Internal Revenue Bulletin 2012-19 (PDF rendition): IRS Notices

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 201
2-19
May 7, 2012
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. 2012–13, page 878.
Federal rates; adjusted federal rates; adjusted federal
long-term rate and the long-term exempt rate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for May 2012.
REG–141268–11, page 896.
Proposed regulations under section 312 of the Code provide
guidance clarifying the allocation of earnings and profits in tax-
free transfers from one corporation to another.
EMPLOYEE PLANS
REG–136008–11, page 881.
Proposed regulations under sections 4375 through 4377 of
the Code provide guidance on determining which health insur-
ance policies and self-insured health plans are subject to fees
for the Patient-Centered Outcome Research Trust Fund, and
also on the requirements for calculating, reporting, and paying
the fees.
EXEMPT ORGANIZATIONS
Announcement 2012–22, page 899.
The IRS has revoked its determination that Big Hope, Inc., of
Elon, NC; Freedom Debt Management, Inc., of Boca Raton,
FL; Lost Cherokee of Arkansas & Missouri, Inc., of Conway,
AR; Marlowe Education Foundation, Inc., of Idaho Falls, ID;
Richard E. Feldhake Support Foundation Trust of Phoenix, AZ;
and Successful Dreams Equestrian Center of Fitchburg, MA,
qualify as organizations described in sections 501(c)(3) and
170(c)(2) of the Code.
EXCISE TAX
REG–136008–11, page 881.
Proposed regulations under sections 4375 through 4377 of
the Code provide guidance on determining which health insur-
ance policies and self-insured health plans are subject to fees
for the Patient-Centered Outcome Research Trust Fund, and
also on the requirements for calculating, reporting, and paying
the fees.
TAX CONVENTIONS
Announcement 2012–21, page 898.
This document provides a copy of the Competent Authority
Agreement entered into on March 19, 2012, by the Competent
Authorities of the United States and Germany, regarding the
eligibility of certain pension arrangements for benefits under
Article 10(3)(b) of the U.S.-Germany income tax treaty.
Finding Lists begin on page ii.

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.
May 7, 20122012–19 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—L
ow-Income
Housing Credi
t
The adjusted a
pplicable federal short-term, mid-
term, and long
-term rates are set forth for the month
of May 2012. Se
e Rev. Rul. 2012-13, page 878.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
aresetforthforthemonthofMay2012. SeeRev.
Rul. 2012-13, page 878.
Section 382.—Limitation
on Net Operating Loss
Carryforwa
rds and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rates is
set forth for the month of May 2012. See Rev. Rul.
2012-13, page 878.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2012. See Rev. Rul. 2012-13, page 878.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2012. See Rev. Rul. 2012-13, page 878.
Section 468.—Special
Rules for Mining and Solid
Waste
Reclamation and
Closi
ng Costs
The ad
justed applicable federal short-term, mid-
term,
and long-term rates are set forth for the month
of May
2012. See Rev. Rul. 2012-13, page 878.
Section 482.—
Allocation
of Income and D
eductions
Among Taxpaye
rs
Federal short
-term, mid-term, and long-term rates
are set forth f
or the month of May 2012. See Rev.
Rul. 2012-13
, page 878.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2012. See Rev. Rul. 2012-13, page 878.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of May 2012. See Rev.
Rul. 2012-13, page 878.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2012. See Rev. Rul. 2012-13, page 878.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2012. See Rev. Rul. 2012-13, page 878.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382,
642, 1274, 1288, and other
sections of th
e Code, tables set forth the
rates for May 2
012.
Rev. Rul. 2012
–13
This revenue
ruling provides various
prescribed r
ates for federal income tax pur-
poses for May
2012 (the current month).
Table 1 conta
ins the short-term, mid-term,
and long-ter
m applicable federal rates
(AFR) for th
e current month for purposes
of section 1
274(d) of the Internal Revenue
Code. Table
2 contains the short-term,
mid-term, a
nd long-term adjusted appli-
cable fede
ral rates (adjusted AFR) for
the curren
t month for purposes of section
1288(b). T
able 3 sets forth the adjusted
federal lo
ng-term rate and the long-term
tax-exem
pt rate described in section
382(f). T
able 4 contains the appropriate
percenta
ges for determining the low-in-
come hous
ing credit described in section
42(b)(1)
for buildings placed in service
during t
he current month. However, under
section
42(b)(2), the applicable percentage
for non-
federally subsidized new build-
ings pla
ced in service after July 30, 2008,
and befo
re December 31, 2013, shall not
be less
than 9%. Finally, Table 5 contains
the fed
eral rate for determining the present
value o
f an annuity, an interest for life
or for a
term of years, or a remainder or
a rever
sionary interest for purposes of
secti
on 7520.
2012–19 I.R.B.878May 7, 2012

REV. RUL. 2012–13 TABLE 1
Applicable Federal Rates (AFR) for May 2012
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR.28%.28%.28%.28%
110% AFR.31%.31%.31%.31%
120% AFR.34%.34%.34%.34%
130% AFR.36%.36%.36%.36%
Mid-term
AFR1.30%1.30%1.30%1.30%
110% AFR1.44%1.43%1.43%1.43%
120% AFR
1.57%1.56%1.56%1.55%
130% AFR1.70%1.69%1.69%1.68%
150% AFR
1.96%
1.95%1.95%
1.94%
175% AFR
2.29%2.28%2.27%2.27%
Long-term
AFR2.89%2.87%2.86%
2.85%
110% AFR3.18%3.16%
3.15%
3.14%
120% AFR3.47%3.44%3.43%3.42%
130% AFR3.76%3.73%3.71%3.70%
REV. RUL. 2012–13 TABLE 2
Adjusted AFR for May 2012
Period for Compounding
Ann
ual
Sem
iannual
Qua
rterly
Mon
thly
Short-term adjusted
AFR
.27%.27%.27%.27%
Mid-term adjusted AFR1.30%1.30%1.30%1.30%
Long-term adjusted
AFR
3.26%3.23%3.22%3.21%
REV. RUL. 2012–13 TABLE 3
Rates Under Section 382 for May 2012
Adjusted federal long-term rate for the current month3.26%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)3.26%
REV. RUL. 2012–13 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for May 2012
Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, and before December 31, 2013, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.48%
Appropriate percentage for the 30% present value low-income housing credit3.21%
May 7, 20128792012–19 I.R.B.

REV. RUL. 2012–13 TABLE 5
Rate Under Section 7520 for May 2012
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest1.6%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2012. See Rev. Rul. 2012-13, page 878.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2012. See Rev. Rul. 2012-13, page 878.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2012. See Rev. Rul. 2012-13, page 878.
2012–19 I.R.B.880May 7, 2012

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Fees on Health
Insurance
Policies and
Self-Insured
Plans for the
Patient-Centered
Outcomes Re
search Trust
Fund
REG–136008
–11
AGENCY: Int
ernal Revenue Service
(IRS), Tre
asury.
ACTION: No
tice of proposed rulemaking
and notice
of public hearing.
SUMMARY: T
his document contains
proposed r
egulations that implement and
provide gu
idance on the fees imposed
by the Pati
ent Protection and Affordable
Care Act o
n issuers of certain health insur-
ance poli
cies and plan sponsors of certain
self-ins
ured health plans to fund the Pa-
tient-Ce
ntered Outcomes Research Trust
Fund. The
se proposed regulations affect
the issu
ers and plan sponsors that are di-
rected t
o pay those fees. This document
also con
tains a request for comments and
provide
s notice of public hearing on these
propos
ed regulations.
DATES: W
ritten or electronic comments
must be
received by July 16, 2012. Re-
quests
to speak and outlines of topics to
be disc
ussed at the public hearing sched-
uled fo
r Wednesday, August 8, 2012, at
10:00 a
.m., must be received by July 30,
2012.
ADDRE
SSES: Send submissions to
CC:PA
:LPD:PR (REG–136008–11), In-
terna
l Revenue Service, PO Box 7604, Ben
Frank
lin Station, Washington DC 20044.
Submi
ssions may be hand-delivered Mon-
day th
rough Friday between the hours of
8 a.m
.and4p.m.toCC:PA:LPD:PR
(REG
–136008–11), Courier’s Desk In-
tern
al Revenue Service, 1111 Consti-
tuti
on Avenue, NW, Washington, DC,
or se
nt electronically via the IRS In-
ter
net site via the Federal eRulemak-
ing
Portal atwww.regulations.gov(IRS
REG–136008–1
1). The public hearing
will be held in
the IRS Auditorium at
the Internal R
evenue Building, 1111
Constitution
Avenue, N.W., Washington,
DC.
FOR FURTHER IN
FORMATION
CONTACT: Con
cerning the proposed
regulations
, Rebecca L. Baxter at (202)
622–3970 (re
garding health insurance
policies) or
R. Lisa Mojiri-Azad at (202)
622–6080 (r
egarding self-insured health
arrangemen
ts); concerning the submission
of comments
or the public hearing,
Oluwafunmi
layo (Funmi) Taylor at (202)
622–7180 (
not toll-free numbers).
SUPPLEMEN
TARY INFORMATION:
Paperwork
Reduction Act
The collec
tion of information con-
tained in t
his notice of proposed rulemak-
ing has bee
nsubmittedtotheOfficeof
Managemen
t and Budget in accordance
with the Pa
perwork Reduction Act of
1995 (44 U
.S.C. 3507(d)). Comments
on the col
lection of information should
be sent to
theOffice of Management
and Budge
t, Attn: Desk Officer for
the Depa
rtment of the Treasury, Office
of Infor
mation and Regulatory Affairs,
Washing
ton, DC 20503, with copies
to theIn
ternal Revenue Service,
Attn: IR
S Reports Clearance Officer,
SE:W:C
AR:MP:T:M:S, Washington, DC
20224.
Comments on the collection
of info
rmation should be received by
July 16
, 2012. Comments are specifically
reques
ted 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;
How th
e quality, utility, and clarity of
the in
formation to be collected may be en-
hance
d;
How th
e burden of complying with the
propo
sed collection of information may be
minim
ized, including through the appli-
cati
on of automated collection techniques
or ot
her forms of information technology;
and
Esti
mates of capital or start-up costs
and c
osts of operation, maintenance, and
purchase of se
rvices to provide informa-
tion.
The collectio
ns of information
in these propo
sed regulations are in
§46.4375–1(c
)(2)(v) (use of National As-
sociation of I
nsurance Commissioners
(NAIC) Supple
mental Health Care Exhibit
to calculate
the fee under section 4375);
§46.4375–1(
c)(2)(vi) (use of certain state
forms to calc
ulate the fee under section
4375); §46.4
376–1(b)(2)(G) (identifica-
tion or desi
gnation of a plan sponsor under
the governi
ng plan document for certain
applicable
self-insured health plans); and
§46.4376–1
(c)(2)(v) (use of the Form
5500,“Ann
ual Return/Report of Employee
Benefit Pl
an,”to calculate the fee under
section 43
76).
The collec
tions of informa-
tionunder
§46.4375–1(c)(2)(v),
§46.4375–
1(c)(2)(vi),and
§46.4376
–1(c)(2)(v) are intended to lower
the burde
n on issuers and plan sponsors
of calcul
ating the average number of lives
covered f
or the applicable policy year or
plan year
. The burden for the collection of
informa
tion contained in these provisions
will be r
eflected in the burden on the
Form 720
“Quarterly Federal Excise Tax
Return”
after it is revised to include the
reporti
ng and payment of the fee imposed
by sect
ions 4375 and 4376.
The col
lection of information contained
in §46.
4376–1(b)(2)(G) is necessary to
provid
e certain entities that establish or
mainta
in an applicable self-insured health
plan th
e flexibility to designate the person
that wi
ll be responsible for reporting and
payin
g the fee imposed by section 4376.
The li
kely respondents are employers,
emplo
yee organizations, or persons that
estab
lish or maintain an applicable self-in-
sured
health plan and are entitled to make
an el
ection under §46.4376–1(b)(2)(G).
Estim
ated number of respondents is
10,0
00.
Esti
mated average annual burden per
resp
ondent is 5 minutes.
An ag
ency may not conduct or sponsor,
and a
person is not required to respond to, a
coll
ection of information unless it displays
aval
id control number assigned by the Of-
fice
of Management and Budget.
Book
s or records relating to a collection
of in
formation must be retained as long
May 7, 20128812012–19 I.R.B.

