n-15-81.pdf

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SECTION 529A INTERIM GUIDANCE REGARDING CERTAIN PROVISIONS OF
PROPOSED REGULATIONS RELATING TO QUALIFIED ABLE PROGRAMS

Notice 2015-81
I. PURPOSE AND OVERVIEW
This notice advises how the Treasury Department and the Internal Revenue
Service (IRS) intend to respond to comments by revising three provisions of the
proposed regulations under § 529A of the Internal Revenue Code when those
regulations are finalized. Specifically, commenters noted that the following three
requirements for qualified Achieving Better Life Experience (ABLE) programs in the
proposed regulations would create significant barriers to the establishment of such
programs: (1) the requirement to establish safeguards to categorize distributions from
ABLE accounts, (2) the requirement to request the taxpayer identification number (TIN)
of each contributor to an ABLE account, and (3) the requirements for disability
certifications, and in particular the requirement to process disability certifications with
signed physicians’ diagnoses.
II. BACKGROUND
The Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act)
was enacted on December 19, 2014, as part of The Tax Increase Prevention Act of
2014 (P.L. 113-295). The ABLE Act added § 529A to the Code. Section 529A allows a
State (or State agency or instrumentality) to establish and maintain a tax-advantaged
savings program under which contributions may be made to an account (an ABLE
account) for the purpose of providing for the qualified disability expenses of the
designated beneficiary of the account. The designated beneficiary generally must be a
resident of that state who has a disability that commenced before the designated

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beneficiary’s 26
th
birthday and who meets the statutory eligibility requirements. In
general, neither the ABLE account nor distributions from the account are treated as
income or resources of a designated beneficiary who is an eligible individual in
determining that designated beneficiary’s qualification for federal benefits.
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The
undistributed income earned in an ABLE account is not taxable and distributions made
from an ABLE account for qualified disability expenses of the designated beneficiary are
not included in the designated beneficiary’s gross income for federal income tax
purposes. However, the earnings portion of distributions from an ABLE account in
excess of qualified disability expenses generally is includible in the gross income of the
designated beneficiary.
The Treasury Department and the IRS released proposed regulations concerning
qualified ABLE programs on June 19, 2015, which were published in the Federal
Register on June 22, 2015 (80 Fed. Reg. 35602). Although the comments received to
date generally have been positive regarding most aspects of the proposed regulations,
commenters raised concerns that the provisions in the proposed regulations requiring a
qualified ABLE program to establish safeguards to categorize distributions, collect
taxpayer identification numbers (TINs) from contributors, and process disability
certifications with signed physicians’ diagnoses, if unchanged in the final regulations,
would impose substantial administrative and cost burdens on the States administering

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While section 103 of the ABLE Act (not a tax provision) generally provides that a designated beneficiary’s ABLE
account is disregarded in determining the designated beneficiary’s eligibility under certain federal means-tested
programs, there are two exceptions. In the case of the Supplemental Security Income program under title XVI of
the Social Security Act, distributions for certain housing expenses are not disregarded and the balance (including
earnings) in an ABLE account is considered a resource of the designated beneficiary to the extent that balance
exceeds $100,000. Section 103 also addresses the impact of an excess balance on the designated beneficiary’s
eligibility under the Supplemental Security Income program and Medicaid.

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qualified ABLE programs. States indicated that these burdens were sufficiently
significant that they were encountering substantial hurdles in moving forward with
creating their ABLE programs because they did not know if the final regulations would
resolve their concerns regarding these requirements. Several commenters requested
that the Treasury Department and the IRS issue interim guidance on these three
requirements in order to facilitate the establishment of qualified ABLE programs by the
States.
III. DISTRIBUTIONS FOR QUALIFIED DISABILITY EXPENSES
Consistent with § 529A(e)(5), § 1.529A-1(b)(16) of the proposed regulations defines
the term “qualified disability expenses” as expenses incurred that relate to the blindness
or disability of the designated beneficiary of an ABLE account and that are for the
benefit of the designated beneficiary in maintaining or improving his or her health,
independence, or quality of life. As stated in the preamble to the proposed regulations,
the Treasury Department and the IRS recognize that this term should be broadly
construed to permit the inclusion of basic living expenses and should not be limited to
expenses for items for which there is a medical necessity or which provide no benefit to
others in addition to the benefit to the eligible individual. Section 1.529A-2(h)(1) of the
proposed regulations provides that a qualified ABLE program must establish safeguards
to allow the ABLE program to distinguish between distributions used to pay for qualified
disability expenses and other distributions, and to permit the identification of amounts
distributed for housing expenses as defined for purposes of the Supplemental Security
Income program of the Social Security Administration.

