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Last April, I paid a few hundred dollars in Obamacare fines for a gap in my 2015 coverage.  I appealed the fine and, after a tedious process, won the appeal, but the money was already swallowed by the IRS by the time the appeal decision came in the mail.  Is it possible to factor in that fine in my 2016 return in order to effectively deduct it from my 2016 tax liability?  If so, I would appreciate it if someone taught me a straightforward way to do it.  I am using TurboTax

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If it was murky to begin with, professional assistance should probably have been involved with the original return.

seawolf21 (Feb. 22, 2017 @ 4:52p) |

@seawolf21 That's beside the point. I consulted several professionals regarding the issues on which the IRS might disag... (more)

Knocks (Feb. 22, 2017 @ 5:12p) |

I'm not sure if this was more in jest, but you probably don't need to be doing that, especially if you're filing the ret... (more)

marginoferror (Feb. 22, 2017 @ 5:28p) |

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Just guessing, but you probably need to file an amended 2015 return and get the refund of the fine. I'm not aware of a way to deduct it on a future (2016) return.

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That's really sad.

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I AM NOT A TAX ATTORNEY OR PREPARER. Just helped a colleague deal with something not wholly dissimilar recently.

Did you get a Form 870 yet? Generally sent a few weeks after appeal is concludes. Documents the increase (or decrease) in tax liability and what the appeals process decided. As the form states, once signed/submitted, it serves as a valid claim for refund and then a check should come in the normal processing time.
https://www.irs.gov/pub/irs-utl/form870.pdf


Conversely if none of that happened, try the below form maybe?
https://www.irs.gov/pub/irs-access/f843_accessible.pdf.pdf

Good luck.

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All I got was a letter from the Marketplace Appeals Center, no forms. Thank you for the information. I will call the IRS tomorrow and ask if either of these forms would be applicable in my situation. Hopefully the hold times are not too terrible yet since it's early February.

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When I replied the first time, I was under the assumption that this was an IRS appeal. Marketplace appeals might work differently.

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What exactly did you appeal with the Marketplace?

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jerosen said:   What exactly did you appeal with the Marketplace?
  
My gap in coverage was justified, because the insurance company went out of business and pretty much imploded mid-year.  There was no opportunity to address that in the tax return, so I was forced to pay the fine while the appeal was pending.

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Knocks said:   
jerosen said:   What exactly did you appeal with the Marketplace?
  
My gap in coverage was justified, because the insurance company went out of business and pretty much imploded mid-year.  There was no opportunity to address that in the tax return, so I was forced to pay the fine while the appeal was pending.

  
You got approval for an appeal by the Marketplace that said your gap in coverage was justified?   

Do you have any communication with/from the IRS?

 

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No communications from the IRS, just the Marketplace decision letter. Here's what it said:

Conclusions of Law

Based upon the evidence in the record and testimony during the hearing, you qualify for an exemption from paying the fee for not having health coverage (also known as "the penalty," the "individual Shared Responsibility Payment," or the "individual mandate"). See 45 CFR § 155.605.

The decision changes your Marketplace exemption eligibility, as shown below . . . 

The appeal was such a wasteful and long process: phone testimony, multiple Marketplace employees involved, having to send this "judge" (lol "so-called judge" would apply perfectly there) proof that the insurance company went out of business in the form of clipped newspaper articles, etc.  But I am definitely not going to spend additional time and resources to file an amended return and possibly subject myself to additional audit risk, etc just to get a few hundred dollars back.
 

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I would just file an amended return and attach the decision letter. If you want to be sure that will work, call the IRS first.

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meade18 said:   I would just file an amended return and attach the decision letter. If you want to be sure that will work, call the IRS first.
  
I agree with this.  When you file the amended return, you'll fill out Form 8965 and attach to the amended return.  Since you have an exception, you're amended return should show a refund of the penalty you paid for not having healthcare.

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Have you tried phoning the IRS?  From personal experience, I realize it can be daunting with long hold times, hang ups after long hold times, etc.  But on those occasions when I was able to eventually get a live body on the phone and ask for my case to be elevated to a supervisor, I was able to get my issue resolved over the the phone (after being told previously by the person answering the phone that it would be necessary to send a letter and wait 6 weeks for a response).  Granted my issue was an error by the IRS and not an Obamacare issue so YMMV.

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Knocks said:   No communications from the IRS, just the Marketplace decision letter. Here's what it said:

Conclusions of Law

Based upon the evidence in the record and testimony during the hearing, you qualify for an exemption from paying the fee for not having health coverage (also known as "the penalty," the "individual Shared Responsibility Payment," or the "individual mandate"). See 45 CFR § 155.605.

The decision changes your Marketplace exemption eligibility, as shown below . . . 

The appeal was such a wasteful and long process: phone testimony, multiple Marketplace employees involved, having to send this "judge" (lol "so-called judge" would apply perfectly there) proof that the insurance company went out of business in the form of clipped newspaper articles, etc.  But I am definitely not going to spend additional time and resources to file an amended return and possibly subject myself to additional audit risk, etc just to get a few hundred dollars back.

