Notice of Deficiency Was Required Before Assessing Excess Advance PTC Payment

(Parker Tax Publishing February 2026)

The Tax Court held that an IRS assessment against a couple for advance payments of the premium tax credit under Code Sec. 36B to which they were not entitled because they exceeded the federal poverty line for their household was a deficiency that was invalidly made because no notice of deficiency was issued. The court rejected the IRS's contention that the taxpayers' completion of Form 8962, Premium Tax Credit (PTC), was a self-assessment of additional tax. Walker v. Comm'r, T.C. Memo. 2026-4.

Background

Kenneth and Juli Walker timely filed a joint Form 1040, U.S. Individual Income Tax Return, for tax year 2018 reflecting a household of four, adjusted gross income of $110,599, and a refund due of $2,143. Despite the Walkers' purchasing insurance through a health insurance marketplace for 2018, their original tax return did not include IRS Form 8962, Premium Tax Credit (PTC), and Form 1095-A, Health Insurance Marketplace Statement.

In 2019, the IRS issued Letter 12C to the Walkers informing them that their 2018 tax return omitted both Forms 8962 and 1095-A. The IRS received these requested forms from the Walkers in December 2019. On Form 8962 the Walkers reported household income of $110,599, a federal poverty line of $24,600 based on their household size, and household income of at least 401 percent of the federal poverty line. They also reported $20,904 in total advance payments of PTC (APTC) and excess APTC payments for the same amount. In March 2020, the IRS adjusted the Walkers' 2018 tax return and made an additional tax assessment of $20,904 (Assessment) relating entirely to the PTC.

In October 2021, the IRS issued a Notice of Intent to Levy seeking to collect the Walkers' 2018 balance due, which at the time was $27,297. In response the Walkers requested a Collection Due Process hearing. The settlement officer determined that the increased assessment was completed in accordance with IRS policies and procedures and concluded that the balance due was valid.

The Walkers appealed to the Tax Court. They argued that the IRS was required under the deficiency procedures in Code Secs. 6211 through 6215 to issue a Notice of Deficiency after adjusting their 2018 return and determining that a deficiency was due. The IRS responded that the Walkers reported their own excess APTC repayment and that the IRS processed their Form 8962 with their submitted return. According to the IRS, the assessment of the excess APTC with the submitted return was evidenced on the Walkers' IRS account transcript. Citing Code Sec. 6201(a)(1), the IRS contended that the IRS merely assessed additional tax due as reported by the taxpayers.

Premium Tax Credit

Code Sec. 36B allows a refundable tax credit known as the premium tax credit (PTC). The PTC assists eligible taxpayers with the costs of their premiums for health insurance purchased through an exchange.

Under Code Sec. 36B(c)(1)(A), a taxpayer generally qualifies for the PTC if for the tax year she has a household income that is at least 100 percent, but not greater than 400 percent, of the federal poverty line amount for the taxpayer's family size. The federal poverty line amount is established by the most recently published poverty guidelines in effect on the first day of the open enrollment period preceding that tax year. For tax year 2018, 100 percent of the federal poverty line for a family of four was $24,600, and 400 percent was $98,400.

Section 1412 of the Affordable Care Act authorizes the Treasury Secretary to make advance premium tax credit (APTC) payments on behalf of qualifying taxpayers. In such circumstances a taxpayer elects to have the APTC paid directly to her insurance carrier to help cover the cost of insurance premiums during the year. The amount of the payment is based upon the estimated amount of the PTC which the taxpayer may be entitled to claim on her return. The APTC may cover some or all of the taxpayer's monthly premiums for a health insurance plan.

A taxpayer who has received the APTC is required to reconcile the APTC payments made during the year with the amount of the PTC for which she is eligible. If the total APTC payments exceed the amount of the PTC for which she is eligible, she owes the excess as a tax liability, subject to a repayment limitation in Code Sec. 36B(f)(2)(B). This repayment limitation applies only to taxpayers whose household income is less than 400 percent of the federal poverty line amount.

Analysis

The Tax Court agreed with the Walkers and held that the IRS was required to issue a Notice of Deficiency before making the additional tax assessment of $20,904 against the Walkers.

The court found that Code Sec. 6201(a) requires the IRS to make assessments of all tax imposed by the Code. If there is a "deficiency," the IRS is further required to provide the taxpayer an opportunity for judicial review before assessment under Code Sec. 6213(a). A deficiency is defined in Code Sec. 6211(a) as "the amount by which the [income, gift, estate, or excise] tax imposed . . . exceeds" the excess of the sum of "the amount shown as the tax by the taxpayer upon his return" plus any previously assessed amounts, over "the amount of rebates . . . made." In the court's view, the Walkers' argument was well supported by the plain text of Code Sec. 6211(a).

The parties acknowledged that Code Sec. 36B(f) obligates taxpayers to reconcile the APTC with their allowable PTC on their tax return. However, the court rejected the IRS's additional contention that the Walkers' completion of Form 8962 reflected additional tax due which could be assessed under Code Sec. 6201. The court did not accept the notion that this reconciliation acts as a self-assessment of additional tax. Considering the specific wording of Code Sec. 36B(f), the court concluded that the IRS determined that the Walkers owed additional tax notwithstanding their original filing, which is the quintessential definition of a deficiency. Accordingly, the court concluded that the IRS was legally obligated to issue a Notice of Deficiency under the Code.

Having determined that the IRS failed to issue a Notice of Deficiency despite being legally required to do so, the court held that the IRS could not proceed with collection of the Assessment.

For a discussion of advance payments of the premium tax credit, see Parker Tax ¶102,630. For a discussion of collection due process hearings, see Parker Tax ¶260,540.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com