h e M cGu i res ’ h o us eh o l di n co m e ex ceed edth at th res ho l d , th ey

are n o ten t i t l ed t o an y

o f th e ad van ce p rem i u m

t ax cred i tth ey recei v ed . See s ec. 3 6 B(c)(1 )(A), (f)(2 ). Th e M cGu i res n o t e wh atth ey co ns i d er t o b e t h e u n fai rn es s o f i tal l . As M rs . M cGu i re p uti t : [Th e Co m

m is s io n er arg u es ] t h ati f Pet it i on ers are l i ab l e fo r t h e d efi ci en cy , th en th ey

wo u l d b e n o wo rs e o ff fi n an ci al ly th ani f th e APTC h adb een t erm in at edi n earl y 2 0 1 4. Th is i s s im

p l y u n t ru e an d d o es n o tal t er t h e fact th ati t was Co v eredCal ifo rn i a’ s res p o n s ib i l i t y t o en s ure cl i en t s o n l y

recei v edth e Ad v an ce Prem i um Tax Cred i tfo r wh i ch th ey

qu al i fi ed . W e wo u l dn ev er h av e co m m i t t edt o p ay i n g fo r m ed i cal co v erag e i n ex ces s o f $ 1 4 ,0 0 0 p er y ear. W e can n o t affo rdi t an dwo u l d h av e co nt in u edt o s h op i n th e p ri v at e s ect o r t o p urch as e th e m i n i m al , l eas t ex p en s i v e co v erag e o r g on e wi t h o u tco verag e co m p let el y an d s u ffered th e p en al t i es . * * *

* * * If we are d eem edres p o ns i bl e fo r p ay i n g b ack t h i s d efi ci en cy , i t wo u ldb e d ev as t at i ng an d co m p l et el y u n ju s t. W e h o p e an dp ray y ou are co n v i nced th atwe h av e m ad e ev ery s i ng l e effo rtt o g etCo v ered Cal i fo rn i a t o m ak e p ro per ad j u s t m en t s t o o ur rep o rt edi n co m e an d s ub s equ en t l y

t o t h e Ad v an ce Prem iu m Tax Cred i twe were q ual i fi ed t o recei v e wi t h o u ts u cces s . Th e wh o le p urp o s e o f t h e Affo rd ab l e- 1 4 -

Care Act was t o p ro v i d e ci t i zen s wi t h ju s t t h at , affo rd ab l e h eal t h care. Th i s h as b een an ab s o l u t e n i g h t m are an dwe h o p e y o u wi l l ru l e fai rl y an dju s t ly t od ay . In o th er wo rd s , th e M cGu ires co n s i d eredth em s el ves t o h av e b een trap p ed i n a h eal th p l an th atth ey

co u l dn o taffo rdwi t h o u tth e s ubs i dy p ro vi d edb y

th e ACA. An dthey as k u s t o ru l e “ fai rl y

an dju s t l y ” o r, o t h erwi s e s t at ed , equ i t ab l y . Bu twe are n o ta co urt o f eq ui t y , an dwe can n o t i g n o re th e l aw t o ach i ev e an equ it ab l e en d . Co m

m i s s i o n er v . M cCo y , 4 84 U.S. 3 , 7 (1 9 8 7 ); St o v al l v
. Co m m i s s i o n er, 1 0 1 T.C. 1 4 0 , 1 4 9 -1 5 0 (1 9 9 3); Pax m anv . Co m m i s s i o n er, 5 0 T.C. 5 6 7 , 5 7 6 -5 7 7 (1 9 68 ), aff’ d , 4 1 4 F.2 d2 6 5 (1 0 t h Ci r. 1 9 6 9). Al t h o u gh we are
s ym p ath et i c t o th e M cGu i res ’ s i tu at i o n , th e s t atu t e i s cl ear; ex ces s ad v an ce p rem i u m t ax cred i t s are t reat edas an i n creas e i n th e t ax i m p o s ed . Sec. 3 6 B(f)(2 )(A). Th e M cGu i res recei v ed an ad v an ce o f a cred i tt o wh i ch t h ey
u l t i m at el y

were n o t en t i t l ed . Th ey

are l iab l e fo r t h e $ 7 ,0 9 2 d efi ci en cy . Accu racy -Rel at edPen al t y In h i s n o t i ce o f d efi ci en cy , th e Co m m i ss i o ner m ak es a b o i l erp l at e d et erm i n at i o n o f an accu racy -rel at edp en al t y u n d er s ect i o n 6 6 62 (a). Th e n o t i ce i d en t i fi es fo u r p o s s ib l e cau s es fo r th e u nd erp aym en t : n eg l i gen ce, a s ub s t an t i al
u n d ers t at em en to f i n co m e t ax , a s ub st an t i al v al u at i o n m i s s t at em en t , an da- 1 5 -

tran s act io n l ack i n g eco n o m i c s ub s t an ce. Sub s equ en t l y , th e Co m m i s s io n er
co n ced edal l accu racy -rel at edp en al t i es . To refl ectthe fo reg o i n g ,

Deci s i o n wi ll b e en t eredfo r
res p o nd en t as t o the t ax an dfo r p et i t i o ners as t o th e p en al t y .