Dentist Survey +
Supreme Court upholds ACA Code +
Treasury to IRS "Get Moving" +
Are You At Risk in Your Business? +
Deducting Childrens Summer Camp Cost?
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upholds ACA Code Sec. 36B Premium Tax Credit Regs
After months of waiting, the U.S. Supreme Court announced its
decision on the fate of the Code Sec. 36B premium assistance
tax credit on June 25 in King v. Burwell, 2015-1 ustc ∂50,356.
In a 6 to 3 decision, the Court held that enrollees in both
federally-facilitated Marketplaces and state-run Marketplaces
can claim the credit, which helps offset the cost of health
insurance. The decision leaves in place the current IRS
regulations on the credit and the regime for administering and
claiming the credit.
Code Sec. 36B credit
Affordable Care Act (ACA) created both the Marketplaces
(previously called Exchanges) and the Code Sec. 36B credit.
The Marketplaces connect eligible individuals with health
insurance issuers. Some states have set up their own
Marketplaces. In other states, the Marketplaces are operated
by the federal government. Qualified enrollees may take
advantage of the Code Sec. 36B credit if their incomes are
within certain guidelines and they satisfy other requirements.
When the IRS issued regulations on the Code Sec. 36B credit,
the agency made the credit available to enrollees in state-run
Marketplaces and federally-facilitated Marketplaces.
This decision by the IRS sparked controversy. A number of law
suits were filed challenging the IRS's regulations. According
to the challengers, the ACA limited the availability of the
tax credits to enrollees in state-run Marketplaces. Enrollees
in federally-facilitated Marketplaces could not claim the
credit. In the King case, both a federal district court and
the Fourth Circuit Court of Appeals ruled against the
challengers. The Supreme Court agreed to take up the case and
heard oral arguments in March of this year.
Note. Not all of the challenges to the
Code Sec. 36B regulations were unsuccessful in the lower
courts. In a case very similar to King, the Court of Appeals
for the District of Columbia Circuit struck down the IRS
regulations as contrary to the plain language of the ACA. The
split among the circuits left the outcome of the controversy
far from certain.
month in USA Today I was quoted in 2 articles on tax
topics & if you missed it you can download the articles
9 Commonly Overlooked
Tax Breaks by Jeff Reeves - Special to USA Today (click
here to download)
9 Tax Tips For The Self
Employed by Jeff Reeves - Special to USA Today (click
here to download)
Supreme Courtís decision
Chief Justice John Roberts delivered the Courtís decision in
King. "Congress based the Affordable Care Act on three major
reforms: first, the guaranteed issue and community rating
requirements; second, a requirement that individuals maintain
health insurance coverage or make a payment to the IRS; and
third, the tax credits for individuals with household incomes
between 100 percent and 400 percent of the federal poverty
line. In a State that establishes its own Exchange, these
three reforms work together to expand insurance coverage.
Under petitioners' reading, however, the Act would operate
quite differently in a State with a Federal Exchange. As they
see it, one of the Act's three major re-forms - the tax
credits - would not apply," Roberts wrote. This outcome, the
Court found, was not what Congress intended.
"The combination of no tax credits and an ineffective coverage
requirement could well push a State's individual insurance
market into a death spiral. It is implausible that Congress
meant the Act to operate in this manner," Roberts added.
Three justices dissented in King. They would have found in
favor of the challengers. "The Congress that wrote the
Affordable Care Act knew how to equate two different types of
Exchanges when it wanted to do so," the dissent wrote.
According to the dissent, the government did not show why the
Court should have departed from the language of the ACA.
Since enactment of the ACA, the IRS and the U.S. Department of
Health and Human Services (HHS) have issued instructions and
guidance for enrollees in Marketplace coverage. The
Marketplaces make initial determinations of eligibility for
the credit. The IRS administers how enrollees claim the credit
when they file their federal income tax returns. According to
HHS, nearly 80 percent of all enrollees in Marketplace
coverage have been eligible and have used the Code Sec. 36B
credit to offset the cost of health insurance. The decision by
the Supreme Court in King leaves the IRS regulations on Code
Sec. 36B undisturbed. Going forward, nothing is expected to
change for enrollees.
