Executive order cannot waive tax on excess premium credits

Plain-English summary

A taxpayer received a retroactive lump-sum Social Security disability payment covering prior years while also receiving advance premium tax credits for marketplace health insurance. Because section 36B requires all Social Security benefits received during the year to be included in modified adjusted gross income, the lump sum caused excess advance credits and additional tax. IRS Chief Counsel advised that Executive Order 13765 did not authorize the IRS or Taxpayer Advocate Service to ignore the statutory income rule or waive the resulting tax; the order permits administrative relief only to the extent allowed by law.

Ruling snapshot

• Question: Could Executive Order 13765 authorize relief from excess advance premium tax credits caused by a lump-sum Social Security disability payment?
• Outcome: Advice: no, the statutory section 36B calculation and resulting tax still apply.
• Key authorities: IRC §§ 36B(d)(2), 62, and 86; Executive Order 13765; Johnson v. Commissioner, 152 T.C. No. 6 (2019).

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       Memorandum
       Number: 201949001
       Release Date: 12/6/2019
       CC:ITA:B05:SSPflanz
       GL-114009-19

UILC: 36B.00-00

date: August 01, 2019

 to:   Tamara Kotzker
       Associate Area Counsel Group 3
       (Small Business/Self-Employed)

from: William A. Jackson
Chief, Branch 5
Office of Associate Chief counsel
(Income Tax & Accounting)

subject: TAS Request for Assistance concerning E.O. on ACA and Lump Sum Social Security

       This memorandum responds to your request for assistance. This advice may not be
       used or cited as precedent.

       ISSUE

       Whether Executive Order 13765, January 20, 2017, provides the IRS the authority to
       relieve taxpayers of the tax imposed on excess advance payments of the premium tax
       credit when the excess advance credit payments arise from the taxpayer having
       received a lump sum disability payment from the Social Security Administration that
       relates to benefits for prior years.

       CONCLUSION

       Executive Order 13765 does not provide the IRS with the authority to ignore social
       security lump sum payments in determining eligibility for the premium tax credit. Nor
       does it provide authority to relieve taxpayers of the tax imposed on excess advance
       payments of the premium tax credit when the excess advance credit payments arises
       from the taxpayer having received a lump sum disability from the Social Security
       Administration.

GL-114009-19 2

FACTS

This issue arises from a taxpayer’s request for a refund of $---------- for the ------- tax
year. The taxpayer received a lump sum Social Security Disability payment in -----------
-------, which included amounts allocated across ------ years. For the ------- taxable year,
the taxpayer also received the benefit of advance payments of the premium tax credit
(APTC). Unfortunately, it appears that at the time the taxpayer’s APTC was authorized,
the Health Insurance Marketplace (Marketplace) did not include the lump sum social
security payment in his household income. Because the taxpayer’s household income
used to compute his APTC did not include the --------------------social security payment,
the APTC was more than the amount of the allowable premium tax credit for -------. As a
result, an additional tax is imposed under § 36B on the taxpayer equal to the excess
APTC that was paid on his behalf.

LAW AND ANALYSIS

The premium tax credit under I.R.C. § 36B is a refundable tax credit for certain
individuals who enroll, or who have a family member who enrolls, in a health insurance
plan through a Marketplace, and is intended to subsidize the cost of the insurance.

The amount of a taxpayer’s premium tax credit for a year depends on the amount of the
taxpayer’s household income and his or her family size for the year. To be eligible for
the premium tax credit, a taxpayer’s household income must be at least 100% but not
more than 400% of the Federal poverty line. Household income is the sum of the
taxpayer’s modified adjusted gross income (MAGI), the MAGI of the taxpayer’s spouse
if a joint return is filed, and the MAGI of the taxpayer’s dependents who are required by
I.R.C. § 1 to file a tax return for the taxable year. See I.R.C. § 36B(d)(2) and Treas.
Reg. § 1.36B-1(e)(i) & (ii). Under I.R.C. § 36B(d)(2)(B) of the Code, an individual’s
MAGI is his or her adjusted gross income (within the meaning of I.R.C. § 62), increased
by Social Security benefits not included in gross income under I.R.C. § 86, untaxed
foreign earned income, and tax-exempt interest.

The statutory language of I.R.C. § 36B is clear that a taxpayer must include in MAGI
Social Security benefits received during the taxable year that were not included in gross
income. Congress specifically intended the full amount of Social Security benefits
received to be used to determine a taxpayer’s eligibility for the premium tax credit. See
H.R. Rep. No. 112-254 (2011), (“Modification of Calculation of Modified Adjusted Gross
Income for Determining Certain Health Care Program Eligibility”).

In a case with similar facts to those of this taxpayer, the Tax Court held that the
statutory language of § 36B is clear and unambiguous in specifically requiring that the
full amount of a taxpayer’s social security benefits received during a taxable year be
included in MAGI for the taxable year. See Johnson v. Commissioner, 152 T.C. No. 6
(2019).
GL-114009-19 3

In his request for refund, the taxpayer cites Section 2 of E.O. 13765, which provides that
“to the maximum extent permitted by law”, the Secretary of HHS and the heads of all
other executive departments and agencies in the executive branch with responsibilities
under the ACA shall take actions to minimize the economic regulatory burdens imposed
by the Act. Specifically, the taxpayer suggests that the order stated that the agencies
should exercise all authority and discretion to waive, defer, grant exemptions from, or
delay the implementation of any requirement of the ACA.

E.O. 13765 does not provide authority for the IRS to relieve taxpayers of the tax
imposed on excess APTC, when that tax arises from having received a lump sum Social
Security disability payment. As stated earlier, the Internal Revenue Code specifically
includes in MAGI, social security benefits not included in gross income under I.R.C. §
86, for the taxable year. Consequently, the Taxpayer Advocate Service (TAS) should
not be utilizing an Operations Assistance Request1 to request the IRS to relieve
taxpayers of the tax.

By its own terms, E.O. 13765 allows departments and agencies in the executive branch
to exercise authority and discretion to minimize burdens imposed by the ACA only “[t]o
the maximum extent permitted by law . . .” For the IRS to ignore the statutory
requirement of I.R.C. § 36B to include social security benefits in MAGI would be an
action that is not permitted by law. Thus, E.O. 13765 does not provide the IRS with the
authority to ignore the social security lump sum payments in determining eligibility for
the premium tax credit. Nor does the E.O. provide authority to relieve taxpayers from
any tax liability arising from excess APTC due to the taxpayer’s receipt of social security
benefits.

This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.

Please call (202) 317-7006 if you have any further questions.

                                         William A. Jackson
                                         Chief, Branch 5
                                         Office of Associate Chief Counsel
                                         (Income Tax & Accounting)

1
TAS utilizes an Operations Assistance Request, Form 12412, when it lacks the statutory or delegated
authority to take action on a taxpayer’s account.