Under the Affordable Care Act, many American taxpayers with low or moderate incomes qualify for a Health Coverage Tax Credit (HCTC). On May 26, the IRS announced that it is implementing a new program by July of 2016 to make advance HCTC payments.

During 2014 and 2015, the IRS was able to process HCTC claims after taxpayers filed their income tax returns. The new program will be available in states where the Health Plan Administrator meets IRS requirements and signs a Memorandum of Understanding.

The new system is dependent upon creation of procedures to confirm taxpayers are qualified to receive HCTC. The Treasury Inspector General for Tax Administration (TIGTA) published a May 16 report on the IRS efforts to develop an “Affordable Care Act Validation System” (ACV).

This ACV has been tested and is now in operation. Since 2014, taxpayers must report their healthcare coverage on tax returns. Some low and moderate income taxpayers receive HCTC, while others without qualifying healthcare must make a Shared Responsibility Payment.

ACV has passed federal data security requirements to become operational. It is now used to check taxpayer compliance with both the HCTC and the Shared Responsibility Payments.

Ryan Plans June Release of Task Force Proposals

In February, Speaker of the House Paul Ryan(R-WI) appointed six working groups. Each group was assigned one major area of potential legislation. At a Washington press briefing on May 25, Ryan announced that the six groups will all release detailed reports in June.

The first report will be from the poverty task force. Ryan stated that this task force’s report on poverty issues will be published the week of May 30. He continued, “What you will see with each of these are detailed policy papers.”

The six task forces include the following:

1. Poverty, Opportunity, and Upward Mobility – The goal is to improve the safety net and enhance educational programs to help people to move from welfare to work and be empowered to live productive lives.
2. National Security – This task force will develop a strategy for the required military capabilities to confront national security threats in the 21st century.
3. Tax Reform – The goal of this group is to create jobs, grow the economy, raise wages, remove special interest carve-outs and make the tax code simpler and fairer.
4. Reducing Regulatory Burdens – It must become easier to invest, produce and build things in America through a less burdensome regulatory system. The government must still protect the environment, public safety and consumer interests.
5. Health Care Reform – A patient-centered system should be created with greater choice, control, higher quality and reduced cost.
6. Restoring Constitutional Authority – Reform the executive rule making process, exercise the power of the purse and create a system for Congress to exercise greater oversight over Executive departments.

Editor’s Note: Major tax reform and other bills are likely to be delayed until 2017. Speaker Ryan is preparing the pathway for introduction of bills in all six areas.

Estate Request for Counterclaim Denied

In United States v Diane M. Garrity et al.; No. 3:15-cv-00243 (19 May 2016), a U.S. District Court in Connecticut denied an estate request to amend pleadings and file a counterclaim.

The IRS had previously accessed a penalty against decedent Paul G. Garrity for failure to disclose a foreign bank account on his 2005 tax return. Garrity passed away on February 10, 2008. On February 20, 2015, the Government filed an action against his estate to collect the penalty. The court determined that the filing deadline for the parties would be July 24, 2015.

However, on April 3, 2014 Dennis Brager of the Brager Tax Law Group filed a Freedom of Information Act (FOIA) request. In response to this request, the IRS released 6,601 pages of information. Included in this substantial release was an IRS training PowerPoint. One of the case studies in this PowerPoint focused on actions against the decedent Paul G. Garrity, Sr. The IRS used the case to explain the application of taxes and penalties in their training efforts. Brager subsequently placed all of the materials on a website open to the public.

After the defense discovered the release of the materials, it brought an action claiming a violation of Sec. 6103(a)(1) which states “ No officer or employee of the United States…shall disclose any return or return information retained by him in any manner.”

The Court noted that there is authority to grant relief if the government has functioned in bad faith, there is undue delay or undue prejudice. The estate claimed a potential cause of action under Sec.7432. However, the right for a taxpayer to recover under that provision is limited to that individual. The release of the material under the FOIA request did not occur until after the death of Garrity. A deceased person does not have a right of privacy similar to that of a living person.

Therefore, the action under Sec.7432 is limited to the affected taxpayer. Because the disclosure occurred after the death of Garrity, the estate did not inherit any right to continue with an action against the government.

Finally, waivers of sovereign immunity are to be strictly interpreted. As a result, the estate does not have a cause of action against the Government and the motion to extend the time for amending the pleadings is denied.

Applicable Federal Rate of 1.8% for June—Rev. Rul. 2016-13; 2016-25 IRB 1 (17 May 2016)

The IRS has announced the Applicable Federal Rate (AFR) for June of 2016. The AFR under Section 7520 for the month of June will be 1.8%. The rates for May of 1.8% or April of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2016, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.