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Commenters noted that, because the identification of housing expenses is relevant
only for purposes of determining eligibility for certain Social Security benefits and has no
relevance for federal income tax purposes, any reference to classifying distributions as
housing expenses should be eliminated from the regulations. The Treasury Department
and the IRS agree, and the final regulations will not require a qualified ABLE program to
identify or record whether distributions were made for housing expenses.
Commenters also expressed concerns regarding the requirement that a qualified
ABLE program establish safeguards to distinguish between distributions for qualified
disability expenses and other distributions. Commenters emphasized that requiring a
qualified ABLE program to determine how a distribution will be used prior to making the
distribution would be unduly burdensome for both the program and the designated
beneficiary and explained that the particular use of a distribution might not be known
when the distribution is made. The commenters recommended that any requirement or
suggestion that qualified ABLE programs will have to classify distributions should be
eliminated from the regulations.
Consistent with the reporting requirements in § 1.529A-6 of the proposed
regulations, which require that qualified ABLE programs report only aggregate
distributions and distinguish such distributions as basis, earnings, or returned
contributions, the Treasury Department and the IRS confirm that the final regulations
will not require, for any federal income tax purpose, a qualified ABLE program to
establish safeguards to distinguish between distributions used for the payment of
qualified disability expenses and other distributions. The designated beneficiary,

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however, will have to categorize distributions in order to properly determine the
designated beneficiary’s federal income tax obligations.
IV. REPORTING REQUIREMENTS REGARDING CONTRIBUTORS
Consistent with §§ 529A(b)(2)(B) and (b)(6), §§ 1.529A-2(g)(2) and (3) of the
proposed regulations provide that a qualified ABLE program must provide that no
contribution to an ABLE account will be accepted to the extent that such contribution
exceeds certain stated limits. Specifically, the total contributions (whether from the
designated beneficiary or one or more other persons) to the designated beneficiary’s
ABLE account made during the designated beneficiary’s taxable year must not exceed
the amount in effect under § 2503(b) (the annual gift tax exclusion amount) for the
calendar year in which the designated beneficiary’s taxable year begins. In addition, the
aggregate amount of contributions to an ABLE account must not exceed the limit
established by the State under § 529(b)(6) (the limit on contributions to a qualified
tuition program). If an excess contribution under § 1.529A-2(g)(2) or an excess
aggregate contribution under § 1.529A-2(g)(3) is allocated to or deposited into the ABLE
account of a designated beneficiary, § 1.529A-2(g)(4) of the proposed regulations
requires the qualified ABLE program to return that excess contribution or excess
aggregate contribution (with any net income attributable to it, as determined under the
applicable rules) to the person who made that contribution. Because the income earned
on that excess contribution or excess aggregate contribution (if any) will be taxable to
that contributor, § 1.529A-6(d) of the proposed regulations requires a qualified ABLE
program to request the TIN for each contributor to the ABLE account at the time a

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contribution is made if the program does not already have a record of that person’s
correct TIN.
One commenter suggested that excess contributions instead could be required to
be paid to the designated beneficiary so there would be no need for a qualified ABLE
program to procure a contributor’s TIN. The Treasury Department and the IRS do not
agree with this suggestion because the designated beneficiary’s receipt of such an
excess amount could put the designated beneficiary at risk of being disqualified for his
or her federal benefits that are income or resource based, a result that would be
inconsistent with the purposes of the statute.
Commenters are concerned about the substantial burdens imposed on qualified
ABLE programs if they must request the TIN of every contributor (if the program does
not already have a record of that person’s correct TIN) at the time a contribution is
made. Commenters explained that it is likely that contributions will come from multiple
sources and will be made in a variety of ways (payroll deduction, check, debit,
automated clearing house (ACH) transfers, or others), making it difficult as a practical
matter to obtain the TIN of the contributor. Commenters also stated that some
contributors, especially those making small gifts, may be reluctant to make a
contribution if a TIN were required to be provided. Further, several commenters
indicated that systems would be used that would ensure that qualified ABLE programs
do not accept contributions that would exceed applicable limits.
As an alternative, commenters suggested that a contributor’s TIN be required to
be collected only by those qualified ABLE programs that do not have systems in place
to prevent the acceptance and/or deposit to the ABLE account of a particular

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designated beneficiary of an excess contribution or excess aggregate contribution. The
commenters expect that most qualified ABLE programs will adopt the infrastructure
currently utilized by state § 529 qualified tuition programs either to reject such excess
contributions or to escrow and immediately refund the excess contributions. Other
commenters recommend that the obligation to request a contributor’s TIN should only
arise in the unlikely circumstance in which an excess or excess aggregate contribution
has been deposited into an individual’s ABLE account and has accrued earnings or
losses. One commenter suggested eliminating the TIN requirement altogether while
another suggested the collection of TINs should be required only in the case of
contributions over a specified dollar amount.
In consideration of these comments, the Treasury Department and the IRS
believe that a modification to § 1.529A-6(d) of the proposed regulations is appropriate.
Consequently, it is anticipated that the final regulations will eliminate the requirement to
request the TINs of each contributor at the time a contribution is made (if the program
does not already have a record of that person’s correct TIN) if the qualified ABLE
program has a system in place to identify and reject excess contributions and excess
aggregate contributions before they are deposited into an ABLE account. However, in
the event an excess contribution or excess aggregate contribution is deposited into an
ABLE account, the qualified ABLE program will be required to request the TIN of the
contributor making the excess contribution or excess aggregate contribution.
V. ELIGIBLE INDIVIDUAL, FILING OF DISABILITY CERTIFICATION AND PHYSICIAN
DIAGNOSIS

