Internal Revenue Bulletin 2013-14 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 201
3-14
April 1, 2013
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Notice 2013–15, page 739.
This notice advises State and local housing credit agencies that
allocate low-income housing tax credits under section 42 of
the Code, and States and other issuers of tax-exempt private
activity bonds under section 141, of the population figures to
use in calculating: (1) the 2013 calendar year population-based
component of the State housing credit ceiling (Credit Ceiling)
under section 42(h)(3)(C)(ii); (2) the 2013 calendar year volume
cap (Volume Cap) under section 146; and (3) the 2013 volume
limit (Volume Limit) under section 142(k)(5).
Notice 2013–18, page 742.
Notice 2013–18 modifies and supersedes Notice 2000–45,
2000–2 C.B. 256, which provides guidance to taxpayers
engaged in the trade or business of farming in determining
whether a plant has a preproductive period in excess of 2
years for purposes of section 263A(d) and (e) of the Code.
Specifically, Notice 2013–18 removes raspberry, blackberry,
and papaya plants from the previously published list of plants
having a preproductive period in excess of 2 years. Concur-
rently with the issuance of Notice 2013–18, the Service and
the Treasury Department issued Rev. Proc. 2013–20, which
modifies Rev. Proc. 2011–14, 2011–4 I.R.B. 330, to provide
procedures for a taxpayer to obtain the automatic consent
of the Commissioner under § 446(e) of the Code to change
its method of accounting under § 263A for the production of
one or more plants removed from the list of plants grown in
commercial quantities in the United States having a prepro-
ductive period in excess of two years based on the nationwide
weighted average preproductive period for such plant. Notice
2000–45 modified and superseded.
Notice 2013–19, page 743.
This notice provides guidance on whether, for purposes of ap-
plying the limitation set forth in the flush language of section
807(d)(1) of the Code (the statutory reserve cap), deficiency
reserves are included in the amount taken into account with
respect to a life insurance contract in determining statutory re-
serve under section 807(d)(6).
Rev. Proc. 2013–20, page 744.
Revenue Procedure 2013–20 modifies Rev. Proc. 2011–14,
2011–4 I.R.B. 330, to provide procedures for a taxpayer to
obtain the automatic consent of the Commissioner under sec-
tion 446(e) of Code to change its method of accounting un-
der section 263A for the production of one or more plants re-
moved from the list of plants grown in commercial quantities
in the United States having a preproductive period in excess of
two years based on the nationwide weighted average prepro-
ductive period for such plant. Concurrently with the issuance
of Rev. Proc. 2013–20, the Service and the Treasury De-
partment issued Notice 2013–18, modifying and superseding
Notice 2000–45. Notice 2013–18 removes blackberry, rasp-
berry, and papaya plants from the list of plants that produce
crops or yields that have a nationwide weighted average pre-
productive period in excess of 2 years. Rev. Proc. 2011–14
modified.
(Continued on the next page)
Finding Lists begin on page ii.

EXCISE TAX
REG–118315–12, page 746.
Proposed regulations provide guidance on the annual fee im-
posed on covered entities engaged in the business of providing
health insurance for United States health risks. This fee was en-
acted by section 9010 of the Patient Protection and Affordable
Care Act. The proposed regulations affect persons engaged
in the business of providing health insurance. The proposed
regulations provide an explanation of terms, a description of
the reporting requirements, the calculation and notification of
a preliminary fee, an error correction process, the final fee cal-
culation and notification, the tax treatment of the fee, and in-
structions regarding how to claim a refund. A public hearing is
scheduled for June 21, 2013.
TAX CONVENTIONS
Announcement 2013–16, page 738.
The competent authorities of the United States and Norway
signed an agreement regarding the United States – Norway
income tax treaty. The agreement clarifies, for purposes of
paragraph 3 of Article 4A (Offshore Activities), when a resident
of one state that operates tugboats and similar vessels in the
other state in connection with offshore activities will be exempt
from tax in that other state.
ADMINISTRATIVE
Notice 2013–16, page 740.
This notice updates the appendix to Notice 2013–1, 2013–3
I.R.B. 281,which lists the Indian tribes who have settled tribal
trust cases against the United States. Notice 2012–60 origi-
nally was published in I.R.B. 2012–41 (October 9, 2012). No-
tice 2012–60 was superceded by Notice 2013–1. However,
two additional tribes have settled cases against the United
States, and we are seeking to publish an updated appendix
to Notice 2013–1. Notice 2013–1 Appendix modified and su-
perseded.
Announcement 2013–19, page 760.
This document contains corrections to final regulations (T.D.
9604, 2012–52 I.R.B. 730) that provides guidance on the ex-
cise tax imposed on the sale of certain medical devices, en-
acted by the Health Care and Education Reconciliation Act of
2010 in conjunction with the Patient Protection and Affordable
Care Act.
Announcement 2013–20, page 761.
This document provides a notice of public hearing on proposed
regulations (REG–141066–09, 2013–3 I.R.B. 289) that pro-
vide comprehensive guidance for the award program autho-
rized under Code section 7623, as amended. The regulations
provide guidance on submitting information regarding under-
payments of tax or violations of the internal revenue laws and
filing claims for award, as well as on the administrative pro-
ceeding applicable to claims for award under section 7623.
The regulations also provide guidance on the determination and
payment of awards, and provide definitions of key terms used
in section 7623. Finally, the regulations confirm that the Direc-
tor, officers, and employees of the Whistleblower Officer are
authorized to disclose return information to the extent neces-
sary to conduct whistleblower administrative proceedings. The
public hearing is scheduled for April 10, 2013.
April 1, 20132013–14 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.
It is the poli
cy of the Service to publish in the Bulletin all sub-
stantive ru
lings necessary to promote a uniform application of
the tax laws
, including all rulings that supersede, revoke, mod-
ify, or amen
d any of those previously published in the Bulletin.
All publish
ed rulings apply retroactively unless otherwise indi-
cated. Pro
cedures relating solely to matters of internal man-
agement ar
e not published; however, statements of internal
practices
and procedures that affect the rights and duties of
taxpayers
are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The cont
ents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
2013–14 I.R.B.April 1, 2013

April 1, 20132013–14 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 263A.
—Capital-
ization and Inclusion in
Inventory Costs of Cer-
tain Expenses
Notice 2013–18 modifies and supersedes Notice
2000–45, 2000–2 C.B. 256, which provides guid-
ance to taxpayers engaged in the trade or business
of farming in determining whether a plant has a pre-
productive pe
riod in excess of 2 years for purposes
of § 263A(d) an
d (e) of the Internal Revenue Code.
Specifically
, Notice 2013–18 removes raspberry,
blackberry, a
nd papaya plants from the previously
published li
st of plants having a preproductive period
in excess of 2
years. See Notice 2013-18, page 742.
Concurrentl
y with the issuance of Notice 2013–18,
the Service a
nd the Treasury Department issued
Rev. Proc. 2
013–20, which modifies Rev. Proc.
2011–14, 20
11–4 I.R.B. 330, to provide procedures
for a taxpayer
to obtain the automatic consent of
the Commissio
ner under § 446(e) of the Internal
Revenue Code t
o change its method of accounting
under § 263A fo
r the production of one or more
plants remov
ed from the list of plants grown in
commercial q
uantities in the United States having a
preproducti
ve period in excess of two years based
on the nation
wide weighted average preproductive
period for s
uch plant. See Rev. Proc. 2013-20, page
744.
2013–14 I.R.B.737April 1, 2013

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
U.S. - Norway Agreement
Regarding Offshore Activities
Announcement 2013–16
The following is a copy of the Com-
petent Authority Agreement entered
into by the competent authorities of the
United States of America and the King-
dom of Norwaywith respect to paragraph
3 of Article 4A (Offshore Activities) of
the U.S. – Norway income tax convention.
The agreement clarifies, for purposes of
paragraph 3 of Article 4A (Offshore Ac-
tivities), when a resident of a state that
operates tugboats and similar vessels in
the other state in connection with offshore
activities will be exempt from tax in that
other state. The agreement lists specific
activities that these vessels can undertake
and remain exempt from tax. The compe-
tent authorities may agree as appropriate
to additional activities.
The text of the Competent Authority
Agreement is as follows:
COMPETENT AUTHORITY
AGREEMENT
The Competent Authorities of the
United States and Norway hereby en-
ter into the following mutual agreement
(“Agreement”). The Agreement speci-
fies the meaning of profits derived from
the transportation by ship or aircraft of
supplies or personnel to a location where
activities in connection with the explo-
ration or exploitation of the seabed and
sub-soil and their natural resources are
being carried on in the other Contracting
State, or from the operation of tugboats
and similar vessels in connection with
such activities. The Agreement is en-
teredintounderparagraph2ofArticle
27 (Mutual Agreement Procedure) of the
Convention Between the United States of
America and the Kingdom of Norway for
the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect
to Taxes on Income and Property, signed
December 3, 1971, and as amended by the
Protocol signed September 19, 1980 (the
“Treaty”).
Paragraph 1 of Article 4A (Offshore
Activities) of the Treaty provides that a
resident of a Contracting State who car-
ries on activities in the other Contracting
State in connection with the exploration
or exploitation of the seabed and sub-soil
and their natural resources situated in that
other Contracting State shall be deemed to
be carrying on in respect of those activ-
ities a business in that other Contracting
State through a permanent establishment
or fixed base situated therein.
Paragraph 2 of Article 4A provides an
exception to paragraph 1 where the activ-
ities are carried on for a period not ex-
ceeding 30 days in the aggregate in any 12
month period.
Paragraph 3 of Article 4A of the Treaty
provides:
Notwithstanding the preceding para-
graphs, the provisions of Article 6
(Shipping and Air Transport) shall ap-
ply to profits derived by a resident of a
Contracting State from the transporta-
tion by ship or aircraft of supplies or
personnel to a location where activities
in connection with the exploration or
exploitation of the seabed and sub-soil
and their natural resources are being
carried on in the other Contracting
State, or from the operation of tugboats
and similar vessels in connection with
such activities.
Section 1. Solely for the purposes of
applying paragraph 3 of Article 4A, the
Contracting States understand that profits
derived from the following activities will
be considered profits derived “from the
transportationbyshiporaircraftofsup-
plies or personnel to a location where ac-
tivities in connection with the exploration
or exploitation of the seabed and sub-soil
and their natural resources are being car-
ried on in the other Contracting State, or
from the operation of tugboats and similar
vessels in connection with such activities”:
a. transportation by ship or aircraft of
supplies or personnel to a location
where activities in connection with
the exploration or exploitation of the
seabed and sub-soil and their natural
resources are being carried on in the
Contracting State;
b. tugboat and towboat services; includ-
ing helping to move ocean vessels in
and out of port and between berths,
towing (pushing) barges, and trans-
porting port pilots to ships waiting to
enter the ship channel or port;
c. anchor handling;
d. fire-fighting and rescue support; and
e. other activities as may be agreed by
the competent authorities.
Section 2. The Contracting States fur-
ther understand that all other profits de-
rived by a resident of a Contracting State
from carrying on activities in the other
Contracting State in connection with the
exploration or exploitation of the seabed
and sub-soil and their natural resources
carried on in that other Contracting State
are not covered by paragraph 3 of Article
4A, including profits derived from the op-
eration of the following:
a. oil production ships;
b. drilling rigs;
c. accommodation platforms;
d. service platforms in stationary posi-
tion;
e. pipe-laying barges;
f. seismic survey vessels;
g. heavy-lift barges; and
h. other vessels or platforms used in the
performance of any activity not de-
scribedinSection1ofthiscompetent
authority agreement.
Where a multipurpose supply vessel
performs both activities covered by Sec-
tion 1 and activities not covered by Section
1, the part of income that is attributable to
Section 1 activities shall be determined on
the basis that most correctly reflects the
proper character of the income under the
facts and circumstances of the particular
case including, for example, assets used,
expenses incurred, or time spent.
Agreed to by the undersigned Compe-
tent Authorities:
Michael Danilack
United States Competent Authority
February 7, 2013
Stig Sollund
Norwegian Competent Authority
February 11, 2013
April 1, 20137382013–14 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
2013 Calendar Year Resident
Population Figures
Notice 2013–15
This notice advises State and local
housing credit agencies that allocate
low-income housing tax credits under § 42
of the Internal Revenue Code, and States
and other issuers of tax-exempt private
activity bonds under § 141, of the popula-
tion figures to use in calculating: (1) the
2013 calendar year population-based com-
ponent of the State housing credit ceiling
(Credit Ceiling) under § 42(h)(3)(C)(ii);
(2) the 2013 calendar year volume cap
(Volume Cap) under § 146; and (3) the
2013 volume limit (Volume Limit) under
§ 142(k)(5).
Generally, § 146(j) requires determin-
ing the population figures for the popula-
tion-based component of both the Credit
Ceiling and the Volume Cap for any cal-
endar year on the basis of the most recent
census estimate of the resident population
of a State (or issuing authority) released
by the U.S. Census Bureau before the be-
ginning of the calendar year. Similarly,
§ 142(k)(5) bases the Volume Limit on the
State population.
Sections 42(h)(3)(H) and 146(d)(2)
require adjusting for inflation the pop-
ulation-based component of the Credit
Ceiling and the Volume Cap. The ad-
justments for the 2013 calendar year are
in Rev. Proc. 2012–41, 2012–45 I.R.B.
539. Section 3.03 of Rev. Proc. 2012–41
provides that, for calendar year 2013, the
amount for calculating the Credit Ceiling
under § 42(h)(3)(C)(ii) is the greater of
$2.25 multiplied by the State population,
or $2,590,000. Further, section 3.07 of
Rev. Proc. 2012–41 provides that the
amount for calculating the Volume Cap
under § 146(d)(1) for calendar year 2013
is the greater of $95 multiplied by the State
population, or $291,875,000.
For the 50 states, the District of Co-
lumbia, and Puerto Rico, the population
figures for calculating the Credit Ceil-
ing, the Volume Cap, and the Volume
Limit for the 2013 calendar year are the
resident population estimates released
electronically by the U.S. Census Bureau
on December 20, 2012, in Press Release
CB12–250. For American Samoa, Guam,
the Northern Mariana Islands, and the
U.S. Virgin Islands, the population fig-
ures for the 2013 calendar year are the
2012 midyear population figures in the
U.S. Census Bureau’s International Data
Base (IDB). The U.S. Census Bureau
electronicallyannounced an update of the
IDB on June 27, 2012, in Press Release
CB12–118.
For convenience, these figures are
reprinted below.
Res
ident Population Figures
Ala
bama
4,8
22,023
Alaska731,449
American Samoa
54
,947
Ar
izona
6,553,255
Arkansas2,949,131
California38,041,430
Colorado
5,
187,582
Co
nnecticut
3,590,347
Delaware917,092
District of Columbia632,323
Florida
1
9,317,568
Ge
orgia
9,919,945
Guam
159,914
Hawaii1,392,313
Idaho
1
,595,728
I
llinois
12,875,255
Indiana
6,537,334
Iowa3,074,186
Kansas
2
,885,905
K
entucky
4,380,415
Louisiana4,601,893
Maine1,329,192
Maryland
5,884,563
Massachusetts6,646,144
Michigan9,883,360
Minnesota
5,379,139
Mississippi2,984,926
Missouri6,021,988
2013–14 I.R.B.739April 1, 2013

Resident Population Figures
Montana
1,005,141
Nebraska
1,855,525
Nevada
2,758,931
New Hampshire1,320,718
New Jersey
8,864,590
New Mexico
2,085,538
New York
19,570,261
North Carolina
9,752,073
North Dakota699,628
Northern Mariana Islands
51,395
Ohio
11,544,225
Oklahoma3,814,820
Oregon
3,899,353
Pennsylvania
12,763,536
Puerto Rico3,667,084
Rhode Island
1,050,292
South Carolina4,723,723
South Dakota
833,354
Tennessee
6,456,243
Texas
26,059,203
Utah
2,855,287
Vermont626,011
Virginia
8,185,867
Virgin Islands, U.S.
105,275
Washington6,897,012
West Virginia
1,855,413
Wisconsin
5,726,398
Wyoming
576,412
The principal authors of this no-
tice are Julie Hanlon Bolton, Office
of the Associate Chief Counsel
(Passthroughs and Special Industries), and
Timothy L. Jones, Office of the Associate
Chief Counsel (Financial Institutions
and Products). For further information
regarding this notice, please contact
Ms. Hanlon Bolton at (202) 622–3040
(not a toll-free call).
Per Capita Payments from
Proceeds of Settlements of
Indian Tribal Trust Cases,
Updates
Notice 2013–16
BACKGROUND
Notice 2013–1, 2013–3 IRB 281, pro-
vides guidance on the federal tax treatment
ofper capitapayments that members of In-
dian tribes receive from proceeds of cer-
tain settlements of tribal trust cases be-
tween the United States and those Indian
tribes. Additional tribes have settled tribal
trust cases against the United States since
publication of Notice 2013–1. This notice
provides an updated Appendix that reflects
the additional settlement agreements.
EFFECT ON OTHER DOCUMENTS
Notice 2013–1 Appendix is modified
and superseded.
FURTHER INFORMATION
For further information regarding this
notice, please contact Telly Meier at phone
number (202) 283–8877 (not a toll-free
call).
Appendix
Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases
1. Assiniboine and Sioux Tribes of the Fort Peck Reservation
2. Bad River Band of Lake Superior Chippewa Indians
3. Blackfeet Tribe of the Blackfeet Indian Reservation
4. Bois Forte Band of Chippewa
5.
Cachil Dehe Band of Wintun Indians of the Colusa Rancheria
April 1, 20137402013–14 I.R.B.

