How can you keep an NOL carryforward from denying ACA eligibility?

[MaxQED]

This is long.  Problem is the short version.  The rest is relevant detail to help you help me.

Problem  To qualify for the Premium Tax Credit (PTC), Pub 974 makes clear on pp. 4 and 5 – you have to have modified AGI (in most cases, including mine, this equals AGI) that is at least 100% of the poverty line.  That is something bigger than 0.  

If I apply my NOL carryforward (CF), my AGI is a huge negative number. Mechanically, as I understand it – the NOL CF goes on Schedule 1 Line 8 “Other Income”, and from there to 1040 Line 7a. AGI is derived at Line 8b.

Background
1. Large Ponzi-scheme theft loss. Large NOL, carried back 3y, and CF to 20y.
2. Income has been a challenge - wife and I have been on ACA health insurance.
3. When applying for ACA in December every year, their software requires you to expect and document some minimum AGI. Short of that minimum (~$20k/y), they determine not eligible. We have $0 earned income. So to get enrolled, I estimate about their minimum, we get enrolled and coverage is issued.
4. During the year, I make sure to produce about the income I projected, through dividends, capital gains, IRA distributions, etc.

FYIs
1. Pub 974 and the 8962 instructions don’t mention – NOL, operating loss, carryforward, or carry forward.
2. Curiously, a negative AGI does not adversely affect the calculations on 8962 – the net of 8962 works out to be the same as if there was no NOL CF and our actual AGI was what we expected.
3. I suspect the spirit of the ACA law is that we qualify, and that the NOL CF rules are not intended to disqualify us.
4. Perhaps the answer lies here – 8962 instructions page 8.

You may qualify for the PTC if your household income is less than 100% of the federal poverty line and you meet all of the following requirements.

a. You or an individual in your tax family enrolled in a qualified health plan through a Marketplace.

b. The Marketplace estimated at the time of enrollment that your household income would be at least 100% but not more than 400% of the federal poverty line for your family size for 2019.

c. APTC was paid for the coverage for one or more months during 2019.

d. You otherwise qualify as an applicable taxpayer (except for the federal poverty line percentage).

But, in “a” - how can you legally enroll in the first place if you know your AGI will be 0 because of the NOL CF?

Yikes – the 8962 text that immediately follows what I pasted above – You do not meet the requirements under Estimated household income at least 100% of the federal poverty line if: ..... You, with intentional or reckless disregard for the facts, provided incorrect information to a Marketplace for the year of coverage.

[AmeliesUncle]

There is nothing to do; you don't qualify for the Premium Tax Credit (but see my bottom paragraph about Medicaid).

Just to clarify ... you don't need income to get Marketplace insurance.  You just need it to get the Advance Premium Tax Credit.

And yes, not only do you not qualify for the credit if you intentionally disregard the rules and lie about your income, the penalty can be $100,000 for intentionally putting false information on your Marketplace application.

Have you checked if you qualify for your State's Medicaid program?  If you live in a State that has fully 'expanded' Medicaid, you would qualify for free Medicaid insurance.

https://www.kff.org/medicaid/issue-brief/status-of-state-medicaid-expansion-decisions-interactive-ma...

[MaxQED]

Thank you very much for the reply.   I'm quite confounded by what you say.    

1.  No, not in an expanded Medicaid state.  Assets knock us out, and the healthcare.gov site (ACA) says so.

2.  Yes, understood -- can get a Marketplace plan w/out the USG chipping in via APTC.
3.  To be clear, when applying for Marketplace coverage and the APTC, I am truthfully answering questions on expected income.  I'm not misrepresenting anything, much less doing so recklessly.  To my recollection, there are no questions about what I expect our AGI to be or if there is an NOL CF.  Rather the healthcare.gov site asks about household income, or gross income.  I've looked at an ACA site for definition -- things like cap gains and dividends are counted, and I don't see anything about NOL CF counting as (negative) income.  

4.  Do you believe that the spirit of the NOL rules are to disqualify people in our situation from APTC coverage?  Or that the spirit of the ACA rules are to disqualify people with an NOL CF?  If either, what supports that belief?

5.  This past year, our itemized deductions slightly exceeded our total taxable income (w/out considering the NOL CF).  What is the advisability of not using our NOL CF in such a situation?  If we didn't use it, how if at all would that effect our wanting to use it in a future year still within the 20y CF window? 

[Anonymous]

when the Marketplace asks about household income it is asking about what will appear on line 3 of form 8962.

this is basically you Adjusted Gross Income which is negative.  So if it's substantially misreported you are filing a false application.  

have you read the instructions for 8962 lines 2a and 2b the total of which is Household Income.  worksheets are in the instructions

https://www.irs.gov/pub/irs-pdf/i8962.pdf

[MaxQED]

Thank you for helping me.