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 proposed
amendments 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 Rev-
enue Code (Code). 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 includes pro-
visions that promote research to evaluate
and compare health outcomes and the clin-
ical effectiveness, risks, and benefits of
medical treatments, services, procedures,
drugs, and other strategies or items that
treat, manage, diagnose, or prevent illness
or injury. One such provision relates to
the establishment of the private, nonprofit
corporation, the Patient-Centered Out-
comes Research Institute(the “Institute”).
The Institute will assist, through research,
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
recommended care. Section 6301 of the
Affordable Care Act amended the Code
by adding new section 9511 to establish
the Patient-Centered Outcomes Research
Trust Fund (the “Trust Fund”), which is
the funding source for the Institute. Sec-
tion 6301 of the Affordable Care Act also
added new Code sections 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-insured health plans.
Statutory Provisions
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. 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 projectedper 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) definesspecified
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 October 1, 2012, and before
October 1, 2019. 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 for the plan year.
Under section 4376(d), for plan years
ending on or after October 1, 2014, the
fee is increased based on increases in the
projectedper capitaamount 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) definesplan 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 (as defined in section
3(40)(B)(v) of ERISA), the plan sponsor
is the cooperative or association that es-
tablished or maintained the plan.
Section 4376(c) definesapplicable self-
insured health planas any plan for pro-
viding 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-
2012–19 I.R.B.882May 7, 2012

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 fee imposed by sec-
tions 4375 and 4376 unless the policy or
plan is an exempt governmental program.
Section 4377(b)(3) definesexempt 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
thefeeimposedbysection4376.
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.
Notice 2011–35
On June 8, 2011, the IRS released
Notice 2011–35, 2011–25 I.R.B. 879,
which requested comments on how the
fees imposed under sections 4375 and
4376 should be calculated and paid, in-
cluding possible rules and safe harbors.
The Treasury Department and the IRS
received numerous comments in response
to Notice 2011–35 and have considered
all comments in drafting these proposed
regulations. The relevant portions of
Notice 2011–35 and comments are dis-
cussed in more detail in this preamble.
See §601.601(d)(2).
Explanation of Provisions
Specified Health Insurance Policies
Subject to the Fee under Section 4375
The fee under section 4375 is imposed
on the issuer of a specified health insur-
ance policy. Under the proposed regula-
tions, the fee must be calculated using the
applicable dollar amount in effect for the
policy year (for example, $1 for policy
years ending on or after October 1, 2012,
and before October 1, 2013) and one of the
permitted methods for determining the av-
erage number of lives covered under the
policy during the policy year.
The termspecified health insurance
policyincludes only accident and health
insurance policies that are issued with
respect to an individual residing in the
United States. The proposed regulations
clarify that for purposes of this fee, “an
individual residing in the United States”
means an individual who has a place of
abode in the United States. The United
States, for this purpose, includes Ameri-
can Samoa, Guam, the Northern Mariana
Islands, Puerto Rico, the Virgin Islands,
and any other possession of the United
States.
Commentators requested a bright-line
rule for determining whether an individ-
ual covered by a policy is residing in the
United States. Many commentators sug-
gested that issuers should be able to rely on
the address on file for the primary insured
to determine whether individuals covered
by the policy are residing in the United
States. The Treasury Department and the
IRS recognize that the address on file for
the primary insured may be the only infor-
mation the insurer has with respect to the
residence of the individuals covered un-
der the policy, and also that the address on
file is likely the place of abode for most,
if not all, of the covered individuals. Ac-
cordingly, the proposed regulations pro-
vide that if the address on file with the is-
suer or plan sponsor for the primary in-
sured is outside of the United States, the is-
suer or plan sponsor may treat the primary
insured 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 term “pri-
mary insured” refers to the individual el-
igible for coverage other than due to his or
her status as a spouse, dependent, or other
beneficiary of another insured individual
(for example, in the case of a group health
plan for employees, the individual eligible
for coverage due to his or her status as an
employee).
Several commentators also suggested
that expatriate policies not be considered
specified health insurance policies for pur-
poses of the fee because the policies are is-
sued principally to cover employees who
do not reside in the United States. Com-
mentators argued that expatriate policies
are predominantly group health insurance
policies sold to employers for a unique
subset of their employees, the substantial
majority of whom are living outside the
United States while working for the em-
ployer. According to these commenta-
tors, only a small minority of the individu-
als covered under these expatriate policies
may be foreign nationals working for the
employer in the United States. For these
reasons, the proposed regulations provide
that the term “specified health insurance
policy” does not include any group policy
issued to an employer if the facts and cir-
cumstances show that the group policy was
designed and issued specifically to cover
primarily employees who are working and
residing outside of the United States.
Commentators requested that the regu-
lations provide that stop loss and indem-
nity reinsurance policies not be considered
specified health insurance policies. Com-
mentators argued that stop loss and in-
demnity reinsurance policies are not pro-
viding coverage for lives covered; rather,
these types of policies are intended to limit
the original obligor’s financial exposure.
Section 4375 imposes a fee based on the
average number of lives covered. Be-
May 7, 20128832012–19 I.R.B.

cause stop loss and indemnity reinsurance
policies generally do not provide cover-
age based upon the number of lives cov-
ered, the proposed regulations provide that
for purposes of section 4375, these poli-
cies are not specified health insurance poli-
cies subject to the fee under section 4375.
No inference is intended as to whether
stop loss or indemnity reinsurance poli-
cies may constitute health insurance poli-
cies for other purposes.
Commentators raised questions about
the description of prepaid health coverage
arrangements in section 4375(c)(3)(B)
and requested that the regulations clarify
which types of arrangements are cov-
ered by that section. One commentator
suggested that the language in section
4375(c)(3)(B) is intended to describe
health maintenance organizations and
similar arrangements, noting that the def-
inition of “health insurance,” which was
added to ERISA, the Public Health Service
Act, and the Code by the Health Insur-
ance Portability and Accountability Act
of 1996, Public Law 104–191 (110 Stat.
1936 (1996)), was specifically drafted to
include health maintenance organizations
and similar arrangements. The Treasury
Department and the IRS agree that the lan-
guage in section 4375(c)(3)(B) describes
health maintenance organizations and sim-
ilar organizations; therefore, the proposed
regulations clarify that the description in
section 4375(c)(3)(B) covers any hospital
or medical service policy or certificate,
hospital or medical service plan contract,
or health maintenance organization con-
tract.
Self-insured Health Plans and Plan
Sponsors Subject to the Fee under Section
4376
The fee under section 4376 is im-
posed on the plan sponsor of an applicable
self-insured health plan. Under the statute
and these proposed regulations, the fee
must be calculated using the applicable
dollar amount in effect for the plan year
(for example, $1 for plan years ending
on or after October1, 2012, and before
October 1, 2013) and one of the permitted
methods for determining the average
number of lives covered under the plan
during the plan year.
These proposed regulations provide
that an applicable self-insured health plan
is a plan that is established or main-
tained by a plan sponsor for the benefit
of employees, former employees, mem-
bers, former members, or other eligi-
ble individuals to provide accident and
health coverage (within the meaning of
§46.4377–1(a)(1) of these proposed regu-
lations), any portion of which is provided
other than through an insurance policy
and that meets certain other conditions.
The proposed regulations provide that an
applicable self-insured health plan does
not include an exempt governmental pro-
gram (as defined in section 4377(c)(3))
but does include a plan that is established
or maintained solely for the benefit of
former employees (commonly referred
to as a retiree-only plan).
1
A self-insured
health plan that does not provide cover-
age described in section 4376(c) is not an
applicable self-insured health plan. For
example, a self-insured group health plan
of a Federally recognized Indian tribal
government that provides coverage only
to tribal members that are not employees
of the Indian tribal government would
not be an applicable self-insured health
plan, unless it otherwise falls within one
of the statutory definitions of an applica-
ble self-insured health plan (for example,
theplanisestablishedormaintainedbya
section 501(c)(6) organization).
Notice 2011–35, 2011–25 I.R.B. 879
invited comments on the type or types
of health flexible spending arrangements
(as described in section 106(c)(2)) (health
FSAs) and health reimbursement arrange-
ments (as described in Notice 2002–45,
2002–2 C.B. 93, (HRAs) that would be
excluded from the definition of an ap-
plicable self-insured health plan because
they provide the kind of coverage that, if
provided by an insurance policy, would
not cause the policy to be treated as a spec-
ified health insurance policy, as defined in
section 4375(c). Health FSAs and HRAs
are both self-insured health plans.
2
See
§601.601(d)(2).
Commentators generally requested that
all health FSAs and HRAs be excluded
from the definition of applicable self-in-
sured health plan under section 4376.
Commentators also suggested that because
the majority of health FSAs or HRAs are
provided in connection with a major medi-
cal plan, they should be excluded from the
feeimposedbysection4376toavoidthe
fee from being imposed twice with respect
to the same individual. Some of the com-
mentators also observed that there would
be challenges arising from the possibility
that an employer may lack information on
the number of dependents whose medical
expenses are eligible for reimbursement
from an employee’s health FSA or HRA.
Some commentators requested that if
HRAs were not excluded from the defini-
tion of applicable self-insured health plan,
theguidancelimitthefeeundersection
4376 to HRAs that are not offered in con-
nection with a major medical plan or per-
mit treatment of an HRA that is offered
in connection with amajor medical plan
as a single applicable self-insured health
plan to avoid the fee applying twice with
respect to individuals covered by a major
medical plan and a related HRA.
The proposed regulations do not ex-
clude all health FSAs and HRAs from
the definition of an applicable self-in-
sured health plan under section 4376. In
response to comments, however, these
proposed regulations provide that multi-
ple self-insured arrangements established
and maintained by the same plan sponsor
and with the same plan year are subject
to a single fee. Accordingly, an HRA is
not subject to a separate fee under section
4376 if the HRA is integrated with an-
other applicable self-insured health plan
that provides major medical coverage,
provided that the HRA and the other plan
are established or maintained by the same
plan sponsor. However, section 4375 im-
poses a separate fee on the issuer of a
specified health insurance policy. Con-
1
Sections 4375 and 4376 may apply to a retiree-only plan because, although section 9832 excludes group health plans that have less than two participants who are current employees (such
as retiree-only plans) from the requirements of chapter 100 (which includesa number of requirements added by the Affordable Care Act), this exclusion does not apply to sections 4375 and
4376 because these sections are in chapter 34. In addition, section 4376(c)(2)(A) indicates explicitly that an applicable self-insured health planincludes a plan established or maintained by
one or more employers for the benefit of their employees or former employees.
2
Archer Medical Savings Accounts (Archer MSAs) under section 220(d) and Health Savings Accounts (HSAs) under section 223(d) are tax-favored trusts for the purpose of paying the
qualified medical expenses of the account beneficiary. Archer MSAs and HSAs are generally neither health insurance policies nor self-insured health plans and thus are not subject to the
taxes under sections 4375 and 4376.
2012–19 I.R.B.884May 7, 2012

