Juliet R. El, T. C. Memo. 2026-17, filed 2/10/26, got her year-at-issue 1040 right, thanks to her trusty electronic preparer. She claimed an Additional Child Tax Credit of $4K, to which she was indisputably entitled. Whereupon IRS’  creaky hardware gave her a $15K refund because it transposed her earnings as reported on her Schedule 8812 to the credit due line. IRS woke up before the SOL and gave Juliet a $15K deficiency.

Juliet’s trusty attorney claims this is a nonrefundable rebate because IRS didn’t recalculate Juliet’s tax due, hence Section 6212 is out and IRS must sue in USDC per Section 7405. IRS says yes we did recalculate.

Judge Nega says that’s not the issue.

“Respondent and petitioner both make a fundamental error in analyzing whether a ‘substantive recalculation’ occurred in this case. Both incorrectly direct their attention to whether the error (substituting $17,164 for the ACTC) was a ‘substantive recalculation’ instead of whether the error led to a substantive recalculation of petitioner’s tax imposed. Petitioner argues that a simple substitution error does not involve calculation at all and cannot be a ‘substantive recalculation.’ Respondent defends his mistake as a recalculation without offering any explanation more plausible than its being a mistaken transposition of numbers on the return (the $17,164 being listed elsewhere by petitioner as her earned income).

“Without reaching the question of whether a transposition or substitution error is a ‘substantive recalculation,’ the record amply supports the position that respondent substantively recalculated petitioner’s overall tax imposed. And this is the only correct place to direct the analysis: whether the taxpayer’s tax imposed was recalculated.  A refund is a rebate refund if it is based on a ‘substantive recalculation’ of the tax imposed that shows the taxpayer owes less tax than the amount shown on the taxpayer’s return. In this case, the refund is a rebate refund because the rebate was based on a substantive recalculation of petitioner’s tax imposed.” T. C. Memo. 2026-17, at p. 7. (Citations and footnote omitted).

The issue isn’t how the mistake occurred, it’s what impact the error had on tax due. Now Juliet admittedly owed nothing on her return. But Section 6211(b)(4) was amended in 1988 to deal with refundable credits when tax due was zero, so taxpayers could challenge erroneous disallowances in Tax Court. Hence this is a deficiency case, and Juliet owes the incorrect overpayment.

If this sounds familiar, see my blogpost “The Rebate Debate – Innocent Spousery,” 7/17/24.

It never fails. Just as I’m leaving the party, the host brings out the good stuff. I’m at the elevator door, or down the stairs, or standing in the street, whereupon out comes the tiramisù or profiteroles or the Cuvée Elisabeth Salmon Rosé or the Louis XIII. So it is that the IRS Nationwide Tax Forum announces its return to this Minor Outlying Island off the Coast of North America this August, after I retire. Ya can’t win.

Ingrid Maria Persson, T. C. Sum. Op. 2026-2, filed 2/9/26, furnishes another example of the traps laid in the path of the unwary by the Affordable Care Act, officially the Patient Protection and Affordable Care Act together with amendments made thereto by the Health Care and Education Reconciliation Act of 2010. It’s the usual over-400% of poverty, to which is added Ingrid Maria’s failure to file 1040 MFJ with spouse.

There’s a wrinkle. Ingrid Maria entered into an IA for a math error covering the year at issue, before the SND for the APTC, so not covering it.

“Petitioner acknowledges there were issues with her tax return. Petitioner suggests that the review of the return which disclosed a math error before the installment agreement should have resulted in the correction of all issues in her tax return. She contends that the installment agreement should cover all amounts for the tax years listed on the agreement, including the deficiency stemming from the APTC. Petitioner contends that determination of a deficiency for [year at issue] outside of the installment agreement is a breach of contract. Petitioner also claims she was informed by Ms. F that the installment agreement considered all adjustments for the listed years and was a final agreement.

“Respondent asserts that while the installment agreement included [year at issue], it included only the adjustment related to the math error and did not include the deficiency determined by adjustment to the APTC. Respondent asserts that the deficiency stemming from the APTC was not yet determined when the installment agreement was processed.

“Respondent asserts that an installment agreement allows a taxpayer to satisfy a preexisting liability over time; consequently, it lacks consideration on the part of a taxpayer and, therefore, does not give rise to contract formation.” T. C. Sum. Op. 2, at p. 6. (Citation and name omitted).

STJ Peter “HB”) Panuthos is sympathetic, but IRS didn’t breach the IA per Section 6159.

Whenever I see these ACA cases, I want to jump in with a political comment. But in these times, when feelings run high and AI-generated social media stokes the ring of fire around rational comment, I can only say that I know how Jeremiah felt.