6. Chippewa Cree Tribe of the Rocky Boy’s Reservation
7. Coeur d’Alene Tribe
8. Confederated Salish and Kootenai Tribes
9. Confederated Tribes of Siletz Indians
10. Confederated Tribes of the Colville Reservation
11. Confederated Tribes of the Goshute Reservation
12. Crow Creek Sioux Tribe
13. Eastern Shawnee Tribe of Oklahoma
14. Hualapai Indian Tribe
15.
Iowa Tribe of Kansas and Nebraska
16. Kaibab Band of Paiute Indians of Arizona
17. Kickapoo Tribe of Kansas
18. Lac Courte Oreilles Band of Lake Superior Chippewa Indians
19. Lac du Flambeau Band of Lake Superior Chippewa Indians
20. Leech Lake Band of Ojibwe
21. Lower Brule Sioux Tribe
22. Makah Indian Tribe of the Makah Reservation
23. Mescalero Apache Tribe
24. Minnesota Chippewa Tribe
25.
Nez Perce Tribe
26. Nooksack Indian Tribe
27. Northern Cheyenne Tribe of Indians
28. Omaha Tribe o Nebraska
29. Passamaquoddy Tribe of Maine
30. Pawnee Nation
31. Prairie Band of Potawatomi Nation
32. Pueblo of Zia
33. Quechan Tribe of the Fort Yuma Reservation
34. Red Cliff Band of Lake Superior Chippewa Indians
35.
Rincon Luiseño Band of Indians
36. Rosebud Sioux Tribe
37. Round Valley Indian Tribes
38. Salt River Pima-Maricopa Indian Community
39. Santee Sioux Tribe of Nebraska
40. Sault Ste. Marie Tribe
41. Shoshone-Bannock Tribes of the Fort Hall Reservation
42. Soboba Band of Luiseno Indians
43. Spirit Lake Dakotah Nation
44. Spokane Tribe of Indians
45.
Standing Rock Sioux Tribe
46. Stillaguamish Tribe of Indians
47. Summit Lake Paiute Tribe
48. Swinomish Indian Tribal Community
49. Te-Moak Tribe of Western Shoshone Indians
50.
Tohono O’odham Nation
51.
Tulalip Tribes
52.
Tule River Indian Tribe
53.
Ute Indian Tribe of the Uintah and Ouray Reservation
54.
Ute Mountain Ute Tribe
55.
Winnebago Tribe of Nebraska
56.
Qawalangin Tribe of Unalaska
57.
Tlingit & Haida Tribes of Alaska
58.
Northwestern Band of Shoshone Indians
59.
Hoopa Valley Tribe
60. Ak-Chin Indian Community
61. Oglala Sioux Tribe
62. Yurok Tribe
63. Cheyenne River Sioux Tribe
2013–14 I.R.B.741April 1, 2013

Update of List of Plants, Grown
in Commercial Quantities in
the United States, Having
a Preproductive Period in
Excess of Two Years Based
on the Nationwide Weighted
Average Preproductive Period
for Such Plant.
Notice 2013–18
PURPOSE
This notice modifies and supersedes
Notice 2000–45, 2000–2 C.B. 256, which
provides guidance to taxpayers engaged in
the trade or business of farming in deter-
mining whether a plant has a preproductive
period in excess of 2 years for purposes of
§ 263A(d) and (e) of the Internal Revenue
Code.
BACKGROUND
Section 263A requires generally that
the direct costs and an allocable share of
indirect costs of real or tangible personal
property produced by a taxpayer be capi-
talized. Under § 263A, taxpayers gener-
ally are required to capitalize the costs of
producing property in a farming business
(including animals and plants without re-
gard to the length of their preproductive
period).
Sections 263A(d) and (e) set forth
special rules for property produced in
the trade or business of farming. Under
§ 263A(d)(1) and § 1.263A–4(a)(2) of
the Income Tax Regulations, taxpayers
that are not required to use an accrual
method by § 447 and are not tax shelters
prohibited from using the cash receipts
and disbursements method of accounting
by § 448(a)(3) (“qualified taxpayers”) are
not required to capitalize (1) the costs
of producing animals in a farming busi-
ness, or (2) the costs of producing plants
with a preproductive period of 2 years
or less. In addition, under § 263A(d)(3)
and § 1.263A–4(d), a qualified taxpayer
may elect to have § 263A not apply to
the costs of producing plants in a farm-
ing business (other than citrus or almond
trees). Thus, unless an election is made to
have § 263A not apply in accordance with
§ 263A(d)(3), qualified taxpayers gener-
ally are required to capitalize the costs of
producing plants that have a preproductive
period in excess of 2 years.
Section263A(e)(3)(B)and
§ 1.263A–4(b)(2)(i)(B) provide that, for
purposes of determining whether a plant
has a preproductive period in excess
of 2 years, the preproductive period of
plants grown in commercial quantities
in the United States must be based on
the nationwide weighted average pre-
productive period for such plants. The
legislative history of § 263A explains
that Congress expected the Treasury
Department to periodically publish a
list of the preproductive periods of
various plants based on the nationwide
weighted averages for such plants. See
H.R. Rep. No. 426, 99th Cong., 1st
Sess. 628 (1985), 1986–3 (Vol. 2) C.B.
628. A proposed list was included in the
preamble of the proposed § 1.263A–4
regulations (REG–208151–91, 1997–2
C.B. 35 [62 Fed. Reg. 44,542]). The
Internal Revenue Service (Service) and
the Treasury Department received and
considered comments on the proposed list
in preparing Notice 2000–45.
In Notice 2000–45 the Service and the
Treasury Department published a nonex-
clusive list of plants having a nationwide
weighted average preproductive period in
excess of 2 years. The Service and the
Treasury Department utilized information
provided by the United States Depart-
ment of Agriculture to develop the list
published in Notice 2000–45 of plants
that have a nationwide weighted average
preproductive period in excess of 2 years.
At that time, the Department of Agricul-
ture grouped blueberry, blackberry, and
raspberry plants into one overall cate-
gory, called “berries.” Blueberry plants
made up the largest share of the berries
category, and they have a preproductive
period greater than 2 years. Since that
time, the Department of Agriculture has
started tracking blueberry, blackberry,
and raspberry plants separately. The De-
partment of Agriculture’s current data
establishes that blackberry and raspberry
plants each have a nationwide weighted
average preproductive period of less than
2years,requiringanupdatetothelist
published in Notice 2000–45. The Service
and the Treasury Department have also
determined that papaya plants should be
removed from the list because Department
of Agriculture data establishes that papaya
plants have a nationwide weighted average
preproductive period of less than 2 years.
DISCUSSION
Notice 2000–45 states that the Service
and the Treasury Department intend to
update, as needed, the list of plants that
haveanationwideweighted average pre-
productive period in excess of 2 years.
Baseduponinformationprovidedbythe
Department of Agriculture, for the reasons
stated above, the Service and the Trea-
sury Department have decided to remove
raspberry, blackberry, and papaya plants
from its previously published list of plants
having a preproductive period in excess
of 2 years. In addition, the Service and
the Treasury Department have determined
that plants producing the following crops
or yields continue to have a nationwide
weighted average preproductive period in
excess of 2 years:
almonds, apples, apricots, avoca-
dos, blueberries, cherries, chestnuts,
coffee beans, currants, dates, figs,
grapefruit, grapes, guavas, kiwifruit,
kumquats, lemons, limes, macadamia
nuts, mangoes, nectarines, olives, or-
anges, peaches, pears, pecans, persim-
mons, pistachio nuts, plums, pome-
granates, prunes, tangelos, tangerines,
tangors, and walnuts.
This guidance is not an all-inclusive list
of plants that have a nationwide weighted
average preproductive period in excess
of 2 years. In the case of other plants
grown in commercial quantities in the
United States, the nationwide weighted
average preproductive period must be
determined based on available statistical
data. § 1.263A–4(b)(2)(i)(B). The Service
and the Treasury Department intend to
continue to update this guidance periodi-
cally as needed.
ACCOUNTING METHOD CHANGES
Concurrently with the issuance of this
notice, the Service and the Treasury De-
partment are issuing Revenue Procedure
2013–20 (2013–14 I.R.B. 744). Revenue
Procedure 2013–20 modifies Revenue
Procedure 2011–14, 2011–4 I.R.B. 330,
to provide procedures for a taxpayer to
obtain under § 446(e) the automatic con-
sent of the Commissioner (1) to not apply
§ 263A, pursuant to § 263A(d)(1) and
§ 1.263A–4(a)(2), to the production of one
April 1, 20137422013–14 I.R.B.

or more plants that the Service and the
Treasury Department have removed from
the list of plants that have a nationwide
weighted average preproductive period
in excess of 2 years, or (2) to revoke an
election pursuant to § 263A(d)(3) and
§ 1.263A–4(d) to not apply § 263A to the
production of a plant or plants that have
been removed from the list of plants that
have a nationwide weighted average pre-
productive period in excess of 2 years.
EFFECT ON OTHER DOCUMENTS
Notice 2000–45 is modified and super-
seded.
DRAFTING INFORMATION
The principal author of this notice
is Patrick M. Clinton of the Office
of Associate Chief Counsel (Income
Tax & Accounting).For further
information regarding this notice, contact
Patrick M. Clinton at (202) 622–4930 (not
a toll-free call).
Section 807.—Rules for
Certain Reserves
(Also Part I, § 816.)
Notice 2013–19
PURPOSE
This notice provides guidance on
whether, for purposes of applying the lim-
itation set forth in the flush language of
§ 807(d)(1) (the statutory reserve cap),
deficiency reserves are included in the
amount taken into account with respect
to a life insurance contract in determining
statutory reserves under § 807(d)(6).
BACKGROUND
A life insurance company must pay
tax on its life insurance company taxable
income, which is defined in § 801(b) to
mean life insurance gross income less
life insurance deductions. Life insurance
gross income is defined in § 803(a) to
include net decreases in certain reserves
under § 807(a). Life insurance deductions
include the general deductions provided
in § 805 including, under § 805(a)(2),
the net increase in certain reserves under
§ 807(b). The reserves taken into account
under § 807(a) and (b) are described in
§ 807(c), and include “life insurance re-
serves (as defined in section 816(b)).”
For purposes of determining a life in-
surance company’s decreases or increases
in life insurance reserves under § 807,
§ 807(d)(1) provides that the amount of
the life insurance reserve for any con-
tract is the greater of (A) the contract’s
net surrender value, or (B) the contract’s
reserve determined under § 807(d)(2) (the
Federally prescribed reserve). The flush
language of § 807(d)(1) further provides
that in no event may the reserve for a
contract exceed the amount that would be
taken into account with respect to the con-
tract in determining statutory reserves as
defined in § 807(d)(6). Section 807(d)(6)
generally defines statutory reserves as “the
aggregate amount set forth in the annual
statement with respect to items described
in section 807(c).”
Section 807(d)(2) provides that the
Federally prescribed reserve is determined
using the tax reserve method applicable to
the contract. Section 807(d)(3) defines the
applicable tax reservemethod and includes
an explicit rule in § 807(d)(3)(C) that
denies any increase in the Federally pre-
scribed reserve because the net premium
(computed on the basis of assumptions re-
quired under § 807(d)) exceeds the actual
premiums or other consideration charged
for the benefit. The reserve that applies
because gross premium is less than the net
premium is often referred to as a “defi-
ciency reserve.”
DISCUSSION
The flush language of § 807(d)(1) limits
the reserve for a contract to the amount that
would be taken into account with respect
to the contract in determining statutory re-
serves. The term “statutory reserves” is
definedin§807(d)(6)tomeantheaggre-
gate amount set forth in the annual state-
ment with respect to items described in
§ 807(c).
When § 807 was enacted, the term
“statutory reserves” for purposes of
the statutory reserve cap was de-
fined by cross-reference to former
§ 809(b)(4)(B)(i), which was the prede-
cessor to § 807(d)(6) and defined statutory
reserves identically to § 807(d)(6). After
§ 807 was enacted as part of the Deficit
Reduction Act of 1984, Pub. L. No.
98–369, the Joint Committee of Taxation
explained that the statutory reserve cap
included deficiency reserves:
For purposes of determining life in-
surance company taxable income, the
[1984] Act provides that the life insur-
ance reserves for any contract shall be
the greater of the net surrender value of
the contract or the reserves determined
under Federally prescribed rules. In
no event will the amount of the tax
reserves at any time exceed the amount
of statutory reserves, which (given
the general definition thereof in new
sec. 809(b)(4)(B)(i)) include also any
deficiency reserves relating to the lia-
bilities.
Joint Committee on Taxation, General Ex-
planation of the Revenue Provisions of the
Tax Reform Act of 1984, at 598.
When later enacting a subsection of a
different provision, Congress affirmed the
Joint Committee’s explanation. Specif-
ically, when Congress enacted § 816(h)
in 1986 as a technical correction to the
Deficit Reduction Act of 1984, Tax Re-
form Act of 1986, Pub. L. No. 99–514,
§ 1821(l), the House report stated that “de-
ficiency reserves are included in statutory
reserves for purposes of comparing the tax
reserve to statutory reserves in determin-
ing the amount of any increase or decrease
in the reserves.” H.R. Rep. No. 426, 99th
Cong., 1st Sess. 956 (1985), 1986–3 C.B.
Vol. 2, 956 (House Report). The bill, as
ultimately enacted, included § 816(h) from
the House bill verbatim.
Moreover, the legislative history of
another technical correction to the Deficit
Reduction Act of 1984 further demon-
strates that both houses of Congress be-
lieved the definition of statutory reserves
that now appears in § 807(d)(6) includes
deficiency reserves. At the same time that
§ 816(h) was enacted, former § 809(b)(2)
was amended to provide that no item could
be taken into account more than once in
determining the equity base. Both the
House Report and the Senate Report noted
that former § 809(b)(2) was necessary in
part “because deficiency reserves, which
are specifically listed in the statute as in-
cluded in the equity base, could also be
included indirectly aspart of the excess of
statutory policy reserves over tax reserves,
which is also specifically included in the
equity base.” House Report at 948; S. Rep.
2013–14 I.R.B.743April 1, 2013