sistent with the statutory structure which
separates the fee with respect to health
insurance policies from the fee with re-
spect to self-insured plans, the proposed
regulations provide that an HRA that is in-
tegrated with an insured group health plan
is treated as an “applicable self-insured
health plan” the plan sponsor of which
is subject to the fee under section 4376,
while the issuer of the group insurance
policy for the insured group health plan is
subject to the fee under section 4375, even
though the HRA and the insured group
health plan are maintained by the same
plan sponsor.
These proposed regulations reflect the
special rule in section4375(c)(2), which is
carried over to self-insured arrangements
through the definition of “accident and
health coverage” in section 4377(a)(1),
that a specified health insurance policy
does not include any insurance if substan-
tially all of its coverage is of excepted
benefits described in section 9832(c). The
proposed regulations provide that a health
FSA that satisfies the requirements of an
excepted benefit under section 9832(c) is
excluded from the definition of an “appli-
cable self-insured health plan” and there-
fore is not subject to the fee imposed by
section 4376. (See §54.9831–1(c)(3)(v),
relating to additional rules on health FSAs
that are excepted benefits.) A health FSA
that does not satisfy the requirements to
be treated as an excepted benefit is an
applicable self-insured health plan subject
to the fee imposed by section 4376 (and,
for purposes of the rules in the preceding
paragraph, is treated the same as an inte-
grated HRA).
In addition, to address the concerns
raised about the availability of informa-
tion on the lives covered under an HRA
or health FSA, the proposed regulations
contain a special rule permitting the plan
sponsor to assume one covered life for
each employee with an HRA and for each
employee with a health FSA that is not an
excepted benefit.
Commentators also requested that an
employee assistance program (EAP) or
wellness arrangement be exempt from the
fee. Commentators argued that generally,
under an EAP or wellness arrangement,
benefits for medical care are secondary
or incidental to non-medical benefits. In
response, these proposed regulations ex-
clude from the definition of applicable
self-insured health plan an EAP, disease
management program, or wellness pro-
gram, if the program does not provide
significant benefits in the nature of medi-
cal care or treatment.
For each type of applicable self-insured
health plan identified in section 4376(c),
the plan sponsor is the person responsi-
ble for the payment of the fee. Section
4376(b)(2) provides that in the case of a
plan established or maintained by a sin-
gle employer, the plan sponsor is the em-
ployer, and in the case of a plan established
or maintained by a single employee organ-
ization, the plan sponsor is the employee
organization. Section 4376 does not con-
tain rules that would treat related entities as
a single entity. Accordingly, for example,
under these proposed regulations, a plan
that is maintained by multiple related em-
ployers is not a plan that is established or
maintained by a single employer, but, for
section 4376 purposes, is considered a plan
that is established or maintained by two or
more employers.
In the case of a plan maintained by two
or more employers, the proposed regula-
tions provide that the plan sponsor is the
person identified as the plan sponsor by
the terms of the document under which the
plan is operated, or the employer desig-
nated as the plan sponsor for purposes of
section 4376 by the terms of the document
under which the plan is operated (provided
that such designation is made, and that em-
ployer has consented to the designation, by
no later than the due date of the return un-
der section 4376 for that plan year is re-
quired to be filed, after which date such
designation for that plan year may not be
changed or revoked, and provided further
that an employer may be designated as the
plan sponsor only if that employer is one
of the employers maintaining the plan). In
the absence of the identification or desig-
nation of a plan sponsor by the terms of
the document under which the plan is op-
erated, the proposed regulations provide
that the plan sponsor is each employer that
maintains the plan (with respect to em-
ployees of that employer). Because the
plan sponsor may be designated on or be-
fore the due date for filing the Form 720,
“Quarterly Federal Excise Tax Return,”for
the plan year, and under these proposed
regulations the first potential due date for
filing the Form 720 is July 31, 2013, this
rule provides related employers that pro-
vide coverage for their employees under a
single plan ample time to designate a plan
sponsor if the employers wish to consoli-
date the filing and the payment of the fee
under section 4376. In the absence of des-
ignation of a plan sponsor in the governing
plan document, the proposed regulations
provide that the plan sponsor is each em-
ployer that maintains the plan (with respect
to employees of that employer), and there-
fore each employer would be required to
file its own Form 720, reflecting the sec-
tion 4376 fee applicable to that employer
as a plan sponsor with respect to its em-
ployees.
As discussed in Notice 2011–35 and
earlier in the section of this preamble
entitled “Statutory Provisions,” section
4377(b) provides that the fee imposed by
section 4376 applies to a governmental
entity that establishes or maintains an ap-
plicable self-insured health plan (other
than a plan that qualifies as an exempt
governmental program) for its employ-
ees. These proposed regulations provide
that a governmental entity that establishes
or maintains an applicable self-insured
health plan for its current or former em-
ployees is the plan sponsor for purposes
of the fee imposed by section 4376. Thus,
these proposed regulations require that a
governmental entity (including a Feder-
ally recognized Indian tribal government)
that establishes or maintains an applicable
self-insured health plan (other than a plan
that qualifies as an exempt governmental
program) must calculate, report, and pay
the fee under section 4376 in accordance
with the guidance in these proposed regu-
lations.
Several commentators requested that
theguidanceclarifythat,inthecaseofan
applicable self-insured health plan that is
established or maintained by a board of
trustees, plan assets (for example, amounts
held in a trust) or the employer contribu-
tions to the plan could be used to pay the
fee under section 4376. Because the use
of plan assets to pay the fee under section
4376 may have implications under various
state and Federal laws (including, for ex-
ample, ERISA’s fiduciary provisions), the
question of what the permissible sources
of funds are for paying the fee under
section 4376 is an issue that is outside
the scope of these proposed regulations.
The Treasury Department and the IRS
have consulted the Department of Labor
May 7, 20128852012–19 I.R.B.

concerning comments on the appropriate
sources to pay the fee under section 4376.
The Department of Labor has advised the
Treasury Department and the IRS that it is
considering permissible funding sources
for these fee payments by plan sponsors
that are subject to ERISA’s fiduciary pro-
visions.
Calculation of the Fee Under Section 4375
The fee imposed on an issuer of a spec-
ified health insurance policy under sec-
tion 4375 is based on the average number
of lives covered under the policy. Notice
2011–35 invited comments on reasonable
methods an issuer may use to determine
the average number of lives covered under
a policy. Notice 2011–35 also invited com-
ments on whether guidance should provide
a safe harbor for issuers that are required
to file the National Association of Insur-
ance Commissioners (NAIC) Supplemen-
tal Health Care Exhibit (Exhibit). In par-
ticular, the Treasury Department and the
IRS outlined a potential safe harbor based
on the number of lives reported on the most
recently filed Exhibit or based on the av-
erage of the covered lives reported on the
most recently filed Exhibit and the imme-
diately preceding Exhibit.
Commentators generally favored a safe
harbor that allows issuers to calculate the
average number oflives covered under
the policy based on data reported on the
Exhibit but expressed concerns with ex-
clusive reliance upon covered lives data on
the Exhibit. According to the instructions
to the Exhibit, the term “covered lives”
means the total number of lives insured,
including dependents, at any time during
the reporting period, which means the
Exhibit captures all lives covered without
regard to how long the coverage lasted.
Several commentators recommended that
the regulations allow issuers to use mem-
ber months data reported in the Exhibit.
The Exhibit defines the term “member
months,” as the sum of the number of lives
covered on a single day in every month.
Commentators argued that dividing the
member months data by 12 (the number
of months in a reporting period) is a more
accurate measure of the average number
of lives covered because it better reflects
that some individuals may only be insured
for part of the year.
Commentators noted that some entities
are not required to file the Exhibit, but
must provide comparable forms to their
applicable state regulators. Commenta-
tors recommended that the proposed reg-
ulations permit issuers to use information
included in any other report filed with a
state government.
Some commentators suggested that the
regulations allow issuers to determine the
average number of lives covered by count-
ing the actual number of lives covered dur-
ing the policy year. Other commentators
requested that the regulations allow the use
of any reasonable formula or other method
to determine the average number of lives
covered, including a formula or method
that historically has been used by the is-
suer for other business purposes.
The proposed regulations provide is-
suers the choice of using any of four al-
ternative methods to determine the aver-
age number of lives covered under poli-
cies that it issues for purposes of the fee
imposed by section 4375. First, an issuer
may determine the average number of lives
covered under a policy for a policy year
by calculating the sum of lives covered for
each day of the policy year and dividing
that sum by the number of days in the pol-
icy year (the actual count method). Sec-
ond, an issuer may determine the average
number of lives covered under a policy for
a policy year by adding the total number of
lives covered on one date in each quarter
of the policy year, or an equal number of
dates for each quarter, and dividing the to-
tal by the number of dates on which a count
was made (the snapshot method). Third,
as an alternative to determining the aver-
age number of lives covered under each
individual policy for its respective policy
year, an issuer may determine the aver-
age number of lives covered under all poli-
cies in effect for a calendar year based on
the “member months” reported on the Ex-
hibit divided by 12 (the member months
method). Fourth, an issuer that is not re-
quired to file the Exhibit may determine
the average number of lives covered under
all of its policies in effect for a calendar
year using data in any form that is equiv-
alent to the Exhibit that is filed with the
stateofdomicileifthestateformreports
lives covered in the same manner as mem-
ber months is reported on the Exhibit (the
state form method). For this purpose, an
equivalent form includes only a form that
reports all the lives covered under the pol-
icy (including, for example, spouses, de-
pendents, and other beneficiaries, as appli-
cable).
The proposed regulations direct an is-
suer to apply a single method in determin-
ing the average number of lives covered
under the policy for the year. In addi-
tion, issuers must use the same method of
counting lives for all policies reported on
a single return. Issuers using the actual
count or snapshot method may change to
the snapshot or actual count method from
one policy year to the next. For example,
an issuer with a policy that has a policy
year that ends on June 30, Policy A, may
determine 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,“Quarterly Federal Excise
Tax Return,”due by July 31, 2015 (the
due date for the return that will include
the July 2013 to June 2014 policy year for
Policy A, as discussed in the section of this
preamble entitled “Application of Excise
Tax Procedural Rules (Filing of Returns
and Payment of Fees”)). The issuer may
change its method for determining 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
return due by July 31, 2016 (the due date
for the return that will include the July
2014 to June 2015 policy year for Policy
A).
While the actual count and snapshot
methods count lives covered on a policy-
by-policy basis for each policy having a
policy year that ends in the reporting pe-
riod (which is based on the calendar year),
the member months and state form meth-
ods count all lives covered during the cal-
endar year for all policies in effect during
the calendar year irrespective of when ac-
tual policy years end. For example, for
a policy with a policy year that ends on
June 30, member months will include lives
covered under that policy from January 1
to December 31 and aggregate those lives
covered with all other lives covered for the
calendar year under all policies in effect
during the calendar year. To convert the
lives covered from the member months to
the total lives covered under a particular
2012–19 I.R.B.886May 7, 2012