Form 8962 -- If 2a is a large negative number, Line 3 becomes zero since it says no negative numbers.  That makes Line 5 zero.  Curiously, that does not "wreck" the rest of the form, because the "Applicable Figure" in Line 7, taken from the table on page 9, has a floor of 0.0208.  Even with Lines 8a and 8b at zero, no bizarre  things happen in the rest of the form.  

I'll dive deeper in to the ACA site and try to learn more about what they are requesting at the time of enrollment and APTC estimation regarding income.     

It just strikes me as very odd that the spirit of these laws is to deny our APTC eligibility.  That doesn't make any sense.  The ACA is for low income people.  We are low income.  The NOL CF is an artifact from an event that was years earlier.  It's not a cash flow or cash use event. 

Do you have reason to believe that the spirit of the NOL rules is to disqualify low income people from APTC eligibility for up to 20 years? 

Do you have reason to believe that the spirit of the ACA law is to deny APTC eligibility for people with NOL CFs? 

[AmeliesUncle]

Unfortunately, it doesn't matter what the 'spirit' of the law says.  It only matters what the actual law says, and unfortunately your NOL messes things up.  

But the original law intended for those who had the lower AGI (including NOLs) would qualify for free Medicaid.  Unfortunately that aspect of the law was ruled unconstitutional so some states did not follow through with that aspect of the law.   That is why I recommended you look into Medicaid.  If your State has 'expanded' Medicaid, that would cover you.

There were several other problems in the ACA (such as situations like yours), and unfortunately Congress never corrected them.  So we are stuck with a system with known problems.

[MaxQED]

Thank you.

That's tough to take. 

Lets say its December, and because I believe my following year's deductions will be comparable to AGI, I plan to not "use" the NOL CF and apply and receive APTC.  What would happen if, when I do the 1040 for that "following year" (ie, in another 13-15 months from that December) I didn't apply the NOL CF on that 1040 return?  Would that be acceptable?

And if I do that, what would happen in a year or two thereafter, with no APTC for the year, I do "use" the NOL CF in my 1040?

If there is a year where I think I won't want to a kick in the pants.  

[AmeliesUncle]

Sorry for more bad news, but you don't have a choice to 'use' it or not.  It must be applied.

Have you looked into Medicaid?  If you qualify, that makes all of this not applicable.

[MaxQED]

Yes, sadly our state does not have expanded Medicaid.  Our assets deny eligibility.

Curious -- not that I want to find out the hard way -- how do tax courts generally rule when there is an act which violates the letter of the law but does not violate the law's intent?

I realize you are likely not a lawyer, and even if you are, you are not offering legal counsel. 

[Critter]

Private letter rulings take months and will cost you quite a lot so fighting this may not get you anywhere better than you are right now. 

[Anonymous]

if you want a fix write to your senators and reps to get the law changed.   it's Congress that passes the tax laws, not the IRS. even more worrisome is that the present administration is trying to eliminate subsidies altogether. 

as for the tax courts, they look into Congressional intent when the laws were written and what the law actually says to see if the actual law complies with Congressional intent.  There was no mention of NOL's.  Your chances of winning are virtually nil.  then consider the cost of going to court.  say for some reason the Tax Court was to agree with you.  The IRS has the right to object and have it taken to a higher court.  More attorney costs for you. 

there are many bad provisions in the tax code. worse is that within the law different tax courts can arrive at different decisions. 

don't know what your personal situation is, but you may be trading income taxes for subsidies. you save on income taxes due to the NOL but lose out on subsidies. 

you might want to consider High Deductible Health Plan - no subsidies.  search the web - as others have said there is no requirement to use the Marketplace.  

[Angelsdad15]

The purpose of my reply is I trust Turbo Tax reads these posts.  I've used TurboTax for at least 10 years.  I have an S-Corp. In 2020, I suffered a substantial loss (relatively speaking to the size of my business).  But for the forgiven PPP loan/grant, the business survived. I didn't think about how the actual loss would be treated relative to the future ask a QBI/L.  I only learned about its treatment with my 2021 return through a deep dive into TurboTax and instructions for Form 8995).  I too have an ACA plan through the Market Place, however, in December 2020, when I applied for the plan, I wasn't aware of the NOL CF.  Fortunately, my actual income was higher than estimated on the application and the NOL CF didn't put me below the qualifying estimated income limits.

Unless I miss it, TurboTax software did not inform me of the NOL CF upon completion of my 2020 federal filing.  I would expect as part of the final review, the NOL CF would be noted.  If the rules in this case were not in place at that time, I would expect a notification with the 2021 software upon the auto up-load of the previous year's tax filing.  Or am I missing something already in place and I overlooked it; or am I expecting too much from the software?

[AmeliesUncle]

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@Angelsdad15 wrote:

. In 2020, I suffered a substantial loss

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TurboTax does almost nothing in regards to a Net Operating Loss.  But the 2020 program should have notified you that you MIGHT have a NOL (it does not calculate it though).   

Did you make the election to "waive the carryback" of your NOL?  If not, you DON'T have a NOL carryforward.  It must be carried BACK 5 years and you would amend your 2015 tax return to claim the NOL.