The determination of whether an unsatisfied tax obligation constitutes a "deficiency" under IRC § 6211 or an amount "shown on the return" under IRC § 6201 dictates the procedural rights of a taxpayer. In Walker v. Commissioner, T.C. Memo. 2026-4, the United States Tax Court addressed a critical procedural question regarding the Premium Tax Credit (PTC): Must the IRS issue a Notice of Deficiency before assessing excess Advance Premium Tax Credit (APTC) repayments when the reconciliation form is submitted after the original return? The Court held that such liabilities constitute deficiencies, requiring the IRS to follow deficiency procedures rather than summary assessment.

Case Background and Factual Context

The petitioners, a married couple residing in California, timely filed their joint 2018 Form 1040, reporting an adjusted gross income of $110,599 and claiming a refund of $2,143. Crucially, the petitioners omitted Form 8962, Premium Tax Credit, and Form 1095-A, Health Insurance Marketplace Statement, from their initial filing. The IRS subsequently deemed the return filed on December 16, 2019, recording a "joint self-assessment of $5,056 in tax" based on the figures reported.

Upon processing the return, the IRS issued Letter 12C informing the petitioners of the missing forms. The petitioners responded by submitting the requested Form 8962 on December 10, 2019. This form revealed that the household income exceeded 401% of the federal poverty line ($24,600 for a family of four), rendering them ineligible for the PTC. Consequently, the $20,904 in APTC paid on their behalf was required to be repaid in full.

On March 16, 2020, utilizing internal procedures, the IRS "adjusted petitioners’ 2018 tax return and made an additional tax assessment of $20,904". The IRS did not issue a Statutory Notice of Deficiency (SNOD) prior to this assessment. When the IRS subsequently issued a Notice of Intent to Levy, the petitioners requested a Collection Due Process (CDP) hearing.

The Taxpayer’s Request for Relief

During the CDP process, the petitioners challenged the validity of the underlying assessment. Their representative argued that "the assessments against my clients were not properly made" and requested that the Appeals officer "see to it that all assessments are abated". The core of the petitioners’ argument was procedural:

"IRS may collect taxes shown on the taxpayer’s return, Section 6201(a)(1). . . . The assessment that concerns us was made three months later on 03/16/20, Clearly, that assessment is not an assessment of taxes shown on the return... IRS may assess a deficiency in tax under procedures whereby the taxpayer is given a notice of deficiency... There is no evidence here that the IRS went through these deficiency procedures."

The IRS Independent Office of Appeals sustained the levy, determining that "the increased assessment was completed in accordance with IRS policies and procedures" and that the liability was "properly assessed" based on the documentation the taxpayers eventually submitted.

The Court’s Analysis of the Law

The Tax Court reviewed the underlying liability de novo. The legal controversy centered on the definitions found in Subchapter A (Assessment) versus Subchapter B (Deficiency) of Chapter 63.

Under IRC § 6201(a)(1), the Secretary is authorized to assess "all taxes determined by the taxpayer or by the Secretary as to which returns or lists... are made under this title". Conversely, IRC § 6211(a) defines a deficiency generally as the amount by which the tax imposed exceeds the "amount shown as the tax by the taxpayer upon his return". If a liability is a deficiency, IRC § 6213(a) mandates that "no assessment of a deficiency... shall be made, begun, or prosecuted until such notice [of deficiency] has been mailed to the taxpayer".

The Respondent (IRS) argued that because the taxpayers eventually submitted Form 8962, the resulting liability was "tax shown on the return" pursuant to IRC § 6201(a)(1), thereby bypassing the need for deficiency procedures.

The Court rejected this view, noting that the "term ‘underlying tax liability’ is not defined in section 6320 or 6330" but generally references amounts assessed for a particular period. The Court emphasized that if the liability fits the statutory definition of a deficiency, the IRS is "required to provide the taxpayer an opportunity for judicial review before assessment".

Application of Law to Facts

Judge Weiler found that the assessment of the excess APTC fit the "quintessential definition of a deficiency". The Court reasoned that the original return, as filed, did not account for the PTC. While the petitioners provided the reconciling data via Form 8962 later, the Court held that this submission did not constitute a self-assessment of tax that would trigger § 6201(a)(1) summary assessment authority.

The Court explicitly rejected the IRS’s theory regarding the nature of the reconciliation:

"We decline to accept the notion that this reconciliation acts as a self-assessment. . . . Considering the specific wording of section 36B(f), we conclude that the IRS determined that petitioners owed additional tax notwithstanding their original filing, which is the quintessential definition of a deficiency."

It is worth noting that the parties stipulated the assessment "was not a mathematical or clerical error assessment pursuant to I.R.C. § 6213". Had the IRS utilized math error procedures under IRC § 6213(b)(1), they would have been required to issue a specific notice describing the error, which affords the taxpayer 60 days to request abatement. Instead, the IRS treated the post-filing submission of Form 8962 as a justification for immediate assessment.

Conclusions and Holding

The Tax Court held that the assessment was invalid. Because the calculation involved determining an amount in excess of what was shown on the original return (and not treated as a math error), "it was necessary for the IRS to determine whether petitioners had a deficiency in tax".

The Court concluded:

"On the basis of the foregoing plain text of the Code, we find that petitioners’ legal argument that the Assessment is a deficiency determination under the Code is well supported. . . . Accordingly, we hold respondent’s additional tax assessment of $20,904 against petitioners was invalidly made since no Notice of Deficiency was issued.",

Regarding the review of the Appeals officer’s decision, the Court stated that "we must reject erroneous views of the law". Consequently, the Court found the determination to proceed with collection to be an abuse of discretion.

The decision serves as a reminder to practitioners: when the IRS assesses tax based on information provided after the return is filed (such as in response to a Letter 12C), absent a valid math error notice, the IRS must likely follow formal deficiency procedures. As the Court ruled, "If [the] assessment of . . . [the] tax liability was not preceded by a notice of deficiency as required by section 6213(a), the assessment is invalid".

Prepared with assistance from NotebookLM.