policy for a policy year is administratively
burdensome. Accordingly, the proposed
regulations provide that an issuer using the
member months or state form method must
use that method for all policies for all years
for which the fee applies. The Treasury
Department and the IRS solicit comments
on whether there should be an exception to
this rule for issuers of calendar-year only
policies who want to switch from the mem-
ber months or state form method to the ac-
tual count or snapshot method and, if so,
how to address the transition in methods
for the 2012 and 2019 calendar years.
Commentators noted that for 2012 and
2019 a partial year adjustment will be
needed because the member months data,
which uses the calendar year for all poli-
cies, will include in the member months
for 2012 and 2019 lives covered under
policies with a policy year that ends before
October1,2012,orafterSeptember30,
2019, which are policies to which the fee
under section 4375 does not apply. The
Treasury Department and the IRS also
understand that the data reported on state
forms is generally also based on the calen-
dar year. To adjust for 2012 and 2019, the
proposed regulations adopt apro rataap-
proach 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 num-
ber of lives covered for October through
December 2012. The proposed regula-
tions further treat 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.
The Treasury Department and the IRS
understand that these proposed regulations
are being issued after the beginning of
some policy years to which the fee under
section 4375 will apply. Because issuers
that do not use the member months method
or state form method may not have started
counting lives covered for policy years
that end on or after October 1, 2012, but
that began before May 14, 2012, issuers
using the actual count method may be-
gin counting lives covered under a policy
as of May 14, 2012, 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, issuers
using the snapshot method may use counts
from quarters beginning on or after May
14, 2012, to determine the average number
of lives covered under the policy. The
Treasury Department and the IRS intend
for these rules to facilitate compliance
for the initial policy years covered by
section 4375. Comments are requested as
to whether any additional transition rules
under section 4375 are needed for this
purpose.
Calculation of the Fee Under Section 4376
The fee imposed on a plan sponsor of
an applicable self-insured health plan un-
der section 4376 is based on the aver-
age number of lives covered under the
plan. Notice 2011–35 invited comments
on reasonable methodsthat could reduce
administrative burdens on plan sponsors
that must compute the average number of
lives covered under an applicable self-in-
sured health plan. Notice 2011–35 also in-
vited comments on safe harbors that would
permit a plan sponsor to determine the av-
erage number of covered lives under the
plan using a formula based on the number
of participants and one or more additional
factors that account for the number of de-
pendents without requiring that every ac-
tual dependent covered under the plan be
counted.
Commentators generally favored using
reasonable simplifying methods and safe
harbors to determine the average number
of lives covered under the plan. Some
commentators suggested that the guid-
ance permit the use of snapshot data to
determine the number of lives taken into
account for calculating the average num-
ber of lives covered during the plan year.
Commentators also suggested that plan
sponsors be permitted to determine the av-
erage number of lives covered during the
yearbasedoninformationreportedonthe
plan’s Form 5500,“Annual Return/Report
of Employee Benefit Plan.”
Commentators generally recognized
that a method that is based on Form 5500
reporting will have limited application be-
cause the requirement to file a Form 5500
does not apply to all plan sponsors that
are subject to the feeunder section 4376.
These commentators also noted that the
Form 5500 does not include information
on the number of lives (participants and
dependents) covered under the plan during
the plan year, but rather includes informa-
tion only on the number of participants on
the first day and last day of the plan year.
Accordingly, the information reported on
the Form 5500 would need to be converted
to a number that accurately represents the
average number of covered lives under the
plan for the plan year.
To make it easier for plan sponsors to
determine the average number of lives
covered under the plan for the plan year,
these proposed regulations provide plan
sponsors a choice to use any of three alter-
native methods. First, a plan sponsor may
determine the average number of lives
covered under the plan for the plan year
by calculating the sum of the lives covered
for each day of the plan year and dividing
that sum by the number of days in the plan
year (the actual count method). Second, a
plan sponsor may determine the average
number of lives covered under the plan for
the plan year by adding the totals of lives
covered on one date in each quarter, or an
equal number of dates for each quarter,
and dividing the total by the number of
dates on which a count was made (the
snapshot method). For this purpose, the
number of lives covered on a date may be
determined as equal to either the sum of
the actual number of lives covered on the
dates (the snapshot count method) or the
sum of (1) the number of participants with
self-only coverage on that date, plus (2)
the product of the number of participants
with coverage other than self-only cov-
erage on the date and 2.35 (the snapshot
factor method).
3
The Treasury Department
and the IRS request comments on addi-
tional sources of data that could be used
to calculate a more accurate conversion
factor.
Third, a plan sponsor may determine
the average number of lives covered under
theplanfortheplanyearbasedonafor-
3
The 2.35 dependency factor reflects that all participants with coverage other than self-only have coverage for themselves and some number of dependents. The Treasury Department and
the IRS developed the factor, and other similar factors used in the regulations, in consultation with Treasury Department economists and in consultation with plan sponsors regarding the
procedures they currently use for estimating the number of covered individuals.
May 7, 20128872012–19 I.R.B.

mula that includes the number of partici-
pants actually reported on the Form 5500
for the applicable self-insured health plan
for the plan year (the Form 5500 method).
For a plan providing only self-only cover-
age, under the Form 5500 method the plan
sponsor may treat the average number of
covered lives under the plan for a plan year
as the sum of the total participants at the
beginning and the end of the plan year, in
each case as reported on the Form 5500,
divided by two.
For plans providing coverage that is
not limited to the self-only coverage, the
Form 5500 does not identify whether the
coverage is self-only or family (or some
other non-self-only coverage). Therefore,
the number of participants reported on the
Form 5500 generally is converted to cov-
ered lives by multiplying the number of
participants on each date by a factor of
2.0. (This factor is lower than the 2.35 fac-
tor used in the snapshot factor method be-
cause this factor takes into account partic-
ipants with self-only coverage that covers
one life, as well as participants with other
coverage that covers two or more lives.)
Accordingly, under the Form 5500 method
for plans that provide coverage not limited
to self-only coverage, a plan sponsor may
simply add the number of participants re-
ported for the beginning of the plan year to
the number reported for the end of the plan
year to determine the average number of
covered lives for the plan year. The Trea-
sury Department and the IRS request com-
ments on additional sources of data that
could be used to calculate a more accurate
conversion factor.
The proposed regulations direct a plan
sponsor to apply a single method in deter-
mining the average number of lives cov-
ered under the plan for the entire plan year.
However, a plan sponsor is not required to
use the same method from one plan year to
the next.
The Treasury Department and the IRS
understand that these proposed regulations
are being issued after the beginning of
some plan years to which the fee under
section 4376 will apply. Therefore, these
proposed regulations include a special
rule for the fee under section 4376 ap-
plicable for a planyear that ends on or
after October 1, 2012, and began before
July 11, 2012. Because self-insured plans
generally are not required to complete
the Exhibit or determine the number
of covered lives for other regulatory
purposes, under this special rule, a plan
sponsor may use any reasonable method
to determine the average number of lives
covered under the plan for purposes of
calculating the fee under section 4376 for
those plan years. For more information
about the return filing requirements and
payment of the fees, see the section in this
preamble entitled “Application of Excise
Tax Procedural Rules (Filing of Returns
and Payment of Fees).”
Application of Subtitle F
In accordance with section 4377(c), ref-
erences in subtitle F (section 6001–7874)
to “taxes imposed by this title,” “internal
revenue tax,” and similar references apply
to the fees imposed by sections 4375 and
4376. For example, the fees imposed by
sections 4375 and 4376 are assessed pur-
suant to section 6201, collected pursuant
to sections 6301, 6321, and 6331, enforced
pursuant to section 7602, subject to exam-
ination and summons pursuant to section
7602, and subject to confidentiality rules
pursuant to section 6103, in the same man-
ner as other taxes imposed by the Code.
Sections 4375 and 4376 are in chapter
34 of the Code (Taxes on Certain Insurance
Policies). The deficiency procedures of
sections 6211–6216 apply only to income,
estate, and gift taxes imposed by subtitle
A (Income Taxes) and B (Estate and Gift
Taxes) and the excise taxes imposed by
chapters 41–44. Because sections 4375
and 4376 are in chapter 34, the deficiency
procedures do not apply to the fee. Thus,
the IRS may assess and collect the fees
using the procedures in subtitle F without
regard to the restrictions on assessment in
section 6213 (relating to petitions to the
Tax Court).
Application of Excise Tax Procedural
Rules (Filing of Returns and Payment of
Fees)
The Excise Tax Procedural Regulations
in 26 CFR part 40 contain rules for deposit-
ing, paying, and return filing for a number
of excise taxes, including the excise taxes
in chapter 34.
Under existing rules for chapter 34 ex-
cise taxes, taxpayers pay and report these
taxes quarterly on Form 720,“Quarterly
Federal Excise Tax Return,”by the last day
of the first calendar month following the
calendar quarter for which it is filed. The
proposed regulations amend this rule so
that issuers and plan sponsors will report
and pay the section 4375 and 4376 fees
only once a year on Form 720, which will
be due by July 31 of each year. A person
that files a Form 720 only to report liabil-
ity imposed by section 4375 or 4376 is not
required to file a Form 720 at other times
during the year. A return will generally
cover policy years (section 4375) and plan
years (section 4376) that end during the
preceding calendar year, or in the case of
an issuer that determines the average num-
ber of lives covered for purposes of section
4375 using the member months method or
the state form method, the return is for all
policies in effect during the previous cal-
endar year. The instructions for Form 720
inform filers how and when to file and pay.
These instructions require that the filer (the
issuer or plan sponsor, as applicable) have
an Employer Identification Number (EIN)
to use in filing the Form 720.
Most excise taxes reported on Form 720
are required to be deposited semimonthly.
However, these proposed regulations do
not require semimonthly deposits of the
fee imposed by section 4375 or 4376;
rather, full payment of the fee is due annu-
ally by the July 31 due date of Form 720.
Any claim for a refund of the section
4375 or 4376 fees must be filed on Form
8849,“Claim for Refund of Excise Taxes,”
or Form 720X,“Amended Quarterly Fed-
eral Excise Tax Return,”in accordance
with the instructions for those forms.
These proposed regulations do not im-
pose any specific recordkeeping require-
ments for calculating the fees under sec-
tions 4375 and 4376. However, see the in-
structions for Form 720 for general infor-
mation on recordkeeping requirements.
The IRS will revise the current Form
720 to reflect these fees.
Electronic Filing of Returns
Form 720 may be filed electroni-
cally. For more information on e-file, see
www.irs.gov/efile. Although electronic
filing of the Form 720,“Quarterly Fed-
eral Excise Tax Return,”is not required,
the IRS encourages taxpayers to file the
Form 720 electronically. Electronic fil-
ing of Form 720 is quick and easy, and it
will allow the IRS to provide expedited
and improved serviceand reliability to
2012–19 I.R.B.888May 7, 2012

