Internal Revenue Bulletin 2012-52 (PDF rendition): IRS Announcements

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Bulletin No. 201
2-52
December 27, 201
2
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
Rev. Rul. 2012–32, page 762.
Interest rates; underpayment and overpayments.The
rates for interest determined under section 6621 of the Code
for the calendar quarter beginning January 1, 2013, will
be 3 percent for overpayments (2 percent in the case of a
corporation), 3 percent for the underpayments, and 5 percent
for large corporate underpayments. The rate of interest
paid on the portion of a corporate overpayment exceeding
$10,000 will be 0.5 percent.
Notice 2012–54, page 773.
Qualified plug-in electric drive motor vehicle credit;
update of Notice 2009–89.This notice modifies Notice
2009–89, 2009–2 C.B. 714, by changing the address to
which a manufacturer (or, in the case of a foreign manufacturer,
its domestic distributor) sends certifications and quarterly
reports under Notice 2009–89. Notice 2009–89 modified.
Notice 2012–65, page 773.
The notice invites public comments regarding guidance to be
provided to governmental and financial entities (applicable en-
tities) described under section 6050P(c) of the Code, who
discharge indebtedness and may be required to furnish Form
1099–C information returns pursuant to section 6050P and
Treasury regulations section 1.6050P.
EMPLOYEE PLANS
T.D. 9602, page 746.
Final regulations under sections 4375, 4376, and 4377 of the
Code provide guidance on determining which health insurance
policies and self-insured health plans and arrangements are
subject to fees for the Patient-Centered Outcomes Research
Trust Fund, and also on the requirements for calculating, re-
porting, and paying the fees.
Notice 2012–76, page 775.
This notice contains the 2012 Cumulative List of Changes
in Plan Qualification Requirements (2012 Cumulative List)
described in section 4 of Rev. Proc. 2007–44, 2007–2 C.B.
54. The 2012 Cumulative List is to be used by plan sponsors
and practitioners submitting determination, opinion, or advi-
sory letter applications for plans during the period beginning
February 1, 2013 and ending January 31, 2014.
Notice 2012–78, page 785.
Weighted average interest rate update; corporate bond
indices; 30-year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in December
2012; the 24-month average segment rates; the funding tran-
sitional segment rates applicable for December 2012; and the
minimum present value transitional rates for November 2012.
The rates in this notice reflect certain changes implemented
by the Moving Ahead for Progress in the 21st Century Act,
Public Law 112–141 (MAP-21).
EXEMPT ORGANIZATIONS
Announcement 2012–49, page 801.
The IRS has revoked its determination that Amani Foundation
of Aurora, CO; Excalibur Foundation of Sparks, NV; and The
Play Institute of Horseshoe Bay, TX, qualify as organizations
described in sections 501(c)(3) and 170(c)(2) of the Code.
(Continued on the next page)
Fi
nding Lists begin on page ii.
Index for July through December begins on page iv.

Announcement 2012–50, page 802.
This document updates Announcement 2012–25, 2012–26
I.R.B. 1054, by extending the time for businesses to comply
with the proper treatment of service charges as specified in
Q&A 1 of Rev. Rul. 2012–18, 2012–26 I.R.B. 1032., from
January 1, 2013 to January 1, 2014. Announcement 2012–25
amplified.
EMPLOYMENT TAX
REG–130074–11, page 790.
Proposed regulations under section 3101 of the Code provide
guidance on the Additional Hospital Insurance Tax on wages,
compensation, and self-employment income above threshold
amounts (“Additional Medicare Tax”), as added by the Afford-
able Care Act. Specifically, these proposed regulations provide
guidance for employers and individuals relating to the imple-
mentation of Additional Medicare Tax, relating to the require-
ment to file a return reporting Additional Medicare Tax, the em-
ployer process for making adjustments of underpayments and
overpayments of Additional Medicare Tax, and the employer
and employee processes for filing a claim for refund for an
overpayment of Additional Medicare Tax. A public hearing is
scheduled for April 4, 2013.
SELF-EMPLOYMENT TAX
REG–130074–11, page 790.
Proposed regulations under section 3101 of the Code provide
guidance on the Additional Hospital Insurance Tax on wages,
compensation, and self-employment income above threshold
amounts (“Additional Medicare Tax”), as added by the Afford-
able Care Act. Specifically, these proposed regulations provide
guidance for employers and individuals relating to the imple-
mentation of Additional Medicare Tax, relating to the require-
ment to file a return reporting Additional Medicare Tax, the em-
ployer process for making adjustments of underpayments and
overpayments of Additional Medicare Tax, and the employer
and employee processes for filing a claim for refund for an
overpayment of Additional Medicare Tax. A public hearing is
scheduled for April 4, 2013.
EXCISE TAX
T.D. 9602, page 746.
Final regulations under sections 4375, 4376, and 4377 of the
Code provide guidance on determining which health insurance
policies and self-insured health plans and arrangements are
subject to fees for the Patient-Centered Outcomes Research
Trust Fund, and also on the requirements for calculating, re-
porting, and paying the fees.
T.D. 9604, page 730.
Final regulations provide guidance under section 4191 of the
Codeontheexcisetaxonsalesofcertainmedicaldevices.
The tax is effective for sales after December 31, 2012. The
final regulations provide a regulatory definition for a “taxable
medical device,” and standards for determining if a device is
not a taxable medical device because it is generally purchased
by the general public at retail for individual use. The final reg-
ulations also provide guidance for calculating the tax on lease
or installment sale payments where the payments are made
on or after January 1, 2013, under a pre-2013 contract. The
final regulations will affect medical device manufacturers and
importers.
Notice 2012–77, page 781.
This notice provides interim guidance relating to the excise tax
on medical devices imposed by section 4191 (the “medical
device excise tax”) of the Code. Section 4191 was enacted by
section 1405 of the Health Care and Education Reconciliation
Act of 2010, Public Law 111–152 (124 Stat. 1029 (2010)),
in conjunction with the Patient Protection and Affordable Care
Act, Public Law 111–148 (124 Stat. 119 (2010)).
ADMINISTRATIVE
Notice 2012–65, page 773.
The notice invites public comments regarding guidance to be
provided to governmental and financial entities (applicable en-
tities) described under section 6050P(c) of the Code, who
discharge indebtedness and may be required to furnish Form
1099–C information returns pursuant to section 6050P and
Treasury regulations section 1.6050P.
December 27, 20122012–52 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 and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are 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.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al 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 par
t includes notices of proposed rulemakings, disbar-
ment an
d 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 c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2012–52 I.R.B.December 27, 2012

December 27, 20122012–52 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 1401.
—Rate of Tax
A Notice of Pro
posed Rulemaking (NPRM) notes
that the appli
cable threshold amounts for the tax
imposed by sec
tion 1401(b)(2)(A) are reduced (but
not below zero
) by the amount of wages taken into
account in de
termining the tax imposed under section
3101(b)(2) w
ith respect to the taxpayer. Section
3101(b)(2) w
as enacted by section 9015 of the Patient
Protection a
nd Affordable Care Act (PPACA), Public
Law 111–148 (
124 Stat. 119 (2010)), and amended
by section 1
0906 of the PPACA and section 1402(b)
of the Healt
h Care and Education Reconciliation
Act of 2010,
Public Law 111–152 (124 Stat. 1029
(2010)) (co
llectively, the “Affordable Care Act”).
The Afford
able Care Act added section 1401(b)(2)
to describ
e the extent to which an individual who has
self-empl
oyment income is liable for the tax imposed
by section
3101(b)(2). See REG-130074-11, page
790.
Section 3102.—Deduction
of Tax From Wages
A Notice of Proposed Rulemaking (NPRM)
notes that in the case of any tax imposed by section
3101(b)(2) the withholding rules for employers de-
scribed in section 3102(a) apply only to the extent
that an employee receives wages from the employer
in excess of $200,000 in a calendar year. Section
3101(b)(2) was enacted by section 9015 of the Patient
Protection and Affordable Care Act (PPACA), Public
Law 111–148 (124 Stat. 119 (2010)), and amended
by section 10906 of the PPACA and section 1402(b)
of the Health Care and Education Reconciliation
Act of 2010, Public Law 111–152 (124 Stat. 1029
(2010)) (collectively, the “Affordable Care Act”).
The Affordable Care Act added section 3102(f) to
describe an employer’s withholding requirements
for the tax imposed by section 3101(b)(2) (effec-
tive for wages paid after December 31, 2012). See
REG-130074-11, page 790.
A Notice of Proposed Rulemaking (NPRM) de-
scribes the liability of an employer and employee for
the tax imposed by section 3101(b)(2) to the extent
that the tax is not withheld by the employer. See
REG-130074-11, page 790.
Section 3202.—Deduction
of Tax From Compensation
A Notice of Proposed Rulemaking (NPRM) pro-
vides that in the case of any tax imposed by section
3101(b)(2) the withholding rules for employers de-
scribed in section 3202(a) apply, but only to the ex-
tent that an employee receives wages from the em-
ployer in excess of $200,000 in a calendar year. Sec-
tion 3101(b)(2) was enacted by section 9015 of the
Patient Prote
ction and Affordable Care Act (PPACA),
Public Law 111
–148 (124 Stat. 119 (2010)), and
amendedbysec
tion 10906 of the PPACA and sec-
tion 1402(b) o
f the Health Care and Education Rec-
onciliation
Act of 2010, Public Law 111–152 (124
Stat. 1029 (2
010)) (collectively, the “Affordable Care
Act”). See RE
G-130074-11, page 790.
A Notice of Pr
oposed Rulemaking (NPRM) de-
scribes the
liability of an employer and employee sub-
ject to the w
ithholding rules of section 3202(a) for
the tax impo
sed by section 3101(b)(2) to the extent
that the tax
is not withheld by the employer. See
REG-130074
-11, page 790.
Section 4191.—Medical
Devices
26 CFR 48.4191–1: Imposition and rate of tax.
T.D. 9604
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 48
Taxable Medical Devices
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations that provide guidance on
the excise tax imposed on the sale of cer-
tain medical devices, enacted by the Health
Care and Education Reconciliation Act of
2010 in conjunction with the Patient Pro-
tection and Affordable Care Act. The fi-
nal regulations affect manufacturers, im-
porters, and producers of taxable medical
devices.
DATES:Effective Date:These regulations
are effective on December 7, 2012.
Applicability Date:These regulations
are applicable to sales of taxable medical
devices after December 31, 2012.
FOR FURTHER INFORMATION
CONTACT: Natalie Payne, Michael
Beker, or Stephanie Bland, at (202)
622–3130 (not a toll-free number).
SUPPLEMENTAR
Y INFORMATION:
Background
This document
contains final regula-
tions that pro
vide guidance on the excise
tax imposed on
the sale of certain medical
devices unde
r section 4191 (the medical
device excis
e tax) of the Internal Revenue
Code (Code),
enacted by section 1405 of
the Health Ca
re and Education Reconcil-
iation Act of
2010, Public Law 111–152
(124 Stat. 1
029 (2010)), in conjunction
with the Pat
ient Protection and Affordable
Care Act, Pu
blic Law 111–148 (124 Stat.
119 (2010))
(jointly, the ACA).
On February
7, 2012, the IRS and the
Treasury De
partment published a notice of
proposed r
ulemaking (REG–113770–10,
2012–13 I.
R.B. 587) (the proposed
regulatio
ns) in theFederal Register
(77 FR 6028
). The IRS and the Treasury
Departme
nt received numerous written
comments
from the public in response
to the pro
posed regulations. A public
hearing w
as held on May 16, 2012.
After co
nsideration of the public written
comment
s and hearing comments, the IRS
and the T
reasury Department are finalizing
the prop
osed regulations with the changes
describ
ed in this preamble.
Public c
omments on the proposed reg-
ulation
s identified two issues that the
IRS and
the Treasury Department will
study f
urther and on which the IRS and
the Tre
asury Department have requested
additi
onal comments. Those issues are
discus
sed later in this preamble. Com-
ments
with regard to those issues should
be sub
mitted in writing and can be mailed
to the
Office of Associate Chief Coun-
sel (P
assthroughs and Special Industries),
Re: RE
G–113770–10, CC:PSI:B7, Room
5314,
1111 Constitution Avenue, NW,
Wash
ington, DC 20224. All comments
rece
ived will be available for public in-
spec
tion athttp://www.regulations.gov
(IRS
REG–113770–10).
2012–52 I.R.B.730December 27, 2012

Explanation of Provisions and
Summary of Comments
I. Definition of a “Taxable Medical
Device”
Section 4191(b)(1) provides that, in
general, a “taxable medical device” is
any device, as defined in section 201(h)
of the Federal Food, Drug & Cosmetic
Act (FFDCA) (codified as amended at
21 U.S.C. 301et seq. (2006)) that is
intended for humans.
A. Proposed Regulations
The proposed regulations provide that
for purposes of the medical device excise
tax, a device defined in section 201(h) of
the FFDCA that is intended for humans
means a device that is listed as a device
with the Food and Drug Administration
(FDA) under section 510(j) of the FFDCA
and 21 CFR part 807, pursuant to FDA
requirements. The proposed regulations
further provide that if a device is not
listed with the FDA, but the FDA later
determines that the device should have
been listed as a device, the device will
be deemed to have been listed as a de-
vice with the FDA as of the date the FDA
notifies the manufacturer or importer in
writing that corrective action with respect
to listing is required.
B. Public Comments and the Final
Regulations
Listing requirement
One commenter suggested that the list-
ing rule is overbroad because it includes
virtually all types of medical devices in the
tax base. The commenter requested that
the final regulations narrow the definition
of a taxable medical device so that the ex-
cise tax is imposed only on devices that
Congress specifically intended to subject
to the tax.
The final regulations do not adopt this
suggestion. Congress linked the definition
of a taxable medical device to the defini-
tion of a “device” under section 201(h) of
the FFDCA. In general, the FDA requires
a device defined in section 201(h) of the
FFDCA that is intended for humans to be
listed as device with the FDA under sec-
tion 510(j) of the FFDCA and 21 CFR part
807, subject to certain limited exceptions.
The final regulations track this FDA re-
quirement by defining a taxable medical
device as a device that is listed as a device
with the FDA under section 510(j) of the
FFDCA and 21 CFR part 807. This pro-
vides taxpayers with greater certainty as to
which devices are subject to the tax.
Biologic Devices
Several commenters requested that the
final regulations clarify that the definition
of a taxable medical device does not in-
clude the category of products reviewed as
devices by the FDA Center for Biologics
Evaluation and Research (CBER).
In general, CBER licenses biologics,
such asin vitrodiagnostic tests for blood
donor screening, after the filing of a Bi-
ologics License Application (BLA) under
the Public Health Service Act. Biologics
are listed with the FDA under 21 CFR part
607.
Under the final regulations a taxable
medical device is a device that is listed as a
device with the FDA under section 510(j)
of the FFDCA and 21 CFR part 807, pur-
suant to FDA requirements. Therefore, de-
vices that CBER regulates that are listed
with the FDA under section 510(j) of the
FFDCA and 21 CFR part 807 are taxable
medical devices. Devices that CBER reg-
ulates that are not listed with the FDA
under section 510(j) of the FFDCA and
21 CFR part 807, such as biologics that
are listed under 21 CFR part 607, are not
taxable medical devices.
Devices “intended for humans”
A number of commenters suggested
that certain devices, such as sterilization
process indicators, software, and con-
tainers used to hold or transport medical
products and specimens, should be ex-
cluded from the definition of a taxable
medical device on the basis that they are
not “intended for humans.” Commenters
argued that even if the FDA requires cer-
tain such devices to be listed with the FDA
under section 510(j) of the FFDCA and 21
CFR part 807, the devices should not be
taxable medical devices because they are
not used in the direct treatment, diagnosis,
or monitoring of a patient.
Section 4191 links the definition of a
taxable medical device to the definition of
a device in section 201(h) of the FFDCA.
Section 201(h) of the FFDCA provides
generally that the term “device” means
an instrument,apparatus, etc., that is in-
tended for use in the diagnosis of disease
or other conditions, or in the cure, mit-
igation, treatment, or prevention of dis-
ease, in man or other animals; or intended
to affect the structure or any function of
the body of man or other animals, and
that does not achieve its primary intended
purposes through chemical action within
or on the body of man or other animals
and that is not dependent upon being me-
tabolized for the achievement of its pri-
mary intended purposes. Section 201(h) of
the FFDCA includes devices intended for
“man” and devices intended for “other an-
imals.” Thus, the phrase “intended for hu-
mans” included in section 4191(b) limits
the definition of a taxable medical device
to the devices defined in section 201(h) of
the FFDCA that are intended for “man”
(intended for humans) and excludes from
the section 201(h) definition the devices
that are intended for“other animals.”
There is no support in the statute, or in
either the legislative history or the Joint
Committee on Taxation’s General Ex-
planation (Joint Committee on Taxation
General Explanation of Tax Legislation
Enacted in the 111th Congress (JCS–2-11),
March 2011, at 365–367) (JCT Gen-
eral Explanation) for the proposition that
Congress included the statutory phrase
“intended for humans” in section 4191(b)
to distinguish between devices defined
in section 201(h) of the FFDCA that are
intended for use directly on patients or
directly in patient care from other devices
defined in section 201(h) of the FFDCA
that are otherwise used in human medicine.
Accordingly, the final regulations do not
adopt this suggestion.
Veterinary Devices
One commenter stated that the listing
requirement is insufficient to distinguish
medical devices for human use from those
intended for use in veterinary medicine for
purposes of applying the medical device
excise tax. The commenter suggested that
subjecting devices to the medical device
excise tax because the device is listed
with the FDA under section 510(j) of the
FFDCA disadvantages certain manufac-
turers. Specifically, the commenter noted
that medical device manufacturers selling
devices for both human use and veterinary
December 27, 20127312012–52 I.R.B.

usemustpaytheexcisetaxonsalesinto
the veterinary market. The commenter
requested that the final regulations pro-
vide that devices that are labeled “not for
human use” or “veterinary use only” are
not taxable medical devices.
The definition of a device in section
201(h) of the FFDCA includes devices
used in veterinary medicine. Section 4191
limits the definition of a taxable medi-
cal device to devices described in section
201(h) of the FFDCA that are intended
for humans, but does not provide that the
device must be intended exclusively for
humans. Under existing FDA regulations,
a device intended for use exclusively in
veterinary medicine is not required to be
listed as a device with the FDA, whereas a
device intended for use in human medicine
is required to be listed as a device with the
FDA even if the device may also be used
in veterinary medicine. Thus, the FDA’s
listing requirement effectively tracks those
devices that are intended for humans
within the meaning of section 4191. Ac-
cordingly, the final regulations retain the
definition of a taxable medical device
from the proposed regulations. Therefore,
a device defined in section 201(h) of the
FFDCA that is intended for humans means
a device that is listed as a device with the
FDA under section 510(j) of the FFDCA
and 21 CFR part 807, pursuant to FDA
requirements. Because devices that are
intended for use exclusively in veterinary
medicine are not listed as devices under
section 510(j) of the FFDCA and 21 CFR
part 807, they are not taxable medical de-
vices within the meaning of section 4191.
Devices that Have Medical and
Non-Medical Applications (“Dual Use”
Devices)
The IRS and the Treasury Department
received public comments and several
informal inquiries on dual use devices.
These comments suggested that the sale
of a device defined in section 201(h) of
the FFDCA that is listed as a device with
the FDA under 21 CFR part 807 but that
is used for a non-medical purpose should
not be subject to the medical device excise
tax. One commenter recommended that
the sale of a taxable medical device be ex-
empt where the manufacturer or importer
can provide evidence that the product was
purchased specifically for use in non-med-
ical applications.
One commenter noted that because it
sells directly to the end user and installs
its devices at the end user’s facilities, it
can easily identify when it sells a device
for a non-medical purpose, as opposed to
a medical purpose. The commenter also
noted that it must list a device with the
FDA even if it makes only some sales of
that device for a medical purpose. Accord-
ingly, all of the commenter’s sales will be
subject to tax, while sales of the same de-
vice by competitors who sell the device
only for non-medical purposes, and thus do
not have to list their devices with the FDA,
will not be subject to tax.
The final regulations do not adopt the
commenters’ suggestions. The language
of section 4191 does not limit the defini-
tion of a taxable medical device to a de-
vice that is intended exclusively for med-
ical purposes. Whether or not a given de-
vice is a taxable medical device depends
upon whether it is a device defined in sec-
tion 201(h) of the FFDCA. Although sec-
tion 4191 provides a number of exemp-
tions, the statute does not provide an ex-
emption based on whether a given end user
intends to use a particular device for a
medical purpose or a non-medical purpose.
Humanitarian Use Devices
One commenter asked that the final reg-
ulations clarify that Humanitarian Use De-
vices (HUDs) for which the FDA has ap-
proved a Humanitarian Device Exemption
(HDE) are exempt from the medical device
excise tax.
A HUD is a device within the mean-
ing of section 201(h) of the FFDCA that is
intended to benefit patients by treating or
diagnosing a disease or condition that af-
fects or is manifested in fewer than 4,000
individuals in the United States per year.
21 CFR 814.3(n). A manufacturer must
obtain an approved HDE from the FDA to
market a HUD. HUDs that are marketed
under an HDE exemption are not exempt
from the FDA’s listing requirements.
There is no statutory basis for excluding
HUDs from the definition of taxable med-
ical device. Therefore, the final regula-
tions do not distinguish HUDs from other
taxable medical devices, and a HUD that
is marketed under an HDE exemption is
a taxable medical device unless it falls
within one of the statutory exemptions to
the tax in section 4191(b)(2), such as the
retail exemption.
Software Upgrades
Two commenters asked that the final
regulations provide that sales of software
upgrades are not taxable. One commenter
noted that software upgrades should not be
subject to the medical device excise tax
where the software itself is not listed but
is merely a component part of a listed de-
vice. A second commenter suggested that
the final regulations should differentiate
between a listed software product and soft-
ware updates.
Under the final regulations, a taxable
medical device is a device that is listed as a
device with the FDA under section 510(j)
of the FFDCA and 21 CFR part 807. Ac-
cordingly, software and software updates
that are not required to be separately listed
with the FDA do not fall within the defini-
tion of a taxable medical device, and sales
of such software and software updates are
not subject to the tax.
Devices that Should Have Been Listed
with the FDA
Two commenters objected to the rule in
the proposed regulations that deems a de-
vice to have been listed on the date the
FDA provides written notice to the man-
ufacturer or importer that corrective action
with respect to listing is required. One
commenter suggested that the rule be clar-
ified so that a device is not deemed to be
listed until the FDA deliversfinalwritten
notice to the manufacturer or importer that
corrective action with respect to listing is
required.
The final regulations do not adopt this
suggestion. If the FDA initially notifies
a manufacturer that corrective action with
respect to listing is required but later de-
termines that the device is not required to
be listed, a credit or refund may be avail-
able for tax paid on sales of the device
during the intervening period. See section
6416(a) and the regulations under section
6416(a) for rules regarding the require-
ments for filing a claim for credit or refund.
2012–52 I.R.B.732December 27, 2012

Devices that Are Not Required to be Listed
with the FDA
The IRS received several informal in-
quiries on the tax consequences of listing
a product as a device with the FDA when
the FDA does not require the product to be
listed.
If a manufacturer lists a device with the
FDA, but the device was not required to
be listed, a credit or refund may be avail-
able for tax paid on sales of the device
once the device has been de-listed. See
section 6416(a) and the regulations under
section 6416(a) for rules regarding the re-
quirements for filing a claim for credit or
refund.
II. The Retail Exemption
Section 4191(b)(2) provides that the
term taxable medical device does not in-
clude eyeglasses, contact lenses, hearing
aids, and any other medical device de-
termined by the Secretary to be of a type
that is generally purchased by the general
public at retail for individual use (the retail
exemption).
A. Proposed Regulations
The proposed regulations provide a
facts and circumstances approach to eval-
uating whether a medical device is of a
type that is generally purchased by the
general public at retail for individual use.
Under the proposed regulations, a device
is considered to be of a type generally
purchased by the general public at retail
for individual use if (i) the device is reg-
ularly available for purchase and use by
individual consumers who are not medical
professionals, and (ii) the device’s design
demonstrates that it is not primarily in-
tended for use in a medical institution or
office, or by medical professionals.
The proposed regulations provide a
non-exclusive list of factors to be con-
sidered in determining whether a device
is regularly available for purchase and
use by individual consumers who are not
medical professionals. Those factors are
(i) whether consumers who are not medi-
cal professionals can purchase the device
through retail businesses that also sell
items other than medical devices, includ-
ing drug stores, supermarkets, and similar
vendors; (ii) whether consumers who are
not medical professionals can safely and
effectively use the device for its intended
medical purpose with minimal or no train-
ing from a medical professional; and (iii)
whether the device is classified by the
FDA under Subpart D of 21 CFR part 890
(Physical Medicine Devices) (referred to
collectively herein as the “positive fac-
tors”).
The proposed regulations also pro-
vide a non-exclusive list of factors to be
considered in determining whether the
design of a device demonstrates that it is
primarily intended for use in a medical
institution or office, or by medical pro-
fessionals, and therefore not intended for
purchase and use by individual consumers.
The factors are (i) whether the device
generally must be implanted, inserted,
operated, or otherwise administered by
a medical professional; (ii) whether the
cost to acquire, maintain, and/or use the
device requires a largeinitial investment
and/or ongoing expenditure that is not
affordable for the average consumer; (iii)
whether the device is a Class III device
under the FDA system of classification;
(iv) whether the device is classified by
the FDA under certain enumerated parts
or subparts of 21 CFR; and (v) whether
the device qualifies as durable medical
equipment (DME), prosthetics, orthotics,
and supplies (collectively, DMEPOS) for
which payment is available exclusively on
a rental basis under the Medicare Part B
payment rules and is an “item requiring
frequent and substantial servicing” as
definedin42CFR414.222(referred
to collectively herein as the “negative
factors”).
To provide greater certainty, the
proposed regulations also include a safe
harbor provision that identifies certain
categories of medical devices that the IRS
and the Treasury Department have deter-
mined fall within the retail exemption.
The safe harbor includes (i) devices that
are identified in the FDA’s IVD Home
Use Lab Tests (Over-the-Counter Tests)
database, available athttp://www.ac-
cessdata.fda.gov/scripts/cdrh/cf-
docs/cfIVD/Search.cfm; (ii) devices
described as “OTC” or “over the counter”
devices in the relevant FDA classification
regulation heading; and (iii) devices that
are described as “OTC” or “over the
counter” devices inthe FDA’s product
code name, the FDA’s device classification
name, or the “classification name” field in
the FDA’s device registration and listing
database, available athttp://www.ac-
cessdata.fda.gov/scripts/cdrh/cf-
docs/cfrl/rl.cfm. The safe harbor also
includes devices that qualify as DMEPOS
(as described in Subpart C of 42 CFR part
414 (Parenteral and Enteral Nutrition) and
Subpart D of 42 CFR part 414 (Durable
Medical Equipment and Prosthetic and
Orthotic Devices)) for which payment
is available on a purchase basis under
Medicare Part B payment rules (in ac-
cordance with the fee schedule published
by Centers for Medicare and Medicaid
Services (CMS)), and are (i) “prosthetic
and orthotic devices,” as defined in
42 CFR 414.202, that do not require
implantation or insertion by a medical
professional; (ii) “parenteral and enteral
nutrients, equipment, and supplies” as
definedin42CFR411.351anddescribed
in 42 CFR 414.102(b); (iii) “customized
items” as described in 42 CFR 414.224;
(iv) “therapeutic shoes,” as described
in 42 CFR 414.228(c); or (v) supplies
necessary for the effective use of DME,
as described in section 110.3 of chapter
15 of the Medicare Benefit Policy Manual
(Centers for Medicare and Medicaid
Studies Publication 100–02).
B. Public Comments and the Final
Regulations
1. Sales for Use in a Professional Medical
Setting
One commenter asked that the regula-
tions clarify that the mere fact that a par-
ticular device is sold for use in medical of-
fices and institutionsis not determinative
of whether the device falls within the re-
tail exemption.
As the regulations make clear, whether
or not a device falls within the retail ex-
emption is based on all relevant facts and
circumstances. Therefore, the mere fact
that an individual device is sold for use in
a professional setting is not determinative
of whether that type of device falls within
the retail exemption.
2. Facts and circumstances test
Nonexclusivity of factors
Several commenters requested that the
final regulations confirm that the factors
enumerated in the facts and circumstances
December 27, 20127332012–52 I.R.B.

test for the retail exemption are non-ex-
clusive, and that other factors may also be
relevant in determining whether a partic-
ular device qualifies for the retail exemp-
tion. Commenters also asked for clarifica-
tion that a device need not meet every pos-
itive factor, and that the fact that a device
meets a negative factor is not determina-
tive of whether a device qualifies for the
retail exemption.
The final regulations retain the facts
and circumstancesapproach to deter-
mining whether a particular device falls
within the retail exemption. The facts
and circumstances approach requires
a balancing of factors enumerated in
§48.4191–2(b)(2). No one factor is deter-
minative. Thus, a device may qualify for
the retail exemption without meeting all of
the positive factors listed under paragraph
§48.4191–2(b)(2)(i). Additionally, a de-
vice may qualify for the retail exemption
even if it meets one or more negative fac-
tors under paragraph §48.4191–2(b)(2)(ii).
Accordingly, the final regulations state
that there may be facts and circumstances
that are relevant in evaluating whether a
device is of a type generally purchased
by the general public at retail for indi-
vidual use in addition to those described
as factors in §48.4191–2(b)(2)(i) and (ii).
In addition, the final regulations include
seven additional examples that illustrate
the process for determining whether a de-
vice falls within the retail exemption, in-
cluding examples that illustrate the balanc-
ing of different factors for a particular de-
vice.
Purchase at retail
Several commenters suggested that in-
ternet sales should be included in the factor
described in §48.4191–2(b)(2)(i)(A) that
looks to whether consumers who are not
medical professionals can purchase the de-
vice at certain retail businesses. Other
commenters suggested that the fact that
consumers who are not medical profes-
sionals can purchase a device over the in-
ternet should be a factor that indicates that
a device is “regularly available for pur-
chase and use by individual consumers,”
regardless of whether the internet site is as-
sociated with a bricks and mortar store.
Several commenters also suggested that
retail sales should include those made over
the telephone.
In addition, several commenters sug-
gested that the retail businesses identified
in §48.4191–2(b)(2)(i)(A) should explic-
itly include medicalsupply stores and re-
tailers that primarily sell medical devices
(for example, specialty medical stores).
The final regulations adopt all of these
suggestions. Under the final regulations,
the factor in §48.4191–2(b)(2)(i)(A) pro-
vides that consumers who are not medi-
cal professionals can purchase the device
in person, over the telephone, or over the
internet, through retail businesses such as
drug stores, supermarkets, or medical sup-
ply stores and retailers that primarily sell
medical devices (for example, specialty
medical stores, DMEPOS suppliers, and
similar vendors).
Minimal or no training
One commenter requested that final
regulations remove the factor that looks to
whether consumers who are not medical
professionals can use the device safely
and effectively for its intended medical
purpose with minimal or no training from
a medical professional. The commenter
reasoned that many taxable medical de-
vices that would otherwise qualify for
the retail exemption require at least some
basic level of training. The commenter
then noted that the suggestion that training
would cause a taxable medical device to
no longer qualify forthe retail exemption
is not appropriate.
The final regulations do not adopt the
commenter’s suggestion. The IRS and the
Treasury Department believe that whether
more than minimal training from a med-
ical professional is required to safely and
effectively use a device is a relevant con-
sideration. At the same time, however, the
factor that considers training is only one of
many factors to be considered in determin-
ing whether a device falls within the retail
exemption, and it is possible that a device
could qualify for the retail exemption even
if it does not satisfy this factor.
Administered by a medical professional
One commenter requested clarification
that the phrase “administered by a medi-
cal professional” in the factor described in
§48.4191–2(b)(2)(ii)(A) does not include
the initial and periodic fitting or adjust-
ment with respect to an orthotic or pros-
thetic device that is not implanted.
The final regulations provide a safe
harbor for certain devices that fall un-
der the retail exemption. Prosthetic and
orthotic devices, as defined in 42 CFR
414.202, that do not require implantation
or insertion by a medical professional,
fall under the retail exemption safe harbor
described in §48.4191–2(b)(2)(iii)(D)(1).
Accordingly, prosthetic and orthotic de-
vices within the meaning of 42 CFR
414.202 that do not require implantation
or insertion by a medical professional are
considered to be of a type generally pur-
chased by the general public at retail for
individual use, without regard to whether
they require initial or periodic fitting or
adjustment.
A prosthetic or orthotic device that is
not in the safe harbor may qualify for the
retail exemption based on an application
of the facts and circumstances test. The
final regulations include an example of a
prosthetic device that falls within the retail
exemption.
Cost
Twocommenterssuggested
that the factor enumerated in
§48.4191–2(b)(2)(ii)(B) that considers a
device’s cost should not be included in the
final regulations. One commenter stated
that whether or not a device is affordable
depends on the consumer’s insurance
coverage and cost alternatives.
The final regulations do not adopt this
suggestion. The final regulations take a
facts and circumstances approach to the
retail exemption. The facts and circum-
stances test is comprised of a number of
non-exclusive factors; each factor is one
of several to be considered in determin-
ing whether a device falls within the re-
tail exemption. Devices used in hospi-
tals, doctors offices and other medical in-
stitutions, such as x-ray machines, mag-
netic resonance imaging (MRI) systems,
and computed tomography (CT scan) or
computed axial tomography (CAT scan)
equipment, would likely be prohibitively
expensive for an average individual user.
Accordingly, the factorthat considers cost
is meaningful in determining whether a
type of device is primarily for use in a med-
ical institution or office or by a medical
professional.
2012–52 I.R.B.734December 27, 2012

Class III devices
Several commenters requested that the
final regulations not include classification
as a Class III device as a factor, because
the JCT General Explanation noted that the
retail exemption is not limited by device
class.
The final regulations do not adopt this
suggestion. Although the JCT General Ex-
planation notes that the retail exemption
is not limited by device class, it does not
state that classification in Class I, Class
II, or Class III is irrelevant to the deter-
mination of whether a device falls within
the retail exemption. The IRS and the
Treasury Department, in consultation with
FDA, have determined that the vast major-
ity of Class III types of devices are not de-
vices that are of a type generally purchased
by the general public at retail for individual
use. Accordingly, the factor that considers
whether a device is a Class III type of de-
vice is meaningful in determining whether
atypeofdeviceisprimarilyforuseina
medical institution or office or by a medi-
cal professional.
FDA classification categories
Two commenters suggested that
21 CFR part 868 (Anesthesiology
Devices) should not be included in the
list of FDA classification categories in
§48.4191–2(b)(2)(ii)(D) that suggest that
a device is primarily for use in a medical
institution or office or by a medical
professional. Thecommenters noted
that certain portable oxygen systems are
classified in 21 CFR part 868.
Onecommenterre-
quested that 21 CFR part 876
(Gastroenterology-UrologyDevices)
be removed from the list of
FDA classification categories in
§48.4191–2(b)(2)(ii)(D) because 21 CFR
part 876 contains many devices, such as
ostomy supplies, that would otherwise fall
within the retail exemption.
The final regulations do not remove any
FDA classification categories from those
enumerated in §48.4191–2(b)(2)(ii)(D).
The IRS and the Treasury Department
have determined, after consultation with
the FDA, that the overwhelming majority
of devices that fall within these regulatory
categories are not of a type generally pur-
chased by the generalpublic at retail for
individual use. Further, classification in
one of the enumerated parts or subparts is
not determinative of whether a device falls
within the retail exemption. Devices in
these categories must be evaluated in light
of all relevant facts and circumstances.
The final regulations include an exam-
ple that weighs the facts and circumstances
with respect to a portable oxygen concen-
trator, including the fact that it is a de-
vice under 21 CFR part 868, and con-
cludes that the portable oxygen concentra-
tor falls within the retail exemption. The
final regulations also include an example
that illustrates that a urinary ileostomy bag,
which is a device under 21 CFR part 876,
is included in the safe harbor set forth in
§48.4191–2(b)(2)(iii)(D)(1).
Packaging and labeling
Several commenters suggested that
the final regulationsinclude a factor that
considers whether a device’s packaging
and labeling suggests that the device is in-
tended for use by individuals who are not
medical professionals. One commenter
noted that product labeling that is easy for
someone who is not a medical or health
care professional to understand suggests
that the device is regularly available for
purchase and use by individual consumers
who are not medical professionals.
The final regulations do not adopt this
suggestion. Device manufacturers deter-
mine the packaging and labeling of a de-
vice. Manufacturers may package and la-
bel a device in a consumer-friendly man-
ner, even if the device is of a type that is
primarily intended for use in a medical in-
stitution or office, or by medical profes-
sionals. Therefore, the IRS and the Trea-
sury Department have determined that a
device’s packaging and labeling are not in-
structive as to whether a device is gener-
ally purchased by the general public at re-
tail for individual use.
Documents submitted for FDA notification
or approval
One commenter requested that the final
regulations include a factor that looks to
whether documents submitted to the FDA,
such as a Premarket Notification (510(k))
or application for Premarket Approval
(PMA), state that the device is intended
for individual use.
The final regulations do not adopt this
suggestion. After consultation with the
FDA, the IRS and the Treasury Depart-
ment have determined that documents sub-
mitted to the FDA, such as 510(k) docu-
ments and PMA applications, are not con-
sistently reliable indicators of whether a
device is of a type that is generally pur-
chased by the general public for individual
use.
3. Safe Harbor
Durable Medical Equipment, Prosthetics,
Orthotics and Supplies
One commenter suggested that the
retail exemption safe harbor defined in
§48.4191–2(b)(2)(iii)(D) be expanded to
include all devices that fall under the defi-
nition of DMEPOS in 42 CFR 414.202.
The final regulations do not adopt this
suggestion. However, devices that fall
within the definition of DMEPOS that
are not included in the retail exemption
safe harbor in §48.4191–2(b)(2)(iii)(D),
such as oxygen equipment and other rental
durable medical equipment devices, may
qualify for the retail exemption by appli-
cation of the facts and circumstances test.
The final regulations provide an example
that evaluates whether a portable oxygen
concentrator falls within the retail exemp-
tion based upon an evaluation of such a
device under the facts and circumstances
test.
Capped rental devices
One commenter suggested that the safe
harbor defined in §48.4191–2(b)(2)(iii)(D)
be expanded to include “capped rental”
devices, within the meaning of 42 CFR
414.229, for which title transfers to the in-
dividual user (the Medicare beneficiary) at
the end of the rental term.
The category of capped rental DME
consists of DME that is not subject to the
payment provisions set forth in 42 CFR
414.220 through 42 CFR 414.228. Medi-
care pays for capped rental DME other
than complex rehabilitation power-driven
wheelchairs on a rental basis. See 42 CFR
414.229. Payment is made on a rental
basis, not to exceed a period of contin-
uous use of longer than 13 months. On
the first day after 13 continuous rental
months during which payment is made,
December 27, 20127352012–52 I.R.B.

the supplier must transfer title to the
equipment to the Medicare beneficiary.
See 42 CFR 414.229(f)(2). Medicare
also pays for complex rehabilitation
power-driven wheelchairs on a capped
rental or lump-sum purchase basis. The
supplier of the complex rehabilitation
power-driven wheelchair must offer
Medicare beneficiaries the option to
purchase the complex rehabilitation
power-driven wheelchair at the time the
equipment is initially furnished. See
42 CFR 414.229(h). If the beneficiary
does not elect to purchase the complex
rehabilitation power-driven wheelchair,
payment is made on a capped rental basis
in accordance with the rules described
above for other capped rental DME. See
42 CFR 414.229(f).
The IRS and the Treasury Department,
in consultation with the Center for Medi-
care and Medicaid Services (CMS), have
determined that, in most instances, the
rental period of a capped rental device
terminates before the transfer of title. Fur-
ther, information on the capped rental de-
vices for which title has transferred to the
individual user does not suggest a pattern
of title transfer for specific types of de-
vices. Accordingly, capped rental devices
cannot be categorically said to qualify as
devices that are generally purchased by
the general public at retail for individual
use. They may, however, qualify for the
retail exemption by an application of the
facts and circumstances test. Therefore,
safe harbor treatment is not appropriate
for capped rental devices, and the final
regulations do not adopt the commenter’s
suggestion.
Prosthetics and orthotics
One commenter noted that 42 CFR
414.202 excludes from the definition of
prosthetic and orthotic devices medical
supplies such as catheters, catheter sup-
plies, ostomy bags, and supplies related to
ostomy care that are furnished by a Home
Health Agency (HHA) as part of home
health services under 42 CFR 409.40(e).
The commenter asked that the final regu-
lations address the significance, if any, of
the exclusion of products furnished by an
HHA on the breadth of the safe harbor in
§48.4191–2(b)(2)(iii)(D)(1) for prosthetic
and orthotic devices as defined in 42 CFR
414.202.
The IRS and the Treasury Department,
in consultation with CMS, have deter-
mined that the HHA language in 42 CFR
414.202 is a provision that clarifies that
when individual devices are furnished by
an HHA, they are payable as home health
services under 42 CFR 409 subpart E.
The HHA language in 42 CFR 414.202
does not exclude any type of device from
the definition of prosthetic and orthotic
devices and, therefore, has no impact
on the retail exemption safe harbor in
§48.4191–2(b)(2)(iii)(D).
4. “Of a type”
Section 4191(b)(2) provides that the
term taxable medical device does not in-
clude eyeglasses, contact lenses, hearing
aids, and any other medical device de-
termined by the Secretary to be of a type
that is generally purchased by the general
public at retail for individual use. Several
commenters requested that final regula-
tions define a “type”of device to include
all devices that are categorized in the same
FDA product code.
The final regulations do not adopt this
suggestion. In consultation with the FDA,
the IRS and the Treasury Department de-
termined that the breadth and variety of
devices within a particular product code
and across product codes can vary greatly.
Therefore, the product code designation is
generally too broad to be useful in deter-
mining which devices fall within the retail
exemption.
5. Components of exempt devices
One commenter noted that the FDA re-
quires some components of devices to be
separately listed as devices. The com-
menter suggested that the final regulations
exempt listed components that are ulti-
mately used as component parts of a device
that is exempt under section 4191(b) and
§48.4191–2(b), such as component parts
of certain completed prosthetic or orthotic
devices.
The safe harbor provision in
§48.4191–2(b)(2)(iii)(D) includes some
components of prosthetic and orthotic
devices. The IRS and the Treasury De-
partment request public comments to help
identify listed components of devices that
are exempt under section 4191(b) and
§48.4191–2(b) that are not included in a
safe harbor or that do not otherwise fall
within the retail exemption by an applica-
tion of the facts and circumstances test.
6. Dental Devices
Several commenters suggested that
dental devices that are customized for
an individual patient, such as crowns,
bridges, and braces, should qualify for
the retail exemption because they are sold
directly to individual consumers. Further,
one commenter noted that the factor de-
scribed in §48.4191–2(b)(2)(ii)(A), which
considers whether a device “generally
must be implanted, inserted, operated,
or otherwise administered by a medical
professional,” creates an unnecessary dis-
tinction between devices that an individual
can insert and remove, and devices that
a dentist must embed or affix within the
patient’s mouth.
The final regulations do not create a
special rule for dental devices. The final
regulations take a facts and circumstances
approach to the retail exemption. The facts
and circumstances test is comprised of a
number of non-exclusive factors. A cus-
tomized dental device will qualify for the
retail exemption if, based on the totality of
the facts and circumstances, the device is
of a type that is generally purchased by the
general public at retail for individual use.
III. Combination products
A. Proposed Regulations
Combination products are therapeu-
tic and diagnostic products that combine
drugs, devices, and/or biological products.
See 21 CFR 3.2(e). The proposed regula-
tions tie the definition of taxable medical
device to the FDA’s listing requirements
for devices. Therefore, under the proposed
regulations, a combination product that is
listed as a device with the FDA under sec-
tion 510(j) of the FFDCA and 21 CFR part
807 and that does not fall under a statutory
exemption, such as the retail exemption,
is subject to the medical device excise tax.
B. Public Comments and the Final
Regulations
Several commenters requested that the
final regulations provide that a manu-
facturer will not be required to pay the
medical device excise tax on a combina-
tion product that is taken into account in
2012–52 I.R.B.736December 27, 2012

computing the branded prescription drug
(BPD) fee enacted under section 9008 of
the ACA.
The final regulations do not adopt this
suggestion. The ACA enacted both the
medical device excise tax and the BPD fee,
but provided no coordination between the
provisions. Therefore, there is no statutory
basis for providing an exclusion from the
tax under section 4191 for a combination
product with both a device component and
a drug component, even if the combina-
tion product is taken into account for pur-
poses of computing the BPD fee. More-
over, the comments did not raise any likely
scenarios in which both the BPD fee and
the medical device excise tax apply to the
same product. Based on consultation with
the FDA, the IRS and the Treasury Depart-
ment anticipate that few, if any, combina-
tion products will be subject to both the
medical device excise tax and the BPD fee.
Accordingly, under the final regulations, a
combination productthat is listed as a de-
vice with the FDA under section 510(j) of
theFFDCAand21CFRpart807isatax-
able medical device.
IV. Manufacturers Excise Taxes
TheACAaddedsection4191tochap-
ter 32, subtitle D of the Code, which re-
lates to taxes imposed on the sales of tax-
able articles by manufacturers, producers,
andimporters(commonlyreferredtoas
“manufacturers excise taxes”). Accord-
ingly, the preamble to the proposed regu-
lations states that the existing chapter 32
rules apply to the medical device excise
tax.
Definition of a “manufacturer”
One commenter requested that the final
regulations include a presumption that a
manufacturer who lists a device with the
FDA is the manufacturer of the device for
excise tax purposes.
The final regulations do not adopt this
suggestion. There are longstanding rules
with respect to the definition of “manu-
facturer” or “importer” for chapter 32 pur-
poses. These rules are contained in statu-
tory and regulatory provisions, and they
have been developed further through other
published guidance and case law. There-
fore, the definitions of manufacturer and
importer under chapter 32 apply to sec-
tion 4191; whether a person is considered
a manufacturer or importer for FDA pur-
poses is not relevant.
Sale price
Numerous commenters suggested that
the IRS apply the constructive sale price
rules with flexibility and sensitivity to data
limitations that medical device companies
face. The IRS and the Treasury Depart-
ment recognize that the medical device in-
dustry will likely face some implementa-
tion issues when the medical device excise
tax goes into effect on January 1, 2013, and
the IRS intends to work with stakeholders
on compliance-related issues, such as the
determination of price.
Numerous commenters requested that
the final regulations extend the principle
of Revenue Ruling 80–273, 1980–2 C.B.
315, to taxable medical devices. Rev. Rul.
80–273 holds that when a manufacturer or
importer sells a taxable article directly to
an unrelated end user at retail, the excise
taxmaybebasedonasalepriceof75per-
cent of the retail sale price, after any ad-
justments under section 4216(a), such as
for containers, packing, and transportation
charges. The holding applies only to the
excise taxes imposed under the Code sec-
tions explicitly listed in the revenue rul-
ing. Commenters also requested that the
final regulations clarify that sales “at re-
tail” in the medical device context include
sales to hospitals and other medical ser-
vice providers. Although the final regu-
lations do not adopt this suggestion, the
IRS and the Treasury Department will is-
sue separate interimguidance along with
these regulations to address sale price is-
sues and have considered these comments
in the context of such guidance.
One commenter requested that the final
regulations provide that taxpayers can use
transfer pricing under section 482 to de-
termine the taxable sale price of a taxable
medical device.
The final regulations do not adopt the
commenter’s suggestion. Because the
standards are not the same under the sec-
tion 482 regulations and section 4216, an
arm’s length result determined under sec-
tion 482 is not an appropriate proxy for
the constructive sale price or fair market
price under section 4216. While in cer-
tain circumstances facts used to support a
transfer price for purposes of section 482
may be relevant to determining the sale
price under section 4216, transfer pricing
documentation or studies developed for
purposes of section 482 or section 6662(e)
will not be conclusive.
Finally, the IRS received several in-
formal inquiries about whether the 2.3%
medical device excise tax may be ex-
cluded from the sale price upon which
the medical device excise tax is imposed.
Section 4216(a) provides that in determin-
ing the price for which an article is sold
there should be excluded the amount of
tax imposed, whether or not stated as a
separate charge. See section 4216(a) and
§48.4216(a)–2(a) of the Manufacturers
and Retailers Excise Tax Regulations for
the rules regarding the exclusion of tax
from sale price.
Installment sales, leases, and long-term
contracts
Several commenters requested transi-
tion relief for installment sales and leases
of taxable medical devices where the con-
tract is entered into prior to the effective
date of the tax on January 1, 2013.
The final regulations do not provide
transition relief for all contracts entered
into prior to January 1, 2013. However,
the final regulations do provide transition
relief for contracts entered into prior to
March 30, 2010, the date the ACA was
enacted. More specifically, the final reg-
ulations provide that payments made on
or after January 1, 2013, pursuant to a
written binding contract for the lease, in-
stallment sale, or sale on credit of a taxable
medical device that was in effect prior
to March 30, 2010, are not subject to tax
under section 4191 unless the contract is
materially modifiedon or after March 30,
2010. For purposes of this transition relief,
a material modification includes only a
modification that materially affects the
property to be provided under the contract,
the terms of payment under the contract,
or the amount payable under the contract.
A material modification does not include
a modification to the contract required by
applicable Federal, State, or local law.
Payments made pursuant to a contract
that was entered into on or after March 30,
2010, are subject to tax under section 4191
and the existing provisions of sections
4216(c) and 4217, and §§48.4216(c)–1
and 48.4217–2 apply.
December 27, 20127372012–52 I.R.B.