No. 313, 99th Cong., 2d Sess. 968 (1986),
1986–3 C.B. Vol. 3 968.
SCOPE AND APPLICATION
For purposes of applying the limitation
set forth in the statutory reserve cap in
§ 807(d)(1), deficiency reserves are in-
cluded in the amount taken into account
with respect to a life insurance contract
in determining statutory reserves under
§ 807(d)(6).
DRAFTING INFORMATION
The principal author of this notice is
Sharon Y. Horn of the Office of Associate
Chief Counsel (Financial Institutions
& Products). For further information,
contact Ms. Horn at (202) 622–3970 (not
a toll-free call).
26 CFR 601.204: Changes in accounting periods and
methods of accounting
(Also Part I, §§ 263A, 446, 481; 1.263A–4, 1.446–1.)
Rev. Proc. 2013–20
SECTION 1. PURPOSE
This revenue procedure modifies Rev-
enue Procedure 2011–14, 2011–4 I.R.B.
330, to provide procedures for a taxpayer
to obtain the automatic consent of the
Commissioner under § 446(e) of the In-
ternal Revenue Code to change its method
of accounting under § 263A for the pro-
duction of one or more plants removed
from the list of plants grown in commer-
cial quantities in the United States having
a preproductive period in excess of two
years based on the nationwide weighted
average preproductive period for such
plant.
SECTION 2. BACKGROUND
.01 Section 263A requires generally
that the direct costs and an allocable share
of indirect costs of real or tangible per-
sonal property produced by a taxpayer be
capitalized. Under § 263A, taxpayers gen-
erally are required to capitalize the costs
of producing property in a farming busi-
ness (including animals and plants without
regard to the length of their preproductive
period).
.02 Sections 263A(d) and (e) set forth
special rules for property produced in
the trade or business of farming. Under
§ 263A(d)(1) and § 1.263A–4(a)(2), tax-
payers that are not required by § 447 to use
an accrual method of accounting and are
not tax shelters prohibited by § 448(a)(3)
from using the cash receipts and disburse-
ments method of accounting (“qualified
taxpayers”) are not required to capital-
ize (1) the costs of producing animals in
a farming business, or (2) the costs of
producing plants with a preproductive pe-
riod of 2 years or less. In addition, under
§ 263A(d)(3) and § 1.263A–4(d), a qual-
ified taxpayer may elect to have § 263A
not apply to the cost of producing plants
in a farming business (other than citrus
or almond trees). Thus, unless an elec-
tion is made to have § 263A not apply in
accordance with § 263A(d)(3), qualified
taxpayers generally are required to cap-
italize the costs of producing plants that
have a preproductive period in excess of 2
years.
.03 Section 263A(e)(3)(B) and
§ 1.263A–4(b)(2)(i)(B) provide that, for
purposes of determining whether a plant
has a preproductive period in excess of 2
years, the preproductive period of plants
grown in commercial quantities in the
United States must be based on the nation-
wide weighted average preproductive pe-
riod for such plants. The legislative history
of § 263A explains that Congress expected
the Treasury Department to periodically
publish a list of the preproductive periods
of various plants based on the nationwide
weighted averages for such plants. See
H.R. Rep. No. 426, 99th Cong., 1st Sess.
628 (1985), 1986–3 (Vol. 2) C.B. 628. A
proposed list was included in the preamble
of the proposed § 1.263A–4 regulations
(REG–208151–91, 1997–2 C.B. 35 [62
Fed. Reg. 44542]). The Internal Revenue
Service (Service) and Treasury Depart-
ment received and considered comments
on the proposed list in preparing Notice
2000–45.
.04 In Notice 2000–45, 2000–2 C.B.
256, the Service and the Treasury De-
partment published a nonexclusive list of
plants having a nationwide weighted av-
erage preproductive period in excess of 2
years.
.05. Concurrently with the issuance of
this revenue procedure, the Service and
the Treasury Department are issuing No-
tice 2013–18 (2013–14 I.R.B. 742), mod-
ifying and superseding Notice 2000–45.
Notice 2013–18 removes blackberry, rasp-
berry, and papaya plants from the list of
plants that produce crops or yields that
haveanationwideweighted average pre-
productive period in excess of 2 years.
.06 Not applying § 263A to the produc-
tion of a plant pursuant to § 263A(d)(1)
and § 1.263A–4(a)(2) is a method of ac-
counting under § 446. Therefore, a tax-
payer that currently applies § 263A to the
costs of producing plants with a prepro-
ductive period of 2 years or less must ob-
tain the consent of the Commissioner to
not apply § 263A to such costs.
.07 The election pursuant to
§ 263A(d)(3) and § 1.263A–4(d) to not
have the rules of § 263A(d) apply to all
plants produced in a farming business
conducted by the electing taxpayer is a
method of accounting under § 446, and
once an election is made, it is revocable
only with consent of the Commissioner.
.08 Section 1.446–1(e)(3)(ii) authorizes
the Commissioner to prescribe adminis-
trative procedures setting forth the limi-
tations, terms, and conditions necessary
to permit a taxpayer to obtain consent to
change a method of accounting. Revenue
Procedure 2011–14 provides the proce-
dures by which a taxpayer may obtain
automatic consent from the Commissioner
to change to a method of accounting de-
scribed in the APPENDIX of Rev. Proc.
2011–14.
SECTION 3. MODIFICATION TO REV.
PROC. 2011–14
Revenue Procedure 2011–14 is modi-
fied to add new section 11.08 of the AP-
PENDIX to read as follows:
.08Change to not apply § 263A to one
or more plants removed from the list of
plants that have a preproductive period in
excess of 2 years.
(1)Description of change. This change
applies to a taxpayer that is not a corpora-
tion, partnership, or tax shelter required to
use an accrual method of accounting un-
der § 447 or § 448(a)(3), and either (a)
wishes to obtain the consent of the Com-
missioner to not apply § 263A, pursuant to
§ 263A(d)(1) and § 1.263A–4(a)(2), to the
production of one or more plants that the
Service and the Treasury Department have
removed from the list of plants that have
April 1, 20137442013–14 I.R.B.

a nationwide weightedaverage preproduc-
tive period in excess of 2 years, or (b) prop-
erly elected, pursuant to § 263A(d)(3) and
§ 1.263A–4(d), to not apply § 263A to the
production of a plant or plants that have
been removed from the list of plants that
have a nationwide weighted average pre-
productive period in excess of 2 years, and
wishes to revoke its § 263A(d)(3) election
with respect to those plants. See Notice
2013–18, or its successor.
(2)Certain scope limitations temporar-
ily inapplicable. The scope limitations in
sections 4.02(1) through (4) and (7) of this
revenue procedure do not apply to a tax-
payer that wants to make the change for
its first or second taxable year ending af-
ter February 15, 2013.
(3)Audit protection. If a taxpayer cur-
rently does not apply § 263A to its black-
berry, raspberry, or papaya plants in a man-
ner that complies with the requirements of
§ 263A(d)(1) and § 1.263A–4(a)(2), such
method of accounting will not be raised
as an issue by the Service in a taxable
year that ends on or before February 15,
2013. Also, if the use of such a method
of accounting by a taxpayer is an issue
under consideration (within the meaning
of section 3.08 of this revenue procedure)
for taxable years in examination, before
an Appeals office, or before the U.S. Tax
Court in a taxable year that ends on or be-
fore February 15, 2013, that issue will not
be pursued further by the Service.
(4)Manner of making change.A
change under this section 11.08 is made
with any necessary adjustments under sec-
tion 481(a). For example, the revocation
of an election under section 263A(d)(3)
results in a section 481(a) adjustment
that must take into account the change in
depreciation from the alternative depreci-
ation system to the general depreciation
system included within such revocation.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.08
of this APPENDIX is “181.” See section
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Patrick Clinton at
202–622–4950 (not a toll-free call).
SECTION 4. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2011–14 is modified.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
taxable years ending after February 15,
2013.
SECTION 6. DRAFTING
INFORMATION
The principal author of this rev-
enue procedure is Patrick M. Clinton of
the Office of Associate Chief Counsel
(Income Tax & Accounting). For further
information regarding this revenue
procedure, contact Patrick M. Clinton at
202–622–4950 (not a toll-free call).
2013–14 I.R.B.745April 1, 2013

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Health Insura
nce Providers
Fee
REG–118315–12
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains pro-
posed regulations that provide guidance
on the annual fee imposed on covered en-
tities engaged in the business of providing
health insurance for United States health
risks. This fee is imposed by section 9010
of the Patient Protection and Affordable
Care Act, as amended. The regulations
affect persons engaged in the business
of providing health insurance for United
States health risks.
DATES: Written or electronic comments
must be received by June 3, 2013. Re-
quests to speak and outlines of topics to be
discussed at the public hearing scheduled
for June 21, 2013, at 10:00 a.m., must be
received by June 3, 2013.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–118315–12), In-
ternal Revenue Service, P.O. Box 7604,
Ben Franklin Station, Washington DC
20044. Submissions may be hand-de-
livered Monday through Friday be-
tween the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–118315–12),
Courier’s Desk Internal Revenue Service,
1111 Constitution Avenue, N.W., Wash-
ington, DC, or sent electronically via the
IRS Internet site via the Federal eRule-
making Portal atwww.regulations.gov
(IRS REG–118315–12). The public
hearing will be held in the IRS Auditorium
at the Internal Revenue Building, 1111
Constitution Avenue, N.W., Washington,
DC.
FOR FU
RTHER INFORMATION
CONTA
CT: Concerning the substance
of the regulat
ion, Charles J. Langley, Jr.
at (202) 622–3
130; concerning the
submission of
comments or the public
hearing, Oluw
afunmilayo (Funmi) Taylor
at (202) 622–7
180 (not toll-free calls).
SUPPLEMENTAR
Y INFORMATION:
Paperwork Re
duction Act
The collecti
on of information contained
in this notic
e of proposed rulemaking has
been submitt
ed to the Office of Manage-
ment and Budg
et for review in accordance
with the Pap
erwork Reduction Act of 1995
(44 U.S.C. 3
507(d)). Comments on the
collection
of information should be sent to
theOffice o
f Management and Budget,
Attn: Desk O
fficer for the Department
of the Trea
sury, Office of Information
and Regula
tory Affairs, Washington, DC
20503, wit
h copies to theInternal Rev-
enue Servi
ce, Attn: IRS Reports Clear-
ance Offic
er, SE:W:CAR:MP:T:T:SP,
Washingt
on, DC 20224. Comments on
the colle
ction of information should be
received
by May 3, 2013. Comments are
specific
ally requested concerning:
Whether t
he proposed collection of in-
formatio
n is necessary for the proper per-
formanc
e of the functions of the Internal
Revenue
Service, including whether the
informa
tion will have practical utility;
The accu
racy of the estimated burden
associa
ted with the proposed collection of
informa
tion;
How the q
uality, utility, and clarity of
the info
rmation to be collected may be en-
hanced;
How the b
urden of complying with the
propos
ed collection of information may be
minimi
zed, including through the appli-
cation
of automated collection techniques
or othe
r forms of information technology;
and
Estima
tes of capital or start-up costs
and cos
ts of operation, maintenance, and
purch
ase of services to provide informa-
tion.
The co
llection of information in this
propo
sed regulation is in §57.2(e)(2)
and re
quires certain entities to maintain
recor
ds of consent for a designated entity.
This i
nformation is necessary to evaluate
wheth
er an entity has consented to the des-
igna
tion of another entity to report its net
premiums writ
ten. The likely respondents
are entities i
n the business of providing
health insura
nce for United States health
risks.
Estimated tot
al annual reporting and/or
recordkeepin
g burden: 400 hours.
Estimated ave
rage annual burden hours
per responde
nt and/or recordkeeper varies
from .25 hour
s to 1 hour, depending on in-
dividual cir
cumstances, with an estimated
average of .5
hours.
Estimated nu
mber of respondents
and/or recor
dkeepers: 800.
An agency may
not conduct or sponsor,
and a person i
s not required to respond to, a
collection
of information unless it displays
a valid cont
rol number assigned by the Of-
fice of Mana
gement and Budget.
Books or rec
ords relating to a collection
of informat
ion must be retained as long
as their con
tents may become material in
the admini
stration of any internal revenue
law. Gener
ally, tax returns and tax return
informati
on are confidential, as required
by 26 U.S.C
. 6103.
Backgroun
d
This docum
ent proposes to add the
Health Ins
urance Providers Fee Regula-
tions to t
he Code of Federal Regulations
(26 CFR pa
rt 57) under section 9010
of the Pat
ient Protection and Affordable
Care Act (
PPACA), Public Law 111–148
(124 Stat
. 119 (2010)), as amended by
section
10905 of PPACA, and as further
amended
by section 1406 of the Health
Care and
Education Reconciliation Act
of 2010,
Public Law 111–152 (124 Stat.
1029 (20
10)) (collectively, the Affordable
Care Ac
t or ACA). All references in this
preamb
le to section 9010 are references to
the ACA
. Section 9010 did not amend the
Intern
al Revenue Code (Code) but con-
tains c
ross-references to specified Code
sectio
ns. Unless otherwise indicated, all
other
references to subtitles, chapters, sub-
chapt
ers, and sections in this preamble are
refer
ences to subtitles, chapters, subchap-
ters,
and sections in the Code and related
regul
ations. All references to “fee” in the
prop
osed regulations are references to the
fee i
mposed by section 9010.
April 1, 20137462013–14 I.R.B.

Statutory Provisions
Section 9010(a) imposes an annual fee
on each covered entity engaged in the busi-
ness of providing health insurance. The
fee is due by the annual date specified by
the Secretary of the Treasury or his dele-
gate (Secretary), but in no event later than
September 30th of each calendar year in
which a fee must be paid (fee year).
Section 9010(c)(1) provides that a cov-
ered entity is any entity that provides
health insurance for any United States
health risk during each fee year. Section
9010(c)(2) excludes the following enti-
ties from being covered entities: (A) Any
employer to the extent that the employer
self-insures its employees’ health risks;
(B) any governmental entity; (C) any en-
tity (i) that is incorporated as a nonprofit
corporation under a State law, (ii) no part
of the net earnings of which inures to the
benefit of any private shareholder or indi-
vidual, no substantial part of the activities
of which is carrying on propaganda, or
otherwise attempting, to influence legis-
lation (except as otherwise provided in
section 501(h)), and which does not par-
ticipate in, or intervene in, any political
campaign on behalf of (or in opposition to)
any candidate for public office, and (iii)
more than 80 percent of the gross revenues
of which is received from government
programs that target low-income, elderly,
or disabled populations under titles XVIII,
XIX, and XXI of the Social Security Act;
and (D) any entity that is described in
section 501(c)(9) (a voluntary employees’
beneficiary association (VEBA)) and is
established by an entity (other than by an
employer or employers) for purposes of
providing health care benefits.
Section 9010(c)(3)(A) provides a con-
trolled group rule under which all persons
treated as a single employer under section
52(a) or (b) or section 414(m) or (o) are
treated as a single covered entity. If any
entity described in section 9010(c)(2)(C)
or (D) (relating to certain nonprofit corpo-
rations and non-employer-established VE-
BAs) is treated as included in a covered
entity by reason of the application of sec-
tion 9010(c)(3)(A), then the net premiums
written for health insurance for any United
States health risk of that entity are not
taken into account.
Section 9010(c)(3)(B) provides that,
for purposes of section 9010(c)(3)(A), in
applying section 52(a) and (b), section
1563 is applied without regard to section
1563(b)(2)(C). As a result, a foreign en-
tity subject to tax under section 881 can
also be part of a controlled group that is
treated as a single covered entity under
section 9010(c)(3)(A). Section 9010(c)(4)
provides that, if more than one person is
liable to pay the fee on a single covered
entity by reason of the application of the
controlled group rule, then all such per-
sons are jointly and severally liable for
payment of the fee.
Section 9010 imposes the fee on each
covered entity engaged in the business
of providing health insurance for United
States health risks.Section 9010(h)(3)
excludes from healthinsurance any in-
surance coverage described in section
9832(c)(1)(A) (accident only or disabil-
ity only or any combination thereof), any
insurance coverage described in section
9832(c)(3) (coverage only for a specified
disease or illness and hospital indemnity
or other fixed indemnity insurance), any
insurance for long-term care, or any Medi-
care supplemental health insurance (as
defined in section 1882(g)(1) of the Social
Security Act). Other than providing for
these exclusions, section 9010 does not
define health insurance.
Section 9010(d) defines United States
health risk to mean a health risk of any
individual who is: (1) A United States
citizen; (2) a resident of the United
States (within the meaning of section
7701(b)(1)(A)); or (3) located in the
United States, during the period such in-
dividual is so located. Section 9010(h)(2)
defines United States for purposes of sec-
tion 9010 as the 50 States, the District
of Columbia, and the possessions of the
United States.
Section 9010(b) and (e) provide rules
for determining the amount of the annual
fee for each covered entity. Under section
9010(e)(1), the aggregate fee amount for
all covered entities (referred to as the ap-
plicable amount) is $8 billion for calendar
year 2014, $11.3 billion for calendar years
2015 and 2016, $13.9 billion for calendar
year 2017, and $14.3 billion for calendar
year 2018. Under section 9010(e)(2), the
applicable amount for calendar year 2019
and thereafter is the applicable amount
for the preceding calendar year increased
by the rate of premium growth (within
the meaning of section 36B(b)(3)(A)(ii))
for the preceding calendar year. Section
9010(b)(1) requires the applicable amount
for each year to be allocated, using a spec-
ified formula, among covered entities with
aggregate net premiums written of over
$25 million.
Section 9010(b)(1) provides that the
annual fee for each covered entity is cal-
culated by determining the ratio of (1)
the covered entity’s net premiums written
for health insurance for any United States
health risk that are taken into account dur-
ing the preceding calendar year to (2) the
aggregate net premiums written for such
health insurance of all covered entities
that are taken into account during the pre-
ceding calendar year. This ratio is then
applied to the applicable amount.
Under section 9010(b)(2)(A), the
amount of net premiums written that is
taken into account for each covered en-
tity per calendar year is 0 percent of net
premiums written up to and including $25
million, 50 percent of net premiums writ-
ten that are more than $25 million but not
more than $50 million, and 100 percent
of net premiums written that are over $50
million. Additionally, after the applica-
tion of the dollar thresholds of section
9010(b)(2)(A), section 9010(b)(2)(B) ex-
cludes from the amount taken into account
50 percent of the remaining net premi-
ums written for health insurance that are
attributable to the activities (other than
activities of an unrelated trade or business
as defined in section 513) of any covered
entity qualifying under section 501(c)(3),
(4), (26), or (29) and exempt from tax
under section 501(a).
Section 9010(b)(3) requires the Secre-
tary to calculate the amount of each cov-
ered entity’s fee for any calendar year. In
calculating the fee, the Secretary must de-
termine each covered entity’s net premi-
ums written for United States health risks
based on reports submitted to the Secretary
by the covered entity and through the use
of any other source of information avail-
able to the Secretary.
Section 9010(g)(1) requires that, not
later than the date determined by the Secre-
tary following the end of the calendar year
preceding the fee year, each covered entity
must report to the Secretary, in such man-
ner as the Secretary prescribes, the covered
entity’s net premiums written for health in-
surance for any United States health risk
for that preceding calendar year.
2013–14 I.R.B.747April 1, 2013

