us-irs-announcements-irb-2010-22-pdf•Internal Revenue Bulletin 2010-22 (PDF rendition): IRS Announcements
Internal Revenue Bulletin 2010-22 (PDF rendition): IRS Announcements
us-irs-announcements-irb-2010-22-pdfInternal Revenue Bulletin 2010-22 (PDF rendition): IRS AnnouncementsGuidance
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 0-22 June 1, 2010 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX Notice 2010–41, page 715. This notice provides that the Treasury Department and the IRS intend to issue regulations under section 7701(a)(4) of the Code that will classify certain domestic partnerships as foreign, solely for the purposes of identifying which U.S. shareholders are required to include amounts in gross income under section 951(a). Notice 2010–44, page 717. Section 45R provides a federal income tax credit to certain small employers that make nonelective contributions towards their employees’ health insurance premiums under an arrange- ment that meets certain requirements. This notice provides guidance on the credit, including guidance for determining el- igibility for the credit, calculating the credit, and claiming the credit. EMPLOYEE PLANS T.D. 9482, page 698. REG–114494–10, page 723. Temporary and proposed regulations under section 9815 of the Code provide guidance on the requirements imposed on group health plans and health insurance issuers under the Pa- tient Protection and Affordable Care Act to continue the depen- dent coverage of children to age 26. EXEMPT ORGANIZATIONS Announcement 2010–40, page 725. The IRS has revoked its determination that Action for Afford- able Housing of Englewood, CO; All Gods Creatures Shelter for Abused & Abandoned Animals of Tampa, FL; Carranor Hunt & Polo Club of Perrysburg, OH; Debt Monster Credit Counseling Services, Inc., of Rancho Santa Margarita, CA; Farm Mutual Insurance of Baltic, SC; Germania Purchasing Group of Bren- ham, TX; Orchard Living View, Inc., of Sterling Heights, MI; Silver Ridge Park Golden Oldies of Toms River, NJ; WJ Con- sumer Credit of Texas of Kyle, TX; Eastland Praise and Worship of Aiken, NC; The Second Chance Foundation, Inc., of Vine- yard Haven, MA; Currier Family Foundation of Salt Lake City, UT; Chipper Preschool & Kindergarten of Chicago, IL; Desi- lynn Multiple Sclerosis Foundation of Layton, UT; Hawaii Con- sumer Credit Counseling Services of Honolulu, HI; The Leonard & Beverly Graham Foundation for the Arts of Salt Lake City, UT; Panther’s House of Pride, Inc., of Decatur, GA; Seed America Foundation of Cummings, GA; Carey C. Jones Memorial Park of Apex, NC; and the Capital Athletic Foundation of Silver Spring, MD, qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Code. EXCISE TAX T.D. 9482, page 698. REG–114494–10, page 723. Temporary and proposed regulations under section 9815 of the Code provide guidance on the requirements imposed on group health plans and health insurance issuers under the Pa- tient Protection and Affordable Care Act to continue the depen- dent coverage of children to age 26. (Continued on the next page) Actions Relating to Court Decisions is on the page following the Introduction. Fi nding Lists begin on page ii. Index for January through June begins on page v. ADMINISTRATIVE Notice 2010–43, page 716. The Department of Treasury and the Service invite public com- ments on recommendations for items that should be included on the 2010–2011 Guidance Priority List. Taxpayers may sub- mit recommendations for guidance at any time during the year. Recommendations submitted by June 11, 2010, will be re- viewed for possible inclusion on the original 2010–2011 Guid- ance Priority List. Recommendations received after June 11, 2010, will be reviewed for inclusion in the next periodic update. Announcement 2010–39, page 724. This document contains a correction to final regulations (T.D. 9350, 2007–2 C.B. 614) that modify the rules relating to the disclosure of reportable transactions under section 6011 of the Code. June 1, 20102010–22 I.R.B. The IRS Mission Provide Americ a’s taxpayers top quality service by helping them understand an d meet their tax responsibilities and by applying the tax law with 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. 2010–22 I.R.B.June 1, 2010 Actions Relati ng to Decisions of the Tax Court It is the policy of the Internal Rev- enue Service t o announce at an early date whether it wil l follow the holdings in cer- tain cases. An Action on Decision is the document maki ng such an announcement. An Action on De cision will be issued at the discreti on of the Service only on unap- pealed issue s decided adverse to the gov- ernment. Gen erally, an Action on Decision is issued whe re its guidance would be help- ful to Servi ce personnel working with the same or simi lar issues. Unlike a Treasury Regulation or a Revenue Ruling, an Action on Decision is not an affirmative statement of Service position. It is not intended to serve as pu blic guidance and may not be cited as pr ecedent. Actions on Decisions shall be relied upon withi n the Service only as conclu- sions appl ying the law to the facts in the particul ar case at the time the Action on Decision was issued. Caution should be exercise d in extending the recommenda- tion of th e Action on Decision to similar cases whe re the facts are different. More- over, th e recommendation in the Action on Decisio n may be superseded by new legis- lation, regulations, rulings, cases, or Ac- tions on Decisions. Prior to 1991, the Service published acquies cence or nonacquiescence only in certain regula r Tax Court opinions. The Service has ex panded its acquiescence program to inc lude other civil tax cases where guidanc e is determined to be help- ful. Accordin gly, the Service now may acquiesce or n onacquiesce in the holdings of memorandu m Tax Court opinions, as well as those of the United States District Courts, Clai ms Court, and Circuit Courts of Appeal. Re gardless of the court decid- ing the case , the recommendation of any ActiononDe cision will be published in the Interna l Revenue Bulletin. The recomme ndation in every Action on Decision will be summarized as ac- quiescence , acquiescence in result only, or nonacqu iescence. Both “acquiescence” and “acqui escence in result only” mean that the Se rvice accepts the holding of the court i n a case and that the Service will foll ow it in disposing of cases with thesamec ontrolling facts. However, “ac- quiescen ce” indicates neither approval nor disap proval of the reasons assigned by the cou rt for its conclusions; whereas, “acquie scence in result only” indicates disagre ement or concern with some or all of those reasons. “Nonacquiescence” sig- nifies t hat, although no further review was sought, the Service does not agree with the hol ding of the court and, generally, will not follow the decision in disposing of cases invol ving other taxpayers. In reference to a n opinion of a circuit court of appeals, a “ nonacquiescence” indicates that the Servi ce will not follow the hold- ingonanation wide basis. However, the Service will recognize the precedential impact of the opinion on cases arising within the ve nue of the deciding circuit. The Actions o n Decisions published in the weekly In ternal Revenue Bulletin are consolidate d semiannually and appear in the first Bu lletin for July and the Cumula- tive Bullet in for the first half of the year. A semiannual consolidation also appears in the first Bu lletin for the following January andintheC umulative Bulletin for the last half of the year. The Commis sioner nonacquiesces in the follow ing decision: Tidewater Inc. and Subsidiaries and Tidewater Foreign Sales Corporation v. United States, 1 565 F. 3d. 2 99 (5th Cir. 2009), aff’g No. 06-875, 2007 U.S. Dist. LEXIS 771 47 (E.D. La. October 17, 2007) 1 Nonacquiesces to whether certain charters entered into between members of Taxpayer’s controlled group and unrelated customers are leases under I.R.C. section 7701(e). June 1, 20102010–22 I.R.B. Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 9815. —Eligibility of Children Until at Least Age 26 26 CFR 54.9815–2714T: Eligibility of children until at least age 26 (temporary). T.D. 9482 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 54 and 602 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2590 RIN 1210–AB41 DEPARTMENT OF HEALTH AND HUMAN SERVICES Office of the Secretary OCIIO–4150–IFC 45 CFR Parts 144, 146, and 147 RIN 0991–AB66 Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Dependent Coverage of Children to Age 26 under the Patient Protection and Affordable Care Act AGENCIES:Internal Revenue Service, Department of the Treasury; Employee Benefits Security Administration, De- partment of Labor; Office of Consumer Information and Insurance Oversight, De- partment of Health and Human Services. ACTION:Interim final rules with request for comments. SUMMARY:This document contains in- terim final regulations implementing the requirements for group health plans and health insurance issuers in the group and individual markets under provisions of the Patient Prote ction and Affordable Care Act regarding dep endent coverage of children who have not at tained age 26. DATES:Effective Date. These interim fi- nal regulations are effective on July 12, 2010. Comment date. Comments are due on or before August 11, 2010. Applicability date. These interim fi- nal regulations generally apply to group health plans and group health insurance is- suers for plan years beginning on or after September 23, 2010. These interim final regulations generally apply to individual health insurance issuers for policy years beginning on or after September 23, 2010. ADDRESSES:Written comments may be submitted to any of the addresses specified below. Any comment that is submitted to any Department will be shared with the other Departments. Please do not submit duplicates. All comments will be made available to the public.WARNING: Do not in- clude any personally identifiable informa- tion (such as name, address, or other con- tact information) or confidential business information that you do not want publicly disclosed. All comments are posted on the Internet exactly as received, and can be retrieved by most Internet search engines. No deletions, modifications, or redactions will be made to the comments received, as they are public records. Comments may be submitted anonymously. Department of Labor. Comments to the Department of Labor, identified by RIN 1210–AB41, by one of the following meth- ods: •FederaleRulemakingPortal: http://www.regulations.gov. Follow the instructions for submitting com- ments. •Email:E-OHPSCA.EBSA@dol.gov. •Mail or Hand Delivery:Officeof Health Plan Standards and Compliance Assistance, Employee Benefits Secu- rity Administration, Room N–5653, U.S. Department of Labor, 200 Con- stitution Avenue NW, Washington, DC 20210,Attention: RIN 1210–AB41. Comments rece ived by the Depart- ment of Labor w ill be posted with- out change tow ww.regulations.govand www.dol.gov /ebsa, and available for pub- lic inspecti on at the Public Disclosure Room, N–1513 , Employee Benefits Se- curity Admin istration, 200 Constitution Avenue, NW, Washington, DC 20210. Department o f Health and Human Ser- vices.Inco mmenting, please refer to file code OCIIO– 4150–IFC. Because of staff and resourc e limitations, we cannot accept comments by facsimile (FAX) transmis- sion. You may subm it comments in one of four ways ( please choose only one of the ways liste d): 1.Electro nically. You may submit electroni c comments on this regulation to http://ww w.regulations.gov. Follow the instructi ons under the “More Search Op- tions” ta b. 2.By regul ar mail.Youmaymail written c omments to the following address ONLY: Office of Consumer Information and Insurance Oversight Department of Health and Human Services, Attention: OCIIO–4150–IFC, P.O. Box 8016, Baltimore, MD 21244–1850. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3.By express or overnight mail.You may send written comments to the follow- ing address ONLY: Off ice of Consumer Information and In surance Oversight, De partment of Health and Human Se rvices, At tention: OCIIO–4150–IFC, Ma il Stop C4–26–05, 75 00 Security Boulevard, B altimore, MD 21244–1850. 4.By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses: 2010–22 I.R.B.698June 1, 2010 a. For delivery in Washington, DC— Office of Consumer Information and Insurance Oversight, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201 (Because access to the interior of the Hubert H. Humphrey Building is not read- ily available to persons without Federal government identification, commenters are encouraged to leave their comments in the OCIIO drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retain- ing an extra copy of the comments being filed.) b. For delivery in Baltimore, MD— Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244–1850 If you intend to deliver your comments to the Baltimore address, please call (410) 786–7195 in advance to schedule your ar- rival with one of our staff members. Comments mailed to the addresses in- dicated as appropriate for hand or courier delivery may be delayed and received after the comment period. Submission of comments on paperwork requirements. You may submit comments on this document’s paperwork require- ments by following the instructions at the end of the “Collection of Information Re- quirements” section in this document. Inspection of Public Comments:All comments received before the close of the comment period are available for view- ing by the public, including any person- ally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the fol- lowing website as soon as possible after they have been received:http://www.regu- lations.gov. Follow the search instructions on that Web site to view public comments. Comments received timely will also be available for public inspection as they are received, generally beginning approximately three weeks after publica- tion of a document, at the headquarters of the Centers for Medicare & Med- icaid Services, 7500 Security Boule- vard, Baltimore, Maryland 21244, Mon- day through Friday of each week from 8:30 a.m. to 4 p.m. EST. To schedule an appointment to view public comments, phone 1–800–743–3951. Internal Revenue Service. Comments to the IRS, identified by REG–114494–10, by one of the following methods: •FederaleRulemakingPortal: http://www.regulations.gov. Follow the instructions for submitting com- ments. •Mail:CC:PA:LPD:PR (REG–114494–10), room 5205, Inter- nal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. •Hand or courier delivery: Monday through Friday between the hours of 8a.m.and4p.m.to:CC:PA:LPD:PR (REG–114494–10), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington DC 20224. All submissions to the IRS will be open to public inspection and copying in room 1621, 1111 Constitution Avenue, NW, Washington, DC from 9 a.m. to 4 p.m. FOR FURTHER INFORMATION CONTACT:Amy Turner or Beth Baum, Employee Benefits Security Adminis- tration, Department of Labor, at (202) 693–8335; Karen Levin, Internal Revenue Service, Department of the Treasury, at (202) 622–6080; Jim Mayhew, Office of Consumer Information and Insurance Oversight, Department of Health and Hu- man Services, at (410) 786–1565. CUSTOMERSERVICE INFORMATION:Individuals inter- ested in obtaining information from the Department of Labor concerning employment-based health coverage laws may call the EBSA Toll-Free Hotline at 1–866–444–EBSA (3272) or visit the Department of Labor’s website (http://www.dol.gov/ebsa).In addi- tion, information from HHS on private health insurance for consumers can be found on the Centers for Medicare & Medicaid Services (CMS) website (http://www.cms.hhs.gov/HealthInsRe- formforConsume/01_Overview.asp). SUPPLEMENTARY INFORMATION: I. Background The Patient Protection and Affordable CareAct(theAffordableCareAct),Pub- lic Law 111–148, was enacted on March 23, 2010; the Health Care and Education Reconciliation Act (the Reconciliation Act), Public Law 111–152, was enacted on March 30, 2010. The Affordable Care Act and the Reconciliation Act reorganize, amend, and add to the provisions of part A of title XXVII of the Public Health Service Act (PHS Act) relating to group health plans and health insurance issuers in the group and individual markets. The term “group health plan” includes both insured and self-insured group health plans. 