Client prepared own 2018 return and made an error related to health insurance. Client had health insurance for all of 2018 through the Marketplace but indicated on the return she did not have insurance in 2018 and calculated a shared responsibility payment of $884. Had client filed return correctly, she would have paid an APTC repayment of $1,300 as income was higher than she anticipated when apply for healthcare in 2018.
Original return showed a refund of $555. Client never received the original refund. Client received notice that IRS recalculated return adding in the $1,300 APTC but did not remove the $884 shared responsibility payment. IRS claims client owes $745 (555 original refund - 1,300 APTC). I amended the return and show a refund of $139 (555 original refund + 884 shared responsibility payment - 1,300 APTC). Amended return was filed in July 2020 and has not yet been processed.
Client does not want to file 2019 ($2,106 refund) or 2020 ($2,708 refund) for fear IRS will take the $745 plus penalty in interest. Client is owed $6k+ factoring in the $1,400 stimulus.
How would you advise this client to proceed? File and hope IRS does not reduce the refund by $745 + P&I or wait until the 2018 amended return is processed? If client files and IRS reduces refund by $745 + P&I, how likely is it IRS will unwind this correctly once the amended return is processed?