What is the likely consequence of underreporting income?

Underreporting income can lead to significant financial implications for an individual, particularly in relation to the Advanced Premium Tax Credit (APTC) they may have received. The APTC is designed to make health insurance more affordable based on the estimated annual income reported in the health insurance application. When a person underreports their income, they may qualify for a higher APTC than they are legitimately entitled to based on their actual earnings.

If a taxpayer receives an excess amount of APTC due to underreported income, the consequence is that they must repay the excess APTC when they file their federal income tax return. This repayment is a means of correcting the amount of tax credit received based on the accurate income, as tax credits are income-dependent. Therefore, option C is the correct choice, as it succinctly captures the responsibility to repay any excess APTC to the IRS due to the discrepancy caused by underreported income.

While there are other penalties and consequences associated with tax reporting, such as potential fines or increased scrutiny from the IRS, the direct financial responsibility tied to APTC due to underreporting is the repayment of excess credits, which most clearly aligns with the situation presented in the question.