TAX COURT OPINION

Case: Gregory R. Kraemer & Jane M. Kraemer
Docket Number: 11935-16S
Judge: Buch
Opinion Type: bench
Filed: 04/04/2018
Pages: 7

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 GREGORY R. KRAEMER & JANE M. KRAEMER, Petitioners, v. ) ) ) ) ) Docket No. 11935-16S. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit with this order to petitioners and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at Milwaukee, Wisconsin, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent as to the tax only. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. April 4, 2018 SERVED Apr 05 2018 Bench Opinion by Judge Ronald L. Buch March 6, 2018 Gregory R. Kraemer & Jane M. Kraemer v. Commissioner of 3 Internal Revenue Docket No. 11935-16S The following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal 1 2 3 4 5 6 7 8 9 10 Revenue Code section 7459(b) and Rule 152(a) of the Tax 11 Court Rules of Practice and Procedure. Any section 12 references refer to the Internal Revenue Code or the 13 Treasury regulations in effect during the years at issue, 14 and all Rule references are to the Tax Court Rules of 15 Practice and Procedure. 16 This case was heard pursuant to section 7463. 17 Under section 7463(b), the decision to be entered in this 18 case is not reviewable by any other court, and this 19 opinion may not be treated as precedent for any other case. 20 21 The question before the Court is whether the 22 Kraemers are liable for a deficiency of $6,032 for 2014 23 that represents a recapture of Affordable Care Act premium 24 assistance credits. We hold that they are liable. 25 Background an>4522solopmt==e.«reeuwti..wmaassaa 1 2 3 4 5 6 7 8 9 The evidence in this case consists of stipulated documents and Mrs. Kraemer's uncontroverted testimony, and thus we decide this case based on the facts as she described them and as shown by the documents in the record. The year before us is 2014. During that year, the Kraemers were married with two children living at home. The children have health issues, and maintaining good health insurance was important to the Kraemers. They 10 previously had coverage under Wisconsin BadgerCare. With 11 12 13 the enactment of the Affordable Care Act (sometimes called the ACA), the Kraemers sought out coverage under the ACA. In the past, the Kraemers had looked into 14 whether withdrawing funds from a retirement account would 15 affect their eligibility for BadgerCare, so they inquired 16 whether funds withdrawn from a retirement account would 17 affect their eligibility under the ACA. It was their 18 19 20 21 22 23 24 understanding that a withdrawal from their retirement accounts would not affect their eligibility for benefits under the ACA. In Wisconsin, 400% of the federal poverty line was $94,200 in 2014, and the Kraemers anticipated earning less than that amount not taking into account retirement plan withdrawals. Based on their understanding of how the ACA 25 operated, the Kraemers purchased health insurance through 5 1 2 3 4 5 6 7 8 9 10 11 12 the Health Insurance Marketplace. Relying on the anticipated ACA benefits, they chose a plan that provided benefits to meet their family's needs. In 2014, they received $7,605 of advance premium assistance credits. In 2014, the Kraemers operated a machine tool business. The business had fallen on hard times. To keep themselves and their business financially afloat, the Kraemers withdrew $35,000 from an Individual Retirement Account. Including the IRA withdrawal, the Kraemer's household income exceeded $100,000. The Kraemer's completed a tax return and reported the excess advance premium assistance tax credit. 13 They did not full-pay their liability. This led to a 14 back-and-forth with the IRS that ultimately resulted in 15 the IRS erroneously reducing the Kraemer's tax liability. 16 When the IRS realized its error, it issued a notice of 17 deficiency to re-assess the tax. Notwithstanding the 18 procedural mixup, the sole issue in the case is the 19 Kraemers' eligibility for premium assistance credits. 20 21 Discussion As a general matter, the Commissioner's 22 determinations in the notice of deficiency are presumed 23 correct, and the taxpayer bears the burden of proving an 24 error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 25 (1933). In limited situations, the burden can shift to 733442250l operationseescrbertnet j www.escríbersmet respondent under section 7491(a), but the record does not establish that the criteria under section 7491 have been met, therefore, the burden of proof remains on the 6 Kraemers. The premium assistance tax credit is available to households with incomes between 100% and 400% of the Federal poverty line. See McGuire v. Commissioner, 149 T.C. (slip, op. at 3) (Aug. 28, 2017) for a full discussion of eligibility requirements. During 2014 the 1 2 3 4 5 6 7 8 9 10 Federal poverty line was $23,550 for a four-person E E E 11 12 13 14 15 16 17 18 household in Wisconsin, and 400% of the Federal poverty line was $94,200. The ACA allows for the advance payment of the premium assistance tax credit "in order to reduce premiums payable by individuals eligible for {premium assistance tax credits]". Id. sec. 1412(a)(3), 124 Stat. at 231-232 (codified at 42 U.S.C. 18082). The "advance premium tax credits" are paid directly to the insurer in the form of 19 monthly payments based on advance eligibility 20 determinations. Id. sec. 1412(c)(2)(A), 124 Stat, at 232 21 22 23 24 25 (codified at 42 U.S.C. 18082(c)(2)). Sometimes circumstances change, and a taxpayer's annual income might be more or less than the estimate that was used when the eligibility for the advance premium tax credit was determined. At the end of the year, taxpayers i | | 7 1 2 3 4 5 6 7 8 9 who receive an advance premium tax credit must reconcile the amount of the credit received (in other words, the premiums paid with the advance credits) with the eligible credit amount. Sec. 36B(f). This is done when the taxpayers file their annual income tax return. If the amount of the advance premium tax credit is more than the amount to which the taxpayers are ultimately entitled, the taxpayers owe the excess credit back to the Government, and it is reflected as an increase in tax. Sec. 10 36B(f)(2). Taxpayers with income greater than 400% of the 11 Federal poverty line are not eligible for the credit, and 12 the full amount of the advance premium tax credit received 13 during the year must be included as a tax liability with 14 the tax return. Sec. 36B(f)(2); sec. 1.36B-4(a)(4), 15 Example 151, Income Tax Regs. 16 17 18 Because the Kraemers' household income exceeded that threshold, they are not entitled to any of the advance premium tax credit they received. See sec. 19 36B(c)(1)(A), (f)(2). The Kraemers' withdrawal of 20 21 retirement funds to help keep themselves and their business afloat put their income over 400% of the Federal 22 poverty line. Although we are sympathetic to the 23 Kraemers' situation, we must apply the law as written. 24 25 The statute is clear; because their income was over that threshold, they were no longer entitled to the credits 8 they had received. And excess advance premium tax credits are treated as an increase in the tax imposed. Sec. 36B(f) (2) (A). The IRS is correct in determining that tax. The Commissioner conceded the penalty in this case, and a decision will be entered for the Commissioner as to the tax only. (Whereupon, at 9:50 a.m., the above-entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5 (973;406-2250|operanonseerrbertnet|www.escréersaet