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Consistent with § 529A(e)(1), § 1.529A-2(d)(1) of the proposed regulations
provides that a qualified ABLE program must specify the documentation that an
individual must furnish, both at the time an ABLE account is established for the
designated beneficiary of that account and thereafter, to ensure that the designated
beneficiary of the ABLE account is, and continues to be, an eligible individual. One way
to qualify as an eligible individual under § 529A(e)(1) is to have a disability certification
filed with the Secretary of the Treasury. Under the proposed regulations, a disability
certification is deemed to be filed with the Secretary once the qualified ABLE program
has received the disability certification or a disability certification is deemed to have
been received under the rules of the qualified ABLE program, which information the
qualified ABLE program must file with the IRS in accordance with the filing requirements
under § 1.529A-5(c)(2)(iv). Section 529A(e)(2)(A) defines a disability certification as “a
certification to the satisfaction of the Secretary” by the individual or the parent or
guardian of the individual that (i) certifies that the individual meets the disability standard
and (ii) includes a copy of the individual’s diagnosis signed by a licensed physician.
Section 1.529A-2(e) defines the disability certification to include the required
certifications and a copy of the signed diagnosis, but also provides for certain conditions
to be deemed to meet the requirements of filing a disability certification.
States and potential qualified ABLE program administrators expressed concerns
about their responsibilities and potential liabilities for receiving and safeguarding
medical information contained in a signed diagnosis, particularly when they do not
anticipate having any expertise or ability to evaluate that medical information. The
commenters emphasized that qualified ABLE programs would incur unmanageable

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costs and burdens in trying to comply with applicable laws imposing system and other
requirements on those in possession of medical records, as well as in implementing
systems to receive and store paper documentation. The commenters also expressed
the concern that, if these costs and burdens cannot be minimized, some states may not
proceed with the implementation of qualified ABLE programs for their residents. The
commenters recommended that a qualified ABLE program be permitted to open an
ABLE account on the basis of a certification by the person opening the ABLE account,
signed under penalties of perjury, that the individual has a condition that meets all of the
required elements to qualify as an eligible individual and that a diagnosis signed by a
physician regarding the relevant impairment or impairments has been obtained.
After consideration of these comments, the Treasury Department and the IRS
have concluded that a certification under penalties of perjury that the individual (or the
individual’s agent under a power of attorney or a parent or legal guardian of the
individual) has the signed physician’s diagnosis, and that the signed diagnosis will be
retained and provided to the ABLE program or the IRS upon request, is adequate to
satisfy the Secretary with regard to the requirements of §§ 529A(e)(1)(B) and
529(e)(2)(A) pertaining to the filing of a disability certification. Accordingly, the Treasury
Department and the IRS intend, in the final regulations, to permit such a certification of
eligibility for purposes of satisfying the requirement for filing a disability certification.
The Treasury Department and the IRS anticipate that the final regulations will contain
further details with regard to the information required to be included in the certification,
annual recertifications, and annual reporting. Based on the comments received, the
required information is likely to include the statutory basis for the individual’s eligibility

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(blindness or disability under title II or XVI of the Social Security Act, or a disability
certification); confirmation that the blindness or disability occurred before age 26; the
existence of an impairment that satisfies the required level of marked and severe
functional limitations, if necessary for eligibility; and, if necessary for eligibility,
confirmation of receipt of a written diagnosis relating to the disability, the name and
address of the diagnosing physician, the date of the diagnosis, and identification of the
applicable diagnostic code from those listed on Form 5498-QA. The final regulations
may also provide that the certification may include information provided by the physician
as to the categorization of the disability that could determine, under the particular
State’s program, the appropriate frequency of required recertifications.
VI. RELIANCE
The Treasury Department and the IRS intend that the final regulations, when
issued, will address the three identified issues in the manner indicated in this notice.
Pending the issuance of final regulations, taxpayers may rely on the guidance contained
in this notice. In particular, if a certification used to open a qualified ABLE account
before the issuance of final regulations is consistent with the discussion in section V of
this notice but does not contain other information required by the final regulations, the
account will not lose its qualification as an ABLE account solely for that reason. To the
extent that additional information is required by the final regulations, the final regulations
will provide a transition period to facilitate compliance with the additional requirements.
VII. DRAFTING INFORMATION
The principal authors of this notice are Terri Harris and Sean Barnett, Office of
Associate Chief Counsel (Tax Exempt and Government Entities). For further

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information regarding this notice, contact Ms. Harris at (202) 317-4541, or Mr. Barnett at
(202) 317-5800 (not toll-free numbers).