1 The Affordable Care Act adds section 715 to the Employee Retirement Income Security Act (ERISA) and section 9815 to the Inter- nal Revenue Code (the Code) to make the provisions of part A of title XXVII of the PHS Act applicable under ERISA and the Code to group health plans, and health in- surance issuers providing health insurance coverage in connection with group health plans, as if those provisions of the PHS Act were included in ERISA and the Code. The PHS Act sections incorporated by this reference are sections 2701 through 2728. PHS Act sections 2701 through 2719A are substantially new, though they incorporate some provisions of prior law. PHS Act sections 2722 through 2728 are sections of prior law renumbered with some, mostly minor, changes. Section 1251 of the Af- fordable Care Act, as modified by section 10103 of the Affordable Care Act and section 2301 of the Reconciliation Act, specifies that certain plans or coverage existing as of the date of enactment (i.e., grandfathered health plans) are subject to only certain provisions. 1 The term “group health plan” is used in title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is distinct from the term “health plan”,as used in other provisions of title I of the Affordable Care Act. The term “health plan” does not include self-insured group health plans. June 1, 20106992010–22 I.R.B. Subtitles A and C of title I of the Affordable Care Act amend the require- ments of title XXVII of the PHS Act (changes to which are incorporated into ERISA section 715). The preemption pro- visions of ERISA section 731 and PHS Act section 2724 2 (implemented in 29 CFR 2590.731(a) and 45 CFR 146.143(a)) apply so that the requirements of the Af- fordable Care Act are not to be “construed to supersede any provision of State law which establishes, implements, or contin- ues in effect any standard or requirement solely relating to health insurance issuers in connection with group or individual health insurance coverage except to the extent that such standard or requirement prevents the application of a requirement” of the Affordable Care Act. Accordingly, State laws that impose on health insurance issuers stricter requirements than those imposed by the Affordable Care Act will not be superseded by the Affordable Care Act. The Departments of Health and Hu- man Services, Labor, and the Treasury (the Departments) expect to issue regula- tions implementing the revised PHS Act sections 2701 through 2719A in several phases. The first publication in this series was a Request for Information relating to the medical loss ratio provisions of PHS Act section 2718, published in theFederal Registeron April 14, 2010 (75 FR 19297). These interim final regulations are being published to implement PHS Act section 2714 (requiring dependent coverage of children to age 26). PHS Act section 2714 generally is effective for plan years (in the individual market, policy years) beginning on or after September 23, 2010, which is six months after the March 23, 2010 date of enactment of the Affordable Care Act. 3 The implementation of other provisions of PHS Act sections 2701 through 2719A and section 1251 of the Affordable Care Act will be addressed in future regulations. Because subtitles A and C of title I of the Affordable Care Act contain require- ments that are applicable to both the group and individual health insurance markets, it would be duplicative to insert the require- ments into both the existing 45 CFR part 146 (Requirements for the Group Health Insurance Market) and 45 CFR part 148 (Requirements for the Individual Health Insurance Market). Accordingly, these in- terim final regulations create a new part 147 in subchapter B of 45 CFR to imple- ment the provisions of the Affordable Care Act. The provisions of the Affordable Care Act, to the extent that they apply to group health plans and group health insurance coverage, are also implemented under new regulations added to 29 CFR part 2590 and 26 CFR part 54. II. Overview of the Regulations A.PHS Act Section 2714, Continued Eligibility of Children until Age 26 (26 CFR 54.9815–2714, 29 CFR 2590.715–2714, 45 CFR 147.120) Section 2714 of the PHS Act, as added by the Affordable Care Act (and amended by the Reconciliation Act), and these in- terim final regulations provide that a plan or issuer that makes available dependent coverage 4 of children must make such coverage available for children until at- tainment of 26 years of age. The statute also requires the issuance of regulations to “define the dependents to which coverage shall be made available” under this rule. Many group health plans that provide dependent coverage limit the coverage to health coverage excludible from employ- ees’ gross income for income tax purposes. Thus, dependent coverage is limited to em- ployees’ spouses and employees’ children that qualify as dependents for income tax purposes. Consequently, these plans often condition dependent coverage, in addition to the age of the child, on student status, residency, and financial support or other factors indicating dependent status. How- ever, with the expansion of dependent cov- erage required by the Affordable Care Act to children until age 26, conditioning cov- erage on whether a child is a tax dependent or a student, or resides with or receives financial support from the parent, is no longer appropriate in light of the correla- tion between age and these factors. There- fore, these interim final regulations do not allow plans or coverage to use these re- quirements to deny dependent coverage to children. Because the statute does not dis- tinguish between coverage for minor chil- dren and coverage for adult children under age 26, these factors also may not be used to determine eligibility for dependent cov- erage for minor children. Accordingly, these interim final regula- tions clarify that, with respect to children who have not attained age 26, a plan or issuer may not define dependent for pur- poses of eligibility for dependent coverage of children other than in terms of the re- lationship between the child and the par- ticipant (in the individual market, the pri- mary subscriber). Examples of factors that cannot be used for defining dependent for purposes of eligibility (or continued eligi- bility) include financial dependency on the participant or primary subscriber (or any other person), residency with the partici- pant or primary subscriber (or any other person), student status, employment, eli- gibility for other coverage, or any combi- nation of these. These interim final reg- ulations also provide that the terms of the plan or policy for dependent coverage can- not vary based on the age of a child, ex- cept for children age 26 or older. Exam- ples illustrate that surcharges for cover- age of children under age 26 are not al- lowed except where the surcharges apply regardless of the age of the child (up to age 26) and that, for children under age 26, the plan cannot vary benefits based on the age of the child. The Affordable Care Act, as originally enacted, required plans and issuers to make dependent coverage available only to a child “who is not mar- ried.” This language was struck by section 2301(b) of the Reconciliation Act. Ac- cordingly, under these interim final regu- lations, plans and issuers may not limit de- pendent coverage based on whether a child is married. (However, a plan or issuer is not required under these interim final reg- ulations to cover the spouse of an eligible child). The statute and these interim final reg- ulations provide that nothing in PHS Act 2 Code section 9815 incorporates the preemption provisions of PHS Act section 2724. Prior to the Affordable Care Act, there were no express preemption provisions in chapter 100 of the Code. 3 Seesection 1004 of the Affordable Care Act. 4 For purposes of these interim final regulations, dependent coverage means coverage of any individual under the terms of a group health plan, or group or individual health insurance coverage, because of the relationship to a participant (in the individual market, primary subscriber). 2010–22 I.R.B.700June 1, 2010 section 2714 requires a plan or issuer to make available coverage for a child of a child receiving dependent coverage. Under section 1004(d) of the Recon- ciliation Act and IRS Notice 2010–38 (released to the public on April 27, 2010 and scheduled to be published in 2010–20 Internal Revenue Bulletin, May 17, 2010), employers may exclude from the em- ployee’s income the value of any em- ployer-provided health coverage for an employee’s child for the entire taxable year the child turns 26 if the coverage continues until the end of that taxable year. This means that if a child turns 26 in March, but stays on the plan past Decem- ber 31st (the end of most people’s taxable year), the health benefits up to December 31st can be excluded for tax purposes. Application to grandfathered health plans. Under the statute and these interim final regulations, the requirement to make available dependent coverage for children who have not attained age 26 generally applies to all group health plans and health insurance issuers offering group or indi- vidual health insurance coverage whether or not the plan or health insurance cov- erage qualifies as a grandfathered health plan 5 under section 1251 of the Affordable Care Act, for plan years (in the individ- ual market, policy years) beginning on or after September 23, 2010. However, in accordance with section 2301(a) of the Reconciliation Act, for plan years begin- ning before January 1, 2014, these interim final regulations provide that a grandfa- thered health plan that is a group health plan that makes available dependent cov- erage of children may exclude an adult child who has not attained age 26 from coverage only if the child is eligible to en- roll in an employer-sponsored health plan (as defined in section 5000A(f)(2) of the Code) other than a group health plan of a parent. In the case of an adult child who is eligible for coverage under the plans of the employers of both parents, neither plan may exclude the adult child from coverage based on the fact that the adult child is eligible to enroll in the plan of the other parent’s employer. Regulations relating to grandfathered health plans under section 1251 of the Affordable Care Act are expected to be published in the very near future. The De- partments anticipate that the regulations will make clear that changes to plan or pol- icy terms to comply with PHS Act section 2714 and these interim final regulations, including voluntary compliance before plan years (in the individual market, pol- icy years) beginning on or after September 23, 2010, will not cause a plan or health insurance coverage to lose grandfathered health plan status for any purpose under theAffordableCareAct,asamended. Transitional Rule. Prior to the applica- bility date of PHS Act section 2714, a child who was covered under a group health plan or health insurance coverage as a depen- dent may have lost eligibility under the plan (or coverage) due to age prior to age 26. Moreover, if, when a parent first be- came eligible for coverage, a child was un- der age 26 but older than the age at which the plan (or coverage) stopped covering children, the child would not have become eligible for the plan (or coverage). When the provisions of section 2714 become ap- plicable, a plan or issuer can no longer ex- clude coverage for the child prior to age 26 irrespective of whether or when that child was enrolled in the plan (or coverage). Also, a child of a primary subscriber with family coverage in the individual market may be entitled to an opportunity to enroll if the child previously lost coverage due to age while other family members retained the coverage. 6 Accordingly, these interim final regula- tions provide transitional relief for a child whose coverage ended, or who was denied coverage (or was not eligible for coverage) under a group health plan or health insur- ance coverage because, under the terms of the plan or coverage, the availability of de- pendent coverage of children ended before the attainment of age 26. These interim final regulations require a plan or issuer to give such a child an oppor- tunity to enroll that continues for at least 30 days (including written notice of the op- portunity to enroll), regardless of whether the plan or coverage offers an open enroll- ment period and regardless of when any open enrollment period might otherwise occur. This enrollment opportunity (in- cluding the written notice) must be pro- vided not later than the first day of the first plan year (in the individual market, pol- icy year) beginning on or after September 23, 2010. Thus, many plans can use their existing annual enrollment periods (which commonly begin and end before the start of the plan year) to satisfy the enrollment opportunity requirement. If the child is en- rolled, coverage must begin not later than the first day of the first plan year (in the in- dividual market, policy year) beginning on or after September 23, 2010, even if the re- quest for enrollment is made after the first day of the plan year. In subsequent years, dependent coverage may be elected for an eligible child in connection with normal enrollment opportunities under the plan or coverage. Under these interim final regulations, the notice may be provided to an em- ployee on behalf of the employee’s child (in the individual market, to a primary subscriber on behalf of the primary sub- scriber’s child). In addition, for a group health plan or group health insurance cov- erage, the notice may be included with other enrollment materials that a plan distributes to employees, provided the statement is prominent. For a group health plan or group health insurance coverage, if a notice satisfying these requirements is provided to an employee whose child is entitled to an enrollment opportunity, the obligation to provide the notice of enroll- ment opportunity with respect to that child is satisfied for both the plan and the issuer. Any child enrolling in group health plan coverage pursuant to this enrollment right must be treated as a special enrollee, as provided under the regulations interpret- ing the HIPAA portability provisions. 7 Ac- cordingly, the child must be offered all the benefit packages available to similarly sit- 5 Section 1251 of the Affordable Care Act, as modifiedby section 10103 of the Affordable Care Act and section 2301 of the Reconciliation Act, specifies that certain plans or coverage existing as of the March 23, 2010 date of enactment (i.e., grandfathered health plans) are subject to only certain provisions. 6 In the group market, section 9802(a) of the Code, section 702(a) of ERISA, and section 2705 of the PHS Act provide that a plan or issuer cannot impose any rule for eligibility for benefits (including any rule excluding coverage) based on a health factor, including a preexisting condition. These rules were added by HIPAA and generally became applicable for group health plans for plan years beginning on or after July 1, 1997. Similar guidance regarding re-enrollment rights for individuals previously denied coveragedue to a health factor was issued by the Departments of the Treasury, Labor, and HHS on December 29, 1997, at62 FR 67689 and on January 8, 2001at 66 FR 1378, 1403, 1410, 1418. 