George P. Manzolillo & Lucy P. Manzolillo

United States Tax Court
T.C. Memo. 2022-107GEORGE P. MANZOLILLO AND LUCY P. MANZOLILLO,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 25481-16. Filed October 24, 2022.
—————
George P. Manzolillo and Lucy P. Manzolillo, pro sese.
Randall B. Childs, Eric O. Young, A. Gary Begun, and David D. Duncan,
for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KERRIGAN, Chief Judge: Respondent determined a deficiency of
$4,750 for 2015. The issue for consideration is whether petitioners’
income tax liability must increase by the amount of the excess advance
premium tax credit (APTC) benefit that was applied against their
monthly health insurance premium.
Unless otherwise indicated, all section references are to the
Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times,
all regulation references are to the Code of Federal Regulations, Title 26
(Treas. Reg.), in effect at all relevant times, and all Rule references are
to the Tax Court Rules of Practice and Procedure. We round all
monetary amounts to the nearest dollar.
Served 10/24/22
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[*2] FINDINGS OF FACT
A partial trial was held and later further trial was held, and
Exhibits were admitted. Petitioners resided in Florida when they timely
filed their Petition.
Before their marriage on May 16, 2015, petitioners separately
enrolled in health insurance for taxable year 2015 through Aetna Life
Insurance Company, which they purchased through the Health
Insurance Marketplace. In 2015 petitioner husband elected to receive
APTC payments of $640 per month for 12 months for a total annual
credit of $7,680. Petitioner wife similarly elected to receive APTC
payments of $90 for three months—January 1 to March 31, 2015—
totaling $270 for the year. Petitioners received a combined APTC
benefit of $7,950 in 2015. This amount was paid directly to petitioners’
insurance company and applied to the cost of their 2015 health
insurance premiums.
Petitioners timely filed a joint income tax return for taxable year
2015 reporting adjusted gross income of $56,307 and claiming no
dependents. They attached to their return Form 8962, Premium Tax
Credit, which is used to reconcile the amount of APTC benefit received
with the amount the taxpayer was entitled to receive. They reported
modified adjusted gross income (MAGI) of $67,448, which included
$11,141 of tax-exempt interest. Petitioners claimed a $4,515 PTC for
2015. They claimed erroneously that $3,200 had been paid on their
behalf; it was in fact $7,950. Petitioners elected the alternative
calculation for year of marriage but failed to complete Part V of Form
8962.
On July 18, 2016, respondent requested additional
documentation from petitioners to support their PTC claim. They
supplied this information, and on August 1, 2016, respondent issued
petitioners a previously frozen refund of $4,187 plus interest.
Respondent subsequently audited petitioners’ 2015 tax return
and denied their $7,950 PTC. On October 17, 2016, respondent issued
petitioners a notice of deficiency for $7,550. Nearly a year after they
filed their Petition, petitioners informed respondent that the notice of
deficiency did not account for their election regarding the alternative
calculation of the PTC for year of marriage. Respondent accordingly
adjusted the deficiency to $4,750.
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[*3] OPINION
Generally, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and taxpayers bear the burden
of showing the determinations are erroneous. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). Petitioners do not contend that the
burden of proof should be shifted to respondent under section 7491(a),
and the record does not suggest any basis for a shift.
Petitioners contend they have no deficiency and that they are
entitled to the refund that they received. They do not argue that
respondent miscalculated their PTC for the taxable year. Instead, they
argue that the Commissioner is precluded from issuing a deficiency
notice after previously providing a refund.
I. Premium Tax Credit
As part of the Patient Protection and Affordable Care Act, Pub. L.
No. 111-148, §§ 1401(a), 10105, 124 Stat. 119, 213, 906 (2010), section
36B allows a PTC to subsidize the cost of health insurance purchased
through a health insurance exchange by taxpayers meeting certain
statutory requirements. See Treas. Reg. § 1.36B-2(a). The PTC is
generally available to individuals with household incomes between
100% and 400% of the federal poverty line (FPL) amount for the year at
issue. 1 § 36B(c)(1)(A), (d)(3)(B); see McGuire v. Commissioner, 149 T.C.
254, 259 (2017). A taxpayer’s household income is the sum of the MAGI
of both spouses. Treas. Reg. § 1.36B-1(e)(1).