Uses
Several commenters requested that the
final regulations specifically provide that
the following are not taxable uses where
the manufacturer receives no direct ben-
efit in the form of money, services, or
other property: (i) demonstration prod-
ucts used for health care professionals and
product awareness, such as samples used
to demonstrate the type of device to be im-
planted in a patient; (ii) evaluation prod-
ucts provided to help health care profes-
sionals determine whether and when to
use, order, purchase, or recommend the de-
vice; (iii) loaned devices to facilitate pro-
cedures utilizing a soldtaxable medical de-
vice, such as instruments specifically de-
signed to implant a particular orthopedic
joint; (iv) testing and development prod-
ucts; and (v) product donations and chari-
table contributions.
The final regulations do not adopt this
suggestion because it is necessary to have
consistent rules for all manufacturers ex-
cise taxes. Section 4218 generally imposes
a tax on certain uses of an article by the
article’s manufacturer. In general, under
§48.4218–1(b), if the manufacturer of a
taxable article uses the article for any pur-
pose other than in the manufacture of an-
other taxable article, then the manufacturer
is liable for tax on the article as if the man-
ufacturer had sold it.
With regard to demonstration products,
the provision or use of a taxable medi-
cal device as a demonstration product may
constitute a taxable use, depending on the
facts and circumstances of the arrange-
ment. See Rev. Rul. 60–290, 1960–2 C.B.
331, and Rev. Rul. 72–563, 1972–1 CB
568.
With regard to evaluation and testing
products, Rev. Rul. 76–119, 1976–1 C.B.
345, holds that if a manufacturer uses a tax-
able article in the testing of another article
of its own manufacture, the use of the tax-
able article is not a taxable use.
The existing chapter 32 rules do not
specifically address whether a donation of
a taxable article to charity constitutes a tax-
able use under section 4218. However, the
IRS and the Treasury Department will is-
sue separate interimguidance along with
these regulations to address donations of
taxable medical devices.
Rebates
Several commenters requested that the
final regulations provide manufacturers
with the option of excluding from the
sale price a reasonable estimate of pur-
chase price adjustments for rebates, with
a later true-up based on the actual rebate
amounts. These commenters suggest that
manufacturers have reliable historical data
on past rebate performance, so they are
able to project rebate amounts with rea-
sonable certainty.
The final regulations do not adopt this
suggestion. Section 48.4216(a)–3(c) pro-
vides that a manufacturer may take a rebate
into account in determining sale price only
to the extent the rebate is made prior to the
close of the quarter during which the sale
associated with the rebate is made. In ad-
dition, if the manufacturer subsequently al-
lowsarebatefortaxablearticlesonwhich
tax has been paid, the manufacturer may
make a claim for credit or refund of that
portion of the tax that is proportionate to
the part of the price that is rebated.
Software sold together with services
One commenter requested clarification
with respect to the taxability of software
that is sold together with services and/or
maintenance contracts.
Section 48.4216(a)–1(e) provides that
where a taxable article and a nontaxable
article are sold by the manufacturer as a
unit, the tax attaches to that portion of
the manufacturer’s sale price of the unit
that is properly allocable to the taxable
article. Because the definition of a taxable
medical device is tied to the FDA’s de-
vice listing requirements, if the software
and service bundle is not listed with the
FDA under section 510(j) of the FFDCA
and 21 CFR part 807 (in other words, if
the entire bundle is not a taxable medical
device), the medical device excise tax
attaches only to the sale of the devices
within the bundle that are listed with the
FDA under section 510(j) of the FFDCA
and 21 CFR part 807.
Refurbished and remanufactured medical
devices
Several commenters requested guid-
ance on how the medical device excise
tax will apply to sales of refurbished and
remanufactured medical devices. One
commenter requested that the definition of
manufacturer in §48.0–2(a)(4) be clarified
to ensure that repairing, refurbishing, or
rebuilding an already taxed medical device
does not create another taxable medical
device and is not considered manufactur-
ing.
The final regulations do not adopt these
suggestions. Under existing chapter 32
rules, remanufacturing or refurbishing
constitutes manufacture if the remanufac-
turing or refurbishing process produces
a new and different taxable article. See
Rev. Rul. 86–130, 1986–2 C.B. 179,
Rev. Rul. 83–149, 1983–2 C.B. 186, Rev.
Rul. 68–40, 1968–1 C.B. 452, Rev. Rul.
64–202, 1964–2 C.B .431, and Rev. Rul.
58–586, 1958–2 C.B. 806. If a remanu-
facturer or refurbisher produces a new and
different taxable article, the tax is imposed
upon the sale or use of the remanufactured
or refurbished article.
Replacement parts
Two commenters suggested that parts
used to replace an existing part or com-
ponent in a taxable medical device should
not be subject to the tax, even if the part or
component is listed separately as a device
with the FDA.
The final regulations do not adopt this
suggestion. Under existing law, if a tax-
able article is returned to the manufac-
turer under a warranty and the manufac-
turer provides a replacement article free
or at a reduced price, the tax on the re-
placement article is computed on the ac-
tual amount, if any, paid to the manu-
facturer for the replacement article. See
§48.4216(a)–3(b) and Rev. Rul. 75–272,
1975–2 C.B. 421.
With regard to replacements that are not
made under warranty, replacement parts
that are listed with the FDA under section
510(j) of the FFDCA and 21 CFR part 807
are taxable medical devices, and their sale
by the manufacturer is generally subject to
tax.
Licensing of software
One commenter requested clarification
on whether the licensing of software that is
a taxable medical device is a taxable event.
Under existing chapter 32 rules, the
manufacturers excise tax generally at-
taches upon the sale or use of a taxable
article by the manufacturer. The lease of a
2012–52 I.R.B.738December 27, 2012

taxable article by the manufacturer is con-
sidered a sale. Neither the existing chapter
32 rules nor the final regulations address
the issue of whether the licensing of a tax-
able article is a taxable event. However,
the IRS and the Treasury Department will
issue separate interim guidance along with
these regulations to address this issue.
Consolidated filing of Form 720
The medical device excise tax is re-
ported on Form 720,Quarterly Federal
Excise Tax Return. Several commenters
requested that the IRS and the Treasury
Department permit manufacturers and im-
porters of taxable medical devices who are
members of a affiliated group for income
tax purposes to file Form 720 on a consol-
idated basis.
The final regulations do not adopt this
suggestion. Section 1501 provides gener-
ally that an affiliatedgroup of corporations
shall have the privilege of making a con-
solidated return with respect to the income
tax imposed by chapter 1 for the taxable
year in lieu of separate returns. There is
no similar provision that applies to excise
tax. Thus, the privilege to file consolidated
returns applies only to income tax returns
and not to excise tax returns. Accordingly,
for excise tax purposes, each business unit
that has or is required to have a separate
employer identification number is treated
as a separate person with separate tax lia-
bility, and each such business unit must file
a separate Form 720.
Consolidated Form 637 registration
Registration through the Form 637 ap-
plication process is necessary to effectu-
ate tax-free sales. Several commenters re-
quested that final regulations allow one en-
tity in an affiliated group to register on
behalf of the group with respect to in-
tra-group sales.
The final regulations do not adopt this
suggestion. The IRS and the Treasury De-
partment have determined that it is neces-
sary in the interest of effective tax admin-
istration to require each entity with a sepa-
rate employer identification number to ap-
ply for registration underApplication for
Registration (For Certain Excise Tax Ac-
tivities)(Form 637) to verify the activ-
ity for which the entity seeks registration.
Once an entity is registered for a partic-
ular activity, the registration does not ex-
pire. Therefore, for most entities, the ini-
tial application process is the extent of the
entity’s obligation with respect to registra-
tion.
Form 720 filing requirements
One commenter suggested that the
quarterly reporting requirement is unduly
burdensome on small medical device man-
ufacturers. The commenter suggested that
the final regulations initially require only
annual reporting for small medical device
manufacturers to enable those taxpayers
to become familiar with the excise tax
rules and implement the proper accounting
practices and procedures.
The final regulations do not adopt this
suggestion. The ACA added section 4191
to chapter 32. Therefore, the existing rules
governing chapter 32 apply. Manufac-
turers excise taxes, including the medical
device excise tax, are reported on Form
720. In general, Form 720 must be filed
on a quarterly basis. For more informa-
tion about reporting requirements, see
§40.6011(a)–1(a).
Semimonthly deposits
Several commenters suggested that the
semimonthly deposit requirements under
section 6302 are burdensome to medi-
cal device manufacturers because device
manufacturers have little or no experi-
ence with returning and paying federal
excise taxes and because manufacturers
need time to develop their systems to im-
plement these final regulations. Some
of those commenters requested that final
regulations specifically carve out taxable
medical devices from the deposit rules set
forth in section 6302 and the regulations
thereunder. Other commenters requested
that the IRS and the Treasury Department
waive on a reasonable cause basis any tax
penalty applicable to the failure to deposit
the correct amount of tax.
The final regulations do not carve
taxable medical devices out of the semi-
monthly deposit rules. Therefore, medical
device manufacturers will generally be
required to make semimonthly deposits
of tax unless the manufacturer’s net tax
liability does not exceed $2,500 for the
quarter. See section 6302 and the regu-
lations thereunder for the rules regarding
semimonthly deposits.
The IRS and the Treasury Department
recognize that the application of the manu-
facturers excise tax rules, particularly with
regard to sale price, may present certain
challenges. The IRS and the Treasury De-
partment further recognize that manufac-
turers and importers in the medical device
industry may not have prior experience
complying with the rules regarding semi-
monthly deposits. Given that the tax goes
into effect on January 1, 2013, the IRS and
the Treasury Department will issue sepa-
rate interim guidance along with these reg-
ulations that addresses penalties under sec-
tion 6656.
Disregarded entities
One commenter requested that the IRS
and the Treasury Department amend the
regulations under section 7701 to allow en-
tities that are disregarded as separate from
their owners for income tax purposes to
be similarly disregarded for excise tax pur-
poses.
The final regulations do not adopt
this suggestion because it is necessary
to have a consistent rule for all excise
taxes. Specifically, §1.1361–4(a)(8) and
§301.7701–2(c)(2)(v) treat a qualified sub-
chapter S subsidiaryand a single-owner
eligible entity that is disregarded as an
entity separate from its owner under
§301.7701–2 as a separate entity for pur-
poses of excise taxes imposed by chapter
32 of the Code. These rules were adopted
because of the difficulties that arise from
the interaction of thedisregarded entity
rules and the federal excise tax rules. For
example, the manufacturers excise tax
rules rely on state law, rather than Federal
law, to determine attachment of a tax. See
§48.0–2(b) (providing that excise taxes
attach when title to an article passes to
the purchaser, which is based on the laws
of the local jurisdiction where the sale is
made in the absence of express intention
of the parties to the sale). Accordingly,
a Form 720 reporting the medical device
excise tax imposed on sales of taxable
medical devices by the manufacturer or
importer after December 31, 2012, must
be filed under the name and employer
identification number of the entity rather
than under the name and EIN of the disre-
garded entity’s owner.
December 27, 20127392012–52 I.R.B.

Penalties for failure to file and failure to
pay tax; Accuracy-related penalties
Several commenters highlighted the
compliance challenges associated with
implementation of the medical device ex-
cise tax. These commenters requested that
the IRS and the Treasury Department tem-
porarily waive all tax penalties relating to
the filing of Form 720.
The final regulations do not adopt
this suggestion. Section 6651(a) imposes
penalties for failure to file any return re-
quired under subchapter A of chapter 61
and for failure to pay the amount shown
as tax on any such return, unless it is
shown that the failure is due to reason-
able cause and not willful neglect. Under
§301.6651–1(c), a taxpayer may avoid
penalties under section 6651 for the failure
to file a tax return or pay tax if the tax-
payer makes an affirmative showing of all
facts necessary to establish a reasonable
cause for the taxpayer’s failure to file a
return or pay tax on time. If the taxpayer
exercised ordinary business care and pru-
dence but was nevertheless unable to file
the return within the prescribed time, then
the delay is due to a reasonable cause.
A failure to pay will be considered to be
due to a reasonable cause to the extent the
taxpayer has made a satisfactory showing
that the taxpayer exercised ordinary busi-
ness care and prudence in providing for
payment of the taxpayer’s tax liability and
was nevertheless either unable to pay the
tax or would suffer an undue hardship (as
described in §1.6161–1(b)) if the taxpayer
paid on the due date.
Section 6662 imposes an accuracy-re-
lated penalty for, among other things, neg-
ligence or disregard of the rules or regu-
lations. Under section 6662(c), the term
“negligence” includes any failure to make
a reasonable attempt to comply with the
provisions of the Code, and the term “dis-
regard” includes any careless, reckless, or
intentional disregard.
The IRS and the Treasury Department
recognize that the application of the man-
ufacturers excise tax rules may present
certain implementation challenges. The
IRS and the Treasury Department also rec-
ognize that manufacturers and importers
in the medical device industry may not
have prior experience with filing a Form
720. However, the IRS and the Treasury
Department believe that the existing rea-
sonable cause provisions under section
6651(a) and §301.6651–1(c) and the neg-
ligence standard in section 6662 provide
taxpayers with an appropriate mechanism
for relief. If a penalty is assessed under
section 6651 or section 6662, the IRS en-
courages taxpayers to call the telephone
number on the penalty notice to discuss
abatement options.
V.Kits
Under the proposed regulations, a tax-
able medical device is a device that is listed
as a device with the FDA under section
510(j) of the FFDCA and 21 CFR part 807.
Therefore, under the proposed regulations,
a listed kit is a taxable medical device. The
proposed regulations define a “kit” as a set
of two or more articles packaged in a sin-
gle bag, tray, or box for the convenience
of the end user. In addition, the proposed
regulations provide that if a kit is a tax-
able medical device, then the use of other
taxable medical devices in the assembly of
the kit constitutes “further manufacture”
within the meaning of section 4221(a)(1)
of the Code by the person who produces
the kit.
The IRS and the Department of Trea-
sury received numerous public comments
regarding kits. Several commenters noted
that taxing the kit will result in taxing items
contained in the kit that, standing alone,
are not taxable medical devices.
Some public comments pointed to cer-
tain FDA rules governing kits as evidence
that kits should receive a different tax
treatment than other devices that are listed
with the FDA under section 510(j) of the
FFDCA and 21 CFR part 807. The com-
menters suggested that kits should receive
special tax treatment because many kits
are not subject to FDA premarket notifi-
cation requirements.
Additionally, several commenters sug-
gested that the producer of a kit is not a
“manufacturer” within the meaning of sec-
tion 48.0–2(a)(4)(i). Other commenters re-
quested that the final regulations exclude
kits from the definition of “further man-
ufacture” within the meaning of section
4221(a)(1), so that the sale of a kit is not
subject to the medical device excise tax.
The final regulations do not explic-
itly provide that the use of other taxable
medical devices in the assembly of the
kit constitutes further manufacture, within
the meaning of section 4221(a)(1), by the
person who produces the kit. The IRS
and the Treasury Department will issue
separate interim guidance along with these
regulations on the treatment of kits for
purposes of the medical device excise tax.
Several commentators requested that
the final regulations confirm that the use
of a kit by a hospital or medical institution
that produced the kit is not a taxable use
within the meaning of section 4218.
Hospitals or medical institutions that
produce kits for their own use are known as
self-kitters. Self-kitters are exempt from
the FDA’s registration and listing require-
ments. See 21 CFR 807.65(f). Therefore,
under the definition of a taxable medical
device in both the proposed regulations
and the final regulations, a kit produced by
a hospital or medical institution for its own
use would not be a “taxable medical de-
vice.” Accordingly, the use of the self-pro-
duced kits by the hospital or medical insti-
tution would not be a taxable use under the
rules of section 4218.
Availability of IRS Documents
The IRS final regulations and revenue
rulings cited in this preamble are published
in the Internal Revenue Cumulative Bul-
letin and are available from the Superin-
tendent of Documents, P.O. Box 979050,
St. Louis, MO 63197–9000.
Special Analyses
It has been determined that this Trea-
sury Decision is not a significant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations,
and because these regulations do not im-
pose a collection of information on small
entities, the provisions of the Regulatory
Flexibility Act (5 U.S.C. chapter 6) do not
apply. Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
that preceded these regulations was sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
No comments were received.
2012–52 I.R.B.740December 27, 2012

Drafting Information
The principal authors of these
regulations are Natalie Payne and
Stephanie Bland, Office of the Associate
Chief Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and the Treasury Department
participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 48 is
amended as follows:
PART 48— Manufacturers and
Retailers Excise Taxes
Paragraph 1. The authority citation for
part 48 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Section 48.4191–1 also issued under
26 U.S.C. 4191.
Section 48.4191–2 also issued under
26 U.S.C. 4191(b)(2).
48.0–1 [Amended]
Par. 2. The fourth sentence of §48.0–1
is amended by removing the language
“and sporting goods” and adding “sporting
goods, and taxable medical devices” in its
place.
Par. 3. Subpart L, consisting of
§§48.4191–1 and 48.4191–2 is added to
read as follows:
Subpart L — Taxable Medical Devices
48.4191–1 Imposition and rate of tax.
48.4191–2 Taxable medical device.
§48.4191–1 Imposition and rate of tax.
(a)Imposition of tax. Under section
4191(a), tax is imposed on the sale of any
taxable medical device by the manufac-
turer, producer, or importer of the device.
For the definition of the termtaxable med-
ical device, see §48.4191–2.
(b)Rate of tax.Taxisimposedon
the sale of a taxable medical device at
the rate of 2.3 percent of the price for
which the device is sold. For the defini-
tion of the termprice, see section 4216 and
§§48.4216(a)–1 through 48.4216(e)–3.
(c)Liability for tax. The manufacturer,
producer, or importer making the sale of a
taxable medical device is liable for the tax
imposed by section 4191(a). For rules re-
lating to the determination of who the man-
ufacturer, producer, or importer is for pur-
poses of section 4191, see §48.0–2(a)(4).
For the definition of the termsale,see
§48.0–2(a)(5). For rules relating to the
lease of an article by the manufacturer,
producer, or importer, see section 4217
and §48.4217–1 through §48.4217–2. For
rules relating to the use of an article by
the manufacturer, producer, or importer,
see section 4218 and §48.4218–1 through
§48.4218–5.
(d)Procedural rules. For the proce-
dural rules relating to section 4191, see
part 40 of this chapter.
(e)Tax-free sales for further manufac-
ture or export. For rules relating to tax-free
sales of taxable medical devices for further
manufacture or export, see section 4221
and §48.4221–1 through §48.4221–3.
(f)Payments made on or after
January 1, 2013, pursuant to lease,
installment sale, or sale on credit
contracts. For rules relating to the
taxability of payments made on or after
January 1, 2013, pursuant to a lease,
installment sale, or sale on credit contract
entered into on or after March 30, 2010,
see §48.4216(c)–1(e)(1). For rules relating
to the taxability ofpayments made on or
after January 1, 2013, pursuant to a lease,
installment sale, or sale on credit contract
entered into before March 30, 2010, see
§48.4216(c)–1(e)(2).
(g)Effective/applicability date.This
section applies to sales of taxable medical
devices on and after January 1, 2013.
§48.4191–2 Taxable medical device.
(a)Taxable medical device—(1)In gen-
eral. A taxable medical device is any de-
vice, as defined in section 201(h) of the
Federal Food, Drug, and Cosmetic Act
(FFDCA), that is intended for humans. For
purposes of this section, a device defined
in section 201(h) of the FFDCA that is
intended for humans means a device that
is listed as a device with the Food and
Drug Administration (FDA) under section
510(j) of the FFDCA and 21 CFR part 807,
pursuant to FDA requirements.
(2)Devices that should have been listed
with the FDA. If a device is not listed
as a device with the FDA but the FDA
determines that the device should have
been listed as a device, the device will be
deemed to be listed as a device with the
FDA as of the date the FDA notifies the
manufacturer or importer in writing that
corrective action with respect to listing is
required.
(b)Exemptions—(1)Specific exemp-
tions.Thetermtaxable medical device
does not include eyeglasses, contact
lenses, and hearing aids.
(2)Retail exemption.Theterm
taxable
medical devicedoes not include any device
of a type that is generally purchased by the
general public at retail for individual use
(the retail exemption). A device will be
considered to be of a type generally pur-
chased by the general public at retail for
individual use if it is regularly available for
purchase and use by individual consumers
who are not medical professionals, and if
the design of the device demonstrates that
it is not primarily intended for use in a
medical institution or office or by a med-
ical professional. Whether a device is of
a type described in the preceding sentence
is evaluated based on all the relevant facts
and circumstances. Factors relevant to this
evaluation are enumerated in paragraphs
(b)(2)(i) and (ii) of this section. Further,
there may be facts and circumstances that
are relevant in evaluating whether a device
is of a type generally purchased by the gen-
eral public at retail for individual use in
addition to those described in paragraphs
(b)(2)(i) and (ii) of this section. The deter-
mination of whether a device is of a type
that qualifies for the retail exemption is
made based on the overall balance of fac-
tors relevant to the particular type of de-
vice. The fact that a device is of a type that
requires a prescription is not a factor in the
determination of whether or not the device
falls under the retail exemption.
(i)Regularly available for purchase
and use by individual consumers.Thefol-
lowing factors are relevant in determining
whether a device is of a type that is reg-
ularly available for purchase and use by
individual consumers who are not medical
professionals:
(A) Whether consumers who are not
medical professionals can purchase the de-
vice in person, over the telephone, or over
the internet, through retail businesses such
as drug stores, supermarkets, or medical
supply stores and retailers that primarily
December 27, 20127412012–52 I.R.B.

sell devices (for example, specialty med-
ical stores, durable medical equipment,
prosthetics, orthotics, and supplies (DME-
POS) suppliers and similar vendors);
(B) Whether consumers who are not
medical professionals can use the device
safely and effectively for its intended med-
ical purpose with minimal or no training
from a medical professional; and
(C) Whether the device is classified by
the FDA under Subpart D of 21 CFR part
890 (Physical Medicine Devices).
(ii)Primarily for use in a medical in-
stitution or office or by a medical pro-
fessional. The following factors are rel-
evant in determining whether a device is
designed primarily for use in a medical in-
stitution or office or by a medical profes-
sional:
(A) Whether the device generally must
be implanted, inserted, operated, or oth-
erwise administered by a medical profes-
sional;
(B) Whether the cost to acquire, main-
tain, and/or use the device requires a large
initial investment and/or ongoing expendi-
ture that is not affordable for the average
individual consumer;
(C) Whether the device is a Class III de-
vice under the FDA system of classifica-
tion;
(D) Whether the device is classified by
the FDA under—
(1) 21 CFR part 862 (Clinical
Chemistry and Clinical Toxicology
Devices), 21 CFR part 864 (Hematology
and Pathology Devices), 21 CFR part
866 (Immunology and Microbiology
Devices),21 CFR part 868
(Anesthesiology Devices), 21 CFR part
870 (Cardiovascular Devices), 21 CFR
part 874 (Ear, Nose, and Throat Devices),
21 CFR part 876 (Gastroenterology —
Urology Devices), 21 CFR part 878
(General and Plastic Surgery Devices),
21 CFR part 882 (Neurological Devices),
21 CFR part 886 (Ophthalmic Devices),
21 CFR part 888 (Orthopedic Devices), or
21 CFR part 892 (Radiology Devices);
(2) Subpart B, Subpart D, or Subpart E
of 21 CFR part 872 (Dental Devices);
(3) Subpart B, Subpart C, Subpart D,
Subpart E, or Subpart G of 21 CFR part
884 (Obstetrical and Gynecological De-
vices); or
(4) Subpart B of 21 CFR part 890 (Phys-
ical Medicine Devices); and
(E) Whether the device qualifies as
durable medical equipment, prosthetics,
orthotics, and supplies for which payment
is available exclusively on a rental basis
under the Medicare Part B payment rules,
and is an “item requiring frequent and sub-
stantial servicing” as defined in 42 CFR
414.222.
(iii)Safe Harbor. The following de-
vices will be considered to be of a type
generally purchased by the general public
at retail for individual use:
(A) Devices that are included in
the FDA’s online IVD Home Use
Lab Tests (Over-the-Counter Tests)
database, available athttp://www.ac-
cessdata.fda.gov/scripts/cdrh/cf-
docs/cfIVD/Search.cfm.
(B) Devices that are described as
“OTC” or “over the counter” devices in
the relevant FDA classification regulation
heading.
(C) Devices that are described as
“OTC” or “over the counter” devices
in the FDA’s product code name, the
FDA’s device classification name, or
the “classification name” field in the
FDA’s device registration and listing
database, available athttp://www.ac-
cessdata.fda.gov/scripts/cdrh/cf-
docs/cfrl/rl.cfm.
(D) Devices that qualify as durable
medical equipment, prosthetics, orthotics,
and supplies, as described in Subpart C
of 42 CFR part 414 (Parenteral and En-
teral Nutrition) and Subpart D of 42 CFR
part 414 (Durable Medical Equipment
and Prosthetic and Orthotic Devices), for
which payment is available on a purchase
basis under Medicare Part B payment
rules, and are—
(1) “Prosthetic and orthotic devices,” as
defined in 42 CFR 414.202, that do not re-
quire implantation or insertion by a medi-
cal professional;
(2) “Parenteral and enteral nutrients,
equipment, and supplies” as defined in
42 CFR 411.351 and described in 42 CFR
414.102(b);
(3) “Customized items,” as described in
42 CFR 414.224;
(4) “Therapeutic shoes,” as described in
42 CFR 414.228(c); or
(5) Supplies necessary for the effective
use of durable medical equipment (DME),
as described in section 110.3 of chapter
15 of the Medicare Benefit Policy Manual
(Centers for Medicare and Medicaid Stud-
ies Publication 100–02).
(iv)Examples. The following examples
illustrate the rules of this paragraph (b)(2).
Example 1. X manufactures non-sterile absorbent
tipped applicators. X sells the applicators to distrib-
utors Y and Z, which, in turn, sell the applicators
to medical institutions and offices, medical profes-
sionals, and retail businesses. The FDA requires
manufacturers of non-sterile absorbent tipped ap-
plicators to list the applicators as a device with the
FDA. The applicators are classified by the FDA un-
der 21 CFR part 880 (General Hospital and Personal
Use Devices) and product code KXF.
Absorbent tipped applicators do not fall within a
retail exemption safe harbor set forth in paragraph
(b)(2)(iii) of this section. Therefore, the determina-
tion of whether the absorbent tipped applicators are
devices of a type generally purchased by the general
public at retail for individual use must be made on a
facts and circumstances basis.
Individual consumers who are not medical pro-
fessionals can regularly purchase the absorbent
tipped applicators at drug stores, supermarkets, cos-
metic supply stores or other similar businesses, and
can use the applicators safely and effectively for their
intended medical purpose without training from a
medical professional. Further, the absorbent tipped
applicators do not need to be implanted, inserted,
operated, or otherwise administered by a medical
professional, do not require a large investment and/or
ongoing expenditure, are not a Class III device, are
not classified by the FDA under a category described
in paragraph (b)(2)(ii)(D) of this section, and are not
“items requiring frequent and substantial servicing”
as defined in 42 CFR 414.222.
Thus, the applicators have multiple factors under
paragraph (b)(2)(i) of this section that tend to show
they are regularly available for purchase and use by
individual consumers and none of the factors under
paragraph (b)(2)(ii) of this section tend to show they
are designed primarily for use in a medical institu-
tion or office or by medical professionals. Based on
the totality of the facts and circumstances, the appli-
cators are devices that are of a type that are generally
purchased by the general public at retail for individ-
ual use.
Example 2. X manufactures adhesive bandages.
X sells the adhesive bandages to distributors Y and
Z, which, in turn, sell the bandages to medical insti-
tutions and offices, medical professionals, and retail
businesses. The FDA requires manufacturers of ad-
hesive bandages to list thebandages as a device with
the FDA. The adhesive bandages are classified by the
FDA under 21 CFR part 880 (General Hospital and
Personal Use Devices) and product code KGX.
Adhesive bandages do not fall within a retail ex-
emption safe harbor set forth in paragraph (b)(2)(iii)
of this section. Therefore, the determination of
whether the adhesive bandages are devices of a type
generally purchased by the general public at retail
for individual use must be made on a facts and cir-
cumstances basis.
Individual consumers who are not medical pro-
fessionals can regularly purchase the adhesive ban-
dages at drug stores, supermarkets, or other similar
businesses, and can use the adhesive bandages safely
and effectively for their intended medical purpose
2012–52 I.R.B.742December 27, 2012

without training from a medical professional. Fur-
ther, the adhesive bandages do not need to be im-
planted, inserted, operated, or otherwise administered
by a medical professional, do not require a large in-
vestment and/or ongoing expenditure, are not Class
III devices, are not classified by the FDA under a cat-
egory described in paragraph (b)(2)(ii)(D) of this sec-
tion, and are not “items requiring frequent and sub-
stantial servicing” as defined in 42 CFR 414.222.
Thus, the adhesive bandages have multiple fac-
tors under paragraph (b)(2)(i) of this section that tend
to show they are regularly available for purchase and
use by individual consumers and none of the factors
under paragraph (b)(2)(ii) of this section tend to show
they are designed primarily for use in a medical insti-
tution or office or by medical professionals. Based
on the totality of the facts and circumstances, the ad-
hesive bandages are devicesthat are of a type that are
generally purchased by the general public at retail for
individual use.
Example 3. X manufactures snake bite suction
kits. X sells the snake bite suction kits to distributors
Y and Z, which, in turn, sell the kits to medical in-
stitutions and offices, medical professionals, and re-
tail businesses. The FDA requires manufacturers of
snake bite suction kits to list the kits as a device with
the FDA. The FDA classifies the snake bit suction kits
under 21 CFR part 880 (General Hospital and Per-
sonal Use Devices) and product code KYP.
Snake bite suction kits do not fall within a re-
tail exemption safe harbor set forth in paragraph
(b)(2)(iii) of this section. Therefore, the determina-
tion of whether the snake bite suction kits are devices
of a type generally purchased by the general public
at retail for individual use must be made on a facts
and circumstances basis.
Individual consumers who are not medical pro-
fessionals can regularly purchase the snake bite suc-
tion kits at sporting goods stores, camping stores, or
other similar retail businesses, and can use the kits
safely and effectively for their intended medical pur-
pose without training from a medical professional.
Further, the snake bite suction kits do not need to be
implanted, inserted, operated, or otherwise adminis-
tered by a medical professional, do not require a large
investment and/or ongoing expenditure, are not Class
III devices, are not classified by the FDA under a cat-
egory described in paragraph (b)(2)(ii)(D) of this sec-
tion, and are not “items requiring frequent and sub-
stantial servicing” as defined in 42 CFR 414.222.
Thus, the snake bite suction kits have multiple
factors under paragraph (b)(2)(i) of this section that
tend to show they are regularly available for purchase
and use by individual consumers and none of the fac-
tors under paragraph (b)(2)(ii) of this section tend to
show they are designed primarily for use in a medi-
cal institution or office or by medical professionals.
Based on the totality of the facts and circumstances,
the snake bite suction kits are devices that are of a
type that are generally purchased by the general pub-
lic at retail for individual use.
Example 4. X manufactures denture adhesives.
X sells the denture adhesives to distributors Y and Z,
which, in turn, sell the adhesives to dental offices and
retail businesses. The FDA requires manufacturers of
denture adhesives to list the adhesive as a device with
the FDA. The FDA classifies the denture adhesives
under 21 CFR part 872 (Dental Devices) and product
code KXX.
The denture adhesives do not fall within a re-
tail exemption safe harbor set forth in paragraph
(b)(2)(iii) of this section. Therefore, the determina-
tion of whether the denture adhesives are devices of
a type generally purchased by the general public at
retail for individual use must be made on a facts and
circumstances basis.
Individual consumers who are not medical
professionals can regularly purchase the denture ad-
hesives at drug stores, supermarkets, or other similar
businesses, and can use the adhesives safely and
effectively for their intended medical purpose with
minimal or no training from a medical professional.
Further, the denture adhesives do not need to be
implanted, inserted, operated, or otherwise adminis-
tered by a medical professional, do not require a large
investment and/or ongoing expenditure, are not Class
III devices, are not classified by the FDA under a
category described in paragraph (b)(2)(ii)(D) of this
section, and are not “items requiring frequent and
substantial servicing” as defined in 42 CFR 414.222.
Thus, the denture adhesives have multiple factors
under paragraph (b)(2)(i) of this section that tend to
show they are regularly available for purchase and
use by individual consumers and none of the factors
under paragraph (b)(2)(ii) of this section tend to show
they are designed primarily for use in a medical in-
stitution or office or by medical professionals. Based
on the totality of the facts and circumstances, the den-
ture adhesives are devices that are of a type that are
generally purchased by the general public at retail for
individual use.
Example 5. X manufactures mobile x-ray sys-
tems. X sells the x-ray systems to distributors Y and
Z, which, in turn, sell the systems generally to med-
ical institutions and offices, as well as medical pro-
fessionals. The FDA requires manufacturers of mo-
bile x-ray systems to list the systems as a device with
the FDA. The FDA classifies the mobile x-ray sys-
temsunder21CFRpart892(RadiologyDevices)and
product code IZL.
Mobile x-ray systems do not fall within a re-
tail exemption safe harbor set forth in paragraph
(b)(2)(iii) of this section. Therefore, the determina-
tion of whether the mobile x-ray systems are devices
of a type generally purchased by the general public
at retail for individual use must be made on a facts
and circumstances basis.
Individual consumers who are not medical pro-
fessionals can regularly purchase the mobile x-ray
systems over the internet. However, individual con-
sumers cannot use the x-ray systems safely and ef-
fectively for their intended medical purpose without
training from a medical professional. Although the
mobile x-ray systems are not Class III devices and
are not “items requiring frequent and substantial ser-
vicing” as defined in 42 CFR 414.222, they need to
be operated by a medical professional, may require a
large investment and/or ongoing expenditure, and are
classified by the FDA under a category described in
paragraph (b)(2)(ii)(D) of this section (21 CFR part
892 (Radiology Devices).
Thus, with regard to the factors under paragraph
(b)(2)(i) of this section, the mobile x-ray systems
have one factor that tends to show they are regularly
available for purchase and use by individual con-
sumers and one factor that tends to show that they
are not regularly available for purchase and use by
individual consumers. With regard to the factors
under paragraph (b)(2)(ii) of this section, the mobile
x-ray systems have multiple factors that tend to show
they are designed primarily for use in a medical
institution or office or by medical professionals.
Based on the totality of the facts and circumstances,
the mobile x-ray systems are not devices that are of
a type generally purchased by the general public at
retail for individual use.
Example 6. X manufactures pregnancy test kits.
X sells the kits to distributors Y and Z, which, in turn,
sell the pregnancy test kits to medical institutions and
offices, medical professionals, and retail businesses.
The FDA requires manufacturers of pregnancy test
kits to list the kits as a device with the FDA. The
FDA classifies the kits under 21 CFR part 862 (Clin-
ical Chemistry and Clinical Toxicology Devices) and
product code LCX.
The pregnancy test kits are included in the FDA’s
online IVD Home Use Lab Tests (Over-the-Counter
Tests) database. Therefore, the over the counter preg-
nancy test kits fall within the safe harbor set forth
in paragraph (b)(2)(iii)(A) of this section. Further,
the FDA product code name for LCX is “Kit, Test,
Pregnancy, HCG, Over The Counter.” Therefore, the
pregnancy test kits also fall within the safe harbor set
forth in paragraph (b)(2)(iii)(C) of this section. Ac-
cordingly, the pregnancy test kits are devices that are
of a type 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 chapter 15 of
the Medicare Policy Benefit Manual. Therefore, the
lancets fall within the safeharborsetforthinpara-
graph (b)(2)(iii)(D)(5)ofthissection.
Accordingly, the blood glucose monitors, test
strips, and lancets are devices that are of a type
generally purchased by the general public at retail
for individual use.
Example 8. X manufactures single axis en-
doskeletal knee shin systems, which are used in the
manufacture of prosthetic legs. X sells the knee
shin systems to Y, a business that makes prosthetic
December 27, 20127432012–52 I.R.B.

legs. The FDA requires manufacturers of knee shin
systems and prosthetic legs to list the items as de-
vices with the FDA. The FDA classifies prosthetic
leg components, including knee shin systems, as
external limb prosthetic components under Subpart
D of 21 CFR part 890.3420 and product code ISH.
The FDA classifies prosthetic legs as an external
assembled lower limb prosthesis under 21 CFR part
890.3500 and product code ISW / KFX. In addition,
the Centers for Medicare and Medicaid Services have
assigned the knee shin systems Healthcare Procedure
Coding System code L5810.
Prosthetic legs and certain prosthetic leg compo-
nents, including single axis endoskeletal knee shin
systems, fall within the safe harbor for prosthetic and
orthotic devices that do not require implantation or
insertion by a medical profession that is set forth in
paragraph (b)(2)(iii)(D)(1) of this section. Accord-
ingly, both the single axis endoskeletal knee shin sys-
tems manufactured by X and the prosthetic legs made
by Y are devices that are of a type generally pur-
chased by the general public at retail for individual
use.
Example 9. X manufactures mechanical and pow-
ered wheelchairs. X sells the wheelchairs to distrib-
utors Y and Z, which, in turn, sell the wheelchairs
to medical institutions and offices, medical profes-
sionals, nursing homes, and retail businesses. The
FDA requires manufacturers of manual and powered
wheelchairs to list the items as devices with the FDA.
The FDA classifies the manual and powered wheel-
chairs under Subpart D of 21 CFR part 890 (Physical
Medicine Devices). The FDA classifies mechanical
wheelchairs under product code IOR. The FDA clas-
sifies powered wheelchairs under product code prod-
uct code ITI.
Mechanical and powered wheelchairs do not fall
within a retail exemption safe harbor set forth in para-
graph (b)(2)(iii) of this section. Therefore, the de-
termination of whether the mechanical and powered
wheelchairs are devices of a type generally purchased
by the general public at retail for individual use must
be made on a facts and circumstances basis.
Individual consumers who are not medical pro-
fessionals can regularly purchase the wheelchairs in
drug stores, medical specialty stores, or DME sup-
pliers, as well as over the internet. In addition, indi-
vidual consumers can use the wheelchairs safely and
effectively for their intended medical purpose with
minimal or no training from a medical professional,
and the wheelchairs are classified by the FDA under
Subpart D of 21 CFR part 890 (Physical Medicine
Devices). Further, although the wheelchairs may re-
quire a large initial investment and/or ongoing expen-
diture, they do not need to be implanted, inserted, op-
erated, or otherwise administered by a medical pro-
fessional, are not Class III devices, are not classified
by the FDA under a category described in paragraph
(b)(2)(ii)(D) of this section, and are not “items requir-
ing frequent and substantial servicing” as defined in
42 CFR 414.222.
Thus, the wheelchairs have multiple factors un-
der paragraph (b)(2)(i) of this section that tend to
show they are regularly available for purchase and
use by individual consumers and, at most, only one
factor under paragraph (b)(2)(ii) of this section tends
to show they are designed primarily for use in a med-
ical institution or office or by medical professionals.
Based on the totality of the facts and circumstances,
the mechanical and poweredwheelchairs are devices
that are of a type that are generally purchased by the
general public at retail for individual use.
Example 10. X manufactures portable oxygen
concentrators. X sells the portable oxygen concen-
trators to distributors Y and Z, which, in turn, sell the
portable oxygen concentrators to medical institutions
and offices, medical professionals, and retail busi-
nesses. The FDA requires manufacturers of portable
oxygen concentrators to list the items as devices with
the FDA. The FDA classifies the oxygen regulators
under 21 CFR part 868 (Anesthesiology Devices) and
product code CAW.
Portable oxygen concentrators do not fall within
a retail exemption safe harbor set forth in paragraph
(b)(2)(iii) of this section. Therefore, the determina-
tion of whether the oxygen concentrators are devices
of a type generally purchased by the general public at
retail for individual use must be made on a facts and
circumstances basis.
Individual consumers who are not medical pro-
fessionals can regularly purchase the portable oxygen
concentrators in retail pharmacies, medical specialty
stores, or DME suppliers, as well as over the inter-
net. In addition, individual consumers can use the
portable oxygen concentrators safely and effectively
for their intended medical purpose with minimal or
no training from a medical professional. Further, al-
though the portable oxygen concentrators are classi-
fied by the FDA under a category described in para-
graph (b)(2)(ii)(D) of this section, they do not need
to be implanted, inserted, operated, or otherwise ad-
ministered by a medical professional, do not require
a large investment and/or ongoing expenditure, are
not Class III devices, and are not “items requiring fre-
quent and substantial servicing” as defined in 42 CFR
414.222.
Thus, the portable oxygen concentrators have
multiple factors under paragraph (b)(2)(i) of this sec-
tion that tend to show they are regularly available for
purchase and use by individual consumers and only
one factor under paragraph (b)(2)(ii) of this section
that tends to show they are designed primarily for
use in a medical institution or office or by medical
professionals. Based on the totality of the facts and
circumstances, the portable oxygen concentrators are
devices that are of a type thatare generally purchased
by the general public at retail for individual use.
Example 11. X manufactures urinary ileostomy
bags. X sells the urinary ileostomy bags to distribu-
tors Y and Z, which, in turn, sell the urinary ileostomy
bags to medical institutions and offices, medical pro-
fessionals, and retail businesses. The FDA requires
manufacturers of urinary ileostomy bags to list the
items as devices with the FDA. The FDA classifies
the urinary ileostomy bags under 21 CFR part 876
(Gastroenterology — Urology Devices) and product
code EXH.
The urinary ileostomy bags are “Prosthetic and
orthotic devices,” as defined in 42 CFR 414.202, that
do not require implantation or insertion by a med-
ical professional. Therefore, the urinary ileostomy
bags fall within the safe harbor set forth in paragraph
(b)(2)(iii)(D)(1) of this section. Accordingly, the uri-
nary ileostomy bags are devices that are of a type gen-
erally purchased by the general public at retail for in-
dividual use.
Example 12. X manufactures nonabsorbable silk
sutures. X sells the nonabsorbable silk sutures to
distributors Y and Z, which, in turn, sell the nonab-
sorbable silk sutures to medical institutions and of-
fices, medical professionals, and retail businesses.
The FDA requires manufacturers of nonabsorbable
silk sutures to list the items as devices with the FDA.
The FDA classifies the nonabsorbable silk sutures un-
der 21 CFR part 878 (General and Plastic Surgery De-
vices) and product code GAP.
Nonabsorbable silk sutures do not fall within a
retail exemption safe harbor set forth in paragraph
(b)(2)(iii) of this section. Therefore, the determina-
tion of whether the nonabsorbable silk sutures are de-
vices of a type generally purchased by the general
public at retail for individual use must be made on
a facts and circumstances basis.
Individual consumers who are not medical pro-
fessionals can regularly purchase the nonabsorbable
silk sutures over the internet. However, individual
consumers cannot use nonabsorbable silk sutures
safely and effectively for their intended medical
purpose with minimal or no training from a medical
professional. Further, although the nonabsorbable
silk sutures do not require a large investment and/or
ongoing expenditure, are not Class III devices, and
are not “items requiring frequent and substantial
servicing” as defined in 42 CFR 414.222, the nonab-
sorbable silk sutures are classified by the FDA under
a category described in paragraph (b)(2)(ii)(D) of
this section, and they need to be administered by a
medical professional.
Thus, with regard to the factors under paragraph
(b)(2)(i) of this section, the nonabsorbable silk su-
tures have one factor that tends to show they are reg-
ularly available for purchase and use by individual
consumers and one factor that tends to show that they
are not regularly available for purchase and use by in-
dividual consumers. With regard to the factors under
paragraph (b)(2)(ii) of this section, the nonabsorbable
silk sutures have multiple factors that tend to show
they are designed primarily for use in a medical insti-
tutionorofficeorbymedicalprofessionals.Basedon
the totality of the facts and circumstances, the nonab-
sorbable silk sutures are not devices that are of a type
that are generally purchased by the general public at
retail for individual use.
Example 13. X manufactures nuclear magnetic
resonance imaging (NMRI) systems (also known as
magnetic resonance imaging (MRI) systems). X sells
the NMRI systems to distributor Y, which, in turn,
sells the systems to medical institutions. The FDA
requires manufacturers of NMRI systems to list the
systems as a device with the FDA. The FDA classi-
fies the magnetic resonance diagnostic device under
21 CFR part 892 (Radiology Devices) and product
code LNH.
NMRI systems do not fall within a retail exemp-
tion safe harbor set forth in paragraph (b)(2)(iii) of
this section. Therefore, the determination of whether
the NMRI systems are devices of a type generally pur-
chased by the general public at retail for individual
use must be made on a facts and circumstances basis.
Individual consumers who are not medical pro-
fessionals may be able to regularly purchase the
NMRI systems over the internet. However, individ-
ual consumers cannot use the NMRI systems safely
and effectively for their intended medical purpose
without training from a medical professional. Al-
though the NMRI systems are not Class III devices
and are not “items requiring frequent and substantial
2012–52 I.R.B.744December 27, 2012

servicing” as defined in 42 CFR 414.222, they need
to be operated by a medical professional, and are of
a type classified by the FDA under 21 CFR part 892
(Radiology Devices). Further, the cost to acquire,
maintain, and/or use the NMRI systems requires a
large initial investment and/or ongoing expenditure
that is not affordable for the average consumer.
Thus, with regard to the factors under paragraph
(b)(2)(i), the NMRI systems have, at most, one fac-
tor that tends to show that they are regularly avail-
able for purchase and use by individual consumers
and at least one factor that tends to show that they are
not regularly available for purchase and use by indi-
vidual consumers. With regard to the factors under
paragraph (b)(2)(ii), the NMRI systems have multiple
factors that tend to show they are designed primarily
for use in a medical institution or office or by med-
ical professionals. Based on the totality of the facts
and circumstances, the NMRI systems are not devices
that are of a type generally purchased by the general
public at retail for individual use.
Example 14. X manufactures therapeutic AC
powered adjustable home use beds. X sells the beds
to distributors Y and Z, which, in turn, sell the beds
to retail businesses. The FDA requires manufacturers
of therapeutic AC powered adjustable home use beds
to list the items as devices with the FDA. The FDA
classifies the therapeutic AC powered adjustable
home use beds under 21 CFR part 880 (General
Hospital Devices) and product code LLI.
Therapeutic AC powered adjustable home use
beds do not fall within a retail exemption safe har-
bor set forth in paragraph (b)(2)(iii) of this section.
Therefore, the determination of whether the beds are
devices of a type generally purchased by the general
public at retail for individual use must be made on a
facts and circumstances basis.
Although the beds may require a large initial
investment and/or ongoing expenditure, individual
consumers who are not medical professionals can
regularly purchase the beds in medical specialty
stores or from DME suppliers, as well as over the
internet. In addition, individual consumers can use
the beds safely and effectively for their intended
medical purpose with minimal or no training from
a medical professional. Further, the beds are not
classified by the FDA under a category described in
paragraph (b)(2)(ii)(D) of this section, do not need
to be implanted, inserted, operated, or otherwise
administered by a medical professional, are not Class
III devices, and are not “items requiring frequent and
substantial servicing” as defined in 42 CFR 414.222.
Thus, the therapeutic AC powered adjustable
home use beds have multiple factors under paragraph
(b)(2)(i) of this section that tend to show they are
regularly available for purchase and use by individ-
ual consumers and, at most, only one factor under
paragraph (b)(2)(ii) of this section that tends to show
they are designed primarily for use in a medical in-
stitution or office or by medical professionals. Based
on the totality of the facts and circumstances, the
therapeutic AC powered adjustable home use beds
are devices that are of a type that are generally pur-
chased by the general public at retail for individual
use.
Example 15. X manufactures powered flotation
therapy beds. X sells the beds to distributors Y and
Z, which, in turn, sell the beds to medical institutions
and offices, and medical professionals. The FDA
requires manufacturers of powered flotation therapy
beds to list the items as devices with the FDA. The
FDA classifies the powered flotation therapy beds un-
der 21 CFR part 890 (Physical Medicine Devices) and
product code IOQ.
Powered flotation therapy beds do not fall within
a retail exemption safe harbor set forth in paragraph
(b)(2)(iii) of this section. Therefore, the determina-
tion of whether the beds are devices of a type gener-
ally purchased by the general public at retail for indi-
vidual use must be made on a facts and circumstances
basis.
Individual consumers who are not medical pro-
fessionals may be able to regularly purchase the beds
over the internet. However, individual consumers
cannot use the beds safely and effectively for their
intended medical purpose with minimal or no train-
ing from a medical professional. Although the pow-
ered flotation therapy beds are not Class III devices
and are not “items requiring frequent and substantial
servicing” as defined in 42 CFR 414.222, they need
to be operated or otherwise administered by a med-
ical professional. Further, the cost to acquire, main-
tain, and/or use the powered flotation therapy beds
requires a large initial investment and/or ongoing ex-
penditure that is not affordable for the average con-
sumer.
Thus, with regard to the factors under paragraph
(b)(2)(i) of this section, the powered flotation therapy
beds have, at most, one factor that tends to show they
are regularly available for purchase and use by indi-
vidual consumers and at least one factor that tends
to show they are not regularly available for purchase
and use by individual consumers. With regard to the
factors under paragraph (b)(2)(ii) of this section, the
powered flotation therapy beds have multiple factors
that tend to show they are designed primarily for use
in a medical institution or office or by medical pro-
fessionals. Based on the totality of the facts and cir-
cumstances, the powered flotation therapy beds are
not devices that are of a type that are generally pur-
chased by the general public at retail for individual
use.
(c)Effective/applicability date.This
section applies to sales of taxable medical
devices on and after January 1, 2013.
Par. 4. Section 48.4216(c)–1 is
amended by adding paragraphs (e)(1),
(e)(2), and (e)(3) to read as follows:
§48.4216(c)–1 Computation of tax on
leases and installment sales.
*****
(e)Contracts for the lease, installment
sale, or sale on credit, of a taxable medical
device.
(1)General rule. Payments made on or
after January 1, 2013, pursuant to a con-
tract 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,
and the provisions of paragraphs (a), (b),
and (c) of this section apply.
(2)Exception for payments made on or
after January 1, 2013, pursuant to written
binding contracts entered into prior to
March 30, 2010. Payments made on or
after January 1, 2013, pursuant to a written
binding contract for the lease, installment
sale, or sale on credit of a taxable medical
device that was in effect prior to March 30,
2010, are not subject to tax under section
4191. This exception includes payments
made on or after January 1, 2013, if they
are made pursuant to a written binding
contract that was entered into prior to
March 30, 2010. This exception does
not apply to payments made under any
contract that is materially modified on or
after March 30, 2010. For this purpose,
a material modification includes only
a modification that materially affects
thepropertytobeprovidedunderthe
contract, the terms of payment under the
contract, or the amount payable under the
contract. Notwithstanding the foregoing,
a material modification does not include
a modification to the contract required by
applicable Federal, State, or local law.
(3)Effective/applicability date.This
section applies on and after January 1,
2013.
Par. 5. Section 48.4221–1 is amended
by adding paragraph (a)(2)(vii) to read as
follows:
§48.422
1–1 Tax-free sales; general rule.
(a) * * *
(2) * * *
(vii) The exemptions under section
4221(a)(3) through (a)(6) do not apply to
the tax imposed by section 4191 (medical
device tax).
*****
Par. 6. Section 48.6416(b)(2)–2 is
amended by adding paragraph (a)(4) to
read as follows:
§48.6416(b)(2)–2 Exportations, uses,
sales and resales included.
(a) * * *
(4) Beginning on January 1, 2013, sec-
tions 6416(b)(2)(B), (C), (D), and (E) do
not apply to any tax paid under section
4191 (medical device tax).
*****
December 27, 20127452012–52 I.R.B.

Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved November 30, 2012.
Mark J. Mazur,
Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on December 5,
2012, 8:45 a.m., and published in the issue of the Federal
Register for December 7, 2012, 77 F.R. 72924)
Section 4375.—Health
Insurance
26 CFR 40.0–1: Introduction.
T.D. 9602
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 40, 46, and 602
Fees on Health Insurance
Policies and Self-Insured
Plans for the Patient-Centered
Outcomes Research Trust
Fund
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that implement and pro-
vide guidance on the fees imposed by the
Patient Protection and Affordable Care
Act on issuers of certain health insur-
ance policies and plan sponsors of certain
self-insured health plans to fund the Pa-
tient-Centered Outcomes Research Trust
Fund. These final regulations affect the
issuers and plan sponsors that are directed
to pay those fees.
DATES:Effective Date:These regulations
are effective December 6, 2012.
Applicability Date:These regulations
apply to policy and plan years ending
on or after October1, 2012, and before
October 1, 2019.
FOR FURTHER INFORMATION
CONTACT: R. Lisa Mojiri-Azad at (202)
622–6080 (regarding self-insured health
arrangements) or Rebecca L. Baxter at
(202) 622–3970 (regarding health insur-
ance policies).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545–2238. The collections of in-
formation in these final regulations are in
§46.4375–1(c)(2)(iv) (use of the snapshot
method to calculate the fee under section
4375); §46.4375–1(c)(2)(v) (use of the
National Association of Insurance Com-
missioners (NAIC) Supplemental Health
Care Exhibit to calculate the fee under
section 4375); §46.4375–1(c)(2)(vi) (use
of certain state forms to calculate the fee
under section 4375); §46.4376–1(b)(2)(G)
(identification or designation of a plan
sponsor under the governing plan docu-
ment for certain applicable self-insured
health plans); §46.4376–1(c)(2)(iv) (use of
snapshot method to calculate the fee under
section 4376); and §46.4376–1(c)(2)(v)
(use of the Form 5500, “Annual Re-
turn/Report of Employee Benefit Plan,”
or Form 5500-SF, “Short Form Annual
Return/ReportofEmployeeBenefitPlan”
to calculate the fee under section 4376).
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
This document contains final amend-
ments to 26 CFR part 40 (Excise Tax
Procedural Regulations) and 26 CFR part
46 (relating to excise taxes imposed on
policies issued by foreign insurers and
obligations not in registered form) to im-
plement the requirements under sections
4375 through 4377 of the Internal Revenue
Code (Code). The Treasury Department
and the IRS issued proposed regulations
under sections 4375 through 4377 on
April 17, 2012 (77 FR 22,691). Sections
4375 and 4376 of the Code impose fees
on issuers of specified health insurance
policies and plan sponsors of applicable
self-insured health plans, and section 4377
contains special rules that apply to these
issuers and plan sponsors with respect to
these fees. Sections 4375, 4376, and 4377
were added to the Code by section 6301
of the Patient Protection and Affordable
Care Act (Affordable Care Act), Public
Law 111–148 (124 Stat. 119 (2010)).
The Affordable Care Act provides for
the establishment of the private, nonprofit
corporation, the Patient-Centered Out-
comes Research Institute (the “Institute”).
Through research, the Institute will assist
patients, clinicians, purchasers, and pol-
icy-makers in making informed health de-
cisions by advancing the quality and rele-
vance of evidence-based medicine through
the synthesis and dissemination of com-
parative clinical effectiveness research
findings. The statute specifically pro-
hibits the Secretary of Health and Human
Services (HHS) from using the evidence
or findings of the research conducted in
determining coverage, reimbursement, or
incentive programs unless it is through an
iterative and transparent process which
includes public comment and considers
the effect on subpopulations. Nothing
under this provision allows the Secretary
of HHS to deny coverage of items or ser-
vices solely on the basis of comparative
clinical effectiveness research. The statute
provides that the Institute will not develop
a dollars-per-quality-life-year estimate as
a threshold to establish effective or rec-
ommended care.
Section 6301 of the Affordable Care
Act amended the Code by adding new sec-
tion 9511 to establish the Patient-Centered
Outcomes Research Trust Fund (the “Trust
Fund”), which is the funding source for
the Institute. Section 6301 of the Afford-
able Care Act also added new Code sec-
tions 4375, 4376, and 4377 to provide a
funding source for the Trust Fund that is
to be financed, in part, by fees to be paid
by issuers of specified health insurance
policies and sponsors of applicable self-in-
sured health plans.
2012–52 I.R.B.746December 27, 2012

Statutory Provisions
Section 4375 imposes a fee on an is-
suer of a specified health insurance policy
for each policy year ending on or after
October 1, 2012, and before October 1,
2019. Under section 4375(a), the fee is
two dollars (one dollar in the case of pol-
icy years ending before October 1, 2013)
multiplied by the average number of lives
covered under the policy. Under section
4375(d), for policy years ending on or after
October 1, 2014, the fee is increased based
on increases in the projected per capita
amount of National Health Expenditures.
Section 4375(b) provides that the fee
imposed by section 4375(a) shall be paid
by the issuer of the policy.
Section 4375(c) defines aspecified
health insurance policyas any accident
or health insurance policy (including a
policy under a group health plan) issued
with respect to individuals residing in
the United States. Section 4375(c)(2) ex-
cludes from a specified health insurance
policy any insurance if substantially all
of its coverage is of excepted benefits
described in section 9832(c). Section
4375(c)(3) provides that a specified health
insurance policy includes any prepaid
health coverage arrangement described in
section 4375(c)(3)(B). An arrangement
is described in section 4375(c)(3)(B) if,
under the arrangement, fixed payments or
premiums are received as consideration
for a person’s agreement to provide or
arrange for the provision of accident or
health coverage to residents of the United
States, regardless of how the coverage is
provided or arranged to be provided.
Section 4376 imposes a fee on a plan
sponsor of an applicable self-insured
health plan for each plan year ending
on or after October1, 2012, and before
October 1, 2019.
1
Under section 4376(a),
the fee is two dollars (one dollar for plan
years ending before October 1, 2013)
multiplied by the average number of lives
covered under the plan. Under section
4376(d), for plan years ending on or after
October 1, 2014, the fee is increased based
on increases in the projectedper capita
amount of National Health Expenditures.
Section 4376(b)(1) provides that the fee
imposed by section 4376(a) shall be paid
by the plan sponsor.
Section 4376(b)(2) defines aplan spon-
soras the employer in the case of a plan
established or maintained by a single em-
ployer, or the employee organization in the
case of a plan established or maintained
by an employee organization. Section
4376(b)(2) also provides that, in the case
of (1) a plan established or maintained
by two or more employers or jointly by
one or more employers and one or more
employee organizations, (2) a multiple
employer welfare arrangement, or (3) a
voluntary employees’ beneficiary asso-
ciation described in section 501(c)(9),
the plan sponsor is the association, com-
mittee, joint board of trustees, or other
similar group of representatives of the
parties who establish or maintain the plan.
Section 4376(b)(2) further provides that
in the case of a plan established or main-
tained by a rural electric cooperative (as
defined in section 3(40)(B)(iv) of the Em-
ployee Retirement Income Security Act of
1974 (ERISA)) or rural telephone coop-
erative association (asdefinedinsection
3(40)(B)(v) of ERISA), the plan sponsor
is the cooperative or association that es-
tablished or maintained the plan.
Section 4376(c) defines anapplicable
self-insured health planas any plan for
providing accident or health coverage if
any portion of the coverage is provided
other than through an insurance policy, and
the plan is established or maintained (1)
by one or more employers for the benefit
of their employees or former employees,
(2) by one or more employee organizations
for the benefit of their members or former
members, (3) jointly by one or more em-
ployers and one or more employee orga-
nizations for the benefit of employees or
former employees, (4) by a voluntary em-
ployees’ beneficiary association described
in section 501(c)(9), (5) by any organiza-
tion described in section 501(c)(6), or (6)
if not previously described, by a multi-
ple employer welfare arrangement (as de-
fined in section 3(40) of ERISA), a rural
electric cooperative (as defined in section
3(40)(B)(iv) of ERISA), or a rural tele-
phone cooperative association (as defined
in section 3(40)(B)(v) of ERISA).
Section 4377 includes definitions and
special rules that apply for purposes of sec-
tions 4375 and 4376. Section 4377(a)(1)
definesaccident and health coverageas
any coverage that, if provided by an insur-
ance policy, would cause the policy to be
a specified health insurance policy (as de-
finedinsection4375(c)).
Section 4377(b)(1)(B) provides that
“[n]otwithstanding any other law or rule
of law, governmental entities shall not be
exempt from” the fees imposed by sec-
tions 4375 and 4376 unless the policy or
plan is an exempt governmental program.
Section 4377(b)(3) defines anexempt gov-
ernmental programas (1) any insurance
program established under title XVIII of
the Social Security Act (42 U.S.C. 1395
et. seq.) (Medicare), (2) the medical
assistance program established by title
XIX (42 U.S.C. 1396et. seq.)(Medic-
aid) or title XXI of the Social Security
Act (42 U.S.C. 1397aaet. seq.) (Chil-
dren’s Health Insurance Program), (3) any
program established by Federal law for
providing medical care (other than through
insurance policies) to individuals (or the
spouses and dependents thereof) by rea-
son of such individuals being members of
the Armed Forces of the United States or
veterans, and (4) any program established
by Federal law for providing medical care
(other than through insurance policies) to
members of Indian tribes (as defined in
section 4(d) of the Indian Health Care Im-
provement Act, 25 U.S.C. 1603). Under
these special rules, a governmental entity
(including a federally recognized Indian
tribal government) that is the plan sponsor
of an applicable self-insured health plan
that does not meet the definition of an
exempt governmental program must pay
the fee imposed by section 4376.
Section 4377(c) provides that the fees
imposed by sections 4375 and 4376 are
treated as taxes for purposes of subtitle F of
the Code (sections 6001 through 7874 that
set forth the rules of federal tax procedure
and administration).
Notice 2011–35 and Proposed Regulations
On June 8, 2011, the IRS released No-
tice 2011–35, 2011–25 I.R.B. 879, which
requested comments on how the fees
1
The Department of Labor has advised that, because the fee is imposed on theplan sponsor under section 4376 (instead of the plan), paying the PCORI fee generally does not constitute
a permissible expense of the plan for purposes of Title I of the Employee Retirement Income Security Act (ERISA), although special circumstances may exist in limited situations. The
Department of Labor will provide guidance in the near future on PCORI fee payments under Title I of ERISA on its website,www.dol.gov/ebsa.
December 27, 20127472012–52 I.R.B.

imposed under sections 4375 and 4376
(referred to collectively as the PCORI fee)
should be calculated and paid, including
possible rules and safe harbors. The Trea-
sury Department and the IRS received
numerous comments in response to Notice
2011–35 and considered all comments
in issuing proposed regulations under
sections 4375, 4376, and 4377 (77 FR
22,691). The Treasury Department and the
IRS received 26 written comments on the
proposed regulations. After consideration
of the comments, these final regulations
adopt the provisions of the proposed reg-
ulations with certain modifications, the
most significant of which are highlighted
in the Summary of Comments and Expla-
nation of Revisions. See §601.601(d)(2).
Summary of Comments and
Explanation of Revisions
I. Health insurance policies subject to the
PCORI fee
Section 4375(a) imposes a fee on an
issuer of a specified health insurance pol-
icy for each policy year ending on or after
October 1, 2012, and before October 1,
2019. Section 46.4375–1(b)(1) of these
regulations defines aspecified health in-
surance policyas any accident and health
insurance policy (including a policy under
a group health plan) issued with respect to
individuals residing in the United States.
Section 46.4375–1(b)(1)(ii) provides ex-
ceptions to the termspecified health in-
surance policy. Section 4375(c)(2) and
§46.4375–1(b)(1)(ii)(A) provide an ex-
clusion for any insurance if substantially
all of its coverage is of excepted bene-
fits described in section 9832(c). While
§46.4376–1(b)(ii)(B) excludes from the
definition of applicable self-insured health
plan an employee assistance program
(EAP), disease management program, or
wellness program, if the program does not
provide significant benefits in the nature
of medical care or treatment, no similar
exclusion was included in the proposed
regulations for a specified health insurance
policy.
One commentator explained that Cal-
ifornia and Nevada regulate EAPs that
provide for four or more counseling,
treatment, or therapy visits as insurance
thereby requiring the issuance of an in-
surance policy. The commentator argued
that in any other state, identical EAPs
would be excluded from the definition
of applicable self-insured plan and not
subject to the PCORI fee. In recogni-
tion of the unique California and Nevada
requirements that certain employee assis-
tance plans be treated as insurance, the
commentator asked that an exception be
addedtothedefinition of specified health
insurance policy to exclude those EAPs.
In response to this comment, these final
regulations provide that the definition of
aspecified health insurance policydoes
not include any insurance policy to the
extent that the policy provides for an EAP,
disease management program, or wellness
program, if the program does not provide
significant benefits in the nature of med-
ical care or treatment. No inference is
intended whether the specific health ben-
efits cited by the commentator constitute
insignificant benefits.
II. Retiree coverage and retiree-only plans
As noted in the preamble to the pro-
posed regulations, sections 4375 and 4376
may apply to a retiree-only plan because,
although group health plans that have
fewer than two participants who are cur-
rent employees (such as retiree-only plans)
are excluded from the requirements of
chapter 100 (setting forth requirements
applicable to group health plans such as
portability, nondiscrimination, and mar-
ket reform requirements), this exclusion
does not apply to sections 4375 and 4376
because these sections are in chapter 34.
In addition, section 4376(c)(2)(A) states
explicitly that an applicable self-insured
health plan includes a plan established
or maintained by one or more employ-
ers for the benefit oftheir employees or
former employees. Some commentators
requested that the final regulations ex-
empt from the PCORI fee retiree coverage
on public policy grounds, but generally
agreed that a retiree-only insured plan
or retiree coverage under an applicable
self-insured health plan may be subject
to the PCORI fee. Consistent with the
statutory language, the final regulations
apply the PCORI fee to specified health
insurance policies or applicable self-in-
sured health plans that provide accident
and health coverage to retirees, including
retiree-only policies and plans.
III. COBRA coverage
Commentators requested clarification
of whether sections 4375 and 4376 apply
to continuation coverage required under
the Consolidated Omnibus Budget Recon-
ciliation Act of 1985 (COBRA) or similar
continuation coverage under other federal
law or under state law (referred to col-
lectively as “continuation coverage”) and
asked that the final regulations explicitly
exclude continuation coverage from appli-
cation of those sections. If the coverage
provided under the continuation cover-
age arrangement is accident and health
coverage, there is no basis to exclude the
arrangement from the PCORI fee. The
requirements of sections 4375 and 4376
apply to specified health insurance policies
that provide accident and health coverage
and plans that are applicable self-insured
health plans, regardless of whether pro-
vided through the individual market, to an
active employee as part of a group health
plan, or as continuation coverage to an
active employee, former employee, or oth-
erwise qualifying beneficiary. In response
to comments, these final regulations state
explicitly that continuation coverage must
be taken into account in determining the
PCORI fee, unless the arrangement is oth-
erwise excluded.
IV. Lives taken into account in calculating
the fee
The fee imposed on an issuer of a spec-
ified health insurance policy under sec-
tion 4375 is based on the average num-
ber of lives covered under the policy dur-
ing the policy year. The fee imposed on a
plan sponsor of an applicable self-insured
health plan under section 4376 is based on
the average number of lives covered under
the plan during the plan year.
Commentators acknowledged that sep-
arate fees are imposed by sections 4375
and 4376, but argued that this only reflects
congressional intent for the PCORI fee to
extend to both insured and self-insured
arrangements. Several commentators re-
quested that the final regulations provide
that the PCORI fee does not apply mul-
tiple times if accident and health cover-
age is provided to one individual through
more than one policy or self-insured ar-
rangement (for example, where an indi-
vidual is covered by a fully-insured ma-
2012–52 I.R.B.748December 27, 2012

jor medical insurance policy and a self-in-
sured prescription arrangement). Com-
mentators also requested that the final reg-
ulations clarify that the issuer or plan spon-
sor is required to pay only once with re-
spect to each covered life under the spec-
ified health insurance policy or applicable
self-insured health plan.
The final regulations do not adopt the
requested change that the fee apply only
once with respect to each covered life
because it would be contrary to the ex-
plicit statutory language applying the fee
to each specified health insurance policy
or applicable self-insured health plan. For
example, for an employee covered by
both a group insurance policy and a health
reimbursement arrangement (HRA), the
group insurance policy falls within the
definition of a specified health insurance
policy to which section 4375 applies a fee,
and the HRA falls within the definition
of an applicable self-insured health plan,
to which section 4376 applies a fee to
the plan sponsor. Because there are no
allocation rules or other method of ap-
plying the fee on an aggregated basis in
the statute or legislative history, there is
no evidence that the statutory provisions
were intended to be applied in a manner
that aggregated these separate arrange-
ments for a single covered individual and
allocated the fee between them. However,
in response to comments, the final regu-
lations permit an applicable self-insured
health plan that provides accident and
health coverage through fully-insured op-
tions and self-insured options to determine
the fee imposed by section 4376 by dis-
regarding the lives that are covered solely
under the fully-insured options. (See also
discussion under section V of this pre-
amble relating to the special rule for plan
sponsors that establish or maintain mul-
tiple self-insured arrangements with the
same plan year and section VI of this pre-
amble relating to special rules for health
reimbursement arrangements and flexible
spending arrangements). Except as oth-
erwise provided, the final regulations do
not permit an issuer or plan sponsor to
disregard a covered life merely because
that individual is also covered under an-
other specified health insurance policy or
applicable self-insurance plan.
V. Lives covered under multiple policies
or plans
Section 46.4376–1(b)(1)(iii) of the pro-
posed regulations provided that for pur-
poses of section 4376, two or more ar-
rangements established or maintained by
the same plan sponsor that provide for
accident and health coverage other than
through an insurance policy and that have
the same plan year may be treated as a sin-
gle applicable self-insured health plan for
purposes of calculating the fee imposed by
section 4376.
A few commentators described self-in-
sured arrangements that are coordinated
with an underlying health plan, including
a plan of an unrelated entity. Commenta-
tors pointed to collectively bargained ar-
rangements under which the union spon-
sors a prescription-only or premium-only
plan that is tied to an insured health plan
of the employers that have entered into a
collective bargaining agreement between
the employee representatives and one or
more employers. These commentators re-
quested that the final regulations include
special rules that exempt from the PCORI
fee certain applicableself-insured health
plans that are established or maintained by
a union because the lives covered under the
union plan are taken into account for the
fee imposed on the employer, if the em-
ployer’s plan is also anapplicable self-in-
sured health plan, or the issuer, if the em-
ployer’s plan is an insured plan. One com-
mentator requested that the final regula-
tions permit collectively bargained plans
to be aggregated with the employer’s plan,
without regard to whether they have the
same sponsor or plan year, for purposes
of determining the fee with respect to the
same lives covered.
One commentator pointed out that the
Medical Loss Ratio (MLR) Interim Fi-
nal Rule issued by HHS allows affiliated
issuers to report their premiums and ex-
penditures on an aggregate basis if one
issuer provides in-network coverage and
the second provides out-of network cov-
erage for one group health plan. The
commentator requested the same approach
provided in §46.4376–1(b)(1)(iii) (permit-
ting two or more applicable self-insured
health plans with the same plan sponsor
and same plan year to be treated as a sin-
gle applicable self-insured health plan)
be provided for group health plans that
provide separate benefits to a participant
or beneficiary during the same plan year
under two or more insurance policies or
through a self-insured plan and an insured
plan. Specifically, the commentator sug-
gested that if insurance policies covering
the same individual qualify for aggrega-
tion under the MLR rebate reporting rules,
the IRS should allow issuers to aggregate
their policies for purposes of the PCORI
fee.
Sections 4375 and 4376 specifically ap-
ply the PCORI fee to, respectively, an is-
suer of a specified health insurance policy
and to the sponsor of an applicable self-in-
sured health plan (subject to certain ex-
ceptions). The commentators have shown
no statutory basis for combining arrange-
ments involving different issuers or differ-
ent plan sponsors. The statute specifically
contemplated that different arrangements
having different plan sponsors would be
subject to separate fees imposed by section
4376. See section 4376(b)(2) (naming the
different types of plan sponsors for differ-
ent types of applicable self-insured health
plans). Commentators, however, point to
the proposed rule, adopted in these final
regulations, permitting a plan sponsor to
treat two different applicable self-insured
health plans with the same plan year and
plan sponsor as one plan as the basis for
adopting the suggested change. There is
no significant difference between that ar-
rangement and a single plan, or “umbrella”
plan containing both self-insured arrange-
ments. In contrast, if the two arrangements
are sponsored by two different plan spon-
sors, there is no single plan equivalent. Ac-
cordingly, this suggestion is not adopted in
the final regulations.
VI. Health reimbursement arrangements
(HRAs) and flexible spending
arrangements (FSAs)
Section 46.4376–1(b)(1)(ii) of the pro-
posed regulations defined an applicable
self-insured health plan to include HRAs
(as described in Notice 2002–45, 2002–2
C.B. 93) and health flexible spending
arrangements (as described in section
106(c)(2)) (FSAs) that do not satisfy the
requirements to be treated as an excepted
benefit (within the meaning of section
9832(c) and §54.9831–1(c)(3)(v)). The
proposed regulations also provided addi-
tional rules that permitted the plan spon-
December 27, 20127492012–52 I.R.B.

sor to assume one covered life for each
employee with an HRA and for each em-
ployee with an FSA that is not an excepted
benefit. The final regulations retain these
rules. See §601.601(d)(2).
Commentators requested that the def-
inition of applicable self-insured health
plan be revised to exclude all HRAs, or
alternatively that the final regulations
exclude from the definition HRAs that
are “integrated” with coverage under a
self-insured or fully-insured arrangement.
One commentator requested that the final
regulations exempt from the definition of
applicable self-insured health plan pre-
mium-only HRAs for Medicare-eligible
retirees. As discussed in the preamble
to the proposed regulations, an HRA is
not subject to a separate fee under section
4376 if the plan sponsor also maintains
a separate applicable self-insured health
plan with a calendar year (referred to as
the other plan). In such circumstances,
the plan sponsor is permitted to treat the
HRA and other plan as a single applica-
ble self-insured health plan for purposes
of section 4376 and therefore determine
and pay the PCORI fee once with respect
to each life covered under the HRA and
other plan. Because the statutory structure
provides that the fee imposed by section
4375 is separate from the fee imposed
by section 4376, these regulations do not
permit a plan sponsor to treat the HRA
and a fully-insured plan as a single plan or
arrangement for purposes of the PCORI
fee, and these final regulations include ad-
ditional examples to clarify the application
of the PCORI fee to an HRA, including an
HRA and other plan.
For the same reasons, the final regula-
tions do not adopt the request to provide
that the PCORI fee does not apply to an
employee’s FSA that does not meet the re-
quirements for being an excepted benefit if
the employee is covered by a major medi-
cal plan.
VII. Determination of whether an
individual is residing in the United States
The termspecified health insurance
policyincludes only an accident and health
insurance policy that is issued with respect
to an individual residing in the United
States. The final regulations adopt the rule
in the proposed regulations that provides
that if the address on file with the issuer
or plan sponsor for the primary insured
is outside of the United States, the issuer
or plan sponsor may treat the primary in-
sured and the primary insured’s spouse,
dependents, or other beneficiaries covered
under the policy as having the same place
of abode and not residing in the United
States. For this purpose, the termprimary
insuredrefers to the individual covered by
the policy whose eligibility for coverage
was not due to his or her status as a spouse,
dependent, or other beneficiary of another
insured individual. Also as provided in
the proposed regulations, these final reg-
ulations clarify that for purposes of the
PCORI fee, “an individual residing in the
United States” means an individual who
has a place of abode in the United States.
Two commentators suggested that an is-
suer or plan sponsor should be permitted
to find that a primary insured who is on a
temporary U.S. visa does not have a place
of abode in the United States. The com-
mentators argued that because many (if not
most) health insurance issuers offering ex-
patriate plans request, for compliance pur-
poses, an overview of citizenship and visa
status from an employee covered under
an employer-sponsored international plan,
visa information and citizenship informa-
tion should be available to them and can
berelieduponindeterminingwhetherthe
employee’s place of abode is the United
States or elsewhere.
The final regulations do not adopt this
requested change. To exclude covered in-
dividuals who are residing in the United
States would be contrary to Congressional
intent that the PCORI fee applies to poli-
cies and plans that cover individuals resid-
ingintheUnitedStates. An individual on
a temporary U.S. visa who has a place of
abode in the United States is residing in
the United States. For purposes of sections
4375, 4376, and 4377, the determination of
place of abode is based on the most recent
address on file with the issuer or plan spon-
sor.
VIII. Self-insured expatriate plans
As in the proposed regulations, these fi-
nal regulations provide that the termspec-
ified health insurance policydoes not in-
clude any group policy issued to an em-
ployer if the facts and circumstances show
that the group policy was designed and is-
sued specifically to cover primarily em-
ployees who are working and residing out-
side of the United States. One commenta-
tor requested clarification that similar self-
insured plans are also excepted for pur-
poses of the fee under section 4376. The
final regulations clarify that the termap-
plicable self-insured health plandoes not
include a self-insured plan if the facts and
circumstances show that the self-insured
plan was designed specifically to cover
primarily employees who are working and
residing outside of the United States.
IX. Additional rules for determining the
applicable fee
Under the proposed regulations, issuers
and plan sponsors were permitted to use al-
ternative methods for determining the av-
erage number of lives for the year. Issuers
could choose any of four alternative meth-
ods to determine the average number of
lives covered under policies that it issues
for purposes of the fee imposed by sec-
tion 4375: (1) the actual count method,
(2) the snapshot method, (3) the mem-
ber months method, or (4) the state form
method. While the actual count and snap-
shot methods count lives covered on the
policy-by-policy basis for each policy hav-
ing a policy year that ends in the report-
ing period (which is based on the calen-
dar year), the member months or state form
methods count all lives covered during the
calendar year for all policies in effect dur-
ing the calendar year irrespective of when
actual policy years end. Plan sponsors
could use one of three alternative methods
to determine the average number of lives
covered under a plan for purposes of the
fee imposed by section 4376: (1) the actual
count method, (2) the snapshot method, or
(3) the Form 5500 method.
One of the permitted methods — the
“snapshot method” — would have re-
quired issuers and plan sponsors to de-
termine the average lives by adding the
number of lives covered on one date (or
an equal number of dates) in each quarter
during the plan year or policy year and di-
viding that sum by the number of dates on
which the count was made. Commentators
suggested that issuers and plan sponsors
using the snapshot method should not be
required to use the same date for each
quarter, but should be permitted to use
different dates to determine the number of
lives covered during a quarter to address
2012–52 I.R.B.750December 27, 2012

holidays, weekend days, or other simi-
lar issues. The Treasury Department and
the IRS recognize the need for flexibility
but also the need to avoid permitting is-
suers and plan sponsors to pick the most
advantageous dates (that is, the dates on
which the number of lives covered is the
lowest so that under the facts and cir-
cumstances the snapshot method does not
fairly approximate the average number of
lives covered for the applicable year). In
response to these comments, the final reg-
ulations require an issuer or a plan sponsor
that uses the snapshot method to determine
the counts used based on a date during
the first, second, or third month of each
quarter (or more dates in each quarter if
an equal number of dates is used for each
quarter). Each date used for the second,
third, and fourth quarters must be within
three days of the date in that quarter that
corresponds to the date used for the first
quarter, and all dates used must fall within
the same policy year or plan year. If an
issuer or plan sponsor uses multiple dates
for the first quarter, the issuer or plan spon-
sor must use dates in the second, third, and
fourth quarters that correspond to each of
the dates used for the first quarter or are
within three days of such corresponding
dates, and all dates used must fall within
the same policy year or plan year. The
30
th
and 31
st
day of a month are treated
as the last day of the month for purposes
of determining the corresponding date for
anymonththathasfewerthan31days(for
example, if either March 30 or 31 are used
as snapshot dates for a calendar year plan,
June 30 is the corresponding date for the
second quarter). Thus, for example, under
the final regulations, if a plan sponsor
uses the snapshot method to determine the
average number of lives covered under an
applicable self-insured health plan with a
calendar year plan year and uses Monday,
January 7, 2013, as the counting date for
the first quarter, the plan sponsor may
use any date beginning with Thursday,
April 4, 2013, and ending with Wednesday,
April 10, 2013, as the counting date for the
second quarter (because all of those days
are within three days of April 7, 2013,
the date that corresponds to the January 7,
2013 counting date for the first quarter).
One commentator stated that the actual
count and snapshot methods may pose sig-
nificant operational challenges for many
issuers. Because these methods require a
determination of the number of lives cov-
ered by reference to the policy year for
each health insurance policy that is sub-
ject to the fee, the commentator anticipates
that issuers with a significant number of
insurance policies that have policy years
that begin at different dates during a cal-
endar year will have difficulty implement-
ing this approach. The commentator sug-
gested that, regardless of the actual policy
year, issuers who choose to use the actual
count method should be permitted to mea-
sure lives covered on all days of a calendar
year and then divide the result by 365. The
commentator also suggested that, regard-
less of the actual policy year, issuers who
choose to use the snapshot method should
be permitted to measure lives covered us-
ing calendar year quarters and then aver-
age the results.
The final regulations do not adopt this
requested change. The fee imposed by sec-
tion 4375 applies to policies based on their
policy year. For administrative ease and to
facilitate the use of available information
that is compiled by issuers, these regula-
tions provide the member months method
and the state form method as alternatives
for all policies in effect during a calen-
dar year. Under each of these alternatives,
the data permitted to be used is already re-
ported by the issuer based on the calendar
year. Issuers may use calendar year in-
formation in lieu of policy year informa-
tion only if they use the member months
method or the state form method.
The member months data and the data
reported on state forms are based on the
calendar year. To adjust for the fee being
applicable to policy years ending after
September 30, 2012, but before January 1,
2013, and after December 31, 2018,
but before October 1, 2019, these final
regulations adopt thepro rataapproach
set out in the proposed regulations for
calculating the average number of lives
covered using the member months method
or the state form method for 2012 and
2019. For example, the member months
number for 2012 is divided by 12 and
the resulting number is multiplied by
one-quarter to arrive at the average number
of lives covered for October through
December 2012. The proposed regulations
further treated the amount calculated under
thispro rataapproach as the average
number of lives covered for policies with
policy years that end on or after October 1,
2012, and before January 1, 2013. Similar
rules are provided for 2019.
Commentators suggested that the spe-
cialpro rataapproach for calculating the
average number of lives covered using the
member months method or the state form
method for 2012 and 2019 should be ap-
plied to all years the fee is in effect, to
appropriately reflectthechangeinthefee
during each of such intervening years. One
commentator argued that this revision is
needed to prevent issuers that use these
methods from being unfairly penalized by
paying the rate determined as of Decem-
ber 31 of each year, resulting in an unan-
ticipated higher liability for an issuer using
those methods.
The final regulations do not adopt this
requested change. The specialpro rataap-
proach for calculating the average number
of lives covered was the least administra-
tively burdensome way for the first and
last policy years to which the fee applies
to incorporate data from the NAIC annual
report and similar state reporting require-
ments with the applicability dates for the
PCORI fee related to policy years ending
in 2012 and 2019. Other years are not af-
fected by the applicability date issues. In
addition, issuers are not required to use the
member months or state form method and
can use another permissible method.
X. Plan years subject to the PCORI fee
Thefeeimposedbysection4376ap-
plies to plan years ending on or after Oc-
tober 1, 2012, and before October 1, 2019.
Under the proposed regulations, an appli-
cable self-insured health plan was required
to determine the fee using the applicable
dollar amount that applies for the plan year
and the average number of lives covered
during the plan year. Unlike the section
4375 fee, which is based on policy years,
the application and amount of the section
4376 fee is based on the applicable dol-
lar amount under section 4376 that is in
effect on the last day of the plan year.
One commentator requested additional ex-
amples illustrating the plan years covered
by the fee, including the first plan year
to which the PCORI fee applies. In re-
sponse, §46.4376–1(a) of the final regu-
lations includes examples illustrating the
plan years (calendar and fiscal years) sub-
ject to the PCORI fee and the applicable
dollar amount that must be used to deter-
December 27, 20127512012–52 I.R.B.

mine the section 4376 fee for that plan
year.
XI. Reporting and payment deadline
Consistent with the proposed regula-
tions, these final regulations require an is-
suer of a specified health insurance policy
and plan sponsor of an applicable self-in-
sured health plan to report and pay the
PCORI fee for a policy year or plan year
no later than July 31 of the year following
the last day of the policy or plan year.
One commentator asked that the final
regulations provide that the reporting and
payment due date for a plan sponsor that
uses the Form 5500 method to determine
the PCORI fee be the due date (including
extensions) for the plan’s Form 5500. The
extended due date for a Form 5500 for a
plan with a calendar year plan year is gen-
erally October 15 of the following year. As
discussed earlier in this preamble, the In-
stitute is funded in part from the PCORI
fee. Under current rules, the PCORI fee
ceases to apply after the end of the last
policy and plan year ending before Octo-
ber 1, 2019, (with a due date of July 31,
2020) and funding for the Institute termi-
nates on September 30, 2019. This lag
between the last year of the PCORI fee
(policy and plan years ending before Oc-
tober 1, 2019) and the proposed due date
for the fee for the last year (July 31, 2020)
means that the PCORI fee collected for the
last year will not be available to the In-
stitute. A delay for policy or plan years
ending in years before 2019, as requested,
would permit the PCORI fee for the pol-
icyorplanyearendingduring2018tobe
paid after September 30, 2019, and result
in the Institute losing an additional year of
funding. Accordingly, the Treasury De-
partment and IRS have determined that de-
laying the proposed due date would re-
sult in additional complications and bur-
dens for the Institute. Thus, these final reg-
ulations retain the proposed rule set forth
in §40.6071(a)–1(c) that all plan sponsors
and issuers report and pay the PCORI fee
no later than July 31 of the calendar year
following the last day of the policy or plan
year.
XII. Correction and amendments of Form
720
One commentator requested that the fi-
nal regulations provide that plan sponsors
may correct, without penalty, inadvertent
errors if correction is within a specified pe-
riod or if the error isde minimis.These
final regulations do not adopt this change
and, therefore, do notexplicitly address
corrections. As discussed in the preamble
to the proposed regulations, the PCORI fee
must be reported and paid on the Form 720,
“Quarterly Federal Excise Tax Return.”
The applicable penalties related to late
filing of the applicable form or late pay-
ment of the applicable fee, however, may
be waived or abated if the issuer or plan
sponsor has reasonable cause and the fail-
ure was not due to willful neglect. See
§301.6651–1(c) relating to rules for show-
ing of reasonable cause. Issuers and plan
sponsors may use Form 720X, “Amended
Quarterly Federal Excise Tax Return,” to
make adjustments to liabilities reported on
a previously filed Form 720, including ad-
justments that result in an overpayment.
XIII. Special rules for first year fee is in
effect
The Treasury Department and the IRS
recognized when issuing the proposed reg-
ulations that in certain instances the policy
or plan year to which the PCORI fee would
apply had already commenced, and there-
fore that transition relief was appropriate
for purposes of counting lives covered un-
der the policy or plan during the period be-
fore the issuance of the proposed regula-
tions. Two commentators requested addi-
tional transition relief, including extending
the good faith compliance period provided
under the proposed regulations. These fi-
nal regulations do not adopt this request
because the Treasury Department and IRS
have determined that the relief provided in
the proposed regulations is sufficient.
Accordingly, consistent with the pro-
posed regulations, these final regulations
provide that an issuer using the actual
count method for determining the average
number of lives covered under a policy
with a policy year that ends on or after Oc-
tober 1, 2012, could begin counting lives
covered under a policy as of May 14, 2012
(30 days after the date that the proposed
regulations were published in theFederal
Register), rather than the first day of the
policy year, and divide by the appropriate
number of days remaining in the policy
year. Similarly, for policy years that end
on or after October 1, 2012, but that began
before May 14, 2012, these regulations
provide that issuers using the snapshot
method could use counts from quarters
beginning on or after May 14, 2012, to
determine the average number of lives
covered under the policy. These final
regulations also permit a plan sponsor to
use any reasonable method to determine
the average number of lives covered under
an applicable self-insured health plan
for a plan year beginning before July
11, 2012 (90 days after the date that the
proposed regulations were published in
the Federal Register), and ending on or
after October 1, 2012.
XIV. Third-party or affiliated insurer
reporting and payment
The proposed regulations did not per-
mit third-party reporting or payment of the
PCORI fee. One commentator requested
that the final regulations permit third-party
reporting and payment. Another commen-
tator requested that the final regulations
permit affiliated insurers to designate an
insurer that will be responsible for pay-
ment of the section 4375 fee as long as the
responsible insurer consents to such desig-
nation. Because the PCORI fee ceases to
apply to policy years and plan years that
end on or after October 1, 2019, the Trea-
sury Department and IRS have determined
that the burden and complexity that would
have to be addressed by issuers, plan spon-
sors and the IRS to develop and operate a
third-party reporting and payment regime
significantly outweigh the benefits of such
a regime. Therefore, the final regulations
do not permit or include rules for third-
party reporting or payment of the PCORI
fee.
Applicability Date
These regulations apply to policy and
plan years ending on or after October 1,
2012, and before October 1, 2019.
Special Analyses
It has been determined that these final
regulations are not a significant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive
Order 13563. Therefore, a regulatory
assessment is not required. It is hereby
certified that these final regulations will
not have a significant economic impact
2012–52 I.R.B.752December 27, 2012

on a substantial number of small entities.
This certification is based on the fact that
small businesses generally do not have
self-insured health plans and that these
regulations will therefore primarily affect
large corporations. Therefore, a Regula-
tory Flexibility Analysis under the Regu-
latory Flexibility Act (5 U.S.C. chapter 6)
is not required. The Treasury Department
and the IRS specifically solicit comments
from any party, particularly affected small
entities, on the accuracy of this certifica-
tion. Pursuant to section 7805(f) of the
Code, the proposed regulations were sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comments on its impact on small business
and no comments were received.
Drafting Information
The principal authors of these regula-
tions are R. Lisa Mojiri-Azad, Office of
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties), and Rebecca L. Baxter, Office of As-
sociate Chief Counsel (Financial Institu-
tions & Products). However, other person-
nel from the Treasury Department and the
IRS participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 40, 46, and
602 are amended as follows:
PART 40—EXCISE TAX
PROCEDURAL REGULATIONS
Paragraph 1. The authority citation for
part 40 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 40.0–1 is amended by:
1. Removing from the third sentence in
paragraph (a) the language “chapter 34 to
taxes imposed on policies issued by for-
eign insurers” and adding “chapter 34 to
taxes imposed on certain insurance poli-
cies” in its place.
2. Adding a new sentence after the third
sentence in paragraph (a).
The addition reads as follows:
§40.0–1 Introduction.
(a)***Referencesinthispartto
“taxes” also include references to the fees
imposedbysections4375and4376.***
*****
Par. 3. Section 40.6011(a)–1 is
amended by:
1. In paragraph (a)(2)(i), first sentence,
the language “paragraph (b) of this sec-
tion” is removed and the language “para-
graphs (b) and (c) of this section” is added
in its place.
2. Paragraph (c) is added.
The addition reads as follows:
§40.6011(a)–1 Returns.
*****
(c)Fees on health insurance policies
andself-insuredhealthplans—(1)In
general. A return that reports liability
imposedbysection4375or4376isare-
turn for policies or plans with policy or
plan years ending in the previous calen-
dar year, and, for issuers that determine
the average number of lives covered un-
der a policy for purposes of section 4375
using the member months method un-
der §46.4375–1(c)(2)(v) or the state form
method under §46.4375–1(c)(2)(vi) of this
chapter, the return is for all policies in
effect during the previous calendar year.
The second sentence ofparagraph (a)(2)(i)
of this section (relating to filing quarterly
returns regardless of whether liability is
incurred) does not apply to a person that
files a Form 720, “Quarterly Federal Ex-
cise Tax Return,” only to report liability
imposedbysection4375or4376.
(2)Applicability date. This paragraph
(c) applies to returns that report liability
imposedbysection4375or4376.
Par. 4. Section 40.6071(a)–1 is
amended as follows:
1. Paragraph (c) is revised.
2. Paragraph (d) is added.
The revision and addition read as fol-
lows:
§40.6071(a)–1 Time for filing returns.
*****
(c)Fees on health insurance policies
andself-insuredhealthplans—(1)Spec-
ified health insurance policies. A return
that reports liability for the fee imposed by
section4375mustbefiledbyJuly31of
the calendar year immediately following
the last day of the policy year. For issuers
that determine the average number of lives
covered under the policy for section 4375
using the member months method un-
der §46.4375–1(c)(2)(v) or the state form
method under §46.4375–1(c)(2)(vi), the
returnmustbefiledbyJuly31oftheim-
mediately following calendar year. Thus,
for example, a return that reports liability
for the fee imposed by section 4375 for the
year ending on December 31, 2012, must
be filed by July 31, 2013.
(2)Applicable self-insured health
plans. A return that reports liability for
the fee imposed by section 4376 for a plan
yearmustbefiledbyJuly31ofthecal-
endar year immediately following the last
day of the plan year. Thus, for example,
a return that reports liability for the fee
imposed by section 4376 for the plan year
ending on January 31, 2013, must be filed
by July 31, 2014.
(d)Effective/Applicability date. Para-
graphs(a)and(b)ofthissectionapplyto
returns for calendar quarters beginning on
or after October 1, 2001, and paragraph (c)
of this section applies to returns that report
liability imposed by section 4375 or 4376.
§40.6091–1 Amended
Par. 5. Section 40.6091–1, paragraph
(a), is amended by removing the language
“paragraph (b) of this section, quarterly re-
turns” and by adding the language “para-
graphs (b) and (c) of this section, returns”
in its place.
Par. 6. Section 40.6302(c)–1 is
amended by revising paragraph (e)(1)(iv)
to read as follows:
§40.6302(c)–1 Deposits.
*****
(e) * * *
(1) * * *
(iv) Sections 4375 and 4376 (relating
to fees on health insurance policies and
self-insured health plans).
*****
PART 46—EXCISE TAX ON
CERTAIN INSURANCE POLICIES,
SELF-INSURED HEALTH PLANS,
AND OBLIGATIONS NOT IN
REGISTERED FORM
Par. 7. The authority citation for part
46 continues to read in part as follows:
December 27, 20127532012–52 I.R.B.

Authority: 26 U.S.C. 7805. * * *
Par. 8. In part 46, the heading is revised
to read as set forth above.
§46.0–1 Amended
Par. 9. In §46.0–1, first sentence, the
language “policies issued by foreign insur-
ers” is removed and the language “certain
insurance policies and self-insured health
plans” is added in its place.
§46.0–2 [Removed]
Par. 10. Section 46.0–2 is removed.
Par. 11. In Part 46, subpart C is redes-
ignated as subpart D and a new subpart C
is added to read as follows:
Subpart C—Fees on Insured and
Self-insured Health Plans
Sec.
46.4375–1 Fee on issuers of specified
health insurance policies.
46.4376–1 Fee on sponsors of self-in-
sured health plans.
46.4377–1 Definitions and special
rules.
Subpart C—Fees on Insured and
Self-insured Health Plans
§46.4375–1 Fee on issuers of specified
health insurance policies.
(a)In general. An issuer of a specified
health insurance policy is liable for a fee
imposed by section 4375 for policy years
ending on or after October 1, 2012, and be-
fore October 1, 2019. Paragraph (b) of this
section provides definitions that apply for
purposes of section 4375 and this section.
Paragraph (c) of this section provides rules
for calculating the fee under section 4375.
Paragraph (d) of this section provides the
applicability date. For rules relating to fil-
ing the required return and paying the fee,
see §§40.6011(a)–1 and 40.6071(a)–1 of
this chapter.
(b)Definitions. The following defini-
tions apply for purposes of section 4375
and this section. See also §46.4377–1 for
additional definitions.
(1)Specified health insurance pol-
icy—(i)In general. Except as provided
in paragraph (b)(1)(ii) of this section and
§46.4377–1,specified health insurance
policymeans any accident and health in-
surance policy (including a policy under a
group health plan) issued with respect to
individuals residing in the United States
(as defined in §46.4377–1(a)(2)), includ-
ing prepaid health coverage arrangements
described in paragraph (b)(2) of this sec-
tion.Specified health insurance policy
also includes any policy that provides ac-
cident and health coverage to an active
employee, former employee, or quali-
fying beneficiary, as continuation cov-
erage required under the Consolidated
Omnibus Budget Reconciliation Act of
1985 (COBRA) or similar continuation
coverage under other Federal law or state
law.
(ii)Exceptions.Thetermspecified
health insurance policydoes not include—
(A) Any insurance policy if substan-
tially all of its coverage is of excepted ben-
efits described in section 9832(c);
(B) Any group policy issued to an em-
ployer where the facts and circumstances
show that the group policy was designed
and issued specifically to cover primarily
employees who are working and residing
outside of the United States (as defined in
§46.4377–1(a)(3));
(C) Any stop loss or indemnity reinsur-
ance policy; or
(D) Any insurance policy to the extent it
provides an employee assistance program,
disease management program, or wellness
program if the program does not provide
significant benefits in the nature of medi-
cal care or treatment.
(iii)Stop loss policy. For purposes of
paragraph (b)(1)(ii) of this section,stop
loss policymeans an insurance policy in
which—
(A) The insurer that issues the policy to
a person establishing or maintaining a self-
insured health plan becomes liable for all,
or an agreed upon portion of, losses that
person incurs in covering the applicable
lives in excess of a specified amount; and
(B) The person establishing or main-
taining the self-insured health plan retains
its liability to, and its contractual relation-
ship with, the applicable lives covered.
(iv)Indemnity reinsurance policy.For
purposes of paragraph (b)(1)(ii) of this sec-
tion,indemnity reinsurance policymeans
an agreement between two or more insur-
ance 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 applicable lives covered.
(2)Prepaid health coverage arrange-
ment.Thetermprepaid health coverage
arrangementmeans an arrangement un-
der which fixed payments or premiums are
received as consideration for a person’s
agreement to provide or arrange for the
provision of accident and health coverage
to individuals residing in the United States,
regardless of how such coverage is pro-
vided or arranged to be provided. For ex-
ample, any hospital or medical service pol-
icy or certificate, hospital or medical ser-
vice plan contract, or health maintenance
organization contractis a specified health
insurance policy.
(c)Calculation of fee—(1)In general.
The amount of the fee for a policy for a pol-
icy year is equal to the product of the aver-
age number of lives covered under the pol-
icy for the policy year (determined in ac-
cordance with paragraphs (c)(2) and (c)(3)
of this section) and the applicable dollar
amount (determined in accordance with
paragraph (c)(4) of this section). For pur-
poses of computing the fee under this para-
graph (c), in the case of an issuer that de-
termines the average number of lives cov-
ered for all policies in effect during a calen-
dar year using the member months method
under paragraph (c)(2)(v) of this section
or the state form method under paragraph
(c)(2)(vi) of this section, the applicable
dollar amount with respect to such issuer’s
policies for such calendar year is the appli-
cable dollar amount for policy years end-
ing on December 31 of such calendar year
(determined in accordance with paragraph
(c)(4) of this section), except that the ap-
plicable dollar amount with respect to such
an issuer’s policies for calendar year 2019
is the applicable dollar amount for pol-
icy years ending on September 30, 2019.
For more information, see the examples
in paragraphs (c)(2)(iii)(B), (c)(2)(iv)(B),
(c)(2)(v)(B), and (c)(2)(vi)(B) of this sec-
tion.
(2)Determination of the average num-
ber of lives covered under a policy—(i)In
general. To determine the average number
of lives covered under a specified health
insurance policy during a policy year, an
issuer must use one of the following meth-
ods—
(A) The actual count method (described
in paragraph (c)(2)(iii) of this section);
2012–52 I.R.B.754December 27, 2012

(B) The snapshot method (described in
paragraph (c)(2)(iv) of this section);
(C) The member months method (de-
scribed in paragraph (c)(2)(v) of this sec-
tion); or
(D) The state form method (described
in paragraph (c)(2)(vi) of this section).
(ii)Consistency requirements.An
issuer must use the same method of calcu-
lating the average number of lives covered
under a policy consistently for the duration
of the year. In addition, for all policies
for which a liability is reported on a Form
720, “Quarterly Federal Excise Tax Re-
turn,” for a particular year, the issuer must
use the same method of computing lives
covered. An issuer that determines the
average number of lives covered by us-
ing the actual count method described in
paragraph (c)(2)(iii) of this section or the
snapshot method described in paragraph
(c)(2)(iv) of this section may change its
method of computing the average lives
covered to the snapshot method or actual
count method, respectively, provided that
the issuer uses the same method for com-
puting the average lives covered for all
policies for which a liability is reported
on the Form 720 for that year. For ex-
ample, an issuer with a policy having a
policy year that ends on June 30, Policy
A, may determine the average number of
lives covered under Policy A for July 1,
2013, to June 30, 2014, using the actual
count method if the issuer uses the actual
count method for all policies for which
a liability will be reported on the Form
720 due by July 31, 2015 (the due date
for return that will include the liability for
the July 2013 to June 2014 policy year
for Policy A). The issuer may change
its method for determining the average
number of lives covered under Policy A to
the snapshot method for the July 1, 2014,
to June 30, 2015, policy year, provided that
the snapshot method is used for all policies
for which a liability will be reported on
the Form 720 due by July 31, 2016 (the
due date for return that will include the
liabilityfortheJuly2014toJune2015
policy year for Policy A). An issuer that
determines the average number of lives
covered by using the member months
method under paragraph (c)(2)(v) of this
section or the state form method under
paragraph (c)(2)(vi) of this section must
use the same method for calculating lives
covered for all policy years for which the
fee applies.
(iii)Actual count method—(A)Calcu-
lation method.Anissuermaydetermine
the average number of lives covered under
a policy for a policy year by adding the to-
tal number of lives covered for each day of
the policy year and dividing that total by
the number of days in the policy year.
(B)Example. The following example
illustrates the principles of paragraphs
(c)(1) and (c)(2)(iii)(A) of this section:
Example. Insurance Company A issues three
policies that are in effect during 2014, Group Health
Insurance Policy A, which has a policy year from
December 1 to November 30, Group Health In-
surance Policy B, which has a policy year from
March 1 to February 28, and Group Health Insurance
Policy C, which has a policy year from January 1 to
December 31. To calculate the average number of
lives covered for 2014, Insurance Company A must
calculate the average number of lives covered for
each of its three policies for the policy year that ends
in 2014. Insurance Company A chooses to use the
actual count method under paragraph (c)(2)(iii)(A)
of this section to determine average lives covered
for policies having a policy year that ends in 2014.
Insurance Company A calculates the sum of lives
covered under Policy A for each day of the policy
year ending November 30, 2014, as 3,285,000. The
average number of lives covered under Policy A
for the policy year ending November 30, 2014,
is 3,285,000 divided by 365, or 9,000. Insurance
Company A calculates the sum of lives covered
under Policy B for each day of the policy year
ending February 28, 2014, as 547,500. The average
numberoflivescoveredunderPolicyBforthe
policy year ending on February 28, 2014, is 547,500
divided by 365, or 1,500. Insurance Company A
calculates the sum of lives covered under Policy C
for each day of the policy year ending December 31,
2014, as 4,380,000. The average number of lives
covered under Policy C for the policy year ending
December 31, 2014, is 4,380,000 divided by 365,
or 12,000. To calculate the section 4375 fee under
paragraph (c)(1) of this section for calendar year
2014, Insurance Company A must first determine
the applicable dollar amount for each policy under
paragraph (c)(4) of this section and multiply that
amount by the average number of lives covered for
that policy. Insurance Company A then adds the total
fees for all three policies to determine the total fee
under section 4375 that it must pay for calendar year
2014.
(iv)Snapshot method—(A)Calculation
method. An issuer may determine the av-
erage number of lives covered under a pol-
icy for a policy year by adding the totals
of lives covered on a date during the first,
second, or third month of each quarter (or
more dates in each quarter if an equal num-
ber of dates is used for each quarter), and
dividing that total by the number of dates
on which a count is made. For purposes
of this paragraph (c)(2)(iv)(A), each date
used for the second, third and fourth quar-
ters must be within three days of the date
in that quarter that corresponds to the date
used for the first quarter, and all dates used
must be within the same policy year. If an
issuer uses multiple dates for the first quar-
ter, the issuer must use dates in the second,
third, and fourth quarters that correspond
to each of the dates used for the first quar-
terorarewithinthreedaysofsuchcorre-
sponding dates, and all dates used must be
within the same policy year. The 30
th
and
31
st
day of a month are treated as the last
day of the month for purposes of determin-
ing the corresponding date for any month
that has fewer than 31 days (for example,
if either March 30 or March 31 is used as
a counting date for a calendar year policy,
June 30 is the corresponding date for the
second quarter).
(B)Example. The following example
illustrates the principles of paragraphs
(c)(1) and (c)(2)(iv)(A) of this section:
Example. (i) Insurance Company B issues three
policies with 12-month policy years that end in 2014,
Group Health Insurance Policy A, which has a pol-
icy year from December 1 to November 30, Group
Health Insurance Policy B, which has a policy year
from March 1 to February 28, and Group Health In-
surance Policy C, which has a policy year from Jan-
uary 1 to December 31. To calculate the average num-
ber of lives covered for 2014, Insurance Company B
must calculate the average number of lives covered
for each of its three policies for the policy year that
ends in 2014. Insurance Company B chooses to de-
termine the average lives covered using the snapshot
method for all policies that have a policy year that
ends in 2014 and chooses to count lives covered on
a single date of the first month of each quarter of the
policy years. Thus, for Policy A, Insurance Company
B must count lives covered on a single date falling
in each of December 2013, March 2014, June 2014
and September 2014; for Policy B, Insurance Com-
pany B must count lives covered on a single date
falling in each of March 2014, June 2014, September
2014 and December 2014; and for Policy C, Insur-
ance Company B must count lives covered on a sin-
gle date falling in each of January 2014, April 2014,
July 2014 and October 2014. In addition, the date for
each of the second, third, and fourth quarters must
fall within three days of the date in such quarter that
corresponds to the date used for the first quarter, and
must fall within the same policy year.
(ii) On December 6, 2013, Policy A covers 8,900
lives,onMarch7,2014,9,100lives,onJune6,2014,
9,050 lives, and on September 5, 2014, 9,050 lives.
Insurance Company B treats the average number of
lives covered under Policy A for the policy year end-
ing November 30, 2014, as 36,100 (8,900 + 9,100 +
9,050 + 9,050) divided by 4, or 9,025.
(iii) On March 4, 2013, Policy B covers 1,500
lives, on June 7, 2013, 1,350 lives, on September 6,
2013, 1,400 lives, and on December 6, 2013, 1,550
lives. Insurance Company B treats the average num-
beroflivescoveredunderPolicyBforthepolicyyear
December 27, 20127552012–52 I.R.B.