7 HIPAA is the Health Insurance Portability and Accountability Act of 1996 (Public Law 104–191). Regulations regarding the treatment of HIPAA specialenrollees are included at 26 CFR 54.9801–6(d), 29 CFR 2590.701–6(d), and 45 CFR 146.117(d). June 1, 20107012010–22 I.R.B. uated individuals who did not lose cover- age by reason of cessation of dependent status. The child also cannot be required to pay more for coverage than similarly situ- ated individuals who did not lose coverage by reason of cessation of dependent status. The Departments have been informed that many health insurance issuers have announced that they will allow continued coverage of adult children before such coverage is required by the Affordable Care Act. A plan or issuer that allows con- tinued coverage of adult children before beingrequiredtodosobytheAffordable Care Act is not required to provide the enrollment opportunity with respect to children who do not lose coverage. Examples in these interim final regu- lations illustrate the application of these transitional rules. One example illustrates that, if a child qualifies for an enrollment opportunity under this section and the par- ent is not enrolled but is otherwise eligible for enrollment, the plan must provide an opportunity to enroll the parent, in addition to the child. Similarly, another example il- lustrates that, if a plan has more than one benefit package option, a child qualifies for enrollment under this section, and the parent is enrolled in one benefit package option, the plan must provide an opportu- nity to enroll the child in any benefit pack- age option for which the child is otherwise eligible (thus allowing the parent to switch benefit package options). Another exam- ple illustrates that a child who qualifies for an enrollment opportunity under this sec- tion and who is covered under a COBRA continuation provision must be given the opportunity to enroll as a dependent of an active employee (i.e., other than as a CO- BRA-qualified beneficiary). In this situa- tion, if the child loses eligibility for cov- erage due to a qualifying event (including aging out of coverage at age 26), the child has another opportunity to elect COBRA continuation coverage. (If the qualifying event is aging out, the COBRA continua- tion coverage could last 36 months from the loss of eligibility that relates to turn- ing age 26.) The final example in this section illustrates that an employee who joined a plan prior to the applicability date of PHS Act section 2714, and has a child who never enrolled because the child was too old under the terms of the plan but has not yet turned 26, must be provided an op- portunity to enroll the child under this sec- tion even though the child was not previ- ously covered under the plan. If the parent is no longer eligible for coverage under the plan (for example, if the parent has ceased employment with the plan sponsor) as of the first date on which the enrollment op- portunity would be required to be given, the plan would not be required to enroll the child. B.Conforming Changes under the PHS Act 1.References to the Public Health Service Act Conforming changes to references to sections of title XXVII of the PHS Act are made throughout parts 144 and 146 of title 45 of the Code of Federal Regulations to reflect the renumbering of certain sections by the Affordable Care Act. 2.Definitions (45 CFR 144.103) These interim final regulations define “policy year” as the 12-month period that is designated in the policy documents of individual health insurance coverage. If the policy document does not designate a policy year (or no such document is avail- able), then the policy year is the deductible or limit year used under the coverage. If deductibles or other limits are not imposed on a yearly basis, the policy year is the cal- endar year. The Affordable Care Act uses the term “plan year” in referring to the pe- riod of coverage in both the individual and group health insurance markets. The term “plan year”, however, is generally used in the group health insurance market. Ac- cordingly, these interim final regulations substitute the term “policy year” for “plan year” in defining the period of coverage in the individual health insurance market. III. Interim Final Regulations and Request for Comments Section 9833 of the Code, section 734 ofERISA,andsection2792ofthePHS Act authorize the Secretaries of the Trea- sury, Labor, and HHS (collectively, the Secretaries) to promulgate any interim fi- nal rules that they determine are appropri- ate to carry out the provisions of chapter 100 of the Code, part 7 of subtitle B of ti- tle I of ERISA, and part A of title XXVII of the PHS Act, which include PHS Act sec- tions 2701 through 2728 and the incorpo- ration of those sections into ERISA section 715 and Code section 9815. In addition, under Section 553(b) of the Administrative Procedure Act (APA) (5 U.S.C. 551et seq.) a general notice of proposed rulemaking is not required when an agency, for good cause, finds that notice and public comment thereon are impracticable, unnecessary, or contrary to the public interest. The provisions of the APA that ordinarily require a notice of pro- posed rulemaking do not apply here be- cause of the specific authority granted by section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act. However, even if the APA was applica- ble, the Secretaries have determined that it would be impracticable and contrary to the public interest to delay putting the pro- visions in these interim final regulations in place until a full public notice and com- ment process is completed. The statutory requirement implemented in these interim final regulations was enacted on March 23, 2010, and applies for plan years (in the in- dividual market, policy years) beginning on or after September 23, 2010. Having a binding rule in effect is critical to ensuring that individuals entitled to the new protec- tions being implemented have these pro- tections uniformly applied. Moreover, the provisions in these in- terim final regulations require lead time for implementation. These interim final regu- lations require that anenrollment period be provided no later than the first day the obli- gation to allow dependent children to en- roll until attainment of age 26 takes effect. Preparations presumably would have to be made to put such an enrollment process in place. Group health plans and health insurance issuers also would have to take the cost associated with this new obliga- tion into account in establishing their pre- miums, and in making other changes to the designs of plan or policy benefits, and any such premiums and changes would have to receive necessary approvals in advance of the plan or policy year in question. For the foregoing reasons, the De- partments have determined that it is es- sential to provide certainty about what will be required of group health plans and health insurance issuers under the statutory requirements implemented in binding regulations as far in advance of 2010–22 I.R.B.702June 1, 2010 September 23, 2010 as possible. This makes it impracticable to engage in full notice and comment rulemaking before putting regulations into effect, and in the public interest to do so through interim final regulations under which the public will have an opportunity for comment, but that opportunity will not delay putting rules in effect (a delay that could possibly last past September 23, 2010). Issuance of proposed regulations would not be sufficient because the proposed reg- ulations would not be binding, and differ- ent group health plans or health insurance issuers could interpret the statutory lan- guage in different ways. Had the Depart- ments published a notice of proposed rule- making, provided for a 60-day comment period, and only then prepared final regu- lations, which would be subject to a 60-day delay in effective date, it is unlikely that it would have been possible to have final regulations in effect before late Septem- ber, when these requirements could be in effect for some plans or policies. It there- fore is in the public interest that these in- terim final regulations be in effect and ap- ply when the statutory protections being implemented apply. IV. Economic Impact and Paperwork Burden A.Summary—Department of Labor and Department of Health and Human Services As stated earlier in this preamble, these interim final regulations implement PHS Act section 2714, which requires plans or issuers that make dependent coverage available for children to continue to make such coverage available for an adult child until the attainment of age 26. The reg- ulation also provides an enrollment op- portunity to individuals who lost or were not eligible for dependent coverage before age 26. 8 This provision generally is effec- tive for plan years (in the individual mar- ket, policy years) beginning on or after September 23, 2010, which is six months after the March 23, 2010 date of enactment of the Affordable Care Act. The Departments have crafted these interim final regulations to secure the pro- tections intended by Congress in the most economically efficient manner possible. The Departments havequantified costs where possible and provided a qualitative discussion of the economic benefits and some of the transfers and costs that may stem from these interim final regulations. B.Executive Order 12866—Department of Labor and Department of Health and Human Services Under Executive Order 12866 (58 FR 51735), this regulatory action has been de- termined “significant” and therefore sub- ject to review by the Office of Manage- ment and Budget (OMB). Section 3(f) of the Executive Order defines a “significant regulatory action” as an action that is likely to result in a rule (1) having an annual ef- fect on the economy of $100 million or more in any one year, or adversely and ma- terially affecting a sector of the economy, productivity, competition, jobs, the envi- ronment, public health or safety, or State, local or tribal governments or communi- ties (also referred to as “economically sig- nificant”); (2) creating a serious inconsis- tency or otherwise interfering with an ac- tion taken or planned by another agency; (3) materially altering the budgetary im- pacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. OMB has determined that this regulation is economically significant within the mean- ing of section 3(f)(1) of the Executive Or- der, because it is likely to have an annual effect on the economy of $100 million in any one year. Accordingly, OMB has re- viewed these rules pursuant to the Exec- utive Order. The Departments provide an assessment of the potential costs, benefits, and transfers associated with the regula- tory provision below. The Departments in- vite comments on this assessment and its conclusions. 1.Need for Regulatory Action PHS Act section 2714, as added by the Affordable Care Act and amended by the Reconciliation Act requires group health plans and health insurance issuers offering group or individual health insurance cov- erage that make dependent coverage avail- able for children to continue to make cov- erage available to such children until the attainment of age 26. With respect to a child receiving dependent coverage, cov- erage does not have to be extended to a child or children of the child or a spouse of the child. In addition, as provided by the Reconciliation Act, grandfathered group health plans are not required to offer de- pendent coverage to a child under 26 who is otherwise eligible for employer-spon- sored insurance other than a group health plan of a parent for plan years beginning before January 1, 2014. PHS Act section 2714 generally is effective for plan years (in the individual market, policy years) be- ginning on or after September 23, 2010. Thus, these interim final regulations are necessary to amend the Departments’ ex- isting regulations to implement these statu- torily mandated changes. 2.Summary of Impacts In this section, the Departments esti- mate the number of individuals affected by these interim final regulations, and the impact of the regulations on health insur- ance premiums in the group and individ- ual markets. Beginning with the popula- tion of individuals age 19–25, the number of individuals potentially affected is esti- mated by applying several criteria includ- ing whether their parents have existing em- ployer-sponsored insurance (ESI) or an in- dividual market policy; and whether the in- dividuals are themselves uninsured, have ESI, individual market policies or other forms of coverage. A range of assump- tions concerning the percentage of the po- tentially affected individuals that will ac- cept the offer of new dependent coverage — “take-up” rates— is then applied to esti- mate the number of newly covered individ- uals. The premium impact is calculated by using an estimated incremental insurance cost per newly-covered individual as a per- cent of average family premiums. 8 The Affordable Care Act adds section 715 and Code section to make the provisions of part A of title XXVII of the PHS Actapplicable to group health plans, and health insurance issuers providing health insurance coverage in connection with group health plans, under ERISA and the Code as if those provisions of the PHS Act were includedin ERISA and the Code. The PHS Act sections incorporated by this reference are sections 2701 through 2728. Section 1251 of the Affordable Care Act provides rules for grandfatheredhealth plans, and these rules are further clarified in section 10103 of the Affordable CareActandsection2301oftheReconciliationAct. June 1, 20107032010–22 I.R.B. In accordance, with OMB Circular A–4, 9 Table 1 below depicts an account- ing statement showing the Departments’ assessment of the benefits, costs, and transfers associated with this regulatory action. TABLE 1.—Accounting Table Benefits Annualized Quantified:low estimate0.19 million previously uninsured individuals gain coverage in 2011 mid-range estimate 0.65 million previously uninsured individuals gain coverage in 2011 high estimate1.64 million p reviously uninsured individuals gain coverage in 2011 Qualitative: Expanding coverage options of the 19–25 population should decrease the number uninsured, which in turn should decrease the cost-shifting of uncompensated care onto those withinsurance, increase the receiptof preventive health care and provide more timely access to highquality care, resulting in a healthier population. Allowing extended dependent coverage will also permit greater job mobility for this population as their insurance coverage will no longer be tied to their own jobs or student status. Dependents aged 19–25 that have chronic or other serious health conditions would still be able to continue their current coverage through a parent’s plan. To the extent there is an increase in beneficial utilization of healthcare, health could improve. Costs 10 Low Estimate Mid- range Estimate High Estimate Year Dollar Discount Rate Period Covered 11 Annualized Monetized ($millions/year) 11.211.211.220107%2011–2013 10.410.410.420103%2011–2013 A one-time notice of right to enroll must be sent to those affected. Qualitative: To the extent additional coverage increases utilization of health care services, there will be additional costs incurred to achieve the health benefits. Transfer 12 Annualized Monetized ($millions/year) 3,459.35,250.2 6,893.920107%2011–2013 3,482.55,274.56,895.4 20103%2011–2013 Qualitative: If the rule causes family health insurance premiums to increase, there will be a transfer from individuals with family health insurance coverage who do not have dependents aged 19–25 to those individuals with family health insurance coverage that have dependents aged 19–25. To the extent that these higher premiums result in lower profits or higher prices for the employer’s product, then the higher premiums will result in a transfer either from stockholders or consumers. 3.Estimated Number of Affected Individuals The Departments’ estimates in this section are based on the 2004–2006 Med- ical Expenditure Panel Survey Household Component (MEPS-HC) which was pro- jected and calibrated to 2010 to be con- sistent with the National Health Accounts projections. The Departments estimate that in 2010, there are approximately 29.5 million individuals aged 19–25 (young adults) in the United States. Of those indi- viduals, 9.3 million young adults (of whom 3.1 million are uninsured) do not have a parent who has either ESI or non-group insurance, and thus they have no access to dependent coverage. As shown in Table 2, amongtheremaining20.2millionyoung adults whose parents are covered either by ESIorbynon-groupinsurance: •3.44 million are currently uninsured, •2.42 million are covered by their own non-group insurance, •5.55 million are covered by their own ESI, •5.73 million are already on their par- ent’s or spouse’s ESI, and •3.01 million have some other form of coverage such as Medicaid or TRICARE. 9 Available at http://www.whitehouse.gov/omb/circulars/a004/a–4.pdf. 10 The cost estimates are annualize across the years 2011–2013, and reflects a single point estimate of the cost to send out a notice in the first year only. 11 The Departments limited the period covered by the RIA to 2011–2013, because it only has reliable data to make projections over this period due to the fact that in 2014, things will change drastically when the subsidies and tax credits to offset premium increases and the exchanges are in effect. 12 The estimates in this table reflect the annualized discounted value in 2010 of the additional premium costs for family policies calculated as the product of the newly covered dependents in each year from 2011–2013 (see below) and an incremental cost per newly-covered person in those years (see below). 2010–22 I.R.B.704June 1, 2010 Table 2.