Section 9010(g)(2)(A) imposes a
penalty on a covered entity for any failure
to report the required information by the
date prescribed by the Secretary (deter-
minedwithregardtoanyextensionoftime
for filing), unless such failure is due to
reasonable cause. The penalty is $10,000
plus the lesser of (i) an amount equal to
$1,000, multiplied by the number of days
during which the failure continues, or (ii)
the amount of the fee for which the re-
port was required. Section 9010(g)(2)(B)
provides that the failure to report penalty
(i) is treated as a penalty for purposes of
subtitle F, (ii) must be paid on notice and
demand by the Secretary and in the same
manner as a tax under the Code, and (iii)
is a penalty for whichonly civil actions
for refund under procedures of subtitle F
apply.
Section 9010(g)(3)(A) imposes an ac-
curacy-related penalty on a covered entity
for any understatement of the covered
entity’s net premiums written on the re-
quired report. Section 9010(g)(3)(B)
defines an understatement as the differ-
ence between the amount of net premiums
written reported by the covered entity and
the amount of net premiums written that
should have been reported. The penalty is
equal to the excess of (i) the amount of the
covered entity’s fee for the fee year that
the Secretary determines should have been
paid in the absence of the understatement,
over (ii) the amount of the fee that the
Secretary determined based on the under-
statement. Section 9010(g)(3)(C) subjects
the accuracy-relatedpenalty to the provi-
sions of subtitle F that apply to assessable
penalties imposed under chapter 68.
Section 9010(g)(4) provides that sec-
tion 6103 (relating to the disclosure of re-
turns and return information) does not ap-
ply to any information reported under sec-
tion 9010(g).
Section 9010(f)(1) treats the fee as an
excise tax for purposes of subtitle F to
which only civil actions for refund apply.
Section 9010(f)(2) treats the fee as a tax
describedinsection275(a)(6)(relatingto
taxes for which no deduction is allowed).
Section 9010(i) directs the Secretary to
publish guidance necessary to carry out the
purposes of section 9010 and to prescribe
such regulations as are necessary or ap-
propriate to prevent avoidance of the pur-
poses of section 9010, including inappro-
priate actions taken to qualify as an exempt
entity under section 9010(c)(2).
Section 9010(j) provides that section
9010 is effective for calendar years begin-
ning after December 31, 2013.
Explanation of Provisions
I.Overview
The proposed regulations provide guid-
ance on the annual fee imposed on covered
entities engaged in providing health insur-
ance for United States health risks. Gen-
erally, each covered entity with aggregate
net premiums written over $25 million in
the calendar year immediately preceding
the fee year (referred to in the proposed
regulations as the data year) is liable for
the annual fee due by September 30th of
each fee year in an amount determined by
the IRS under section 9010(b) and the pro-
posed regulations.
II.Explanation of Terms
The proposed regulations define nu-
meroustermsusedinsection9010andin
these regulations, including the following
key terms:
A.Covered Entity
Section 9010(c)(1) provides that a cov-
ered entity is any entity that provides
health insurance for any United States
health risk during the fee year. The pro-
posed regulations define the termcovered
entityto mean any entity with net pre-
miums written for health insurance for
United States health risks during the fee
year that is (1) A health insurance issuer
within the meaning of section 9832(b)(2);
(2) a health maintenance organization
within the meaning of section 9832(b)(3);
(3) an insurance company that is subject
to tax under part I or II of subchapter L, or
that would be subject to tax under part I or
II of subchapter L but for the entity being
exempt from tax under section 501(a); (4)
an insurer that provides health insurance
under Medicare Advantage, Medicare Part
D, or Medicaid; or (5) a non-fully insured
multiple employer welfare arrangement
(MEWA). Under section 9832(b)(2), the
term health insurance issuer generally
refers to any insurance company, insur-
ance service, or insurance organization
that is subject to State laws that regulate
insurance within the meaning of section
514(b)(2) of the Employee Retirement
Income Security Act of 1974 (ERISA).
Under section 9832(b)(3), the term health
maintenance organization generally refers
to an organization that is recognized or
regulated under State or Federal law as a
health maintenance organization.
As previously noted, the proposed
regulations provide that a covered entity
includes a MEWA within the meaning of
section 3(40) of ERISA, to the extent that
the MEWA is not a fully-insured MEWA,
regardless of whether the MEWA is sub-
ject to regulation under State insurance
law. In the case of a fully-insured MEWA,
the MEWA is not a covered entity for
purposes of section 9010 because, even
though the MEWA receives premiums, it
uses those premiums to pay an insurance
company to provide the coverage being
purchased. In this case, the insurance
company is the covered entity because it,
and not the MEWA, is providing health
insurance. If the MEWA is not fully-in-
sured, however, the MEWA is a covered
entity for purposes of section 9010 to the
extent that the premiums received by the
MEWA are not used to pay an insurance
company to provide the coverage being
purchased (and are used instead by the
MEWA to provide the health insurance
itself). For example, if a MEWA received
a $10,000 premium payment from a par-
ticipating employer providing both major
medical coverage and separate vision cov-
erage for an individual participant, and
the MEWA used $9,000 of that premium
payment to pay the premium to cover such
individual under a group insurance policy
purchased from an insurance company and
associated costs, and $1,000 to pay direct
reimbursements under the vision plan and
associated costs directly, then the MEWA
would be treated as a covered entity only
with respect to the $1,000 portion of the
premium intended to pay the MEWA for
providing the vision coverage itself.
The proposed regulations exclude cer-
tain other MEWAs from the definition of
a covered entity in accordance with one
of the exclusions from the MEWA re-
porting requirements administered by the
Department of Labor (DOL). Specifically,
the proposed regulations would exclude
MEWAs that are exempt from reporting
April 1, 20137482013–14 I.R.B.

under 29 CFR 2520.101–2(c)(2)(ii)(B).
1
This section of the DOL regulations gen-
erally excludes a MEWA that provides
coverage to the employees of two or more
employers due to a change in control of
businesses (such as a merger or acquisi-
tion) that occurs for a purpose other than
to avoid the reporting requirements and
does not extend beyond a limited time.
This type of MEWA is excluded from
the definition of covered entity because it
is temporary in nature and exempt from
DOL reporting requirements.
The proposed regulations provide that,
solely for purposes of section 9010, an En-
tity Claiming Exception (ECE) is subject
to the same regime addressing MEWAs.
Therefore, under the proposed regulations,
a fully insured ECE is excluded from the
definition of covered entity, but a non-
fully insured ECE is treated as a covered
entity to the extent the ECE is not in-
sured. An ECE is defined in 29 CFR
2520.101–2(b) as an entity that claims it
is not a MEWA on the basis that the en-
tity is established or maintained pursuant
to one or more agreements that the Sec-
retary of Labor finds to be collective bar-
gaining agreements within the meaning of
section 3(40)(A)(i) of ERISA and 29 CFR
2510.3–40.
Currently, in a number of States, enti-
ties have been established to make cover-
age for medical care available to high-risk
individuals who may not have access to
coverage in the open market. The Treasury
Department and the IRS invite comments
on the organization and structure of these
entities, whether they would be considered
covered entities under the general defini-
tion, and the extent to which they would
qualify for exclusions under the proposed
regulations.
B.Excluded Entities
1.Self-Insured Employer
Section 9010(c)(2)(A) excludes any
entity that is a self-insured employer to
the extent that such employer self-insures
its employees’ health risks. The pro-
posed regulations define the termself-in-
sured employerto mean an employer
that sponsors a self-insured medical re-
imbursement plan within the meaning of
§1.105–11(b)(1)(i) and (ii) of the Income
Tax Regulations. This includes an ar-
rangement in which an employer provides
self-insured employee health benefits to
former employees, such as retired employ-
ees, or provides self-insured employee
health benefits through an organization
described in section 501(c)(9) (a VEBA).
The proposed regulations clarify that a
self-insured plan may use a third party for
administration and bookkeeping functions
andstillbeconsideredself-insuredifthere
is no shifting of risk to the third party as
described in §1.105–11(b)(1)(ii).
2.Governmental Entities
Section 9010(c)(2)(B) excludes any
governmental entity. The proposed reg-
ulations define the termgovernmental
entityto mean (1) The United States, (2)
any State, (3) the District of Columbia,
(4) any possession of the United States,
(5) any political subdivision of any of
the foregoing (as defined for purposes of
section 103), (6) anyIndian tribal govern-
ment (as defined in section 7701(a)(40))
or a subdivision thereof (determined in
accordance with section 7871(d)), or (7)
any public agency that is created by a
State or a political subdivision, organized
as a nonprofit under State law, and con-
tracts with the State to administer State
Medicaid benefits through local providers
or health maintenance organizations.See
Joint Committee on Taxation, General
Explanation of Tax Legislation Enacted
by the 111th Congress, JCS–2–11 (March
2011) (JCT General Explanation) at 330.
A State health department or State
insurance commission would be in-
cluded within the meaning of govern-
mental entity undersection 9010. The
proposed regulations do not include in-
strumentalities (within the meaning of
Rev. Rul. 57–128, 1957–1 C.B. 311, see
§601.601(d)(2)(ii)(b)) of a governmental
entity in the definition of governmen-
tal entity. Instrumentalities that provide
health insurance may qualify for other
exclusions under section 9010, such as
the exclusion for employers that self-in-
sure their employees’ health risks (sec-
tion 9010(c)(2)(A)), the exclusion for
certain nonprofit corporations (section
9010(c)(2)(C)), and the partial exclusion
for certain high-risk insurance pools de-
scribed in section 501(c)(26) (section
9010(b)(2)(B)). The Treasury Department
and the IRS invite comments on the types
of instrumentalities, if any, that would be
considered covered entities under the gen-
eral definition and the extent to which they
would qualify for exclusions consistent
with the statute.
3.Certain Nonprofit Corporations
In accordance with section
9010(c)(2)(C), the proposed regulations
exclude any entity that (1) Is incorporated
as a nonprofit corporation under State law,
(2) meets certain requirements designed
to ensure that the net earnings of the entity
are not distributed toprivate parties and
that the entity does not engage in political
campaign activity or substantial lobbying,
and (3) receives more than 80 percent
of its gross revenues from government
programs that target low-income, elderly,
or disabled populations under titles XVIII,
XIX, and XXI of the Social Security Act
(which include Medicare, Medicaid, the
Children’s Health Insurance Plan, and
dual eligible plans). An entity is not
required to be exempt from tax under
section 501(a) to qualify for this excep-
tion. However, because the provisions
of section 9010(c)(2)(C)(ii) relating to
private inurement, lobbying, and political
campaign activity are the same as those
provisions applicable to organizations de-
scribed in section 501(c)(3), for purposes
of applying these requirements, the pro-
posed regulations adopt the standards set
forth under section 501(c)(3) and the reg-
ulations thereunder. In accordance with
section 9010(c)(2)(C)(ii), the proposed
regulations provide that, for an entity that
is exempt from tax under section 501(a)
and is described in section 501(h)(3), the
determination of whether the entity has
engaged in substantial lobbying for pur-
poses of section 9010(c)(2)(C)(ii) will be
made under section 501(h).
The Treasury Department and the IRS
invite comments with respect to how this
exclusion is applied.
1
These final regulations were issued in 2003. In 2011, DOL proposed new regulations under these same sections. The analogous section in the 2011 proposed regulations that describes the
MEWAs intended to be excluded from the definition of covered entity is also §2520.101–2(c)(2)(ii)(B) (RIN 1210–AB51). See 76 FR 76222. If and when theDOL finalizes these proposed
regulations, the Treasury Department and the IRS intend to apply the new provision (or any analogous provision if modified in the final rule).
2013–14 I.R.B.749April 1, 2013

4.Voluntary Employees’ Beneficiary
Associations (VEBAs)
In accordance with section
9010(c)(2)(D), the proposed regulations
explicitly exclude any VEBA that is estab-
lished by an entity other than an employer
or employers for the purpose of providing
health care benefits, such as a union.
Also, if a MEWA or ECE provides health
benefits through a VEBA, the VEBA is
not a covered entity. Furthermore, if an
employer or employers provide self-in-
sured employee health benefits through a
VEBA, the VEBA is not a covered entity
because the exclusion for self-insured
employers under section 9010(c)(2)(A)
applies. If a VEBA purchases health
insurance to cover the beneficiaries of the
VEBA, the VEBA is not a covered entity
because the issuer providing the health
insurance that the VEBA purchases is the
covered entity subject to the fee rather
than the VEBA. Therefore, the Treasury
Department and the IRS are not aware of
any VEBAs that would be covered entities
under the proposed regulations. The
Treasury Department and the IRS invite
comments on the types of VEBAs, if any,
that do not fall within the exclusions and
therefore would be covered entities.
5.Educational Institutions and Student
Health Insurance
Many educational institutions establish
or administer programs that provide stu-
dents with access to health insurance. In
most instances, however, the educational
institution uses premiums it receives from
students to purchase insurance from a sep-
arate, unrelated issuer. This unrelated is-
suer and not the educational institution will
be a covered entity for purposes of section
9010 and it will include the premiums paid
by or on behalf of those students for pur-
poses of determining the amount payable
under section 9010. The Treasury Depart-
ment and the IRS invite comments on the
circumstances, if any, under which an edu-
cational institution might qualify as a cov-
ered entity that is subject to the fee and not
eligible for an exclusion (for example, a
self-insured student health plan).
C.Controlled Groups
1.In General
The proposed regulations define the
termcontrolled groupas a group of two
or more persons, including at least one
person that is a covered entity, that are
treated as a single employer under section
52(a), 52(b), 414(m), or 414(o). To clarify
how to treat persons that leave or enter a
controlled group, the proposed regulations
provide that, for purposes of section 9010,
a person is treated as a member of the
controlled group if it is a member of the
group at the end of the day on December
31st of the data year. In accordance with
section 9010(c)(3), the proposed regula-
tions treat a controlled group as a single
covered entity for purposes of the fee.
In determining net premiums written for
health insurance for United States health
risks of a controlled group, the controlled
group generally must take into account the
net premiums written for all members for
theentiredatayear.
2.Designated Entities
The proposed regulations provide that
each controlled group must have adesig-
nated entity, defined as a person within the
controlled group that is designated to act
on behalf of the controlled group with re-
gard to the fee. The proposed regulations
further provide that if the controlled group,
without regard to foreign corporations in-
cluded under section 9010(c)(3)(B), is also
an affiliated group that filed a consolidated
return for Federal income tax purposes, the
designated entity is the common parent of
the affiliated group identified on the tax re-
turn filed for the data year. If the controlled
group is not an affiliated group that files
a consolidated return for Federal income
tax purposes, it may select a person as the
designated entity on Form 8963,Report
of Health Insurance Provider Information.
The proposed regulations require only the
designated entity to report on behalf of the
controlled group. However, the proposed
regulations also require each member of a
controlled group to maintain a record of its
consent to the designated entity selection.
The proposed regulations also require the
designated entity to maintain a record of all
member consents. If the controlled group
does not select a person as a designated en-
tity on its Form 8963, the IRS will select a
person as a designated entity for the con-
trolled group and advise the designated en-
tity accordingly.
D.Health Insurance
1.In General
Section 9010 does not define health
insurance, providing in section 9010(h)(3)
only that health insurance does not in-
clude coverage only for accident, or
disability income insurance, or any com-
bination thereof as described in section
9832(c)(1)(A); coverage only for a speci-
fied disease or illness and hospital indem-
nity or other fixed indemnity insurance as
described in section 9832(c)(3); insurance
for long-term care; or Medicare supple-
mental health insurance (as defined in
section 1882(g)(1) of the Social Security
Act). The only definition of health insur-
ance or health insurance coverage in the
Code is the definition of health insurance
coverage in section 9832(b)(1)(A) for
purposes of Chapter 100. The language
of section 9832(b)(1)(A) is substantially
similar to the only definition of health in-
surance coverage referenced in the ACA.
2
Accordingly, the proposed regulations de-
fine the termhealth insuranceby reference
to section 9832(b)(1)(A) to mean bene-
fits consisting of medical care (provided
directly, through insurance, reimburse-
ment, or otherwise) under any hospital or
medical service policy or certificate, hos-
pital or medical service plan contract, or
health maintenance organization contract
offered by a health insurance issuer. The
proposed regulations exclude from the
term health insurance all of the excepted
benefits listed in section 9832(c) except
for section 9832(c)(2)(A) (limited scope
dental and vision benefits). In accordance
with the explanation provided by the Joint
Committee on Taxation, the proposed reg-
ulations include limited dental and vision
coverage as health insurance for purposes
of the fee.SeeJCT General Explanation
at 331.
The proposed regulations also provide
that, solely for purposes of section 9010,
indemnity reinsurance is not health insur-
2
SeeACA section 1301(b)(2), referencing section 2791(b) of the Public Health Service Act (PHSA) (42 USC 300gg–91). The definition of health insurance coverage in section 2791(b) of
the PHSA is substantially similar to the one provided in section 9832(b)(1)(A) of the Code.
April 1, 20137502013–14 I.R.B.