If you have any questions about the Code Sec. 36B credit
and/or the Supreme Courtís decision in King, please contact
Get Moving on ABLE Account Rules
in 2014, Congress passed and President Obama signed into the
law the Achieving a Better Life Experience (ABLE) Act. The new
law, which enjoyed strong bipartisan support, authorizes
the creation of tax-favored accounts for qualified individuals
challenged by disabilities.
Congress instructed Treasury and
the IRS to quickly issue guidance and the agency did so in
June. The new guidance covers how to establish ABLE accounts,
funding for these accounts, qualified distributions, and
various reporting requirements.
ABLE accounts are intended to encourage individuals and
families to establish a tax-favored savings account to assist
and support individuals with disabilities. Contributions to an
ABLE account are not deductible, but qualified distributions
for certain expenses are excluded from taxation.
ABLE accounts must be created under a state program.
Currently, many states are in the process of setting up an
ABLE program. If a state does not establish and maintain an
ABLE program, the law allows it to contract with another state
to provide an ABLE program for its residents.
Generally, an individual is an eligible individual for a tax
year if, during that year, either the individual is entitled
to benefits based on blindness or disability under Title II or
XVI of the Social Security Act and the blindness or disability
occurred before the date on which the individual attained age
26, or a disability certification meeting specified
requirements is filed with the IRS. In some cases, the IRS
explained that individuals may be unable to establish an
account themselves. If the eligible individual cannot
establish the account, the eligible individual's agent under a
power of attorney or, if none, his or her parent or legal
guardian may establish the ABLE account for that eligible
Contributions and distributions
Total contributions to an ABLE account per calendar year
cannot exceed the annual gift tax exclusion (which is $14,000
for 2015). Additionally, state must provide adequate
safeguards to ensure that total contributions to an ABLE
account do not exceed the state's limit for aggregate
contributions under its qualified tuition program. The ABLE
Act allows for direct and indirect investment of contributions
to the program or earnings no more than two times in any
calendar year. If distributions from an ABLE account do not
exceed the designated beneficiary's qualified disability
expenses, no amount is included in the designated
beneficiary's gross income. Otherwise, the distribution may be
subject to income tax and an additional tax.
For ABLE accounts, qualified expenses are expenses that relate
to the designated beneficiary's blindness or disability, and
are for the benefit of that designated beneficiary in
maintaining or improving his or her health, independence, or
quality of life. These include expenses for education,
housing, transportation, employment training, and personal
support services. The IRS requested comments from interested
parties about what types of expenses should be considered
qualified disability expenses and under what circumstances.
For example, a smartphone could be considered a qualified
disability expense if it is an effective and safe
communication or navigation aid for an individual with autism.
Reporting and means-testing
The guidance includes various reporting rules. For example,
information regarding distributions will be reported on new
Form 1099-QA: Distributions from ABLE Accounts. Generally an
ABLE account is not to be counted in determining the
designated beneficiary's eligibility for many federal
means-testing programs. Special rules may apply to some
The new guidance covers many aspects and requirements of ABLE
accounts, beyond this high-level review. If you have any
questions about ABLE accounts and the IRS's new guidance,
please contact our office.
IR-2015-91, NPRM REG-102837-15
I Determine When the "At Risk" Rules Apply to my Business?
that invest in a trade or business or an activity for the
production of income can only deduct losses from the activity
or business if the taxpayer is at risk for the investment.
A taxpayer is at risk for the
amount of cash and the basis of property contributed to the
Taxpayers are also at risk for
amounts borrowed if the taxpayer is personally liable to pay
the liability, or if the taxpayer has pledged property as
security for the loan (other than property already used in the
At-risk or not?
A taxpayer is not at risk for a nonrecourse loan, since there
is no personal liability. However, amounts at risk include
"qualified nonrecourse financing" used in connection with the
holding of real estate. A taxpayer also is not at risk for
contributions that are protected against loss by a guarantee,
stop loss arrangement, or other similar arrangement. For
certain activities, such as farming, oil and gas exploration,
motion pictures, and the leasing of Code Sec. 1245 property, a
taxpayer is not at risk for amounts borrowed from related
persons or from persons who have an interest in the activity
(other than as a creditor).