—Young Adults Aged 19–25 by Insurance Status UninsuredNon-GroupOwn ESI ESI as a DependentOtherTotal Total U.S. Population Aged 19–256.592.69 6.98 5.757.529.5 All Young Adults in U.S. with a Parent with a Policy by Young Adult Insurance Status Parents have ESI 3.282.035.325.73 2.9119.27 Parents have non-group 0.160.40 0.23—0.100.88 Subtotal A3.442.425.555.73 3.01 20.15 *Theboldednumbers are potentially affected by the regulation. Source: MEPS 2004–2006 HC Surveys, controlled to 2010 consistent with the National Health Accounts. Note: Total number of young adults, age 19–25 is 29.5 million; the 20.15 million in this Table are the subset whose parents have either ESI or non-group coverage. Initially, the subset of this group of young adults that will be affected by these interim final regulations are those who are either uninsured (3.44 million) or covered by individual coverage (2.42 million). The statute does not require grandfathered group health plans to offer coverage to young adults who currently have their own ESI or an offer of an ESI. For the purposes of this analysis, it is assumed that all plans begin 2011 with grandfathered status. These impacts could change if plans lose their Grandfathered status. Of these 5.86 million young adults, as shown in Table 3, 3.49 million are also un- likely to switch to their parents’ coverage because: •They are already allowed to enroll in extended dependent coverage for young adults through their State’s ex- isting laws, but have chosen not to (2.61 million). Thirty-seven states already have requirements concern- ing dependent coverage in the group market, although most of these are sub- stantially more restrictive than those contained in this regulation. 13 Using information about State laws obtained from the Kaiser Family Foundation, 14 aStatebyStateprofileofStatere- quired coverage based on a person’s State of residence, age, student status, and living situation was developed. This profile was then overlaid on MEPS data to obtain an estimate of the number of individuals that would newly become eligible for coverage due to these interim final regulations. •They have an offer of ESI and have parents who are covered by ESI (0.48 million). For the purposes of this reg- ulatory impact statement, the Depart- ments assume that the parents of these young adults will be in grandfathered group health plans, and thus that these young adults will not be affected by the provisions of these interim final regu- lations. To the extent that some of the coverage in which these parents are en- rolled is not grandfathered, the effect of these interim final regulations will be larger than the estimates provided here. •Finally, there are 0.40 million young adults who have non-group coverage and whose parents have non-group coverage.Because the parents’ non-group coverage is underwritten, there is not likely to be any financial benefit to the family in moving the young adult onto the parents’ cover- age, and the Departments assume that these young adultswill not be affected by the regulation. 13 Restrictions include requirements for financial dependency, student status, and age limits. 14 As described in Kaiser Family Foundation, Definition of Dependency by Age, 2010, KFF State Health Facts, at http://www.statehealthfacts.org/comparetable.jsp?ind=601&cat=7. June 1, 20107052010–22 I.R.B. TABLE 3.—“Uninsured” and “Non-group” Young Adults Unlikely to be Affected by Extending Dependent Coverage to Age 26 UninsuredNon-Group CoverageTotal 1) Young adults potentially covered by parent ESI due to state law 1.301.312.61 2) Young adults with an offer of ESI whose parents have ESI 0.310.170.48 3) Young adults with non-group coverage whose parents have non-group coverage 0.400.40 Subtotal B1.611.883.49 As shown in Table 4, this leaves ap- proximately 2.37 million young adults who might be affected by this provision, or approximately eight percent of the 29.5 million young adults in the age group. Among the approximately 2.37 million youngadultswhoareestimatedtobe potentially affected by this provision, ap- proximately 1.83 million are currently uninsured, and 0.55 million are currently covered by their own non-group coverage. TABLE 4 .—Youn g Adults Potentially Affected by Extending Dependent Coverage to Age 26 UninsuredNon-Group Cov erage Total Parents have E SI 1.67 0.55 2.21 Parents have non-group0.160.16 Total (Subtotal A-Subtotal B)*1.83 0.55 2.37 Source: MEPS 2004–2006 HC Surveys, controlled to 2010 consistent with projections of the National Health Accounts. *Subtotal A is in Table 2 and Subtotal B is in Table 3. It is difficult to estimate precisely what fraction of the 2.37 million young adults who might potentially be affected by the provision will actually enroll on their par- ents’ coverage. A study by Monheit and Cantor of the early experience in States that have extended coverage to dependents suggests that few uninsured children in these States shift to their parents’ policy. 15 However, data and methodological diffi- culties inevitably lead to substantial uncer- tainty about the finding. The Departments considered two other points of reference to estimate take-up rates. One is the work that has analyzed take-up rates among people made newly eligible for public coverage by Medic- aid expansions. These studies suggest take-up rates in the range of 10–34 per- cent. 16 However, the populations eligible for these expansions have different so- cio-demographic compositions than those eligible for the dependent coverage pro- visions covered under these interim final regulations, and the decision to take-up Medicaid is clearly different than the deci- sion to cover a child on a parent’s private insurance policy. A second point of refer- ence are estimates from the Kaiser/HRET Employer Health benefits Survey 17 which suggest that, depending on the size of the worker contribution, between 77 percent and 90 percent of employees accept offers of family policies. Again, these estimates would be based on a group that differs in characteristics from those eligible for new dependent coverage. These concerns notwithstanding, the analyses of Medicaid expansions and employee take-up of em- ployer sponsored coverage provide useful points of reference. Recognizing the uncertainty in the area, the Departments produced a range of assumptions concerning take-up rates. In developing the range of take-up rates, the Departments assume that these rates will vary by the following factors: (1) the young adult’s current health coverage status (uninsured young adults are less likely to take advantage of the depen- dent coverage option than young adults 15 Monheit, A., J. Cantor, et al, “State Policies Expanding Dependent Coverage to Young Adults in Private Health Insurance Plans,” presented at the Academy Health State Health Research and Policy Interest Group Meeting, Chicago IL, June 27, 2009. 16 Bansak, Cynthia and Steven Raphael. “The Effects of State Policy Design Features on Take-Up and Crowd-out Rates fro the State Children’s Health Insurance Program.” Journal of Policy Analysis and Management, Vol. 26, No. 1, 149–175. 2006. Find that for the time period 1998–2002 take-up rates for SCHIP were about 10 percent. Currie, Janet and Jonathan Gruber. “Saving babies:The Efficacy and Cost of Recent Changes in Medicaid Eligibility of Pregnant Women.” The Journal ofPolitical Economy, Vol. 104, No. 6, Dec. 1996, pp. 1263–1296. Find for Medicaid expansions during the 1979–1992 period the take-up rate for eligible pregnant women was 34 percent. Cutler, David and Jonathan Gruber. “Does Public Insurance Crowd Out Private Insurance?” The Quarterly Journal of Economics, Vol. 111, No. 2, May 1996, pp. 391–430. Find that for the Medicaid expansions from 1987–1992 the take-up rate for the uninsured is close to 30 percent, while for pregnant women it was seven percent. Gruber, Jonathan and Kosali Simon. “Crowd-Out Tenyears Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?” NBERWorking Paper 12858. January 2007. Find that for the Medicaid expansions during 1996–2002 the take-up rate was 7 percent across all children, but nearly one-third for uninsured children. 17 Found at http://www.kff.org/insurance/snapshot/chcm020707oth.cfm 2010–22 I.R.B.706June 1, 2010 already covered by non-group insurance, because young adults who have purchased non-group insurance have shown a strong preference for coverage, and can almost always save money and get better cover- age by switching to their parents’ policy); (2) the young adult’s health status (young adults in fair or poor health are more likely to take advantage of the option than those in excellent, very good or good health), and (3) the young adult’s living situation (those living with their parents are more likely to take up the option than those not living with their parents). The almost fully covered or “high” take-up rate scenario assumes that re- gardless of health or insurance status, 95 percent of young adults living at home and 85 percent of thosenot living at home would move to dependent coverage. For the mid-range scenario, the Departments assume that relative to the high take-up rate scenario, 90 percent of the uninsured whose health status was fair or poor health and50percentofthoseingoodtoex- cellent health would move to dependent coverage. In the low take-up rate scenario, the Departments adjusted the percentages to 80 percent and 10 percent of the high take-up rate scenario. In all three sce- narios, the same assumptions apply to individuals with non-group policies whose parents have ESI — 95 percent of those living at home and 85 percent of those liv- ing elsewhere would move to dependent coverage. In the low take-up rate scenario, the as- sumptions lead to the result that approxi- mately 30 percent of eligibles will enroll in dependent coverage. In the mid-range sce- nario, they result in an approximate 50 per- cent take-up rate, and in the high take-up scenario, they result in an approximate 90 percent take-up rate. The Departments are uncertain regarding which of these scenar- ios is most likely but are confident that they bracket the expected outcome. Table 5.—Number of Individuals with New Dependent Coverage and Impact on Group Insurance Premiums, 2011–2013 Low EstimateMid-range EstimateHigh Estimate 201120122013201120122013201120122013 Individuals with New Dependent Coverage (millions)0.680.971.081.241.601.652.122.071.98 From Uninsured (millions)0.190.290.330.650.940.911.641.421.21 Incremental Premium Cost Per Individual Coverage$3,670$3,800$4,000$3,380$3,500$3,690$3,220$3,340$3,510 Impact on Group Insurance Premiums (%)0.50.70.70.71.01.01.21.21.1 These take-up rate assumptions are then applied to the number of potentially af- fected individuals displayed in Table 3. The resulting number of individuals with new dependent coverage is summarized in Table 5. Under the mid-range take-up rate assumption, the Departments estimate that in 2011, 1.24 million young adults will newly be covered by their parents’ ESI or non group market policies, of whom 0.65 million were previously uninsured, and 0.6 million were previously covered by non-group coverage. The number of in- dividuals newly covered by their parents’ plans would be 0.7 and 2.12 million under the high and low take-up rate assumptions respectively, with 0.2 and 1.64 million of these individuals being previously unin- sured. Relative to the individuals covered under the high take-up rate assumption, higher proportions of the low- and mid- range assumption groups are accounted for by people who previously had non-group coverage (72 percent and 48 percent re- spectively in contrast to 23 percent for the high take-up rate group). This difference is a result of the Departments’ assumption for the low- and mid-range take-up rates that people with non-group coverage will be more likely than healthy people who were uninsured to take advantage of the dependent coverage option. Under the mid-range take-up rate as- sumptions, the estimated number of young adults covered by their parents’ plans in 2012 increases somewhat over the 2011 es- timate to 1.6 million in total, of whom ap- proximately 0.9 million would have been uninsured. The increase in the estimate for 2012 results from the assumption that as children reach the age that would have caused them to be excluded from their parents’ policy before the implementation of these interim final regulations, a large fraction of them now will remain on their parents’ policy. Similarly, the estimated number of young adults enrolling in their parents’ non-group policy increases from just under 75,000 in 2011 to approximately 100,000 in 2012, and 120,000 in 2013. 4.Benefits The benefits of these interim final regu- lations are expected to outweigh the costs to the regulated community. In the mid- range take-up rate assumption, the Depart- ments estimate that in 2011, 0.65 million June 1, 20107072010–22 I.R.B. previously uninsured individuals will now be covered on their parents policies due to these interim final regulations and 1.24 million individuals total will now be cov- ered on their parent’s coverage. Expand- ing coverage options for the 19–25 pop- ulation should decrease the number unin- sured, which in turn should decrease the cost-shifting of uncompensated care onto those with coverage, increase the receipt of preventive health care and provide more timely access to high quality care, result- ing in a healthier population. In partic- ular, children with chronic conditions or other serious health issues will be able to continue coverage through a parent’s plan until age 26. Allowing extended depen- dent coverage also will permit greater job mobility for this population as their health coverage will no longer be tied to their own jobs or student status. 5.Costs and Transfers Associated with the Rule Estimates for the incremental annual premium costs for the newly covered individuals are developed based on ex- penditure data from MEPS and vary based on the take-up rate assumptions. These incremental costs are lowest for the high take-up rate assumption since the newly covered group would contain a relatively high percentage of individuals whose health status was good to excellent. Con- versely, the low take-up rate assumption results in the highest incremental costs because a higher percentage of the newly covered individuals would be those whose health status was fair to poor. For those en- rolling in their parents’ ESI, the expected annual premium cost under the mid-range take-up rate assumption would be $3,380 in 2011, $3,500 in 2012 and $3,690 in 2013. If these costs were distributed among all family ESI plans, family pre- miums would be expected to rise by 0.7 percent in 2011, 1.0 percent in 2012, and 1.0 percent in 2013 due to these interim final regulations. 18 The comparable incre- mental costs and premium effects for the low and high take-up rate assumptions are summarized in Table 5. To the extent that these increases are passed on to workers in the form of higher premiums for all workers purchasing family policies or in the form of lower wages for all workers, there will be a transfer from workers who do not have newly covered dependents to those who do. To the extent that these higher premiums result in lower profits or higher prices for the employer’s product, the higher premiums will result in a trans- fer either from stockholders or consumers. In addition, to the extent that these in- terim final regulations result in a decrease in the number of uninsured, the Depart- ments expect a reduction in uncompen- sated care, and a reduction in liability for those who fund uncompensated care, in- cluding public programs (primarily Med- icaid and State and local general revenue support for public hospitals), as well as the portion of uncompensated care that is paid for by the cost shift from private premium payers. Such effects would lead to lower premiums for the insured population, both with or without newly covered children. Forthesmallnumberofchildren (75,000 in 2011) enrolling in their par- ents’ non-group insurance policy under the mid-range take-up assumption, the Departments expect estimated annual pre- mium cost to be $2,360 in 2011, $2,400 in 2012 and $2,480 in 2013. To a large extent, premiums in the non-group mar- ket are individually underwritten, and the Departments expect that most of the pre- mium cost will be borne by the parents whoarepurchasingthepolicytowhich their child is added. If, instead, these costs were distributed over the entire individual market (as would be the case in a pure community-rated market), then individual premiums would be expected to rise 0.7 percent in 2011, 1.0 percent in 2012, and 1.2 percent in 2013 due to these interim final regulations. However, the Depart- ments expect the actual increase across the entire individual market, if any, will be much smaller than these estimates, be- cause they expect that the costs largely will be borne by the subscribers who are directly affected rather than distributed across the entire individual market. 