ance. Thus, the fee continues to be im-
posed on the issuing company. For this
purpose, the proposed regulations define
the termindemnity reinsuranceto mean
an agreement between two or more insur-
ance companies under which the reinsur-
ing company agrees to accept and to in-
demnify the issuing company for all or part
of the risk of loss under policies specified
in the agreement, and the issuing company
retains its liability to, and its contractual
relationship with, the individuals whose
health risks are insured under the policies
specified in the agreement. No inference is
intended as to whether indemnity reinsur-
ance may constitute health insurance for
other purposes.
2.Student Administrative Health Fee
Arrangements
Many educational institutions have ar-
rangements under which the educational
institution, other than through an insured
arrangement, charges student administra-
tive health fees to students on a periodic
basis to help cover the cost of student
health clinic operations and care delivery
(regardless of whether the student uses
the clinic and regardless of whether the
student purchases any available student
health insurance coverage). These ar-
rangements are different from premiums
and cost-sharing for group health plans
and health insurance coverage because all
students pay the fee regardless of whether
they have student health insurance. There-
fore, these arrangements do not constitute
health insurance for purposes of section
9010. For a similar conclusion regarding
other Federal laws applicable to student
health insurance, see Student Health Insur-
ance Coverage, 77 F.R. 16453, 16455–56
(March 21, 2012) (Department of Health
and Human Services regulations estab-
lishing requirements for student health in-
surance coverage under the Public Health
Service Act and ACA).
3.Travel Insurance
The Treasury Department and the IRS
are aware that certain travel insurance
products may include limited health ben-
efits. However, the term travel insurance
does not have a definition for tax pur-
poses and in other contexts has applied to
a differing variety of products with dif-
ferent types of coverage, including some
products providing only incidental health
benefits. To assist in determining which
types of travel-related insurance products
provide health insurance for purposes of
section 9010, the proposed regulations ex-
plicitly excludetravel insurance, defined
as coverage for personal risks incident to
planned travel, which may include, but is
not limited to, interruption or cancellation
of a trip or event, loss of baggage or per-
sonal effects, damages to accommodations
or rental vehicles, andsickness, accident,
disability, or death occurring during travel,
provided that the health benefits are not
offered on a stand-alone basis and are inci-
dental to other coverage. For this purpose,
travel insurance does not include major
medical plans, which provide comprehen-
sive medical protection for travelers with
trips lasting 6 months or longer, including,
for example, those working overseas as
an expatriate or military personnel being
deployed. This definition is a modified
version of the National Association of In-
surance Commissioners (NAIC) definition
of travel insurance.
4.Retiree-only Health Plans
The proposed regulations do not pro-
vide any special exceptions related to
health insurance provided under a plan
covering only retired employees. These
types of arrangements are not subject to
the requirements of Chapter 100 of the
Code, not because they do not provide
health insurance or because retiree-only
coverage is an excepted benefit, but be-
cause of an exception in section 9831(a)(2)
for group health plans having fewer than
two current employees. This exception is
not relevant in determining whether the
insurance provided is health insurance for
purposes of section 9010, which covers
issuers of health insurance regardless of
whether the insurance is provided under a
group health plan. Therefore, health insur-
ance provided under these arrangements
is health insurance for purposes of section
9010. However, an employer providing
coverage to former employees, such as
retired employees, under a self-insured
arrangement generally would qualify for
the exclusion for self-insured employers.
See section II.B.1 of this preamble.
E.Net Premiums Written
The fee each year is based on each cov-
ered entity’s share of net premiums written
for health insurance of United States health
risks during the data year. Section 9010
does not define net premiums written. The
proposed regulations define the termnet
premiums writtento mean premiums writ-
ten, including reinsurance premiums writ-
ten, reduced by reinsurance ceded, and re-
duced by ceding commissions and medical
loss ratio (MLR) rebates with respect to the
data year. Because indemnity reinsurance
is not considered health insurance for pur-
poses of section 9010, net premiums writ-
ten does not include premiums written for
indemnity reinsurance (and is not reduced
by indemnity reinsurance ceded). See sec-
tion II.D.1 of this preamble. However, net
premiums written does include premiums
written (and excludes premiums ceded) for
assumption reinsurance; that is, reinsur-
ance for which there is a novation and the
reinsurer takes over the entire risk pursuant
to a new contract. Thus, for covered enti-
ties that file the Supplemental Health Care
Exhibit (SHCE) with the NAIC, net pre-
miums written for health insurance gener-
ally will equal the amount reported on the
SHCE as direct premiums written minus
MLR rebates with respect to the data year,
subject to any applicable exclusions under
section 9010 such as exclusions from the
term health insurance. This definition of
net premiums written for purposes of sec-
tion 9010 differs from net adjusted premi-
ums reported on the SHCE, which takes
into account premiumsfrom ceded and as-
sumed reinsurance. Under current NAIC
reporting rules, the amount reported as di-
rect premiums written on the SHCE does
not include ceding commissions, and thus
there is no need to reduce direct premiums
written for ceding commissions in deter-
mining net premiums written. However,
the SHCE separately accounts for any ex-
pected reductions in premiums resulting
from MLR rebates with respect to the data
year. These amounts are subtracted from
direct premiums written in determining net
premiums written. The Treasury Depart-
ment and the IRS invite comments on how
to compute MLR rebates with respect to
the data year using data reported on the
SHCE.
2013–14 I.R.B.751April 1, 2013

F.United States Health Risk
In accordance with section 9010(d),
the proposed regulations define the term
United States health riskto mean the
health risk of any individual who is (1) A
United States citizen, (2) a resident of the
United States (within the meaning of sec-
tion 7701(b)(1)(A)), or (3) located in the
United States, with respect to the period
such individualis so located.
For purposes of determining whether an
individual is located in the United States,
the proposed regulations, in accordance
with section 9010(h)(2), define the term
United Statesto mean the 50 States, the
District of Columbia, and any possession
of the United States. The proposed regula-
tions further define the termlocated in the
United Statesto mean present in the United
States under section 7701(b)(7) (for pres-
ence in the 50 States and the District of Co-
lumbia) or §1.937–1(c)(3)(i) (for presence
in a possession of the United States). Sub-
ject to certain exceptions, those rules gen-
erally treat an individual as present in the
United States on any day if the individual
is physically present in the United States at
anytimeduringsuchday.
Section 9010(d)(2) refers to “resident
of the United States (within the meaning
of section 7701(b)(1)(A)).” Under section
7701(b), the term United States means the
50 States and the District of Columbia,
but it does not include the possessions of
the United States.Seesection 7701(a)(9).
Therefore, under the proposed regulations,
this narrower definition of United States
applies for determining who is a “resident
of the United States (within the meaning of
section 7701(b)(1)(A)).” Regardless of the
narrower scope of resident of the United
States, the Treasury Department and the
IRS note that the term United States health
risk includes the health risks of individu-
als in the possessions of the United States
since they will either be United States citi-
zens or considered as located in the United
States.
Recognizing the unique characteristics
of plans covering expatriates, the Trea-
sury Department and the IRS seek specific
comments on how the rules proposed in
these regulations apply to such plans.
III.Reporting Requirements, Associated
Penalties, and Disclosure
Section 9010(g)(1)requires each cov-
ered entity to report its net premiums writ-
ten for health insurance for United States
health risks during the data year. The pro-
posed regulations require each covered en-
tity, including each controlled group that
is treated as a single covered entity, to an-
nually report its net premiums written for
health insurance of United States health
risks during the data year to the IRS by
May 1st of the fee year on Form 8963,Re-
port of Health Insurance Provider Infor-
mation,in accordance with the instructions
for the form. A covered entity with net
premiums written under the $25 million
threshold is not liable for a fee but must
still report its net premiums written. The
proposed regulations authorize the IRS to
provide rules for the manner of reporting
(including reporting by designated entities
on behalf of controlled groups) in other
guidance published in the Internal Rev-
enue Bulletin.
Section 9010(g)(2) imposes a penalty
for failing to timely submit a report con-
taining the required information unless
the covered entity can show that the fail-
ure is due to reasonable cause. Section
9010(g)(3) imposes an accuracy-related
penalty for any understatement of a cov-
ered entity’s net premiums written. The
proposed regulations clarify that these
penalties are in addition to the fee.
Section 9010(g)(4) provides that sec-
tion 6103 (relating to the disclosure of re-
turns and return information) does not ap-
plytoanyinformationreportedbythecov-
ered entities under section 9010(g). The
Treasury Department and the IRS are con-
sidering making available to the public the
information reported on Form 8963,Re-
port of Health Insurance Provider Infor-
mation, including the identity of the cov-
ered entity and the amount of its net premi-
ums written, at the time the notice of pre-
liminary fee calculation is sent. The Trea-
sury Department and the IRS invite com-
ments on which reported information the
IRS should make publicly available.
IV.Fee Calculation
Under section 9010 and the proposed
regulations, the IRS will calculate a cov-
ered entity’s fee based on the ratio of the
covered entity’s net premiums written that
are taken into account to the total net pre-
miums written taken into account of all
covered entities. For each covered entity,
the IRS will not take into account the first
$25 million of net premiums written. The
IRS will take into account 50 percent of
the net premiums written for amounts over
$25 million and up to $50 million and 100
percent of the net premiums written over
$50 million. Thus, for any covered en-
tity with net premiums written of $50 mil-
lion or more, the IRS will not take into ac-
count the first $37.5 million of net premi-
ums written. Also, because a controlled
group is treated as a single covered en-
tity, this reduction applies, in the aggre-
gate, to the net premiums written of the
entire controlled group. Additionally, af-
ter this reduction, if the covered entity (or
any member of a controlled group treated
as a single covered entity) is exempt from
taxbysection501(a)andisdescribedin
section 501(c)(3) (generally, a charity), (4)
(generally, a social welfare organization),
(26) (generally, a high-risk health insur-
ance pool), or (29) (a consumer operated
and oriented plan (CO-OP) health insur-
ance issuer), the IRS will take into ac-
count only 50 percent of the remaining net
premiums written of that entity (or mem-
ber) that are attributable to its exempt ac-
tivities. The proposed regulations further
provide that, in the case of a controlled
group, the IRS will not take into account
any net premiums written of any member
that is a nonprofit corporation meeting the
requirements of §57.2(b)(2)(iii) of the pro-
posed regulations or a VEBA meeting the
requirements of §57.2(b)(2)(iv).
Under the proposed regulations, the
IRS will determine net premiums written
based on the reports submitted by covered
entities and any other source of informa-
tion available to the IRS. Most covered
entities are expected to file the SHCE,
which supplements the annual statement
filed with the NAIC under applicable State
law. For these covered entities, net premi-
ums written for health insurance generally
will equal the amount reported on that
exhibit as direct premiums written minus
MLR rebates with respect to the data year,
subject to any applicable exclusions un-
der section 9010 such as exclusions from
the term “health insurance.” In addition
to the SHCE, other sources of informa-
tion that the IRS may use to determine
April 1, 20137522013–14 I.R.B.

net premiums written include the NAIC
annual statement, the Accident and Health
Policy Experience Exhibit filed with the
NAIC, and the MLR Annual Reporting
Form filed with the Center for Medicare &
Medicaid Services’ Center for Consumer
Information and Insurance Oversight of
the U.S. Department of Health and Human
Services. The proposed regulations further
provide that the entire amount reported
on the SHCE as direct premiums written
will be considered to be for United States
health risks unless the covered entity can
demonstrate otherwise. The Treasury De-
partment and the IRS invite comments on
this approach.
V.Notice of Preliminary Fee Calculation
The proposed regulations provide that
the IRS will send each covered entity a
notice of preliminary fee calculation each
fee year that will include the covered en-
tity’s allocated fee;the covered entity’s
net premiums written for health insurance
of United States health risks; the covered
entity’s net premiums written for health
insurance of United States health risks
taken into account after the application
of §57.4(a)(4); the aggregate net premi-
ums written for health insurance of United
States health risks taken into account for
all covered entities; and a reference to the
error correction process set forth in other
guidance published in the Internal Rev-
enue Bulletin. The date by which the IRS
will send the preliminary fee calculation
notice will be specified in other guidance
published in the Internal Revenue Bul-
letin.
VI.Error Correction Process
The proposed regulations establish an
error correction process that allows a cov-
ered entity to submit error correction re-
ports in response to the preliminary fee cal-
culation for the IRS to consider before per-
forming a final fee calculation. The IRS
will specify in other guidance published in
the Internal Revenue Bulletin the format
for error correction report submissions and
the date by which a covered entity must
submit an error correction report. In the in-
terest of providing finality to the fee calcu-
lation process, no additional error correc-
tion reports will be accepted after the end
of the established error correction period.
VII.Notification of Final Fee Calculation
and Payment
Section 9010(a) requires the annual fee
to be paid by the annual date specified by
the Secretary, but in no event later than
September 30th of each fee year. The pro-
posed regulations provide that the IRS will
send each covered entity its final fee cal-
culation for a fee year no later than August
31st of that fee year, and that the covered
entity must pay the fee by September 30th
by electronic funds transfer. This notifica-
tion will include the covered entity’s allo-
cated fee, the covered entity’s net premi-
ums written for health insurance of United
States health risks, the covered entity’s net
premiums written for health insurance of
United States healthrisks taken into ac-
count after the application of §57.4(a)(4),
the aggregate net premiums written for
health insurance of United States health
risks taken into account for all covered en-
tities, and the final determination on the
covered entity’s error correction report.
Even if a covered entity did not file an
error correction report, a covered entity’s
final fee may differ from a covered en-
tity’s preliminary fee because of informa-
tion discovered aboutthat covered entity
through other information sources. In ad-
dition, a change in aggregate net premi-
ums written for health insurance of United
States health risks can affect each covered
entity’s fee becauseeach covered entity’s
fee is a fraction of the aggregate fee col-
lected from all covered entities.
There is no tax return to be filed with
the payment of the fee.
VIII.Tax Treatment of Fee
Section 9010(f)(1) treats the fee for pur-
poses of subtitle F of the Code (sections
6001 — 7874) as an excise tax to which
only civil actions for refund apply. Thus,
under the proposed regulations, the fee is
treated as an excise tax for purposes of sub-
title F to which the deficiency procedures
of sections 6211 through 6216 do not ap-
ply. The proposed regulations require the
IRS to assess the amount of the fee for any
fee year within three years of September
30th of that fee year.
Section 9010(f)(2) treats the fee as a
tax described in section 275(a)(6) (relat-
ing to taxes for which no deduction is al-
lowed). The Treasury Department and the
IRS received comments stating that cov-
ered entities may attempt to recover a large
portion of the fee from policyholders, ei-
ther by a corresponding increase in premi-
ums or by separately charging policyhold-
ers for a portion of the fee. Some com-
ments requested guidance that recovered
fee amounts are excluded from the gross
income of covered entities. The income
tax treatment of recovered fee amounts is
outside the scope of the proposed regula-
tions. However, under section 61(a), gross
income means all income from whatever
source derived unless a provision of the
Code or other law specifically excludes
the payment from gross income. No ex-
clusion provision applies to the recovered
fee amount. Therefore, the covered en-
tity’s gross income includes fees recov-
ered from policyholders, whether or not
separately stated on any bill. The Trea-
sury Department and the IRS invite com-
ments on whether the text of the regula-
tions should be revised to clarify that re-
covered fee amounts are included in a cov-
ered entity’s gross income.
IX.Refund Claims
The proposed regulations require any
claim for refund to be filed on Form 843,
Claim for Refund and Request for Abate-
ment.
Proposed Effective/Applicability Date
These regulations are proposed to apply
with respect to any fee that is due on or
after September 30, 2014.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866, as supplemented by Exec-
utive Order 13563. Therefore, a regula-
tory assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regu-
lations. It is hereby certified that the col-
lection of information in these regulations
will not have a significant economic im-
pact on a substantial number of small en-
tities. This certification is based on the
fact that these regulations primarily affect
large corporations. Thus, the Treasury De-
partment and the IRS do not expect a sub-
2013–14 I.R.B.753April 1, 2013

