Walker v. Commissioner

Procedural Misstep Erases $20,000 Liability

The Tax Court delivered a significant victory for taxpayers in Walker v. Commissioner, invalidating a $20,904 tax assessment after finding the IRS skipped a crucial procedural step. At stake was the IRS's attempt to collect excess Advance Premium Tax Credits (APTC) through a levy, but the court held that the IRS was required to issue a Notice of Deficiency before taking such action. The ruling underscores the Tax Court's role in ensuring the IRS adheres to due process, particularly when assessing liabilities stemming from the complexities of the Affordable Care Act's Premium Tax Credit.

The Missing Form 8962

Continuing the narrative, the dispute in Walker v. Commissioner stemmed from the Walkers' 2018 tax return. The Walkers timely filed their joint Form 1040, U.S. Individual Income Tax Return, on or about September 12, 2019, reporting an adjusted gross income of $110,599 and anticipating a $2,143 refund. However, despite purchasing health insurance through a marketplace, their original return omitted IRS Form 8962, Premium Tax Credit (PTC), and Form 1095–A, Health Insurance Marketplace Statement. The IRS deemed the return filed on December 16, 2019, recording the Walkers' self-assessment of $5,056 in tax.

On or about September 29, 2019, the IRS issued Letter 12C to the Walkers, informing them of the missing Forms 8962 and 1095-A. These forms are crucial for reconciling advance payments of the Premium Tax Credit (APTC) – subsidies paid directly to the insurance company to lower monthly premiums. The IRS sends Letter 12C when the Health Insurance Marketplace indicates advance payments were made, but the taxpayer hasn't filed Form 8962 to reconcile those payments.

Responding to the IRS request, the Walkers submitted the missing forms on December 10, 2019. On Form 8962, they reported their household income, a federal poverty line of $24,600 based on their family size, and that their household income was at least 401% of the federal poverty line. Critically, they also reported $20,904 in total advance payments of the PTC (APTC) and a corresponding excess APTC payment for the same amount. Following internal procedures, on March 16, 2020, the IRS adjusted the Walkers’ 2018 tax return and made an additional tax assessment of $20,904, directly tied to the PTC. The IRS did not issue a Notice of Deficiency before making this assessment.

Deficiency vs. Self-Assessment

The central dispute revolved around whether the IRS followed proper procedures when assessing the additional $20,904 tax. The IRS's authority to assess taxes stems from Section 6201(a)(1), which allows the Secretary of the Treasury (IRS) to assess all taxes shown on a return. The IRS contended that the Walkers’ late filing of Form 8962 acted as a “self-assessment” or correction, akin to a math error. In their view, because the Walkers provided information indicating they owed additional tax, the IRS could simply assess the tax without the formality of a Notice of Deficiency.

The Walkers, however, argued that the IRS assessment constituted a “deficiency” under Section 6211(a). Section 6211(a) defines a deficiency as the amount by which the tax imposed exceeds the tax shown on the taxpayer's return. Because the IRS assessment was for a tax amount greater than what they initially reported, the Walkers maintained it qualified as a deficiency. Consequently, they asserted that the IRS was required to issue a Statutory Notice of Deficiency (SNOD), often called a "90-day letter," as mandated by Section 6213(a). Section 6213(a) generally prohibits the IRS from assessing a deficiency until a SNOD is mailed to the taxpayer, granting them 90 days to petition the Tax Court. The Walkers argued that without a SNOD, the IRS lacked the authority to assess the additional tax, and the Tax Court therefore lacked jurisdiction to consider the matter.

Court: Reconciliation Is Not Self-Assessment

The Walkers argued that the IRS adjusted their 2018 tax return, determined a deficiency was due, and therefore was obligated to issue a Statutory Notice of Deficiency (SNOD), often called a "90-day letter," as mandated by Section 6213(a). Section 6213(a) generally prohibits the IRS from assessing a deficiency until a SNOD is mailed to the taxpayer, granting them 90 days to petition the Tax Court. The Walkers argued that without a SNOD, the IRS lacked the authority to assess the additional tax, and the Tax Court therefore lacked jurisdiction to consider the matter.

Judge Weiler agreed. The court's analysis hinged on whether the additional tax resulting from the reconciliation of the advance premium tax credit (APTC) constituted a "deficiency" under Section 6211(a). Section 6211(a) defines a deficiency as the amount by which the tax imposed exceeds the sum of the tax shown on the taxpayer's return, plus amounts previously assessed or collected without assessment, minus any rebates made. In essence, if the IRS determines a taxpayer owes more than initially reported, a deficiency exists.

The IRS contended that the Walkers' completion of Form 8962, used to reconcile the APTC, constituted a "self-assessment" of additional tax under Section 6201(a)(1). Section 6201(a)(1) authorizes the IRS to make assessments of all taxes, including additional amounts and penalties, imposed by the tax code. The IRS argued that by filing Form 8962, the Walkers essentially admitted they owed the additional tax.

Judge Weiler rejected this argument, stating, "we decline to accept the notion that this reconciliation acts as a self-assessment of additional tax." The court emphasized that Form 8962 is merely a mechanism for reconciling the APTC with the allowable premium tax credit (PTC) under Section 36B(f). While Section 36B(f) obligates taxpayers to perform this reconciliation, it does not transform the reconciliation process into a self-assessment. The court noted that the IRS determined that the Walkers owed additional tax notwithstanding their original filing, fitting squarely within the definition of a deficiency. Because the tax exceeded what was on the original return, it triggered the requirements of Section 6213, meaning the IRS had to issue a Notice of Deficiency. Since no notice was issued, the assessment was invalid.

Impact on PTC Enforcement

This ruling prevents the IRS from taking shortcuts when taxpayers omit Form 8962, the form used to reconcile advance payments of the premium tax credit with the actual credit allowed. The premium tax credit, authorized by Section 36B, is a refundable credit designed to help eligible individuals afford health insurance purchased through the Health Insurance Marketplace. If the IRS calculates a tax liability based on a late Form 8962 that exceeds the tax reported on the original return, they must issue a Notice of Deficiency, as required by Section 6213. Section 6213 gives taxpayers 90 days to petition the Tax Court before the IRS can assess the deficiency. The court's decision emphasizes the importance of this procedural safeguard. For the Walkers, the practical effect is clear: collection halted.