Recipients can choose to receive the benefits in advance, in which
case the payments are made directly to the insurer. See § 36B; McGuire,
149 T.C. at 260. At yearend a taxpayer who received an APTC must
reconcile the amount of the APTC already received with the entitlement
amount. § 36B(f)(2). The taxpayer may do so by completing Form 8962
and filing it with the tax return. If the APTC is greater than the
entitlement amount, the taxpayer owes the Government the excess
APTC, which will be reflected as an increase in tax. § 36B(f)(2)(A); Keel
v. Commissioner, T.C. Memo. 2018-5, at *6.
1The FPL amount is established by the most recently published poverty
guidelines in effect on the first day of the open enrollment period preceding
that tax year.
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[*4] The regulations provide an alternative calculation to address
circumstances where taxpayers such as petitioners are unmarried at the
beginning of the taxable year, marry during the year, and file a joint
return for the same taxable year. See Treas. Reg. § 1.36B-4(b)(2)(i).
Under this method, the taxpayers’ additional tax liability is equal to the
excess of the taxpayers’ APTC payments for the taxable year over the
amount of the “alternative marriage-year credit.” Id. subdiv. (ii)(A).
“The alternative marriage-year credit is the sum of both taxpayers’
alternative premium assistance amounts for the pre-marriage months
and the premium assistance amounts for the marriage months.” Id.The alternative premium assistance amount for premarriage
months is equal to the excess of each taxpayer’s benchmark qualified
health plan premium amount over the taxpayer’s required contribution
amount. Id. subdiv. (ii)(B). To calculate the premarriage contribution
amount, each taxpayer uses “one-half of the actual household income for
the taxable year and treats family size as the number of individuals in
the taxpayer’s family prior to the marriage.” Id. The marriage months
calculation is similar except that the taxpayer’s contribution amount is
determined using the taxpayers’ joint household income and family size
at the end of the taxable year. Id. subdiv. (ii)(C). Taxpayers calculate
the premium assistance amount for the marriage months for each full
month they are married. Id.Petitioners are eligible for the alternative calculation because
they were “unmarried at the beginning of the taxable year, married
during the year, and file[d] a joint return for the same taxable year.” See
Fisher v. Commissioner, T.C. Memo. 2019-44, at *8. Using this
alternative method, respondent adjusted petitioners’ deficiency to
$4,750. Petitioners have made no effort to show that respondent’s
determinations are incorrect. The Court agrees with the deficiency as
adjusted.
II. Preclusion
Petitioners assert that respondent is precluded from increasing
their tax liability because they received a refund for 2015. Their position
is inconsistent with our caselaw.
“A refund is not binding on the Commissioner in the absence of a
closing agreement, valid compromise, or final adjudication.” Krantz
v. Commissioner, T.C. Memo. 2018-17, at *4 (citing Meridian Mut. Ins.
Co. v. Commissioner, 44 T.C. 375, 379 (1965), aff’d, 369 F.2d 508 (7th
5
[*5] Cir. 1966)). “It is well settled that the granting of a refund does not
preclude the Commissioner from issuing a notice of deficiency merely
because he accepted a taxpayer’s return and issued a refund.” Id. at *5
(first citing Beer v. Commissioner, 733 F.2d 435, 437 (6th Cir. 1984), aff’g
T.C. Memo. 1982-735; and then citing Warner v. Commissioner, 526 F.2d
1, 2 (9th Cir. 1975), aff’g T.C. Memo. 1974-243). “[R]efunds are subject
to final audit and adjustment, and thus are not final determinations
that would preclude subsequent adjustment” such as a notice of
deficiency. Id. (first citing Clark v. Commissioner, 158 F.2d 851 (6th Cir.
1946) (per curiam), aff’g a Memorandum Opinion of this Court; and then
citing Owens v. Commissioner, 50 T.C. 577 (1968)).
We therefore reject petitioners’ contention that respondent was
precluded from issuing them a deficiency notice because they had been
issued a refund.
III. Conclusion
Respondent was not precluded from issuing petitioners a
deficiency notice after issuing them a refund for the 2015 taxable year.
After calculating the alternative marriage-year computation for the
PTC, we conclude petitioners are liable for a $4,750 increase in the tax
imposed.
To reflect the foregoing,
Decision will be entered for respondent.