6.Enrollment Opportunity These interim final regulations provide an enrollment opportunity for children excluded from coverage because of age before the effective date of the rule. The Departments estimate that this informa- tion collection request will result in ap- proximately 105,000,000 notices being distributed with an hour burden of approx- imately 1,100,000 hours and cost burden of approximately $2,010,500. For a dis- cussion of this enrollment opportunity, see the Paperwork Reduction Act section later in this preamble. 7.Regulatory Alternatives Section 6(a)(3)(C)(iii) of Executive Or- der 12866 requires an economically sig- nificant regulation to include an assess- ment of the costs and benefits of poten- tially effective and reasonable alternatives to the planned regulation, and an expla- nation of why the planned regulatory ac- tion is preferable to the potential alterna- tives. The Departments carefully consid- ered limiting the flexibility of plans and policies to define who is a child. How- ever, the Departments concluded, as they have in other regulatory contexts, that plan sponsors and issuers should be free to de- termine whether to cover children or which children should be covered by their plans and policies (although they must comply with other applicable Federal or State law mandating coverage, such as ERISA sec- tion 609). Therefore, these interim fi- nal regulations have not limited a plan’s or policy’s flexibility to define who is a child for purposes of the determination of children to whom coverage must be made available. C.Regulatory Flexibility Act—Department of Labor and Department of Health and Human Services The Regulatory Flexibility Act (5 U.S.C. 601et seq.) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the APA (5 U.S.C. 551et seq.) and that are likely to have a significant economic impact on a substantial number of small entities. Under Section 553(b) of the APA, a general notice of proposed rulemaking is not required when an agency, for good cause, finds that notice and public comment thereon are 18 For purposes of this regulatory impact analysis, the Departments assume that there would be no effect on premiums for employee-only policies. 2010–22 I.R.B.708June 1, 2010 impracticable, unnecessary, or contrary to the public interest. These interim final regulations are exempt from APA, because the Departments made a good cause finding that a general notice of proposed rulemaking is not necessary earlier in this preamble. Therefore, the RFA does not apply and the Departments are not required to either certify that the regulations would not have a significant economic impact on a substantial number of small entities or conduct a regulatory flexibility analysis. Nevertheless, the Departments care- fully considered the likely impact of the regulations on small entities in connection with their assessment under Executive Order 12866. Consistent with the policy of the RFA, the Departments encourage the public to submit comments that sug- gest alternative rules that accomplish the stated purpose of PHS Act section 2714 and minimize the impact on small entities. D.Special Analyses-Department of the Treasury Notwithstanding the determinations of the Department of Labor and Department of Health and Human Services, for pur- poses of the Department of the Treasury, it has been determined that this Treasury de- cision is not a significant regulatory action for purposes of Executive Order 12866. Therefore, a regulatory assessment is not required. It has alsobeen determined that section 553(b) of the APA (5 U.S.C. chap- ter 5) does not apply to these interim fi- nal regulations. For the applicability of the RFA, refer to the Special Analyses section in the preamble to the cross-referencing notice of proposed rulemaking published elsewhere in this issue of the Bulletin. Pur- suant to section 7805(f) of the Code, these temporary regulations have been submit- ted to the Chief Counsel for Advocacy of the Small BusinessAdministration for comment on their impact on small busi- nesses. E.Paperwork Reduction Act 1.Department of Labor and Department of Treasury: Affordable Care Act Enrollment Opportunity Notice Relating to Extended Dependent Coverage As part of their continuing efforts to reduce paperwork and respondent burden, the Departments conduct a preclearance consultation program to provide the gen- eral public and federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the Paperwork Re- duction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data can be provided in the de- sired format, reporting burden (time and financial resources) is minimized, collec- tion instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed. As discussed earlier in this preamble, prior to the applicability date of PHS Act section 2714, a child who was covered un- der a group health plan (or group health insurance coverage) may have lost eligi- bility for coverage under the plan due to age before age 26. Moreover, if a child was under age 26 when a parent first be- came eligible for coverage, but older than the age at which the plan stopped covering children, the child would not have become eligible for coverage. When the provisions of PHS Act section 2714 become applica- ble to the plan (or coverage), the plan or coverage can no longer exclude coverage for the individual until age 26. Accordingly, these interim final regu- lations require plans to provide a notice of an enrollment opportunity to individu- als whose coverage ended, or who were denied coverage (or was not eligible for coverage) under a group health plan or health insurance coverage because, under the terms of the plan or coverage, the avail- ability of dependent coverage of children ended before the attainment of age 26. The enrollment opportunity must continue for at least 30 days, regardless of whether the plan or coverage offers an open enrollment period and regardless of when any open enrollment period might otherwise occur. This enrollment opportunity must be pre- sented not later than the first day of the first plan year (in the individual market, pol- icy year) beginning on or after September 23, 2010 (which is the applicability date of PHS Act section 2714). Coverage must begin not later than the first day of the first plan year (in the individual market, policy year) beginning on or after September 23, 2010. 19 The Affordable Care Act dependent coverage enrollment opportunity notice is an information collection request (ICR) subject to the PRA. Currently, the De- partments are soliciting public comments for 60 days concerning these disclosures. The Departments have submitted a copy of these interim final regulations to OMB in accordance with 44 U.S.C. 3507(d) for review of the information collections. The Departments and OMB are particularly interested in comments that: •Evaluate whether the collection of in- formation is necessary for the proper performance of the functions of the agency, including whether the infor- mation will have practical utility; •Evaluate the accuracy of the agency’s estimate of the burden of the collection of information, including the validity of the methodology and assumptions used; •Enhance the quality, utility, and clarity of the information to be collected; and •Minimize the burden of the collection of information on those who are to re- spond, including through the use of appropriate automated, electronic, me- chanical, or other technological collec- tion techniques or other forms of in- formation technology, for example, by permitting electronic submission of re- sponses. Comments should be sent to the Office of Information and Regulatory Affairs, Attention: Desk Officer for the Employee Benefits Security Administration either by fax to (202) 395–7285 or by email to oira_submission@omb.eop.gov.Acopy oftheICRmaybeobtainedbycontact- ing the PRA addressee: G. Christopher Cosby, Office of Policy and Research, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue, NW, Room N–5718, Washington, DC 20210. Telephone: (202) 693–8410; Fax: (202) 219–4745. These are not toll-free numbers. E-mail: 19 Any individual enrolling in coverage pursuant to this enrollment right must be treated as a special enrollee, as provided under HIPAA portability rules. Accordingly, the individual must be offered all the benefit packages available to similarly situated individuals who did not lose coverage by reason of cessation of dependent status. The individual also cannot be required to pay more for coverage than similarly situated individuals who didnot lose coverage by reason of cessation of dependent status. June 1, 20107092010–22 I.R.B. ebsa.opr@dol.gov. ICRs submitted to OMB also are available at reginfo.gov (http://www.reginfo.gov/public/do/PRA- Main). The Departments assume that 2,800,000 ERISA covered plans will send the enrollment opportunity notice to all 79,573,000 employees eligible for group health insurance coverage. The Departments estimate that preparing the enrollment notice will require 30 minutes of legal professional time at a labor rate of $119 per hour 20 and one minute of clerical time at $26 per hour per paper notice to distribute the notices. 21 This results in an hour burden of nearly 822,000 hours and an associated equivalent cost of nearly $21,513,000. The Departments estimate that the cost burden associated with distributing the approximately 79,573,000 notices will be approximately $2,467,000 based on one minute of clerical time, and $.05 per page for material and printing costs. The Departments assumed that 38 percent of the notices would be sent electronically. 22 In addition, plans can send these notices with other plan documents, such as open enrollment materials. Therefore, the De- partments have not included postage costs in this estimate. The Departments note that persons are not required to respond to, and generally are not subject to any penalty for failing to comply with, an ICR unless the ICR has a valid OMB control number. 23 These paperwork burden estimates are summarized as follows: Type of Review: New collection. Agencies: Employee Benefits Security Administration, Department of Labor; In- ternal Revenue Service, U.S. Department of the Treasury. Title: Affordable Care Act Enrollment Opportunity Notice Relating to Extended Dependent Coverage. OMB Number:1210–0139; 1545–2172. Affected Public: Business or other for- profit; not-for-profit institutions. Total Respondents:2,800,000. Total Responses:79,573,000. Frequency of Response:One-time. Estimated Total Annual Burden Hours: 411,000 hours (Employee Benefits Secu- rity Administration); 411,000 hours (Inter- nal Revenue Service). Estimated Total Annual Burden Cost: $1,233,500 (Employee Benefits Secu- rity Administration); $1,233,500 (Internal Revenue Service). 2.Department of Health and Human Services: Affordable Care Act Enrollment Opportunity Notice Relating to Extended Dependent Coverage We are soliciting public comment on the following sections of this document that contain information collection re- quirements (ICR) regarding the Affordable Care Act — ICR Relating to Enrollment Opportunity Notice — Dependent Cover- age. As discussed earlier in this preamble, the Affordable Care Act and these interim final regulations require issuers in the in- dividual market and group health plans sponsored by State and local governments to notify participants regarding an enroll- ment opportunity related to the extension of dependent coverage. Prior to the ap- plicability date of PHS Act section 2714, a child who was covered under a group health plan (or group health insurance coverage) as a dependent may have lost eligibility for coverage under the plan due to age before age 26. Moreover, if, when a parent first became eligible for coverage, a child was under age 26 but older than the age at which the plan stopped covering children, the child would not have become eligible for coverage. When the provi- sions of PHS Act section 2714 become applicable to the plan (or coverage), the plan or coverage can no longer exclude coverage for the individual until age 26. Accordingly, these interim final regula- tions require issuers in the individual insur- ance market and group health plans spon- soredbyStateandlocalgovernmentsto provide a notice of an enrollment opportu- nity to individuals whose coverage ended, or who was denied coverage (or was not eligible for coverage) under a group health plan or group health insurance coverage because, under the terms of the plan or cov- erage, the availability of dependent cov- erage of children ended before the attain- ment of age 26. The enrollment opportu- nity must continue for at least 30 days, re- gardless of whether the plan or coverage offers an open enrollment period and re- gardless of when any open enrollment pe- riod might otherwise occur. This enroll- ment opportunity must be presented not later than the first day of the first plan year (in the individual market, policy year) be- ginning on or after September 23, 2010 (which is the applicability date of PHS Act section 2714). Coverage must begin not later than the first day of the first plan year (in the individual market, policy year) be- ginning on or after September 23, 2010. 24 The Department estimates that 126,000 State and local governmental plans would have to send 19,627,000 notices to eligible employees and 490 insurers in the indi- vidual market would have to send approx- imately 5,444,000 notices to individuals with policies covering dependents. 25 For purposes of this estimate, the Department assumesthatitwilltakealegalprofes- 20 Hourly wage estimates are based on data from the Bureau of Labor Statistics Occupational Employment Survey (May 2008) and the Bureau of Labor Statistics Employment Cost Index (June 2009). All hourly wage rates include wages and benefits. Clerical wage and benefits estimates are based on metropolitan wage rates for executive secretaries and administrative assistants. Legal professional wage and benefits estimates are based on metropolitan wage rates for lawyers. 21 While plans could prepare their own notice, the Departments assume that the notices will be prepared by service providers. The Departments have previously estimated that there are 630 health insurers (460 providing coverage in the group market, and 490 providing coverage in the individual market.). These estimates are from NAIC2007 financial statements data and the California Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx. Because the hour and cost burdenis shared between the Departments of Labor/Treasury and the Department of Health and Human Services, the burdento prepare the notices is calculated using half the number of insurers (315). 22 For purposes of this burden estimate, the Departments assume that 38 percent of the disclosures will be provided through electronic means in accordance with the Department of Labor’s standards for electronic communication of required information provided under 29 CFR 2520.104b–1(c). 23 5 CFR 1320.1 through 1320.18. 24 Any individual enrolling in coverage pursuant to this enrollment right must be treated as a special enrollee, as provided under HIPAA portability rules. Accordingly, the individual must be offered all the benefit packages available to similarly situated individuals who did not lose coverage by reason of cessation of dependent status. The individual also cannot be required to pay more for coverage than similarly situated individuals who didnot lose coverage by reason of cessation of dependent status. 25 The number of individual insurance notices was based on the number of individual policy holders with dependents on that policy according to the 2009 March Current Population Survey (CPS). 2010–22 I.R.B.710June 1, 2010 sional, on average, 30 minutes to prepare the notice at a labor rate of $119 per hour 26 , and one minute, on average, of a clerical professional’s time at $26 per hour to copy and mail the notice. 