taxpayers while reducing processing time
and errors. Forms 720 can be submit-
ted on-line. A taxpayer wishing to file
the Form 720 electronically must sub-
mit it through an approved transmitter
software developer. The IRS has posted
on its website contact information for all
approved Form 720 e-file transmitters at
http://www.irs.gov/efile/lists/0,,id=176152,00.html.
To electronically file the Form 720,
taxpayers will incur the cost of the
provider’s required service fee for online
submission.
Third-Party Reporting and Payments
Notice 2011–35 requested comments
on the ability of third parties to act on be-
half of a plan sponsor in complying with
the requirements of the fee under section
4376. A number of commentators sug-
gested that guidance should permit third
parties to act on behalf of a plan sponsor
in reporting and paying the fee. Most
of these commentators requested that the
Treasury Department and the IRS estab-
lish a special reporting and filing regime
for third parties that is different than the
regime for plan sponsors. Although the
IRS has established limited third-party
reporting and payment regimes in certain
instances (see for example, Rev. Proc.
2007–38, 2007–1 C.B. 1442), the IRS
does not intend to adopt such a program
for the fee under section 4375 or the fee
under section 4376 because the benefits
of such a program would be outweighed
by the administrative burdens, particularly
given the limited period over which the
fee will apply. See §601.601(d)(2).
Proposed Effective Date
These regulations are proposed to apply
to policy and plan years ending on or af-
ter October 1, 2012, and before October 1,
2019. Issuers and plan sponsors may rely
on these proposed regulations for guidance
pending the issuance of final regulations.
Final regulations will be effective as of the
date these proposed regulations are pub-
lished in theFederal Register.Ifandto
the extent future guidance is more restric-
tive than the guidance in these proposed
regulations, the future guidance will be ap-
plied without retroactive effect.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866, as supplemented by Execu-
tive Order 13653. Therefore, a regulatory
assessment is not required. It is hereby
certified that these proposed regulations
will not have a significant economic im-
pact 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 primar-
ily affect large corporations. Therefore,
a Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. The Treasury
Department and the IRS specifically so-
licit comments from any party, particularly
affected small entities, on the accuracy
of this certification. Pursuant to section
7805(f) of the Code, this notice of pro-
posed rulemaking has been submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ments 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 or electronic
comments that are submitted timely to the
IRS. The Treasury Department and the IRS
request comments on all aspects of the pro-
posed rules. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled for
August 8, 2012, beginning at 10:00 a.m. in
room the auditorium of the 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 admit-
ted beyond the immediate entrance more
than 15 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments at the hearing
must submit written or electronic com-
ments and an outline of the topics to be
discussedandthetimetobedevotedto
each topic by July 30, 2012. A period
of 10 minutes will be allotted to each
person for making comments. An agenda
showing the scheduling of the speakers
will be prepared after the deadline for
receiving outlines has passed. Copies of
theagendawillbeavailablefreeofcharge
at the hearing.
Drafting Information
The principal authors of these
regulations are Rebecca L. Baxter,
Office of Associate Chief Counsel
(Financial Institutions & Products), and
R. Lisa Mojiri-Azad, Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities).
However, other personnel from the
Treasury Department and the IRS
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 40 and 46
are proposed to be 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 as
follows:
1. Paragraph (a) is amended by re-
moving from the third sentence the lan-
guage “chapter 34 to taxes imposed on
policies issued by foreign insurers” and
adding “chapter 34 to taxes imposed on
certain insurance policies” in its place, and
adding a new sentence after the third sen-
tence to read as follows:
§40.0
–1 Introduction
(a)***Referencesinthispartto
“taxes” also include references to the fees
imposed by sections 4375 and 4376. * * *
*****
Par. 3. Section 40.6011(a)–1 is
amended by:
May 7, 20128892012–19 I.R.B.

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
and self-insured health plans—(1)In
general. A return that reports liability
imposed by section 4375 or 4376 is a
return for policies or plans with policy
or plan years ending in the previous cal-
endar year, or 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), the
return is for all policies in effect during the
previous calendar year. The second sen-
tence of paragraph (a)(2)(i) of this section
(relating to filing quarterly returns regard-
less of whether liability is incurred) does
not apply to a person that files a Form 720,
“Quarterly Federal Excise Tax Return,”
only to report liability imposed by section
4375 or 4376.
(2)Effective/applicability date.This
paragraph (c) is applicable on April 17,
2012. This paragraph (c) applies to re-
turns that report liability imposed by sec-
tion 4375 or 4376 for all policies and plans
to which section 4375 or 4376 applies.
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
and self-insured health plans. 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
under §46.4375–1(c)(2)(v) or the state
form method under §46.4375–1(c)(2)(vi),
the return must be filed by July 31 of
the immediately following calendar year.
A return that reports liability for the fee
imposedbysection4376foraplanyear
mustbefiledbyJuly31ofthecalendar
year immediately following the last day of
the plan year. Thus, for example, a return
that reports liability for the fee imposed by
section 4375 for the year ending on De-
cember 31, 2012, must be filed by July 31,
2013. As another 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-
graph (c) of this section is applicable on
April 17, 2012. Paragraphs (a) and (b) of
this section apply to returns for calendar
quarters beginning on or after October 1,
2001, and paragraph (c) of this section ap-
plies to returns that report liability imposed
by section 4375 or 4376 for all policies and
plans to which section 4375 or 4376 ap-
plies.
§40.6091
–1 [Amended]
Par. 5. Section 40.6091–1(a) is
amended by removing the language “para-
graph (b) of this section, quarterly returns”
and by adding the language “paragraphs
(b) and (c) of this section, returns” in its
place.
Par. 6. Section 40.6302(c)–1 is
amended by revising the section heading
and paragraph (e)(1)(iv) to read as follows:
§40.6302(c)–1 Use of Government
depositaries.
*****
(e) * * *
(1) * * *
(iv) Sections 4375 and 4376 (relating
to fees on health insurance policies and
self-insured health plans).
*****
PART46—EXCISETAXONCERTAIN
INSURANCE POLICIES AND
OBLIGATIONS NOT IN REGISTERED
FORM
Par. 7. The authority citation for part
46 continues to read in part as follows:
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” 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
§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
imposedbysection4375forpolicyyears
ending on or after October 1, 2012, and
before October 1, 2019. Paragraph (b) of
this section provides definitions that apply
for purposes of section 4375 and this sec-
tion. Paragraph (c) of this section provides
rules for calculatingthe fee under section
4375. Paragraph (d) of this section pro-
vides the effective/applicability date. For
rules relating to filing the required return
and paying the fee, see §§40.6011(a)–1
and 40.6151(a)–1.
(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 or 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)), in-
cluding certain prepaid health coverage
arrangements as described in paragraph
(b)(2) of this section.
(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);
2012–19 I.R.B.890May 7, 2012

(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 primar-
ily employees who are working and re-
siding outside of the United States (see
§46.4377–1(a)(3)); or
(C) Any stop loss or indemnity reinsur-
ance policy.
(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),indem-
nity reinsurance policymeans an agree-
ment between two or more insurance com-
panies 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 or 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 contract is a specified health
insurance policy.
(c)Calculation of fee—(1)In general.
The amount of the fee for a policy for a
policy year is equal to the product of the
average number oflives covered under
the policy for the policy year (determined
in accordance 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
purposes of computing the fee under this
paragraph (c), in the case of an issuer that
determines the average number of lives
covered for all policies in effect during a
calendar 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 ap-
plicable dollar amount with respect to such
issuer’s policies for such calendar year is
the applicable dollar amount for policy
years ending on December 31 of such
calendar year (determined in accordance
with paragraph (c)(4) of this section), ex-
cept that the applicable dollar amount with
respect to such an issuer’s policies for
calendar year 2019 shall be the applica-
ble dollar amount for policy years ending
on September 30, 2019. For more infor-
mation, see the examples in paragraphs
(c)(2)(iii)(B), (c)(2)(iv)(B), (c)(2)(v)(B),
and (c)(2)(vi)(B) of this section.
(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);
(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)ofthissection).
(ii)Consistency requirements.Anis-
suer must use the same method of calcu-
lating the average number of lives covered
under a policy consistently for the dura-
tion of the year. In addition, for all poli-
cies for which a liability is reported on a
Form 720,“Quarterly Federal Excise Tax
Return,”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
using the actual count method described
in paragraph (c)(2)(iii) of this section or
the snapshot method described in para-
graph (c)(2)(iv) of this section may change
its method of computing the average lives
covered to the snapshot method or actual
count method, provided that the issuer uses
the same method for computing the aver-
age lives covered for all policies for which
aliabilityisreportedontheForm720for
that year. For example, an issuer with a
policy having a policy year that ends on
June 30, Policy A, may determine the aver-
age 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 num-
ber 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 poli-
cies 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 li-
ability for the July 2014 to June 2015 pol-
icy year for Policy A). An issuer that de-
termines the average number of lives cov-
ered 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 calculatinglives covered for all
policy years for which the fee applies.
(iii)Actual count method—(A)Calcu-
lation method. An issuer may determine
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,
May 7, 20128912012–19 I.R.B.

