In Uncategorized on 01/16/2018 at 16:31

Contrary to the old marching cadence of my youth, there may be a discharge on your tax liability, even if not on the ground. Once again the much-contemned Affordable Care Act with its disappearing credits plays the villain when coupled with a short-pay. In another case, it’s a credit card come-on that leads the unwary astray.

But in both cases the result is the same: discharge of debt equals tough tax result. See Section 61(a)(12).

First is John Anthony Glennon, 2018 T. C. 4, filed 1/16/18, Judge Gerber back from his weekend to ruin John Anthony’s week.

“While traveling, petitioner was approached in an airport by someone with an offer for petitioner to purchase a Southwest Airlines ticket good for any round-trip destination in the United States for $59. Petitioner thought it was a good deal, and he filled out what he believed was an application for the $59 ticket. Several weeks later, petitioner received a Southwest Airlines credit card (card) that was issued by Chase Bank. At the time the card arrived, petitioner was experiencing financial difficulties, and he used the card to pay living and related expenses.” 2018 T. C. Memo. 4, at p. 2.

John Anthony got in well over his cliché, and Jamie Dimon & Co. wrote off $9K of principal and interest (mostly interest). Then Jamie & Co. gave John Anthony a 1099-C at no extra charge.

John Anthony claimed he had settled with Jamie and owed nothing. Maybe not to Jamie, but the fisc isn’t part of the deal.

“Although petitioner believes that he was a victim and we agree that his circumstances are sympathetic, as a matter of law the cancellation of debt is taxable to him.” 2018 T. C/ Memo. 4, at p. 4.

Michelle Keel, 2018 T. C. Memo. 5, filed 1/16/18, is undone by COD, but she knew to include the $16K Bank of America excused her on her 1040 for the year at issue. The problem was that the BOA give-up threw Michelle over the 400% of Federal poverty limit, and meant she had to give back her premium credit.

Michelle left off the Form 8962, which she needed to reconcile her credit with her income.

Judge Buch: “The Commissioner determined that Ms. Keel was not entitled to the advance premium assistance tax credit payments made on her behalf for [year at issue]. Ms. Keel does not dispute that these payments were made on her behalf or that her income was above 400% of the Federal poverty line. Instead, she argues that her cancellation of indebtedness income should not be included when calculating her income for purposes of determining whether she is eligible to receive the premium assistance tax credit.

“The premium assistance tax credit is intended to offset the cost of health insurance. A recipient of the premium assistance tax credit can choose to receive the benefits of these payments in advance. These credits are paid directly to the insurer in the form of monthly payments based on advance eligibility determinations. The insurers who receive the payments are required to reduce the premium charged to the insured by the amount of the advance premium assistance tax credit received.” 2018 T. C. Memo. 5, at pp. 5-6. (Footnotes omitted, but our old pal McGuire plays its role again; see my blogpost “Refurbished, Reupholstered and Re-engineered,” 8/28/17).

The problem for Michelle is that her income changed midyear with the BOA give-up, and none of the excluded categories can offset the added income.

She owes back the premium credits.

It’s enough to make you sick.

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