Scope of at-risk rules
The at-risk rules apply to all trade or business activities
and to activities for the production of income. The rules
apply to individuals, partners, S corporation shareholders,
estates, trusts, and certain closely-held corporations. The
at-risk rules generally do not apply to widely-held C
corporations, whether public or private. There also is an
exception for equipment leasing activities of closely-held
Deduction of losses
The taxpayer's amount at risk limits the allowable loss from
the activity. The loss subject to the at-risk limitation is
the excess of allowable deductions over the income received
from the activity for that year. Under proposed regulations
under Code Sec. 465, losses that are allowed as deductions for
the tax year reduce the taxpayer's at-risk amount for the
activity for the succeeding year. Losses that are denied under
the at-risk rules can be carried over to subsequent years and
deducted against amounts at risk in the subsequent years.
Adjustment of amount at risk
The amount at risk must be adjusted each year. At the close of
the tax year, the following procedures are used to determine
the amount at risk:
As stated above, amounts at risk at the end of the prior year
must be reduced by the amount of loss allowed in that prior
Amounts at risk are increased by items, such as contributions
of money or property, that add to the amount at risk; and
Amounts at risk are decreased by items, such as withdrawals of
money or property, which reduce the amount at risk.
Can I Deduct
the Cost of Sending my Child to Summer Camp?
Now that summer 2015 is officially here and the main filing
season is out of the way, tax planning may be far from your
mind. However, typical summer traditions can yield tax
benefits. For example, when school lets out for the summer,
some parents may decide to send their young children to summer
camp. Whether parents do this to supplement their children's
education, enhance their athletic skills, provide social
opportunities, or simply to get them out of the house, some
working parents may be able to deduct certain expenses
associated with the cost of sending children to day camp.
That's where the child care and dependent credit under Code
Sec. 21, might especially come into play.
Child Care and Dependent Credit Basics
A taxpayer, who incurs expenses to obtain day care for child
under age 13 so that the taxpayer and his or her spouse can be
gainfully employed (or look for gainful employment), may be
able to claim the child care and dependent tax credit on Form
1040, (line 49), Form 1040A (line 31), or Form 1040NR (line
47). Taxpayers may also claim the credit for expenses paid for
care for certain other qualifying individuals, such as
physically or mentally incapacitated dependents.
Taxpayers who qualify for the child and dependent care tax
credit must claim it by completing and filing Form 2441, Child
and Dependent Care Expenses, along with their tax returns.
Taxpayers may not claim the credit if they file a Form 1040EZ,
Income Tax Return for Single and Joint Filers With No
Dependents, or Form 1040NR-EZ, U.S. Income Tax Return for
Certain Nonresident Aliens With No Dependents.
A taxpayer who qualifies may claim a credit in an amount
between 20 to 35 percent of employment-related child care
expenses. Such expenses can include the cost of sending a
child to day camp, something that can run up a hefty bill of
more than $100 or $500 per week!
In general, to claim the child and dependent care
credit, the taxpayer must meet the following requirements:
- The taxpayer must live with the child(ren) or qualifying person(s) for
more than half of the tax year;
- The child and dependent care expenses must be incurred to allow the
taxpayer to work or look for work. (If the taxpayer or the
spouse is a stay-at-home parent, unfortunately, the child care
costs are nondeductible);
- The taxpayer must have income from work during the year. (The amount of
the employment-related expenses taken into account in
calculating the child and dependent care credit may not exceed
the lesser of the taxpayer's earned income or the earned
income of his spouse if the taxpayer is married at the end of
the tax year);
- The taxpayer must have made payments for child and dependent care to
someone the taxpayer or his spouse could not claim as a
dependent. If the person to whom payments were made was the
taxpayer's child, the child must have been 19 or over by the
end of the year;
If married, the taxpayer must file a joint return (unless an
- The taxpayer must include the taxpayer identification number of the
qualifying individual on the return;
- The taxpayer must provide specified information regarding service
providers, including the name, address and taxpayer
identification number (TIN) of the provider (no TIN is
required if the provider is a tax-exempt organization);
- A taxpayer must substantiate any child and dependent care credit claimed
by providing adequate records or other sufficient evidence of
work-related expenses, etc.
Summer Camp Costs
Because day camp is comparable to day care, the IRS allows
taxpayers to factor in the costs of sending a child to day
camp when determining the amount of the child and dependent
care credit they may claim. The cost of sending a child to a
day camp may be a work-related expense, even if the camp
specializes in a particular activity, such as computers,
music, football, or soccer. Furthermore, taxpayers are not
required to seek out the least expensive day camp option in
order to claim the credit. The IRS regulations provide that
"the manner of providing care need not be the least expensive
alternative available to the taxpayer."