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
number of lives covered under Policy B for the
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 one date in each quarter of
the policy year, or more dates if an equal
number of dates is used for each quarter,
and dividing that total by the number of
dates on which a count was made. For this
purpose, the date or dates for each quar-
ter must be the same (for example, the first
day of the quarter, the last day of the quar-
ter, or the first day of each month).
(B)Example. The following example
illustrates the principles of paragraphs
(c)(1) and (c)(2)(iv)(A) of this section:
Example. Insurance Company B 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, 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 B chooses to determine its
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 the first day
of each quarter of the policy years. On December 1,
2013, Policy A covers 8,900 lives covered, on
March 1, 2014, 9,100 lives covered, on June 1, 2014,
9,050 lives covered, and on September 1, 2014,
9,050 lives covered. Insurance Company B treats
the average number of lives covered under Policy A
for the policy year ending November 30, 2014, as
36,100 (8,900 + 9,100 + 9,050 + 9,050) divided by 4,
or 9,025. On March 1, 2013, Policy B covers 1,500
lives covered, on June 1, 2013, 1,350 lives covered,
on September 1, 2013, 1,400 lives covered, and on
December 1, 2013, 1,550 lives covered. Insurance
Company B treats the average number of lives
covered under Policy B for the policy year ending
February 28, 2014, as 5,800 (1,500 + 1,350 + 1,400
+ 1,550) divided by 4, or 1,450. On January 1, 2014,
Policy C covers 12,500 lives covered, on April 1,
2014, 12,250 lives covered, on July 1, 2014, 12,000
lives covered, and on October 1, 2014, 11,250 lives
covered. Insurance Company B treats the average
number of lives covered under Policy C for the
policy year ending December 31, 2014, as 47,750
(12,500 + 12,250 + 12,000 + 11,250) divided by 4,
or 12,000. To calculate the section 4375 fee under
paragraph (c)(1) of this section for calendar year
2014, Insurance Company B must first determine
the applicable 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. Insurance 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 of lives 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
thecalendaryearunderparagraph(c)(4)ofthissec-
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 oflives 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 policies in 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,
and ending on or after October 1, 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
2012–19 I.R.B.892May 7, 2012

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
last year the fee is in effect. For issuers
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)Example. 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 aver-
age 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, 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 years
ending in any fiscal year beginning on or
after October 1, 2014, the applicable dol-
lar amount is the sum of—
(i) The applicable dollar amount for the
policy year ending in the previous fiscal
year; plus
(ii) The amount equal to the product
of—
(A) The applicable dollar amount for
the policy year ending in the previous fis-
cal 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 fiscal year.
(d)Effective/applicability date.This
section is effective on April 17, 2012. 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. A plan sponsor of an ap-
plicable self-insured health plan is liable
for a fee imposed by section 4376 for plans
with plan years ending on or after Octo-
ber 1, 2012, and before October 1, 2019.
Paragraph (b) of this section provides the
definitions that apply for purposes of sec-
tion 4376 and this section. Paragraph (c)
of this section provides the requirements
for calculating the fee imposed by section
4376. Paragraph (d) of this section pro-
vides the effective/applicability date. For
rules relating to filing the required return
and paying the fee, see §§40.6011(a)–1
and 40.6151(a)–1.
(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 or 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 (as defined in section
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 ben-
efits, as defined in section 9832(c). For
example, a health flexible spending ar-
rangement (health FSA) (as described in
section 106(c)(2)) that satisfies the re-
quirements to be treated as an excepted
benefit under section 9832(c) (see also
§54.9831–1(c)(3)(v)) is not an applicable
self-insured health plan. A health FSA
that is not treated as an excepted benefit
under section 9832(c) 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.
(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 provides 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-
May 7, 20128932012–19 I.R.B.

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 arrange-
ment would count as only one covered life
under the plan. Similarly, if a plan sponsor
provides a Health Reimbursement Ar-
rangement (HRA) that is integrated with
another applicable 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.
(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;
(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
definedinsection3(40)(B)(iv)ofERISA)
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 un-
der which the plan is operated as the plan
sponsor, or the person designated by terms
of the document under which the plan is
operated as the plan sponsor for section
4376 purposes, provided that designation
is made, and that person has consented to
the designation, by no later than the date by
which the return paying the fee under sec-
tion 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 further that a per-
son may be designated as the plan spon-
sor only if the person is one of the persons
maintaining the plan (for example, one of
the employers that is maintaining the plan
with one or more other employers or em-
ployee 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 maintains the plan (with respect
to employees of that employer), each em-
ployee organization that maintains the plan
(with respect to members of that employee
organization), and each board of trustees,
cooperative or association that maintains
the plan, meaning that each plan sponsor
must file a separate Form 720,“Quarterly
Federal Excise Tax Return,”reflecting its
separate liability under section 4376.
(ii)Example. The following examples
illustrate the principles of paragraph (b)(2)
of this section:
Example 1. Employer XYZ is a holding company
with no employees that owns all the issued and out-
standing shares of Employer X, Employer Y, and Em-
ployer Z. Employer X, Employer Y, and Employer
Z have established the XYZ Group Health Plan to
provide accident and health coverage, provided 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 doc-
ument. As a self-insured health plan for employees of
two or more employers, the XYZ Group Health Plan
is an applicable self-insured health plan under sec-
tion 4376(c)(2)(A) and paragraph (b)(1)(i)(A) of this
section. However, a plan sponsor is not identified or
designated in the governing plan document. Accord-
ingly, the plan sponsor for purposes of section 4376
is identified under paragraph (b)(2)(i)(H) of this sec-
tion as Employer X, Employer Y, and Employer Z,
each with respect to its own employees covered un-
der the plan. Accordingly, Employer X, Employer
Y, and Employer Z each must file a Form 720 re-
flecting their separate liabilities under section 4376,
calculated based upon lives covered that are employ-
ees 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,
except that the governing plan document desig-
nates Employer X as the plan sponsor of the XYZ
Group Health Plan for purposes of the fee under
section 4376. Accordingly, the plan sponsor for pur-
poses of section 4376 is identified 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 applicable dollar amount (determined
in accordance with paragraph (c)(3) of
this section). For more information, see
the examples in paragraphs (c)(2)(iii)(B),
(c)(2)(iv)(D), and (c)(2)(v)(B) of this sec-
tion.
(2)Determination of the average num-
ber of covered lives 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—
(A) The actual count method (described
in paragraph (c)(2)(iii) of this section);
(B) The snapshot dates method (de-
scribed 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)Calcu-
lation method. A plan sponsor may de-
termine the average number of lives cov-
ered 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 covered lives under the plan for
2012–19 I.R.B.894May 7, 2012

each day of the plan year ending December 31,
2013 as 3,285,000. The average number of cov-
ered lives 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 the average number of lives covered under
the plan.
(iv)Snapshot methods—(A)In general.
A plan sponsor may determine the aver-
age number of lives covered under a plan
for a plan year by adding the totals of
lives covered on one date in each quar-
ter, or more dates if an equal number of
dates are used for each quarter, and divid-
ing that total by the number of dates on
which a count was made. For this pur-
pose, the date or dates for each quarter
mustbethesame(forexample,thefirst
day of the quarter, the last day of the quar-
ter, the first day of each month, etc.). For
purposes of this paragraph (c)(2)(iv), the
number of lives covered on a designated
date may be determined using either the
snapshot factor method described in para-
graph (c)(2)(iv)(B) of this section or the
snapshot count method described in para-
graph (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 the number of participants with
self-only coverage on that date, plus the
product of the number of participants with
coverage other than self-only coverage on
thedateand2.35.
(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. Employer B is the plan sponsor of
the Employer B Self-Insured Health Plan, which has
a calendar year plan year. Employer B has designated
the first day of each quarter of the plan year as the
date that Employer B counts the covered lives under
the Employer B Self-Insured Health Plan. On Jan-
uary 1, 2013, Employer B Self-Insured Health Plan
covers 2,000 covered lives, on April 1, 2013, 2,100
covered lives, on July 1, 2013, 2,050 covered lives,
and on October 1, 2013, 2,050 covered lives. Un-
der the snapshot count method, Employer B must de-
termine the average number of covered lives under
the Employer B Self-Insured Health Plan for the plan
year ending December 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 dol-
lar amount under paragraph (c)(3) of this section and
multiply that amount by the average number of lives
covered under the plan.
Example 2. Same facts asExample 1, except
Employer B determines the number of covered lives
not covered by self-only coverage based on the num-
ber of participants with coverage other than self-only
multiplied by 2.35 (the factor set forth in (c)(2)(iv)
of this section). On January 1, 2013, Employer B
Self-Insured Health Plan provides self-only cover-
age to 600 employees and other than self-only cov-
erage to 800 employees. On April 1, 2013, Em-
ployer B Self-Insured Health Plan provides self-only
coverage to 608 employees and other than self-only
coverage to 800 employees. On July 1, 2013 and
October 1, 2013, Employer B Self-Insured Health
Plan provides self-only coverage to 610 employees
and other than self-only coverage to 809 employees.
Under the snapshot factor method, Employer B must
determine the average number of covered lives under
the Employer B Self-Insured Health Plan for the plan
year ending December 31, 2013 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 ending December
31, 2013, Employer B must determine the applicable
dollar amount under paragraph (c)(3) of this section
and multiply that amount by the average number of
lives covered under the plan.
(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 reportable participants
for the Form 5500, “Annual Return/Report
of Employee Benefit Plan,” that is filed
for the applicable self-insured health plan
for that plan year. For purposes of this
paragraph (c)(2)(v), the average number of
lives covered under the plan for the plan
year for a plan offering only self-only cov-
erage equals the sum of total participants
covered at the beginning and the end of the
plan year, as reported on the Form 5500
filed for the applicable 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 offering self-only coverage
and coverage other than self-only coverage
equals the sum of total participants cov-
ered at the beginning and the end of the
plan year, as reported on the Form 5500
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 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 reflect-
ing 4,000 plan participants on the first day of the plan
year and 4,200 plan participants on the last day of the
plan year. For purposes of calculating the fee under
section 4376 using the Form 5500 method, Employer
C must treat the number of covered lives 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 calcu-
late the section 4376 fee under paragraph (c)(1) of this
section for the plan year ending July 31, 2013, Em-
ployer C must determine the applicable dollar amount
under paragraph (c)(3) of this section and multiply
that amount by the average number of lives covered
under the plan.
Example 2. Same facts asExample 1, 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-
ing the Form 5500 method, Employer C must treat
the number of covered lives 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 the average
number of lives covered under the plan.
(vi)Special rule for health FSAs and
HRAs. For purposes of this section, if
a plan sponsor does not maintain an ap-
plicable self-insured health plan other
than a health flexible spending arrange-
ment (health FSA) (as described in sec-
tion 106(c)(2)) or a health reimburse-
ment arrangement (as described in Notice
2002–45, 2002–2 C.B. 93) (HRA), the
plan sponsor may treat each participant’s
health FSA or HRA as covering a single
coveredlife(andthereforetheplanspon-
sor is not required to include as covered
lives any spouse, dependent, or other ben-
eficiary of the individual participant in
the health FSA or HRA, as applicable).
If a health FSA or HRA that is an ap-
plicable self-insured health plan has the
same plan sponsor as another applicable
self-insured health plan other than a health
FSA or HRA, the two arrangements may
be treated as a single plan under paragraph
(b)(1)(iii) of this section. However, the
special counting rule in this paragraph ap-
plies 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 applicableself-insured health
plan. (The participants in the health FSA
or HRA that participate in the other ap-
May 7, 20128952012–19 I.R.B.