27 While plans could prepare their own notice, the Department assumes that the notices will be prepared by service providers. The Department has previously estimated that there are 630 health insurers 28 (460 providing coverage in the group market, and 490 providing coverage in the individual market.). Be- cause the hour and cost burden is shared among the Departments of Labor/Treasury and the Department of Health and Human Services, the burden to prepare the notices is calculated using half the number of insurers (315). The Department assumes that 38 percent of the notices would be sent electronically. 29 Notices that are sent elec- tronically do not require any of the clerical worker’s time to mail the notice. This resultsinanhourburdenofapproximately 259,000 hours and an associated equiva- lent cost of about $6,791,000 to prepare and distribute 25,071,000 notices. The Department estimates that the cost burden associated with distributing the notices will be approximately $777,000. 30 The Department assumes that 38 percent of the notices would be sent electronically. 31 In addition, plans and issuers can send these notices with other plan documents (for example, during open enrollment for the government plans, or other commu- nication at reenrollment in the individual market). Therefore, the Department did not include postage costs in this estimate. The Department notes that persons are not required to respond to, and generally are not subject to any penalty for failing to comply with, an ICR unless the ICR has a valid OMB control number. 32 These paperwork burden estimates are summarized as follows: Type of Review: New collection. Agency: Department of Health and Hu- man Services. Title: Notice of Special Enrollment Op- portunity under the Affordable Care Act Relating to Dependent Coverage. OMB Number: 0938–1089. Affected Public: Business; State, Local, or Tribal Governments. Respondents: 126,000. Responses: 25,071,000. Frequency of Response:One-time. Estimated Total Annual Burden Hours: 259,000 hours. Estimated Total Annual Burden Cost: $777,000. If you comment on this information col- lection and recordkeeping requirements, please do either of the following: 1. Submit your comments electroni- cally as specified in the ADDRESSES sec- tion of this proposed rule; or 2. Submit your comments to the Office of Information and Regulatory Affairs, Of- fice of Management and Budget, Attention:CMS Desk Officer, 4140–IFC Fax: (202) 395–6974; or Email:OIRA_submis- sion@omb.eop.gov F.Congressional Review Act These interim final regulations are subject to the Congressional Review Act provisions of the Small Business Regula- tory Enforcement Fairness Act of 1996 (5 U.S.C. 801et seq.) and have been trans- mitted to Congress and the Comptroller General for review. G.Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (Public Law 104–4) requires agen- cies to prepare severalanalytic statements before proposing any rules that may re- sult in annual expenditures of $100 mil- lion (as adjusted for inflation) by State, lo- cal and tribal governments or the private sector. These interim final regulations are not subject to the Unfunded Mandates Re- form Act, because they are being issued as an interim final regulation. However, consistent with the policy embodied in the Unfunded Mandates Reform Act, these in- terim final regulations have been designed to be the least burdensome alternative for State, local and tribal governments, and the private sector, while achieving the objec- tives of the Affordable Care Act. H.Federalism Statement—Department of Labor and Department of Health and Human Services Executive Order 13132 outlines fun- damental principles of federalism, and requires the adherence to specific criteria by Federal agencies in the process of their formulation and implementation of poli- cies that have ’’substantial direct effects’’ on the States, the relationship between the national government and States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have these federalism implications must consult with Stateand local officials, and describe the extent of their consulta- tion and the nature of the concerns of State and local officials in the preamble to the regulation. In the Departments’ view, these interim final regulations have federalism impli- cations, because they have direct effects on the States, the relationship between the national government and States, or on the distribution of power and responsibili- ties among various levels of government. However, in the Departments’ view, the federalism implications of these interim fi- nal regulations are substantially mitigated because, with respect to health insurance issuers, the Departments expect that the majority of States will enact laws or take other appropriate action resulting in their meeting or exceeding the Federal stan- dard. In general, through section 514, ERISA supersedes State laws to the extent that they relate to any covered employee ben- efit plan, and preserves State laws that regulate insurance, banking, or securities. While ERISA prohibits States from regu- 26 Estimates of labor rates include wages, other benefits, and overhead based on the National Occupational Employment Survey (May 2008, Bureau of LaborStatistics) and the Employment Cost Index June 2009, Bureau of Labor Statistics). 27 These estimates are from NAIC 2007 financial statements data and the California Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx. 28 For purposes of this burden estimate, the Department assumes that 38 percent of the disclosures will be provided through electronic means. 29 This estimate is based on an average document size of one page and $.05 cents per page for material and printing costs. 30 For purposes of this burden estimate, the Department assumes that 38 percent of the disclosures will be provided through electronic means. 31 5 CFR 1320.1 through 1320.18. June 1, 20107112010–22 I.R.B. lating a plan as an insurance or investment company or bank, the preemption pro- visions of ERISA section 731 and PHS Act section 2724 (implemented in 29 CFR 2590.731(a) and 45 CFR 146.143(a)) apply so that the HIPAA requirements (in- cluding those of the Affordable Care Act) are not to be ’’construed to supersede any provision of State law which establishes, implements, or continues in effect any standard or requirement solely relating to health insurance issuers in connection with group health insurance coverage ex- cept to the extent that such standard or requirement prevents the application of a requirement’’ of a federal standard. The conference report accompanying HIPAA indicates that this is intended to be the ’’narrowest’’ preemption of State laws. (See House Conf. Rep. No. 104–736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 2018.) States may continue to apply State law requirements except to the extent that such requirements prevent the application of the Affordable Care Act requirements that are the subject of this rulemaking. State insurance laws that are more stringent than the Federal requirements are unlikely to ’’prevent the application of’’ the Affordable Care Act, and be preempted. Accordingly, States have significant latitude to impose require- ments on health insurance issuers that are more restrictive than the Federal law. In compliance with the requirement of Executive Order 13132 that agencies ex- amine closely any policies that may have federalism implications or limit the policy making discretion of the States, the De- partments have engaged in efforts to con- sultwithandworkcooperativelywithaf- fected State and local officials, including attending conferences of the National As- sociation of Insurance Commissioners and consulting with State insurance officials on an individual basis. It is expected that the Departments will act in a similar fashion in enforcing the Affordable Care Act require- ments. Throughout the process of devel- oping these interim final regulations, to the extent feasible within the specific preemp- tion provisions of HIPAA as it applies to the Affordable Care Act, the Departments have attempted to balance the States’ in- terests in regulating health insurance is- suers, and Congress’ intent to provide uni- form minimum protections to consumers in every State. By doing so, it is the De- partments’ view that they have complied with the requirements of Executive Order 13132. Pursuant to the requirements set forth in section 8(a) of Executive Order 13132, and by the signatures affixed to these reg- ulations, the Departments certify that the Employee Benefits Security Administra- tion and the Office of Consumer Informa- tion and Insurance Oversight have com- plied with the requirements of Executive Order 13132 for the attached regulation in a meaningful and timely manner. V. Statutory Authority The Department of the Treasury tem- porary regulations are adopted pursuant to the authority contained in sections 7805 and 9833 of the Code. The Department of Labor interim final regulations are adopted pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 1161–1168, 1169, 1181–1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; sec. 101(g), Pub. L.104–191, 110 Stat. 1936; sec. 401(b), Pub. L. 105–200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 110–343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111–148, 124 Stat. 119, as amended by Pub. L. 111–152, 124 Stat. 1029; Secretary of Labor’s Order 6–2009, 74 FR 21524 (May 7, 2009). The Department of Health and Hu- man Services interim final regulations are adopted pursuant to the authority con- tained in sections 2701 through 2763, 2791, and 2792 of the PHS Act (42 USC 300gg through 300gg–63, 300gg–91, and 300gg–92), as amended. ***** Health care, Health insurance, Report- ing and recordkeeping requirements, and State regulation of health insurance. Steven T. Miller, Deputy Commissioner for Services and Enforcement, Internal Revenue Service. Approved May 7, 2010. Michael F. Mundaca, Acting Secretary oftheTreasury(TaxPolicy). Signed this6 th day ofMay, 2010. Phyllis C. Borzi Assistant Secretary Employee Benefits Security Administration Department of Labor Approved:May 4, 2010 Jay Angoff, Director, Office of Consumer Information and Insurance Oversight. Approved:May 7, 2010 Kathleen Sebelius, Secretary. 2010–22 I.R.B.712June 1, 2010 Internal Revenue Service 26 CFR Chapter 1 Accordingly, 26 CFR Parts 54 and 602 are amended as follows: PART 54—PENSION EXCISE TAXES Paragraph 1. The authority citation for part 54 continues to read in part as follows: Authority: 26 U.S.C. 7805. * * * Par. 2. Section 54.9815–2714T is added to read as follows: §54.9815–2714T Eligibility of children untilatleastage26(temporary). (a)In general—(1) A group health plan, or a health insurance issuer offer- ing group health insurance coverage, that makes available dependent coverage of children must make such coverage avail- able for children until attainment of 26 years of age. (2) The rule of this paragraph (a) is il- lustrated by the following example: Example.(i)Facts. For the plan year beginning January 1, 2011, a group health plan provides health coverage for employ- ees, employees’ spouses, and employees’ children until the child turns 26. On the birthday of a child of an employee, July 17, 2011, the child turns 26. The last day the plan covers the child is July 16, 2011. (ii)Conclusion.InthisExample,the plan satisfies the requirement of this para- graph (a) with respect to the child. (b)Restrictions on plan definition of de- pendent. With respect to a child who has not attained age 26, a plan or issuer may not define dependent for purposes of eligi- bility for dependent coverage of children other than in terms of a relationship be- tween a child and the participant. Thus, for example, a plan or issuer may not deny or restrict coverage for a child who has not at- tained age 26 based on the presence or ab- sence of the child’s financial dependency (upon the participant or any other person), residency with the participant or with any other person, student status, employment, or any combination of those factors. In ad- dition, a plan or issuer may not deny or re- strict coverage of a child based on eligi- bility for other coverage, except that para- graph (g) of this section provides a special rule for plan years beginning before Jan- uary 1, 2014 for grandfathered health plans that are group health plans. (Other require- ments of Federal or State law, including section 609 of ERISA or section 1908 of the Social Security Act, may mandate cov- erage of certain children.) (c)Coverage of grandchildren not re- quired. Nothing in this section requires a plan or issuer to make coverage available for the child of a child receiving dependent coverage. (d)Uniformity irrespective of age.The terms of the plan or health insurance cover- age providing dependent coverage of chil- dren cannot vary based on age (except for children who are age 26 or older). (e)Examples. The rules of paragraph (d) of this section are illustrated by the following examples: Example 1.(i)Facts. A group health plan offers a choice of self-only or family health coverage. Depen- dent coverage is provided under family health cover- age for children of participants who have not attained age 26. The plan imposes an additional premium sur- charge for children who are older than age 18. (ii)Conclusion. In thisExample 1, the plan vio- lates the requirement of paragraph (d) of this section because the plan varies the terms for dependent cov- erage of children based on age. Example 2.(i)Facts. A group health plan offers a choice among the following tiers of health coverage: self-only, self-plus-one, self-plus-two, and self-plus- three-or-more. The cost of coverage increases based on the number of covered individuals. The plan pro- vides dependent coverage of children who have not attained age 26. (ii)Conclusion.InthisExample 2, the plan does not violate the requirement of paragraph (d) of this section that the terms of dependent coverage for chil- dren not vary based on age. Although the cost of cov- erage increases for tiers with more covered individu- als, the increase applies without regard to the age of any child. Example 3.(i)Facts. A group health plan offers two benefit packages — an HMO option and an in- demnity option. Dependent coverage is provided for children of participants who have not attained age 26. The plan limits children who are older than age 18 to the HMO option. (ii)Conclusion. In thisExample 3, the plan vio- lates the requirement of paragraph (d) of this section because the plan, by limiting children who are older than age 18 to the HMO option, varies the terms for dependent coverage of children based on age. (f)Transitional rules for individuals whose coverage ended by reason of reach- ing a dependent eligibility threshold—(1) In general. The relief provided in the tran- sitional rules of this paragraph (f) applies with respect to any child— (i) Whose coverage ended, or who was denied coverage (or was not eligible for coverage) under a group health plan or group health insurance coverage because, under the terms of the plan or coverage, the availability of dependent coverage of chil- dren ended before the attainment of age 26 (which, under this section, is no longer per- missible); and (ii) Who becomes eligible (or is re- quired to become eligible) for coverage under a group health plan or group health insurance coverage on the first day of the first plan year beginning on or after September 23, 2010 by reason of the ap- plication of this section. (2)Opportunity to enroll required.