In CCA 201949001[1] the IRS looked at whether Executive Order 13765, which related to minimizing the burden of the Affordable Care Act, allowed the IRS to ignore a social security lump sum payment that was not considered by the Health Care Marketplace when the taxpayer received an advanced premium tax credit under §36B. The advance credit reduces the premium the taxpayer is required to pay for the health care policy during the year.

But the taxpayer may be required to pay back some or all of the advance credit if, when the taxpayer’s return is prepared for the year in question, household income turns out to be different than expected when the advance credit was computed.

The memorandum describes the taxpayer’s situation as follows:

The taxpayer received a lump sum Social Security Disability payment in * * *, which included amounts allocated across * * * years. For the taxable year, the taxpayer also received the benefit of advance payments of the premium tax credit (APTC). Unfortunately, it appears that at the time the taxpayer’s APTC was authorized, the Health Insurance Marketplace (Marketplace) did not include the lump sum social security payment in his household income. Because the taxpayer’s household income used to compute his APTC did not include the * * * social security payment, the APTC was more than the amount of the allowable premium tax credit for * * *. As a result, an additional tax is imposed under § 36B on the taxpayer equal to the excess APTC that was paid on his behalf. [2]

The taxpayer argued that this is a situation where the IRS is authorized to grant relief per Executive Order 13765.[3] Section 2 of that order provides:

To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.[4]

The CCA notes the applicable portions of the IRC in this case:

The amount of a taxpayer’s premium tax credit for a year depends on the amount of the taxpayer’s household income and his or her family size for the year. To be eligible for the premium tax credit, a taxpayer’s household income must be at least 100% but not more than 400% of the Federal poverty line. Household income is the sum of the taxpayer’s modified adjusted gross income (MAGI), the MAGI of the taxpayer’s spouse if a joint return is filed, and the MAGI of the taxpayer’s dependents who are required by I.R.C. § 1 to file a tax return for the taxable year. See I.R.C. § 36B(d)(2) and Treas. Reg. § 1.36B-1(e)(i) & (ii). Under I.R.C. § 36B(d)(2)(B) of the Code, an individual’s MAGI is his or her adjusted gross income (within the meaning of I.R.C. § 62), increased by Social Security benefits not included in gross income under I.R.C. § 86, untaxed foreign earned income, and tax-exempt interest.

The statutory language of I.R.C. § 36B is clear that a taxpayer must include in MAGI Social Security benefits received during the taxable year that were not included in gross income. Congress specifically intended the full amount of Social Security benefits received to be used to determine a taxpayer’s eligibility for the premium tax credit. See H.R. Rep. No. 112-254 (2011), (“Modification of Calculation of Modified Adjusted Gross Income for Determining Certain Health Care Program Eligibility”).

In a case with similar facts to those of this taxpayer, the Tax Court held that the statutory language of § 36B is clear and unambiguous in specifically requiring that the full amount of a taxpayer’s social security benefits received during a taxable year be included in MAGI for the taxable year. See Johnson v. Commissioner, 152 T.C. No. 6 (2019).[5]

The EO limits an agency’s ability to offer relief based on its authority under the law. In this case, the memo concludes the IRS does not have such authority to waive the repayment of the credit. The advice notes:

E.O. 13765 does not provide authority for the IRS to relieve taxpayers of the tax imposed on excess APTC, when that tax arises from having received a lump sum Social Security disability payment. As stated earlier, the Internal Revenue Code specifically includes in MAGI, social security benefits not included in gross income under I.R.C. § 86, for the taxable year. Consequently, the Taxpayer Advocate Service (TAS) should not be utilizing an Operations Assistance Request1 to request the IRS to relieve taxpayers of the tax.

By its own terms, E.O. 13765 allows departments and agencies in the executive branch to exercise authority and discretion to minimize burdens imposed by the ACA only “[t]o the maximum extent permitted by law . . .” For the IRS to ignore the statutory requirement of I.R.C. § 36B to include social security benefits in MAGI would be an action that is not permitted by law. Thus, E.O. 13765 does not provide the IRS with the authority to ignore the social security lump sum payments in determining eligibility for the premium tax credit. Nor does the E.O. provide authority to relieve taxpayers from any tax liability arising from excess APTC due to the taxpayer’s receipt of social security benefits.[6]

[1] Chief Counsel Advice 201949001, December 6, 2019, https://www.irs.gov/pub/irs-wd/201949001.pdf (retrieved December 9, 2019)

[2] Chief Counsel Advice 201949001, p. 2

[3] Executive Order 13765, January 24, 2017, https://www.govinfo.gov/content/pkg/FR-2017-01-24/pdf/2017-01799.pdf (retrieved December 9, 2019)

[4] EO 13765, p. 1

[5] Chief Counsel Advice 201949001, p. 2

[6] Chief Counsel Advice 201949001, p. 3