ending February 28, 2014, as 5,800 (1,500 + 1,350 +
1,400 + 1,550) divided by 4, or 1,450.
(iv) On January 6, 2014, Policy C covers 12,500
lives, on April 4, 2014, 12,250 lives, on July 7, 2014,
12,000 lives, and on October 3, 2014, 11,250 lives.
Insurance Company B treats the average number of
lives covered under Policy C for the policy year end-
ing December 31, 2014, as 47,750 (12,500 + 12,250
+ 12,000 + 11,250) divided by 4, or 12,000.
(v) To calculate the section 4375 fee under para-
graph (c)(1) of this section for calendar year 2014,
Insurance Company B must first determine the appli-
cable dollar amount for each policy under paragraph
(c)(4) of this section and multiply that amount by the
number of average lives covered for that policy. In-
surance Company B then adds the total fees for all
three policies to determine the total fee under section
4375 that it must pay for calendar year 2014.
(v)Member months method—(A)Cal-
culation method. An issuer may deter-
mine the average number of lives cov-
ered under all policies in effect for a cal-
endar year based on the member months
(an amount that equals the sum of the to-
tals of lives covered on pre-specified days
in each month of the reporting period) re-
ported on the National Association of In-
surance Commissioners (NAIC) Supple-
mental Health Care Exhibit filed for that
calendar year. Under this method, the
average number oflives covered under
the policies in effect for the calendar year
equals the member months divided by 12.
(B)Example. The following example
illustrates the principles of paragraphs
(c)(1) and (c)(2)(v)(A) of this section:
Example. Insurance Company C chooses to deter-
mine the average number of lives covered for all years
to which the section 4375 fee applies using the mem-
ber months method of paragraph (c)(2)(v)(A) of this
section. Insurance Company C reports 12,000,000
as its member months on the NAIC Supplemental
Health Care Exhibit filed for calendar year 2013. Un-
der the member months method, Insurance Company
C calculates the average number of lives covered for
all its specified health insurance policies in force dur-
ing calendar year 2013 by dividing 12,000,000 (mem-
ber months) by 12 (number of months in the reporting
period), which equals 1,000,000. To determine the
section 4375 fee it must pay for calendar year 2013,
Insurance Company C multiplies 1,000,000 by the
applicable dollar amount that is in effect at the end of
the calendar year under paragraph (c)(4) of this sec-
tion.
(vi)State form method—(A)Calcula-
tion method. An issuer that is not required
to file NAIC annual financial statements
may determine the number of lives cov-
ered under all policies in effect for the
calendar year using a form that is filed
with the issuer’s state of domicile and a
method similar to that described in para-
graph (c)(2)(v) of this section, if the form
reports the number of lives covered in the
same manner as member months are re-
ported on the NAIC Supplemental Health
Care Exhibit.
(B)Example. The following example
illustrates the principles of paragraphs
(c)(1) and (c)(2)(vi)(A) of this section:
Example. Insurance Company D is not required
to file the NAIC Supplemental Health Care Exhibit,
but files a form with its state of domicile. Insurance
Company D chooses to determine the average num-
ber of lives covered for all years to which the sec-
tion 4375 fee applies using the state form method
of paragraph (c)(2)(vi)(A) of this section. The state
form reports the number of lives covered in the same
manner as member months is reported on the NAIC
Supplemental Health Care Exhibit. For calendar year
2013, Insurance Company D reports 12,000,000 as its
equivalent member months on the state form. Under
the state form method, Insurance Company D calcu-
lates the average number of lives covered for all of
its specified health insurance policies in force during
calendar year 2013 by dividing 12,000,000 (equiv-
alent member months) by 12 (number of months in
the reporting period), which equals 1,000,000. To
determine the section 4375 fee it must pay for cal-
endar year 2013, Insurance Company D multiplies
1,000,000 by the applicable dollar amount that is in
effect at the end of the calendar year under paragraph
(c)(4) of this section.
(3)Special rules for the first year and
the last year the fee is in effect—(i)Calcu-
lation of the average number of lives cov-
ered under the policy for the first year the
fee is in effect. For issuers that determine
the average number of lives covered using
data reported on the 2012 NAIC Supple-
mental Health Care Exhibit or a permit-
ted state form that covers the 2012 calen-
dar year, the average number of lives cov-
ered under all policiesin effect for the 2012
calendar year equals the average number
of lives covered for that year (as deter-
mined under paragraph (c)(2)(v) or (vi) of
this section) multiplied by 1/4. The result-
ing number is deemed to be the average
number of lives covered for policies with
policy years ending on or after October 1,
2012, and before January 1, 2013. For pol-
icy years beginning before May 14, 2012,
andendingonorafterOctober1,2012,
issuers that determine the average num-
ber of lives covered using the actual count
method under paragraph (c)(2)(iii) of this
section may calculate the average number
of lives covered using data from the pe-
riod beginning May 14, 2012, through the
end of the policy year. For policy years
beginning before May 14, 2012, and end-
ing on or after October 1, 2012, issuers
that determine the average number of lives
covered using the snapshot method under
paragraph (c)(2)(iv) of this section may
calculate the average number of lives cov-
ered using dates from the quarters remain-
ing in the policy year starting on or after
May 14, 2012. If an abbreviated year is
used, the issuer will divide the number of
lives covered by the number of days from
May 14, 2012, through the end of the pol-
icy year (for the actual count method) or
the number of days on which a count was
made (for the snapshot method).
(ii)Calculation of the average number
of lives covered under the policy for the
lastyearthefeeisineffect.Forissuers
that determine the average number of lives
covered using data reported on the 2019
NAIC Supplemental Health Care Exhibit
or a permitted state form that covers the
2019 calendar year, the average number of
lives covered for all policies in effect dur-
ing the 2019 calendar year equals the aver-
age number of lives covered for that year
(as determined under paragraph (c)(2)(v)
or (vi) of this section) multiplied by 3/4.
The resulting number is deemed to be the
average number of lives covered for poli-
cies with policy years ending on or after
January 1, 2019, and before October 1,
2019.
(iii)Examples. The following examples
illustrate the principles of paragraph (c)(3)
of this section:
Example 1. Insurance Company E issues Group
Health Insurance Policy C, which has a policy year
that ends on November 30, 2012. Insurance Com-
pany E determines the average number of lives cov-
ered under a policy by using the actual count method.
Under that method, for that policy year, Insurance
Company E calculates the sum of lives covered un-
der Policy C for each day between May 14, 2012, and
November 30, 2012, as 10,000. The average number
of lives covered under Policy C for that policy year is
10,000 divided by the number of days from May 14,
2012, through November 30, 2012. Alternatively, In-
surance Company E could have counted the number
of lives covered for the entire policy year and divided
the sum by 365.
Example 2. Insurance Company F reports
12,000,000 as its member months on its NAIC Sup-
plemental Health Care Exhibit filed for calendar year
2012. Under the member months method, Insurance
Company F calculates the average number of lives
covered for 2012 by dividing 12,000,000 (member
months) by 12 (number of months in the reporting
period), and then multiplying the result (1,000,000)
by 1/4, which equals 250,000. Accordingly, the
average number of lives covered for policies with
policy years ending on or after October 1, 2012, and
before January 1, 2013, is 250,000.
(4)Applicable dollar amount. For pol-
icy years ending on or after October 1,
2012–52 I.R.B.756December 27, 2012

2012, and before October 1, 2013, the ap-
plicable dollar amount is $1. For policy
years ending on or after October 1, 2013,
and before October 1, 2014, the applicable
dollar amount is $2. For any policy year
ending in any Federal fiscal year beginning
on or after October 1, 2014, the applicable
dollar amount is the sum of—
(i) The applicable dollar amount for the
policy year ending in the previous Federal
fiscal year; plus
(ii) The amount equal to the product
of—
(A) The applicable dollar amount for
the policy year ending in the previous Fed-
eral fiscal year; and
(B) The percentage increase in the
projectedper capitaamount of the Na-
tional Health Expenditures most recently
released by the Department of Health and
Human Services before the beginning of
the Federal fiscal year.
(d)Effective/Applicability date.This
section applies for policies with policy
years ending on or after October 1, 2012,
and before October 1, 2019.
§46.4376–1 Fee on sponsors of
self-insured health plans.
(a)In general—(1)General rule.A
plan sponsor of an applicable self-insured
health plan is liable for a fee imposed by
section 4376 for plans with plan years end-
ing on or after October 1, 2012, and be-
fore October 1, 2019. Paragraph (b) of
this section provides the definitions that
apply for purposes of section 4376 and
this section. Paragraph (c) of this section
provides the requirements for calculating
the fee imposed by section 4376. Para-
graph (d) of this section provides the ap-
plicability date. For rules relating to filing
the required return and paying the fee, see
§§40.6011(a)–1 and 40.6071(a)–1.
(2) [Reserved]
(b)Definitions. The following defini-
tions apply for purposes of section 4376
and this section. See §46.4377–1 for ad-
ditional definitions.
(1)Applicable self-insured health
plan—(i)In general. Except as provided
in paragraph (b)(1)(ii) of this section
and §46.4377–1,applicable self-insured
health planmeans a plan that provides for
accident and health coverage (within the
meaning of §46.4377–1(a)) if any portion
of the coverage is provided other than
through an insurance policy and the plan
is established or maintained—
(A) By one or more employers for the
benefit of their employees or former em-
ployees;
(B) By one or more employee organi-
zations for the benefit of their members or
former members;
(C) Jointly by one or more employers
and one or more employee organizations
for the benefit of employees or former em-
ployees;
(D) By a voluntary employees’ benefi-
ciary association, as described in section
501(c)(9);
(E) By an organization described in sec-
tion 501(c)(6); or
(F) By a multiple employer welfare
arrangement (as defined in section 3(40)
of the Employee Retirement Income Se-
curity Act of 1974 (ERISA)), a rural
electric cooperative (as defined in section
3(40)(B)(iv) of ERISA), or a rural coop-
erative association (asdefinedinsection
3(40)(B)(v) of ERISA).
(ii)Exceptions.Thetermapplicable
self-insured health plandoes not include
any of the following:
(A) A plan that provides benefits sub-
stantially all of which are excepted bene-
fits, as defined in section 9832(c). For ex-
ample, a health flexible spending arrange-
ment (health FSA) (as described in section
106(c)(2)) that satisfies the requirements
to be treated as an excepted benefit under
section 9832(c) and §54.9831–1(c)(3)(v)
of this chapter is not an applicable self-in-
sured health plan. A health FSA that is not
treated as an excepted benefit under sec-
tion 9832(c) and §54.9831–1(c)(3)(v) is an
applicable self-insured health plan.
(B) An employee assistance program,
disease management program, or wellness
program if the program does not provide
significant benefits in the nature of medi-
cal care or treatment.
(C) A plan that, as demonstrated by
the facts and circumstances surrounding
the adoption and operation of the plan,
was designed specifically to cover primar-
ilyemployeeswhoareworkingandresid-
ing outside the United States (as defined in
§46.4377–1(a)(3)).
(iii)Multiple self-insured arrange-
ments established or maintained by the
same plan sponsor. For purposes of sec-
tion 4376, two or more arrangements
established or maintained by the same
plan sponsor that provide for accident
and health coverage (within the mean-
ing of §46.4377–1(a)) other than through
an insurance policy and that have the
same plan year may be treated as a sin-
gle applicable self-insured health plan
for purposes of calculating the fee im-
posed by section 4376. For example, if
a plan sponsor establishes or maintains a
self-insured arrangement providing major
medical benefits, and a separate self-in-
sured arrangement with the same plan
year providing prescription drug benefits,
the two arrangements may be treated as
one applicable self-insured health plan
so that the same life covered under each
arrangement would count as only one cov-
ered life under the plan for purposes of
calculating the fee. Similarly, if a plan
sponsor provides a Health Reimbursement
Arrangement (HRA) and another applica-
ble self-insured health plan that provides
major medical coverage, the HRA and the
major medical plan may be treated as one
applicable self-insured health plan if the
HRA and the self-insured plan have the
same plan year.
(iv)Examples. The following exam-
ples illustrate the principle of this para-
graph (b)(1):
Example 1. (i) Plan Sponsor D sponsors and
maintains three separate plans to provide certain
benefits to its employees — Plan 501, Plan 502, and
Plan 503.
(ii) Plan 501 is a calendar year plan that provides
accident and health benefits, other than through insur-
ance (that is, on a self-insured basis), to employees of
Plan Sponsor D. Plan 502 is a calendar year HRA that
can be used to pay for qualified accident and medical
expenses for employees of Plan Sponsor D and their
eligible dependents. Plan 503 provides dental and vi-
sion benefits for employees of Plan Sponsor D and el-
igible dependents, other than through insurance (that
is, on a self-insured basis).
(iii) Because Plan 501 and Plan 502 provide ac-
cident and health coverage (within the meaning of
§46.4377–1(a)) and are maintained by Plan Spon-
sor D for the benefit of its employees, Plans 501
and 502 are applicable self-insured health plans that
are subject to the fee imposed by section 4376. Be-
cause dental and vision benefits are excepted bene-
fits, as defined in section 9832(c), Plan 503 is not
an applicable self-insured health plan subject to the
section 4376 fee. Under the special rule set forth
in §46.4376–2(b)(1)(iii), Plan Sponsor D may treat
Plans 501 and 502 (both self-insured plans with a cal-
endar year plan year) as a single plan for purposes of
calculating the fee imposed by section 4376.
Example 2. Same facts asExample 1,exceptPlan
503 is not a Plan that provides dental and vision bene-
fits, but rather a plan that provides accident and health
coverage solely to employees who are working and
residing outside the United States and does not pro-
December 27, 20127572012–52 I.R.B.

vide any benefits to employees who are not working
and residing outside the United States. Plan 503 is de-
signed specifically to provide coverage to employees
working and residing outside the United States be-
cause it limits coverage tothese employees. There-
fore, in accordance with the exception described in
§46.4376–1(b)(1)(ii)(C), Plan 503 is not an applica-
ble self-insured health plan.
(2)Plan sponsor—(i)In general.The
termplan sponsormeans—
(A) The employer, in the case of an
applicable self-insured health plan estab-
lished or maintained by a single employer;
(B) The employee organization, in the
case of an applicable self-insured health
plan established or maintained by an em-
ployee organization;
(C) The joint board of trustees, in the
case of a multiemployer plan (as defined
in section 414(f));
(D) The committee, in the case of a mul-
tiple employer welfare arrangement (as de-
fined in section 3(40) of ERISA);
(E) The cooperative or association that
establishes or maintains an applicable self-
insured health plan established or main-
tained by a rural electric cooperative (as
defined in section 3(40)(B)(iv) of ERISA)
or rural cooperative association (as defined
in section 3(40)(B)(v) of ERISA);
(F) The trustee, in the case of an appli-
cable self-insured health plan established
or maintained by a voluntary employees’
beneficiary association (meaning that the
voluntary employees’ beneficiary associa-
tion is not merely serving as a funding ve-
hicle for a plan that is established or main-
tained by an employer or other person); or
(G) In the case of an applicable self-in-
sured health plan the plan sponsor of which
is not described in paragraphs (b)(2)(i)(A)
through (F) of this section, the person iden-
tified by the terms of the document under
which the plan is operated as the plan spon-
sor, or the person designated by the terms
of the document under which the plan is
operated as the plan sponsor for section
4376 purposes, provided that designation
is made in writing, and that person has con-
sented to the designation in writing, by no
later than the date by which the return pay-
ing the fee under section 4376 for that plan
year is required to be filed, after which date
that designation for that plan year may not
be changed or revoked, and provided fur-
ther that a person may be designated as the
plan sponsor only if the person is one of
the persons establishing or maintaining the
plan (for example, one of the employers
that establishes or maintains the plan with
one or more other employers or employee
organizations).
(H) In the case of an applicable self-in-
sured health plan the sponsor of which is
not described in paragraphs (b)(2)(i)(A)
through (F) of this section, and for which
no identification or designation of a plan
sponsor has been made pursuant to para-
graph (b)(2)(i)(G) of this section, each em-
ployer that establishes or maintains the
plan (with respect to employees of that em-
ployer), each employee organization that
establishes or maintains the plan (with re-
spect to members of that employee organ-
ization), and each board of trustees, coop-
erative, or association that establishes or
maintains the plan, meaning that each plan
sponsor must file a separate Form 720,
“Quarterly Federal Excise Tax Return,” re-
flecting its separate liability under section
4376.
(ii)Examples. The following examples
illustrate the principles of paragraph (b)(2)
of this section:
Example 1. (i) Corporation XYZ is a holding
company with no employees that owns all the issued
and outstanding shares of Employer X, Employer Y,
and Employer Z. Employer X, Employer Y, and Em-
ployer Z have established the XYZ Group Health
Plan to provide accident and health coverage, pro-
vided other than through an insurance policy, for the
benefit of their employees. The XYZ Group Health
Plan has a calendar year plan year. In addition, there
is no plan sponsor identified or designated in the plan
document.
(ii) Because the XYZ Group Health Plan provides
accident and health coverage other than through an
insurance policy, and is established by one or more
employers for the benefitof their employees, the
XYZ Group Health Plan is an applicable self-in-
sured health plan under section 4376(c)(2)(A) and
paragraph (b)(1)(i)(A) of this section. Because a
plan sponsor is not identified or designated in the
governing plan document, the plan sponsor, for
purposes of section 4376, is determined under para-
graph (b)(2)(i)(H) of this section as each employer
that establishes or maintains the plan (Employer X,
Employer Y, and Employer Z), each with respect to
its employees covered under the plan. Accordingly,
Employer X, Employer Y, and Employer Z each must
file a Form 720 reflecting their separate liabilities
under section 4376, calculated based on lives cov-
ered that are employees of that employer (or spouses,
dependents, or other beneficiaries of employees of
that employer) and the applicable dollar amount in
effect for the plan year.
Example 2. The same facts asExample 1,ex-
cept that the governing plan document designates
Employer X as the plan sponsor of the XYZ Group
Health Plan for purposes of the fee under section
4376 and Employer X consents to this designation
no later than the due date for paying the fee under
section 4376. Accordingly, the plan sponsor for pur-
poses of section 4376 is determined under paragraph
(b)(2)(i)(G) of this section as Employer X. Employer
X must file a Form 720 reflecting liabilities under
section 4376, calculated based upon lives covered
that are employees of Employer X, Employer Y, or
Employer Z, or spouses, dependents, or other ben-
eficiaries of employees of those employers and the
applicable dollar amount in effect for the plan year.
(c)Calculation of fee—(1)In general.
The amount of the fee for a plan year is
equal to the product of the average num-
ber of lives covered under the plan for the
plan year (determined in accordance with
paragraph (c)(2) of this section) and the ap-
plicable dollar amount (determined in ac-
cordance with paragraph (c)(3) of this sec-
tion).
(2)Determination of the average num-
ber of lives covered under the plan—(i)In
general. To determine the average num-
ber of lives covered under an applicable
self-insured health plan during a plan year,
a plan sponsor must use one of the follow-
ing methods—
(A) The actual count method (described
in paragraph (c)(2)(iii) of this section);
(B) The snapshot method (described in
paragraph (c)(2)(iv) of this section); or
(C) The Form 5500 method (described
in paragraph (c)(2)(v) of this section).
(ii)Consistency within plan year.A
plan sponsor must use the same method
of calculating the average number of lives
covered under the plan consistently for the
duration of the plan year. However, a plan
sponsor may use a different method from
one plan year to the next.
(iii)Actual count method—(A)In gen-
eral. A plan sponsor may determine the
average number of lives covered under a
plan for a plan year by adding the totals
of lives covered for each day of the plan
year and dividing that total by the number
of days in the plan year.
(B)Example. The following example
illustrates the principles of paragraphs
(c)(1) and (c)(2)(iii)(A) of this section:
Example. Employer A is the plan sponsor of
the Employer A Self-Insured Health Plan, which
has a calendar year plan year. Employer A calcu-
lates the sum of lives covered under the plan for
each day of the plan year ending December 31,
2013 as 3,285,000. The average number of lives
covered under the plan for the plan year ending
December 31, 2013, is 3,285,000 divided by 365,
or 9,000. To calculate the section 4376 fee for the
plan under paragraph (c)(1) of this section for the
plan year ending December 31, 2013, Employer A
must determine the applicable dollar amount under
paragraph (c)(3) of this section and multiply that
amount by 9,000.
2012–52 I.R.B.758December 27, 2012

(iv)Snapshot method—(A)In general.
A plan sponsor may determine the average
number of lives covered under an applica-
ble self-insured health plan for a plan year
by adding the totals of lives covered on a
date during the first, second, or third month
of each quarter of the plan year (or more
dates in each quarter if an equal number of
dates is used in each quarter), and dividing
that total by the number of dates on which
a count was made. For purposes of this
paragraph (c)(2)(iv), each date used for the
second, third and fourth quarter must be
within three days of the date in that quar-
ter that corresponds to the date used for the
first quarter, and all dates used must fall
within the same plan year. If a plan spon-
sor uses multiple dates for the first quarter,
the plan sponsor must use dates in the sec-
ond, third, and fourth quarters that corre-
spond to each of the dates used for the first
quarter or are within three days of such cor-
responding dates, and all dates used must
fall within the same plan year. The 30
th
and 31
st
day of a month are treated as the
last day of the month for purposes of de-
termining the corresponding date for any
monththathasfewerthan31days(forex-
ample, if either March 30 or March 31 is
used for a calendar year plan, June 30 is the
corresponding date for the second quarter).
For purposes of this paragraph (c)(2)(iv),
the number of lives covered on a desig-
nated date may be determined using ei-
ther the snapshot factor method described
in paragraph (c)(2)(iv)(B) of this section
or the snapshot count method described in
paragraph (c)(2)(iv)(C) of this section.
(B)Snapshot factor method.Under
the snapshot factor method, the number of
lives covered on a date is equal to the sum
of—
(i) The number of participants with self-
only coverage on that date; plus
(ii)The number of participants with
coverage other than self-only coverage on
the date multiplied by 2.35.
(C)Snapshot count method.Underthe
snapshot count method, the number of
lives covered on a date equals the actual
number of lives covered on the designated
date.
(D)Examples. The following exam-
ples illustrate the principles of paragraphs
(c)(1) and (c)(2)(iv) of this section:
Example 1. (i) Employer B is the plan sponsor of
the Employer B Self-Insured Health Plan, which has
a calendar year plan year. Employer B uses the snap-
shot method to determine the average number of lives
covered under the plan and uses the snapshot count
method to determine the number of lives covered on
a day in the first month of each calendar quarter of
the plan year.
(ii) On January 4, 2013, the Employer B Self-In-
sured Health Plan covers 2,000 lives, on April 5,
2013, 2,100 lives, on July 5, 2013, 2,050 lives, and
on October 4, 2013, 2,050 lives. Under the snap-
shot method, Employer B must determine the aver-
age number of lives covered under the Employer B
Self-Insured Health Plan for the plan year ending De-
cember 31, 2013, as 8,200 (2,000 + 2,100 + 2,050 +
2,050) divided by 4, or 2,050. To calculate the section
4376 fee under paragraph (c)(1) of this section for
the plan year ending December 31, 2013, Employer
B must determine the applicable dollar amount un-
der paragraph (c)(3) of this section and multiply that
amount by 2,050.
Example 2. (i) Same facts asExample 1, except
that for the 2014 plan year Employer B determines the
number of lives covered that are not covered by self-
only coverage using the snapshot factor method (that
is, based on the number of participants with coverage
other than self-only coverage multiplied by 2.35 (the
factor set forth in (c)(2)(iv) of this section)).
(ii) On January 10, 2014, Employer B Self-In-
sured Health Plan provides self-only coverage to 600
employees and other than self-only coverage to 800
employees. On April 11, 2014, Employer B Self-
Insured Health Plan provides self-only coverage to
608 employees and other than self-only coverage to
800 employees. On July 11, 2014 and October 10,
2014, Employer B Self-Insured Health Plan provides
self-only coverage to 610employees and other than
self-only coverage to 809 employees.
(iii) Under the snapshot factor method, Employer
B must determine the average number of lives cov-
ered under the Employer B Self-Insured Health Plan
for the plan year ending December 31, 2014 as 9,988
[(600+(800 x 2.35)) + (608 + (800 x 2.35)) + (610
+ (809 x 2.35)) + (610 + (809 x 2.35))] divided by
4, or 2,497. To calculate the section 4376 fee under
paragraph (c)(1) of this section for the plan year end-
ing December 31, 2014, Employer B must determine
the applicable dollar amount under paragraph (c)(3)
of this section and multiply that amount by 2,497.
(v)Form 5500 method—(A)Calcula-
tion method. A plan sponsor may de-
termine the average number of lives cov-
ered under a plan for a plan year based on
the number of participants reported on the
Form 5500, “Annual Return/Report of Em-
ployee Benefit Plan,” or the Form 5500-
SF, “Short Form Annual Return/Report of
Small Employee Benefit Plan,” that is filed
for the applicable self-insured health plan
for that plan year, provided that the Form
5500 or Form 5500-SF is filed no later than
the due date for the fee imposed by section
4376 for that plan year. For purposes of
this paragraph (c)(2)(v), the average num-
ber of lives covered under the plan for the
plan year for a plan offering only self-only
coverage equals the sum of the total par-
ticipants covered at the beginning and the
end of the plan year, as reported on the
Form 5500 or Form 5500-SF for the appli-
cable self-insured health plan, divided by
2. For purposes of this paragraph (c)(2)(v),
the average number of lives covered under
the plan for the plan year for a plan offer-
ing self-only coverage and coverage other
than self-only coverage equals the sum of
total participants covered at the beginning
and the end of the plan year, as reported on
the Form 5500 or Form 5500-SF filed for
the applicable self-insured health plan.
(B)Examples. The following exam-
ples illustrate the principles of paragraphs
(c)(1) and (c)(2)(v)(A) of this section:
Example 1. Employer C is the plan sponsor of
the Employer C Self-Insured Health Plan, which has
a calendar year plan year ending on December 31,
2013. Employer C is required to file a Form 5500
for the plan for the 2013 plan year by July 31, 2014.
However, on July 30, 2014, Employer C obtains an
automatic 2–1/2 month extension for filing the 2013
Form 5500. Employer C files the 2013 Form 5500 on
September 30, 2014 (that is, before the October 15
extended due date). Employer C is not eligible to
use the Form 5500 method to determine the average
number of lives covered under Plan C for the plan
year ending on December 31, 2013, because the 2013
Form 5500 was not filed by the original due date (that
is, by July 31, 2014) for the return that reports liability
for the fee imposed by section 4376 for the 2013 plan
year.
Example 2. Same facts asExample 1,exceptthat
the Employer C Self-Insured Health Plan has a fiscal
year plan year ending on July 31, 2013, and offers
only self-only coverage. Employer C files a Form
5500 for the Employer C Self-Insured Health Plan for
the plan year ending July 31, 2013 (the 2012 Form
5500), on the extended due date for filing the 2012
Form 5500 (May 15, 2014). Employer C is eligible to
use the Form 5500 method to determine the average
number of lives covered under Plan C for the plan
year ending on July 31, 2013, because the 2012 Form
5500 had been filed by the due date for the return that
reports liability for the fee imposed by section 4376
for that plan year (July 31, 2014).
Example 3. Same facts asExample 2, provided
further that the Employer C Self-Insured Health
Plan 2012 Form 5500 reports 4,000 plan participants
on the first day of the plan year and 4,200 plan
participants on the last day of the 2012 plan year.
For purposes of calculating the fee under section
4376 using the Form 5500 method, Employer C
must treat the number of lives covered for the plan
year ending July 31, 2013, as equal to the sum of
4,000 and 4,200 or 8,200, divided by 2, or 4,100. To
calculate the section 4376 fee under paragraph (c)(1)
of this section for the plan year ending July 31, 2013,
Employer C must determine the applicable dollar
amount under paragraph (c)(3) of this section and
multiply that amount by 4,100.
Example 4. Same facts asExample 3, except
that the Employer C Self-Insured Health plan offers
self-only coverage and family coverage. For pur-
poses of calculating the fee under section 4376 us-
December 27, 20127592012–52 I.R.B.

ing the Form 5500 method, Employer C must treat
the number of lives covered for the plan year end-
ing July 31, 2013, as equal to the sum of 4,000 and
4,200, or 8,200. To calculate the section 4376 fee
under paragraph (c)(1) of this section for the plan year
ending July 31, 2013, Employer C must determine
the applicable dollar amount under paragraph (c)(3)
of this section and multiply that amount by 8,200.
(vi)Special rule for health FSAs and
HRAs. For purposes of this section, if a
plan sponsor does not establish or main-
tain an applicable self-insured health plan
other than a health flexible spending ar-
rangement (health FSA) (as described in
section 106(c)(2)) or a health reimburse-
ment arrangement (as described in No-
tice 2002–45, 2002–2 C.B. 93) (HRA),
the plan sponsor may treat each partici-
pant’s health FSA or HRA as covering a
single life (and therefore the plan spon-
sor is not required to include as lives cov-
ered any spouse, dependent, or other bene-
ficiary of the individual participant in the
health FSA or HRA, as applicable). If
a health FSA or HRA that is an applica-
ble self-insured health plan has the same
plan sponsor and plan year as another ap-
plicable self-insured health plan other than
a health FSA or HRA, the two arrange-
ments may be treated as a single plan un-
der paragraph (b)(1)(iii) of this section.
However, the special counting rule in this
paragraph applies only for purposes of the
health FSA or HRA and,therefore, applies
only for purposes of the participants in the
health FSA or HRA that do not participate
in the other applicable self-insured health
plan. The participants in the health FSA or
HRA that participate in the other applica-
ble self-insured health plan will be counted
in accordance with the method applied for
counting lives covered under that other
plan as described in paragraph (b)(2)(i) of
this section. See §601.601(d)(2) of this
chapter.
(vii)Special rule for lives covered
solely by the fully-insured options un-
der an applicable self-insured health
plan—(A)In general. If an applicable
self-insured healthplan provides accident
and health coverage through fully-insured
options and self-insured options, the plan
sponsor is permitted to disregard the lives
that are covered solely under the fully-in-
sured options in determining the lives
covered taken into account for the actual
count method (described in paragraph
(c)(2)(iii) of this section), the snapshot
method (described in paragraph (c)(2)(iv)
of this section), and the Form 5500 method
(described in paragraph (c)(2)(v) of this
section).
(B)Example. The following exam-
ple illustrates the principles of paragraph
(c)(2)(vii) of this section:
Example. (i) Employer C is the plan sponsor of
the Employer C Health Plan (Plan P). The Plan offers
self-only or family health and accident coverage un-
der fully-insured or self-insured options. On June 28,
2015, Employer C files a Form 5500 for Plan P for
the plan year ending December 31, 2014 indicating:
(1) a total of 4,000 plan participants on the first day of
the 2014 plan year; and (2) a total of 4,200 plan par-
ticipants on the last day of the plan year. Employer
C determines that there were 3,000 plan participants
(and their families, as applicable) covered under the
fully-insured option offered under the plan on the first
dayofthe2014planyear,and2,900planparticipants
(and their families, as applicable) covered under the
fully-insured option on the last day of the 2014 plan
year. Employer C uses the Form 5500 method to cal-
culate the number of lives covered for the 2014 plan
year.
(ii) Pursuant to paragraph (c)(2)(vii) of this sec-
tion, Employer C determines the number of lives cov-
ered for the 2014 plan year as: the sum of 1,000
(4,000 total participants on the first day of the plan
year - 3,000 participants covered by the specified
health insurance policy on the first day of the plan
year) and 1,300 (4,200 total participants - 2,900 par-
ticipants covered by the specified health insurance
policy on the first day of the plan year), or 2,300.
To calculate the section 4376 fee under paragraph
(c)(1) of this section for the 2014 plan year, Employer
C must determine the applicable dollar amount un-
der paragraph (c)(3) of this section and multiply that
amount by 2,300.
(viii)Special rule for the first year the
fee is in effect. Notwithstanding paragraph
(c)(2)(i) of this section, for a plan year be-
ginning before July 11, 2012, and ending
on or after October 1, 2012, a plan spon-
sor may determine the average number of
lives covered under the plan for the plan
year using any reasonable method.
(3)Applicable dollar amount.Fora
plan year ending on or after October 1,
2012, and before October 1, 2013, the ap-
plicable dollar amount is $1. For a plan
year ending on or after October 1, 2013,
and before October 1, 2014, the applica-
ble dollar amount is $2. For any plan year
ending in any Federal fiscal year beginning
on or after October 1, 2014, the applicable
dollar amount is equal to the sum of—
(i) The applicable dollar amount for the
plan year ending in the previous Federal
fiscal year; plus
(ii) The amount equal to the product
of—
(A) The applicable dollar amount for
the plan year ending in the previous Fed-
eral fiscal year; and
(B) The percentage increase in the
projectedper capitaamount of the Na-
tional Health Expenditures most recently
released by the Department of Health and
Human Services before the beginning of
the Federal fiscal year.
(4)Examples. The following examples
illustrate the principle of paragraph (c)(3)
of this section.
Example 1. (Calendar year plan). (i) Plan Spon-
sor C maintains Plan X which has a calendar year plan
year; the plan continues in operation for the entire cal-
endar years 2012 through 2019. Plan X is an appli-
cable self-insured health plan, within the meaning of
§46.4376–1(b)(1), and Plan Sponsor C is liable for
the fee imposed by section 4376, determined in ac-
cordance with these regulations, beginning with the
2012 plan year — the plan year beginning January 1,
2012, and ending December 31, 2012 — and ending
with the 2018 plan year — the plan year beginning
January 1, 2018, and ending December 31, 2018. In
accordance with §40.6071(a)–1(c) of this chapter:
(ii) The first Form 720 that must be filed to re-
port and pay the fee imposed by section 4376 for
Plan X covers the 2012 plan year (January 1, 2012,
through December 31, 2012) and must be filed no
later than July 31, 2013, and the fee reported on this
form must be calculated by multiplying the average
number lives by $1 (the applicable dollar amount in
effect for plans with plan years beginning on or after
October 1, 2012, and before October 1, 2013); and
(ii) The last Form 720 thatmust be filed to report
andpaythefeeimposedbysection4376forPlanX
covers the 2018 plan year (January 1, 2018, through
December 31, 2018) and must be filed no later than
July 31, 2019, and the fee reported on this form must
be calculated using the applicable dollar amount in
effect for plan years ending on or after October 1,
2018, and before October 1, 2019.
Example 2. (Fiscal year plan). (i) Plan Sponsor B
maintains Plan W, which has a fiscal year plan year
ending on July 31; the plan continues in operation
for the entire fiscal year plan years from August 1,
2012, through July 31, 2019. Plan W is an applicable
self-insured health plan, within the meaning of
§46.4376–1(b)(1), and Plan Sponsor B is liable for
the fee imposed by section 4376, determined in
accordance with these regulations, beginning with
the 2012 plan year — the plan year beginning on
August 1, 2012, and ending on July 31, 2013 —
and ending with the 2018 plan year — plan year
beginning on August 1, 2018, and ending July 31,
2019. In accordance with §40.6071(a)–1(c) of this
chapter:
(ii) The first Form 720 that must be filed to report
andpaythefeeimposedbysection4376forPlanX
covers the 2012 plan year (August 1, 2012, through
July 31, 2013) and must be filed no later than July 31,
2014, and the fee reported on this form must be calcu-
lated by multiplying the average number lives by $1
(the applicable dollar amount in effect for plans with
plans years beginning on or after October 1, 2012,
and before October 1, 2013); and
2012–52 I.R.B.760December 27, 2012

(iii) The last Form 720 that must be filed to report
andpaythefeeimposedbysection4376forPlanX
covers the 2018 plan year (August 1, 2018, through
July 31, 2019) and must be filed no later than July 31,
2020, and the fee must be calculated using the appli-
cable dollar amount in effect for plan years ending on
or after October 1, 2018, and before October 1, 2019.
(d)Effective/Applicability date.This
section applies for plan years that end
on or after October1, 2012, and before
October 1, 2019.
§46.4377–1 Definitions and special rules.
(a)Definitions. The following def-
initions apply for purposes of sections
4375 and 4376 and §§46.4375–1 and
46.4376–1.
(1)Accident and health coverage.The
termaccident and health coveragemeans
any coverage that, if provided by an in-
surance policy, would cause such policy
to be a specified health insurance pol-
icy (as defined in section 4375(c) and
§46.4375–1(b)(1)). Accident and health
coverage also includes coverage for an
active employee, a former employee, or a
qualifying beneficiary that is continuation
coverage required under the Consolidated
Omnibus Budget Reconciliation Act of
1985 (COBRA) or similar continuation
coverage under other federal law or under
state law.
(2)Individual residing in the United
States—(i) The termindividual residing in
the United Statesmeans an individual with
a place of abode in the United States.
(ii)Determination of place of abode.
For purposes of paragraph (a)(2) of this
section, an issuer or a plan sponsor may
rely on the most recent address on file with
the issuer or plan sponsor and may treat the
primary insured and the primary insured’s
spouse, dependents, or other beneficiaries
covered by the policy as having the same
place of abode. For this purpose, the pri-
mary insured is the individual covered by
the policy whose eligibility for coverage
was not due to that individual’s status as
the spouse, dependent, or other beneficiary
of another covered individual.
(3)United States.ThetermUnited
Statesincludes American Samoa, Guam,
the Northern Mariana Islands, Puerto Rico,
the Virgin Islands, and any other posses-
sion of the United States.
(4)Federal fiscal year.ThetermFed-
eral fiscal yearmeans the year beginning
on October 1 and ending on the following
September 30.
(b)Treatment of exempt governmental
programs—(1)In general. The fees im-
posed by sections 4375 and 4376 do not
apply to any covered life under an exempt
governmental program as defined in para-
graph (b)(2) of this section.
(2)Exempt governmental program.For
purposes of this section,exempt govern-
mental programmeans any—
(i) Insurance program established under
title XVIII of the Social Security Act;
(ii) Medical assistance program estab-
lished by title XIX or XXI of the Social
Security Act;
(iii) Program established by Federal
law for providing medical care (other than
through insurance policies) to individuals
(or their spouses and dependents) by rea-
son of such individuals being (or having
been) members of the Armed Forces of
the United States; and
(iv) Program established by Federal
law for providing medical care (other than
through insurance policies) to members of
Indian tribes (as defined in section 4(d) of
the Indian Health Care Improvement Act).
(c)Effective/Applicability date.This
section applies to all policy and plan years
that end on or after October 1, 2012, and
before October 1, 2019.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 12. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 13. In §602.101, paragraph (b) is
amended by adding the following entries
in numerical order to the table to read as
follows:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
Identified and described
Current OMB
control No.
*****
46.4375–1
...........................................................
1545–2238
46.4376–1...........................................................
1545–2238
*****
Steven T. Miller,
Deputy Commissioner for Services
and Enforcement.
Approved November 28, 2012.
Mark J. Mazur,
Assistant Secretary of the Trea-
sury (Tax Policy).
(Filed by the Office of the Federal Register on November 30,
2012, 2:00 p.m., and published in the issue of the Federal
Register for December 5, 2012, 77 F.R. 72268)
Section 6011.—General
Requirement of Return,
Statement, or List
A Notice of Proposed Rulemaking (NRPM)
provides that an individual must report any tax im-
posed by section 3101(b)(2) on Form 1040. Section
3101(b)(2) was enacted by section 9015 of the Patient
Protection and Affordable Care Act (PPACA), Public
Law 111–148 (124 Stat. 119 (2010)), and amended
by section 10906 of the PPACA and section 1402(b)
of the Health Care and Education Reconciliation
Act of 2010, Public Law 111–152 (124 Stat. 1029
(2010)) (collectively, the “Affordable Care Act”).
See REG-130074-11, page 790.
Section 6205.—Special
Rules Applicable to Certain
Employment Taxes
A Notice of Proposed Rulemaking (NPRM) pro-
vides that adjustments of underpayments of the tax
imposed by section 3101(b)(2) may be made only if
the error is ascertained in the same year the wages or
compensation was paid, unless the underpayment is
attributable to an administrative error, section 3509
applies to determine the amount of underpayment, or
December 27, 20127612012–52 I.R.B.

the adjustment is reported on a Form 2504 or Form
2504–WC. Section 3101(b)(2) was enacted by sec-
tion 9015 of the Patient Protection and Affordable
Care Act (PPACA), Public Law 111–148 (124 Stat.
119 (2010)), and amended by section 10906 of the
PPACA and section 1402(b) of the Health Care and
Education Reconciliation Act of 2010, Public Law
111–152 (124 Stat. 1029 (2010)) (collectively, the
“Affordable Care Act”). See REG-130074-11, page
790.
Section 6402.—Authority to
Make Credits or Refunds
A Notice of Proposed Rulemaking (NPRM)
provides that employers may claim refund of an over-
payment of the tax imposed by section 3101(b)(2)
only if the employer did not deduct or withhold
the overpayment from the employee’s wages or
compensation. Section 3101(b)(2) was enacted by
section 9015 of the Patient Protection and Affordable
Care Act (PPACA), Public Law 111–148 (124 Stat.
119 (2010)), and amended by section 10906 of the
PPACA and section 1402(b) of the Health Care and
Education Reconciliation Act of 2010, Public Law
111–152 (124 Stat. 1029 (2010)) (collectively, the
“Affordable Care Act”). See REG-130074-11, page
790.
ANoticeofProposedRulemaking(NPRM)pro-
vides that individuals may claim a refund or credit
of an overpayment of the tax imposed by section
3101(b)(2) by taking the overpayment into account
in claiming a credit against, or refund of, tax on an
individual tax return. See REG-130074-11, page
790.
Section 6413.—Special
Rules Applicable to Certain
Employment Taxes
A Notice of Proposed Rulemaking (NPRM) pro-
vides that an adjustment of an overpayment of the
tax imposed by section 3101(b)(2) may be made only
if the employer ascertains the error in the same year
the wages or compensation was paid and repays or
reimburses the employee the amount of the overcol-
lection prior to the end of the calendar year. Section
3101(b)(2) was enacted by section 9015 of the Pa-
tient Protection and Affordable Care Act (PPACA),
Public Law 111–148 (124 Stat. 119 (2010)), and
amendedbysection10906ofthePPACAandsec-
tion 1402(b) of the Health Care and Education Rec-
onciliation Act of 2010, Public Law 111–152 (124
Stat. 1029 (2010)) (collectively, the “Affordable Care
Act”). See REG-130074-11, page 790.
Section 6621.—Determina-
tion of Rate of Interest
26 CFR 301.6621–1: Interest rate.
Interest rates; underpayment and
overpayments.The rates for interest
determined under section 6621 of the
Code for the calendar quarter beginning
January 1, 2013, will be 3 percent for
overpayments (2 percent in the case of a
corporation), 3 percent for the underpay-
ments, and 5 percent for large corporate
underpayments. The rate of interest paid
on the portion of a corporate overpayment
exceeding $10,000 will be 0.5 percent.
Rev. Rul. 2012–32
Section 6621 of the Internal Revenue
Code establishes the interest rates on over-
payments and underpayments of tax. Un-
der section 6621(a)(1), the overpayment
rate is the sum of the federal short-term
rate plus 3 percentage points (2 percent-
age points in the case of a corporation), ex-
cept the rate for the portion of a corporate
overpayment of tax exceeding $10,000 for
a taxable period is the sum of the federal
short-term rate plus 0.5 of a percentage
point. Under section 6621(a)(2), the un-
derpayment rate is the sum of the federal
short-term rate plus 3 percentage points.
Section 6621(c) provides that for pur-
poses of interest payable under section
6601 on any large corporate underpay-
ment, the underpayment rate under section
6621(a)(2) is determined by substituting
“5 percentage points” for “3 percentage
points.” See section 6621(c) and section
301.6621–3 of the Regulations on Proce-
dure and Administration for the definition
of a large corporate underpayment and
for the rules for determining the appli-
cable date. Section 6621(c) and section
301.6621–3 are generally effective for
periods after December 31, 1990.
Section 6621(b)(1) provides that the
Secretary will determine the federal
short-term rate for the first month in each
calendar quarter. Section 6621(b)(2)(A)
provides that the federal short-term rate
determined under section 6621(b)(1) for
any month applies during the first calen-
dar quarter beginning after that month.
Section 6621(b)(2)(B) provides that in de-
termining the addition to tax under section
6654 for failure to pay estimated tax for
any taxable year, the federal short-term
rate that applies during the third month
following the taxable year also applies
during the first 15 days of the fourth
month following the taxable year. Sec-
tion 6621(b)(3) provides that the federal
short-term rate for any month is the fed-
eral short-term rate determined during that
month by the Secretary in accordance with
section 1274(d), rounded to the nearest
full percent (or, if a multiple of 1/2 of 1
percent, the rate is increased to the next
highest full percent).
Notice 88–59, 1988–1 C.B. 546, an-
nounced that, in determining the quarterly
interest rates to be used for overpayments
and underpayments of tax under section
6621, the Internal Revenue Service will
use the federal short-term rate based on
daily compounding because that rate is
most consistent with section 6621 which,
pursuant to section 6622, is subject to daily
compounding.
The federal short-term rate determined
in accordance with section 1274(d) dur-
ing October 2012 is the rate published in
Revenue Ruling 2012–30, 2012–45 I.R.B.
534, to take effect beginning Novem-
ber 1, 2012. The federal short-term rate,
rounded to the nearest full percent, based
on daily compounding determined during
the month of October 2012 is 0 percent.
Accordingly, an overpayment rate of 3
percent (2 percent in the case of a cor-
poration) and an underpayment rate of 3
percent are established for the calendar
quarter beginning January 1, 2013. The
overpayment rate for the portion of a cor-
porate overpayment exceeding $10,000 for
the calendar quarter beginning January 1,
2013, is 0.5 percent. The underpayment
rate for large corporate underpayments for
the calendar quarter beginning January 1,
2013, is 5 percent. These rates apply
to amounts bearing interest during that
calendar quarter.
The 3 percent rate also applies to esti-
mated tax underpayments for the first cal-
endar quarter in 2013.
Interest factors for daily compound in-
terest for annual rates of 0.5 percent are
published in Appendix A of this Revenue
Ruling. Interest factors for daily com-
pound interest for annual rates of 2 percent,
3 percent and 5 percent are published in Ta-
bles 9, 11, and 15 of Rev. Proc. 95–17,
1995–1 C.B. 563, 565, and 569.
Annual interest rates to be compounded
daily pursuant to section 6622 that apply
2012–52 I.R.B.762December 27, 2012

for prior periods are set forth in the tables
accompanying this revenue ruling.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Deborah Colbert-James of the Office
of Associate Chief Counsel (Procedure &
Administration). For further information
regarding this revenue ruling, contact Ms.
Gulas at (202) 622–4570 (not a toll-free
call).
APPENDIX A
365 Day Year
0.5% Compound Rate 184 Days
DaysFactorDaysFactorDaysFactor
10.000013699630.000863380
125
0.001713784
20.000027397640.000877091126
0.001727506
30.000041096
65
0.0008908011270.001741228
4
0.000054796
66
0.000904512
128
0.001754951
50.000068495
670.0009182231290.001768673
6
0.000082195
680.0009319341300.001782396
7
0.000095894
69
0.000945646
1310.001796119
8
0.000109594
70
0.000959357
1320.001809843
90.000123294710.000973069133
0.001823566
10
0.000136995
720.0009867811340.001837290
11
0.000150695
730.001000493
1350.001851013
120.000164396740.0010142061360.001864737
130.000178097
75
0.0010279181370.001878462
140.000191798760.0010416311380.001892186
150.000205499
77
0.001055344
139
0.001905910
160.00021920178
0.001069057
140
0.001919635
170.000232902790.0010827701410.001933360
180.000246604800.001096484142
0.001947085
190.000260306810.0011101971430.001960811
200.000274008820.001123911144
0.001974536
210.00028771183
0.001137625145
0.001988262
220.00030141384
0.001151339
1460.002001988
23
0.000315116850.001165054
147
0.002015714
240.000328819860.0011787681480.002029440
250.000342522
870.0011924831490.002043166
26
0.000356225
880.001206198
1500.002056893
270.000369929890.001219913
151
0.002070620
280.000383633900.001233629
152
0.002084347
290.000397336910.001247344
153
0.002098074
300.000411041920.001261060
154
0.002111801
31
0.000424745
930.001274776
1550.002125529
320.000438449940.001288492
1560.002139257
33
0.00045215495
0.001302208
1570.002152985
34
0.000465859
96
0.001315925158
0.002166713
350.000479564
970.001329641
159
0.002180441
360.00049326998
0.001343358
1600.002194169
37
0.000506974
99
0.001357075
1610.002207898
38
0.000520680
1000.0013707921620.002221627
39
0.000534386
101
0.001384510
163
0.002235356
40
0.000548092
1020.001398227164
0.002249085
41
0.000561798
103
0.0014119451650.002262815
42
0.000575504
104
0.001425663
166
0.002276544
43
0.000589211105
0.0014393811670.002290274
440.000602917106
0.001453100
1680.002304004
45
0.0006166241070.0014668181690.002317734
460.000630331108
0.001480537
170
0.002331465
470.000644039109
0.001494256
171
0.002345195
48
0.000657746
110
0.001507975
172
0.002358926
49
0.000671454
111
0.001521694
173
0.002372657
500.000685161
112
0.001535414
1740.002386388
51
0.000698869113
0.001549133175
0.002400120
December 27, 20127632012–52 I.R.B.