plicable self-insured health plan will be
counted in accordance with the method
applied for counting lives under that other
plan as described in paragraph (b)(2)(i) of
this section.) See §601.601(d)(2).
(vii)Special rule for the first year the
fee is in effect. Notwithstanding paragraph
(c)(2)(i) of this section, for plan years 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.Forplan
years ending on or after October 1, 2012,
and before October 1, 2013, the applicable
dollar amount is $1. For plan years ending
on or after October 1, 2013, and before Oc-
tober 1, 2014, the applicable dollar amount
is $2. For any plan year ending in any fis-
cal year beginning on or after October 1,
2014, the applicabledollar amount is equal
to the sum of—
(i) The applicable dollar amount for
plan years ending in the previous fiscal
year; plus
(ii) The amount equal to the product
of—
(A) The applicable dollar amount for
plan years ending in the previous 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 fiscal year.
(d)Effective/applicability date.This
section is effective on April 17, 2012.
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 insur-
ance policy, would cause such policy to be
a specified health policy (as defined in sec-
tion 4375(c)).
(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 other than due to that individ-
ual’s status as the spouse, dependent, or
other beneficiary of another covered indi-
vidual.
(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)Fiscal year.Thetermfiscal year
means 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 is effective on April 17, 2012. This
section applies to all policies and plans to
which section 4375 or 4376 applies.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on April 12, 2012,
4:15 p.m., and published in the issue of the Federal Register
for April 17, 2012, 77 F.R. 22691)
Notice of Proposed
Rulemaking
Allocation of Earnings and
Profits in Tax-Free Transfers
from One Corporation to
Another
REG–141268–11
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This d
ocument contains pro-
posed regulat
ions under section 312 of the
Internal Reve
nue Code (Code). The pro-
posed regulat
ions clarify the regulations
under section
312 regarding the allocation
of earnings a
nd profits in tax-free transfers
from one corp
oration to another. The pro-
posed regula
tions affect corporations in-
volved in the
se transfers and their share-
holders.
DATES: Written or electronic comments
and requests for a public hearing must be
received by July 16, 2012.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–141268–11),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–141268–11),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC. Submissions may also be sent
electronically via the Federal eRulemak-
ing Portal athttp://www.regulations.gov
(IRS REG–141268–11).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Stephanie D. Floyd at (202)
622–7930 or Isaac W. Zimbalist at
(202) 622–7550 (not toll-free numbers);
concerning submissions of comments
and/or requests for a public hearing,
Oluwafunmilayo (Fumni) Taylor, at
202–622–7180.
2012–19 I.R.B.896May 7, 2012

SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains proposed
amendments to 26 CFR part 1 concerning
the allocation of earnings and profits in
tax-free transfers from one corporation to
another. The IRS has historically inter-
preted the regulations under section 312
as providing that the earnings and prof-
its of the transferor corporation do not
move to the transferee in whole or in part
other than in a transfer described in sec-
tion 381 or, to the extent provided under
§1.312–10, in a divisive reorganization.
Furthermore, the IRS has interpreted the
regulations to provide that in a corporate
reorganization described in section 381,
the acquiring corporation, as defined in
§1.381(a)–1(b)(2), succeeds to the full
earnings and profits account of the trans-
feror corporation. Thus, the earnings
and profits account is not divided if the
acquiring corporation in an acquisitive as-
set reorganization subsequently transfers
target assets to one or more controlled
subsidiaries. Practitioners have suggested
that this result may be unclear under cur-
rent law.See§1.381(c)(2)–1(d) (providing
that where part of the acquired assets is
transferred to one or more controlled cor-
porations, or all of the acquired assets are
transferred to two ormore controlled cor-
porations, the allocation of earnings and
profits is made without regard to section
381); §1.312–11(a) (providing for proper
adjustment and allocation of earnings
and profits with respect to asset transfers
in connection with reorganizations, and
cross-referencing the section 381 regula-
tions for specific rules).
Consistent with the longstanding ad-
ministrative position, the proposed regu-
lations clarify that, except as provided in
§1.312–10, if property is transferred from
one corporation to another and no gain
or loss is recognized, no allocation of the
earnings and profits of the transferor is
made to the transferee unless the transfer
isdescribedinsection381(a). Thepro-
posed regulations further clarify that, in a
transfer described in section 381(a), only
the acquiring corporation, as defined in
§1.381(a)–1(b)(2), succeeds to the earn-
ings and profits of the distributor or trans-
feror corporation (within the meaning of
§1.381(a)–1(a)).
The IRS and Treasury Department be-
lieve the proposed rule is appropriate be-
cause earnings and profits measures the ca-
pacity of a corporation to pay dividends
to its shareholders and the corporation that
has an interest, directly or indirectly, in all
of the target’s assets has the dividend-pay-
ing capacity that is most comparable to that
of the target. Further, the IRS and Treasury
Department believe the rules for the allo-
cation of earnings and profits should con-
form to the rules for the allocation of other
tax attributes under section 381.
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 proposed reg-
ulations, and because these regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Code,
these regulations were submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies) or electronic com-
ments that are submitted timely to the IRS.
All comments will be available for public
inspection and copying. A public hearing
will be scheduled if requested in writing by
anypersonthattimelysubmitswrittenor
electronic comments. If a public hearing
is scheduled, notice of the date, time, and
place for the public hearing will be pub-
lished in theFederal Register.
Drafting Information
The principal author of these pro-
posed regulations is Stephanie D. Floyd
of the Office of Associate Chief Counsel
(Corporate). Other personnel from the
IRS and Treasury Department participated
in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is 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 1.312–11 is amended
by revising paragraph (a) and adding para-
graph (e) to read as follows:
§1.312–11 Effect on earnings and profits
of certain other tax-free exchanges,
tax-free distributions, and tax-free
transfers from one corporation to another.
(a)Inatransferdescribedinsection
381(a), the acquiring corporation, as de-
fined in §1.381(a)–1(b)(2), and only that
corporation, succeeds to the earnings
and profits of the distributor or trans-
feror corporation (within the meaning of
§1.381(a)–1(a)). Except as provided in
§1.312–10, in all other cases in which
property is transferred from one corpo-
rationtoanotherandnogainorlossis
recognized (or is recognized only to the
extent of the property received other than
that permitted to be received without the
recognition of gain), no allocation of the
earnings and profits of the transferor is
made to the transferee.
*****
(e)Effective/Applicability date. Para-
graph (a) of this section applies to transac-
tions occurring on or after the date of pub-
lication of the Treasury decision adopting
this rule as a final regulation in theFederal
Register.
§1.381(c)(2)–1(d) [Removed]
Par. 3. Section 1.381(c)(2)–1(d) is re-
moved.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
May 7, 20128972012–19 I.R.B.

(Filed by the Office of the Federal Register on April 13, 2012,
8:45 a.m., and published in the issue of the Federal Register
for April 16, 2012, 77 F.R. 22515)
U.S.-Germany Agreement on Pensions
Announcement 2012–21
The following is a copy of the Competent Authority Agreement (“the Agreement”) enteredinto on March 19, 2012, by the
Competent Authorities of the United Statesand Germany, regarding the eligibility ofcertain pension arrangements for benefits
under Article 10(3)(b) of the Convention Between the United States of America and Germany for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, together
with a related Protocol signed on August 29, 1989, and amended by the Protocol signed on June 1, 2006.
The text of the Agreement is as follows:
COMPETENT AUTHORITY AGREEMENT
The Competent Authorities of the Federal Republic of Germany andthe United States of America hereby enter into the following
agreement (the “Agreement”) regarding the eligibility of certain pension arrangements for benefits under paragraph 3(b) of Article
10 (Dividends) of the Convention Between the United States of America and Germany for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, together with a related
Protocol signed on August 29, 1989, and amended by the Protocol signed on June 1, 2006 (the “Treaty”). The Agreement is
entered into under paragraph 3 of Article 25 (Mutual Agreement Procedure) of the Treaty.
It is understood that for purposes of the Agreement, the term “Article” refers to an Article of the Treaty.
Article 10(3)(b) provides that dividends shall not be taxed in theContracting State of which the company paying the dividends is a
resident if the beneficial owner of the dividends is a pension fund that is a resident of the other Contracting State, provided that
such dividends are not derived from the carrying on of a business, directly or indirectly, by such pension fund.
Article 10(11) provides that for purposes of Article 10, the term “pension fund” means any person that: (a) is established under the
laws of a Contracting State; (b) is established and maintained in that Contracting State primarily to administer or provide pensions
or other similar remuneration, including social security payments, disability pensions and widow’s pensions or to earn income
for the benefit of one or more of such persons; and (c) is either, in the case of the United States, exempt from tax in the United
States with respect to the activities described in subparagraph (b) or, in the case of Germany, a plan the contributions to which are
eligible for preferential treatment under the Income Tax Act.
Paragraph 8(b) of the Protocol to the Treaty, as amended by theProtocol signed on June 1, 2006, provides that in the case of
Germany, it is understood that Article 10(3)(b) applies to the person treated as the owner of the assets of the pension fund under
section 39 of the Fiscal Code, provided the dividends may only be used for providing retirement benefits through such fund.
In order to provide certainty for taxpayers, the competent authorities of Germany and the United States clarify the treatment of a
contractual trust arrangement (CTA) established by an employer to hold assets set aside to fund the employer’s simple employer
sponsored pension plan (SESP). Provided that the SESP meets all of the requirements set out in section 6a of the German Income
Tax Act and that the assets of the CTA are treated as owned by the employer under section 39 of the German Fiscal Code, then
dividends derived by the CTA are eligible for benefits under Article 10(3)(b), if all other requirements of the Treaty are satisfied.
In such a case, the employer that establishes the CTA shall make the claim for benefits under Article 10(3)(b).
The competent authorities of Germany and the United States also clarify that theterm “pension fund” within the meaning of
Article 10(11) includes the following entities and that dividends derived by such entities are eligible for benefits under Article
10(3)(b), as if the entity is the beneficial owner of the dividends, if all other requirements of the Treaty are satisfied:
2012–19 I.R.B.898May 7, 2012

1. A special German investment fund to which the provisions of the German Investment Act (Investmentgesetz) apply, provided
such fund is established exclusively to hold the assets of one or more of the following:
a. A pension fund within the meaning of Article 10(11) that is established in Germany, or
b. ACTAestablishedbyanemployertoholdassetssetasideto fund the employer’s SESP provided the assets of the CTA
are treated as owned by the employer under section 39 of the Fiscal Code.
2. A group trust described in IRS Revenue Ruling 81–100, as modified by IRS Revenue Rulings 2004–67 and 2011–1, provided
that all of its participants are pension funds within the meaning of Article 10 (11) that are established in the United States.
3. A common trust fund (within the meaning of Internal Revenue Code section 584) provided that all of its participants are pension
funds within the meaning of Article 10(11) that are established in the United States.
In the case of an entity described in paragraph 1), the investment management company(Kapitalanlagegesellschaft) shall make
the claim for benefits under Article 10(3)(b) on behalf of the investment fund. In the case of entities described in paragraphs 2)
or 3), the trustee of the group trust or common trust fund, as the case may be, shall make the claim for benefits under Article
10(3)(b) on behalf of the group trust or common trust fund.
Agreed to by the undersigned competent authorities:
Michael Danilack
U.S. Competent Authority
[NAME]
German Competent Authority
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2012–22
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
Bulletin that an organization no longer
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, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on May 7, 2012, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
Big Hope, Inc.
Elon, NC
Freedom Debt Management, Inc.
Boca Raton, FL
Lost Cherokee of Arkansas & Missouri,
Inc.
Conway, AR
Marlowe Education Foundation, Inc.
Idaho Falls, ID
Richard E. Feldhake Support Foundation
Trust
Phoenix, AZ
Successful Dreams Equestrian Center
Fitchburg, MA
May 7, 20128992012–19 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2012–19 I.R.B.iMay 7, 2012