(i)If a group health plan, or group health insur- ance coverage, in which a child described in paragraph (f)(1) of this section is eli- gible to enroll (or is required to become eligible to enroll) is the plan or coverage in which the child’s coverage ended (or did not begin) for the reasons described in paragraph (f)(1)(i) of this section, and if the plan, or the issuer of such coverage, is subject to the requirements of this sec- tion, the plan and the issuer are required to give the child an opportunity to enroll that continues for at least 30 days (includ- ing written notice of the opportunity to en- roll). This opportunity (including the writ- ten notice) must be provided beginning not later than the first day of the first plan year beginning on or after September 23, 2010. (ii) The written notice must include a statement that children whose coverage ended, or who were denied coverage (or were not eligible for coverage), because the availability of dependent coverage of children ended before attainment of age 26 are eligible to enroll in the plan or coverage. The notice may be provided to an employee on behalf of the employee’s child. In addition, the notice may be in- cluded with other enrollment materials that a plan distributes to employees, provided the statement is prominent. If a notice satisfying the requirements of this para- graph (f)(2) is provided to an employee whose child is entitled to an enrollment opportunity under this paragraph (f), the obligation to provide the notice of enroll- ment opportunity under this paragraph (f)(2) with respect to that child is satisfied for both the plan and the issuer. (3)Effective date of coverage.Inthe case of an individual who enrolls under paragraph (f)(2) of this section, coverage must take effect not later than the first day of the first plan year beginning on or after September 23, 2010. June 1, 20107132010–22 I.R.B. (4)Treatment of enrollees in a group health plan. Any child enrolling in a group health plan pursuant to paragraph (f)(2) of this section must be treated as if the child were a special enrollee, as provided un- der the rules of §54.9801–6(d). Accord- ingly, the child (and, if the child would not be a participant once enrolled in the plan, the participant through whom the child is otherwise eligible for coverage under the plan) must be offered all the benefit pack- ages available to similarly situated indi- viduals who did not lose coverage by rea- son of cessation of dependent status. For this purpose, any difference in benefits or cost-sharing requirements constitutes a different benefit package. The child also cannot be required to pay more for cover- age than similarly situated individuals who did not lose coverage by reason of cessa- tion of dependent status. (5)Examples. Therulesofthispara- graph (f) are illustrated by the following examples: Example 1.(i)Facts. Employer Y maintains a group health plan with a calendar year plan year. The plan has a single benefit package. For the 2010 plan year, the plan allows children of employees to be cov- ered under the plan until age 19, or until age 23 for children who are full-time students. Individual B, an employee of Y, and Individual C, B’s child and a full-time student, were enrolled in Y’s group health plan at the beginning of the2010planyear.OnJune 10, 2010, C turns 23 years old and loses dependent coverage under Y’s plan. On or before January 1, 2011, Y’s group health plan gives B written notice that individuals who lost coverage by reason of ceas- ing to be a dependent before attainment of age 26 are eligible to enroll in the plan, and that individuals may request enrollment for such children through Febru- ary 14, 2011 with enrollment effective retroactively to January 1, 2011. (ii)Conclusion. In thisExample 1, the plan has complied with the requirements of this paragraph (f) by providing an enrollment opportunity to C that lasts at least 30 days. Example 2.(i)Facts. Employer Z maintains a group health plan with a plan year beginning October 1 and ending September 30. Prior to October 1, 2010, the group health plan allows children of employees to be covered under the plan until age 22. Individual D, an employee of Z, and Individual E, D’s child, are enrolled in family coverage under Z’s group health plan for the plan year beginning on October 1, 2008. On May 1, 2009, E turns 22 years old and ceases to be eligible as a dependent under Z’s plan and loses coverage. D drops coverage but remains an employee of Z. (ii)Conclusion.InthisExample 2, not later than October 1, 2010, the plan must provide D and E an opportunity to enroll (including written notice of an opportunity to enroll) that continues for at least 30 days, with enrollment effective not later than October 1, 2010. Example 3.(i)Facts. Same facts asExample 2, except that D did not drop coverage. Instead, D switched to a lower-cost benefit package option. (ii)Conclusion.InthisExample 3, not later than October 1, 2010, the plan must provide D and E an opportunity to enroll in any benefit package available to similarly situated individuals who enroll when first eligible. Example 4.(i)Facts. Same facts asExample 2, except that E elected COBRAcontinuation coverage. (ii)Conclusion.InthisExample 4, not later than October 1, 2010, the plan must provide D and E an op- portunity to enroll other than as a COBRA qualified beneficiary (and must provide, by that date, written notice of the opportunity to enroll) that continues for at least 30 days, with enrollment effective not later than October 1, 2010. Example 5. (i)Facts. Employer X maintains a group health plan with a calendar year plan year. Prior to 2011, the plan allows children of employees to be covered under the plan until the child attains age 22. During the 2009 plan year, an individual with a 22-year old child joins the plan; the child is denied coverage because the child is 22. (ii)Conclusion. In thisExample 5, notwithstand- ing that the child was not previously covered under the plan, the plan must provide the child, not later than January 1, 2011, an opportunity to enroll (in- cluding written notice to the employee of an oppor- tunity to enroll the child) that continues for at least 30 days, with enrollment effective not later than Jan- uary 1, 2011. (g)Special rule for grandfathered group health plans—(1) For plan years beginning before January 1, 2014, a group health plan that qualifies as a grandfa- thered health plan under section 1251 of the Patient Protection and Affordable Care Act and that makes available dependent coverage of children may exclude an adult child who has not attained age 26 from coverage only if the adult child is eligible to enroll in an eligible employer-spon- sored health plan (as defined in section 5000A(f)(2)) other than a group health plan of a parent. (2) For plan years beginning on or after January 1, 2014, a group health plan that qualifies as a grandfathered health plan un- der section 1251 of the Patient Protection and Affordable Care Act must comply with the requirements of paragraphs (a) through (f) of this section. (h)Applicability date. The provisions of this section apply for plan years begin- ning on or after September 23, 2010. (i)Expiration date. This section expires on or before May 13, 2013. PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT Par. 3. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805. Par. 4. In §602.101, paragraph (b) is amended by adding the following entry in numerical order to the table: §602.101 OMB Control numbers. ***** (b) * * * CFR part or section where Identified and described Current OMB control No. ***** 54.9815–2714T ........................................................... 1545–2172 ***** (Filed by the Office of the Federal Register on May 10, 2010, 4:15 p.m., and published in the issue of the Federal Register for Ma y 13, 2010, 75 F.R. 27121) 2010–22 I.R.B.714June 1, 2010 Part III. Administrative, Procedural, and Miscellaneous Definition of Foreign Partnership — Sections 7701(a) and 7805 Notice 2010–41 SECTION 1. OVERVIEW The Treasury Department and Internal Revenue Service (IRS) intend to issue reg- ulations that will classify certain domes- tic partnerships as foreign for purposes of identifying the United States shareholders (as defined in § 951(b) of the Internal Rev- enue Code (Code)) of a controlled foreign corporation (as defined in § 957(a)) that are required to include in gross income the amounts specified under § 951(a) of such controlled foreign corporation. The regu- lations to be issued pursuant to this notice shall apply to taxable years of a domes- tic partnership ending on or after May 14, 2010. SECTION 2. TRANSACTION AT ISSUE On December 29, 2008, the Trea- sury Department and the IRS issued Notice 2009–7, 2009–3 I.R.B. 312, iden- tifying the following transaction (and substantially similar transactions) as a transaction of interest for purposes of § 1.6011–4(b)(6) and §§ 6111 and 6112 of the Code. A United States taxpayer (Taxpayer) wholly owns two controlled foreign corporations (CFC1 and CFC2), each of which owns 50 percent of another controlled foreign corporation (CFC3) through a domestic partnership. CFC3 has amounts described in § 951(a)(1). Tax- payer takes the position that it does not have an income inclusion under § 951(a) with respect to CFC3 because the domes- tic partnership is the first United States person in the chain of ownership of CFC3. As stated in Notice 2009–7, the Treasury Department and IRS believe that Tax- payer’s position is contrary to the purpose and intent of § 951 of the Code. SECTION 3. BACKGROUND Section 951(a) provides that if a foreign corporation is a CFC for an uninterrupted period of 30 days or more during any tax- able year, then each United States share- holder (as defined in § 951(b)) of such corporation that owns, within the mean- ing of § 958(a), stock in the corporation on the last day in such year on which it is a CFC must include in gross income its pro rata share of the corporation’s subpart F income (as defined in § 952) as well as any amount determined under § 956 with respect to such shareholder. See also § 951(a)(1)(A)(ii) and (iii) for other re- quired inclusions. Section 951(b) defines a United States shareholder, with respect to any foreign corporation, as a United States person (as defined in § 957(c)) that owns (within the meaning of § 958(a)) or is considered as owning under § 958(b), 10 percent or more of the total combined voting power of all classes of stock entitled to vote of the for- eign corporation. With certain modifications, § 957(c) de- fines a United States person by reference to § 7701(a)(30). Section 7701(a)(30)(B) defines a United States person to include a domestic partnership. Section 7701(a)(5) defines the term foreign when applied to a corporation or partnership as a corporation or partnership that is not domestic. Sec- tion 7701(a)(4) provides that the term do- mestic when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary pro- vides otherwise by regulations. However, § 7701(a) provides that any general defini- tion included therein does not apply where such definition is manifestly incompatible with the intent of the relevant Code provi- sion. SECTION 4. REGULATIONS CONCERNING THE DEFINITION OF A FOREIGN PARTNERSHIP UNDER SECTION 7701 If the general definition of a United States person provided by § 7701(a)(30)(B) (which incorporates the general definition of a domestic partner- ship under § 7701(a)(4)) applies to the facts described above in Section 2 (and in Notice 2009–7), the domestic partnership is the United States shareholder required to include in gross income the amounts determined under § 951(a) with respect to CFC3. However, the domestic partner- ship’s gross income inclusion may have little or no tax consequences, depending on the treatment of each partner’s (CFC1 and CFC2) distributive share of such income. As stated in Notice 2009–7, the Treasury Department and the IRS believe that the Taxpayer’s position in the transaction de- scribed therein is contrary to the purpose and intent of § 951. Therefore, consistent with § 7701(a), the Treasury Department and the IRS have determined that the gen- eral definition of a domestic partnership under § 7701(a)(4), in the case of certain partnerships owned wholly or partly by foreign corporations, is manifestly incom- patible with the intent of § 951. SECTION 4.01. DOMESTIC PARTNERSHIP TREATED AS FOREIGN FOR CERTAIN PURPOSES The Treasury Department and the IRS intend to issue regulations that, under certain circumstances, will classify an otherwise domestic partnership as for- eign solely for purposes of identifying the United States shareholders of a CFC required to include in gross income the amounts determined under § 951(a) with respect to such CFC. Specifically, the reg- ulations to be issued shall treat a domestic partnership as foreign for this purpose if the following conditions are satisfied: 1. The partnership is a United States shareholder of a foreign corporation that is a CFC (within the meaning of § 957(a) or 953(c)); and 2. If the partnership were treated as for- eign, a. That foreign corporation would continue to be a CFC; and b. At least one United States share- holder of the CFC, i. Would be treated under § 958(a) as indirectly own- ing stock of the CFC owned by the partnership that is in- directly owned by a foreign corporation; and ii. Would be required to include an amount in gross income June 1, 20107152010–22 I.R.B. under § 951(a) with respect to the CFC. The regulations to be issued will pro- vide similar results in the case of tiered- partnership structures. SECTION 4.02. SCOPE OF TREATMENT AS A FOREIGN PARTNERSHIP The regulations to be issued shall clas- sify a domestic partnership described in § 4.01 of this notice as foreign solely for purposes of identifying the United States shareholders of a CFC required to include in gross income the amounts determined under § 951(a) with respect to such CFC. Therefore, a domestic partnership to which the regulations to be issued apply shall continue to be classified as domestic for all other purposes of the Code. For example, the regulations to be issued shall not oth- erwise affect the classification of the part- nership as domestic for purposes of deter- mining the source of income and expenses, the definition of “United States property” under § 956(c)(1)(C), and the application of § 1248(a). Similarly, the partnership re- mains a domestic partnership for purposes of determining its information reporting obligations, including the filing of a Form 1065,U.S. Return of Partnership Income, and Form 5471,Information Return of U.S. Persons With Respect To Certain Foreign Corporations. The following demonstrates the ap- plication of the regulations described in this Notice to the facts described above in Section 2. Under the regulations to be issued, the domestic partnership de- scribed in Notice 2009–7 and in Section 2 above would be treated as foreign because the partnership would be a United States shareholder of a foreign corporation that is a CFC (CFC3) if the regulations to be issued did not apply; and if the domestic partnership were treated as foreign, (1) CFC3 would continue to be a CFC, and (2) under § 958(a) Taxpayer (a United States shareholder of CFC3) would be treated as indirectly owning the stock of CFC3 owned by the partnership that is indirectly owned by CFC1 and CFC2, and would be required to include in gross income the amounts determined under § 951(a) with respect to CFC3. The result would be the same if the Taxpayer were a partner in thepartnership(inadditiontoCFC1and CFC2), or also owned directly stock of CFC3. SECTION 5. EFFECT ON OTHER DOCUMENTS Notice 2009–7 shall continue to apply, as appropriate. SECTION 6. EFFECTIVE DATE The regulations to be issued as de- scribedinthisnoticeshallapplytotaxable years of a domestic partnership ending on or after May 14, 2010. No inference is intended as to the treatment of a domestic partnership for any taxable year ending before May 14, 2010. As stated in No- tice 2009–7, the IRS may challenge the positions taken by taxpayers with respect to such transactions, including under the provisions of subpart F and subchapter K of the Code, or under judicial doctrines including the sham transaction, substance over form, and economic substance doc- trines. SECTION 7. DRAFTING INFORMATION For further information regarding this notice, contact Susan E. Massey at (202) 622–3840 (not a toll-free call). Public Comment Invited on Recommendations for 2010–2011 Guidance Priority List Notice 2010–43 The Department of Treasury and Inter- nal Revenue Service invite public com- ment on recommendations for items that should be included on the 2010–2011 Guidance Priority List. The Treasury Department’s Office of Tax Policy and the Service use the Guid- ance Priority List each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The 2010–2011 Guidance Priority List will establish the guidance that the Treasury DepartmentandtheServiceintendtoissue from July 1, 2010, through June 30, 2011. The Treasury Department and the Service recognize the importance of public input to formulate a Guidance Priority List that focuses resources on guidance items that are most important to taxpayers and tax administration. Published guidance plays an important role in increasing voluntary compliance by helping to clarify ambigu- ous areas of the tax law. As is the case whenever significant leg- islation is enacted, the Treasury Depart- ment and the Service have continued to dedicate substantial resources during the current plan year to published guidance projects necessary to implement the pro- visions of the multitude of Tax Acts that have been enacted