365 Day Year
0.5% Compound Rate 184 Days
DaysFactorDaysFactorDaysFactor
520.000712578
114
0.001562853
176
0.002413851
53
0.000726286
1150.001576573
177
0.002427583
540.000739995
116
0.001590293
178
0.002441315
550.000753703
1170.001604014179
0.002455047
56
0.0007674121180.0016177341800.002468779
57
0.000781121119
0.001631455
181
0.002482511
58
0.000794831120
0.001645176
1820.002496244
590.000808540
121
0.001658897
183
0.002509977
60
0.000822250
1220.001672619184
0.002523710
61
0.000835960
1230.001686340
620.0008496701240.001700062
366 Day Year
0.5% Compound Rate 184 Days
DaysFactorDaysFactorDaysFactor
10.000013661630.000861020
125
0.001709097
20.000027323640.0008746931260.001722782
30.000040984
65
0.0008883661270.001736467
4
0.000054646
660.000902040128
0.001750152
5
0.00006830867
0.000915713
1290.001763837
60.000081970680.000929387130
0.001777522
7
0.000095632
690.0009430611310.001791208
8
0.000109295
70
0.000956735
1320.001804893
9
0.000122958
710.000970409133
0.001818579
100.000136620720.000984084134
0.001832265
11
0.000150283
73
0.0009977581350.001845951
120.000163947740.001011433136
0.001859638
130.000177610
750.001025108
1370.001873324
140.000191274760.0010387831380.001887011
15
0.00020493877
0.001052459
1390.001900698
160.000218602780.001066134140
0.001914385
170.000232266790.0010798101410.001928073
18
0.000245930
800.0010934861420.001941760
19
0.000259595
810.001107162143
0.001955448
200.000273260820.0011208391440.001969136
210.00028692483
0.001134515145
0.001982824
22
0.000300590
840.001148192146
0.001996512
23
0.00031425585
0.0011618691470.002010201
240.00032792086
0.001175546
1480.002023889
250.000341586
870.001189223149
0.002037578
26
0.000355252
880.001202900
1500.002051267
270.00036891889
0.0012165781510.002064957
28
0.000382584
90
0.001230256152
0.002078646
29
0.000396251
910.001243934
153
0.002092336
300.00040991792
0.0012576121540.002106025
31
0.000423584
930.001271291
1550.002119715
32
0.000437251
940.001284969
1560.002133405
33
0.00045091895
0.001298648
157
0.002147096
34
0.000464586
960.001312327
158
0.002160786
350.000478253
970.001326006
159
0.002174477
360.00049192198
0.001339685
1600.002188168
37
0.000505589
99
0.001353365
161
0.002201859
38
0.000519257
1000.001367044162
0.002215550
39
0.000532925
1010.0013807241630.002229242
40
0.000546594
1020.0013944041640.002242933
2012–52 I.R.B.764December 27, 2012

366 Day Year
0.5% Compound Rate 184 Days
DaysFactorDaysFactorDaysFactor
41
0.000560262
103
0.0014080851650.002256625
42
0.000573931
104
0.001421765
1660.002270317
43
0.0005876001050.001435446
1670.002284010
440.0006012691060.0014491271680.002297702
45
0.0006149391070.001462808169
0.002311395
460.0006286081080.001476489170
0.002325087
470.0006422781090.0014901701710.002338780
48
0.000655948
110
0.001503852
172
0.002352473
490.000669618111
0.001517533
1730.002366167
50
0.000683289112
0.001531215
1740.002379860
510.000696959
113
0.0015448971750.002393554
52
0.000710630114
0.001558580
1760.002407248
53
0.000724301
1150.001572262
1770.002420942
54
0.000737972116
0.001585945
1780.002434636
550.000751643
117
0.001599628
1790.002448331
560.000765315
1180.001613311180
0.002462025
57
0.0007789861190.001626994181
0.002475720
580.000792658
1200.001640678182
0.002489415
59
0.000806330121
0.001654361
183
0.002503110
600.000820003122
0.001668045
184
0.002516806
61
0.000833675
1230.001681729
620.000847348124
0.001695413
TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975 — PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
PERIODRATE
In 1995–1 C.B.
DAILY RATE TABLE
Before Jul. 1, 1975
6%
Table 2, pg. 557
Jul. 1, 1975—Jan. 31, 1976
9%
Table 4, pg. 559
Feb. 1, 1976—Jan. 31, 19787%
Table 3, pg. 558
Feb. 1, 1978—Jan. 31, 19806%
Table 2, pg. 557
Feb. 1, 1980—Jan. 31, 198212%
Table 5, pg. 560
Feb. 1, 1982—Dec. 31, 198220%
Table 6, pg. 560
Jan. 1, 1983—Jun. 30, 198316%
Table 37, pg. 591
Jul. 1, 1983—Dec. 31, 198311%
Table 27, pg. 581
Jan. 1, 1984—Jun. 30, 198411%
Table 75, pg. 629
Jul. 1, 1984—Dec. 31, 198411%
Table 75, pg. 629
Jan. 1, 1985—Jun. 30, 1985
13%
Table 31, pg. 585
Jul. 1, 1985—Dec. 31, 1985
11%
Table 27, pg. 581
Jan. 1, 1986—Jun. 30, 198610%
Table 25, pg. 579
Jul. 1, 1986—Dec. 31, 19869%
Table 23, pg. 577
TABLE OF INTEREST RATES
FROM JAN. 1, 1987 — DEC. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATE TABL
E
PGRATE TABL
E
PG
Jan.
1, 1987—Mar. 31, 1987
8%21
575
9%23
577
Apr. 1, 1987—Jun. 30, 19878%21
575
9%23
577
December 27, 20127652012–52 I.R.B.

TABLE OF INTEREST RATES
FROM JAN. 1, 1987 — DEC. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATE TABLEPGRATE TABLEPG
Jul. 1, 1987—Sep. 30, 19878%21
575
9%23
577
Oct. 1, 1987—Dec. 31, 19879%23
577
10%
25579
Jan. 1, 1988—Ma
r. 31, 1988
10%7362711%
75
629
Apr. 1, 1988—Jun. 30, 19889%71
625
10%73627
Jul. 1, 1988—Sep. 30, 19889%71
625
10%73627
Oct. 1, 1988—D
ec. 31, 1988
10%7362711%
75
629
Jan. 1, 1989—Mar. 31, 198910%
25579
11%27
581
Apr. 1, 1989—Jun. 30, 198911%27
581
12%29
583
Jul. 1, 1989—
Sep. 30, 1989
11%27
581
12%29
583
Oct. 1, 1989—Dec. 31, 198910%
25579
11%27
581
Jan. 1, 1990—Mar. 31, 199010%
25579
11%27
581
Apr. 1, 1990
—Jun. 30, 1990
10%
25579
11%27
581
Jul. 1, 1990—Sep. 30, 199010%
25579
11%27
581
Oct. 1, 1990—Dec. 31, 199010%
25579
11%27
581
Jan. 1, 1991
—Mar. 31, 1991
10%
25579
11%27
581
Apr. 1, 1991—Jun. 30, 19919%23
577
10%
25579
Jul. 1, 1991—Sep. 30, 19919%23
577
10%
25579
Oct. 1, 19
91—Dec. 31, 1991
9%23
577
10%
25579
Jan. 1, 1992—Mar. 31, 19928%696239%71
625
Apr. 1, 1992—Jun. 30, 19927%676218%69623
Jul. 1, 19
92—Sep. 30, 1992
7%676218%69623
Oct. 1, 1992—Dec. 31, 19926%
65
6197%67621
Jan. 1, 1993—Mar. 31, 19936%17
571
7%19
573
Apr. 1, 1
993—Jun. 30, 1993
6%17
571
7%19
573
Jul. 1, 1993—Sep. 30, 19936%17
571
7%19
573
Oct. 1, 1993—Dec. 31, 19936%17
571
7%19
573
Jan. 1,
1994—Mar. 31, 1994
6%17
571
7%19
573
Apr. 1, 1994—Jun. 30, 19946%17
571
7%19
573
Jul. 1, 1994—Sep. 30, 19947%19
573
8%21
575
Oct. 1
, 1994—Dec. 31, 1994
8%21
575
9%23
577
Jan. 1, 1995—Mar. 31, 1995
8%21
575
9%23
577
Apr.
1, 1995—Jun. 30, 1995
9%23
577
10%
25579
Jul. 1, 1995—Sep. 30, 1995
8%21
575
9%23
577
Oct. 1, 1995—Dec. 31, 1995
8%21
575
9%23
577
Jan. 1, 1996—Mar. 31, 19968%696239%71
625
Apr
. 1, 1996—Jun. 30, 1996
7%676218%69623
Jul. 1, 1996—Sep. 30, 19968%696239%71
625
Oct. 1, 1996—Dec. 31, 19968%696239%71
625
Jan
. 1, 1997—Mar. 31, 1997
8%21
575
9%23
577
Apr. 1, 1997—Jun. 30, 19978%21
575
9%23
577
Jul. 1, 1997—Sep. 30, 19978%21
57
5
9%23
57
7
Oc
t. 1, 1997—Dec. 31, 1997
8%21
575
9%23
577
Jan. 1, 1998—Mar. 31, 19988%21
575
9%23
577
Apr. 1, 1998—Jun. 30, 19987%19
5
73
8%21
5
75
J
ul. 1, 1998—Sep. 30, 1998
7
%
1
9
573
8
%
2
1
575
Oct. 1, 1998—Dec. 31, 19987%19
573
8%21
575
2012–52 I.R.B.766December 27, 2012

TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 — PRESENT
NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
1995–1 C.B.
RATETABLEPG
Jan. 1, 1999—Mar. 31, 19997%19
573
Apr. 1, 1999—Jun. 30, 19998%21
575
Jul. 1, 1999—Sep. 30, 19998%21
575
Oct. 1, 1999—Dec. 31, 19998%21
575
Jan. 1, 2000—Mar. 31, 20008%69623
Apr. 1, 2000—Jun. 30, 20009%71
625
Jul. 1, 2000—Sep. 30, 20009%71
625
Oct. 1, 2000—Dec. 31, 20009%71
625
Jan. 1, 2001—Mar. 31, 20019%23
577
Apr. 1, 2001—Jun. 30, 20018%21
575
Jul. 1, 2001—Sep. 30, 20017%19
573
Oct. 1, 2001—Dec. 31, 20017%19
573
Jan. 1, 2002—Mar. 31, 20026%17
571
Apr. 1, 2002—Jun. 30, 20026%17
571
Jul. 1, 2002—Sep. 30, 20026%17
571
Oct. 1, 2002—Dec. 31, 20026%17
571
Jan. 1, 2003—Mar. 31, 2003
5%15569
Apr. 1, 2003—Jun. 30, 2003
5%15569
Jul. 1, 2003—Sep. 30, 2003
5%15569
Oct. 1, 2003—Dec. 31, 20034%13
567
Jan. 1, 2004—Mar. 31, 20044%61
615
Apr. 1, 2004—Jun. 30, 2004
5%
63617
Jul. 1, 2004—Sep. 30, 20044%61
615
Oct. 1, 2004—Dec. 31, 2004
5%
63617
Jan. 1, 2005—Mar. 31, 20055%15569
Apr. 1, 2005—Jun. 30, 2005
6%17
571
Jul. 1, 2005—Sep. 30, 2005
6%17
571
Oct. 1, 2005—Dec. 31, 2005
7%19
573
Jan. 1, 2006—Mar. 31, 20067%19
573
Apr. 1, 2006—Jun. 30, 20067%19
573
Jul. 1, 2006—Sep. 30, 20068%21
575
Oct. 1, 2006—Dec. 31, 20068%21
575
Jan. 1, 2007—Mar. 31, 20078%21
575
Apr. 1, 2007—Jun. 30, 20078%21
575
Jul. 1, 2007—Sep. 30, 20078%21
575
Oct. 1, 2007—Dec. 31, 20078%21
575
Jan. 1, 2008—Mar. 31, 20087%67621
Apr. 1, 2008—Jun. 30, 20086%
65
619
Jul. 1, 2008—Sep. 30, 2008
5%
63617
Oct. 1, 2008—Dec. 31, 20086%
65
619
Jan. 1, 2009—Mar. 31, 2009
5%15569
Apr. 1, 2009—Jun. 30, 20094%13
567
Jul. 1, 2009—Sep. 30, 20094%13
567
Oct. 1, 2009—Dec. 31, 20094%13
567
Jan. 1, 2010—Mar. 31, 20104%13
567
Apr. 1, 2010—Jun. 30, 20104%13
567
Jul. 1, 2010—Sep. 30, 20104%13
567
Oct. 1, 2010—Dec. 31, 20104%13
567
Jan. 1, 2011—Mar. 31, 20113%11
565
Apr. 1, 2011—Jun. 30, 20114%13
567
Jul. 1, 2011—Sep. 30, 20114%13
567
Oct. 1, 2011—Dec. 31, 20113%11
565
Jan. 1, 2012—Mar. 31, 20123%
59
613
Apr. 1, 2012—Jun. 30, 20123%
59
613
December 27, 20127672012–52 I.R.B.

TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 — PRESENT
NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
1995–1 C.B.
RATETABLEPG
Jul. 1, 2012—Sep. 30, 20123%
59
613
Oct. 1, 2012—Dec. 31, 20123%
59
613
Jan. 1, 2012—Mar. 31, 20133%11
565
TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 — PRESENT
CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATE TABLEPGRATE TABLEPG
Jan. 1, 1999—Mar. 31, 19996%17
571
7%19
573
Apr. 1, 1999—Jun
. 30, 1999
7%19
573
8%21
575
Jul. 1, 1999—Sep. 30, 19997%19
573
8%21
575
Oct. 1, 1999—Dec. 31, 19997%19
573
8%21
575
Jan. 1, 2000—Ma
r. 31, 2000
7%676218%69623
Apr. 1, 2000—Jun. 30, 20008%696239%71
625
Jul. 1, 2000—Sep. 30, 20008%696239%71
625
Oct. 1, 2000—D
ec. 31, 2000
8%696239%71
625
Jan. 1, 2001—Mar. 31, 20018%21
575
9%23
577
Apr. 1, 2001—Jun. 30, 20017%19
573
8%21
575
Jul. 1, 2001—
Sep. 30, 2001
6%17
571
7%19
573
Oct. 1, 2001—Dec. 31, 20016%17
571
7%19
573
Jan. 1, 2002—Mar. 31, 2002
5%15569
6%17
571
Apr. 1, 2002
—Jun. 30, 2002
5%15569
6%17
571
Jul. 1, 2002—Sep. 30, 2002
5%15569
6%17
571
Oct. 1, 2002—Dec. 31, 2002
5%15569
6%17
571
Jan. 1, 200
3—Mar. 31, 2003
4%13
5675%15569
Apr. 1, 2003—Jun. 30, 20034%13
5675%15569
Jul. 1, 2003—Sep. 30, 20034%13
5675%15569
Oct. 1, 20
03—Dec. 31, 2003
3%11
565
4%13
567
Jan. 1, 2004—Mar. 31, 20043%
59
6134%61
615
Apr. 1, 2004—Jun. 30, 20044%61
6155%
63617
Jul. 1, 2
004—Sep. 30, 2004
3%
59
6134%61
615
Oct. 1, 2004—Dec. 31, 20044%61
6155%
63617
Jan. 1,
2005—Mar. 31, 2005
4%13
5675%15569
Apr. 1, 2005—Jun. 30, 20055%15569
6%17
571
Jul. 1, 2005—Sep. 30, 20055%15569
6%17
571
Oct. 1,
2005—Dec. 31, 2005
6%17
571
7%19
573
Jan. 1,
2006—Mar. 31, 2006
6%17
571
7%19
573
Apr. 1, 2006—Jun. 30, 20066%17
571
7%19
573
Jul. 1, 2006—Sep. 30, 20067%19
573
8%21
575
Oct. 1
, 2006—Dec. 31, 2006
7%19
573
8%21
575
Jan. 1, 2007—Mar. 31, 20077%19
573
8%21
575
Apr. 1, 2007—Jun. 30, 20077%19
573
8%21
575
Jul.
1, 2007—Sep. 30, 2007
7%19
573
8%21
575
Oct. 1, 2007—Dec. 31, 20077%19
573
8%21
575
Jan. 1, 2008—Mar. 31, 20086%
65
6197%67621
Apr
. 1, 2008—Jun. 30, 2008
5%
636176%
65
619
Jul. 1, 2008—Sep. 30, 20084%61
6155%
63617
Oct. 1, 2008—Dec. 31, 2008
5%
636176%
65
619
Jan
. 1, 2009—Mar. 31, 2009
4%13
5675%15569
2012–52 I.R.B.768December 27, 2012

TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 — PRESENT
CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATE TABLEPGRATE TABLEPG
Apr. 1, 2009—Jun. 30, 20093%11
565
4%13
567
Jul. 1, 2009—Sep. 30, 20093%11
565
4%13
567
Oct. 1, 2009—De
c. 31, 2009
3%11
565
4%13
567
Jan. 1, 2010—Mar. 31, 20103%11
565
4%13
567
Apr. 1, 2010—Jun. 30, 20103%11
565
4%13
567
Jul. 1, 2010—S
ep. 30, 2010
3%11
565
4%13
567
Oct. 1, 2010—Dec. 31, 20103%11
565
4%13
567
Jan. 1, 2011—Mar. 31, 20112%9
563
3%11
565
Apr. 1, 2011—
Jun. 30, 2011
3%11
565
4%13
567
Jul. 1, 2011—Sep. 30, 20113%11
565
4%13
567
Oct. 1, 2011—Dec. 31, 20112%9
563
3%11
565
Jan. 1, 2012—
Mar. 31, 2012
2%
57
6113%
59
613
Apr. 1, 2012—Jun. 30, 20122%
57
6113%
59
613
Jul. 1, 2012—Sep. 30, 20122%
57
6113%
59
613
Oct. 1, 2012
—Dec. 31, 2012
2%
57
6113%
59
613
Jan. 1, 2013—Mar. 31, 20132%9
563
3%11
565
TABLE OF INTEREST RATES FOR
LARGE CORP
ORATE UNDERPAYMENTS
FROM JANUAR
Y 1, 1991 — PRESENT
1995–1 C.B.
RATETABLEPG
Jan. 1, 1991—Mar. 31, 199113%31
585
Apr. 1, 1991—Jun. 30, 199112%29
583
Jul. 1, 199
1—Sep. 30, 1991
12%29
583
Oct. 1, 1991—Dec. 31, 199112%29
583
Jan. 1, 1992—Mar. 31, 199211%
75
629
Apr. 1, 19
92—Jun. 30, 1992
10%73627
Jul. 1, 1992—Sep. 30, 199210%73627
Oct. 1, 1992—Dec. 31, 19929%71
625
Jan. 1, 1
993—Mar. 31, 1993
9%23
577
Apr. 1, 1993—Jun. 30, 19939%23
577
Jul. 1, 1993—Sep. 30, 19939%23
577
Oct. 1,
1993—Dec. 31, 1993
9%23
577
Jan. 1, 1994—Mar. 31, 19949%23
577
Apr. 1, 1994—Jun. 30, 19949%23
577
Jul. 1
, 1994—Sep. 30, 1994
10%
25579
Oct. 1, 1994—Dec. 31, 199411%27
581
Jan. 1
, 1995—Mar. 31, 1995
11%27
581
Apr. 1, 1995—Jun. 30, 1995
12%29
583
Jul. 1, 1995—Sep. 30, 1995
11%27
581
Oct.
1, 1995—Dec. 31, 1995
11%27
581
Jan.
1, 1996—Mar. 31, 1996
11%
75
629
Apr. 1, 1996—Jun. 30, 199610%73627
Jul. 1, 1996—Sep. 30, 199611%
75
629
Oct
. 1, 1996—Dec. 31, 1996
11%
75
629
Jan. 1, 1997—Mar. 31, 199711%27
581
Apr. 1, 1997—Jun. 30, 199711%27
58
1
Ju
l. 1, 1997—Sep. 30, 1997
11%27
581
Oct. 1, 1997—Dec. 31, 199711%27
581
Jan. 1, 1998—Mar. 31, 199811%27
58
1
December 27, 20127692012–52 I.R.B.

TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 — PRESENT
1995–1 C.B.
RATETABLEPG
Apr. 1, 1998—Jun. 30, 199810%
25579
Jul. 1, 1998—Sep. 30, 199810%
25579
Oct. 1, 1998—Dec. 31, 199810%
25579
Jan. 1, 1999—Mar. 31, 19999%23
577
Apr. 1, 1999—Jun. 30, 199910%
25579
Jul. 1, 1999—Sep. 30, 199910%
25579
Oct. 1, 1999—Dec. 31, 199910%
25579
Jan. 1, 2000—Mar. 31, 200010%73627
Apr. 1, 2000—Jun. 30, 200011%
75
629
Jul. 1, 2000—Sep. 30, 200011%
75
629
Oct. 1, 2000—Dec. 31, 200011%
75
629
Jan. 1, 2001—Mar. 31, 200111%27
581
Apr. 1, 2001—Jun. 30, 200110%
25579
Jul. 1, 2001—Sep. 30, 20019%23
577
Oct. 1, 2001—Dec. 31, 20019%23
577
Jan. 1, 2002—Mar. 31, 20028%21
575
Apr. 1, 2002—Jun. 30, 20028%21
575
Jul. 1, 2002—Sep. 30, 20028%21
575
Oct. 1, 2002—Dec. 30, 20028%21
575
Jan. 1, 2003—Mar. 31, 20037%19
573
Apr. 1, 2003—Jun. 30, 20037%19
573
Jul. 1, 2003—Sep. 30, 20037%19
573
Oct. 1, 2003—Dec. 31, 20036%17
571
Jan. 1, 2004—Mar. 31, 20046%
65
619
Apr. 1, 2004—Jun. 30, 20047%67621
Jul. 1, 2004—Sep. 30, 20046%
65
619
Oct. 1, 2004—Dec. 31, 20047%67621
Jan. 1, 2005—Mar. 31, 2005
7%19
573
Apr. 1, 2005—Jun. 30, 2005
8%21
575
Jul. 1, 2005—Sep. 30, 2005
8%21
575
Oct. 1, 2005—Dec. 31, 2005
9%23
577
Jan. 1, 2006—Mar. 31, 20069%23
577
Apr. 1, 2006—Jun. 30, 20069%23
577
Jul. 1, 2006—Sep. 30, 200610%
25579
Oct. 1, 2006—Dec. 31, 200610%
25579
Jan. 1, 2007—Mar. 31, 200710%
25579
Apr. 1, 2007—Jun. 30, 200710%
25579
Jul. 1, 2007—Sep. 30, 200710%
25579
Oct. 1, 2007—Dec. 31, 200710%
25579
Jan. 1, 2008—Mar. 31, 20089%71
625
Apr. 1, 2008—Jun. 30, 20088%69623
Jul. 1, 2008—Sep. 30, 20087%67621
Oct. 1, 2008—Dec. 31, 20088%69623
Jan. 1, 2009—Mar. 31, 20097%19
573
Apr. 1, 2009—Jun. 30, 20096%17
571
Jul. 1, 2009—Sep. 30, 20096%17
571
Oct. 1, 2009—Dec. 31, 20096%17
571
Jan. 1, 2010—Mar. 31, 20106%17
571
Apr. 1, 2010—Jun. 30, 20106%17
571
Jul. 1, 2010—Sep. 30, 20106%17
571
Oct. 1, 2010—Dec. 31, 20106%17
571
Jan. 1, 2011—Mar. 31, 2011
5%15569
Apr. 1, 2011—Jun. 30, 20116%17
571
Jul. 1, 2011—Sep. 30, 20116%17
571
Oct. 1, 2011—Dec. 31, 2011
5%15569
Jan. 1, 2012—Mar. 31, 2012
5%
63617
2012–52 I.R.B.770December 27, 2012

TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 — PRESENT
1995–1 C.B.
RATETABLEPG
Apr. 1, 2012—Jun. 30, 2012
5%
63617
Jul. 1, 2012—Sep. 30, 2012
5%
63617
Oct. 1, 2012—Dec. 31, 2012
5%
63617
Jan. 1, 2013—Mar. 31, 2013
5%15569
TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS
EXCEEDING $10,000
FROM JANUARY 1, 1995 — PRESENT
1995–1 C.B.
RATETABLEPG
Jan. 1, 1995—Mar. 31, 19956.5%
18
572
Apr. 1, 1995—Jun. 30, 19957.5%
20
574
Jul. 1, 1995—Sep. 30, 19956.5%
18
572
Oct. 1, 1995—Dec. 31, 19956.5%
18
572
Jan. 1, 1996—Mar. 31, 1996
6.5%
66620
Apr. 1, 1996—Jun. 30, 1996
5.5%
64618
Jul. 1, 1996—Sep. 30, 1996
6.5%
66620
Oct. 1, 1996—Dec. 31, 1996
6.5%
66620
Jan. 1, 1997—Mar. 31, 1997
6.5%
18
572
Apr. 1, 1997—Jun. 30, 1997
6.5%
18
572
Jul. 1, 1997—Sep. 30, 1997
6.5%
18
572
Oct. 1, 1997—Dec. 31, 1997
6.5%
18
572
Jan. 1, 1998—Mar. 31, 1998
6.5%
18
572
Apr. 1, 1998—Jun. 30, 1998
5.5%
16
570
Jul. 1, 1998—Sep. 30, 1998
5.5%
16
570
Oct. 1, 1998—Dec. 31, 1998
5.5%
16
570
Jan. 1, 1999—Mar. 31, 1999
4.5%
14
568
Apr. 1, 1999—Jun. 30, 1999
5.5%
16
570
Jul. 1, 1999—Sep. 30, 1999
5.5%
16
570
Oct. 1, 1999—Dec. 31, 1999
5.5%
16
570
Jan. 1, 2000—Mar. 31, 2000
5.5%
64618
Apr. 1, 2000—Jun. 30, 2000
6.5%
66620
Jul. 1, 2000—Sep. 30, 2000
6.5%
66620
Oct. 1, 2000—Dec. 31, 2000
6.5%
66620
Jan. 1, 2001—Mar. 31, 2001
6.5%
18
572
Apr. 1, 2001—Jun. 30, 2001
5.5%
16
570
Jul. 1, 2001—Sep. 30, 2001
4.5%
14
568
Oct. 1, 2001—Dec. 31, 2001
4.5%
14
568
Jan. 1, 2002—Mar. 31, 2002
3.5%
12
566
Apr. 1, 2002—Jun. 30, 2002
3.5%
12
566
Jul. 1, 2002—Sep. 30, 2002
3.5%
12
566
Oct. 1, 2002—Dec. 31, 2002
3.5%
12
566
Jan. 1, 2003—Mar. 31, 2003
2.5%
10
564
Apr. 1, 2003—Jun. 30, 2003
2.5%
10
564
Jul. 1, 2003—Sep. 30, 2003
2.5%
10
564
Oct. 1, 2003—Dec. 31, 2003
1.5%
8
562
Jan. 1, 2004—Mar. 31, 2004
1.5%56
610
Apr. 1, 2004—Jun. 30, 2004
2.5%58
612
Jul. 1, 2004—Sep. 30, 2004
1.5%56
610
Oct. 1, 2004—Dec. 31, 2004
2.5%58
612
Jan. 1, 2005—Mar. 31, 20052.5%
10
564
Apr. 1, 2005—Jun. 30, 20053.5%
12
566
December 27, 20127712012–52 I.R.B.

TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS E
XCEEDING $10,000
FROM JANUARY 1, 1995 — PRESENT
1995–1 C.B.
RATETABLEPG
Jul. 1, 2005—Sep. 30, 20053.5%
12
566
Oct. 1, 2005—Dec. 31, 20054.5%
14
568
Jan. 1, 2006—Mar. 31, 2006
4.5%
14
568
Apr. 1, 2006—Jun. 30, 2006
4.5%
14
568
Jul. 1, 2006—Sep. 30, 2006
5.5%
16
570
Oct. 1, 2006—Dec. 31, 2006
5.5%
16
570
Jan. 1, 2007—Mar. 31, 2007
5.5%
16
570
Apr. 1, 2007—Jun. 30, 2007
5.5%
16
570
Jul. 1, 2007—Sep. 30, 2007
5.5%
16
570
Oct. 1, 2007—Dec. 31, 2007
5.5%
16
570
Jan. 1, 2008—Mar. 31, 2008
4.5%
62616
Apr. 1, 2008—Jun. 30, 2008
3.5%
60614
Jul. 1, 2008—Sep. 30, 2008
2.5%58
612
Oct. 1, 2008—Dec. 31, 2008
3.5%
60614
Jan. 1, 2009—Mar. 31, 2009
2.5%
10
564
Apr. 1, 2009—Jun. 30, 2009
1.5%
8
562
Jul. 1, 2009—Sep. 30, 2009
1.5%
8
562
Oct. 1, 2009—Dec. 31, 2009
1.5%
8
562
Jan. 1, 2010—Mar. 31, 2010
1.5%
8
562
Apr. 1, 2010—Jun. 30, 2010
1.5%
8
562
Jul. 1, 2010—Sep. 30, 2010
1.5%
8
562
Oct. 1, 2010—Dec. 31, 2010
1.5%
8
562
Jan. 1, 2011—Mar. 31, 2011
0.5%*
Apr. 1, 2011—Jun. 30, 2011
1.5%
8
562
Jul. 1, 2011—Sep. 30, 2011
1.5%
8
562
Oct. 1, 2011—Dec. 31, 2011
0.5%*
Jan. 1, 2012—Mar. 31, 2012
0.5%*
Apr. 1, 2012—Jun. 30, 2012
0.5%*
Jul. 1, 2012—Sep. 30, 2012
0.5%*
Oct. 1, 2012—Dec. 31, 2012
0.5%*
Jan. 1, 2013—Mar. 31, 2013
0.5%*
2012–52 I.R.B.772December 27, 2012

Part III. Administrative, Procedural, and Miscellaneous
Qualified Plug-in Electric Drive
Motor Vehicle Credit; Update
of Notice 2009–89
Notice 2012–54
SECTION 1. PURPOSE
This notice modifies Notice 2009–89,
2009–48 I.R.B. 714, by providing a new
address to which a vehicle manufacturer
(or, in the case of a foreign vehicle man-
ufacturer, its domestic distributor) must
send vehicle certifications and quarterly
reports under Notice 2009–89.
SECTION 2. BACKGROUND
Section 30D of the Internal Revenue
Code originally was enacted in the Energy
Improvement and Extension Act of 2008,
Pub. L. 110–343, 122 Stat. 3765. The
American Recovery and Reinvestment
Act of 2009, Pub. L. 111–5, 123 Stat.
115, amended § 30D in certain material
respects, effective for vehicles acquired
after December 31, 2009. Section 30D, as
amended, provides for a credit for certain
new qualified plug-in electric drive motor
vehicles, equal to the sum of: (1) $2,500,
(2) $417 for at least 5 kilowatt hours of
traction battery capacity, and (3) $417
for each kilowatt hour of traction battery
capacity in excess of 5 kilowatt hours.
Section 30D(b)(1) limits the amount of the
credit allowed for a vehicle to $7,500. The
credit begins to phase out for a manufac-
turer’s vehicles beginning in the second
calendar quarter after the calendar quarter
in which at least 200,000 of the manufac-
turer’s qualifying vehicles have been sold
for use in the United States (determined
on a cumulative basis for sales after De-
cember 31, 2008).
On November 13, 2009, the Internal
Revenue Service (“Service”) published
Notice 2009–89, which provides guidance
regarding the credit under § 30D for qual-
ified plug-in electric drive motor vehicles
acquired after December 31, 2009. No-
tice 2009–89 sets forth procedures for a
vehicle manufacturer (or, in the case of a
foreign vehicle manufacturer, its domestic
distributor) to certify to the Service both:
(1) That a motor vehicle of a particu-
lar make, model, and model year meets
certain requirements that must be satisfied
to claim the new qualified plug-in electric
drive motor vehicle credit under § 30D;
and
(2) The amount of the credit allowable
with respect to that motor vehicle.
In addition, Notice 2009–89 sets forth
procedures for a manufacturer (or, in the
case of a foreign vehicle manufacturer, its
domestic distributor) that has received an
acknowledgment of itscertification from
the Service to submit to the Service a re-
port of the number of qualified plug-in
electric drive motor vehicles sold by the
manufacturer (or, inthe case of a foreign
vehicle manufacturer, its domestic distrib-
utor) to consumers or retail dealers during
the calendar quarter.
Section 6.03 of Notice 2009–89 pro-
vides the address to which a vehicle man-
ufacturer (or, in the case of a foreign vehi-
cle manufacturer, its domestic distributor)
must send certifications and quarterly re-
ports under Notice 2009–89.
SECTION 3. MODIFICATION TO
NOTICE 2009–89
This notice modifies Section 6.03 of
Notice 2009–89 to read as follows:
.03Address for Filing. Certifications
and quarterly reports under section 5 of
this notice must be sent to:
Internal Revenue Service
Industry Director, LB&I, Retailers,
Food, Transportation & Healthcare
1901 West Butterfield Road
Suite 310 M/S 1902 WSB
Downers Grove, IL 60515
SECTION 4. EFFECTIVE DATE
This notice is effective for certifications
and quarterly reports submitted under No-
tice 2009–89 after October 1, 2012.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Notice 2009–89 is modified as provided
in this notice. Except as explicitly pro-
vided, this notice does not otherwise affect
the guidance provided in Notice 2009–89.
SECTION 6. DRAFTING
INFORMATION
The principal author of this notice is
Patrick S. Kirwan of the Office of Asso-
ciate Chief Counsel (Passthroughs & Spe-
cial Industries). For further information
regarding this notice, contact Mr. Kirwan
at (202) 622–3110 (not a toll-free call).
Information Reporting for
Discharges of Indebtedness
Notice 2012–65
PURPOSE
This notice invites public comments
regarding guidance to be provided to
governmental and financial entities (ap-
plicable entities) described in Internal
Revenue Code section 6050P(c), who dis-
charge indebtedness and may be required
to furnish Form 1099–C information re-
turns pursuant to section 6050P and Treas.
Reg. § 1.6050P. Section 6050P(b) pro-
vides that an applicable entity must issue
an information return if $600 or more of
indebtedness is discharged. The corre-
sponding Treasury regulation, Treas. Reg.
§ 1.6050P–1(b)(2), lists eight identifiable
events that trigger a reporting obligation,
including the expiration of a non-payment
testing period that results when a creditor
does not receive payment or engage in
bona fidecollection activity for specified
periods of time.
The Department of the Treasury (Trea-
sury) and the Internal Revenue Service
(Service) are aware that taxpayers who re-
ceive a Form 1099–C due to expiration of
the non-payment testing period described
in Treas. Reg. § 1.6050P–1(b)(2)(i)(H)
and (iv) may be confused regarding
whether to include the amount reported
on the Form 1099–C as income. This no-
tice requests comments to help Treasury
and the Service determine whether the
non-payment testing period rule should be
modified or eliminated.
BACKGROUND
Section 6050P provides that an appli-
cable entity must issue an information
return if it discharges $600 or more of
December 27, 20127732012–52 I.R.B.

indebtedness. The term applicable en-
tity includes governmental entities and
financial entities including “any organi-
zation a significant trade or business of
which is the lending of money.” I.R.C.
§ 6050P(c)(2)(D). Treasury Regulation
§ 1.6050P–2 sets forth the test for whether
the lending of money is a significant trade
or business and contains safe harbors and
examples.
Under the regulation, indebtedness is
deemed discharged solely for purposes
of the section 6050P reporting obligation
only upon the occurrence of an identi-
fiable event, whether or not an actual
discharge has occurred on or before the
date on which the identifiable event has
occurred. Treas. Reg. § 1.6050P–1(b)(1).
The section 6050P regulations contain
eight identifiable events that trigger a
reporting obligation for a discharge of in-
debtedness by an applicable entity. Treas.
Reg. § 1.6050P–1(b)(2)(i)(A)-(H). Seven
of the eight identifiable events listed
in the Treasury regulation are specific
occurrences that result from an actual
discharge of indebtedness, such as cer-
tain judicial proceedings, an agreement
between the debtor and creditor, or the
creditor’s decision or defined policy to
discontinue collection activity. Treas.
Reg. § 1.6050P–1(b)(2)(i)(A)-(G). The
eighth identifiable event, expiration of
a non-payment testing period, does not
necessarily result from an actual dis-
charge of indebtedness. Treas. Reg.
§ 1.6050P–1(b)(2)(i)(H) and (iv).
Treas. Reg. §1.6050P–1(b)(2)(iv) de-
scribes the non-payment testing period as
a 36-month period during which time the
creditor has not received any payment on
the indebtedness. If the testing period ex-
pires without payment by the debtor, a re-
buttable presumption arises that an iden-
tifiable event has occurred, and the cred-
itor should issue a Form 1099–C. The pre-
sumption may be rebutted by the credi-
tor, and the creditor is not required to is-
sue a Form 1099–C, if the creditor, or a
third party on its behalf, engaged in sig-
nificantbona fidecollection activity at any
time during the 12-month period ending
at the close of the calendar year. Treas.
Reg. §1.6050P–1(b)(2)(iv). The presump-
tion also may be rebutted by the credi-
tor if the facts and circumstances existing
as of January 31 of the calendar year fol-
lowing the expiration of the non-payment
testing period indicate that the indebted-
ness has not been discharged. Treas. Reg.
§1.6050P–1(b)(2)(iv).
Treasury and the Service added the non-
payment testing period to the final reg-
ulations in 1996 in response to concerns
of creditors that the temporary and pro-
posed regulations were unclear regarding
the effect of continuing collection activity.
The temporary and proposed regulations
had contained a facts and circumstances
test for determiningwhen an identifiable
event has occurred. Creditors raised con-
cerns that this did not present a sufficiently
clear rule for determining when reporting
was required and proposed (among other
things) that the final regulations require
reporting after a fixed time period during
which there had been no collection efforts.
In response to these comments, the final
regulation added the 36-month non-pay-
menttestingperiodasanadditionaliden-
tifiable event.
Creditors who issue a Form 1099–C
upon expiration of a 36-month non-pay-
ment testing period are not necessarily sig-
naling that a debt has actually been can-
celled. The actual discharge of indebted-
ness, for purposes of determining when
taxable income is incurred, may be prior
to or after the identifiable event. In some
circumstances, moreover, there may never
be an actual discharge of indebtedness.
As a consequence, the receipt of a Form
1099–C upon expiration of a non-payment
testing period can cause confusion for tax-
payersregardingwhetherandwhentoin-
clude any income attributable to an actual
discharge of indebtedness. To address this
confusion, Treasury and the IRS are con-
sidering clarification, revision, or removal
of the non-payment testing period as an
identifiable event.
REQUESTS FOR PUBLIC COMMENT
Treasury and the Service are requesting
comments from all affected persons and
entities and are particularly interested in
any comments regarding:
•WhetherTreas.Reg.
§ 1.6050P–1(b)(2)(i) should be
amended to remove the non-payment
testing period as an identifiable event;
•Whether the removal of the non-pay-
ment testing period would increase or
decrease the burden on creditors and
taxpayers;
•If the non-payment testing period is
removed, whether additional rules are
necessary to address continuing collec-
tion activity; and
•If the non-payment testing period is
retained, how it should be modified
to improve its usefulness and alleviate
confusion.
The information collected will as-
sist Treasury and the IRS in determining
whether additional guidance is neces-
sary. Written comments should be sent
to: CC:PA:LPD:PR (Notice 2012–65),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, D.C. 20044. Alternatively,
comments may be hand delivered be-
tween the hours of 8:00 a.m. and 4:00
p.m. Monday to Friday to CC:PA:LPD:PR
(Notice 2012–65), Courier’s Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, NW, Washington, D.C. Com-
ments may also be transmitted electron-
ically via the following e-mail address:
Notice.Comments@irscounsel.treas.gov.
Please include “Notice 2012–65” in
the subject line of any electronic
communications.
All comments will be available for pub-
lic inspection and copying and must be re-
ceived by February 11, 2013.
DRAFTING INFORMATION
The principal author of this notice
is Ronald J. Goldstein, formerly of
the Office of Associate Chief Counsel
(Procedure & Administration).For
further information regarding this notice,
contact Janet Engel Kidd of the Office of
Associate Chief Counsel (Procedure &
Administration) at (202) 622–4940 (not a
toll-free call).
2012–52 I.R.B.774December 27, 2012

2012 Cumulative List of
Changes in Plan Qualification
Requirements
Notice 2012–76
I. PURPOSE
This notice contains the 2012 Cumu-
lative List of Changes in Plan Qualifi-
cation Requirements(2012 Cumulative
List) described in section 4 of Rev. Proc.
2007–44, 2007–2 C.B. 54. The 2012
Cumulative List is to be used by plan
sponsors and practitioners submitting de-
termination letter applications for plans
during the period beginning February 1,
2013 and ending January 31, 2014.
Plans using this Cumulative List will
primarily be single employer individually
designed defined contribution plans and
single employer individually designed de-
fined benefit plans that are in Cycle C,
and § 414(d) governmental plans (includ-
ing governmental multiemployer or gov-
ernmental multiple employer plans) that
choose to file during Cycle C. Generally
an individually designed plan is in Cycle
C if the last digit of the employer identi-
fication number of the plan sponsor is 3
or 8. In addition, the 2012 Cumulative
List will be used by sponsors of defined
benefit pre-approved plans (that is, defined
benefit plans that are master and prototype
(M&P) or volume submitter (VS) plans)
for the second submission under the re-
medial amendment cycle described in Rev.
Proc. 2007–44.
ThelistofchangesinsectionIVof
this notice does not extend the deadline by
which a plan must be amended to com-
ply with any statutory, regulatory, or guid-
ance changes. The general deadline for
timely adoption of an interim or discre-
tionary amendment can be found in section
5.05 of Rev. Proc. 2007–44.
II. BACKGROUND
Rev. Proc. 2007–44 sets forth pro-
cedures for issuing opinion, advisory,
and determination letters and describes
the five-year remedial amendment cycle
for individually designed plans and the
six-year remedial amendment cycle for
pre-approved plans. In addition, section
5.05 of Rev. Proc. 2007–44 provides the
deadline for timely adoption of an interim
amendment or discretionary amendment.
Under section 4 of Rev. Proc. 2007–44,
the Internal Revenue Service announced
its intention to annually publish a Cumu-
lative List to identify statutory, regulatory,
and guidance changes that must be taken
into account in submissions by plan spon-
sors to the Service requesting opinion,
advisory, and determination letters whose
submission period begins on February 1st
following issuance of the Cumulative List.
In Notice 2011–97, 2011–52 I.R.B.
923, the Service published the 2011 Cu-
mulative List of Changes in Plan Quali-
fication Requirements(2011 Cumulative
List).
1
Rev. Proc. 2012–50, 2012–50 I.R.B.
708, provides that the sponsor of an indi-
vidually designed governmental plan may
elect Cycle E (instead of Cycle C) as the
plan’s second remedial amendment cycle.
The election is made by filing a determi-
nation letter application for the plan dur-
ing the one-year submission period for the
second Cycle E (February 1, 2015 through
January 31, 2016).
III. APPLICATION OF 2012
CUMULATIVE LIST
This notice is being issued in conjunc-
tion with the determination letter program
for individually designed plans eligible for
Cycle C. In accordance with Rev. Proc.
2007–44, the Service will start accepting
determination letter applications for Cycle
C individually designed plans beginning
on February 1, 2013. The 12-month sub-
mission period for Cycle C plans will end
on January 31, 2014. In addition, the
Service will startaccepting opinion and
advisory letter applications for defined
benefit pre-approved plans beginning on
February 1, 2013. The 12-month sub-
mission period for non-mass submitter
sponsors and practitioners, word-for-word
identical adopters, and M&P minor mod-
ifier placeholder applications will end on
January 31, 2014. The 9-month submis-
sion period for mass submitters will end
on October 31, 2013, as provided in sec-
tion 18.02(2) of Rev. Proc. 2007–44.
The 2012 Cumulative List, set forth
in section IV of this notice, informs plan
sponsors of issues the Service has specifi-
cally identified for review in determining
whether a plan filing in Cycle C has been
properly updated. Specifically, the 2012
Cumulative List reflects law changes un-
der the Pension Protection Act of 2006
(PPA ’06), Pub. L. 109–280; the U.S.
Troop Readiness, Veterans’ Care, Katrina
Recovery and Iraq Accountability Appro-
priations Act, 2007, Pub. L. 110–28; the
Heroes Earnings Assistance and Relief
Tax Act of 2008 (HEART Act), Pub. L.
110–245; the Worker, Retiree, and Em-
ployer Recovery Act of 2008 (WRERA),
Pub. L. 110–458; the Small Business Jobs
Act of 2010 (SBJA), Pub. L. 111–240;
the Preservation of Access to Care for
Medicare Beneficiaries and Pension Re-
lief Act of 2010 (PRA 2010), Pub. L.
No. 111–192; and the Moving Ahead
for Progress in the 21
st
Century Act
(MAP–21), Pub. L. 112–141.
Except as provided below, the Service
will not consider in its review of any deter-
mination letter application for the submis-
sion period that begins February 1, 2013,
any:
1. guidance issued after October 1, 2012;
2. statutes enacted after October 1, 2012;
3. qualification requirements first effec-
tive in 2014 or later; or
4. statutory provisions that are first ef-
fective in 2013, for which there is no
guidance identified in this notice.
However, in order to be qualified, a plan
must comply with all relevant qualification
requirements, not just those on the 2012
Cumulative List.
The Service’s review of a determination
letter application filed in the Cycle C sub-
mission period will not consider the 2010
final hybrid plan regulations (other than
with respect to § 411(a)(13)(A)) unless the
plan has been amended to satisfy those reg-
ulations. For this purpose, the Service will
only consider those provisions of the regu-
lations that are effective for plan years be-
ginning on or after January 1, 2011.
The 2012 Cumulative List includes the
following guidance issued after October 1,
2012:
1
For previous cumulative lists, see Notice 2010–90, 2010–52 I.R.B. 909; Notice 2009–98, 2009–52 I.R.B. 974; Notice 2008–108, 2008–2 C.B. 1275; Notice 2007–94, 2007–2 C.B. 1179;
Notice 2007–3, 2007–1 C.B. 255; Notice 2005–101, 2005–2 C.B. 1219; and Notice 2004–84, 2004–2 C.B. 1030, for the 2010, 2009, 2008, 2007, 2006, 2005, and 2004 Cumulative Lists,
respectively.
December 27, 20127752012–52 I.R.B.

