IRS Releases Guidance Under Code Sections 36B, 5000A, and 6011 on the Suspension of Personal Exemption Deductions

(Parker Tax Publishing October 2018)

The IRS issued interim guidance clarifying how the reduction of the personal exemption deduction to zero in Code Sec. 151(d)(5) applies for purposes of certain rules under Code Sec. 36B and Code Sec. 6011 relating to the premium tax credit and under Code Sec. 5000A relating to the individual shared responsibility provision. The IRS said that it intends to amend the regulations under Code Sec. 36B and Code Sec. 6011 to clarify the application of Code Sec. 151(d)(5) and, until further guidance is issued, the interim guidance applies for purposes of the regulations under Code Sec. 36B and Code Sec. 5000A and for purposes of Reg. Sec. 1.6011-8(a). Notice 2018-84.

Background

Code Sec. 151 generally allows a taxpayer to claim a personal exemption deduction for the taxpayer, the taxpayer's spouse, and any dependents, based on the exemption amount defined in Code Sec. 151(d). However, the Tax Cuts and Jobs Act (TCJA) eliminated the personal exemption deduction for years 2018-2025. For those years, Code Sec. 151(d)(5)(A) provides that the term "exemption amount" means zero. Code Sec. 151(d)(5)(B) provides that the reduction of the exemption amount to zero is not to be taken into account in determining whether a personal exemption deduction is allowed or allowable, or whether a taxpayer is entitled to a personal exemption deduction. Thus, even though the amount of the personal exemption deduction is reduced to zero, taxpayers are still allowed personal exemption deductions under Code Sec. 151 for purposes of other provisions of the Code.

Under Code Sec. 36B, a premium tax credit is available to eligible individuals who enroll themselves, their spouse, or any dependent in a qualified health plan through a healthcare Exchange, and Code Sec. 6011 provides general rules related to income tax return filing requirements. The regulations under Code Sec. 36B and Code Sec. 6011 include rules that apply based on whether a taxpayer claims or claimed a personal exemption deduction under Code Sec. 151 for an individual. These rules affect eligibility for the premium tax credit, computation of the premium tax credit, reconciliation of advance payments of the premium tax credit, and income tax return filing requirements related to the premium tax credit. Specifically, references such as "claim a personal exemption deduction," "claims a personal exemption deduction," or "claimed as a personal exemption deduction," are included in Reg. Secs. 1.36B-1(d), 1.36B-2(c)(4), 1.36B-4(a)(1)(ii)(B)(1), 1.36B-4(a)(1)(ii)(B)(2), 1.36B-4(a)(1)(ii)(C), and Reg. Sec. 1.36B-4(a)(4); and Reg. Sec. 1.6011-8(a).

Observation: The IRS said that it intends to amend the regulations under Code Sec. 36B and Code Sec. 6011 to clarify the meaning of claiming a personal exemption deduction for the tax years for which the exemption amount is reduced to zero.

Code Sec. 5000A provides that if a taxpayer, or dependent of the taxpayer who is an applicable individual for whom the taxpayer is liable, is without minimum essential coverage or a coverage exemption for one or more months in a tax year, the taxpayer must include an individual shared responsibility payment when filing his or her federal income tax return. The regulations under Code Sec. 5000A include rules that apply based on whether a taxpayer claims or claimed a personal exemption deduction under Code Sec. 151 for an individual. Specifically, Reg. Sec. 1.5000A-1(d)(4) refers to a taxpayer who "claims a deduction for a personal exemption," and Reg. Sec. 1.5000A-3(e)(3)(ii)(B) refers to "an individual for whom a personal exemption deduction ... is claimed."

Observation: TCJA reduced the amount of the shared responsibility payment to zero for months beginning after December 31, 2018. Accordingly, although the IRS is providing interim guidance related to Code Sec. 5000A, the IRS said it does not intend to propose regulations under Code Sec. 5000A.

Interim Guidance

In Notice 2018-84, the IRS provides that, because TCJA reduces the exemption amount to zero, taxpayers will no longer claim a personal exemption deduction on their individual income tax returns by listing an individual's name and TIN, multiplying the number of allowed exemptions by the exemption amount, and entering that amount on their tax return. Accordingly, the IRS noted, taxpayers may have questions about what it means to claim a personal exemption deduction for purposes of the premium tax credit and the individual shared responsibility provision. Until further guidance is issued, Notice 2018-83 provides that the following rules apply for purposes of the regulations under Code Sec. 36B and Code Sec. 5000A and for purposes of Reg. Sec. 1.6011-8(a):

(1) A taxpayer is considered to have claimed a personal exemption deduction for himself or herself for a tax year if the taxpayer files an income tax return for the year and does not qualify as a dependent of another taxpayer under Code Sec. 152 for the year; and

(2) A taxpayer is considered to have claimed a personal exemption deduction for an individual other than the taxpayer if the taxpayer is allowed a personal exemption deduction for the individual (taking into account Code Sec. 151(d)(5)(B)) and lists the individual's name and TIN on the Form 1040, U.S. Individual Income Tax Return, or Form 1040NR, U.S. Nonresident Alien Income Tax Return, the taxpayer files for the year.

Notice 2018-84 applies to tax years beginning in 2018.

For a discussion of the premium tax credit, see Parker Tax ¶102,600.

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.

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