In Uncategorized on 03/11/2019 at 15:42

Once again I remember the lady in the 1971 Rod Stewart – Martin Quittenton lament that ranks 131st on the Rolling Stone 2004 all-time list, as I blog the sad tale of Levon Johnson, 152 T. C. 6, filed 3/11/19. And Levon gets tripped up by MAGI, just like the pool-playing schoolboy hero of the Stewart-Quittenton saga.

Levon gets trapped by Section 36B(d)(2)(B)(iii) and its pendant Reg, 1.36B-1(c)(2). He would have slid under the 400% Federal poverty line and saved most of his premium tax credits under the Affordable Care Act, but for some Social Security benefits paid during the year at issue (2014) for a previous year (2013), that he elected to exclude per Section 86(e). That raised his MAGI, and gave me the title for this blogpost.

Unhappily, Judge Gerber finds Section 36B(d) ropes in what Section 86 excludes.

“The parties agree that petitioner’s 2014 adjusted gross income is $31,137 (including only $6,687 of taxable Social Security benefits as a result of a section 86(e) election) and that he received $26,180 of total Social Security benefits in 2014.  Petitioner contends, relying primarily on the intended purpose of the ACA, its legislative history, and public policy arguments, that his section 86(e) election should result in the exclusion from his 2014 MAGI all the Social Security benefits attributable to 2013 or, alternatively, the Social Security benefits attributable to 2013 except the portion of his 2013 benefits included in his 2014 gross income. Respondent contends, however, that section 36B is clear and that petitioner’s section 86(e) election has no effect on the computation of his 2014 MAGI.  Respondent therefore contends that petitioner must include in his 2014 MAGI all of the Social Security benefits received in 2014 (i.e., $6,687 of taxable and $19,493 of nontaxable Social Security benefits–the entire $26,180) regardless of the year to which the benefits were attributable.” 152 T. C. 6, at p. 8.

No joy for Levon.

“Although section 36B and its accompanying regulations are silent with regard to the effect, if any, on MAGI if a taxpayer makes a section 86(e) election, section 36B and the underlying regulations provide that Social Security benefits received in a taxable year that were ‘not included in gross income under section 86 for the taxable year’ must be added to a taxpayer’s MAGI.  Sec. 36B(d)(2)(B)(iii); see sec. 1.36B-1(e)(2), Income Tax Regs.  Petitioner, however, misinterprets the application of section 36B when a section 86(e) election has been made.  A section 86(e) election determines the amount included in gross income for the year of receipt.  Petitioner’s section 86(e) election simply determined which amount of the lump-sum payment attributable to 2013 should be included in his gross income for 2014.  We find that the phrase ‘under section 86’ is not ambiguous and the cross-reference requires the consideration of section 86 in its entirety, including section 86(e).” 152 T. C. 6, at p. 12.

Anyway, “When the ACA was initially enacted, MAGI did not require the inclusion of nontaxable Social Security benefits.  See ACA sec. 1401(a), 124 Stat. at 217-218.  The definition of MAGI, however, was amended to specifically include the full amount of a taxpayer’s Social Security benefits.  See Act of Nov. 21, 2011, Pub. L. No. 112-56, sec. 401(a), 125 Stat. at 734; see also H.R. 2576, 112th Cong. (2011); H.R. Rept. No. 112-254, at 2 (2011).” 152 T. C. ^, at p. 13.

Even though Levon pleads equity, Judge Gerber says no: “Petitioner contends that denying him the PTC because of income attributable to a prior year leads to an absurd result, which is contrary to the intended purpose of the ACA, and that he is within the class of persons that the statute was intended to assist.  We, however, do not find that the interpretation of the statute leads to an absurd result in this case.  Moreover, we cannot ignore the law to achieve an equitable end.” 152 T. C. 6, at p. 13.

Nothing about chops, but I can’t think chops are on the table.

And a Taishoff “Good Try” to Walter E. Afield, Esq., of the GA State Law School LITC.

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