Powell v. Comm'r of Internal Revenue

• Decision Date: 26 September 2022
• Docket Number: 20268-19S
• Parties: ROBERT LESTER POWELL AND SVETLANA ALEKSEEVNA IAKOVENKO, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

T.C. Summary Opinion 2022-19

ROBERT LESTER POWELL AND SVETLANA ALEKSEEVNA IAKOVENKO, Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 20268-19S

United States Tax Court

September 26, 2022

NOT PRECEDENTIAL

Robert Lester Powell and Svetlana Alekseevna Iakovenko, pro sese.

Evan K. Like, for respondent.

SUMMARY OPINION

COPELAND, JUDGE

This case was submitted pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed.^[1] Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. Furthermore, this case was submitted to the Court fully stipulated for a decision without trial pursuant to Rule 122.

Petitioners, Robert Powell and Svetlana Iakovenko, received an advance premium tax credit (APTC) in monthly installments during their 2017 tax year under the Patient Protection and Affordable Care

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Act.^[2] That year they claimed a $123,822 long-term capital loss deduction, which the Internal Revenue Service (IRS) limited to $3,000 in a subsequent math error notice. As a result of the mathematical adjustment, petitioners' household income exceeded the allowable limits for a Premium Tax Credit (PTC). Thus, the IRS determined that: they were not entitled to a PTC of $636 previously credited to them; they had an excess APTC of $17,652; and after allowing $4,000 of newly claimed tuition and fee deductions, they had a resulting deficiency of $17,288 for the 2017 tax year. Petitioners seek a redetermination of that deficiency, which was set forth by the IRS in a statutory notice of deficiency dated August 23, 2019.

The issues^[3] for decision are:

(1) whether petitioners' claimed $123,822 long-term capital loss for 2017 is limited to $3,000 under section 1211(b)

(2) whether petitioners are eligible for a 2017 PTC of $636 under section 36B; and

(3) whether petitioners received an excess APTC of $17,652 for 2017, thereby increasing their tax under section 36B(f)(2)(A)

We note that the second and third issues are dependent on our determination of the first (i.e., the amount of capital loss for 2017).

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Background

The following facts are based on the pleadings and the parties' Stipulation of Facts, including the exhibits attached thereto. Petitioners resided in Ohio when they timely filed their Petition. Mr. Powell is a professional computer programmer. During the 2017 tax year petitioners were enrolled in health insurance provided by HMO Louisiana, which they purchased through the Health Insurance Marketplace. Petitioners' health insurance premium was $1,524 per month from January 1, 2017, through December 31, 2017. A monthly APTC of $1,471 was paid to HMO Louisiana on behalf of petitioners for each month of 2017, totaling $17,652.

Petitioners timely filed a joint 2017 Form 1040, U.S. Individual Income Tax Return, where they reported the following items, most of which are not in dispute: wage income of $61,234; taxable interest of $953; ordinary dividends of $245; taxable individual retirement account distributions of $38,392; unemployment compensation of $10,112; Social Security benefits of $13,982, of which $11,885 was reported as taxable; and a $123,822 long-term capital loss. The capital loss was reported on Schedule D, Capital Gains and Losses, attached to the 2017 Form 1040.

Petitioners reported -$1,001 of adjusted gross income (AGI) for 2017 as a result of the capital loss. Because they reported no taxable income, they claimed a $10,873 refund, the amount of federal income tax withheld from their wages. They reported no PTC or APTC receipts, and they did not attach the required Form 8962, Premium Tax Credit, to their 2017 Form 1040.

On June 18, 2018, the IRS mailed to petitioners a Notice CP11, Changes to your 2017 Form 1040 (math error notice), notifying them that their 2017 Form 1040 was adjusted to limit their capital loss to $3,000. The limitation resulted in an increase to petitioners' AGI from -$1,001 to $119,820, and a corresponding increase in taxable income from $0 to $94,970. Consequently, the IRS determined that petitioners were not entitled to a refund but instead bore an additional income tax liability of $4,311, plus interest. On or about June 22, 2018, petitioners paid the amount shown on the math error notice.

At or around this time, the IRS examined petitioners' 2017 return. During the examination, petitioners submitted a revised Form 1040 for 2017, but the IRS did not process it. The revised Form 1040 was not submitted with a Form 1040X, Amended U.S. Individual Income

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Tax Return, so it is not referred to as an amended return. The revised Form 1040 included Form 8917, Tuition and Fees Deduction, claiming an additional $4,000 deduction, which the IRS subsequently allowed during the examination. In concluding the examination, the IRS determined that petitioners were not entitled to the PTC,^[4] and accordingly they were required to repay the APTC they received during 2017. This adjustment increased their income tax liability by $17,652. The examination sustained the previous mathematical adjustment to capital losses but allowed the newly claimed tuition and fees deduction. Reflecting these determinations, the IRS issued a statutory notice of deficiency determining a proposed deficiency of $17,288.

Discussion

I. Burden of Proof

While the parties submitted this case for decision under Rule 122(a), such a submission "does not alter the burden of proof, or the requirements otherwise applicable with respect to adducing proof, or the effect of failure of proof." Rule 122(b).

Generally, the Commissioner's determinations in a statutory notice of deficiency are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). In certain circumstances, if the taxpayer introduces credible evidence with respect to a factual issue relevant to ascertaining the proper tax liability, section 7491(a)(1) shifts the burden of proof to respondent. Petitioners do not contend, and the evidence does not establish, that the burden of proof shifts to respondent as to any issue of fact. See Higbee v. Commissioner, 116 T.C. 438, 442 (2001).

II. Capital Loss

The parties do not dispute that petitioners' long-term capital losses exceeded their long-term capital gains in 2017, resulting in a $123,822 net loss. But they do disagree as to how much of this loss petitioners may claim on Schedule D, and ultimately the 2017 Form 1040.

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Petitioners argue they overpaid their 2017 taxes as a result of the $123,822 loss they incurred. Importantly, the overpayment claim stems from amounts claimed on the original return they filed, the revised return, and the math error notice.

Section 6213(b) governs assessments arising out of mathematical or clerical errors; it requires notice to the taxpayer under subsection(b)(1) and abatement under subsection (b)(2) if the taxpayer so requests within 60 days of the notice. Petitioners did not request abatement after receiving the math error notice, and they paid the tax due. However, that payment does not end our inquiry. As we stated in Winter v. Commissioner, 135 T.C. 238, 243-44 (2010):

Section 6213 gives the Tax Court jurisdiction to redetermine a deficiency when a petition is filed timely in response to a notice of deficiency. Such jurisdiction does not depend on whether the Commissioner's determination in the notice of deficiency is correct as "it is not the existence of a deficiency but the Commissioner's determination of a deficiency that provides a predicate for Tax Court jurisdiction." Hannan v. Commissioner, 52 T.C. 787, 791 (1969). Once we have jurisdiction, it generally covers all items necessary to determine the correct tax. Section 6214(a) gives the Tax Court jurisdiction to "redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount * * * [in the notice]".

(Footnote omitted.) (Alteration in original.) Furthermore, section 6512(b) clarifies that the Court also has jurisdiction to determine overpayments.

Because we have jurisdiction to determine the correct amount of tax, we analyze the allowable amount of capital loss, despite the fact that petitioners did not properly contest the math error notice.

When calculating their capital loss, petitioners argue that part of the text included in the Schedule D controls. They suggest this Court use an "If-Then-Else" conditional approach to determining the loss. This approach is a common command in many programming languages and works in the following way: if a condition is met, then take action X, else

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take action Y.^[5] Petitioners argue this approach comports with "well established, published and readily available...