stantial number of small entities to be af-
fected. Therefore, a Regulatory Flexibility
Analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f), this notice of
proposed rulemaking has been submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Comments and Public Hearing
Before the proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to
the IRS. The Treasury Department and
the IRS invite comments on all aspects of
the proposed regulations. All comments
will be available for public inspection and
copying.
A public hearing has been scheduled
for June 21, 2013, at 10:00 a.m., in the
IRS Auditorium, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC. Due to building security
procedures, visitors must enter at the Con-
stitution Avenue entrance. In addition, all
visitors must presentphoto identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 15 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments and
submit an outline of the topics to be dis-
cussed and the time to be devoted to each
topic (signed original and eight (8) copies)
by June 3, 2013. A period of 10 minutes
will be allotted to each person for making
comments. An agenda showing the sched-
uling of speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these regu-
lations is Charles J. Langley, Jr., Of-
fice of the Associate Chief Counsel
(Passthroughs and Special Industries).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR chapter I is pro-
posedtobeamendedbyaddingpart57to
subchapter D to read as follows:
PART 57 — HEALTH INSURANCE
PROVIDERS FEE
Sec.
57.0 Table of contents
57.1 Overview.
57.2 Explanation of terms.
57.3 Reporting requirements and asso-
ciated penalties.
57.4 Fee calculation.
57.5 Notice of preliminary fee calcula-
tion.
57.6 Error correction process.
57.7 Notification and fee payment.
57.8 Tax treatment of fee.
57.9 Refund claims.
57.10 Effective/applicability date.
57.6302–1 Method of paying the health
insurance providers fee.
Authority: 26 U.S.C. 7805; sec. 9010,
Pub. L. 111–148 (124 Stat. 119 (2010)).
Section57.7alsoissuedunder26
U.S.C. 6302(a).
Section 57.6302–1 also issued under 26
U.S.C. 6302(a).
§57.0 Table of contents.
This section lists the captions contained
in §§57.1 through 57.10 and §57.6302–1.
§57.1 Overview.
§57.2 Explanation of terms.
(a) In general.
(b) Covered entity.
(1) In general.
(2) Exclusions.
(i) Self-insured employer.
(ii) Governmental entity.
(iii) Certain nonprofit corporations.
(iv) Certain voluntary employees’ ben-
eficiary associations.
(3) State.
(c) Controlled groups.
(1) In general.
(2) Special rules.
(d) Data year.
(e) Designated entity.
(1) In general.
(2) Selection of designated entity.
(i) Choice of controlled group.
(ii) Requirement for affiliated groups;
common parent.
(f) Fee.
(g) Fee year.
(h) Health insurance.
(1) In general.
(2) Exclusions.
(3) Student administrative health fee ar-
rangement.
(4) Travel insurance.
(5) Reinsurance.
(i) Indemnity reinsurance.
(ii) Assumption reinsurance.
(i) Located in the United States.
(j) NAIC.
(k) Net premiums written.
(l) SHCE.
(m) United States.
(n) United States health risk.
§57.3 Reporting requirements and
associated penalties.
(a) Reporting requirement.
(1) In general.
(2)Mannerofreporting.
(b) Penalties.
(1) Failure to report.
(i) In general.
(ii) Amount.
(iii) Reasonable cause.
(iv) Treatment of penalty.
(2) Accuracy-related penalty.
(i) In general.
(ii) Amount.
(iii) Understatement.
(iv) Treatment of penalty.
(3) Controlled groups.
§57.4 Fee calculation.
(a) Fee components.
(1) In general.
(2) Calculation of net premiums writ-
ten.
(3) Applicable amount.
(4) Net premiums written taken into ac-
count.
(i) In general.
(ii) Controlled groups.
(iii) Partial reduction for certain exempt
activities.
April 1, 20137542013–14 I.R.B.

(b) Determination of net premiums
written.
(1) In general.
(2) Presumption for United States
health risks.
(c) Determination of amounts taken into
account.
(d) Allocated fee calculated.
§57.5 Notice of preliminary fee
calculation.
(a) Content of notice.
(b) Timing of notice.
§57.6 Error correction process.
(a) In general.
(b) Time and manner.
§57.7 Notification and fee payment.
(a) Content of notice.
(b) Timing of notice.
(c) Differences in preliminary fee cal-
culation and final calculation.
(d) Payment of final fee.
(e) Controlled groups.
§57.8 Tax treatment of fee.
(a) Treatment as an excise tax.
(b) Deficiency procedures.
(c) Limitation on assessment.
(d) Application of section 275.
§57.9 Refund claims.
§57.10 Effective/Applicability date.
§57.6302–1 Method of paying the health
insurance providers fee.
(a) Fee to be paid by electronic funds
transfer.
(b) Effective/Applicability date.
§57.1 Overview.
(a) The regulations in this part 57 are
designated “Health Insurance Providers
Fee Regulations.”
(b) The regulations in this part 57 pro-
vide guidance on the annual fee imposed
on covered entities engaged in the busi-
ness of providing health insurance by
section 9010 of the Patient Protection and
Affordable Care Act (PPACA), Public
Law 111–148 (124 Stat. 119 (2010)), as
amended by section 10905 of PPACA,
and as further amended by section 1406 of
the Health Care and Education Reconcil-
iation Act of 2010, Public Law 111–152
(124 Stat. 1029 (2010)) (collectively, the
Affordable Care Act or ACA). All refer-
ences to section 9010 in these proposed
regulations are references to section 9010
of the ACA. Unless otherwise indicated,
all other references to subtitles, chapters,
subchapters, and sections are references
to subtitles, chapters, subchapters and sec-
tions in the Internal Revenue Code and the
related regulations.
(c) Section 9010(e)(1) sets an applica-
ble fee amount for each year, beginning
with 2014, that will be apportioned among
covered entities withaggregate net premi-
ums written over $25 million for health
insurance for United States health risks.
Generally, each covered entity is liable for
a fee in each fee year that is based on its net
premiums written during the data year in
an amount determined by the Internal Rev-
enue Service (IRS) under the rules of this
part.
§57.2 Explanation of terms.
(a)In general. This section explains the
terms used in this part for purposes of the
fee.
(b)Covered entity—(1)In general.Ex-
cept as provided under paragraph (c)(2) of
this section, the termcovered entitymeans
any entity with net premiums written for
health insurance for United States health
risks in the fee year if the entity is—
(i) A health insurance issuer within the
meaning of section 9832(b)(2), defined in
section 9832(b)(2) to include an insurance
company, insurance service, or insurance
organization that is required to be licensed
to engage in the business of insurance in
a State and that is subject to the respec-
tive laws of such jurisdictions that regulate
insurance (within the meaning of section
514(b)(2) of the Employee Retirement In-
come Security Act of 1974 (ERISA));
(ii) A health maintenance organization
within the meaning of section 9832(b)(3),
defined in section 9832(b)(3)(A)-(C) to in-
clude—
(A) A Federally qualified health main-
tenance organization (as defined in section
1301(a) of the Public Health Service Act);
(B) An organization recognized under
State law as a health maintenance organi-
zation; or
(C) A similar organization regulated
under State law for solvency in the same
manner and to the same extent as such a
health maintenance organization;
(iii) An insurance company subject to
taxunderpartIorIIofsubchapterL,or
that would be subject to tax under part I or
II of subchapter L but for the entity being
exempt from tax under section 501(a);
(iv) An entity that provides health in-
surance under Medicare Advantage, Medi-
care Part D, or Medicaid; or
(v) A multiple employer welfare ar-
rangement (MEWA), within the meaning
of section 3(40) of ERISA, to the extent
not fully insured, provided that for this
purpose a covered entity does not include
a MEWA that is excepted from reporting
under 29 CFR 2520.101–2(c)(2)(ii)(B).
Solely for purposes of the application of
section 9010, an Entity Claiming Excep-
tion (defined in 29 CFR 2520.101–2(b)) is
treated as a MEWA.
(2)Exclusions—(i)Self-insured em-
ployer. A covered entity does not include
any entity that is a self-insured employer
to the extent that such entity self-insures
its employees’ health risks. The term
self-insured employermeans an employer
that sponsors a self-insured medical re-
imbursement plan within the meaning
of §1.105–11(b)(1)(i) of this chapter.
Self-insured medical reimbursement plans
include plans that do not involve shifting
risk to an unrelated third party as described
in §1.105–11(b)(1)(ii) of this chapter. A
self-insured plan may use an insurance
company or other third party to provide
administrative or bookkeeping functions.
(ii)Governmental entity. A covered en-
tity does not include any governmental en-
tity. For this purpose, the termgovernmen-
tal entitymeans—
(A) The United States;
(B) Any State or a political subdivision
thereof (as defined for purposes of sec-
tion 103) including, for example, a State
health department or State insurance com-
mission;
(C) Any Indian tribal government (as
defined in section 7701(a)(40)) or a subdi-
vision thereof (determined in accordance
with section 7871(d)); or
(D) Any public agency that is created
by a State or a political subdivision, orga-
nized as a nonprofit under State law, and
contracts with the State to administer State
2013–14 I.R.B.755April 1, 2013

Medicaid benefits through local providers
or HMOs.
(iii)Certain nonprofit corporations.A
covered entity does not include any en-
tity—
(A) Which is incorporated as a non-
profit corporation under a State law;
(B) No part of the net earnings of which
inures to the benefit of any private share-
holder or individual (within the meaning of
§§1.501(a)–1(c) and 1.501(c)(3)–1(c)(2)
of this chapter);
(C) No substantial part of the ac-
tivities of which is carrying on propa-
ganda, or otherwise attempting, to influ-
ence legislation (within the meaning of
§1.501(c)(3)–1(c)(3)(ii) of this chapter)
(or which is described in section 501(h)(3)
and is not denied exemption under section
501(a) by reason of section 501(h));
(D) Which does not participate in, or
intervene in (including the publishing or
distributing of statements), any political
campaign on behalf of (or in opposition
to) any candidate for public office (within
the meaning of §1.501(c)(3)–1(c)(3)(iii) of
this chapter); and
(E) More than 80 percent of the gross
revenues of which is received from gov-
ernment programs that target low-income,
elderly, or disabled populations under titles
XVIII, XIX, and XXI of the Social Secu-
rity Act.
(iv)Certain voluntary employees’
beneficiary associations. A covered en-
tity does not include any entity that is
described in section 501(c)(9) that is es-
tablished by an entity (other than by an
employer or employers) for purposes of
providing health care benefits.
(3)State. Solely for purposes of para-
graph (b) of this section, the termState
means any of the 50 States, the District
of Columbia, or any of the possessions
of the United States, including American
Samoa, Guam, the Northern Mariana Is-
lands, Puerto Rico, and the Virgin Islands.
(c)Controlled groups—(1)In general.
The termcontrolled groupmeans a group
of two or more persons, including at least
one person that is a covered entity, that is
treated as a single employer under section
52(a), 52(b), 414(m), or 414(o). A con-
trolled group is treated as a single covered
entity for purposes of the fee.
(2)Special rules. For purposes of para-
graph(c)(1)ofthissection(relatedtocon-
trolled groups)—
(i) A foreign entity subject to tax under
section 881 is included within a controlled
group under section 52(a) or (b); and
(ii) A person is treated as being a mem-
ber of the controlled group if it is a member
of the group at the end of the day on De-
cember 31st of the data year.
(d)Data year.Thetermdata year
means the calendar year immediately be-
fore the fee year. Thus, for example, 2013
is the data year for fee year 2014.
(e)Designated entity—(1)In general.
Each controlled group must have a des-
ignated entity. The termdesignated en-
titymeans the person within the controlled
group that is designated to act on behalf of
the controlled group regarding the fee with
respect to—
(i) Filing Form 8963,Report of Health
Insurance Provider Information;
(ii) Receiving IRS communications
about the fee for the group;
(iii) Filing an error correction report for
the group, if applicable, as described in
§57.6; and
(iv) Paying the fee for the group to the
IRS.
(2)Selection of designated entity—(i)
In general. Except as provided in para-
graph (e)(2)(ii) of this section, the con-
trolled group may select its designated en-
tity by filing Form 8963,Report of Health
Insurance Provider Information, in accor-
dance with the form instructions. The des-
ignated entity must state under penalties of
perjury that all persons that provide health
insurance for UnitedStates health risks
that are members of the group have con-
sented to the selection of the designated
entity. Each member of acontrolled group
is required to maintain a record of its con-
sent to the controlled group’s selection of
the designated entity. The designated en-
tity must maintain a record of all member
consents. If a controlled group does not se-
lect a designated entity, the IRS will select
the designated entity.
(ii)Requirement for affiliated groups;
common parent.If the controlled group,
without regard to foreign corporations in-
cluded under section 9010(c)(3)(B), is also
an affiliated group that files a consolidated
return for Federal income tax purposes, the
designated entity is the common parent of
the affiliated group as identified on the tax
return filed for the data year.
(f)Fee.Thetermfeemeans the fee
imposed by section 9010 on each covered
entity engaged in the business of providing
health insurance.
(g)Fee year.Thetermfee yearmeans
the calendar year in which the fee must be
paid to the government.
(h)Health insurance—(1)In general.
Except as provided in paragraph (h)(2) of
this section, the termhealth insurancehas
the same meaning as the term health insur-
ance coverage in section 9832(b)(1)(A),
defined to mean benefits consisting of
medical care (provided directly, through
insurance or reimbursement, or otherwise)
under any hospital or medical service pol-
icy or certificate, hospital or medical ser-
vice plan contract, or health maintenance
organization contract offered by a health
insurance issuer. The term health insur-
ance includes limited scope dental and vi-
sion benefits under section 9832(c)(2)(A)
and retiree-only health insurance.
(2)Exclusions. Health insurance does
not include—
(i) Coverage only for accident, or dis-
ability income insurance, or any combina-
tion thereof, within the meaning of section
9832(c)(1)(A);
(ii) Coverage issued as a supplement to
liability insurance within the meaning of
section 9832(c)(1)(B);
(iii) Liability insurance, including gen-
eral liability insurance and automobile lia-
bility insurance, within the meaning of sec-
tion 9832(c)(1)(C);
(iv) Workers’ compensation or similar
insurance within the meaning of section
9832(c)(1)(D);
(v) Automobile medical payment in-
surance within the meaning of section
9832(c)(1)(E);
(vi) Credit-only insurance within the
meaning of section 9832(c)(1)(F);
(vii) Coverage for on-site medical
clinics within the meaning of section
9832(c)(1)(G);
(viii) Other insurance coverage that is
similar to the insurance coverage in para-
graph (h)(2)(i) through (vii) of this sec-
tion under which benefits for medical care
are secondary or incidental to other insur-
ance benefits, within the meaning of sec-
tion 9832(c)(1)(H), to the extent such in-
surance coverage is specified in regula-
tions under section 9832(c)(1)(H);
(ix) Benefits for long-term care, nurs-
ing home care, home health care, com-
munity-based care, or any combination
thereof, within the meaning of section
April 1, 20137562013–14 I.R.B.