Numerical Finding List
1
Bulletins 2012–1 through 2012–19
Announcements:
2012-1, 2012-1 I.R.B.249
2012-2, 2012-2 I.R.B.285
2012-3, 2012-4 I.R.B.335
2012-4, 2012-4 I.R.B.335
2012-5, 2012-5 I.R.B.348
2012-6, 2012-6 I.R.B.366
2012-7, 2012-6 I.R.B.367
2012-8, 2012-7 I.R.B.373
2012-9, 2012-7 I.R.B.377
2012-11, 2012-13 I.R.B.611
2012-12, 2012-12 I.R.B.562
2012-13, 2012-16 I.R.B.805
2012-14, 2012-14 I.R.B.721
2012-15, 2012-15 I.R.B.794
2012-16, 2012-18 I.R.B.876
2012-17, 2012-18 I.R.B.876
2012-18, 2012-16 I.R.B.845
2012-20, 2012-18 I.R.B.876
2012-21, 2012-19 I.R.B.898
2012-22, 2012-19 I.R.B.899
Notices:
2012-1, 2012-2 I.R.B.260
2012-3, 2012-3 I.R.B.289
2012-4, 2012-3 I.R.B.290
2012-5, 2012-3 I.R.B.291
2012-6, 2012-3 I.R.B.293
2012-7, 2012-4 I.R.B.308
2012-8, 2012-4 I.R.B.309
2012-9, 2012-4 I.R.B.315
2012-10, 2012-5 I.R.B.343
2012-11, 2012-5 I.R.B.346
2012-12, 2012-6 I.R.B.365
2012-13, 2012-9 I.R.B.421
2012-14, 2012-8 I.R.B.411
2012-15, 2012-9 I.R.B.424
2012-16, 2012-9 I.R.B.427
2012-17, 2012-9 I.R.B.430
2012-18, 2012-10 I.R.B.438
2012-19, 2012-10 I.R.B.440
2012-20, 2012-13 I.R.B.574
2012-21, 2012-10 I.R.B.450
2012-22, 2012-13 I.R.B.576
2012-23, 2012-11 I.R.B.483
2012-24, 2012-13 I.R.B.578
2012-25, 2012-15 I.R.B.789
2012-26, 2012-17 I.R.B.847
2012-27, 2012-17 I.R.B.849
2012-28, 2012-17 I.R.B.850
2012-29, 2012-18 I.R.B.872
2012-30, 2012-18 I.R.B.874
Proposed Regulations:
REG-168745-03, 2012-14 I.R.B.718
REG-109369-10, 2012-9 I.R.B.434
REG-110980-10, 2012-13 I.R.B.581
REG-113770-10, 2012-13 I.R.B.587
REG-113903-10, 2012-11 I.R.B.486
REG-120282-10, 2012-11 I.R.B.487
REG-130302-10, 2012-8 I.R.B.412
REG-135491-10, 2012-16 I.R.B.803
REG-149625-10, 2012-2 I.R.B.279
REG-102988-11, 2012-4 I.R.B.326
REG-115809-11, 2012-13 I.R.B.598
REG-124627-11, 2012-8 I.R.B.417
REG-124791-11, 2012-15 I.R.B.791
REG-130777-11, 2012-5 I.R.B.347
REG-132736-11, 2012-15 I.R.B.793
REG-135071-11, 2012-12 I.R.B.561
REG-136008-11, 2012-19 I.R.B.881
REG-141268-11, 2012-19 I.R.B.896
REG-145474-11, 2012-11 I.R.B.495
Revenue Procedures:
2012-1, 2012-1 I.R.B.1
2012-2, 2012-1 I.R.B.92
2012-3, 2012-1 I.R.B.113
2012-4, 2012-1 I.R.B.125
2012-5, 2012-1 I.R.B.169
2012-6, 2012-1 I.R.B.197
2012-7, 2012-1 I.R.B.232
2012-8, 2012-1 I.R.B.235
2012-9, 2012-2 I.R.B.261
2012-10, 2012-2 I.R.B.273
2012-11, 2012-7 I.R.B.368
2012-12, 2012-2 I.R.B.275
2012-13, 2012-3 I.R.B.295
2012-14, 2012-3 I.R.B.296
2012-15, 2012-7 I.R.B.369
2012-16, 2012-10 I.R.B.452
2012-17, 2012-10 I.R.B.453
2012-18, 2012-10 I.R.B.455
2012-19, 2012-14 I.R.B.689
2012-20, 2012-14 I.R.B.700
2012-21, 2012-11 I.R.B.484
2012-22, 2012-17 I.R.B.853
2012-23, 2012-14 I.R.B.712
Revenue Rulings:
2012-1, 2012-2 I.R.B.255
2012-2, 2012-3 I.R.B.286
2012-3, 2012-8 I.R.B.383
2012-4, 2012-8 I.R.B.386
2012-5, 2012-5 I.R.B.337
2012-6, 2012-6 I.R.B.349
2012-7, 2012-6 I.R.B.362
2012-8, 2012-13 I.R.B.563
Revenue Rulings— Continued:
2012-9, 2012-11 I.R.B.475
2012-10, 2012-14 I.R.B.614
2012-11, 2012-14 I.R.B.686
2012-12, 2012-15 I.R.B.748
2012-13, 2012-19 I.R.B.878
Treasury Decisions:
9559, 2012-2 I.R.B.252
9560, 2012-4 I.R.B.299
9561, 2012-5 I.R.B.341
9562, 2012-5 I.R.B.339
9563, 2012-6 I.R.B.354
9564, 2012-14 I.R.B.614
9565, 2012-8 I.R.B.378
9566, 2012-8 I.R.B.389
9567, 2012-8 I.R.B.395
9568, 2012-12 I.R.B.499
9569, 2012-11 I.R.B.465
9570, 2012-11 I.R.B.477
9571, 2012-11 I.R.B.468
9572, 2012-11 I.R.B.471
9573, 2012-12 I.R.B.498
9574, 2012-12 I.R.B.559
9575, 2012-15 I.R.B.749
9576, 2012-15 I.R.B.723
9577, 2012-15 I.R.B.730
9579, 2012-16 I.R.B.796
9580, 2012-16 I.R.B.801
9581, 2012-16 I.R.B.798
9582, 2012-18 I.R.B.868
9583, 2012-18 I.R.B.866
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin
2011–52, dated December 27, 2011.
May 7, 2012ii2012–19 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2012–1 through 2012–19
Announcements:
2002-44
Supplemented by
Notice 2012-13, 2012-9 I.R.B.421
2010-19
Obsoleted by
Ann. 2012-12, 2012-12 I.R.B.562
2011-63
Corrected by
Ann. 2012-9, 2012-7 I.R.B.377
Notices:
2006-52
As clarified and amplified by Notice 2008-40, is
modified by
Notice 2012-26, 2012-17 I.R.B.847
2006-87
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2006-99
Superseded in part by
Notice 2012-20, 2012-13 I.R.B.574
2007-25
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2007-77
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2007-95
Obsoleted in part by
T.D. 9576, 2012-15 I.R.B.723
2008-98
Modified by
Notice 2012-29, 2012-18 I.R.B.872
2008-107
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2009-86
Modified by
Notice 2012-29, 2012-18 I.R.B.872
2010-27
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2010-88
As modified by Ann. 2011-40, is superseded by
Notice 2012-1, 2012-2 I.R.B.260
Notices— Continued:
2010-92
Obsoleted by
T.D. 9577, 2012-15 I.R.B.730
2011-8
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2011-28
Superseded by
Notice 2012-9, 2012-4 I.R.B.315
Proposed Regulations:
REG-208274-86
Withdrawn by
Ann. 2012-11, 2012-13 I.R.B.611
Revenue Procedures:
2000-43
Amplified, modified and superseded by
Rev. Proc. 2012-18, 2012-10 I.R.B.455
2003-61
Superseded by
Notice 2012-8, 2012-4 I.R.B.309
2007-44
Modified by
Ann. 2012-3, 2012-4 I.R.B.335
2010-43
Superseded by
Rev. Proc. 2012-22, 2012-17 I.R.B.853
2011-1
Superseded by
Rev. Proc. 2012-1, 2012-1 I.R.B.1
2011-2
Superseded by
Rev. Proc. 2012-2, 2012-1 I.R.B.92
2011-3
Superseded by
Rev. Proc. 2012-3, 2012-1 I.R.B.113
2011-4
Superseded by
Rev. Proc. 2012-4, 2012-1 I.R.B.125
2011-5
Superseded by
Rev. Proc. 2012-5, 2012-1 I.R.B.169
2011-6
Superseded by
Rev. Proc. 2012-6, 2012-1 I.R.B.197
2011-7
Superseded by
Rev. Proc. 2012-7, 2012-1 I.R.B.232
Revenue Procedures— Continued:
2011-8
Superseded by
Rev. Proc. 2012-8, 2012-1 I.R.B.235
2011-9
Superseded by
Rev. Proc. 2012-9, 2012-2 I.R.B.261
2011-10
Superseded by
Rev. Proc. 2012-10, 2012-2 I.R.B.273
2011-14
Modified and clarified by
Rev. Proc. 2012-19, 2012-14 I.R.B.689
Rev. Proc. 2012-20, 2012-14 I.R.B.700
2011-37
Obsoleted in part by
Rev. Proc. 2012-16, 2012-10 I.R.B.452
2011-40
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2011-49
Modified by
Ann. 2012-3, 2012-4 I.R.B.335
2011-50
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2011-51
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2011-62
Corrected by
Ann. 2012-17, 2012-18 I.R.B.876
2012-8
Corrected by
Ann. 2012-7, 2012-6 I.R.B.367
Revenue Rulings:
92-19
Supplemented in part by
Rev. Rul. 2012-6, 2012-6 I.R.B.349
2008-40
Modified by
Notice 2012-6, 2012-3 I.R.B.293
2011-1
Modified by
Notice 2012-6, 2012-3 I.R.B.293
2012-9
Modified by
Rev. Rul. 2012-12, 2012-15 I.R.B.748
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin 2011–52, dated December 27,
2011.
2012–19 I.R.B.iiiMay 7, 2012

Treasury Decision:
9517
Corrected by
Ann. 2012-4, 2012-4 I.R.B.335
Ann. 2012-5, 2012-5 I.R.B.348
May 7, 2012iv2012–19 I.R.B.

2012–19 I.R.B.May 7, 2012

May 7, 20122012–19 I.R.B.

Internal Revenue Service
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