  Why would filing a correct, amended return subject you to additional audit risk?  If you have a marketplace exemption letter, you are all set.  Just file a 1040X.  TurboTax or a tax pro can handle it for a minimal cost.

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caterpillar123 said:     Why would filing a correct, amended return subject you to additional audit risk?  If you have a marketplace exemption letter, you are all set.  Just file a 1040X.  TurboTax or a tax pro can handle it for a minimal cost. 
 

  
I'm pretty sure you enter the audit "lottery" with every filing, amended or not.  My 2015 paperwork was very extensive and included multiple streams of income, including small business: form 1040, schedules A, B, D, form 8949, Schedule SE, form 4797, form 4952, form 8829, form 4562, Section 1.263(a)-1(f), etc.  Unlikely to get away with just a 1040x...  So yeah, not worth the hassle.

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Just spoke with the IRS. They no longer staff the hotline that provides help with ACA-related issues, and a general accounting department person said that I need professional tax advice.  

Would this be the right time and place to say something disparaging about Obama and Obamacare?  

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Knocks said:   
caterpillar123 said:     Why would filing a correct, amended return subject you to additional audit risk?  If you have a marketplace exemption letter, you are all set.  Just file a 1040X.  TurboTax or a tax pro can handle it for a minimal cost. 
  
I'm pretty sure you enter the audit "lottery" with every filing, amended or not.  My 2015 paperwork was very extensive and included multiple streams of income, including small business: form 1040, schedules A, B, D, form 8949, Schedule SE, form 4797, form 4952, form 8829, form 4562, Section 1.263(a)-1(f), etc.  Unlikely to get away with just a 1040x...  So yeah, not worth the hassle.

  I'm not sure what you mean by "unlikely to get away with just a 1040X."  You don't have to refile any forms you previously filed if you're not changing the information on those forms.

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Knocks said:   Just spoke with the IRS. They no longer staff the hotline that provides help with ACA-related issues...

Would this be the right time and place to say something disparaging about Obama and Obamacare?
 

You can't blame the last administration for the way the current administration has chosen to operate.

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Knocks said:   Just spoke with the IRS. They no longer staff the hotline that provides help with ACA-related issues, and a general accounting department person said that I need professional tax advice.  

Would this be the right time and place to say something disparaging about Obama and Obamacare?  

  Feel free to criticize the ACA, but try to keep political comments and discussion to the minimal, to avoid derailing this thread.

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Not sure why all he red. Here is an excerpt from a Forbes article:

Amended returns are more likely to be audited.

Few tax returns are actually audited, but tax lawyers must advise clients based on the assumption every tax return will be examined. Understandably, of course, taxpayers hope their returns will not be examined! However, amended returns are more likely to be examined than original returns. That should factor into your thinking.

Example: After filing your return you discover you could get another $5,000 back by filing an amended return. Is it worth it? Are there items on the return you think might not pass muster? What if by trying to get $5,000 back, it costs you $100,000 more? See also point 2 above.

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Knocks said:   Not sure why all he red. Here is an excerpt from a Forbes article:

Amended returns are more likely to be audited.

Few tax returns are actually audited, but tax lawyers must advise clients based on the assumption every tax return will be examined. Understandably, of course, taxpayers hope their returns will not be examined! However, amended returns are more likely to be examined than original returns. That should factor into your thinking.

Example: After filing your return you discover you could get another $5,000 back by filing an amended return. Is it worth it? Are there items on the return you think might not pass muster? What if by trying to get $5,000 back, it costs you $100,000 more? See also point 2 above.

  What is the rationale behind that unsourced Forbes contributor blogpost?  The ACA fine is not related to a deduction.  As far as I know, they will not audit a return based on ACA info.  You either are responsible for a fine or not.  If they were to disagree with your amended your return, they would be unlikely to audit the entire return.  Also, the President signed an executive order advising the IRS and other agencies to avoid adverse action against taxpayers in regard to ACA enforcement.

I would agree with the increased audit risk if you were amending the return in regards to a home office deduction or other heavily-audited deduction.

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caterpillar123 said:   
Knocks said:   Not sure why all he red. Here is an excerpt from a Forbes article:

Amended returns are more likely to be audited.

Few tax returns are actually audited, but tax lawyers must advise clients based on the assumption every tax return will be examined. Understandably, of course, taxpayers hope their returns will not be examined! However, amended returns are more likely to be examined than original returns. That should factor into your thinking.

Example: After filing your return you discover you could get another $5,000 back by filing an amended return. Is it worth it? Are there items on the return you think might not pass muster? What if by trying to get $5,000 back, it costs you $100,000 more? See also point 2 above.

  What is the rationale behind that unsourced Forbes contributor blogpost?  The ACA fine is not related to a deduction.  As far as I know, they will not audit a return based on ACA info.  You either are responsible for a fine or not.  If they were to disagree with your amended your return, they would be unlikely to audit the entire return.  Also, the President signed an executive order advising the IRS and other agencies to avoid adverse action against taxpayers in regard to ACA enforcement.