Final Regulations under section
411(d)(6) which provide an additional
limited exception to the anti-cutback rules
to permit a plan sponsor that is a debtor
in a bankruptcy proceeding to amend its
single-employer defined benefit plan to
eliminate a single-sum distribution option
(or other optional form of benefit provid-
ing for accelerated payments) under the
plan if certain specified conditions are
satisfied (77 Fed Reg. 66915).
Notice 2012–70, 2012–51 I.R.B. 712,
which extends the deadline previously set
forth in Notice 2011–96, 2011–52 I.R.B.
915, to amend a defined benefit plan to sat-
isfy the requirements of § 436 and provides
associated relief from the requirements of
§ 411(d)(6).
With respect to matters addressed by
proposed regulations identified in the foot-
notes of section IV of this notice, the Ser-
vice’s review of the plan will be based on a
reasonable interpretation of the statute, ex-
isting final regulations, or other published
guidance. For this purpose, compliance
with proposed regulations will be treated
as meeting that standard. However, a de-
termination letter cannot be relied on with
respect to whether the plan complies with
the proposed regulations.
Terminating plans must include all law
changes in effect at the time of termination.
See section 8 of Rev. Proc. 2007–44 re-
garding plan termination.
IV. 2012 CUMULATIVE LIST OF
CHANGES IN PLAN QUALIFICATION
REQUIREMENTS
The following list consists of statutory
provisions and associated guidance which
reflect changes to plan qualification re-
quirements. Miscellaneous guidance is
also provided. The Service has identified
below plan qualification requirements that
differ from those that were on the 2011 or
earlier Cumulative Lists as “(New).”
Items from the 2007 Cumulative List
that apply solely to defined contribution
plans have been deleted from the 2012 Cu-
mulative List. Thus, the 2012 Cumulative
List contains those plan qualification re-
quirements listed in the 2007 Cumulative
List that are applicable to defined bene-
fit pre-approved plans, the plan qualifica-
tion requirements in the 2008, 2009, 2010,
and 2011 Cumulative Lists, as well as ad-
ditional 2012 plan qualification require-
ments. The deletions have been made to
enhance the utility of the cumulative list,
by removing items that would have been
previously reviewed in the case of a plan
that was submitted during the initial Cycle
C submission period (February 1, 2008 –
January 31, 2009). However, if a plan has
not been previously reviewed for items on
earlier cumulative lists, the items from the
earlier cumulative lists must be taken into
account.
1.401(a):
•Notice 2007–69, 2007–2 C.B.
468, provides temporary relief for
certain pension plans under which
the definition of normal retire-
ment age may be required to be
changed to comply with the regu-
lations, but only until the first day
of the first plan year that begins
after June 30, 2008. (2007 C.L.)
•Notice 2008–98, 2008–2 C.B.
1080, provides that the Service
and Treasury intend to amend the
normal retirement age regulations
to change the effective date for
governmental plans to plan years
beginning on or after January 1,
2011. (2009 C. L.)
•Notice 2009–86, 2009–46 I.R.B.
629, provides that the Service and
Treasury intend to amend the nor-
mal retirement age regulations
to change the effective date for
governmental plans to plan years
beginning on or after January 1,
2013. (2010 C. L.)
•Rev. Rul. 2008–40, 2008–2 C.B.
166, provides that the transfer of
amounts from a trust under a plan
qualified under § 401(a) to a non-
qualified foreign trust is treated as
a distribution from the transferor
plan and that transfer of assets and
liabilities from a qualified plan to
aplanthatsatisfies§1165ofthe
Puerto Rico Code is also treated as
a distribution from the transferor
plan. (2008 C. L.)
•Rev. Rul. 2008–45, 2008–2 C.B.
403, provides that the exclusive
benefit rule of § 401(a) is vio-
lated if the sponsorship of a qual-
ified retirement plan is transferred
from an employer to an unrelated
taxpayer and the transfer is not
in connection with a transfer of
business assets or operations from
the employer to the unrelated tax-
payer. (2008 C. L.)
•Rev. Rul. 2011–1, 2011–2 I.R.B.
251, revises the generally appli-
cable rules for group trusts and,
if certain requirements are met,
permits the participation in group
trusts of custodial accounts under
§ 403(b)(7), retirement income
accounts under § 403(b)(9), and
governmental retiree benefit plans
under § 401(a)(24). This revenue
ruling also modifies the transi-
tion relief provided in Rev. Rul.
2008–40. (2011 C. L.)
•Notice 2012–6, 2012–3 I.R.B.
293, extends and expands the
transition relief provided under
Rev. Rul. 2011–1 for certain
group trusts, certain retirement
trusts that qualify under the Puerto
Rico Internal Revenue Code that
participate in group trusts, and
certain qualified retirement plans
that benefit Puerto Rico residents.
The notice also provides addi-
tional time for governmental re-
tiree benefit plans described in
§ 401(a)(24) to be amended to sat-
isfy the applicable requirements
of Rev. Rul. 2011–1. (New)
•Notice 2012–29, 2012–18 I.R.B.
872, provides thatthe Service and
Treasuryintendtomodifythenor-
mal retirement age regulations to
clarify that governmental plans
that do not provide for in-service
distributions before age 62 do not
need to have a definition of nor-
mal retirement age and to modify
the age–50 safe harbor rule for
qualified public safety employees.
The notice also provides that the
Service and Treasury intend to
amend the normal retirement age
regulations to extend the effective
date for governmental plans to an-
nuity starting dates that occur in
plan years beginning on or after
the later of (1) January 1, 2015 or
(2) the close of the first regular
legislative session of the legisla-
tive body with the authority to
amend the plan that begins on or
after the date that is 3 months after
2012–52 I.R.B.776December 27, 2012

the final regulations are published
in theFederal Register.(New)
2.401(a)(5): PPA ’06 § 861(a)(1)
amended § 401(a)(5)(G) with respect
to governmental plans. (2008 C. L.)
3.401(a)(9):
•Pursuant to PPA ’06 § 823, fi-
nal regulations under § 401(a)(9)
were published on September 8,
2009 (74 Fed. Reg. 45993),
which permit a governmental
plan to comply with the required
minimum distribution rules of
§ 401(a)(9) by using a reasonable
and good faith interpretation of
the statute. (2009 C. L.)
•Section 201(a) of WRERA added
§ 401(a)(9)(H) which provides a
suspension of the required mini-
mum distribution rules for 2009
applicable to defined contribution
plans. (2010 C. L.)
•Notice 2009–82, 2009–41
I.R.B. 491, provides guidance
relating to the suspension of
the required minimum distri-
bution rules for 2009 appli-
cable to defined contribution
plans. (2010 C. L.)
4.401(a)(22):
•Notice 2011–19, 2011–11 I.R.B.
550, provides thatthe terms read-
ilytradableonanestablished
securities marketand readily trad-
able on an established market
mean employer securities that are
readily tradable on an established
securities marketwithin the mean-
ing of § 1.401(a)(35)–1(f)(5) for
purposes of § 401(a)(22). No-
tice 2011–19 is effective for plan
years that begin on or after Jan-
uary 1, 2012, except for certain
plans that have a delayed effective
date. (2011 C. L.)
5.401(a)(26): PPA ’06 § 861(a)(1)
amended § 401(a)(26)(G) with re-
spect to governmental plans. (2008
C. L.)
6.401(a)(28)(C):
•Notice 2011–19, 2011–11 I.R.B.
550, provides thatthe terms read-
ilytradableonanestablished
securities market and readily trad-
able on an established market
mean employer securities that are
readily tradable on an established
securities market within the mean-
ing of § 1.401(a)(35)–1(f)(5) for
purposes of § 401(a)(28)(C). No-
tice 2011–19 is effective for plan
years that begin on or after Jan-
uary 1, 2012, except for certain
plans that have a delayed effective
date. (2011 C. L.)
7.401(a)(35): PPA ’06 § 901(a)(1)
added § 401(a)(35) requiring that
defined contribution plans provide
employees with the freedom to divest
publicly traded employer securities.
(2008 C. L.)
•Notice 2006–107, 2006–2 C.B.
1114. (2008 C. L.)
•Notice 2008–7, 2008–1 C.B. 276,
extends certain transitional guid-
ance and transitional relief pro-
vided to certain defined contribu-
tion plans holding publicly traded
employer securities under Notice
2006–107. (2008 C. L.)
•WRERA § 109(a) amended
the definition of one-partic-
ipant retirement plan under
§ 401(a)(35)(E)(iv). (2009 C. L.)
•Notice 2009–97, 2009–52 I.R.B.
972, extends the deadline to
amend for § 401(a)(35) to the last
day of the first plan year that be-
gins on or after January 1, 2010.
(2010 C. L.)
•Finalregulationsunder
§ 401(a)(35) were published on
May 19, 2010 (75 Fed. Reg.
27927). (2010 C. L.)
8.401(a)(36): PPA ’06 § 905(b) added
§ 401(a)(36) regarding distributions to
a participant who has attained age 62
and who has not separated from em-
ployment at the time of the distribu-
tion. (2008 C. L.)
9.401(a)(37): HEART Act § 104(a)
added § 401(a)(37) with respect to
benefits payable on the death of a plan
participant while performing quali-
fied military service. (2010 C. L.)
•Notice 2010–15, 2010–6 I.R.B.
390, provides guidance regard-
ing HEART Act § 104(a). (2010
C. L.)
10.401(k) & 401(m)
2
•PPA ’06 § 826 modified the rules
relating to distributions from a
§ 401(k) plan on account of a par-
ticipant’s hardship to permit the
plan to treat a participant’s bene-
ficiary under the plan the same as
the participant’s spouse or depen-
dent. (2008 C. L.)
•Notice 2007–7, 2007–1 C.B.
395, provides guidance re-
garding PPA ’06 § 826. (2008
C. L.)
•Announcement2007–59,
2007–1 C.B. 1448, provides
that a plan will not fail to
satisfy the requirements of a
§ 401(k) safe harbor plan be-
cause of a mid-year change to
implement the PPA ’06 § 826
hardship withdrawals. (2008
C. L.)
•PPA’06§827added
§ 401(k)(2)(B)(i)(V) which per-
mits reservists called to active
duty after September 11, 2001
and before 2008 to take in-service
distributions from a § 401(k) plan.
(2008 C. L.)
•Section 107(a) of the HEART Act
extends the applicability of the
qualified reservist distribution to
individuals ordered or called to ac-
tive duty after December 31, 2007.
(2009 C. L.)
•Notice 2010–15, 2010–6
I.R.B. 390, provides guidance
regarding HEART Act § 107.
(2010 C. L.)
•PPA ’06 § 861(a)(2) amended
§ 401(k)(3)(G) with respect to
governmental plans. (2008 C. L.)
•PPA ’06 § 902(e)(3) elimi-
nated the gap period income
rule for excess contributions in
§ 401(k)(8)(A)(i). (2008 C. L.)
2
Proposed amendments to the regulations under § 401(k) and § 401(m) were published on May 18, 2009 (74 Fed. Reg. 23134) and may be relied upon until final regulations are issued.
December 27, 20127772012–52 I.R.B.

•PPA ’06 § 902 added § 401(k)(13)
with respect to qualified automatic
contribution arrangements. (2008
C. L.)
•Final regulations under
§ 401(k) with respect to qual-
ified automatic contribution
arrangements were published
on February 24, 2009 (74 Fed.
Reg. 8200). (2009 C. L.)
•Rev. Rul. 2009–30, 2009–39
I.R.B. 391, provides infor-
mation with respect to auto-
matic contribution increases
under automatic contribution
arrangements. (2009 C. L.)
•Notice 2009–65, 2009–39
I.R.B. 413, provides sample
amendments that plan spon-
sors can use to add automatic
contribution features to their
plans. (2009 C. L.)
•PPA ’06 § 902(e)(3) eliminated
the gap period income rule for
excess aggregate contributions in
§ 401(m)(6)(A). (2008 C. L.)
•PPA ’06 § 902 added § 401(m)(12)
with respect to qualified automatic
contribution arrangements. (2008
C. L.)
•Final regulations under
§ 401(m) with respect to qual-
ified automatic contribution
arrangements were published
on February 24, 2009 (74 Fed.
Reg. 8200). (2009 C. L.)
11.402(c)(2)(A): PPA ’06 § 822(a)
amended § 402(c)(2)(A) to permit
nontaxable distributions from a qual-
ified plan to be directly rolled over
tax-free to either another qualified
plan or a § 403(b) plan if the sepa-
rate accounting requirements are met.
(2008 C. L.)
12.402(c)(11): PPA ’06 § 829(a)(1)
added § 402(c)(11) to allow non-
spouse beneficiaries to directly roll
over distributions from a qualified
plan to an individual retirement plan.
(2008 C. L.)
•Notice 2007–7, 2007–1 C.B.
395, provides guidance regarding
§ 402(c)(11). (2008 C. L.)
•WRERA § 108(f) requires
that plans provide for non-
spouse beneficiary rollovers
under § 402(c)(11), effective
for plan years beginning after
December 31, 2009. (2009 C. L.)
13.402(f): PPA ’06 § 1102(a) provides
that notice required to be provided un-
der § 402(f) may be provided as much
as 180 days before the annuity starting
date.
3
(2008 C. L.)
•Notice 2007–7, 2007–1 C.B. 395,
provides guidance regarding PPA
’06§1102.(2008C.L.)
•Notice 2009–68, 2009–39 I.R.B.
423, provides two safe harbor ex-
planations that may be provided to
recipients of eligible rollover dis-
tributions from an employer to sat-
isfy § 402(f). (2009 C. L.)
•WRERA § 108(f)(2) amended
§ 402(f)(2)(A) with respect to the
definition of eligible rollover dis-
tribution. (2009 C. L.)
14.402(g)(2): WRERA § 109(b)(3)
amended § 402(g)(2)(A)(ii) to elim-
inate the distribution of gap period
earnings with excess deferrals. (2009
C. L.)
15.402A:SBJA§2112added
§ 402A(c)(4) which permits rollovers
from a plan account other than a
designated Roth account to the plan’s
designated Roth account. (2010
C. L.)
•Notice 2010–84, 2010–51 I.R.B.
872, provides guidance regarding
§ 402A(c)(4). (2010 C. L.)
16.408A(e): PPA’06§824added
§ 408A(e) which permits rollovers to
Roth IRAs from accounts that are not
designated Roth accounts that are part
of qualified plans, § 403(b) plans,
and§457plans.(2008C.L.)
•Notice 2008–30, 2008–1 C.B.
638, provides guidance regarding
§ 408A(e). (2008 C. L.)
17.409:
•Notice 2011–19, 2011–11 I.R.B.
550, provides that the terms read-
ily tradable on an established
securities market and readily trad-
able on an established market
mean employer securities that are
readilytradableonanestablished
securities market within the mean-
ing of § 1.401(a)(35)–1(f)(5) for
purposes of § 409(h)(1)(B) and
§ 409(l). Notice 2011–19 is effec-
tive for plan years that begin on or
after January 1, 2012, except for
certain plans that have a delayed
effective date. (2011 C. L.)
18.411(a): PPA ’06 § 904 amended
§411(a)toprovideforfastervesting
of employer nonelective contribu-
tions. (2008 C. L.)
•Notice 2007–7, 2007–1 C.B.
395, provides guidance regarding
§411(a),asamendedby§904of
PPA ’06. (2008 C. L.)
•Rev. Rul. 2012–4, 2012–8 I.R.B.
386, describes whether a quali-
fied defined benefit pension plan
that accepts a direct rollover of an
eligible rollover distribution from
a qualified defined contribution
plan maintained by the same em-
ployer satisfies §§ 411 and 415 in
a case in which the defined benefit
plan provides an annuity resulting
from the direct rollover. (New).
19.411(a)(11): PPA ’06 § 1102(a) pro-
vides that notice required to be pro-
vided under § 411(a)(11) may be pro-
vided as much as 180 days before the
annuity starting date. Section 1102(b)
of PPA ’06 requires that the notice
under § 411(a)(11) also include a de-
scription of the consequences of fail-
ing to defer receipt of a distribution.
4
(2008 C. L.)
•Notice 2007–7, 2007–1 C.B. 395,
provides guidance regarding PPA
’06§1102.(2008C.L.)
20.411(a)(13): PPA ’06 § 701(b)(2)
added § 411(a)(13) with respect to
3
Proposed regulations under § 402(f) were published on October 9, 2008 (73Fed. Reg. 59575) and may be relied upon until final regulations are issued.
4
Proposed regulations under § 411(a)(11) were published on October 9, 2008 (73 Fed. Reg. 59575). Until final regulations are issued, a plan will be treated as complying with § 411(a)(11) if
(1) the plan complies with either the proposed regulations or Q&A–32 and Q&A–33 in Notice 2007–7 or (2) the plan administrator makes a reasonable attempt to comply with § 411(a)(11).
2012–52 I.R.B.778December 27, 2012

special vesting rules for applicable
defined benefit plans, such as cash
balance plans. (2008 C. L.)
•Notice 2007–6, 2007–1 C.B. 272,
provides guidance regarding cash
balance plans and other hybrid de-
fined benefit plans. (2008 C. L.)
•WRERA § 107(b)(2) amended
§ 411(a)(13)(A). (2009 C. L.)
•Notice 2009–97, 2009–52 I.R.B.
972, extends the deadline for
amending cash balance and
other applicable defined bene-
fit plans, within the meaning of
§ 411(a)(13)(C), to meet the re-
quirements of § 411(a)(13) (other
than § 411(a)(13)(A)) to the last
day of the first plan year that be-
gins on or after January 1, 2010.
(2010 C. L.)
•FinalRegulationsunder
§ 411(a)(13) were published on
October 19, 2010 (75 Fed. Reg.
64123).
5
(2010 C. L.)
•Notice 2010–77, 2010–51 I.R.B.
851, extends the deadline for
amending cash balance and
other applicable defined bene-
fit plans, within the meaning of
§ 411(a)(13)(C), to meet the re-
quirements of § 411(a)(13) (other
than § 411(a)(13)(A)) to the last
day of the first plan year that be-
gins on or after January 1, 2011.
(2010 C. L.)
•Notice 2011–85, 2011–44 I.R.B.
605, extends the deadline for
adopting an interim or dis-
cretionary amendment un-
der § 411(a)(13) (other than
§ 411(a)(13)(A)). (2011 C. L.)
•Notice 2012–61, 2012–42 I.R.B.
479, provides that certain provi-
sions in the 2010 final hybrid plan
regulations will not be effective
for plan years beginning before
January 1, 2014. (New)
21.411(b)(1):
6
•Rev. Rul. 2008–7, 2008–1 C.B.
419, addresses (1) the application
of the backloading provisions of
§ 411(b)(1)(A), (B), and (C) to de-
fined benefit cash balance plans
and (2) the use of a “greater of”
formula in the instance of a con-
version of a defined benefit pen-
sion plan to a cash balance plan,
including limited § 7805(b) relief.
(2008 C. L.)
22.411(b)(5): PPA ’06 § 701(b)(1) added
§ 411(b)(5) with respect to applica-
ble defined benefit plans, such as cash
balance plans, and special rules relat-
ing to age. (2008 C. L.)
•Notice 2007–6, 2007–1 C.B. 272,
provides guidance regarding cash
balance plans and other hybrid de-
fined benefit plans. (2008 C. L.)
•WRERA § 107(b)(1) amended
§ 411(b)(5). (2009 C. L.)
•Notice 2009–97, 2009–52 I.R.B.
972, extends the deadline for
amending cash balance and
other applicable defined bene-
fit plans, within the meaning of
§ 411(a)(13)(C), to meet the re-
quirements of § 411(b)(5) to the
last day of the first plan year that
begins on or after January 1, 2010.
(2010 C. L.)
•FinalRegulationsunder
§ 411(b)(5) were published on
October 19, 2010 (75 Fed. Reg.
64123).
7
(2010 C. L.)
•Notice 2010–77, 2010–51 I.R.B.
851, extends the deadline for
amending cash balance and
other applicable defined bene-
fit plans, within the meaning of
§ 411(a)(13)(C), to meet the re-
quirements of § 411(b)(5) to the
last day of the first plan year that
begins on or after January 1, 2011.
(2010 C. L.)
•Notice 2011–85, 2011–44 I.R.B.
605, announces that the Trea-
sury Department and the Service
intend to amend the 2010 final
hybrid plan regulations to post-
pone the effective/applicability
date of § 1.411(b)(5)–1(d)(1)(iii),
(d)(1)(vi), and (d)(6)(i) to plan
years that begin on or after a date
to be specified in those regulations
that is not earlier than January 1,
2013. This notice also extends the
deadline for adopting an interim
or discretionary amendment under
§ 411(b)(5). (2011 C. L.)
•Notice 2012–61, 2012–42 I.R.B.
479, provides that certain provi-
sions in the 2010 final hybrid plan
regulations will not be effective
for plan years beginning before
January 1, 2014. (New)
23.411(d)(6):
•FinalRegulationsunder
§ 411(d)(6), which provide an ad-
ditional limited exception to the
anti-cutback rules to a plan spon-
sor who is a debtor in a bankruptcy
proceeding, were published on
November 8, 2012 (77 Fed Reg.
66915). (New)
24.414(d): PPA ’06 § 906(a)(1) added
language to the definition of govern-
mental plan in § 414(d) with respect
to Indian tribal governments. (2008
C. L.)
•Notice 2007–67, 2007–2 C.B.
467, extends the transition re-
lief for plans subject to PPA ’06
§ 906 that was originally provided
in Notice 2006–89, 2006–2 C.B.
772. (2008 C. L.)
25.414(f)(6): PPA ’06 § 1106(b) added
§ 414(f)(6) with respect to a mul-
tiemployer status election. Section
6611(a)(2) and (b)(2) of the U.S.
Troop Readiness, Veterans’ Care, Ka-
trina Recovery, and Iraq Accountabil-
ity Appropriations Act, 2007 amends
§ 414(f)(6). (2008 C. L.)
26.414(u):
•HEART Act § 104(b) amended
§414(u)byadding§414(u)(9)re-
garding how a plan may provide
benefit accruals for a person who
dies or becomes disabled while
5
Proposed regulations under § 411(a)(13) were published on October 19, 2010 (75 Fed. Reg. 64197) and may be relied upon until final regulations are issued.
6
Proposed regulations under § 411(b)(1) were published on October 19, 2010 (75 Fed. Reg. 64197) with respect to a variable interest crediting rate thatpotentially can be negative in any
given year. Proposed regulations under § 411(b)(1) were published on June18, 2008 (73 Fed. Reg. 34665) with respect to the application of the accrual rule where plan benefits are determined
on the basis of the greater of two or more separate formulas.
7
Proposed regulations under § 411(b)(5) also were published on October 19,2010 (75 Fed. Reg. 64197) and may be relied upon until final regulations are issued.
December 27, 20127792012–52 I.R.B.

performing qualified military ser-
vice. (2010 C. L.)
•Notice 2010–15, 2010–6
I.R.B. 390, provides guid-
ance regarding HEART Act
§ 104(b). (2010 C. L.)
•Section 105(b)(1) of the HEART
Act added § 414(u)(12) with re-
spect to the treatment of differen-
tial wage payments during the pe-
riodaperson,whileonactiveduty,
is performing service in the uni-
formed services. (2010 C. L.)
•Notice 2010–15, 2010–6
I.R.B. 390, provides guid-
ance regarding HEART Act
§ 105(b)(1). (2010 C. L.)
27.414(w): PPA ’06 § 902(d)(1) added
§ 414(w) with respect to eligible au-
tomatic contribution arrangements.
(2008 C. L.)
•WRERA § 109(b)(4), (5), and (6)
amended § 414(w)(3), (5), and (6),
respectively. (2009 C. L.)
•Final regulations under § 414(w)
with respect to eligible automatic
contribution arrangements were
published on February 24, 2009
(74 Fed. Reg. 8200). (2009 C. L.)
•Rev. Rul. 2009–30, 2009–39
I.R.B. 391, provides information
with respect to automatic contri-
bution increases under automatic
contribution arrangements. (2009
C. L.)
•Notice 2009–65, 2009–39 I.R.B.
413, provides sample amend-
ments that plan sponsors can use
to add automatic contribution fea-
tures to their plans. (2009 C. L.)
28.414(x): PPA ’06 § 903(a) added
§ 414(x) with respect to special rules
for eligible combined plans that con-
sist of a defined benefit plan and a
qualified cash or deferred arrange-
ment. (2010 C. L.)
29.415:
•WRERA § 103(a) changed the
deadline to adopt PFEA amend-
ments from the end of the 2008
plan year to the end of the 2009
plan year. (2009 C. L.)
•PPA ’06 § 303 amended
§ 415(b)(2)(E)(ii) regarding the
interest rate assumption for ap-
plying benefit limitations to lump
sum distributions. (2008 C. L.)
•PPA’06§832(a)amended
§ 415(b)(3) to eliminate the active
participant restriction from the
“average compensation for high 3
years” definition. (2008 C. L.)
•PPA ’06 § 906(b)(1)(A) and (B)
modified §§ 415(b)(2)(H) and
415(b)(10), respectively, regard-
ing Indian tribal governments.
(2008 C. L.)
•PPA’06§867(a)amended
§ 415(b)(11) to remove the 100%
of compensation limitation for a
church plan participant if the par-
ticipant has never been a highly
compensated employee of the
church. (2008 C. L.)
•WRERA § 103(b)(2)(B)(i)
amended § 415(b)(2)(E)(v) to
change the mortality table to the
applicable mortality table within
the meaning of § 417(e)(3)(B).
(2009 C. L.)
•Rev. Rul. 2012–4, 2012–8 I.R.B.
386, describes whether a quali-
fied defined benefit pension plan
that accepts a direct rollover of an
eligible rollover distribution from
a qualified defined contribution
plan maintained by the same em-
ployer satisfies §§ 411 and 415 in
a case in which the defined benefit
plan provides an annuity resulting
from the direct rollover. (New)
30.416:
•PPA’06§902(c)amended
§ 416(g)(4)(H) to include a plan
that consists solely of a cash or
deferred arrangement described in
§ 401(k)(13) and matching contri-
butions with respect to which the
requirements of § 401(m)(12) are
met in the list of plans that are not
topheavy.(2008C.L.)
31.417:
•PPA ’06 § 1102(a) provides that
notice required to be provided un-
der § 417 may be provided as
much as 180 days before the an-
nuity starting date.
8
(2008 C. L.)
•Notice 2007–7, 2007–1 C.B.
395, provides guidance re-
gardingPPA’06§1102.
(2008 C. L.)
•PPA ’06 § 302(b) amended the ap-
plicable interest rate and mortal-
ity table to be used for determining
the present value of lump sum dis-
tributions in § 417(e)(3). (2008
C. L.)
•Rev. Rul. 2007–67, 2007–2
C.B. 1047, addresses the
mortality tables required by
§ 417(e)(3). (2008 C. L.)
•Notice 2008–30, 2008–1 C.B.
638, provides guidance re-
garding PPA ’06 § 302. (2008
C. L.)
•WRERA § 103(b)(2)(A)
amended § 417(e)(3)(D)(i) by
striking “clause (ii)” and in-
serting “subparagraph (C)”.
(2009 C. L.)
•PPA ’06 § 1004(a) added the qual-
ified optional survivor annuity
benefit to § 417. (2008 C. L.)
•Notice 2008–30, 2008–1 C.B.
638, provides guidance re-
garding PPA ’06 § 1004.
(2008 C. L.)
•Rev. Rul. 2012–3, 2012–6 I.R.B.
383, describes how the qual-
ified joint and survivor annu-
ity (“QJSA)”) and the qualified
preretirement survivor annuity
(“QPSA”) rules, described in
§§ 401(a)(11) and 417, apply
when a deferred annuity contract
is purchased under a profit sharing
plan. (New)
32.420:
•Section6613oftheU.S.Troop
Readiness, Veterans’ Care, Kat-
rina Recovery, and Iraq, Account-
ability Appropriations Act, 2007,
amends § 420(c)(3)(A) regarding
minimum cost requirements for
transfers of excess pension assets
to retiree health accounts. (2007
C.L.)
•PPA ’06 § 114(d)(1) modified
the definition of the term “excess
pension assets” in § 420(e)(2).
8
Proposed regulations under § 417 werepublished on October 9, 2008 (73 Fed. Reg. 59575) and may be relied upon until final regulations are issued.
2012–52 I.R.B.780December 27, 2012

Section 6612(b) of the U.S. Troop
Readiness, Veterans’ Care, Kat-
rina Recovery, and Iraq Account-
ability Appropriations Act, 2007,
amends § 420(e)(2)(B). (2007
C.L.)
•Sections 40241 and 40242 of
MAP–21 amend § 420 to extend
the provisions relating to transfers
of excess pension assets to retiree
health accounts and to expand
those provisions to allow transfers
to retiree group term life insur-
ance accounts. (New)
33.431(b)(8):
•PRA 2010 § 211(a)(2) added
§ 431(b)(8), which provides two
special funding rules available to
multiemployer plans. (2011 C. L.)
•Notice 2010–83, 2010–51
I.R.B. 862, provides guid-
ance with respect to the
special funding rules under
§ 431(b)(8). (2011 C. L.)
34.432: PPA ’06 § 212(a) added § 432
which requires that a funding im-
provement plan or a rehabilitation
plan be adopted for multiemployer
plans in endangered or critical status
and provides for certain benefit re-
ductions.
9
(2008 C. L.)
•WRERA § 204 provides a tempo-
rary delay of designation of mul-
tiemployer plans in endangered or
critical status. (2009 C. L.)
•Notice 2009–31, 2009–16
I.R.B. 856, as modified by No-
tice 2009–42, 2009–20 I.R.B.
1011, provides election and
notice procedures for multi-
employer plans under WR-
ERA § 204. (2009 C. L.)
•Rev. Proc. 2009–43, 2009–40
I.R.B. 460, provides proce-
dures with respect to the re-
vocation of elections by mul-
tiemployer plans to freeze
funded status under WRERA
§ 204. (2009 C. L.)
•WRERA § 205 provides a tempo-
rary extension of the funding im-
provement or rehabilitation peri-
ods for multiemployer plans in en-
dangered or critical status for 2008
or 2009. (2009 C. L.)
•Notice 2009–31, 2009–16
I.R.B. 856, as modified by No-
tice 2009–42, 2009–20 I.R.B.
1011, provides election and
notice procedures for multi-
employer plans under WR-
ERA § 205. (2009 C. L.)
35.436:
•§1.436–1 provides guidance on
the application of § 436, which
provides a series of limitations
on the accrual and payment of
benefits under underfunded single
employer defined benefit plans.
(New)
•Notice 2011–3, 2011–2 I.R.B.
263, provides guidance on the
special rules relating to the re-
laxation of § 436 rules that were
included in the funding relief for
single employer defined benefit
pension plans under PRA 2010.
(New)
•Notice 2011–96, 2011–52 I.R.B.
915, provides a sample plan
amendment that plan sponsors
may adopt to satisfy § 436 regard-
ing limitations on the accrual and
payment of benefits. The notice
also extends both the deadline to
amend a plan to satisfy § 436 and
the period during which such an
amendment is eligible for relief
from the anti-cutback require-
ments of § 411(d)(6). (New)
•Notice 2012–70, 2012–51 I.R.B.
712. This notice extends the
deadline, as set forth in Notice
2011–96, 2011–52 I.R.B. 915,
to amend a defined benefit plan
to satisfy the requirements of
§ 436 and provides associated
relief from the requirements of
§ 411(d)(6). (New)
36.Miscellaneous:
•Notice 2008–21, 2008–1 C.B.
431, provides transitional guid-
ance for 2008 under § 436 for
small plans with end-of-year val-
uation dates. (2008 C. L.)
•Notice 2008–73, 2008–2 C.B.
717, expands transition relief of
Notice 2008–21. (2008 C. L.)
•Rev. Rul. 2009–31, 2009–39
I.R.B. 395, provides guidance
with respect to annual paid time
off contributions. (2009 C. L.)
•Rev. Rul. 2009–32, 2009–39
I.R.B. 398, provides guidance
with respect to paid time off con-
tributions at termination of em-
ployment. (2009 C. L.)
The following guidance contains
sample or model amendments: Notice
2009–65, 2009–39 I.R.B. 413 (automatic
contribution features); Notice 2009–82,
2009–41 I.R.B. 491 (suspension of the
minimum distribution requirement for
2009); Rev. Rul. 2011–1, 2011–2 I.R.B.
251 (group trusts); and Notice 2011–96,
2011–52 I.R.B. 915 (limitations on the
accrual and payment of benefits under un-
derfunded single employer defined benefit
plans).
DRAFTING INFORMATION
The principal author of this notice
is Kathleen Herrmann of the Employee
Plans, Tax Exempt and Government En-
tities Division. For further information
regarding this notice, please contact the
Employee Plans taxpayer assistance an-
swering service at 1–877–829–5500 (a
toll-free number) or e-mail Ms. Herrmann
atRetirementPlanQuestions@irs.gov.
Interim Guidance and
Request for Comments;
Medical Device Excise Tax;
Manufacturers Excise Taxes;
Constructive Sale Price;
Deposit Penalties
Notice 2012–77
Section 1. PURPOSE
This notice provides interim guidance
relating to the excise tax on medical de-
vices imposed by § 4191 (the “medical de-
vice excise tax”) of the Internal Revenue
Code (the “Code”). Specifically, this no-
tice provides interim guidance for deter-
mining price under § 4216(b). This no-
9
Proposed regulations under § 432 werepublished on March 18, 2008 (73 Fed. Reg. 14417) and may be relied upon until final regulations are issued.
December 27, 20127812012–52 I.R.B.

tice also provides interim guidance relat-
ing to donated taxable medical devices, the
licensing of taxable medical devices, and
the tax treatment of medical convenience
kits. In addition, this notice provides tran-
sition relief to medical device manufactur-
ers from the failure to deposit penalties im-
posed by § 6656. Finally, this notice re-
quests comments from taxpayers about the
rules described in this notice.
Section 2. BACKGROUND
Section 4191, enacted by section 1405
of the Health Care and Education Recon-
ciliation Act of 2010, Public Law 111–152
(124 Stat. 1029 (2010)), in conjunction
with the Patient Protection and Affordable
Care Act, Public Law 111–148 (124 Stat.
119 (2010)), imposes an excise tax on the
sale of certain medical devices. The ex-
cise tax imposed by § 4191 is 2.3% of
the price for which the taxable medical
device is sold. The medical device ex-
cise tax is codified in chapter 32, subti-
tleDoftheCode(“chapter32”),which
pertains to excise taxes imposed on the
sale or use of taxable articles by manu-
facturers, producers, and importers (com-
monly referred to as “manufacturers excise
taxes”).See§ 48.0–2(a)(4)(i) of the Man-
ufacturers and Retailers Excise Tax Regu-
lations (the “regulations”) (which defines
theterm“manufacturer”toincludea“pro-
ducer” and an “importer”). As a result,
the existing chapter 32 rules, including the
regulations issued thereunder, apply to the
medical device excise tax.
On December 7, 2012, the Internal Rev-
enue Service (IRS) and the Treasury De-
partment issued T.D. 9604, 2012–52 I.R.B.
730 (77 FR 72924), containing final regu-
lations under § 4191. The final regulations
do not address certain issues that the IRS
and the Treasury Department continue to
study. These issues include the determina-
tion of price under § 4216(b); the tax treat-
ment of medical software licenses; the tax-
ability of donated medical devices; and the
taxability of medical convenience kits.
The IRS and the Treasury Department
may issue additional published guidance
on these issues in the future. The IRS
and the Treasury Department recognize,
however, that manufacturers need rules on
these issues that will apply on an interim
basis. Sections 3 through 5 of this notice
prescribe those interim rules.
In addition, several comments on the
proposed regulations requested transi-
tion relief from the deposit penalty under
§ 6656. In response to those comments,
this notice waives penalties under § 6656
for the first three calendar quarters of
2013. Section 6 of this notice delineates
the scope of this deposit penalty relief.
Unless otherwise stated, existing defi-
nitions provided in chapter 32, and the reg-
ulations issued thereunder, apply to this
notice.
Section 3. CONSTRUCTIVE SALE
PRICE
(a)Overview of Constructive Sale
Price. Section 4216 provides rules for de-
termining “price” for purposes of chapter
32. Those rules treat the price for which
a manufacturer sells a taxable article to an
independent wholesale distributor, subject
to certain adjustments, as the applicable
price for purposes of imposing the tax.
In general, when a manufacturer sells a
taxable article to a purchaser other than
an independent wholesale distributor,
§ 4216(b) and the regulations thereunder
prescribe rules for constructing a sale price
that approximates the price an indepen-
dent wholesale distributor would pay to
the manufacturer for an identical article.
In such situations, tax is imposed on the
constructive sale price as determined un-
der § 4216(b).
The IRS and the Treasury Department
recognize that the medical device industry
encompasses a diverse group of manufac-
turers that produce a broad range of arti-
cles. The IRS and the Treasury Depart-
ment also recognize that many manufac-
turers in the medical device industry do not
sell to independent wholesale distributors,
and they may employ more than one distri-
bution chain according to industry practice
related to a particular article. Further, the
IRS and the Treasury Department recog-
nize that current published guidance relat-
ing to the constructive sale price rules does
not address some of the types of distribu-
tion chains regularly employed in the med-
ical device industry. In addition, Rev. Rul.
80–273, 1980–2 C.B. 315, which provides
a mechanism for computing the construc-
tive sale price where the articles are sold
at retail by manufacturers who do not sell
like articles to wholesale distributors, does
notbyitstermsapplyto§4191.
(b)Interim Rules. This section provides
interim rules for how taxpayers may apply
theconstructivesaleprice rules to certain
model distribution chains employed by
some manufacturers in the medical device
industry. The IRS and the Treasury De-
partment identified the distribution chains
addressed in these interim rules through
written comments on the proposed reg-
ulations on taxable medical devices and
informal taxpayer inquiries.
If a taxpayer uses one of the distribu-
tion chains described in this section, the
taxpayer may apply the rules provided in
this section to determine its medical de-
vice excise tax liability. A taxpayer does
not need to make any additional or special
filing, or notation on any filing, to apply
these rules. If a taxpayer does not apply
the rules provided in this notice, and does
not use the actual sale price of the article to
calculate its medical device excise tax lia-
bility, then the taxpayer bears the burden of
demonstrating that it used the fair market
price of the article to calculate its tax lia-
bility. This approach is consistent with the
general rule under which a manufacturer
may rebut the constructive sale price if the
manufacturer demonstrates that it sold the
article at a fair market price. Rev. Rul.
89–47, 1989–1 C.B. 295. Taxpayers may
apply the rules provided in this section un-
til the IRS and the Treasury Department is-
sue further guidance.
For purposes of these rules, a “related
party” means that one of the parties is con-
trolled (in law or fact) by the other, or
there is common control of the parties (re-
gardless of whether such control is actu-
ally exercised to influence the sale price).
See§ 48.4216(b)–2(e)(1). Further, for pur-
poses of these rules, a “reseller” means a
sales company, a leasing company, a dis-
tributor, or a retailer. Finally, the applica-
tion of constructive sale price rules to cal-
culate the tax base does not shift the liabil-
ity for excise tax from the manufacturer to
any other person.
The interim rules are as follows:
(1)Sales at retail; no regular sales to
independent wholesale distributors.
(A)Description. In this distribution
chain, the manufacturer sells taxable arti-
cles directly to unrelated end-users. The
manufacturer does not regularly sell its
taxable articles to independent wholesale
distributors.
2012–52 I.R.B.782December 27, 2012

(B)Interim Rule. Until the IRS and the
Treasury Department issue further guid-
ance, the constructive sale price for this
distribution chain, determined pursuant to
§ 4216(b)(1)(A), is 75% of the actual sell-
ing price after taking into account the ad-
justmentsprovidedby§4216(a). Nofur-
ther adjustments under § 4216 are allowed.
SeeRev. Rul. 80–273, 1980–2 C.B. 315.
(2)Sales to unrelated retailers; no regu-
lar sales to independent wholesale distrib-
utors.
(A)Description. In this distribution
chain, the manufacturer sells taxable arti-
cles to unrelated retailers. The manufac-
turer does not regularly sell its taxable arti-
cles to independent wholesale distributors.
(B)Interim Rule. Until the IRS and the
Treasury Department issue further guid-
ance, the constructive sale price for this
distribution chain is 90% of the lowest
price for which the articles are sold to un-
related retailers. This computation is made
without adjustment for any exclusion (ex-
ceptforthetaximposedonsucharticle)
or readjustment under § 4216(a) and (e)
and § 6416(b)(1).SeeRev. Rul. 82–211,
1982–2 C.B. 296.
(3)Sales to related retailer; no regu-
lar sales to independent wholesale distrib-
utors.
(A)Description. In this distribution
chain, the manufacturer sells taxable arti-
cles to a related retailer. The related re-
tailer sells the articles at retail to unrelated
end-users. The manufacturer and related
retailer do not regularly sell the articles to
independent wholesale distributors.
(B)Interim Rule. Until the IRS and the
Treasury Department issue further guid-
ance, the constructive sale price for this
distribution chain, determined pursuant to
§ 4216(b)(1)(C), is 75% of the product
of 95% and the actual selling price (that
is, the price at which the article is sold
to a person that is not a member of the
group of companies that are related to the
manufacturer). The 5% discount is an al-
lowance for the exclusions from the selling
price otherwise allowed under § 4216(a).
SeeRev. Rul. 82–211. The additional
25% discount adjusts the selling price to
approximate the selling price to an inde-
pendent wholesale distributor.SeeRev.
Rul. 80–273. No further adjustments un-
der § 4216 are allowed.
(4)Sales to related reseller that leases
and sells at retail.
(A)Description. In this distribution
chain, the manufacturer sells taxable arti-
cles to a related reseller. The related re-
seller sells the articles at retail to unrelated
end-users, and also leases articles to unre-
lated end-users.
(B)Interim Rule. Until the IRS and the
Treasury Department issue further guid-
ance, the constructive sale price for this
distribution chain, determined pursuant to
§ 4216(b)(1)(C), is 75% of the product
of 95% and the actual selling price (that
is, the price at which the article is sold
to a person that is not a member of the
group of companies that are related to the
manufacturer). The 5% discount is an al-
lowance for the exclusions from the selling
price otherwise allowed under § 4216(a).
SeeRev. Rul. 82–211. The additional
25% discount adjusts the selling price to
approximate the selling price to an inde-
pendent wholesale distributor.SeeRev.
Rul. 80–273. No further adjustments un-
der § 4216 are allowed.
(5)Sales to related reseller that only
leases at retail; no regular sales to inde-
pendent wholesale distributors.
(A)Description. In this distribution
chain, the manufacturer sells taxable arti-
cles to a related reseller. The related re-
seller leases the articles to unrelated end-
users, but does not sell articles at retail.
The manufacturer and related reseller do
not regularly sell the articles to indepen-
dent wholesale distributors.
(B)Interim Rule. Until the IRS and the
Treasury Department issue further guid-
ance, the price for this distribution chain
is the actual selling price to the related re-
seller, provided that the selling price to the
related reseller reasonably approximates
the fair market price of the article within
the meaning of § 4216.
(c)Applicability to other taxes imposed
by chapter 32 of the Code.UntiltheIRS
and the Treasury Department issue fur-
ther guidance, all manufacturers subject
to the taxes imposed by chapter 32 of the
Code may apply the rules provided in this
section to determine theconstructivesale
price of taxable articles under chapter 32
to the extent that any statute or other pub-
lished guidance do not already provide
rules addressing a particular fact pattern
or situation.
Section 4: SPECIAL CHAPTER
32 RULES APPLICABLE TO THE
MEDICALDEVICEEXCISETAX
(a)Sale to Hospital or Doctor’s Office
Treated as Sale at Retail for Purposes of
Determining Price
(1)Overview.Section
48.4216(b)–1(c)(1) of the regulations
defines “sale at retail” as the sale of an
article to a purchaser who intends to
use the article, or to lease it to another
person, rather than resell it. Section
48.4216(b)–1(c)(2) defines “retailer” as a
person engaged in the business of selling
articles at retail. Therefore, a sale to a
retailer is a sale of an article to a person
engaged in the business of selling articles
at retail. Medical institutions and offices,
such as hospitals and doctor’s offices,
purchase taxable articles that are used
to treat patients. Sometimes an article
is completely consumed on the premises
of a medical institution or office and
other times the articles leave the medical
institution or office with the patient.
Under the definitions described above, it
is unclear whether a sale of an article to
a medical institution or office is a sale at
retail or a sale to a retailer.
(2)Interim Rule. Until the IRS and the
Treasury Department issue further guid-
ance, the IRS will treat the sale of a taxable
article to a medical institution or office as
a “sale at retail.”
(b)Licenses
(1)
Overview.In response to the
proposed regulations, one commenter
requested clarification on whether the
licensing of software that is a taxable med-
ical device is a taxable event for purposes
of § 4191. That commenter requested that
the IRS and the Treasury department treat
the licensing of software as a lease.
Under existing chapter 32 rules, the
manufacturers excise tax generally at-
taches upon the sale or use of a taxable ar-
ticle by the manufacturer.See§ 48.0–2(b).
Section 4217(a) provides that the lease
of a taxable article by the manufacturer
is considered a sale. Neither the existing
chapter 32 rules nor the final regulations
address the issue of whether the licensing
of a taxable article, such as software that
is a taxable medical device, is a taxable
event.
(2)Interim Rule. Until the IRS and
the Treasury Department issue further
December 27, 20127832012–52 I.R.B.

guidance, the IRS will treat a license
of a taxable medical device as a lease
of that taxable medical device as of
the date both parties entered into the
license agreement. Accordingly, the
rules under §§ 4216(c) and 4217, and
§§ 48.4216(c)–1(a), 48.4216(c)–1(e),
48.4217–1, and 48.4217–2 apply.
(c)Excise Tax Treatment of Donations
of Taxable Medical Devices to Organiza-
tions Described in § 170(c)
(1)Overview.The existing chapter 32
rules do not specifically address whether
a donation of a taxable article constitutes
a taxable use under § 4218. The IRS and
the Treasury Department will continue to
study this issue.
(2)Interim Rules. Until the IRS and the
Treasury Department issue further guid-
ance, taxpayers may rely on the following
rules relating to the donation of medical
devices:
(A)Non-taxable use. The donation of
a taxable medical device by the manufac-
turerofthedevicetoaneligible doneewill
not constitute a taxable use as defined in
§ 4218 of the Code. However, if at the time
of donation, the manufacturer has reason to
believe that the donation is not being made
to aneligible doneeor that the article do-
natedwillberesoldbytheeligible donee,
the manufacturer is not relieved from the
liability for the tax imposed by § 4191.
(B)Eligible donee. For purposes of this
safe harbor, aneligible doneeis an entity
described in § 170(c) of the Code.
(C)Subsequent sales of donated arti-
cles. The rules of § 4219 (related to the
application of tax in case of sales by other
than the manufacturer) apply to aneligi-
ble doneethat receives a donated taxable
medical device and subsequently sells the
taxable medical device.
Section 5. CONVENIENCE KITS
(a)Overview. Under § 4191, a “taxable
medical device” is a device defined in
§ 201(h) of the Federal Food, Drug, and
Cosmetic Act (FFDCA) that is intended
for humans. Under § 48.4191–2(a) of the
regulations, a device defined in section
201(h) of the FFDCA that is intended for
humans means a device that is listed as a
device with the Food and Drug Adminis-
tration (FDA) under section 510(j) of the
FFDCA and 21 CFR Part 807, pursuant
to FDA requirements. Finished taxable
medical devices are sometimes packaged
together into kits for the convenience of
a healthcare provider in the performance
of a medical procedure. Convenience kits
that are listed with the FDA under sec-
tion 510(j) of the FFDCA and 21 CFR
Part 807 are “taxable medical devices”
under the regulations unless they fall
within an exemption under § 4191(b) or
§ 48.4191–2(b) of the regulations.
The IRS and the Treasury Department
have received numerous written and in-
formal comments suggesting that the sale
of convenience kits by the kit producer
should not be subject to tax under § 4191.
The IRS and the Treasury Department are
studying the taxability of convenience kits
and intend to issue additional guidance in
the future.
(b)Definition of a “Convenience Kit.”
For purposes of this notice, a “conve-
nience kit” is a set of two or more devices
within the meaning of section 201(h) of
the FFDCA that is enclosed in a single
package, such as a bag, tray, or box, for
the convenience of a health care profes-
sional or the end user. A convenience
kit may contain a combination of devices
within the meaning of section 201(h) of
the FFDCA and other articles.
(c)Interim Rule for Domestically-Pro-
duced Convenience Kits. Until the IRS
and the Treasury Department issue fur-
ther guidance, no tax will be imposed
upon the sale of a domestically-produced
convenience kit that is a “taxable med-
ical device” under § 4191 of the Code
and § 48.4191–2(b) of the regulations.
During this interim period, the sale of a
taxable medical device that goes into a
domestically-produced convenience kit
will be subject to tax upon its sale by the
manufacturer or importer, pursuant to the
normal rules of § 4191 and the regulations
thereunder; however, the sale of the con-
venience kit by the kit producer will not
be subject to tax.
(d)Interim Rule for Imported Conve-
nience Kits. Until the IRS and the Treasury
Department issue further guidance, tax is
imposed under § 4191 on the sale by an
importer of a convenience kit that is a tax-
able medical device under § 4191 of the
Code and § 48.4191–2(b), but only on that
portion of the importer’s sale price of the
convenience kit that is properly allocable
to the individual taxable medical devices
included in the convenience kit.
(1)Allocation.Whenanimportersells
a convenience kit that is a taxable medical
device, and also sells all of the individual
taxable medical devices and nontaxable ar-
ticles that are included in the convenience
kit, the taxable portion of the sale price of
such convenience kit may be determined
by applying to the importer’s sale price
of the convenience kit the ratio that the
importer’s separate sale price of the tax-
able medical devices in the convenience
kit bears to the sum of the sale prices of
both the taxable medical devices and non-
taxable articles in the convenience kit.
When an importer sells a convenience
kit that is a taxable medical device, but
does not sell all of the individual taxable
medical devices and nontaxable articles
that are included in the convenience kit,
the taxable portion of the sale price of such
convenience kit may be determined by ap-
plying to the importer’s sale price of the
convenience kit the ratio that the cost to
the importer of the taxable medical devices
in the convenience kit bears to the sum of
the cost to the importer of both the taxable
medical devices and nontaxable articles in
the convenience kit. The importer may
determine the cost of the taxable medical
devices and the nontaxable articles in the
convenience kit by any reasonable method.
Thus, if the cost of the taxable medical de-
vices represents half of the total cost to the
importer of the convenience kit, the tax ap-
plies to half of the price charged by the im-
porter upon the sale of the convenience kit.
(2)Alternative to Allocation.Inlieuof
allocation, the importer of a convenience
kit that is a taxable medical device may
pay tax on the entire price for which the
importer sells the convenience kit.
Section 6: DEPOSIT PENALTY RELIEF
(a)Overview. Section 6302 of the Code
authorizes the IRS to establish the mode
and time for collecting certain taxes, in-
cluding the taxes imposed by chapter 32.
Section 40.6302(c)–1(a) of the Excise Tax
Procedural Regulations requires manufac-
turers that are liable for excise taxes to
make semimonthly deposits of tax during
the period in which the tax liability is in-
curred.
The deposit for a tax imposed by chap-
ter 32 for each semimonthly period must
not be less than 95% of the amount of
net tax liability incurred during the semi-
2012–52 I.R.B.784December 27, 2012

monthly period unless the safe harbor in
§ 40.6302(c)–1(b)(2)(ii) applies. Under
the safe harbor, any person that filed a
Form 720,Quarterly Federal Excise Tax
Return, reporting a tax imposed by chap-
ter 32 for the second preceding calendar
quarter is considered to have met the semi-
monthly deposit requirement for the cur-
rent quarter if: (i) the deposit for each
semimonthly period in the current calendar
quarter is not less than 1/6 of the net tax li-
ability reported for the look back quarter:
(ii) each deposit is made on time; (iii) the
amount of any underpayment is paid by the
due date of the return; and (iv) the person’s
liability does not include any tax that was
not imposed during the look back quar-
ter. Section 40.6302(c)–1(b)(2)(v) pro-
vides that if a person fails to make deposits
as required, the IRS may withdraw the per-
son’s right to use the safe harbor rules of
§ 40.6302(c)–1(b)(2)(ii).
Section 6656 imposes a penalty in the
case of any failure by any person to make
timely deposits as required by § 6302. A
taxpayer may avoid penalties under § 6656
for failure to make deposits of taxes if
the taxpayer makes an affirmative showing
that such failure is due to reasonable cause
and not due to willful neglect.See§6656
and the corresponding regulations.
The IRS and the Treasury Department
recognize that many medical device man-
ufacturers will still be preparing their sys-
tems to comply with the medical device
excise tax when the tax goes into effect
on January 1, 2013, including the require-
ment to make semimonthly deposits. The
first deposit of the medical device excise
tax, covering the first 15 days of January, is
due by January 29, 2013. In consideration
of the short time frame between the effec-
tive date of the tax and the due date of the
first deposit, and in the interest of sound
tax administration, the IRS and the Trea-
sury Department have decided to provide
temporary relief from the § 6656 penalty
for the first three calendar quarters of 2013.
The normal rules under § 6656 and the cor-
responding regulations will apply with re-
spect to deposits due during the fourth cal-
endar quarter of 2013 and thereafter.
In addition to the temporary penalty
relief, the normal safe harbor rules of
§ 40.6302(c)–1(b)(2)(ii) apply. Begin-
ning in the third quarter of 2013, medical
device manufacturers may use the safe
harbor rules of § 40.6302(c)–1(b)(2)(ii)
for semimonthly deposits due during that
quarter. For purposes of the safe harbor,
the first calendar quarter of 2013 is the
look back quarter for deposits due during
the third calendar quarter.
(b)Interim Rule. During the first three
calendar quarters of 2013, the IRS will
not impose the penalty provided in § 6656
on a taxpayer that is liable for the med-
ical device excise tax that fails to make
timely deposits of the medical device ex-
cise tax as required by §§ 40.6302(c)–1
and 40.6302(c)–2 (relating to special de-
posits required in September), provided
that the taxpayer demonstrates a good
faith attempt to comply with requirements
of §§ 40.6302(c)–1 and 40.6302(c)–2 and
that the failure was not due to willful ne-
glect.
Thereafter, a taxpayer may avoid penal-
ties if it makes an affirmative showing
that the failure to deposit is due to rea-
sonable cause and not due to willful
neglect. In addition, during the third
and fourth calendar quarters of 2013, the
IRS will not exercise its authority under
§ 40.6302(c)–1(b)(2)(v) to withdraw the
taxpayer’s right to use the deposit safe
harbor rules of § 40.6302(c)–1(b)(2)(ii).
Section 7. REQUEST FOR COMMENTS
The IRS and the Treasury Department
invite comments on the interim rules set
forth in this notice. In particular, the IRS
and the Treasury Department request com-
ments on whether there are distribution
chains not described insection 3 of this no-
tice that are commonly employed by the
medical device industry. In addition, the
IRS and the Treasury Department recog-
nize that different segments of the indus-
try use different distribution chains for dif-
ferent devices and that determination of
the price at which a manufacturer would
sell its devices to an independent whole-
sale distributor may vary across those seg-
ments. The IRS and the Treasury De-
partment request comments on how the
constructive sale price rules might address
this segmentation, including comments on
what is a reasonable percentage of the ap-
plicable sale price for determining the con-
structive sale price for each segment or
product. After reviewing the comments
submitted in response to this request and
other information collected by the IRS,
the IRS and the Treasury Department will
determine an appropriate percentage al-
lowance for the industry as a whole or, al-
ternatively, for particular segments of the
industry. The IRS and the Treasury De-
partment will announce any such adjust-
ments in published guidance. Further, the
IRS and the Treasury Department request
comments regarding alternative methods
for determining price for the distribution
chain described in paragraph (b)(5) of sec-
tion 3 of this notice (sales to related re-
sellers that lease, but do not sell, taxable
medical devices).
The deadline for submission of com-
ments is March 29, 2013. All materials
submitted will be available for public
inspection and copying. Written com-
ments should be submitted to: Internal
Revenue Service, CC:PA:LPD:PR (Notice
2012–77), Room 5203, Internal Revenue
Service, PO Box 7604, Ben Franklin
Station, Washington, DC 20044. Sub-
missions may be hand-delivered Monday
through Friday between the hours of 8 a.m.
and 4 p.m. to CC:PA:LPD:PR (Notice
2012–77), Courier’s Desk, Internal
Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Comments
may be transmitted electronically
via the following e-mail address:
Notice.Comments@irscounsel.treas.gov.
Please include “Notice 2012–77” in
the subject line of any electronic
communications.
Section 8. EFFECTIVE DATE
This notice is effective on and after Jan-
uary 1, 2013.
Section 9. DRAFTING INFORMATION
The principal author of this notice is
Michael H. Beker of the Office of the
Associate Chief Counsel (Passthroughs
& Special Industries). For further in-
formation regarding this notice, please
contact Mr. Beker at (202) 622–3130 (not
a toll-free number).
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2012–78
This notice provides guidance as to the
corporate bond weighted average interest
December 27, 20127852012–52 I.R.B.

rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the cor-
porate bond monthly yield curve (and
the corresponding spot segment rates),
and the 24-month average segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007. These rates re-
flect certain changes implemented by
the Moving Ahead for Progress in the
21st Century Act, Public Law 112–141
(MAP–21). MAP–21 provides that for
purposes of § 430(h)(2), the segment rates
are limited by the applicable maximum
percentage or the applicable minimum
percentage based on the average of seg-
ment rates over a 25 year period.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections412(b)(5)(B)(ii)and
412(l)(7)(C)(i) provide that the interest
rates used to calculate current liability
and to determine the required contribution
under § 412(l) for plan years beginning
in 2004 through 2007 must be within a
permissible range based on the weighted
average of the rates of interest on amounts
invested conservatively in long term in-
vestment grade corporate bonds during the
4-year period ending on the last day before
the beginning of the plan year.
Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
November 2012 is 3.91 percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
December2012
5.074.565.07
YIELD CURVE AND SEGMENT
RATES
Generally, except for certain plans
under sections 104 and 105 of the Pen-
sion Protection Act of 2006, § 430 of
the Code specifies the minimum funding
requirements that apply to single em-
ployer plans pursuant to § 412. Section
430(h)(2) specifies the interest rates that
must be used to determine a plan’s target
normal cost and funding target. Under
this provision, present value is generally
determined using three 24-month average
interest rates (“segment rates”), each of
which applies to cash flows during speci-
fied periods. To the extent provided under
§ 430(h)(2)(C)(iv), these segment rates are
adjusted by the applicable percentage of
the 25-year average segment rates for the
period ending September 30 of the year
preceding the calendar year in which the
plan year begins. However, an election
may be made under § 430(h)(2)(D)(ii) to
use the monthly yield curve in place of the
segment rates.
Notice 2007–81, 2007–44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond seg-
ment rates used to compute the target nor-
mal cost and the funding target. Pursuant
to Notice 2007–81, the monthly corporate
bond yield curve derived from November
2012 data is in Table I at the end of this
notice. The spot first, second, and third
segment rates for the month of November
2012 are, respectively, 0.97, 3.50, and
4.60. The three 24-month average cor-
porate bond segment rates applicable for
December 2012, without adjustment by
the applicable percentage of the 25-year
average segment rates, are as follows:
24-Month Segment Rates Without Adjustment by 25-Year Average Segment Rates
First
Segment
Second
Segment
Third
Segment
1.664.47
5.52
For plan years beginning in 2012, the
24-month average segment rates deter-
mined under § 430(h)(2)(C)(iv) must be
not less than 90% nor greater than 110%
of the 25-year average segment rates. Pur-
suant to Notice 2012–55, 2012–36 I.R.B.
332, the first, second, and third 25-year
segment rates applicable for plan years
beginning in 2012 are 6.15, 7.61, and
8.35, respectively. Therefore, for plan
years beginning in 2012, the three adjusted
24-month average corporate bond segment
rates applicable for December 2012, tak-
ing into account the applicable percentage
2012–52 I.R.B.786December 27, 2012

of the 25-year average segment rates, are
as follows:
Adjusted 24-Month Average Segment Rates,
U
singApplicablePercentageof25-YearAverageSegmentRates
Applicable
Month
For Plan
Years
Beginning
in
First
Segment
Second
Segment
Third
Segment
December 20122012
5.546.857.52
The 25-year average segment rates for
the period ending September 30, 2012
have not been determined yet. The Service
will issue additional guidance on the De-
cember 2012 adjusted 24-month average
segment rates applicable for plan years
beginning in 2013 when those 25-year
average segment rates are determined.
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
bleinterestrateforamonthistheannual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for November 2012 is 2.80 per-
cent. The Service has determined this rate
as the average of the yield on the 30-year
Treasury bond maturing in August 2042
determined each day through November 7,
2012, and the yield on the 30-year Trea-
sury bond maturing in November 2042 de-
termined each day for the balance of the
month.
Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation
described in section 431(c)(6)(A), based
on the plan’s current liability. Section
431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 percent
below the weighted average of the rates of
interest on 30-year Treasury securities dur-
ing the four-year period ending on the last
day before the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The following rates
were determined for plan years beginning
in the month shown below.
For Plan Years
Beginning inPermissible Range
MonthYear
30-Year
Treasury
Weighted
Average90%to105%
December20123.633.263.81
MINIMUM PRESENT VALUE
SEGMENT RATES
In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates
computed without regard to a 24-month
average. For plan years beginning in
2008 through 2011, the applicable interest
rates are the monthly spot segment rates
blended with the applicable rate under
§ 417(e)(3)(A)(ii)(II) as in effect for plan
years beginning in 2007. Notice 2007–81
provides guidelines for determining the
minimum present value segment rates.
Pursuant to that notice, the minimum
present value transitional segment rates
determined for November 2012, taking
into account the November 2012 30-year
Treasury rate of 2.80 stated above, are as
follows:
For Plan
Years
Beginning in
First
Segment
Second
Segment
Third
Segment
20111.343.364.24
20120.97
3.50
4.60
20130.97
3.50
4.60
December 27, 20127872012–52 I.R.B.

