The Tax Court in Brief – August 29th – September 2nd, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation: The Week of August 29th, 2022, through September 2nd, 2022

Sek v Commissioner, T.C. Memo. 2022-87 | August 29, 2022 | Gale, J.| Dkt. No. 7722-18

Short Summary: This case involves the issuance of a deficiency regarding the eligibility to claim the health coverage tax credit (HCTC) and the premium assistance tax credit (PTC)1. In 2015, Jaroslaw Sek (Sek) employment was terminated. He purchased "COBRA" continuation health insurance coverage through his former employer in order he and his family to continue to have health insurance. Under COBRA's coverage for the years 2015-2016, an employee whose employment was terminated could elect to purchase up to 18 months of "continuation coverage". As of August 2016, Sek maintained COBRA coverage. As of September 2016, Mr. Sek and his wife (Seks) purchased health insurance coverage through the New York State Health Exchange (NYHE) for they and their family. On Form 8885, petitioners claimed an HCTC and did not claim the PTC. The IRS rejected Seks claim for the HCTC and assessed a deficiency equal to the amount of the disallowed credit. Seks conceded to the IRS that they did not comply with HCTC requirements. However, Seks filed an amended tax return for 2016, stipulating they unduly claimed PTC from COBRA coverage and NYHE for 2016 and filed a Petition for redetermination. IRS indicated Seks were not entitled to claim PTC from COBRA coverage, only for NYHE coverage. Additionally, IRS stipulated the amount of the deficiency assessed should be reduced and conceded Seks were not liable for accuracy penalty under 6662(a). The Tax Court granted IRS Motion and concluded Seks were only entitled to claim PTC from NYHE coverage (last 4 months of 2016), and not liable for an accuracy related penalty under 6662(a).

Key Issues:

  • Whether, Seks are entitled to claim the PTC for 2016, when they were enrolled in COBRA coverage and in health coverage through NYHE?

Primary Holdings:

  • Seks are entitled to claim PTC when they were enrolled in health coverage through NYHE.
  • Under 26 U.S.C § 35Seks did not comply with the requirements to claim HCTC. Additionally, under Section 26 U.S.C. § 5000A(f)(1)(B) Cobra coverage is the minimum essential coverage other than coverage in the individual market described in Section 26 U.S.C. § 5000A(f)(1)(C). Therefore, as Cobra coverage did not comply with the requirements to claim PTC, Seks were disallowed to claim it from January to August 2016.

Key Points of Law:

  • Under Section 26 U.S.C. § 35 (a), an individual shall be allowed as HCTC an amount equivalent to 72.5% of the amount paid by the taxpayer for coverage of the taxpayer and qualifying family members under qualified health insurance for eligible coverage months beginning in the taxable year.
  • The term "eligible coverage month" means any month as of the first day of such month where the taxpayer is an eligible individual. See Section 26 U.S.C § 35 (a).
  • An eligible individual means (1) an eligible TAA recipient, (2) an eligible alternative TAA recipient, and (3) an eligible PBGC pension recipient. See Section 26 U.S.C § 35 (c).
  • A spouse or other qualified relative of an eligible individual may also be treated as an eligible individual during a 24-month period, if certain requirements are met, such as the death of the eligible individual or the finalization of a divorce from the eligible individual. See Section 26 U.S.C § 35(g)(10).
  • Under Section 26 U.S.C § 36B (a) an applicable taxpayer can apply a PTC if its household income ranges between 100% and 400% of the federal poverty line for the taxable year (based on the size of the family). See Section 26 U.S.C § 36B(c)(1)(C).
  • The applicable taxpayer may claim PTC equal to the premium assistance credit amount of the taxpayer for the taxable year. The premium assistance credit is the sum of the premium assistance amounts with respect to all coverage months during the taxable year. See Section 26 U.S.C § 36B(1)(2).
  • Under Section 26 U.S.C 5000A an applicable individual shall for each month ensure it is covered under minimum essential coverage for such month. The term "minimum essential coverage" means any coverage under a health plan offered in the individual market within a State (e.g. any qualified plan offered by an exchange under the ACA). See Section 26 U.S.C §5000A(f)(1)(B), Treas. Reg. § 1.5000A-2(d), and Treas. Reg. § 1.5000A-1(d)(2).
  • Under Treas. Reg. § 1.36B-2(c)(3) a former employee who enrolls in an eligible employer-sponsored coverage or in a continuation coverage required under Federal law is eligible for minimum essential coverage only for those months for which the former employee or related individuals enrolled in such coverage.

Insights: This case involves the disallowance of the HCTC and PTC, because taxpayers were not properly advised. Taxpayers should comply with the requirements set forth in the law to claim HCTC and PTC, otherwise, IRS will certainly disallow these credits. Before the taxpayers take any credit in connection with health coverage, we recommend to seek out and obtain legal and tax advice to avoid any future tax contingencies with the IRS.


1. This opinion shall not be treated as precedent for any other case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.