9832(c)(2)(B), and such other similar,
limited benefits to the extent such benefits
are specified in regulations under section
9832(c)(2)(C);
(x) Coverage only for a specified dis-
ease or illness within the meaning of sec-
tion 9832(c)(3)(A);
(xi) Hospital indemnity or other fixed
indemnity insurance within the meaning of
section 9832(c)(3)(B);
(xii) Medicare supplemental health
insurance (as defined under section
1882(g)(1) of the Social Security Act),
coverage supplemental to the coverage
provided under chapter 55 of title 10,
United States Code, and similar supple-
mental coverage provided to coverage
under a group health plan, within the
meaning of section 9832(c)(4);
(xiii) Student administrative health fee
arrangements, as defined in paragraph
(h)(3);
(xiv) Travel insurance, as defined in
paragraph (h)(4) of this section; or
(xv) Indemnity reinsurance, as defined
in paragraph (h)(5)(i) of this section.
(3)Student administrative health fee
arrangement. For purposes of paragraph
(h)(2)(xiii) of this section, the termstudent
administrative health fee arrangement
means an arrangementunder which an
educational institution, other than through
an insured arrangement, charges student
administrative health fees to students on
a periodic basis to help cover the cost of
student health clinic operations and care
delivery (regardless of whether the student
uses the clinic and regardless of whether
the student purchases any available stu-
dent health insurance coverage).
(4)Travel insurance. For purposes of
paragraph (h)(2)(xiv) of this section, the
termtravel insurancemeans insurance
coverage for personal risks incident to
planned travel, which may include, but is
not limited to, interruption or cancellation
of trip or event, loss of baggage or per-
sonal effects, damages to accommodations
or rental vehicles, and sickness, accident,
disability, or death occurring during travel,
provided that the health benefits are not
offered on a stand-alone basis and are inci-
dental to other coverage. For this purpose,
travel insurance does not include major
medical plans that provide comprehensive
medical protection fortravelers with trips
lasting 6 months or longer, including, for
example, those working overseas as an
expatriate or military personnel being de-
ployed.
(5)Reinsurance—(i)Indemnity rein-
surance. For purposes of paragraphs
(h)(2)(xv) and (k) of this section, the term
indemnity reinsurancemeans an agree-
ment between two or more insurance
companies under which—
(A) The reinsuring company agrees to
accept and to indemnify the issuing com-
pany for all or part of the risk of loss under
policies specified in the agreement; and
(B) The issuing company retains its li-
ability to, and its contractual relationship
with, the individuals whose health risks are
insured under the policies specified in the
agreement.
(ii)Assumption reinsurance. For pur-
poses of paragraph (k) of this section, the
termassumption reinsurancemeans rein-
surance for which there is a novation and
the reinsurer takes over the entire risk of
loss pursuant to a new contract.
(i)Located in the United States.The
termlocated in the United Statesmeans
present in the UnitedStates (within the
meaning of paragraph (m) of this section)
under section 7701(b)(7) (for presence in
the 50 States and the District of Colum-
bia) or §1.937–1(c)(3)(i) of this chapter
(for presence in a possession of the United
States).
(j)NAIC.ThetermNAICmeans the Na-
tional Association of Insurance Commis-
sioners.
(k)Net premiums written.Thetermnet
premiums writtenmeanspremiumswrit-
ten, including reinsurance premiums writ-
ten, reduced by reinsurance ceded, and re-
duced by ceding commissions and medical
loss ratio (MLR) rebates with respect to the
data year. Because indemnity reinsurance
within the meaning of paragraph (h)(5)(i)
of this section is nothealth insurance un-
der paragraph (h)(1) of this section, net
premiums written does not include premi-
ums written for indemnity reinsurance and
is not reduced by indemnity reinsurance
ceded. However, net premiums written
does include premiums written and is re-
duced by premiums ceded for assumption
reinsurance within the meaning of para-
graph (h)(5)(ii) of this section.
(l)SHCE.ThetermSHCEmeans the
Supplemental Health Care Exhibit. The
SHCE is a form published by the NAIC
that most covered entities are required to
file annually under State law.
(m)United States. For purposes of
paragraph (i) of this section, the term
United Statesmeans the 50 States, the
District of Columbia, and any possession
of the United States, including American
Samoa, Guam, the Northern Mariana Is-
lands, Puerto Rico, and the Virgin Islands.
(n)United States health risk.Theterm
United States health riskmeans the health
risk of any individual who is—
(1) A United States citizen;
(2) A resident of the United
States (within the meaning of sec-
tion 7701(b)(1)(A)); or
(3) Located in the United States (within
the meaning of paragraph (i) of this sec-
tion) during the period such individual is
so located.
§57.3 Reporting requirements and
associated penalties.
(a)Reporting requirement—(1)In
general. Annually, each covered entity,
including each controlled group that is
treated as a single covered entity, must
report its net premiums written for health
insurance of United States health risks
during the data year to the IRS by May 1st
of the fee year on Form 8963,Report of
Health Insurance Provider Information,
in accordance with the instructions for
the form. A covered entity that has net
premiums written for health insurance of
United States health risks during the data
year but does not have any amount taken
into account as described in §57.4(a)(4) is
still subject to this reporting requirement.
(2)Manner of reporting.TheIRSmay
provide rules in guidance published in the
Internal Revenue Bulletin for the manner
of reporting by a covered entity under this
section, including rules for reporting by a
designated entity on behalf of a controlled
group that is treated as a single covered
entity.
(b)Penalties—(1)Failure to re-
port—(i)In general. If any covered entity
fails to timely submit a report containing
the information required by paragraph (a)
of this section, the covered entity is liable
for a penalty in the amount described in
paragraph (b)(1)(ii) of this section in ad-
dition to its fee liability, unless the failure
is due to reasonable cause as defined in
paragraph (b)(1)(iii) of this section.
(ii)Amount. The amount of the penalty
for failure to timely submit a report de-
2013–14 I.R.B.757April 1, 2013

scribed in paragraph (b)(1)(i) of this sec-
tion is equal to—
(A) $10,000, plus
(B) The lesser of—
(1) An amount equal to $1,000, multi-
plied by the number of days during which
such failure continues; or
(2) The amount of the covered entity’s
fee for which the report was required.
(iii)Reasonable cause. The penalty
for failure to timely submit a report de-
scribed in paragraph (b)(1)(i) of this sec-
tion is waived if the failure is due to rea-
sonable cause. A failure will be due to
a reasonable cause if the covered entity
exercised ordinary business care and pru-
dence and was nevertheless unable to sub-
mit the report within the prescribed time.
In determining whether the covered entity
was unable to timely submit the report de-
scribed in paragraph (b)(1)(i) of this sec-
tion despite the exercise of ordinary busi-
ness care and prudence, the IRS will con-
sider all the facts and circumstances sur-
rounding the failure to submit the report.
(iv)Treatment of penalty. The failure to
report penalty described in this paragraph
(b)(1)—
(A) Is treated as a penalty under subtitle
F;
(B) Must be paid on notice and demand
by the IRS and in the same manner as a tax
under the Internal Revenue Code; and
(C) Is a penalty for which only civil ac-
tions for refund under procedures of subti-
tle F apply.
(2)Accuracy-related penalty—(i)In
general. If any covered entity understates
its net premiums written for health insur-
ance of United States health risks in the
report required under paragraph (a)(1) of
this section, the covered entity is liable for
a penalty in the amount described in para-
graph (b)(2)(ii) of this section in addition
to its fee liability.
(ii)Amount. The amount of the ac-
curacy-related penalty described in para-
graph (b)(2)(i) of this section is equal to
the excess of—
(A) The amount of the covered entity’s
fee for the fee year that the Secretary de-
termines should have been paid in the ab-
sence of any understatement; over
(B) The amount of the covered entity’s
fee for the fee year that the Secretary de-
termined based on the understatement.
(iii)Understatement. An understate-
ment of a covered entity’s net premiums
written for health insurance of United
States health risks is the difference be-
tween the amount of net premiums written
that the covered entity reported and the
amount of net premiums written that the
covered entity should have reported.
(iv)Treatment of penalty. The accu-
racy-related penalty is subject to the provi-
sions of subtitle F that apply to assessable
penalties imposed under chapter 68.
(3)Controlled groups. Each person in a
controlled group with an obligation to pro-
vide information to the controlled group’s
designated entity for purposes of the report
required to be submitted by the designated
entity on behalf of the controlled group is
jointly and severally liable for any penal-
ties described in this paragraph (b) for any
reporting failures by the designated entity.
§57.4 Fee calculation.
(a)Fee components—(1)In general.
For every fee year, the IRS will calculate
a covered entity’s total fee as described in
this section.
(2)Calculation of net premiums writ-
ten. Each covered entity’s allocated fee
for any fee year is equal to an amount
that bears the same ratio to the applicable
amount as the covered entity’s net premi-
ums written for health insurance of United
States health risks during the data year
taken into account bears to the aggregate
net premiums written for health insurance
of United States health risks of all covered
entities during the data year taken into ac-
count.
(3)Applicable amount. The applicable
amounts for fee years are—
Fee year
Applicable amount
2014
$ 8,000,000,000
2015
$ 11,300,000,000
2016
$ 11,300,000,000
2017
$ 13,900,000,000
2018
$ 14,300,000,000
2019 and thereafterThe applicable amount in the preceding fee year increased by the rate of
premium growth (within the meaning of section 36B(b)(3)(A)(ii)).
(4)Net premiums written taken into ac-
count—(i)In general. A covered entity’s
net premiums written for health insurance of United States health risks during any
data year are taken into account as follows:
Covered entity’s net premiums written
during the data year that are:
Percentage of net premiums
written taken into account is:
Not more than $25,000,000
0
More than $25,000,000 but not more than $50,000,000
50
More than $50,000,000
100
(ii)Controlled groups. In the case of
a controlled group, paragraph (a)(4)(i) of
this section applies to all net premiums
written for health insurance of United
States health risks during the data year,
in the aggregate, of the entire controlled
group, except that any net premiums writ-
ten by any member of the controlled group
that is a nonprofit corporation meeting
the requirements of §57.2(b)(2)(iii) or
a voluntary employees’ beneficiary as-
April 1, 20137582013–14 I.R.B.

sociation meeting the requirements of
§57.2(b)(2)(iv) are not taken into account.
(iii)Partial reduction for certain ex-
empt activities. After the application of
paragraph (a)(4)(i) of this section, if the
covered entity is exempt from Federal in-
come tax under section 501(a) and is de-
scribed in section 501(c)(3), (4), (26), or
(29), then only 50 percent of its remaining
net premiums written for health insurance
of United States healthrisks that are attrib-
utable to its exempt activities (and not to
activities of an unrelated trade or business
as defined in section 513) during the data
year are taken into account.
(b)Determination of net premiums
written—(1)In general. The IRS will
determine net premiums written for health
insurance of United States health risks
based on the reports submitted by the
covered entities, together with any other
source of information available to the IRS.
Other sources of information that the IRS
may use to determine net premiums writ-
ten include the SHCE, which supplements
the annual statement filed with the NAIC
pursuant to State law, the annual statement
itself or the Accident and Health Policy
Experience filed with the NAIC, the MLR
Annual Reporting Form filed with the
Center for Medicare & Medicaid Services’
Center for Consumer Information and In-
surance Oversight of the U.S. Department
of Health and Human Services, or any
similar statements filed with the NAIC,
with any State government, or with the
Federal government pursuant to applicable
State or Federal requirements.
(2)Presumption for United States
health risks. For any covered entity that
files the SHCE with the NAIC, the entire
amount reported as direct premiums writ-
tenwillbeconsideredtobeforUnited
States health risks as described in §57.2(k)
(subject to any applicable exclusions for
amounts that are not health insurance as
described in §57.2(g)(2)) unless the cov-
ered entity can demonstrate otherwise.
(c)Determination of amounts taken into
account. (1) For each fee year and for each
covered entity, the IRS will calculate the
net premiums written for health insurance
of United States health risks taken into ac-
count during the data year. The resulting
number is the numerator of the ratio de-
scribed in paragraph (d)(1) of this section.
(2) For each fee year, the IRS will cal-
culate the aggregate net premiums written
for health insurance of United States health
risks taken into account for all covered en-
tities during the data year. The resulting
number is the denominator of the ratio de-
scribed in paragraph (d)(2) of this section.
(d)Allocated fee calculated. For each
covered entity for each fee year, the IRS
will calculate the covered entity’s allo-
cated fee by multiplying the applicable
amount from paragraph (a)(3) of this sec-
tion by a fraction—
(1)Thenumeratorofwhichisthecov-
ered entity’s net premiums written for
health insurance of United States health
risks during the data year taken into ac-
count (described in paragraph (c)(1) of
this section); and
(2) The denominator of which is the
aggregate net premiums written for health
insurance of United States health risks for
all covered entities during the data year
taken into account (described in paragraph
(c)(2) of this section).
§57.5 Notice of preliminary fee
calculation.
(a)Contentofnotice. Each fee year, the
IRS will make a preliminary calculation of
the fee for each covered entity as described
in §57.4. The IRS will notify each cov-
ered entity of its preliminary fee calcula-
tion for that fee year. The notification to a
covered entity of its preliminary fee calcu-
lation will include—
(1) The covered entity’s allocated fee;
(2) The covered entity’s net premiums
written for health insurance of United
States health risks;
(3) The covered entity’s net premiums
written for health insurance of United
States health risks taken into account after
the application of §57.4(a)(4);
(4) The aggregate net premiums written
for health insurance of United States health
risks taken into account for all covered en-
tities; and
(5) A reference to the error correction
procedures specified in guidance pub-
lished in the Internal Revenue Bulletin.
(b)Timing of notice. The IRS will spec-
ify in other guidance published in the Inter-
nal Revenue Bulletin the date by which it
will send each covered entity a notice of its
preliminary fee calculation.
§57.6 Error correction process.
(a)In general. Upon receipt of its pre-
liminary fee calculation, each covered en-
tity will have an opportunity to review this
calculation, identify any errors, and submit
to the IRS an error correction report.
(b)Time and manner. The IRS will
specify in other guidance published in the
Internal Revenue Bulletin the format for
error correction report submissions and the
date by which a covered entity must submit
an error correction report. The IRS will
provide its final determination regarding
the covered entity’s error correction report
no later than the time the IRS provides a
covered entity with a final fee calculation.
§57.7 Notification and fee payment.
(a)Contentofnotice. Each fee year,
the IRS will make a final calculation of the
fee for each covered entity as described in
§57.4. The IRS will base its final fee cal-
culation on the reports the covered entity
provides as adjusted by the error correc-
tion process and other sources described
in §57.4(b)(1). The notification to a cov-
ered entity of its final fee calculation will
include—
(1) The covered entity’s allocated fee;
(2) The covered entity’s net premiums
written for health insurance of United
States health risks;
(3) The covered entity’s net premiums
written for health insurance of United
States health risks taken into account after
the application of §57.4(a)(4);
(4) The aggregate net premiums written
for health insurance of United States health
risks taken into account for all covered en-
tities; and
(5) The final determination on the cov-
ered entity’s error correction report, if any.
(b)Timing of notice. The IRS will send
each covered entity a notice of its final fee
calculation by August 31st of the fee year.
(c)
Differences in preliminary fee calcu-
lation and final calculation. A covered en-
tity’s final fee calculation may differ from
the covered entity’s preliminary fee calcu-
lation because of changes made pursuant
to the error correction process described in
§57.6 or because the IRS discovered addi-
tional information relevant to the fee cal-
culation through other information sources
as described in §57.4(b)(1). Even if a cov-
ered entity did not file an error correction
2013–14 I.R.B.759April 1, 2013