DRAFTING INFORMATION
The principal author of this notice is
Tony Montanaro of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. Mr. Montanaro may be e-mailed at
RetirementPlanQuestions@irs.gov.
2012–52 I.R.B.788December 27, 2012

Table I
Monthly Yield Curve for November 2012
Derived from November 2012 Data
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
0.32
20.54.3540.5
4.63
60.5
4.73
80.5
4.79
1.0
0.52
21.04.3641.04.6361.04.7481.04.79
1.5
0.70
21.5
4.38
41.5
4.64
61.5
4.74
81.5
4.79
2.00.8422.04.3942.04.6462.04.7482.04.79
2.50.9522.5
4.40
42.5
4.64
62.5
4.74
82.5
4.79
3.01.0523.04.4043.04.6563.04.7483.04.79
3.5
1.14
23.5
4.41
43.54.6563.5
4.74
83.5
4.79
4.0
1.25
24.04.4244.0
4.65
64.0
4.75
84.04.79
4.5
1.37
24.5
4.43
44.5
4.66
64.54.7584.5
4.79
5.01.5125.0
4.44
45.0
4.66
65.04.7585.0
4.80
5.5
1.67
25.54.4545.5
4.66
65.54.7585.5
4.80
6.01.8426.04.4646.04.6766.04.7586.04.80
6.5
2.02
26.5
4.46
46.5
4.67
66.54.7586.5
4.80
7.02.2027.04.4747.04.6767.0
4.75
87.04.80
7.5
2.39
27.5
4.48
47.5
4.68
67.5
4.76
87.5
4.80
8.0
2.57
28.04.4948.04.6868.04.7688.04.80
8.52.7528.54.5048.5
4.68
68.5
4.76
88.5
4.80
9.02.9129.04.5049.04.6869.04.7689.04.80
9.5
3.07
29.54.5149.5
4.69
69.5
4.76
89.5
4.80
10.03.2130.0
4.5250.0
4.6970.04.7690.04.80
10.53.3530.54.5350.5
4.69
70.5
4.76
90.5
4.80
11.03.4731.0
4.5351.0
4.6971.04.7791.04.81
11.53.5831.54.5451.5
4.70
71.5
4.77
91.5
4.81
12.03.6932.04.5452.04.7072.04.7792.04.81
12.5
3.78
32.54.5552.5
4.70
72.5
4.77
92.5
4.81
13.03.8633.0
4.5653.0
4.7073.04.7793.04.81
13.5
3.93
33.54.5653.5
4.71
73.5
4.77
93.5
4.81
14.03.9934.0
4.5754.0
4.7174.04.7794.04.81
14.5
4.04
34.54.5754.5
4.71
74.5
4.77
94.5
4.81
15.04.0935.04.5855.04.7175.04.7795.04.81
15.5
4.13
35.54.5855.5
4.71
75.5
4.78
95.5
4.81
16.04.1736.0
4.5956.0
4.7276.04.7896.04.81
16.5
4.20
36.54.5956.5
4.72
76.5
4.78
96.5
4.81
17.04.2337.04.60
57.0
4.7277.04.7897.04.81
17.54.2537.5
4.60
57.5
4.72
77.5
4.78
97.5
4.81
18.04.2738.04.6158.04.7278.04.7898.04.82
18.5
4.29
38.5
4.61
58.5
4.73
78.5
4.78
98.5
4.82
19.04.3139.04.62
59.0
4.7379.04.7899.04.82
19.5
4.33
39.5
4.62
59.5
4.73
79.5
4.78
99.5
4.82
20.04.3440.04.6360.04.7380.04.79100.04.82
December 27, 20127892012–52 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Rules Relatin
g to Additional
Medicare Tax
REG–130074–
11
AGENCY: Inte
rnal Revenue Service
(IRS), Treas
ury.
ACTION: Noti
ce of proposed rulemaking
and notice o
f public hearing.
SUMMARY: Th
is document contains pro-
posed regul
ations relating to Additional
Hospital In
surance Tax on income above
threshold a
mounts (“Additional Medicare
Tax”), as ad
dedbytheAffordableCare
Act. Speci
fically, these proposed regula-
tions prov
ide guidance for employers and
individua
ls relating to the implementation
of Additio
nal Medicare Tax. This docu-
ment also
contains proposed regulations
relating
to the requirement to file a return
reportin
g Additional Medicare Tax, the
employer
process for making adjustments
of underp
ayments and overpayments of
Additio
nal Medicare Tax, and the em-
ployer a
nd employee processes for filing
a claim f
or refund for an overpayment of
Additio
nal Medicare Tax. This document
also pro
vides notice of a public hearing on
these p
roposed rules.
DATES:
Written or electronic comments
must be
received by March 5, 2013. Re-
quests
to speak (with outlines of topics to
be disc
ussed) at the public hearing sched-
uled fo
r April 4, 2013, must be received by
Febru
ary 28, 2013.
ADDRE
SSES: Send submissions to:
CC:PA
:LPD:PR (REG–130074–11), room
5205,
Internal Revenue Service, P.O. Box
7604,
Ben Franklin Station, Washing-
ton, D
C 20044. Submissions may be
hand
-delivered Monday through Friday
betw
een the hours of 8 a.m. and 4 p.m.
to CC
:PA:LPD:PR (REG–130074–11),
Cour
ier’s Desk, Internal Revenue Service,
1111
Constitution Avenue, NW, Wash-
ingt
on, DC, or sent electronically, via the
Fed
eral eRulemaking Portal atwww.regu-
lat
ions.gov(IRS REG–130074–11). The
public hearin
g will be held in the Audi-
torium, Inter
nal Revenue Building, 1111
Constitution
Avenue, NW, Washington,
DC.
FOR FURTHER IN
FORMATION
CONTACT: Conc
erning the proposed
regulations
, Andrew K. Holubeck or
Ligeia M. Don
is at (202) 622–6040;
concerning s
ubmission of comments,
the hearing,
and/or to be placed
on the build
ing access list to
attend the h
earing, please contact
Oluwafunmi
layo (Funmi) Taylor at
Oluwafunmi
layo.P.Taylor@irscounsel.treas.gov
or (202) 62
2–7180 (not toll-free numbers).
SUPPLEMEN
TARY INFORMATION:
Paperwork
Reduction Act
The collec
tion of information contained
in these pr
oposed regulations was previ-
ously revi
ewed and approved by the Office
of Managem
ent and Budget in accordance
with the P
aperwork Reduction Act of 1995
(44 U.S.C
. 3507(d)) under control number
1545–209
7. Comments on the collection
of inform
ation should be sent to theOf-
fice of Ma
nagement and Budget,Attn:
Desk Off
icer for the Department of the
Treasur
y, Office of Information and Reg-
ulatory
Affairs, Washington, DC 20503,
with cop
ies to theInternal Revenue Ser-
vice,At
tn: IRS Reports Clearance Offi-
cer, SE
:W:CAR:MP:T:M:S, Washington,
DC 2022
4. Comments on the collection of
inform
ation should be received by Febru-
ary 4, 2
013. Comments are specifically re-
queste
d concerning:
Whethe
r the proposed collection of in-
format
ion is necessary for the proper per-
forma
nce of the functions of the IRS, in-
cludi
ng whether the information will have
pract
ical utility;
The ac
curacy of the estimated burden
assoc
iated with the proposed collection of
infor
mation; and
Estim
ates of capital or start-up costs
and co
sts of operation, maintenance, and
purch
ase of services to provide informa-
tion
.
The c
ollection of information in these
prop
osed regulations is in §§31.6011(a)–1,
31.6
011(a)–2, 31.6205–1, 31.6402(a)–2,
31.6
413(a)–1, and 31.6413(a)–2. This
information i
s required by the IRS to ver-
ify complianc
e with return requirements
under section
6011, employment tax ad-
justments und
er sections 6205 and 6413,
and claims for
refund of overpayments
under sectio
n 6402. This information will
be used to det
ermine whether the amount
of tax has bee
n reported and calculated
correctly. T
he likely respondents are em-
ployers and
individuals.
Estimated to
tal annual reporting and/or
recordkeep
ing burden: 1,900,000 hours.
Estimated av
erage annual burden per
respondent
: 1 hour.
Estimated n
umber of respondents:
1,900,000.
An agency ma
y not conduct or sponsor,
and a person
is not required to respond to, a
collection
of information unless it displays
a valid cont
rol number assigned by the Of-
fice of Man
agement and Budget.
Books or re
cords relating to a collection
of informa
tion must be retained as long
as their co
ntents may become material in
the admini
stration of any internal revenue
law. Gener
ally, tax returns and tax return
informat
ion are confidential, as required
by 26 U.S.
C. 6103.
Backgrou
nd
These pro
posed regulations are issued
in connec
tion with the Additional Hospital
Insuranc
e Tax on income above threshold
amounts (
“Additional Medicare Tax”), as
added by
section 9015 of the Patient Pro-
tection
and Affordable Care Act (PPACA),
Public L
aw 111–148 (124 Stat. 119
(2010))
, and as amended by section 10906
of the PP
ACA and section 1402(b) of the
Health
Care and Education Reconciliation
Act of 2
010, Public Law 111–152 (124
Stat. 1
029 (2010)) (collectively, the
“Affor
dable Care Act”). The proposed
regula
tions includeamendments to
§1.140
1–1 of the Income Tax Regulations,
and §§
31.3101–2, 31.3102–1, 31.3102–4,
31.32
02–1, 31.6011(a)–1, 31.6011(a)–2,
31.62
05–1, 31.6402(a)–2, 31.6413(a)–1,
and 31
.6413(a)–2 of the Employment Tax
Regul
ations. The proposed regulations
prov
ide guidance for employers and
indi
viduals relating to the implementation
of Ad
ditional Medicare Tax, including
the r
equirement to withhold Additional
Medi
care Tax on certain wages and
2012–52 I.R.B.790December 27, 2012

compensation, the requirement to file
a return reporting Additional Medicare
Tax, the employer process for adjusting
underpayments and overpayments of
Additional Medicare Tax, and the
employer and employee processes for
filing a claim for refund of Additional
Medicare Tax.
For purposes of these proposed regu-
lations, the termemployment taxesmeans
the Federal Insurance Contributions Act
(FICA) tax imposed on employers and em-
ployees, the Railroad Retirement Tax Act
(RRTA) tax imposed on employers and
employees, and federal income tax with-
holding (ITW).
Federal Insurance Contributions Act and
Railroad Retirement Tax Act Taxes
Tax under the FICA is composed of
Old-Age, Survivors, and Disability Insur-
ance (OASDI) tax, also referred to as so-
cial security tax, and Hospital Insurance
(HI) tax, also referred to as Medicare tax.
The Medicare portion of FICA tax is im-
posed separately on the employer, under
section 3111(b), and the employee, un-
der section 3101(b), in an amount equal
to a percentage of wages. Under section
3102, the employer is required to collect
the employee portion of FICA tax by de-
ducting the amount of the tax from wages,
as and when paid, and is liable for pay-
ment of the tax required to be collected.
Until collected, the employee also is liable
for the employee portion of the tax. See
§31.3102–1(d).
Under the RRTA, railroad employment
is subject to a separate and distinct sys-
tem of taxes from those imposed under the
FICA. The RRTA serves as the functional
equivalent of FICA for railroad employ-
ers, employees, and employee representa-
tives (a group unique to the railroad indus-
try). Tax under the RRTA is divided into
tiers and each tier finances different ben-
efits. Tier 1 RRTA tax provides equiva-
lent social security and Medicare benefits.
Section 3201(a) imposes Tier 1 RRTA tax
on employees and section 3211(a) imposes
Tier 1 RRTA tax on employee representa-
tives, in an amount equal to the applica-
ble percentage of compensation. For em-
ployees, the applicable percentage under
section 3201(a) is the sum of the rates of
tax under section 3101(a) and (b). For em-
ployee representatives, the applicable per-
centage under section 3211(a) is the sum of
the rates of tax under sections 3101(a) and
(b) and 3111(a) and (b).
Under section 3202, the employer is
required to collect the employee portions
of RRTA tax by deducting the amount
of the taxes from compensation as and
when paid, and is liable for payment of
the taxes required to be collected. Un-
til collected, the employee also is liable
for the employee portion of the tax. See
§31.3202–1(e).
The Affordable Care Act added sec-
tion 3101(b)(2). Section 3101(b)(2) in-
creases the employee portion of Medicare
tax for wages received in any taxable year
beginning after December 31, 2012, by
an additional 0.9 percent of FICA wages
which are in excess of certain threshold
amounts. Additional Medicare Tax dif-
fers from Medicare tax in that Additional
Medicare Tax is not imposed until wages
exceed a threshold amount, and the thresh-
old amount for application of the tax is
based on the filing status of the individ-
ual. Under section 3101(b)(2), the thresh-
old amount is $250,000 in the case of a
joint return, $125,000 in the case of a mar-
ried taxpayer filing a separate return, and
$200,000 in any other case. Additional
Medicare Tax also differs from Medicare
Tax in that there is no employer portion to
correspond to the amount owed by the em-
ployee.
Additional Medicare Tax applies to
RRTA compensation paid to railroad em-
ployees and employee representatives.
See reference to section 3101(b) in sec-
tions 3201(a) and 3211(a). Accordingly,
Tier 1 RRTA tax imposed under sections
3201(a) and 3211(a) will be increased for
compensation received in any taxable year
beginning after December 31, 2012, by
an additional 0.9 percent of RRTA com-
pensation which is in excess of certain
threshold amounts as enumerated in sec-
tion 3101(b)(2). The threshold amount
for Additional Medicare Tax applies sep-
arately to the FICA and the RRTA. Ac-
cordingly, an individual will not combine
FICA wages and RRTA compensation in
determining whether Additional Medicare
Tax applies under FICA or under RRTA.
The Affordable Care Act added section
3102(f). Section 3102(f)(1) provides that
an employer’s obligation under section
3102(a) to withhold Additional Medicare
Tax applies only to the extent that the
wages the employee receives from the
employer are in excess of $200,000 in a
calendar year. Section 3102(f)(1) further
provides that in satisfying its obligation
to withhold Additional Medicare Tax, the
employer may disregard the amount of
wages received by the employee’s spouse.
Calculating wages for purposes of
withholding Additional Medicare Tax is
no different than calculating wages for
FICA generally. Thus, for example, if
an employee has amounts deferred un-
der a nonqualified deferred compensa-
tion plan and the nonqualified deferred
compensation (NQDC) is taken into ac-
count as wages for FICA tax purposes
under the special timing rule described in
§31.3121(v)(2)–1(a)(2), the NQDC would
likewise be taken into account under the
special timing rule for purposes of de-
termining an employer’s obligation to
withhold Additional Medicare Tax.
Similarly, when an employee is concur-
rently employed by related corporations
and one of the corporations disburses
wages for services performed for each of
the employers and the arrangement oth-
erwise satisfies the common paymaster
provisions of section 3121(s), liability for
FICA tax with respect to the wages dis-
bursed by the common paymaster is com-
puted as if there was a single employer. In
this case, the obligation to withhold Ad-
ditional Medicare Tax on wages in excess
of $200,000 disbursed by the common
paymaster would also be determined as if
there was a single employer.
Section 3102(f)(2) specifies that to the
extent Additional Medicare Tax is not
withheld by the employer, the employee
must pay the tax. This is consistent with
the general FICA rule in §31.3102–1(d),
which provides that the employee is liable
for the employee portion of FICA tax until
collected by the employer.
Section 3102(f)(3) provides that if an
employer fails to withhold Additional
Medicare Tax, and the tax is subsequently
paid by the employee, the IRS will not
collect the tax from the employer. Sec-
tion 3102(f)(3) specifies, however, that
the employer would remain subject to any
applicable penalties or additions to tax
for failure to withhold Additional Medi-
care Tax as required. Section 3102(f)(3),
reflecting that Additional Medicare Tax
is imposed only on employees and is ul-
timately based on the employee’s filing
December 27, 20127912012–52 I.R.B.

status, is similar to section 3402(d), which
abates the employer’s liability for ITW
when the employee has paid the income
tax.
Self-Employment Contributions Act Taxes
Section 1401 imposes social security
and Medicare taxes on the self-employ-
ment income of every individual at the
same combined employer and employee
rates applicable under the FICA.
The Affordable Care Act added sec-
tion 1401(b)(2). Section 1401(b)(2)(A) in-
creases the Medicare tax on self-employ-
ment income for any taxable year begin-
ning after December 31, 2012, by an addi-
tional 0.9 percent of self-employment in-
come which is in excess of certain thresh-
old amounts. As with Additional Medicare
Tax under the FICA, the threshold amounts
for an individual to be subject to Addi-
tional Medicare Tax under the Self-Em-
ployment Contributions Act (SECA) are
determined by the individual’s filing sta-
tus. The threshold amounts enumerated
under section 1401(b)(2)(A), are $250,000
in the case of a joint return, $125,000 in the
case of a married taxpayer filing a separate
return, and $200,000 in any other case.
Section 1401(b)(2)(B) provides for
coordination with Additional Medicare
Tax under the FICA and specifies that
the threshold amounts under section
1401(b)(2)(A) are reduced (but not be-
low zero) by the amount of wages taken
into account in determining Additional
Medicare Tax under the FICA. Section
1401(b)(2)(B) does not provide for sim-
ilar coordination with Additional Medi-
care Tax under the RRTA. Therefore, the
amount of RRTA compensation taken
into account in determining Additional
Medicare Tax under the RRTA will not re-
duce the threshold amounts under section
1401(b)(2)(A) for determining Additional
Medicare Tax under the SECA.
Estimated Taxes
Section6654imposesanadditiontotax
in the case of an individual’s underpay-
ment of estimated tax. Generally, the ad-
dition to tax imposed under section 6654
will not apply to individuals who have suf-
ficient ITW on wages or who make esti-
mated tax payments throughout the year.
Employees may request additional ITW on
wages on Form W–4, “Withholding Al-
lowance Certificate,” to reduce the need to
make estimated tax payments to cover the
individual’s tax liability.
Under section 6654(m), which was
added by the Affordable Care Act, Ad-
ditional Medicare Tax is treated as a tax
subject to estimated tax payment require-
ments. In the case of employees, Addi-
tional Medicare Tax is collected through
withholding on FICA wages or RRTA
compensation in excess of $200,000 in
a calendar year. In addition, employees
may request additional ITW on wages on
Form W–4 and use this additional ITW to
apply against taxes shown on their return,
including any Additional Medicare Tax
liability. To the extent not withheld, Ad-
ditional Medicare Tax must be included
when making estimated tax payments.
Interest-Free Adjustments of Employment
Taxes
The current regulations under section
6205 set forth the procedures for making
interest-free adjustments for underpay-
ments of employment taxes. Generally,
under the regulations, if an employer as-
certains an underpayment of FICA or
RRTA tax, the employer can make an un-
derpayment adjustment, within the period
of limitations for assessment, by reporting
the additional amount due on an adjusted
return for the return period in which the
wages or compensation was paid. For
underpayments of ITW, subject to limited
exceptions for correcting worker mis-
classification errors or for administrative
errors (that is, errors involving the inac-
curate reporting of the amount actually
withheld) and for audit adjustments, an
adjustment may be made only for errors
ascertained during the calendar year in
which the wages were paid.
The current regulations under sec-
tion 6413(a) set forth the procedures for
making interest-free adjustments for over-
payments of employment taxes. Under
the regulations, if an employer ascertains
within the applicable period of limitations
on credit or refund that an overpayment
error was made, the employer is generally
required to repay or reimburse its employ-
ees the amount of overcollected employee
FICA tax or employee RRTA tax prior
to the expiration of the applicable period
of limitations on credit or refund. The
regulations further provide that once an
employer repays or reimburses an em-
ployee, the employer may report both the
employee and employer portions of FICA
or RRTA tax as an overpayment on an
adjusted return within the period of limi-
tations on credit or refund. The employer
must generally certify on the adjusted re-
turn that it has repaid or reimbursed its
employees.
Similar rules apply for making inter-
est-free adjustments for overpayments of
ITW, except that an interest-free adjust-
ment may only be made if the employer
ascertains the error and repays or reim-
burses its employees within the same cal-
endar year that the wages were paid, unless
the employer is correcting an administra-
tive error.
Claims for Refund of Employment Taxes
In lieu of making an interest-free adjust-
ment under section 6413(a) for an over-
payment, employers may file a claim for
refund pursuant to section 6402. Under
section 6402(a), the IRS may credit the
amount of an overpayment, including any
interest, against any tax liability of the
person who made the overpayment and
shall, subject to certain offsets, refund any
balance to such person. A claim for re-
fund under section 6402(a) must be filed
within the period of limitations on credit
or refund. Section 6414 permits refunds
of ITW only to the extent the amount of
the ITW overpayment was not actually de-
ducted and withheld from an employee.
The current regulations under section
6402(a) set out the procedures for filing
a claim for refund of overpaid FICA and
RRTA taxes. The regulations permit an
employer to file a claim for refund of an
overpayment of FICA or RRTA tax, but
generally require the employer to certify
as part of the claim process that the em-
ployer has repaid or reimbursed the em-
ployee’s share of the overpayment of FICA
or RRTA tax to the employee or has se-
cured the written consent of the employee
to allowance of the refund or credit.
Generally, under the current section
6402 regulations, an employee may file
a claim for refund of overpaid FICA or
RRTA tax as long as the employee has not
been repaid or reimbursed by the employer
and does not give the employer consent to
file a claim on his or her behalf, and the
2012–52 I.R.B.792December 27, 2012

employee has not taken the overcollection
into account in claiming a credit against,
or refund of, his or her income tax, in the
case of a claim under section 6413(c) for
overpaid employee social security tax.
The current regulations under section
6414 set out the procedures for filing a
claim for refund of overpaid ITW and pro-
vide that an employer may not file a claim
for refund of an overpayment of ITW to the
extent the amount was deducted or with-
held from an employee.
Explanation of Provisions
The proposed regulations provide rules
for the withholding, computation, report-
ing, and payment of Additional Medicare
Tax on wages, self-employment income,
and RRTA compensation. The proposed
regulations also provide rules for when
and how employers may make an inter-
est-free adjustmentto correct an overpay-
ment or an underpayment of Additional
Medicare Tax and how employers and em-
ployees may claim refunds for overpay-
ments of Additional Medicare Tax. These
procedural rules for interest-free adjust-
ments and claims for refund track the ex-
isting rules that apply to ITW rather than
the rules that apply to FICA tax. The reg-
ulations take this approach because Addi-
tional Medicare Tax, like ITW, does not
include an employer portion, and the ulti-
mate liability is reconciled on the individ-
ual employee’s income tax return.
Rates and Computation of Employee
FICA Tax
The proposed regulations under section
3101(b) update the rates of tax for the so-
cial security and Medicare tax on employ-
ees, and add a paragraph describing the
rate of Additional Medicare Tax. The pro-
posed regulations also provide an updated
example illustrating that the social security
and Medicare rates applicable to the calen-
dar year in which wages are received apply
to compute the tax liability.
Employer’s Obligation to Withhold
Additional Medicare Tax
The proposed regulations under sec-
tions 3102 and 3202(a) describe the extent
towhichanemployerisrequiredtowith-
hold Additional Medicare Tax. The pro-
posed regulations under section 3102(f)
provide that an employer must withhold
Additional Medicare Tax from an em-
ployee’s wages only to the extent that the
employee receives wages from the em-
ployer in excess of $200,000 in a calendar
year. In determining whether wages ex-
ceed $200,000, an employer does not take
into account the employee’s filing status
or other wages or compensation which
may impact the employee’s liability for
the tax. An employee may not request
that the employer deduct and withhold
Additional Medicare Tax on wages of
$200,000 or less. However, an employee
who anticipates liability for Additional
Medicare Tax may request that the em-
ployer deduct and withhold an additional
amount of ITW under §31.3402(i)–2 on
Form W–4. This additional ITW can ap-
ply against taxes shown on Form 1040,
“U.S. Individual Tax Return,” including
any Additional Medicare Tax liability. An
employee might request that the employer
deduct and withhold an additional amount
of ITW on wages that are not in excess of
$200,000 if, for example, the employee is
married and files a joint return, and an-
ticipates liability for Additional Medicare
Tax because the combined wages of the
employee and the employee’s spouse will
exceed $250,000. The proposed regula-
tions under sections 3102(f) and 3202(a)
include examples illustrating the extent
of the employer’s obligation to withhold
Additional Medicare Tax.
Further, the proposed regulations under
section 3102(f) provide that to the extent
Additional Medicare Tax is not withheld
by the employer, the employee is liable for
the tax. The proposed regulations also pro-
vide that the IRS will not collect from an
employer the amount of Additional Medi-
care Tax it failed to withhold from wages
paid to an employee if the employee sub-
sequently pays the Additional Medicare
Tax. However, the proposed regulations
also specify that the employer would re-
main subject to any applicable penalties or
additions to tax for failure to withhold Ad-
ditional Medicare Tax as required.
Although Additional Medicare Tax
applies to RRTA compensation, the Af-
fordable Care Act did not add provisions
similar to section 3102(f) to the RRTA,
nor does the RRTA cross-reference sec-
tion 3102(f). However, in light of the
general similarities between the FICA and
the RRTA and the principles discussed
above, and in order to provide guidance
to railroad employers regarding their li-
ability to withhold Additional Medicare
Tax, the proposed regulations under sec-
tion 3202(a) incorporate the same rules as
provided in section 3102(f). Therefore,
the proposed regulations under section
3202(a) provide that railroad employers
must withhold Additional Medicare Tax
from an employee’s compensation only
to the extent the employee receives com-
pensation from the employer in excess of
$200,000 in a calendar year. Similar to the
FICA rule, an employee may not request
that the employer deduct and withhold
Additional Medicare Tax on compensation
of $200,000 or less. Instead, an employee
who anticipates liability for Additional
Medicare Tax may request that the em-
ployer deduct and withhold an additional
amount of ITW under §31.3402(i)–2 on
Form W–4 to apply against taxes shown
on Form 1040, including any Additional
Medicare Tax liability. The regulations
under section 3202 further provide that:
(1) to the extent Additional Medicare Tax
is not withheld by the employer, the em-
ployee is liable for the tax; (2) the IRS
will not collect Additional Medicare Tax
from an employer who fails to withhold
Additional Medicare Tax on compensation
paid by the employer, if the tax is sub-
sequently paid by the employee; and (3)
the employer will remain subject to any
applicable penalties oradditions to tax for
failure to withhold Additional Medicare
Tax as required.
Employee’s Obligation to Report and Pay
Additional Medicare Tax
The proposed regulations under sec-
tions 3102(f) and 3202(a) provide that an
employee is liable for Additional Medi-
care Tax on wages or compensation to the
extent that the tax is not withheld by the
employee’s employer. This is consistent
with the general rule in §§31.3102–1(d)
and 31.3202–1(e) for FICA and RRTA
purposes, respectively, that provides that
the employee is liable for the tax until
collected by the employer. Under the pro-
posed regulations under section 6011, an
individual must report Additional Medi-
care Tax on Form 1040. An individual will
claim credit for any withheld Additional
Medicare Tax on Form 1040 and pay any
such tax due that was not previously paid
December 27, 20127932012–52 I.R.B.

through withholding or estimated tax. For
example, if an employee and his or her
spouse each had wages of $200,000 or
less, such that their employers did not
withhold Additional Medicare Tax from
the employee’s or the spouse’s wages,
but the combined wages of the employee
and the employee’s spouse exceed the
threshold for a joint return under section
3101(b)(2) (that is, exceed $250,000),
the proposed regulations indicate that the
employee and the employee’s spouse are
liable to pay Additional Medicare Tax.
The proposed regulations under sections
3102(f) and 3202(a) include examples il-
lustrating this principle for FICA wages
and RRTA compensation, respectively.
Self-Employed Individual’s Obligation to
Pay Additional Medicare Tax
The proposed regulations under sec-
tion 1401(b) describe the extent to which
an individual who has self-employment
income is liable for Additional Medicare
Tax. Specifically, the proposed regula-
tions describe how the applicable thresh-
old amounts under section 1401(b)(2)(A)
are reduced (but not below zero) by the
amount of FICA wages taken into account
in determining Additional Medicare Tax
liability. Thus, the proposed regulations
under section 1401(b)(2) illustrate the ap-
plication of the reduced threshold amounts
for purposes of determining liability for
Additional Medicare Tax attributable to
the individual’s self-employment income.
The Affordable Care Act did not pro-
vide for a reduction in the self-employ-
ment income threshold amounts by the
amount of any RRTA compensation taken
into account in determining liability for
Additional Medicare Tax. Accordingly, an
individual who receives both RRTA com-
pensation and self-employment income
would not reduce the self-employment
income threshold amounts under section
1401(b)(2)(A) by the amount of RRTA
compensation taken into account in deter-
mining Additional Medicare Tax liability.
Interest-Free Adjustments of Additional
Medicare Tax
The proposed regulations under sec-
tions 6205 provide that adjustments of
underpayments of Additional Medicare
Tax may be made only if the error is as-
certained in the same year the wages or
compensation was paid, unless: (1) the
underpayment is attributable to an admin-
istrative error, (2) section 3509 applies to
determine the amount of the underpay-
ment, due to the employer’s failure to treat
the individual as an employee, or (3) the
adjustment is the result of an IRS exami-
nation.
Similarly, the proposed regulations un-
der section 6413 provide that an adjust-
ment of overpaid Additional Medicare Tax
may only be made if the employer ascer-
tains the error in the year the wages or
compensation was paid and repays or re-
imburses the employee the amount of the
overcollection prior to the end of the cal-
endar year. As in the case of all overpay-
ment adjustments, the requirement to re-
pay or reimburse does not apply to the ex-
tent that, after reasonable efforts, the em-
ployer cannot locate the employee. How-
ever, if an employer has not repaid or re-
imbursed the amount of the overcollection
to the employee, an adjustment cannot be
made.
Claims for Refund of Additional Medicare
Tax
The proposed regulations under section
6402 provide a process by which em-
ployers and employees claim refunds of
overpaid Additional Medicare Tax. Un-
der the proposed regulations, employers
may claim refunds of overpaid Additional
Medicare Tax only if the employer did
not deduct or withhold the overpaid Addi-
tional Medicare Tax from the employee’s
wages or compensation.
For employees, the proposed regula-
tions eliminate the requirements that the
employee first seek a refund from the em-
ployer and provide a statement in support
of the employee’s claim. Further, the pro-
posed regulations direct the employee to
claim the refund or credit of overpaid Ad-
ditional Medicare Tax by taking the over-
payment into account in claiming a credit
against, or refund of, tax on an individ-
ual tax return (for example, Form 1040)
for the year in which the overpayment was
made, or for a taxable year for which a
tax return has been filed, by filing Form
1040X, “Amended U.S. Individual Income
Tax Return.”Thisprocessisinlieuoffil-
ing a claim for refund for overpaid Addi-
tional Medicare Tax on Form 843, “Claim
for Refund and Request for Abatement.”
Employees may only claim a refund of Ad-
ditional Medicare Tax if they have not re-
ceived repayment or reimbursement from
their employer in the context of an inter-
est-free adjustment.
Proposed Effective/Applicability Dates
These regulations are proposed to be
effective the date the final regulations
are published in theFederal Register.
The regulations under the Internal Rev-
enue Code (Code) sections 1401, 3101,
3102, and 3202 are proposed to apply to
quarters beginning after the date the final
regulations are published in theFederal
Register. The regulations under Code
section 6011 are proposed to apply to
taxable years beginning after the date
the final regulations are published in the
Federal Register. The regulations under
Code sections 6205, 6402, and 6413 are
proposed to apply to adjustments made
and claims for refund filed after the date
the final regulations are published in the
Federal Register.
The Treasury Department and IRS in-
tend to finalize these proposed regulations
in 2013. Taxpayers may rely on these pro-
posed regulations for tax periods begin-
ning before the date that the final regula-
tions are published in the Federal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It has also been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations.
The proposed regulations under section
6011 affect all taxpayers that file individ-
ual tax returns and are subject to Addi-
tional Medicare Tax. The proposed reg-
ulations under sections 6205, 6402, and
6413 affect all taxpayers that file employ-
ment tax returns, as well as taxpayers that
file claims for refund of employment taxes.
Therefore, the IRS has determined that
these proposed regulations will have an
impact on a substantial number of small
entities.
The IRS has determined, however, that
the impact on entities affected by the pro-
posed regulations will not be significant.
2012–52 I.R.B.794December 27, 2012

The proposed regulations require taxpay-
ers who file employment tax returns and
who make interest-free adjustments to
their employment taxes for either under-
payments or overpayments of Additional
Medicare Tax or who file claims for re-
fund for an overpayment of Additional
Medicare Tax to provide an explanation
setting forth the basis for the correction or
the claim in detail, designating the return
period in which the error was ascertained
and the return period being corrected, and
setting forth such other information as
may be required by the instructions to the
form. In addition, for adjustments of over-
payments of Additional Medicare Tax,
employers must also obtain and retain the
written receipt of the employee showing
the date and amount of the repayment to
the employee or retain evidence of reim-
bursement. This collection of information
is not new to the proposed regulations.
The proposed regulations merely apply
the existing procedural requirements, with
appropriate modifications, to corrections
of Additional Medicare Tax. The filing
of a claim for refund and the making of
an interest-free adjustment pursuant to the
proposed regulations are voluntary on the
part of taxpayers.
Based on these facts, the IRS hereby
certifies that the collection of information
contained in these proposed regulations
will not have a significant economic im-
pact on a substantial number of small
entities. Accordingly,a regulatory flexi-
bility analysis is not required.
Pursuant to section 7805(f) of the Code,
this notice of proposed rulemaking has
been submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submit-
tedtimelytotheIRS.TheTreasuryDe-
partment and the IRS specifically request
comments on the clarity of the proposed
rules and how they can be made easier to
understand. All comments will be avail-
able for public inspection and copying. All
comments that are submitted by the pub-
lic will be available for public inspection
and copying athttp://www.regulations.gov
or upon request. A public hearing has been
scheduled for April 4, 2013, beginning at
10 a.m., in the Auditorium, Internal Rev-
enue Building, 1111 Constitution Avenue,
NW, Washington, DC. Due to building se-
curity procedures, visitors must enter at the
Constitution Avenueentrance. In addition,
all visitors must present photo identifica-
tion to enter the building. Because of ac-
cess restrictions, visitors will not be ad-
mitted beyond the immediate entrance area
more than 30 minutes before the hearing
starts.
For information about having your
name placed on the building access list
to attend the hearing, see the “FOR FUR-
THER INFORMATION 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 comments and an outline of the top-
icstobediscussedandthetimetobede-
voted to each topic by February 28, 2013.
A period of 10 minutes will be allot-
ted to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receivingoutlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal authors of these proposed
regulations are Sydney L. Gernstein,
formerly of the Office of the Division
Counsel/Associate Chief Counsel
(Tax Exempt and Government
Entitities), Andrew K. Holubeck, and
Ligeia M. Donis of the Office of the
Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel from
the IRS and the Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 31 are
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1401–1 is amended
by revising paragraph (b) and adding new
paragraphs (d) and (e) to read as follows:
§1.1401–1 Tax on self-employment
income.
*****
(b) The rates of tax on self-employment
income are as follows (these regulations do
not reflect off-Code revisions to the below
rates):
(1) For Old-age, Survivors, and Dis-
ability Insurance:
Taxable yearPercent
Beginning after December 31, 1983 and before January 1, 198811.40
Beginning after December 31, 1987 and before January 1, 199012.12
Beginning after December 31, 198912.40
(2)(i) For Hospital Insurance:
Taxable yearPercent
Beginning after December 31, 1983 and before January 1, 1985
2.60
December 27, 20127952012–52 I.R.B.

Beginning after December 31, 1984 and before January 1, 19862.70
Beginning after December 31, 1985
2.90
(ii) For Additional Medicare Tax:
Taxable yearPercent
Beginning after December 31, 20120.9
*****
(d)Special rules regarding Additional
Medicare Tax.(1)General rule.Anin-
dividual is liable for Additional Medicare
Tax to the extent that his or her self-em-
ployment income exceeds the following
threshold amounts.
Filing StatusThreshold
Married individual filing a joint return
$250,000
Married individual filing a separate return
$125,000
Any other case
$200,000
Note: These threshold amounts are specified under section 1401(b)(2)(A).
(2)Coordination with Federal Insur-
ance Contributions Act.(i)General rule.
Under section 1401(b)(2)(B), the appli-
cable threshold specified under section
1401(b)(2)(A) is reduced (but not below
zero) by the amount of wages (as defined
in section 3121(a)) taken into account in
determining Additional Medicare Tax un-
der section 3101(b)(2) with respect to the
taxpayer. This rule does not apply to Rail-
road Retirement Tax Act (RRTA) compen-
sation (as defined in section 3231(e)).
(ii)Examples. The rules provided in
paragraph (d)(2)(i) of this section are illus-
trated by the following examples:
Example 1. A, a single filer, has $130,000 in self-
employment income and $0 in wages. A is not liable
to pay Additional Medicare Tax.
Example 2. B, a single filer, has $220,000 in self-
employment income and $0 in wages. B is liable to
pay Additional Medicare Tax on $20,000 ($220,000
in self-employment income minus the threshold of
$200,000).
Example 3. C, a single filer, has $145,000 in
self-employment income and $130,000 in wages. C’s
wages are not in excess of $200,000 so C’s employer
did not withhold Additional Medicare Tax. However,
the $130,000 of wages reduces the self-employment
income threshold to $70,000 ($200,000 threshold mi-
nus the $130,000 of wages). C is liable to pay Addi-
tional Medicare Tax on $75,000 of self-employment
income ($145,000 in self-employment income minus
the reduced threshold of $70,000).
Example 4. E, who is married and files a joint re-
turn, has $140,000 in self-employment income. F, E’s
spouse, has $130,000 in wages. F’s wages are not in
excess of $200,000 so F’s employer did not withhold
Additional Medicare Tax. However, the $130,000
of F’s wages reduces E’s self-employment income
threshold to $120,000 ($250,000 threshold minus the
$130,000 of wages). E and F are liable to pay Addi-
tional Medicare Tax on $20,000 of E’s self-employ-
ment income ($140,000 in self-employment income
minus the reduced threshold of $120,000).
Example 5. D, who is married and files married
filing separately, has $150,000 in self-employment
income and $200,000 in wages. D’s wages are not in
excess of $200,000 so D’s employer did not withhold
Additional Medicare Tax. However, the $200,000 of
wages reduces the self-employment income thresh-
old to $0 ($125,000 threshold minus the $200,000
of wages). D is liable to pay Additional Medicare
Tax on $75,000 of wages ($200,000 in wages minus
the $125,000 threshold for a married filing separately
return) and on $150,000 of self-employment income
($150,000 in self-employment income minus the re-
duced threshold of $0).
(e)Effective/applicability date. Para-
graphs (b) and (d) of this section apply to
quarters beginning after the date of pub-
lication of the Treasury decision adopting
these rules as final regulations in theFed-
eral Register.
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME
TAX AT THE SOURCE
Par. 3. The authority citation for part
31 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 4. Revise §31.3101–2 to read as
follows:
§31.3101–2 Rates and computation of
employee tax.
(a)Old-Age, Survivors, and Disability
Insurance. The rates of employee tax for
Old-Age, Survivors, and Disability Insur-
ance (OASDI) with respect to wages re-
ceived in calendar years after 1983 are as
follows (these regulations do not reflect
off-Code revisions to the below rates):
Calendar yearPercent
1984, 1985, 1986, or 19875.7
1988 or 19896.06
1990 and subsequent years6.2
(b)(1)Hospital Insurance.Theratesof
employee tax for Hospital Insurance (HI)
with respect to wages received in calendar
years after 1973 are as follows:
2012–52 I.R.B.796December 27, 2012

Calendar yearPercent
1974, 1975, 1976, or 1977
0.90
19781.00
1979 or 1980
1.05
1981, 1982, 1983, or 19841.30
19851.35
1986 and subsequent years
1.45
(2)Additional Medicare Tax.(i)The
rate of Additional Medicare Tax with re-
spect to wages received in taxable years beginning after December 31, 2012, is as
follows:
Taxable yearPercent
Beginning after December 31, 20120.9
(ii) Individuals are liable for Additional
Medicare Tax with respect to wages re-
ceived in taxable years beginning after De-
cember 31, 2012, which are in excess of:
Filing StatusThreshold
Married individual filing a joint return
$250,000
Married individual filing a separate return
$125,000
Any other case
$200,000
(c)Computation of employee tax.The
employee tax is computed by applying to
the wages received by the employee the
rates in effect at the time such wages are
received.
Example. In 1989, A performed services for X
whi
ch constituted employment (see §31.3121(b)–2).
In 1990, A receives from X $1,000 as remuneration
for such services. The tax is payable at the 6.2 percent
OA
SDI rate and the 1.45 percent HI rate in effect for
the calendar year 1990 (the year in which the wages
are received) and not at the 6.06 percent OASDI rate
an
d the 1.45 percent HI rate which were in effect for
the calendar year 1989 (the year in which the services
were performed).
(d)Effective/applicability date. Para-
graphs (a) (b), and (c) of this section apply
to quarters beginning after the date of pub-
lication of the Treasury decision adopting
these rules as final regulations in theFed-
eral Register.
Par. 5. Section 31.3102–1 is amended
by adding a new sentence at the end of
paragraph (a) and a new paragraph (f) to
read as follows:
§
31.3102–1 Collection of, and liability
for, employee tax; in general.
(a) *** For special rules relating to Ad-
ditional Medicare Taximposed under sec-
tion 3101(b)(2), see §31.3102–4.
*****
(f)Effective/applicability date. Para-
graph (a) of this section applies to quarters
beginning after the date of publication of
the Treasury decision adopting these rules
as final regulations in theFederal Regis-
ter.
Par. 6. Section 31.3102–4 is added to
read as follows:
§31.3102–4 Special rules regarding
Additional Medicare Tax.
(a)Collection of tax from employee.An
employer is required to collect from each
of its employees the tax imposed by sec-
tion 3101(b)(2) (Additional Medicare Tax)
with respect to wages for employment per-
formed for the employer by the employee
only to the extent the employer pays wages
to the employee in excess of $200,000 in
a calendar year. This rule applies regard-
less of the employee’s filing status or other
income. Thus, the employer disregards
any amount of wages or Railroad Retire-
ment Tax Act (RRTA) compensation paid
to the employee’s spouse. The employer
also disregards any RRTA compensation
paid by the employer to the employee or
any wages or RRTA compensation paid to
the employee by another employer.
Example. H, who is married and files a joint
return, receives $100,000 in wages from his em-
ployer for the calendar year. I, H’s spouse, receives
$300,000 in wages from her employer for the same
calendar year. H’s wages are not in excess of
$20
0,000, so H’s employer does not withhold Ad-
ditional Medicare Tax. I’s employer is required to
collect Additional Medicare Tax only with respect to
wag
es it pays which are in excess of the $200,000
threshold (that is, $100,000) for the calendar year.
(b)Collection of amounts not withheld.
To the extent the employer does not collect
Additional Medicare Tax imposed on the
employee by section 3101(b)(2), the em-
ployee is liable to pay the tax.
Example. J, who is married and files a joint
re
turn, receives$190,000 in wages from his em-
ployer for the calendar year. K, J’s spouse, receives
$150,000 in wages from her employer for the same
ca
lendar year. Neither J’s nor K’s wages are in ex-
cess of $200,000, so neither J’s nor K’s employers
are required to withhold Additional Medicare Tax. J
a
nd K are liable to pay Additional Medicare Tax on
$90,000 ($340,000 minus the $250,000 threshold for
a joint return).
(c)Employer’s liability for tax.Ifthe
employer deducts less than the correct
amount of Additional Medicare Tax, or
if it fails to deduct any part of Additional
Medicare Tax, it is nevertheless liable
for the correct amount of tax that it was
required to withhold, until the employee
pays the tax. If an employee subsequently
pays the tax that the employer failed to
deduct, the tax will not be collected from
the employer. The employer, however,
will remain subject to any applicable
December 27, 20127972012–52 I.R.B.