Reg. ß1.21-(1)(d)(6) provides that the cost of sending your
child to an overnight camp, however, is not considered a
work-related expense. Similarly, summer school and tutoring
programs are not considered to be for the care of a qualifying
individual and the costs are not employment-related expenses.
The regulations under Code Sec. 21 provide two examples
intended to outline the distinction between a summer day camp,
for which expenses are deductible, and a tutoring program, for
which expenses are nondeductible. They state: To be gainfully
employed, N sends her 9-year old child to a summer day camp
that offers computer activities and recreational activities
such as swimming and arts and crafts. The full cost of the
summer day camp may be for deductible care. In contrast, to be
gainfully employed, O sends her 9-year old child to a math
tutoring program for two hours per day during the summer. The
cost of the tutoring program is not for deductible care.
According to the IRS, the question of whether or not an
expense qualifies for the dependent care credit depends on the
nature and primary purpose of the services provided and is
primarily a question of fact. In order for an expense to
qualify in full for the dependent care credit, any portion of
the expense for purposes other than care must be minimal or
insignificant and inseparable from the portion of the expense
for care. If a significant portion of the expense is for
purposes other than care, an allocation must be made as to
which portion of the costs are for deductible care and which
portion of the costs are for other purposes. An expense that
is primarily for a purpose that is not care, such as
education, does not qualify for the dependent care credit.
Amounts paid for clothing, schooling and entertainment are not
considered qualified expenses for purposes of calculating the
child care and dependent credit. However, if these amounts are
incidental to and cannot be separated from the cost of caring
for the qualifying person, the regulations provide that these
expenses can be counted toward the credit for qualified
dependent care. This means that costs to purchase clothing,
horseback riding chaps, soccer cleats, football padding,
violin strings, or other gear that may be used by the child
while at the day camp are nondeductible because they are
technically personal in nature and not for the well-being of
the child. However, if the day camp provides a lunch and
snacks to the children attending the day camp, the regulations
provide that the cost of this lunch and the snacks may be
included in the cost of care for the child if they are
incidental to and inseparably a part of the care.
The cost of transporting a qualifying individual to a place
where care is provided is not generally a qualifying expense
unless it is provided by a dependent care provider. If a day
camp takes a child or qualifying person to or from the day
camp location, that transportation is for the care of the
child. This includes transportation by bus, subway, taxi, or
A taxpayer may include the cost of fees paid to an agency to
get the services of a day camp provider, including deposits
and application fees. However, if the taxpayer changes his or
her mind and either does not send the child to day camp or
selects another program, any forfeited deposit will not be
considered "for the care of a qualifying person" and will
therefore become nondeductible.
The amount of the child care and dependent credit is subject
to a cap calculated as a percentage of the taxpayer's
employment-related expenses, as well as a dollar limit. A
maximum credit of 35 percent of employment-related expenses is
available to taxpayers with adjusted gross income (AGI) of
$15,000 or less. The credit percentage is reduced by one
percentage point for each $2,000 of adjusted gross income, or
fraction thereof, above $15,000. The minimum credit percentage
is 20 percent, and it applies to a taxpayer with AGI in excess
In addition, the maximum amount of eligible expenses that may
be used to calculate the final credit amount is $3,000 for
taxpayers with one qualifying individual and $6,000 for
taxpayers with two or more qualifying individuals. Therefore,
the maximum credit amount is $1,050 for taxpayers claiming
expenses for one child and $2,100 for taxpayers claiming
expenses related to two or more children.
Any child care benefits provided by an employer will reduce
dollar-for-dollar the amount of expenses a taxpayer may use to
calculate the credit.
The child care and dependent credit is nonrefundable, meaning
that if the taxpayer already has no tax liability for the year
in which he or she incurred qualified expenses for purposes of
the credit, he or she will receive no tax benefit from
claiming the credit.
To read this & my other articles online go to
and click on the Newsletter section.
always you can call me at 714-619-0667 if you have any
questions about investing, retirement or any other tax &
accounting related issues.
Regards, Monica Rebella, CPA/IAR
President, Rebella Accountancy