I would agree with the increased audit risk if you were amending the return in regards to a home office deduction or other heavily-audited deduction.

  

The logic in the blogposty article appears to be that you shouldn't try and get back $5000 you're due because the IRS might find your rampant tax fraud.    

 

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Knocks said:   Not sure why all he red. Here is an excerpt from a Forbes article:

Amended returns are more likely to be audited.

Few tax returns are actually audited, but tax lawyers must advise clients based on the assumption every tax return will be examined. Understandably, of course, taxpayers hope their returns will not be examined! However, amended returns are more likely to be examined than original returns. That should factor into your thinking.

Example: After filing your return you discover you could get another $5,000 back by filing an amended return. Is it worth it? Are there items on the return you think might not pass muster? What if by trying to get $5,000 back, it costs you $100,000 more? See also point 2 above.

  If your tax return reflects what is true, what's the big deal with increase chance of audit?  An increase can also mean anything.  According to Forbes article in March 2016, the audit rate is 0.84%.  That's less than 1 in 100.  Even if we triple the chances of an audit, you're talking about 2.52% (less than 3 in 100).

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Knocks said:   Not sure why all he red. Here is an excerpt from a Forbes article:

Amended returns are more likely to be audited.

Few tax returns are actually audited, but tax lawyers must advise clients based on the assumption every tax return will be examined. Understandably, of course, taxpayers hope their returns will not be examined! However, amended returns are more likely to be examined than original returns. That should factor into your thinking.

Example: After filing your return you discover you could get another $5,000 back by filing an amended return. Is it worth it? Are there items on the return you think might not pass muster? What if by trying to get $5,000 back, it costs you $100,000 more? See also point 2 above.

  Even if we knew with 100% certainty (do we?) that amended returns are audited at a higher rate than original returns, that doesn't necessarily mean that filing an amended return increases your risk of an audit. There are many other variables that aren't being taken into account.

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seawolf21 said:     If your tax return reflects what is true, what's the big deal with increase chance of audit? 
This is not exactly correct.  Tax law is not always black and white, and IRS guidance on some issues is murky or insufficient.  If you are risking triggering an audit and having to defend an argument that may require professional assistance, then a small refund is indeed not worth the trouble.
An increase can also mean anything. According to Forbes article in March 2016, the audit rate is 0.84%. That's less than 1 in 100. Even if we triple the chances of an audit, you're talking about 2.52% (less than 3 in 100).
I'm pretty sure that a paper filing of a 1040x goes in front of a human IRS worker, in addition to a human state tax inspector (yes, it is recommended to file an amended state return in many states, even if the 1040x doesn't change your state tax liability).  Even if that technically doesn't mean a higher chance of audit than the original return, you are still doubling your original audit risk.  

Anyway, I have filed both a federal and a state return in order to get $341 back.  Thanks for all the advice.  We'll see how it goes from here.

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Knocks said:   
seawolf21 said:     If your tax return reflects what is true, what's the big deal with increase chance of audit? 
This is not exactly correct.  Tax law is not always black and white, and IRS guidance on some issues is murky or insufficient.  If you are risking triggering an audit and having to defend an argument that may require professional assistance, then a small refund is indeed not worth the trouble.
An increase can also mean anything. According to Forbes article in March 2016, the audit rate is 0.84%. That's less than 1 in 100. Even if we triple the chances of an audit, you're talking about 2.52% (less than 3 in 100).
I'm pretty sure that a paper filing of a 1040x goes in front of a human IRS worker, in addition to a human state tax inspector (yes, it is recommended to file an amended state return in many states, even if the 1040x doesn't change your state tax liability).  Even if that technically doesn't mean a higher chance of audit than the original return, you are still doubling your original audit risk.  

Anyway, I have filed both a federal and a state return in order to get $341 back.  Thanks for all the advice.  We'll see how it goes from here.

  If it was murky to begin with, professional assistance should probably have been involved with the original return.

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@seawolf21 That's beside the point. I consulted several professionals regarding the issues on which the IRS might disagree (it's obviously not fraud, just something they might give you a hard time about or request additional information), assumed the risk, and proceeded to file the return on my own. Some returns are inherently more high-risk than others, and by introducing additional filings, you are automatically (at least) doubling the risk of audit.

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Knocks said:   @seawolf21 That's beside the point. I consulted several professionals regarding the issues on which the IRS might disagree (it's obviously not fraud, just something they might give you a hard time about or request additional information), assumed the risk, and proceeded to file the return on my own. Some returns are inherently more high-risk than others, and by introducing additional filings, you are automatically (at least) doubling the risk of audit.
 

  I'm not sure if this was more in jest, but you probably don't need to be doing that, especially if you're filing the return yourself (in other words, if the return is simple enough you can do it yourself). You don't need to consult with several professionals. For the future, maybe find one that you go to (unless for some reason you need an expert in a particular area - but that's probably unlikely at the return-filing stage).

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