penalties or additions to tax resulting from
the failure to withhold as required.
(d)Effective/applicability date.This
section applies to quarters beginning after
the date of publication of the Treasury de-
cision adopting these rules as final regula-
tions in theFederal Register.
Par. 7. Section 31.3202–1 is amended
by adding new paragraphs (g) and (h) to
read as follows:
§31.3202–1 Collection of, and liability
for, employee tax
*****
(g)Special rules regarding Additional
Medicare Tax. (1) An employer is required
to collect from each of its employees
the portion of the tax imposed by sec-
tion 3201(a) (as calculated under section
3101(b)(2)) (Additional Medicare Tax)
with respect to compensation for employ-
ment performed for the employer by the
employee only to the extent the employer
pays compensation to the employee in
excess of $200,000 in a calendar year.
This rule applies regardless of the em-
ployee’s filing status or other income.
Thus, the employer disregards any amount
of compensation or Federal Insurance
Contributions Act (FICA) wages paid to
the employee’s spouse. The employer also
disregards any FICA wages paid by the
employer to the employee or any compen-
sation or FICA wages paid to the employee
by another employer.
Example. A, who is married and files a joint re-
turn, receives $100,000 in compensation from her
employer for the calendar year. B, A’s spouse, re-
ceives $300,000 in compensation from his employer
for the same calendar year. A’s compensation is not in
excess of $200,000, so A’s employer does not with-
hold Additional Medicare Tax. B’s employer is re-
quired to collect Additional Medicare Tax only with
respect to compensation it pays to B that is in excess
of the $200,000 threshold (that is, $100,000) for the
calendar year.
(2) To the extent the employer does not
collect Additional Medicare Tax imposed
on the employee by section 3201(a) (as
calculated under section 3101(b)(2)), the
employee is liable to pay the tax.
Example. C, who is married and files a joint re-
turn, receives $190,000 in compensation from her
employer for the calendar year. D, C’s spouse, re-
ceives $150,000 in compensation from his employer
for the same calendar year. Neither C’s nor D’s com-
pensation is in excess of $200,000, so neither C’s
nor D’s employers are required to withhold Addi-
tional Medicare Tax. C and D are liable to pay Addi-
tional Medicare Tax on $90,000 ($340,000 minus the
$250,000 threshold for a joint return).
(3) If the employer deducts less than
the correct amount of Additional Medicare
Tax, or if it fails to deduct any part of Ad-
ditional Medicare Tax, it is nevertheless
liable for the correct amount of tax that
it was required to withhold, until the em-
ployee pays the tax. If an employee sub-
sequently pays the tax that the employer
failed to deduct, the tax will not be col-
lected from the employer. The employer,
however, will remain subject to any appli-
cable penalties or additions to tax resulting
from the failure to withhold as required.
(h)Effective/applicability date. Para-
graph (g) of this section applies to quarters
beginning after the date of publication of
the Treasury decision adopting these rules
as final regulations in theFederal Regis-
ter.
Par. 8. Section 31.6011(a)–1 is
amended by adding new paragraphs (h)
and (i) to read as follows:
§31.6011(a)–1 Returns under Federal
Insurance Contributions Act.
*****
(h)Returns by employees in respect of
Additional Medicare Tax.Anemployee
who is paid wages, as defined in sections
3121(a), subject to the tax under section
3101(b)(2) (Additional Medicare Tax),
must make a return for the taxable year in
respect of such tax. The return shall be
made on Form 1040. The form to be used
by residents of the U.S. Virgin Islands,
Guam, American Samoa, or the Northern
Mariana Islands is Form 1040–SS, “U.S.
Self-Employment Tax Return (Including
Additional Child Tax Credit for Bona Fide
Residents of Puerto Rico).”Theformto
be used by residents of Puerto Rico is
either Form 1040–SS or Form 1040–PR,
“Planilla para la Declaración de la Con-
tribución Federal sobre el Trabajo por
Cuenta Propia (Incluyendo el Crédito
Tributario Adicional por Hijos para Resi-
dentes Bona Fide de Puerto Rico).”
(i)Effective/applicability date. Para-
graph (h) of this section applies to tax-
able years beginning after the date of pub-
lication of the Treasury decision adopting
these rules as final regulations in theFed-
eral Register.
Par. 9. Section 31.6011(a)–2 is
amended by adding new paragraphs (d)
and (e) to read as follows:
§31.6011(a)–2 Returns under Railroad
Retirement Tax Act.
*****
(d)Returns by employees and employee
representatives in respect of Additional
Medicare Tax. An employee or employee
representative who is paid compensation,
as defined in section 3231(e), subject to
the tax under sections 3201(a) (as calcu-
lated under section 3101(b)(2)) or sec-
tion 3211(a) (as calculated under section
3101(b)(2)) (Additional Medicare Tax),
must make a return for the taxable year in
respect of such tax. The return shall be
made on Form 1040. The form to be used
by residents of the U.S. Virgin Islands,
Guam, American Samoa, or the Northern
Mariana Islands is Form 1040–SS, “U.S.
Self-Employment Tax Return (Including
Additional Child Tax Credit for Bona Fide
Residents of Puerto Rico).” The form to
be used by residents of Puerto Rico is
either Form 1040–SS or Form 1040–PR,
“Planilla para la Declaración de la Con-
tribución Federal sobre el Trabajo por
Cuenta Propia (Incluyendo el Crédito
Tributario Adicional por Hijos para Resi-
dentes Bona Fide de Puerto Rico).”
(e)Effective/applicability date. Para-
graph (d) of this section applies to tax-
able years beginning after the date of pub-
lication of the Treasury decision adopting
these rules as final regulations in theFed-
eral Register.
Par. 10. Section 31.6205–1 is amended
by:
1. Revising the first sentence in para-
graph (b)(2)(i).
2. Adding a new second sentence to
paragraphs (b)(2)(ii) and (b)(2)(iii).
3. Adding two new sentences after the
sixth sentence in paragraph (b)(3).
4. Adding a new paragraph (b)(4).
5. Revising paragraph (d)(1).
6. Adding a new paragraph (e).
The revisions and additions read as fol-
lows:
§31.6205–1 Adjustments of
underpayments.
*****
(b) * * *
(2)***(i)Ifanemployerfilesare-
turn on which FICA tax or RRTA tax is re-
quired to be reported, and reports on the
return less than the correct amount of em-
2012–52 I.R.B.798December 27, 2012

ployee or employer FICA or RRTA tax
with respect to a payment of wages or com-
pensation, and if the employer ascertains
the error after filing the return, the em-
ployer shall correct the error through an in-
terest-free adjustment as provided in this
section, except as provided in paragraph
(b)(4) of this section for Additional Medi-
care Tax. * * *
(ii) * * * However, if the employer
also reported less than the correct amount
of Additional Medicare Tax, the employer
shall correct the underwithheld and under-
paid Additional Medicare Tax in accor-
dance with paragraph (b)(4) of this section.
***
(iii) * * * However, if the employer
also reported less than the correct amount
of Additional Medicare Tax, the employer
shall correct the underwithheld and under-
paid Additional Medicare Tax in accor-
dance with paragraph (b)(4) of this section.
***
(3)***However,anadjustmentof
Additional Medicare Tax required to be
withheld under section 3101(b)(2) or sec-
tion 3201(a) may only be reported pur-
suant to this section if the error is ascer-
tained within the same calendar year that
the wages were paid to the employee, or
if section 3509 applies to determine the
amount of the underpayment, or if the ad-
justment is reported on a Form 2504 or
Form 2504–WC. See paragraph (b)(4) of
this section. * * *
(4)Additional Medicare Tax.Ifanem-
ployer files a return on which FICA tax
or RRTA tax is required to be reported,
and reports on the return less than the cor-
rect amount of Additional Medicare Tax
required to be withheld with respect to a
payment of wages or compensation, and if
the employer ascertains the error after fil-
ing the return, the employer shall correct
the error through an interest-free adjust-
ment as provided in this section. An ad-
justment of Additional Medicare Tax may
only be reported pursuant to this paragraph
(b)(4) if the error is ascertained within the
same calendar year that the wages or com-
pensation were paid to the employee, un-
less the underpayment is attributable to
an administrative error (that is, an error
involving the inaccurate reporting of the
amount actually withheld), section 3509
applies to determinethe amount of the un-
derpayment, or the adjustment is reported
on a Form 2504 or Form 2504–WC. The
employer shall adjust the underpayment
of Additional Medicare Tax by reporting
the additional amount due on an adjusted
return for the return period in which the
wages or compensation were paid, accom-
panied by a detailed explanation of the
amount being reported on the adjusted re-
turn and any other information as may be
required by this section and by the in-
structions relating to the adjusted return.
The reporting of the underpayment on an
adjusted return constitutes an adjustment
within the meaning of this section only if
the adjusted return is filed within the pe-
riod of limitations for assessment for the
return period being corrected, and by the
due date for filing the return for the return
period in which the error is ascertained.
For purposes of the preceding sentence, the
due date for filing the adjusted return is
determined by reference to the return be-
ing corrected, without regard to the em-
ployer’s current filing requirements. For
example, an employer with a current an-
nual filing requirement who is correcting
an error on a previously filed quarterly re-
turn must file the adjusted return by the
due date for filing a quarterly return for the
quarter in which the error is ascertained.
The amount of the underpayment adjusted
in accordance with this section must be
paid to the IRS by the time the adjusted re-
turn is filed. If an adjustment is reported
pursuant to this section, but the amount of
the adjustment is not paid when due, in-
terest accrues from that date (see section
6601).
*****
(d) * * * (1)Federal Insurance Contri-
butions Tax Act and Railroad Retirement
Tax Act. If an employer collects less than
the correct amount of employee FICA or
RRTA tax from an employee with respect
to a payment of wages or compensation,
the employer must collect the amount
of the undercollection by deducting the
amount from remuneration of the em-
ployee, if any, paid after the employer as-
certains the error. If an employer collects
less than the correct amount of Additional
Medicare Tax required to be withheld un-
der section 3101(b)(2)or section 3201(a),
the employer must collect the amount of
the undercollection on or before the last
day of the calendar year by deducting
the amount from remuneration of the em-
ployee, if any, paid after the employer
ascertains the error. Such deductions may
be made even though the remuneration,
for any reason, does not constitute wages
or compensation. The correct amount of
employee tax must be reported and paid,
as provided in paragraph (b) of this sec-
tion, whether or not the undercollection
is corrected by a deduction made as pre-
scribed in this paragraph (d)(1), and even
if the deduction is made after the return
on which the employee tax must be re-
ported is due. If such a deduction is not
made, the obligation of the employee to
the employer with respect to the undercol-
lection is a matter for settlement between
the employee and the employer. If an
employer makes an erroneous collection
of employee tax from two or more of its
employees, a separate settlement must be
made with respect to each employee. An
overcollection of employee tax from one
employee may not be used to offset an
undercollection of such tax from another
employee. For provisions relating to the
employer’s liability for the tax, whether or
not it collects the tax from the employee,
see §§31.3102–1(d), 31.3102–4(c), and
31.3202–1. This paragraph (d)(1) does not
apply if section 3509 applies to determine
the employer’s liability.
*****
(e)Effective/applicability date. Para-
graphs (b) and (d) of this section apply to
adjustments made after the date of publi-
cation of the Treasury decision adopting
these rules as final regulations in theFed-
eral Register.
Par. 11. Section 31.6402(a)–2 is
amended by:
1. Revising paragraph (a)(1)(i) and the
first sentence in paragraph (a)(1)(ii).
2. Re-designating paragraphs (a)(1)
(iii), (a)(1)(iv), (a)(1)(v), and (a)(1)(vi),
as new paragraphs (a)(1)(iv), (a)(1)(v),
(a)(1)(vi), and (a)(1)(vii), respectively.
3. Adding a new paragraph (a)(1)(iii).
4. Revising newly-designated para-
graphs (a)(1)(iv)and (a)(1)(v).
5. Revising paragraph (b).
6. Adding a new paragraph (c).
The revisions and additions read as fol-
lows:
§31.6402(a)–2 Credit or refund of tax
under Federal Insurance Contributions
Act or Railroad Retirement Tax Act.
(a)***(1)***
December 27, 20127992012–52 I.R.B.

(i) Except as provided in paragraph
(a)(1)(iii) of this section, any person may
file a claim for credit or refund for an
overpayment (except to the extent that the
overpayment must be credited pursuant
to §31.3503–1) if the person paid to the
Internal Revenue Service (IRS) more than
the correct amount of employee Federal
Insurance Contributions Act (FICA) tax
under section 3101 or employer FICA tax
under section 3111, employee Railroad
Retirement Tax Act (RRTA) tax under
section 3201, employee representative
RRTA tax under section 3211, or employer
RRTA tax under section 3221, or interest,
addition to the tax, additional amount, or
penalty with respect to any such tax.
(ii) Except as provided in paragraph
(a)(1)(iii) of this section, the claim for
credit or refund must be made in the man-
ner and subject to the conditions stated in
this section. * * *
(iii)Additional Medicare Tax.Nore-
fund or credit to the employer will be al-
lowed for the amount of any overpayment
of Additional Medicare Tax imposed un-
der section 3101(b)(2) or section 3201(a)
(as calculated under section 3101(b)(2)),
which the employer deducted or withheld
from an employee.
(iv) For adjustments without interest of
overpayments of FICA or RRTA taxes,
including Additional Medicare Tax, see
§31.6413(a)–2.
(v) For corrections of FICA and RRTA
tax paid under the wrong chapter, see
§31.6205–1(b)(2)(ii) and (b)(2)(iii) and
§31.3503–1.
*****
(b)Claim by employee—(1)In general.
Except as provided in (b)(3) of this sec-
tion, if more than the correct amount of
employee tax under section 3101 or sec-
tion 3201 is collectedby an employer from
an employee and paid to the IRS, the em-
ployee may file a claim for refund of the
overpayment if—
(i) The employee does not receive re-
payment or reimbursement in any manner
from the employer and does not authorize
the employer to file a claim and receive re-
fund or credit,
(ii) The overcollection cannot be cor-
rected under §31.3503–1, and
(iii) In the case of overpaid employee
social security tax due to having received
wages or compensation from multiple em-
ployers, the employee has not taken the
overcollection into account in claiming a
credit against, or refund of, his or her in-
come tax, or if so, such claim has been re-
jected. See §31.6413(c)–1.
(2)Statements supporting employee’s
claim. (i)Exceptasprovidedin(b)(3)of
this section, each employee who makes a
claim under paragraph (b)(1) of this sec-
tion shall submit with such claim a state-
ment setting forth (a) the extent, if any,
to which the employer has repaid or re-
imbursed the employee in any manner for
the overcollection, and (b) the amount, if
any, of credit or refund of such overpay-
ment claimed by the employer or autho-
rized by the employee to be claimed by the
employer. The employee shall obtain such
statement, if possible, from the employer,
who should include in such statement the
fact that it is made in support of a claim
against the United States to be filed by the
employee for refund of employee tax paid
by such employer to the IRS. If the em-
ployer’s statement is not submitted with
the claim, the employee shall make the
statement to the best of his or her knowl-
edge and belief, and shall include therein
an explanation of his or her inability to ob-
tain the statement from the employer.
(ii) Except as provided in paragraph
(b)(3) of this section, each individual who
makes a claim under paragraph (b)(1) of
this section also shall submit with such
claim a statement setting forth whether
the individual has taken the amount of
the overcollection into account in claim-
ing a credit against, or refund of, his or
her income tax, and the amount, if any, so
claimed (see §31.6413(c)–1).
(3)Additional Medicare Tax. (i) If more
than the correct amount of Additional
Medicare Tax under section 3101(b)(2)
or section 3201(a) (as calculated under
section 3101(b)(2)), is collected by an
employer from an employee and paid to
the IRS, the employee may file a claim
for refund of the overpayment and receive
a refund or credit if the overcollection
cannot be corrected under §31.3503–1 and
if the employee has not received repay-
ment or reimbursement from the employer
in the context of an interest-free adjust-
ment. The claim for refund shall be made
on Form 1040, “U.S. Individual Income
Tax Return,” by taking the overcollection
into account in claiming a credit against,
or refund of, tax. The form to be used
by residents of the U.S. Virgin Islands,
Guam, American Samoa, or the Northern
Mariana Islands is Form 1040–SS, “U.S.
Self-Employment Tax Return (Including
Additional Child Tax Credit for Bona Fide
Residents of Puerto Rico).” The form to
be used by residents of Puerto Rico is
either Form 1040–SS or Form 1040–PR,
“Planilla para la Declaración de la Con-
tribución Federal sobre el Trabajo por
Cuenta Propia (Incluyendo el Crédito
Tributario Adicional por Hijos para Res-
identes Bona Fide de Puerto Rico).” The
employee may not authorize the employer
to claim the credit or refund for the em-
ployee. See §31.6402(a)–2(a)(1)(iii).
(ii) In the case of an overpayment of
Additional Medicare Tax under section
3101(b)(2) or section 3201(a) for a taxable
year of an individual for which a Form
1040 (or other applicable return in the
Form 1040 series) has been filed, a claim
for refund shall be made by the individual
on Form 1040X, “Amended U.S. Individ-
ual Income Tax Return.”
(c)Effective/applicability date.This
section applies to claims for refund filed
after the date of publication of the Treasury
decision adopting these rules as final reg-
ulations in theFederal Register.
Par. 12. Section 31.6413(a)–1 is
amended by:
1. Revising the first sentence in para-
graph (a)(2)(i).
2. Re-designating paragraphs (a)(2)(ii),
(a)(2)(iii), (a)(2)(iv), (a)(2)(v), (a)(2)(vi),
and (a)(2)(vii), as new paragraphs
(a)(2)(iii), (a)(2)(iv), (a)(2)(v), (a)(2)(vi),
(a)(2)(vii), and (a)(2)(viii), respectively.
3. Adding a new paragraph (a)(2)(ii).
4. Adding a new sentence after the
first sentence in newly-designated para-
graph (a)(2)(iv).
5. Adding a new sentence after the
second sentence in newly-designated para-
graph (a)(2)(v).
6. Revising newly-designated para-
graph (a)(2)(viii).
7. Adding a new paragraph (c).
The revisions and additions read as fol-
lows:
§31.6413(a)–1 Repayment or
reimbursement by employer of tax
erroneously collected from employee.
(a) * * *
2012–52 I.R.B.800December 27, 2012

(2) * * * (i) Except as provided in para-
graph (a)(2)(ii) of this section, if an em-
ployer files a return for a return period on
which FICA tax or RRTA tax is reported,
collects from an employee and pays to the
IRS more than the correct amount of the
employee FICA or RRTA tax, and if the
employer ascertains the error after filing
the return and within the applicable period
of limitations on credit or refund, the em-
ployer shall repay or reimburse the em-
ployee in the amount of the overcollection
prior to the expiration of such limitations
period. * * *
(ii) If an employer files a return for a
return period on which Additional Medi-
care Tax under section 3101(b)(2) or sec-
tion 3201(a) is reported, collects from an
employee and pays to the IRS more than
the correct amount of Additional Medicare
Tax required to be withheld from wages or
compensation, and if the employer ascer-
tains the error after filing the return but be-
fore the end of the calendar year in which
the wages were paid, the employer shall
repay or reimburse the employee in the
amount of the overcollection prior to the
end of the calendar year. However, this
paragraph does not apply to the extent that,
after reasonable efforts, the employer can-
not locate the employee.
*****
(iv) * * * However, for purposes
of overcollected Additional Medicare
Tax under section 3101(b)(2) or section
3201(a), the employer shall reimburse the
employee by applying the amount of the
overcollection against the employee FICA
or RRTA tax which attaches to wages or
compensation paid by the employer to the
employee in the calendar year in which
the overcollection is made. * * *
(v)***Thisparagraph(a)(2)(v)does
not apply for purposes of overcollected
Additional Medicare Tax under section
3101(b)(2) or section 3201(a) which must
be repaid or reimbursed to the employee
in the calendar year in which the overcol-
lection is made. * * *
*****
(viii) For corrections of FICA and
RRTA tax paid under the wrong chapter,
see §31.6205–1(b)(2)(ii) and (b)(2)(iii)
and §31.3503–1.
*****
(c)Effective/applicability date. Para-
graph (a) of this section applies to adjust-
ments made after the date of publication of
the Treasury decision adopting these rules
as final regulations in theFederal Regis-
ter.
Par. 13. Section 31.6413(a)–2 is
amended by:
1. Adding a new sentence after the first
sentence in paragraph (a)(1).
2. Adding a new sentence after the sec-
ond sentence in paragraph (b)(2)(i).
3. Adding a new paragraph (e).
The revisions and additions read as fol-
lows:
§31.6413(a)–2 Adjustments of
overpayments.
(a) * * *
(1) * * * However, this section only
applies to overcollected or overpaid Ad-
ditional Medicare Tax under section
3101(b)(2) or section 3201(a) if the
employer has repaid or reimbursed the
amount of the overcollection of such tax
to the employee in the year in which the
overcollection was made. * * *
*****
(b) * * *
(2) * * * (i) * * * However, for pur-
poses of Additional Medicare Tax under
section 3101(b)(2) or section 3201(a), if
the amount of the overcollection is not re-
paid or reimbursed to the employee under
§31.6413(a)–1(a)(2)(ii), there is no over-
payment to be adjusted under this section
and the employer may only adjust an over-
payment of such tax attributable to an ad-
ministrative error, that is, an error involv-
ing the inaccurate reporting of the amount
withheld, pursuant to this section. * * *
*****
(e)Effective/applicability date. Para-
graphs (a) and (b) of this section apply to
adjustments made after the date of publi-
cation of the Treasury decision adopting
these rules as final regulations in theFed-
eral Register.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on November 30,
2012, 2:00 p.m., and published in the issue of the Federal
Register for December 5, 2012, 77 F.R. 72268)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2012–49
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletinthatanorganizationnolonger
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed,
contributions from individuals and orga-
nizations described in section 170(c)(2)
that are otherwise allowable will continue
to be deductible. Protection under section
7428(c) would begin on December 27,
2012, and would end on the date the court
first determines that the organization is
not described in section 170(c)(2) as more
particularly set forth in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.
Amani Foundation
Aurora, CO
Excalibur Foundation
Sparks, NV
December 27, 20128012012–52 I.R.B.

The Play Institute
Horseshoe Bay, TX
Update to Announcement
2012–25 — Extension of Time
for Businesses to Comply with
Rev. Rul. 2012–18 Regarding
the Proper Treatment of
Service Charges
Announcement 2012–50
This announcement extends the time for
businesses to comply with the rules regard-
ing proper treatment of service charges
specified in Q&A 1 of Rev. Rul. 2012–18,
2012–26 I.R.B. 1032. This extension is
provided in order to allow businesses not
currently in compliance additional time to
modify their business practices and make
needed system changes.
In a previously issued interim guid-
ance memorandum (IGM), included as an
attachment to Announcement 2012–25,
2012–26 I.R.B. 1054, the Internal Revenue
Service (Service) provides administrative
guidelines to examiners concerning Rev.
Rul. 2012–18. Specifically, the IGM
instructs examiners to apply Q&A 1 of
Rev. Rul. 2012–18, in limited circum-
stances, prospectively to amounts paid on
or after January 1, 2013. In Announce-
ment 2012–25, the Service sought public
comments regarding whether additional
time was needed to ensure that systems
are compliant. Based on the comments
received, the Service has determined that
an extension to January 1, 2014, is appro-
priate. An updated IGM will be issued to
examiners informing them of the exten-
sion of time to January 1, 2014, with the
extension to apply in the limited circum-
stances set forth in the IGM.
EFFECT ON OTHER DOCUMENTS
Announcement 2012–25 is amplified.
DRAFTING INFORMATION
The principal author of this announce-
ment is Linda L. Conway-Hataloski of
the Office of Division Counsel/Associate
Chief Counsel (Tax Exempt &
Government Entities). For questions
regarding this announcement, contact
Linda L. Conway-Hataloski at
202–622–0047 (not a toll-free call).
2012–52 I.R.B.802December 27, 2012

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.
December 27, 2012i2012–52 I.R.B.

Numerical Finding List
1
Bulletins 2012–27 through 2012–52
Announcements:
2012-26, 2012-27 I.R.B.8
2012-27, 2012-27 I.R.B.10
2012-28, 2012-27 I.R.B.10
2012-29, 2012-42 I.R.B.500
2012-30, 2012-34 I.R.B.314
2012-31, 2012-34 I.R.B.315
2012-32, 2012-35 I.R.B.325
2012-33, 2012-35 I.R.B.325
2012-34, 2012-36 I.R.B.334
2012-35, 2012-38 I.R.B.356
2012-36, 2012-46 I.R.B.547
2012-37, 2012-45 I.R.B.543
2012-38, 2012-43 I.R.B.527
2012-39, 2012-48 I.R.B.635
2012-40, 2012-47 I.R.B.556
2012-41, 2012-44 I.R.B.532
2012-42, 2012-47 I.R.B.561
2012-43, 2012-51 I.R.B.723
2012-44, 2012-49 I.R.B.663
2012-45, 2012-51 I.R.B.724
2012-46, 2012-51 I.R.B.725
2012-47, 2012-49 I.R.B.664
2012-48, 2012-51 I.R.B.729
2012-49, 2012-52 I.R.B.801
2012-50, 2012-52 I.R.B.802
Notices:
2012-2, 2012-45 I.R.B.538
2012-39, 2012-31 I.R.B.95
2012-44, 2012-28 I.R.B.45
2012-45, 2012-29 I.R.B.59
2012-46, 2012-30 I.R.B.86
2012-47, 2012-31 I.R.B.98
2012-48, 2012-31 I.R.B.102
2012-49, 2012-31 I.R.B.119
2012-50, 2012-31 I.R.B.121
2012-51, 2012-33 I.R.B.150
2012-52, 2012-35 I.R.B.317
2012-53, 2012-35 I.R.B.317
2012-54, 2012-52 I.R.B.773
2012-55, 2012-36 I.R.B.332
2012-56, 2012-39 I.R.B.370
2012-57, 2012-40 I.R.B.424
2012-58, 2012-41 I.R.B.436
2012-59, 2012-41 I.R.B.443
2012-60, 2012-41 I.R.B.445
2012-61, 2012-42 I.R.B.479
2012-62, 2012-42 I.R.B.489
2012-63, 2012-42 I.R.B.496
2012-64, 2012-44 I.R.B.528
2012-65, 2012-52 I.R.B.773
Notices— Continued:
2012-66, 2012-49 I.R.B.639
2012-67, 2012-50 I.R.B.671
2012-68, 2012-48 I.R.B.574
2012-69, 2012-51 I.R.B.712
2012-70, 2012-51 I.R.B.712
2012-71, 2012-50 I.R.B.672
2012-72, 2012-50 I.R.B.673
2012-73, 2012-51 I.R.B.713
2012-74, 2012-51 I.R.B.714
2012-75, 2012-51 I.R.B.715
2012-76, 2012-52 I.R.B.775
2012-77, 2012-52 I.R.B.781
2012-78, 2012-52 I.R.B.785
Proposed Regulations:
REG-126770-06, 2012-38 I.R.B.347
REG-138367-06, 2012-40 I.R.B.426
REG-101812-07, 2012-34 I.R.B.311
REG-134042-07, 2012-27 I.R.B.5
REG-140668-07, 2012-43 I.R.B.501
REG-153627-08, 2012-29 I.R.B.60
REG-136491-09, 2012-35 I.R.B.321
REG-138489-09, 2012-38 I.R.B.355
REG-125570-11, 2012-30 I.R.B.93
REG-130074-11, 2012-52 I.R.B.790
REG-130266-11, 2012-32 I.R.B.126
REG-134935-11, 2012-29 I.R.B.64
REG-141832-11, 2012-28 I.R.B.54
REG-107889-12, 2012-28 I.R.B.53
REG-113738-12, 2012-29 I.R.B.66
REG-134974-12, 2012-47 I.R.B.553
Revenue Procedures:
2012-28, 2012-27 I.R.B.4
2012-29, 2012-28 I.R.B.49
2012-30, 2012-33 I.R.B.165
2012-31, 2012-33 I.R.B.256
2012-32, 2012-34 I.R.B.267
2012-33, 2012-34 I.R.B.272
2012-34, 2012-34 I.R.B.280
2012-35, 2012-37 I.R.B.341
2012-36, 2012-39 I.R.B.374
2012-37, 2012-41 I.R.B.449
2012-38, 2012-48 I.R.B.575
2012-39, 2012-41 I.R.B.470
2012-40, 2012-40 I.R.B.424
2012-41, 2012-45 I.R.B.539
2012-42, 2012-46 I.R.B.545
2012-43, 2012-49 I.R.B.643
2012-44, 2012-49 I.R.B.645
2012-45, 2012-49 I.R.B.656
2012-46, 2012-50 I.R.B.673
2012-49, 2012-50 I.R.B.681
2012-50, 2012-50 I.R.B.709
2012-51, 2012-51 I.R.B.719
Revenue Rulings:
2012-19, 2012-28 I.R.B.16
2012-20, 2012-27 I.R.B.1
2012-21, 2012-32 I.R.B.123
2012-22, 2012-48 I.R.B.565
2012-23, 2012-39 I.R.B.359
2012-24, 2012-36 I.R.B.329
2012-25, 2012-37 I.R.B.337
2012-26, 2012-39 I.R.B.358
2012-27, 2012-41 I.R.B.435
2012-28, 2012-42 I.R.B.476
2012-29, 2012-42 I.R.B.475
2012-30, 2012-45 I.R.B.534
2012-31, 2012-49 I.R.B.636
2012-32, 2012-52 I.R.B.762
2012-33, 2012-51 I.R.B.710
Treasury Decisions:
9591, 2012-28 I.R.B.32
9592, 2012-28 I.R.B.41
9593, 2012-28 I.R.B.17
9594, 2012-29 I.R.B.57
9595, 2012-30 I.R.B.71
9596, 2012-30 I.R.B.84
9597, 2012-34 I.R.B.258
9598, 2012-38 I.R.B.343
9599, 2012-40 I.R.B.417
9600, 2012-47 I.R.B.548
9602, 2012-52 I.R.B.746
9604, 2012-52 I.R.B.730
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin
2012–26, dated June 25, 2012.
2012–52 I.R.B.iiDecember 27, 2012

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2012–27 through 2012–52
Announcements:
83-196
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
85-141
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
2008-105
Modified and superseded by
Ann. 2012-34, 2012-36 I.R.B.334
2012-25
Amplified by
Ann. 2012-50, 2012-52 I.R.B.802
2012-29
Corrected by
Ann. 2012-41, 2012-44 I.R.B.532
2012-38
Corrected by
Ann. 2012-41, 2012-44 I.R.B.532
Notices:
2009-24
Amplified by
Notice 2012-51, 2012-33 I.R.B.150
2009-89
Modified by
Notice 2012-54, 2012-52 I.R.B.773
2011-81
Superseded by
Notice 2012-63, 2012-42 I.R.B.496
2011-92
Obsoleted by
Notice 2012-74, 2012-51 I.R.B.714
2011-96
Modified by
Notice 2012-70, 2012-51 I.R.B.712
2012-1
Superseded by
Notice 2012-72, 2012-50 I.R.B.673
2012-51
Amplified by
Notice 2012-51, 2012-33 I.R.B.150
Proposed Regulations:
REG-100276-97
Withdrawn by
Ann. 2012-27, 2012-27 I.R.B.10
Proposed Regulations— Continued:
REG-136491-09
Hearing cancelled by
Ann. 2012-39, 2012-48 I.R.B.635
REG-130266-11
Hearing scheduled by
Ann. 2012-29, 2012-42 I.R.B.500
Ann. 2012-38, 2012-43 I.R.B.527
Hearing rescheduled by
Ann. 2012-41, 2012-44 I.R.B.532
Revenue Procedures:
94-22
Modified and superseded by
Rev. Proc. 2012-35, 2012-37 I.R.B.341
95-15
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
97-27
Modified by
Rev. Proc. 2012-39, 2012-41 I.R.B.470
98-32
Modified and superseded by
Rev. Proc. 2012-33, 2012-34 I.R.B.272
2007-38
Modified and superseded by
Rev. Proc. 2012-32, 2012-34 I.R.B.267
2007-44
Modified by
Rev. Proc. 2012-50, 2012-50 I.R.B.709
2010-38
Superseded by
Rev. Proc. 2012-49, 2012-50 I.R.B.681
2011-14
Clarified and modified by
Rev. Proc. 2012-39, 2012-41 I.R.B.470
2011-39
Superseded by
Rev. Proc. 2012-46, 2012-50 I.R.B.673
2011-40
Superseded by
Rev. Proc. 2012-30, 2012-33 I.R.B.165
2011-50
Superseded by
Rev. Proc. 2012-36, 2012-39 I.R.B.374
2011-60
Superseded by
Rev. Proc. 2012-38, 2012-48 I.R.B.575
2012-15
Updated by
Rev. Proc. 2012-51, 2012-51 I.R.B.719
Revenue Procedures— Continued:
2012-30
Corrected and clarified by
Ann. 2012-36, 2012-46 I.R.B.547
2012-38
Corrected by
Ann. 2012-48, 2012-51 I.R.B.729
Revenue Rulings:
2011-27
Supplemented and superseded by
Rev. Rul. 2012-33, 2012-51 I.R.B.710
Treasury Decisions:
9752
Corrected by
Ann. 2012-35, 2012-38 I.R.B.356
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin 2012–26, dated June 25, 2012.
December 27, 2012iii2012–52 I.R.B.

INDEX
Internal Revenue Bulletins 2012–27 through
2012–52
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parentheses refer to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Amendment of prohibited payment option under defined sin-
gle–employer defined benefit plan of plan sponsor in bank-
ruptcy (REG–113738–12) 29,66
Application of section 162(m)(4)(C) to dividends and dividend
equivalents (RR 19) 28,16
Defined benefit plans funding (Notice 61) 42,479
Determination letters, staggered remedial amendment (RP 50)
50,708
Election to include in gross income in year of transfer (RP 29)
28,49
Fast track settlement for TE/GE taxpayers (Ann 34) 36,334
Fees on health insurance policies and self-insured health plans
for the Patient-Centered Outcomes Research Trust Fund (TD
9602) 52,746
Full funding limitations, weighted average interest rates, seg-
ment rates for:
July 1, 2012 (Notice 47) 31,98
August 1, 2012 (Notice 53) 35,317
September 1, 2012 (Notice 56) 39,370
October 1, 2012 (Notice 64) 44,528
November 1, 2012 (Notice 66) 49,639
December 1, 2012 (Notice 78) 52,785
Funding segment rates, 25–yearaverage segment rates and ad-
justed 24–month average segment rates used for pension fund-
ing (Notice 55) 36,332
Limitations on benefits and contributions, cost-of-living adjust-
ments (Notice 67) 50,671
Proposed Regulations:
26 CFR 1.411(d)–4, amended; amendment of prohibited pay-
ment option under defined single–employer defined benefit
plan of plan sponsor in bankruptcy (REG–113738–12) 29,
66
EMPLOYEE PLANS—Cont.
26 CFR 1.6081–11, amended;301.6057–1, amended; report-
ing and notice requirements for deferred vested benefits un-
der section 6057 (REG–153627–08) 29,60
Qualifications, cumulative list of changes in plan qualification
requirements, 2012 (Notice 76) 52,775
Qualified plans, disaster relief (Ann 44) 49,663
Regulation:
26 CFR 40.0–1, amended;40.6011(a)–1, amended;
40.6071(a)–1, amended;40.6091–1(a), amended;
40.6302(c)–1, amended; 46.0–1, amended; 46.0–2, re-
moved; 46.4375–1, added; 46.4376–1, added; fees on
health insurance policies andself–insured health plans for
the Patient–Centered Outcomes Research Trust Fund (TD
9602) 52,746
Reporting and notice requirements for deferred vested benefits
under section 6057 (REG–153627–08) 29,60
Revision of Rev. Proc. 94–22 (RP 35) 37,341
Underfunded plans:
Notice requirements (Notice 46) 30,86
Limitations on accrual and payment of benefits (Notice 70)
51,712
EMPLOYMENT TAX
Background file document requests, processing fees, update to
Rev. Proc. 95–15 (RP 31) 33,256
FICA taxes on wages paid to residents of the Philippine Islands
for services performed in the Commonwealth of the Northern
Mariana Islands before January 1, 2015 (Ann 43) 51,723
Frivolous tax return positions, arguments and schemes (RP 43)
49,643
New addition to tax under section 3101 added by the ACA
(REG–130074–11) 52,790
Proposed Regulation:
26 CFR 1.1401–1, amended; 31.3101–2, revised;
31.3102–1, amended; 31.3102–4, added; 31.3202–1,
amended; 31.6011(a)–1, amended; 31.6011(a)–2,
amended; 31.6205–1, amended;31.6402(a)–2, amended;
31.6413(a)–1, amended; 31.6413(a)–2, amended; new
addition to tax under section 3101 added by the ACA
(REG–130074–11) 52,790
Revisions to Rev. Proc. 98–32 (RP 33) 34,272
Third party payer issues and reporting agents, revisions to Rev.
Proc. 2007–38 (RP 32) 34,267
Tips, extension of time (Ann 50) 52,802
Voluntary Classification Settlement Program (VCSP):
Revised (Ann 45) 51,724
Temporary eligibility expansion (Ann 46) 51,725
Wage recharacterization revenue ruling (RR 25) 37,337
ESTATE TAX
Background file document requests, processing fees, update to
Rev. Proc. 95–15 (RP 31) 33,256
Cost-of-living adjustments for inflation for 2013 (RP 41) 45,539
2012–52 I.R.B.ivDecember 27, 2012

ESTATE TAX—Cont.
Frivolous tax return positions, arguments and schemes (RP 43)
49,643
Portability of a deceased spousal unused exclusion amount (TD
9593) 28,17; (REG–141832–11) 28,54
Proposed Regulations:
26 CFR 20.2001–2, added; 20.2010–0, thru –3, added; 25
CFR 25.2505–0, thru –2, added; portability of a deceased
spousal unused exclusion amount (REG–141832–11) 28,
54
Regulations:
26 CFR 20.2001–2T, added; 20.2010–0T, thru –2T, added;
25.2505–0T, thru –3T, added; 602.101, amended; porta-
bility of a deceased spousal unused exclusion amount (TD
9593) 28,17
Valuation of certain farm, etc., real property under section 2032A
(RR 26) 39,358
EXCISE TAX
Background file document requests, processing fees, update to
Rev. Proc. 95–15 (RP 31) 33,256
Branded prescription drugs (Notice 74) 51,714
Capital loss carrybacks and carryovers (RR 29) 42,475
Cost-of-living adjustments for inflation for 2013 (RP 41) 45,539
Determining full-time employees for purposes of shared re-
sponsibility for employers regarding health coverage, section
4980H (Notice 58) 41,436
Disregarded entities and the indoor tanning services excise tax
(TD 9596) 30,84; (REG–125570–11) 30,93
Fees on health insurance policies and self-insured health plans
for the Patient-Centered Outcomes Research Trust Fund (TD
9602) 52,746
Frivolous tax return positions, arguments and schemes (RP 43)
49,643
Guidance on 90–day waiting period limitation under public
health service act section 2708 (Notice 59) 41,443
Highway use tax (Notice 57) 40,424
Proposed Regulations:
26 CFR 1.1361–4, amended; 301.7701–2, amended; disre-
garded entities and the indoortanning services excise tax
(REG–125570–11) 30,93
Regulations:
26 CFR 40.0–1, amended;40.6011(a)–1, amended;
40.6071(a)–1, amended; 40.6091–1(a), amended;
40.6302(c)–1, amended; 46.0–1, amended; 46.0–2, re-
moved; 46.4375–1, added; 46.4376–1, added; fees on
health insurance policies and self–insured health plans for
the Patient–Centered Outcomes Research Trust Fund (TD
9602) 52,746
26 CFR 1.1361–4, amended; 1.1361–4T, added;
301.7701–2T, added; disregarded entities and the indoor
tanning services excise tax (TD 9596) 30,84
26 CFR 48.4191–4, added; 48.4191–2, added; 48.4216(c)-1,
added; 48.4221–1, amended;48.6416(b)(2)-2, amended;
EXCISE TAX—Cont.
taxable medical devices, final regulations (TD 9604) 52,
730
Taxable medical devices:
Constructive sale price (Notice 77) 52,781
Final regulations (TD 9604) 52,730
EXEMPT ORGANIZATIONS
Additional requirements for charitable hospitals
(REG–130266–11) 32,126; hearing (Ann 29) 42,500;
hearing (Ann 38) 43,527; hearing correction (Ann 41) 44,532
Background file document requests, processing fees, update to
Rev. Proc. 95–15 (RP 31) 33,256
Fast track settlement for TE/GE taxpayers (Ann 34) 36,334
Proposed Regulations:
26 CFR 1.501(r)–0 thru –7, added; additional requirements
for charitable hospitals (REG–130266–11) 32,126; hear-
ing (Ann 29) 42,500; hearing (Ann 38), 43,527; hearing
correction (Ann 41) 44,532
26 CFR 53.4942(a)–3, amended; 53.4945–5, amended;
reliance standards for making good faith determinations
(REG–134974–12) 47,553
Reliance standards for making good faith determinations
(REG–134974–12) 47,553
Revocations (Ann 32) 35,325;(Ann37)45,543; (Ann 49) 52,
801
Transitional relief for certain small organizations that have lost
tax-exempt status, postponement of deadline, affected by Hur-
ricane Sandy (Notice 71) 50,672
GIFT TAX
Background file document requests, processing fees, update to
Rev. Proc. 95–15 (RP 31) 33,256
Cost-of-living adjustments for inflation for 2013 (RP 41) 45,539
Frivolous tax returnpositions, arguments and schemes (RP 43)
49,643
Portability of a deceased spousal unused exclusion amount (TD
9593) 28,17; (REG–141832–11) 28,54
Proposed Regulations:
26 CFR 20.2001–2, added; 20.2010–0, thru –3, added; 25
CFR 25.2505–0, thru –2, added; portability of a deceased
spousal unused exclusion amount (REG–141832–11) 28,
54
Regulations:
26 CFR 20.2001–2T, added; 20.2010–0T, thru –2T, added;
25.2505–0T, thru –3T, added; 602.101, amended; porta-
bility of a deceased spousal unused exclusion amount (TD
9593) 28,17
INCOME TAX
Allocation of costs under the simplified methods
(REG–126670–12) 38,347
December 27, 2012v2012–52 I.R.B.

INCOME TAX—Cont.
Application of section 162(m)(4)(C) to dividends and dividend
equivalents (RR 19) 28,16
Application of section 172(h) including consolidated groups
(REG–140668–07) 43,501
Background file document requests, processing fees, update to
Rev. Proc. 95–15 (RP 31) 33,256
Base period T-bill rate, 2012 (RR 22) 48,565
Basis of indebtedness of S corporations to their shareholders
(REG–134042–07) 27,5
Bonds:
Qualified energy conversation bonds (Notice 44) 28,45
Tribal economic development bonds (Notice 48) 31,102
Changes in method of accounting, modifying Rev. Procs. 97–27
and 2011–14 (RP 39) 41,470
Charitable contribution deduction (Notice 52) 35,317
Consumer Price Index (CPI) adjustments, certain loans under
section 1274A, 2013 (RR 33) 51,710
Corporations, regulations under section 367(d) applicable to cer-
tain outbound asset reorganizations (Notice 39) 31,95
Credits:
Low-income housing credits:
Relief for areas affected by Hurricane Sandy (Notice 68)
48,574
Unused housing credit carryovers (RP 42) 46,545
Utility allowances submetering (REG–136491–09) 35,
321; hearing cancelled (Ann 39) 48,603
Qualifying advance coal project section 48A credit (Notice
51) 33,150
Qualified plug-in electric drivemotor vehicle credit (Notice
54) 52,773
Cost-of-living adjustments for inflation for 2013 (RP 41) 45,539
Deductions for entertainment use of business aircraft (TD 9597)
34,258
Disaster relief, leave-based donation programs, Hurricane Sandy
(Notice 61) 51,712
Disciplinary actions involvingattorneys, certified public ac-
counts, enrolled agents, and enrolled actuaries (Ann 28) 27,
10; (Ann 33) 35,325; (Ann 40) 47,556; (Ann 47) 49,664
Dividend equivalents from sources within the United States; cor-
rection (Ann 35) 38,356
Documentation requirements under section 6050W (Notice 2)
45,538
Election to include in gross income in year of transfer (RP 29)
28,49
Financial asset securitization investment trusts (Ann 27) 27,10
Frivolous tax return positions, arguments and schemes (RP 43)
49,643
Forms:
1040-S, Foreign Person’s U.S. Source Income Subject to
Withholding, Electronically, specifications for filing elec-
tronically (RP 36) 39,374
1096, 1098, 1099, 5498, and certain other information returns
(RP 38) 48,575; correction (Ann 48) 51,729
1097, 1098, 3921, 3922, 5498, 8935, and W-2G, requirements
for filing electronically (RP 30) 33,165; correction (Ann
36) 46,547
INCOME TAX—Cont.
8027, Employer’s Annual Information Return of Tip Income
and Allocated Tips, Electronically (RP 37) 41,449
8596, Information Returns for Federal Contracts, Electroni-
cally (RP 49) 50,681
General welfare exclusion (Notice 75) 51,715
Gross income, per capital payments from proceeds of settlement
of Indian tribal trust cases (Notice 60) 41,445
Guidance regarding deduction and capitalization of expenditures
related to tangible property (Notice 73) 51,713
Information reporting for discharges of indebtedness (Notice 65)
52,773
Insurance, effectively connected income (RP 40) 30,424
Insurance companies:
Loss payment patterns and discount factors for the 2012 acci-
dent year (RP 44) 49,645
Salvage discount factors for the 2012 accident year (RP 45)
49,656
Integrated transactions of qualifying debt (TD 9598) 38,343;
(REG–138489–09) 38,355
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
July 2012 (RR 20) 27,1
August 2012 (RR 21) 32,123
September 2012 (RR 24) 36,329
October 2012 (RR 28) 42,476
November 2012 (RR 30) 45,534
December 2012 (RR 31) 49,636
Rates:
Underpayment and overpayments, quarter beginning:
October 2012 (RR 23) 39,359
January 2013 (RR 32) 52,762
Involuntary conversions, livestock sold on account of drought,
extension of replacement period, list of affected counties (No-
tice 62) 42,489
Marginal production rates, 2012 (Notice 50) 31,121
Modification to consolidated return regulation permitting an
election to treat a liquidationof a target, followed by a recon-
tribution to a new target, as a cross-chain reorganization (TD
9594) 29,57
Non-real estate business in low-income communities (TD 9600)
47,548
Overall foreign loss recapture on property dispositions
(REG–134935–11) 29,64
Penalties, substantial understatement (RP 51) 51,719
Property traded on an established market (TD 9599) 40,417
Proposed Regulations:
26 CFR 1.42–10, –12, amended; utility allowances submeter-
ing (REG–136491–09) 35,321; hearing cancelled (Ann 39)
48,608
26 CFR 1.108–7, amended; 1.366–0, amended; 1.1366–2, –5,
amended; 1.1367–1(h), amended; 1.1367–3, amended; ba-
sis of indebtedness of S corporations to their shareholders
(REG–134042–07) 27,5
26 CFR 1.172(h)–0 thru –5,added; 1.1502–21, amended;
1.1502–72, added; regulations regarding the applica-
2012–52 I.R.B.viDecember 27, 2012

INCOME TAX—Cont.
tion of section 172(h) including consolidated groups
(REG–140668–07) 43,501
26 CFR 1.904–4, amended; 1.904(g)-3, amended; over-
all foreign loss recaptureon property dispositions
(REG-134935–11) 29,64
26 CFR 1.988–5T, added; integrated transactions of qualify-
ing debt (REG–138489–09) 38,355
26 CFR 1.263A–0, –2, amended; allocation of costs under the
simplified methods (REG–126670–12) 38,347
26 CFR 1.274–2, amended; 1.274–8, revised; reimbursed en-
tertainment expenses (REG–101812–07) 34,311
26 CFR 1.904–4, amended; 1.904(g)–3, amended; over-
all foreign loss recaptureon property dispositions
(REG–134935–11) 29,64
26 CFR 1.7874–3, added; substantial business activities
(REG–107889–12) 28,53
31 CFR 10.1, .3, .22, .31, .35, .36, .37, .52, .81, .82, .91,
revised; regulations governing practice before the Internal
Revenue Service (REG–138367–06) 40,426
Publications:
1220, Specifications for Filing Forms 1097, 1098, 3921, 3922,
5498, 8935, and W-2G, electronically, 2012 revision (RP
30) 33,165; correction (Ann 36) 46,547
1179, General Rules and Specifications for Form 1096, 1098,
1099, 5498, and Certain Other Information Returns (RP 38)
48,575; correction (Ann 48) 51,729
1187, Specifications for Filing Form 1042–S, Foreign Per-
son’s U.S. Source Income Subject to Withholding, Elec-
tronically, revised (RP 36) 39,374
1239, Specifications for Filing Forms 8027, Employer’s An-
nual Information Returns of Tip Income and Allocated Tips,
Electronically (RP 37) 41,449
1516, Specifications for Filing form 8596, Information Return
for Federal Contracts, Electronically (RP 49) 50,681
4436, General Rules and Specifications for Substitute Form
941 and Schedule B (Form 941), and Schedule R (Form
941) (RP 46) 50,673
4810, Specifications for Filing Form 8955–SSA, Annual Reg-
istration Statement Identifying Separated Participants With
Deferred Vested Benefits, Electronically (RP 34) 34,280
Qualifying income under section 7704(d) (RP 28) 27,4
Regulations:
26 CFR 1.45D–0, –1, amended; non-real estate business in
low-income communities (TD 9600) 47,548
26 CFR 1.61–21, amended; 1.274–9, –10, added; deductions
for entertainment use of business aircraft (TD 9597) 34,258
26 CFR 1.871–16T, amended; dividend equivalents from
sources within the United States; correction (Ann 35) 38,
356
26 CFR 1.904–0, –1, –2, –7, –8, amended; 1.904(f)–0T, –1T,
–2T, –7T, –8T, removed; 1.904(g)–0, –1, –2, –3, amended;
1.904(g)–0T, –1T, –2T, –3T, removed; 1.502–9, amended,
1.1502–9T, removed; treatment of overall foreign and do-
mestic losses (TD 9595) 30,71
26 CFR 1.988–5, amended; integrated transactions of quali-
fying debt (TD 9598) 38,343
INCOME TAX—Cont.
26 CFR 1.1273–0 thru –2, amended; 1.1274–3, amended;
1.1275–2, –4, amended; 602.101, amended; property
traded on an established market (TD 9599) 40,417
26 CFR 1.1502–13, amended; 1.1502–13T, removed;
602.101, amended; modification to consolidated return
regulation permitting an election to treat a liquidation of a
target, followed by a recontribution to a new target, as a
cross-chain reorganization (TD 9594) 29,57
26 CFR 1.7874–1, amended; 1.7874–1T, removed; 1.7874–2,
added; surrogate foreign corporations (TD 9591) 28,32
26 CFR 1.7874–3T, added; substantial business activities (TD
9592) 28,41
Regulations governing practice before the Internal Revenue Ser-
vice (REG–138367–06) 40,426
Reimbursed entertainment expenses (REG–101812–07) 34,311
Revisions to Rev. Proc. 98–32 (RP 33) 34,272
Revocations, exempt organizations (Ann 32) 35,325; (Ann 37)
45,543;(Ann49)52,801
Section 43 inflation adjustment, 2012 (Notice 49) 31,119
Special per diem rates, 2012–2013 (Notice 63) 42,496
Standard Industry Fare Level (SIFL) (RR 27) 41,435
Standard mileage rates, 2013 (Notice 72) 50,673
Substantial business activities (TD 9592) 28,41;
(REG–107889–12) 28,53
Substitute Forms 1096, 1098, 1099, 5498, and certain other in-
formation returns, rules and specifications (RP 38) 48,575;
correction (Ann 48) 51,729
Surrogate foreign corporations (TD 9591) 28,32
Tax Conventions:
U.S.-Belgium agreement regarding taxes imposed by Bel-
gium municipalities (Ann 30) 34,314
U.S.-Canada agreement regarding OECD report on the attri-
bution of profits to permanent establishments (Ann 31) 34,
315
U.S.-Netherlands agreement of limited funds for mutual ac-
count (LFMA) (Ann 26) 27,8
Third party payer issues and reporting agents, revisions to Rev.
Proc. 2007–38 (RP 32) 34,267
Timelines for due diligence and other requirements under
FATCA (Ann 42) 47,561
Treatment of income from certain government bonds for pur-
poses of the passive foreign investment company (PFIC) rules
(Notice 45) 29,59
Treatment of overall foreign and domestic losses (TD 9595) 30,
71
SELF-EMPLOYMENT TAX
Background file document requests, processing fees, update to
Rev. Proc. 95–15 (RP 31) 33,256
Frivolous tax returnpositions, arguments and schemes (RP 43)
49,643
New addition to tax under section 3101 added by the ACA
(REG–130074–11) 52,790
Proposed Regulation:
December 27, 2012vii2012–52 I.R.B.

SELF-EMPLOYMENT TAX—Cont.
26 CFR 1.1401–1, amended; 31.3101–2, revised;
31.3102–1, amended; 31.3102–4, added; 31.3202–1,
amended; 31.6011(a)–1, amended; 31.6011(a)–2,
amended; 31.6205–1, amended; 31.6402(a)–2, amended;
31.6413(a)–1, amended; 31.6413(a)–2, amended; new
addition to tax under section 3101 added by the ACA
(REG–130074–11) 52,790
2012–52 I.R.B.viiiDecember 27, 2012

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