report described in §57.6, a covered en-
tity’s final fee may differ from a covered
entity’s preliminaryfee because of infor-
mation discovered about that covered en-
tity through other information sources. In
addition, a change inaggregate net premi-
ums written for health insurance of United
States health risks can affect each covered
entity’s fee because each covered entity’s
fee is a fraction of the aggregate fee col-
lected from all covered entities.
(d)Payment of final fee. Each covered
entity must pay its final fee by Septem-
ber 30th of the fee year. For a controlled
group, the payment must be made using
the designated entity’s EIN as reported on
Form 8963,Report of Health Insurance
Provider Information. The fee must be
paid by electronic funds transfer as re-
quired by §57.6302–1. There is no tax re-
turn to be filed with the payment of the fee.
(e)Controlled groups. In the case of a
controlled group that is liable for the fee,
all members of the controlled group are
jointly and severally liable for the fee. Ac-
cordingly, if a controlled group’s fee is not
paid, the IRS may separately assess each
member of the controlled group for the full
amount of the controlled group’s fee.
§57.8 Tax treatment of fee.
(a)Treatment as an excise tax.Thefee
is treated as an excise tax for purposes of
subtitle F (sections 6001–7874). Thus, ref-
erences in subtitle F to “taxes imposed by
this title,” “internal revenue tax,” and sim-
ilar references, are also references to the
fee. For example, the fee is assessed (sec-
tion 6201), collected (sections 6301, 6321,
and 6331), enforced (section 7602), sub-
ject to examination and summons (section
7602), and subject to confidentiality rules
(section 6103), in the same manner as taxes
imposed by the Code.
(b)Deficiency procedures.Thedefi-
ciency procedures of sections 6211–6216
do not apply to the fee.
(c)Limitation on assessment.TheIRS
must assess the amount of the fee for any
fee year within three years of September
30th of that fee year.
(d)Application of section 275.The
fee is treated as a tax described in section
275(a)(6) (relating to taxes for which no
deduction is allowed).
§57.9 Refund claims.
Any claim for a refund of the fee must
be made by the entity that paid the fee
to the government and must be made on
Form 843,Claim for Refund and Request
for Abatement, in accordance with the in-
structions for that form.
§57.10 Effective/applicability date.
Sections 57.1 through 57.9 apply to any
fee that is due on or after September 30,
2014.
§57.6302–1 Method of paying the health
insurance providers fee.
(a)Feetobepaidbyelectronicfunds
transfer. Under the authority of section
6302(a), the fee imposed on covered enti-
ties engaged in the business of providing
health insurance for United States health
risks under section 9010 and §57.4 must be
paid by electronic funds transfer as defined
in §31.6302–1(h)(4)(i) of this chapter, as if
the fee were a depository tax. For the time
for paying the fee, see §57.7.
(b)Effective/Applicability date.This
section applies with respect to any fee that
is due on or after September 30, 2014.
.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on March 1, 2013,
8:45 a.m., and published in the issue of the Federal Register
for March 4, 2013, 78 F.R. 14034)
Taxable Medical Devices;
Correction
Announcement 2013–19
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting Amendment.
SUMMARY: This document contains cor-
rections to final regulations (T.D. 9604,
2012–52 I.R.B. 730) that were published
in theFederal Registeron Friday, Decem-
ber 7, 2012 (77 F.R. 72924). The final
regulations provide guidance on the excise
tax imposed on the sale of certain med-
ical devices, enacted by the Health Care
and Education Reconciliation Act of 2010
in conjunction with the Patient Protection
and Affordable Care Act.
DATES: This correction is effective on
March 12, 2013and is applicable after De-
cember 31, 2012.
FOR FURTHER INFORMATION
CONTACT:NataliePayne,
Michael Beker, or Stephanie Bland, at
(202) 622–3130 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations (T.D. 9604) that
are the subject of this correction is under
section 4191 of the Internal Revenue Code.
Need for Correction
As published, the final regulations
(T.D. 9604) contain errors that may prove
to be misleading and are in need of clarifi-
cation.
*****
Correction of Publication
Accordingly, 26 CFR part 48 is cor-
rected by making the following correcting
amendments:
PART 48—MANUFATURERS AND
RETAILERS EXCISE TAXES
Paragraph 1. The authority citation for
part 48 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 48.4191–2 is amended
by revising:
1. The second sentence of paragraph
(b)(2).
2. The last sentence of paragraphs
(b)(2)(iv)Example 5.,Example 6.,
3. Paragraph (b)(2)(iv)Example 7.
4. The last sentence of paragraphs
(b)(2)(iv)Example 8.,Example 11., and
Example 13.
The revisions read as follows:
§ 48.4191–2 Taxable medical device.
*****
(b)***
(2)* * * A device will be considered to
be of a type that is generally purchased by
the general public at retail for individual
use if it is regularly available for purchase
and use by individual consumers who are
April 1, 20137602013–14 I.R.B.

not medical professionals, and if the de-
sign of the device demonstrates that it is
not primarily intended for use in a medical
institution or office or by a medical profes-
sional. * * *
*****
(iv)* * *
Example 5.***Basedonthetotalityofthefacts
and circumstances, the mobile x-ray systems are not
devices that are of a type thatare generally purchased
by the general public at retail for individual use.
Example 6. * * * Accordingly, the pregnancy test
kits are devices that are of a type that are generally
purchased by the general public at retail for individual
use.
Example 7. X manufactures blood glucose mon-
itors, blood glucose test strips, and lancets. X sells
the blood glucose monitors, test strips, and lancets to
distributors Y and Z, which, in turn, sell the monitors,
test strips, and lancets to medical institutions and
offices, medical professionals, and retail businesses.
The FDA requires manufacturers of blood glucose
monitors, test strips, and lancets to list the items as
devices with the FDA. The FDA classifies the blood
glucose monitors under 21 CFR part 862 (Clinical
Chemistry and Clinical Toxicology Devices) and
product code NBW. The FDA classifies the test
strips under 21 CFR part 862 (Clinical Chemistry
and Clinical Toxicology Devices) and product code
NBW. The FDA classifies the lancets under 21 CFR
part 878 (General and Plastic Surgery Devices) and
product code FMK.
The blood glucose monitors and test strips are
included in the FDA’s online IVD Home Use Lab
Tests (Over-the-Counter Tests) database. Therefore,
the blood glucose monitors and test strips fall within
the safe harbor set forth in paragraph (b)(2)(iii)(A)
of this section. Further, the FDA product code name
for NBW is “System, Test, Blood Glucose, Over the
Counter.” Therefore, the blood glucose monitors and
test strips also fall within the safe harbor set forth in
paragraph (b)(2)(iii)(C) of this section.
In addition, the lancets are supplies necessary for
the effective use of DME as described in section 110.3
of chapter 15 of the Medicare Policy Benefit Manual.
Therefore, the lancets fall within the safe harbor set
forth in paragraph (b)(2)(iii)(D)(5)ofthissection.
Accordingly, the blood glucose monitors, test
strips, and lancets are devices that are of a type that
are generally purchased by the general public at retail
for individual use.
Example 8.***Accordingly,boththesingleaxis
endoskeletal knee shin systems manufactured by X
and the prosthetic legs made by Y are devices that are
of a type that are generally purchased by the general
public at retail for individual use.
*****
Example 11. ***Accordingly,theurinary
ileostomy bags are devices that are of a type that are
generally purchased by the general public at retail
for individual use.
*****
Example 13. * * * Based on the totality of the
facts and circumstances, the NMRI systems are not
devices that are of a type thatare generally purchased
by the general public at retail for individual use.
*****
Par. 3. Section 48.4216(c)–1 is
amended by revising paragraph (e)(1) to
read as follows:
§ 48.4216(c)–1 Computation of tax on
leases and installment sales.
*****
(e) * * *
(1)General rule. Payments made on
or after January 1, 2013, pursuant to a
contract for the lease,installment sale, or
sale on credit of a taxable medical device
that was entered into on or after March
30, 2010, are subject to tax under section
4191. The provisions of sections 4216(c)
and 4217, paragraphs (a), (b), and (c) of
this section, and § 48.4217–2 apply.
LaNita VanDyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on March 12,
2013, 8:45 a.m., and published in the issue of the Federal
Register for February 13, 2013, 78 F.R. 15877)
Awards for Information
Relating To Detecting
Underpayments of Tax or
Violations of the Internal
Revenue Laws; Hearing
Announcement 2013–20
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of public hearing on no-
tice of proposed rulemaking.
SUMMARY: This document provides
a notice of public hearing on proposed
regulations that provide comprehensive
guidance for the award program autho-
rized under Internal Revenue Code section
7623, as amended. The regulations pro-
vide guidance on submitting information
regarding underpayments of tax or vio-
lations of the internal revenue laws and
filing claims for award, as well as on the
administrative proceedings applicable to
claims for award under section 7623. The
regulations also provide guidance on the
determination and payment of awards,
and provide definitions of key terms used
in section 7623. Finally, the regulations
confirm that the Director, officers, and
employees of the Whistleblower Office
are authorized to disclose return informa-
tion to the extent necessary to conduct
whistleblower administrative proceedings.
DATES: The public hearing is being held
on Wednesday, April 10, 2013, at 10:00
a.m. The IRS must receive outlines of the
topics to be discussed at the public hearing
by Friday, March 29, 2013.
ADDRESSES: The public hearing is be-
ingheldintheIRSAuditorium,Internal
Revenue Service Building, 1111 Constitu-
tion Avenue, NW, Washington, DC 20224.
Due to building security procedures, vis-
itors must enter at the Constitution Av-
enue entrance. In addition, all visitors
must present photo identification to enter
the building.
Send Submissions to CC:PA:LPD:PR
(REG–141066–09), room 5205, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand-delivered Mon-
day through Friday to CC:PA:LPD:PR
(REG–141066–09), Couriers Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC 20224 or
sent electronically via the Federal eRule-
making Portal atwww.regulations.gov
(REG–141066–09).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Melissa Jarboe at (202)
622–3620; concerning submissions of
comments, the hearing and/or to be placed
on the building access list to attend the
hearing Oluwafunmilayo Taylor at (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
The subject of the public hearing
is the notice of proposed rulemaking
(REG–141066–09, 2013–3 I.R.B. 280)
that was published in theFederal Regis-
teron Tuesday, December 18, 2012 (77
F.R. 74798).
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing that
submitted written comments by February
19, 2013, must submit an outline of the
2013–14 I.R.B.761April 1, 2013

topics to be addressed and the amount of
time to be denoted to each topic by Friday,
March 29, 2013.
A period of 10 minutes is allotted to
each person for presenting oral comments.
After the deadline for receiving out-
lines has passed, the IRS will prepare an
agenda containing the schedule of speak-
ers. Copies of the agenda will be made
available, free of charge, at the hearing or
in the Freedom of Information Reading
Room (FOIA RR) (Room 1621) which
is located at the 11
th
and Pennsylvania
Avenue, NW, entrance, 1111 Constitution
Avenue, NW, Washington, DC 20224.
Because of access restrictions, the IRS
will not admit visitors beyond the imme-
diate entrance area more than 30 minutes
before the hearing starts. For informa-
tion about having your name placed on
the building access list to attend the hear-
ing, see the “FOR FURTHER INFORMA-
TION CONTACT” section of this docu-
ment.
LaNita VanDyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
April 1, 20137622013–14 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2013–14 I.R.B.iApril 1, 2013

Numerical Finding List
1
Bulletins 2013–1 through 2013–14
Announcements:
2013-1, 2013-1 I.R.B.251
2013-2, 2013-2 I.R.B.271
2013-3, 2013-2 I.R.B.271
2013-4, 2013-4 I.R.B.440
2013-5, 2013-3 I.R.B.306
2013-6, 2013-3 I.R.B.307
2013-7, 2013-3 I.R.B.308
2013-8, 2013-4 I.R.B.440
2013-9, 2013-4 I.R.B.441
2013-10, 2013-3 I.R.B.311
2013-11, 2013-6 I.R.B.483
2013-12, 2013-11 I.R.B.651
2013-13, 2013-9 I.R.B.532
2013-14, 2013-11 I.R.B.651
2013-15, 2013-11 I.R.B.652
2013-16, 2013-14 I.R.B.738
2013-19, 2013-14 I.R.B.760
2013-20, 2013-14 I.R.B.761
Notices:
2013-1, 2013-3 I.R.B.281
2013-2, 2013-6 I.R.B.473
2013-3, 2013-7 I.R.B.484
2013-4, 2013-9 I.R.B.527
2013-5, 2013-9 I.R.B.529
2013-6, 2013-10 I.R.B.540
2013-7, 2013-6 I.R.B.477
2013-8, 2013-7 I.R.B.486
2013-9, 2013-9 I.R.B.529
2013-10, 2013-8 I.R.B.503
2013-11, 2013-11 I.R.B.610
2013-12, 2013-10 I.R.B.543
2013-13, 2013-12 I.R.B.659
2013-14, 2013-13 I.R.B.712
2013-15, 2013-14 I.R.B.739
2013-16, 2013-14 I.R.B.740
2013-18, 2013-14 I.R.B.742
2013-19, 2013-14 I.R.B.743
Proposed Regulations:
REG-155929-06, 2013-11 I.R.B.650
REG-106918-08, 2013-13 I.R.B.714
REG-141066-09, 2013-3 I.R.B.289
REG-148873-09, 2013-7 I.R.B.494
REG-102966-10, 2013-10 I.R.B.579
REG-140649-11, 2013-12 I.R.B.666
REG-122707-12, 2013-5 I.R.B.450
REG-148500-12, 2013-13 I.R.B.716
REG-118315-12, 2013-14 I.R.B.746
Revenue Procedures:
2013-1, 2013-1 I.R.B.1
2013-2, 2013-1 I.R.B.92
2013-3, 2013-1 I.R.B.113
2013-4, 2013-1 I.R.B.126
2013-5, 2013-1 I.R.B.170
2013-6, 2013-1 I.R.B.198
2013-7, 2013-1 I.R.B.233
2013-8, 2013-1 I.R.B.237
2013-9, 2013-2 I.R.B.255
2013-10, 2013-2 I.R.B.267
2013-11, 2013-2 I.R.B.269
2013-12, 2013-4 I.R.B.313
2013-13, 2013-6 I.R.B.478
2013-14, 2013-3 I.R.B.283
2013-15, 2013-5 I.R.B.444
2013-16, 2013-7 I.R.B.488
2013-17, 2013-11 I.R.B.612
2013-18, 2013-8 I.R.B.503
2013-19, 2013-11 I.R.B.648
2013-20, 2013-14 I.R.B.744
2013-21, 2013-12 I.R.B.660
Revenue Rulings:
2013-1, 2013-2 I.R.B.252
2013-2, 2013-10 I.R.B.533
2013-3, 2013-8 I.R.B.500
2013-4, 2013-9 I.R.B.520
2013-5, 2013-9 I.R.B.525
2013-6, 2013-13 I.R.B.701
2013-7, 2013-11 I.R.B.608
Tax Conventions:
2013-16, 2013-14 I.R.B.738
Treasury Decisions:
9601, 2013-10 I.R.B.535
9603, 2013-3 I.R.B.273
9605, 2013-11 I.R.B.587
9606, 2013-11 I.R.B.586
9607, 2013-6 I.R.B.469
9608, 2013-3 I.R.B.274
9609, 2013-12 I.R.B.655
9611, 2013-13 I.R.B.699
9612, 2013-13 I.R.B.678
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin
2012–52, dated December 27, 2012.
April 1, 2013ii2013–14 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2013–1 through 2013–14
Notices:
2000-45
Modified and superseded by
Notice 2013-18, 2013-14 I.R.B.742
2011-14
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
2011-38
Obsoleted by
REG-148873-09, 2013-7 I.R.B.494
2012-60
Superseded by
Notice 2013-1, 2013-3 I.R.B.281
2013-1
Modified and superseded by
Notice 2013-16, 2013-14 I.R.B.740
Proposed Regulations:
REG-140668-07
Corrected by
Ann. 2013-6, 2013-3 I.R.B.307
Revenue Procedures:
87-57
Modified by
Rev. Proc. 2013-13, 2013-6 I.R.B.478
2004-66
Modified and superseded by
Rev. Proc. 2013-11, 2013-2 I.R.B.269
2008-35
Modified and superseded by
Rev. Proc. 2013-14, 2013-3 I.R.B.283
2008-50
Modified and superseded by
Rev. Proc. 2013-12, 2013-4 I.R.B.313
2011-14
Modified by
Rev. Proc. 2013-20, 2013-14 I.R.B.744
2011-49
Modified by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
2011-52
Modified and partly superseded by
Rev. Proc. 2013-15, 2013-5 I.R.B.444
2011-55
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
Revenue Procedures— Continued:
2011-61
Superseded by
Rev. Proc. 2013-17, 2013-11 I.R.B.612
2011-62
Superseded by
Rev. Proc. 2013-18, 2013-8 I.R.B.503
2012-1
Superseded by
Rev. Proc. 2013-1, 2013-1 I.R.B.1
2012-2
Superseded by
Rev. Proc. 2013-2, 2013-1 I.R.B.92
2012-3
Superseded by
Rev. Proc. 2013-3, 2013-1 I.R.B.113
2012-4
Superseded by
Rev. Proc. 2013-4, 2013-1 I.R.B.126
2012-5
Superseded by
Rev. Proc. 2013-5, 2013-1 I.R.B.170
2012-6
Superseded by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
2012-7
Superseded by
Rev. Proc. 2013-7, 2013-1 I.R.B.233
2012-8
Superseded by
Rev. Proc. 2013-8, 2013-1 I.R.B.237
2012-9
Superseded by
Rev. Proc. 2013-9, 2013-2 I.R.B.255
2012-10
Superseded by
Rev. Proc. 2013-10, 2013-2 I.R.B.267
2012-30
Corrected and clarified by
Ann. 2013-3, 2013-2 I.R.B.271
Updated by
Ann. 2013-10, 2013-3 I.R.B.311
2012-46
Corrected by
Ann. 2013-11, 2013-6 I.R.B.483
2013-1
Corrected by
Ann. 2013-9, 2013-4 I.R.B.441
2013-6
Revised by
Ann. 2013-15, 2013-11 I.R.B.652
Revenue Procedures— Continued:
Corrected by
Ann. 2013-13, 2013-9 I.R.B.532
2013-14
Modified by
Rev. Proc. 2013-19, 2013-11 I.R.B.648
Revenue Rulings:
92-19
Supplemented in part by
Rev. Rul. 2013-4, 2013-9 I.R.B.520
Treasury Decisions:
9564
Corrected by
Ann. 2013-4, 2013-4 I.R.B.440
Amended by
Ann. 2013-7, 2013-3 I.R.B.308
9604
Corrected by
Ann. 2013-19, 2013-14 I.R.B.760
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin 2012–52, dated December 27,
2012.
2013–14 I.R.B.iiiApril 1, 2013

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ashington,DC20224
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