In Uncategorized on 05/15/2019 at 19:43

Judge Goeke referees a true battle of the heavyweights in Mary K. Feigh and Edward M. Feigh, 152 T. C. 15, filed 5/15/19, as Cal Smith and the Golden Gophers LITC take on IRS’ “Scholar John” Schmittdiel, this time in a Section 32 dust-up.

Y’all will remember Scholar John, who survived Judge James S (“Big Jim”) Halpern’s withering bombardment on intervention, doubtless. No? Then see my blogposts “Go To the Head of the Class,” 3/26/14, and “The Golden Gophers vs. Scholar John,” 12/14/17.

Does the Medicaid waiver payment pursuant to a State Medicaid waiver program for the care of the Feighs’ disabled adult children count as “earned income” for the EITC and the Additional Child Tax Credit, per Section 32(c)(2(A)?

The Feighs have disabled adult children, and no one doubts their eligibility for the Medicaid waiver payment, which “…is a payment received by an individual care provider as part of a State’s Medicaid Home and Community-Based Services Waiver Program under sec. 1915(c) of the Social Security Act, 42 U.S.C. sec. 1396n(c) (2012).” 152 T. C. 15, at p. 3, footnote 2.

The Feighs and IRS stiped that the Medicaid waiver payment isn’t included in gross income per Notice 2014-7, 2014-4 I.R.B. 445, but Judge Goeke isn’t bound by stips of law.

Said Notice provides that the Medicaid waiver payments are difficulty of care payments excludable under Section 131.

So what, says Cal and the GGs. “…there is no statutory, regulatory, or judicial authority that classifies Medicaid waiver payments as not includible in gross income under section 131; rather, the sole authority for this classification is Notice 2014-7, supra. Petitioners’ argument is that the IRS cannot, through a subregulatory notice, reclassify their otherwise ‘earned income’ as unearned for purposes of determining tax credit eligibility.” 152 T. C. 15, at p. 6.

Before Notice 2014-7, payments for care of one’s biological child, rather than a foster child, weren’t excluded from gross income; Notice 2014-7 tries to level the playing field for caregivers, but as usual, no good deed goes unpunished.

Section 131 speaks of persons placed in foster care; the Feighs’ children stayed home; they weren’t “placed” anywhere. They were cared for by their biological parents, not foster caregivers of any variety.

And what is a full-dress T.C. en bancquet (sorry, guys) without a dictionary chaw?

“Central to this dispute is what is meant in section 32 by the phrase ‘includible in gross income’. This Court has previously opined on the meaning of  ‘includible’ versus ‘included,’ and we have held that these words are not functionally the same. …’includible’ refers to ‘the date that the income should have been reported’ while ‘included’ means ‘the date that the recipient reported the income’). While ‘included’ refers to the actual treatment of income, ‘includible’ refers to a required treatment of income, whether or not the income was actually so treated. (‘The ‘ed’ ending refers to something done in fact * * *. The ‘ible’ (or ‘able’) ending refers to something legally required[.]’); (‘[T]he suffix ‘able’ means ‘capable of.’). Thus, an item of income is ‘includible’ in gross income if it is required to be included as income irrespective of whether the item was actually included in the taxpayer’s gross income. Because petitioners’ Medicaid waiver payment is ‘includible’ in their gross income but for Notice 2014-7, supra, the question for us becomes whether a notice can effectively usurp Congress’ authority in granting tax credits by denying petitioners a credit they would have been entitled to in the absence of the notice.” 152 T. C. 15, at pp.11-12. (Citations omitted, but get them for your brief file).

So it’s our old chum Skidmore deference. I’ve heretofore defined Skidmore deference as “the equivalent of ‘yeah, ok’, ranking just above “meh’,” in my blogpost “The Junk Mailer Gets Trashed,”10/24/13.

And again, ol’ Skidmore leaves nothing but skid marks.

“To determine what deference, if any, is owed to an IRS notice we must look at ‘the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.’ Skidmore, 323 U.S. at 140. We have already discounted the thoroughness and persuasiveness of the reasoning in Notice 2014-7, supra, and concluded that petitioners’ Medicaid waiver payment does not fit the plain statutory definition of a qualified foster care payment in section 131. Additionally, the notice acknowledges it is a reversal of the IRS’ historical practice of challenging the excludability of these payments and thus does not represent ‘the agency’s longstanding treatment’ of Medicaid waiver payments. In the light of these factors, we determine that the notice is entitled little, if any, deference.” 152 T. C. 15, at p. 13.

IRS says the Feighs are getting a double dip. No tax on the Medicaid waver payment, and the EITC and ACTC refundables.

Well, IRS, says Judge Goeke, you brought that on yourselves. True, your hearts were in the right place, but that’s no excuse. Section 32(c)(2)(B)(vi) lets nontaxable combat pay be used for EITC and ACTC, but Congress did that. Congress could’ve done likewise with the Medicaid waiver payment, but they didn’t.

IRS can’t.

Note: Judge Goeke makes it clear the inclusion here is only for EITC and ACTC purposes. Tax Court isn’t making all these payments taxable.

“Our holdings clarify that, where income does not fall within the plain text of a statutory exclusion from gross income, the IRS cannot reclassify that income through a notice so that it no longer qualifies as ‘earned income’ for the purpose of determining tax credits. We do not reach the question of whether, in the light of our holdings, petitioners should have included their Medicaid waiver payment in gross income. Respondent did not raise this issue in his notice of deficiency or plead it in this case.” 152 T. C. 15, at p. 16. IRS could have raised it, but didn’t.

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