over the past several years including, but not limited to, the Pen- sion Protection Act of 2006, Pub. L. No. 109–280, 120 Stat. 780, which was en- acted on August 17, 2006; the Emergency Economic Stabilization Act of 2008, En- ergy Improvement and Extension Act of 2008, and Tax Extenders and Alternative Minimum Tax Relief Act of 2008, Pub. L. No. 110–343, 122 Stat. 3765, which were enacted on October 3, 2008; the Ameri- can Recovery and Reinvestment Tax Act of 2009, Pub. L. No. 111–5, 123 Stat. 115, which was enacted on February 17, 2009; the Hiring Incentives to Restore Em- ployment Act, Pub. L. No. 111–147, 124 Stat. 71, which was enacted on March 18, 2010; the Patient Protection and Afford- able Care Act, Pub. L. No. 111–148, 124 Stat. 119, which was enacted on March 23, 2010; and the Health Care and Education Reconciliation Act, Pub. L. 111–152, 124 Stat. 1029, which was enacted on March 30, 2010. The Treasury Department and the Service will continue to evaluate the priority of each guidance project in light of the above-mentioned tax legislation and other developments occurring during the 2010–2011 plan year. In reviewing recommendations and selecting projects for inclusion on the 2010–2011 Guidance Priority List, the Treasury Department and the Service will consider the following: 1. Whether the recommended guid- ance resolves significant issues relevant to many taxpayers; 2. Whether the recommended guidance promotes sound tax administration; 3. Whether the recommended guidance can be drafted in a manner that will enable taxpayers to easily understand and apply the guidance; 2010–22 I.R.B.716June 1, 2010 4. Whether the Service can administer the recommended guidance on a uniform basis; and 5. Whether the recommended guidance reduces controversy and lessens the bur- den on taxpayers or the Service. Taxpayers may submit recommenda- tions for guidance at any time during the year. Please submit recommendations by June 11, 2010, for possible inclusion on the original 2010–2011 Guidance Priority List. The Treasury Department and the Service may update the 2010–2011 Guid- ance Priority List periodically to reflect additional guidancethat the Treasury De- partment and the Service intend to publish during the plan year. The periodic updates allow the Treasury Department and the Service to respond to the need for addi- tional guidance that may arise during the plan year. Recommendations for guidance received after June 11, 2010, will be re- viewed for inclusion in the next periodic update. Taxpayers are not required to submit recommendations for guidance in any par- ticular format. Taxpayers should, how- ever, briefly describe the recommended guidance and explain the need for the guid- ance. In addition, taxpayers may include an analysis of how the issue should be re- solved. It would be helpful if taxpayers suggesting more than one guidance project prioritize the projects by order of impor- tance. If a large number of projects are be- ing suggested, it also would be helpful if the projects were grouped in terms of high, medium or low priority. Taxpayers should send written com- ments to: Internal Revenue Service Attn: CC:PA:LPD:PR (Notice 2010–43) Room 5203 P.O. Box 7604 Ben Franklin Station Washington, D.C. 20044 or hand deliver comments Monday through Friday between the hours of 8a.m.and4p.m.to: Courier’s Desk Internal Revenue Service Attn: CC:PA:LPD:PR (Notice 2010–43) 1111 Constitution Avenue, N.W. Washington, D.C. 20224 Alternatively, taxpayers may sub- mit comments electronically via e-mail to the following address: Notice.Comments@irscounsel.treas.gov. Taxpayers should include “Notice 2010–43” in the subject line. All comments submitted by the public will be available for public inspection and copying in their entirety. For further information regarding this notice, contact Henry Schneiderman of the Office of Associate Chief Counsel (Procedure and Administration) at (202) 622–3400 (not a toll-free call). Tax Credit for Employee Health Insurance Expenses of Small Employers Notice 2010–44 I. PURPOSE AND BACKGROUND Section 45R of the Internal Revenue Code (Code) offers a tax credit to certain small employers that provide health in- surance coverage to their employees. It is effective for taxable years beginning in 2010. Both taxable employers and em- ployers that are organizations described in section 501(c) that are exempt from tax under section 501(a) (tax-exempt employ- ers) may be eligible for the section 45R credit. Employers that satisfy the require- ments for the credit are referred to in this notice as “eligible small employers.” Section 45R was added to the Code by section 1421 of the Patient Protection and Affordable Care Act (Affordable Care Act), enacted March 23, 2010, Pub. L. No. 111–148. This notice provides guidance on section 45R as in effect for taxable years beginning before January 1, 2014, and also includes transition relief for taxable years beginningin2010withrespecttothere- quirements for a qualifying arrangement under section 45R. II. EMPLOYERS ELIGIBLE FOR THE CREDIT A. Overview of Requirements for Eligibility In order to be an eligible small em- ployer, (1) the employer must have fewer than 25 full-time equivalent employees (FTEs) for the taxable year; (2) the av- erage annual wages of its employees for the year must be less than $50,000 per FTE; and (3) the employer must maintain a “qualifying arrangement.” 1 Aqualify- ing arrangement is an arrangement under which the employer pays premiums for each employee enrolled in health insur- ance coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage (but see section V of this notice for transition relief for taxable years beginning in 2010 with respect to the requirements for a qualifying arrange- ment). An employer that is an agency or instrumentality of the federal government, or of a State, local or Indian tribal govern- ment, is not an eligible small employer for purposes of section 45R unless it is an or- ganization described in section 501(c) that is exempt from tax under section 501(a). The following steps must be followed to determine whether an employer is eligible for a credit under section 45R: 1. Determine the employees who are taken into account for purposes of the credit. 2. Determine the number of hours of service performed by those employees. 3. Calculate the number of the em- ployer’s FTEs. 4. Determine the average annual wages paid per FTE. 5. Determine the premiums paid by the employer that are taken into account for purposes of the credit. Specifically, the premiums must be paid by an employer under a qualifying arrangement and must be paid for health insurance that meets the requirements of section 45R. The remainder of this section II ex- plains the steps involved in determining whether an employer is eligible for the credit. Section III of this notice explains how to calculate the credit, and section IV 1 Although the term “eligible small employer” is defined in section 45R(d)(1) to include employers with “no more than” 25 FTEs and average annual wages that “do not exceed” $50,000, the phaseout of the credit amount under section 45R(c) operates in such a way that an employer with exactly 25 FTEs or with average annual wages exactly equal to $50,000 is not in fact eligible for the credit. June 1, 20107172010–22 I.R.B. explains how to claim the credit. Finally, section V provides transition relief for tax- able years beginning in 2010 with respect to certain requirements for qualifying ar- rangements. B. Determining the Employees Taken into Account In general, employees who perform ser- vices for the employer during the taxable year are taken into account in determin- ing the employer’s FTEs, average wages, and premiums paid, with certain individu- als excluded and with employees of certain related employers included. This section describes these rules. Partners in a business and certain own- ers are not taken into account as employees for purposes of section 45R. Specifically, sole proprietors, partners in a partnership, shareholders owning more than two per- cent of an S corporation, and any owners of more than five percent of other busi- nesses are not taken into account as em- ployees for purposes of the credit. Fam- ily members of these owners and partners are also not taken into account as employ- ees. For purposes of section 45R, a fam- ily member is defined as a child (or de- scendant of a child); a sibling or step-sib- ling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter-in-law, fa- ther-in-law, mother-in-law, brother-in-law or sister-in-law. Finally, any other member of the household of these owners and part- ners who qualifies as a dependent under section 152(d)(2)(H) is not taken into ac- count as an employee for purposes of sec- tion 45R. Accordingly, the wages and hours of these business owners and partners, and of their family members and dependent mem- bers of their household, are disregarded in determining FTEs and average annual wages, and the premiums paid on their be- half are not counted in determining the amount of the section 45R credit. Seasonal workers are disregarded in determining FTEs and average annual wages unless the seasonal worker works for the employer on more than 120 days during the taxable year, although premi- ums paid on their behalf may be counted in determining the amount of the section 45R credit. All employers treated as a single em- ployer under section 414(b), (c), (m) or (o) are treated as a single employer for pur- poses of section 45R. Thus, all employ- ees of a controlled group under section 414(b) or (c), or an affiliated service group under section 414(m) (except employees not taken into account as described above), and all wages paid to, and premiums paid for, employees by the members of the con- trolled group or affiliated service group (except employees not taken into account as described above), are taken into account in determining whether any member of the controlled group or affiliated service group is an eligible small employer. C. Determining the Number of Hours of Service Worked by Employees for the Taxable Year An employee’s hours of service for a year include the following: (1) each hour for which an employee is paid, or enti- tled to payment, for the performance of du- ties for the employer during the employer’s taxable year; and (2) each hour for which an employee is paid, or entitled to pay- ment, by the employer on account of a pe- riod of time during which no duties are performed due to vacation, holiday, ill- ness, incapacity (including disability), lay- off, jury duty, military duty or leave of ab- sence (except that no more than 160 hours of service are required to be counted for an employee on account of any single con- tinuous period during which the employee performs no duties). In calculating the total number of hours of service which must be taken into ac- count for an employee for the year, the em- ployermayuseanyofthefollowingmeth- ods: (1) determine actual hours of service from records of hours worked and hours for which payment is made or due (pay- ment is made or due for vacation, holi- day, illness, incapacity, etc., as described above); (2) use a days-worked equivalency whereby the employee is credited with 8 hours of service for each day for which the employee would be required to be credited with at least one hour of service under rule (1) or (2) in the preceding paragraph; or (3) use a weeks-worked equivalency whereby theemployeeiscreditedwith40hoursof service for each week for which the em- ployee would be required to be credited with at least one hour of service under rule (1) or (2) in the preceding paragraph. Examples. In all of the examples in this notice, none of the employees is an owner, partner in a business or otherwise excluded from being taken into account under section 45R. Example 1 — Counting hours of service by hours actually worked or for which payment is made or due. (i) For the 2010 taxable year, an employer’s payroll records indicate that Employee A worked 2,000 hours and was paid for an additional 80 hours on account of vacation, holiday and illness. The employer counts hours actually worked. (ii) Under this method of counting hours, Em- ployee A must be credited with 2,080 hours of service (2,000 hours worked and 80 hours for which payment was made or due). Example 2 — Counting hours of service under weeks-worked equivalency. (i) For the 2010 taxable year, Employee B worked 49 weeks, took 2 weeks of vacation with pay, and took 1 week of leave without pay. The employer uses the weeks-worked equiva- lency. (ii) Under this method of counting hours, Em- ployee B must be credited with 2,040 hours of service (51 weeks multiplied by 40 hours per week). D. Determining the Number of an Employer’s FTEs The number of an employer’s FTEs is determined by dividing (1) the total hours of service, determined in accordance with section II.C of this notice, credited during the year to employees taken into account under section II.B of this notice (but not more than 2,080 hours for any employee) by (2) 2,080. The result, if not a whole number, is then rounded to the next lowest whole number. In some circumstances, an employer with 25 or more employees may qualify for the credit if some of its employees work part-time. For example, an employer with 46 half-time employees (meaning they are paid wages for 1,040 hours) has 23 FTEs and, therefore, may qualify for the credit. Example 3 — Determining the number of FTEs. (i) For the 2010 taxable year, an employer pays 5 employees wages for 2,080 hours each, 3 employees wages for 1,040 hours each, and 1 employee wages for 2,300 hours. The employer does not use an equiv- alency method to determine hours of service for any of these employees. (ii) The employer’s FTEs would be calculated as follows: (1) Total hours of service not exceeding 2,080 per employee is the sum of: a. 10,400 hours of service for the 5 employees paid for 2,080 hours each (5 x 2,080) b. 3,120 hours of service for the 3 employees paid for 1,040 hours each (3 x 1,040), and 2010–22 I.R.B.718June 1, 2010 c. 2,080 hours of service for the 1 employee paid for 2,300 hours (lesser of 2,300 and 2,080). d. The sum of a, b and c equals 15,600 hours of service. (2) FTEs equal 7 (15,600 divided by 2,080 = 7.5, rounded to the next lowest whole number). Example 4 — Determining the number of FTEs: (i) For the 2010 taxable year, an employer has 26 FTEs with average annual wages of $23,000 per FTE. Only 20 of the employer’s employees are enrolled in the employer’s health insurance plan. (ii) The hours of service and wages of all em- ployees are taken into consideration in determining whether the employer is an eligible small employer for purposes of the credit.Because the employer does not have fewer than 25 FTEs for the taxable year, the employer is not an eligible small employer for pur- poses of the credit. E. Determining the Employer’s Average Annual Wages for the Taxable Year The average annual wages paid by an employer for a taxable year is determined by dividing (1) the total wages paid by the employer during the employer’s tax- able year to employees taken into account under section II.B of this notice by (2) the number of the employer’s FTEs for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a mul- tiple of $1,000). For purposes of determin- ing the employer’s average annual wages for the taxable year, only wages that are paid for hours of service determined un- der section II.C of this notice are taken into account. Wages for this purpose means wages as defined under section 3121(a) for purposes of the Federal Insurance Contri- butions Act (FICA), determined without regard to the wage base limitation under section 3121(a)(1). Example 5 — Determining the amount of average annual wages. (i) For the 2010 taxable year, an em- ployer pays $224,000 in wages and has 10 FTEs. (ii) The employer’s average annual wages is: $22,000 ($224,000 divided by 10 = $22,400, rounded down to the nearest $1,000). F. Premium Payments by the Employer for the Taxable Year Only premiums paid by the employer for health insurance coverage are counted in calculating the credit. If an employer pays only a portion of the premiums for the coverage provided to employees (with employees paying the rest), only the por- tion paid by the employer is taken into ac- count. For example, if an employer pays 80 percent of the premiums for employees’ coverage (with employees paying the other 20 percent), the 80 percent paid by the em- ployer is taken into account in calculating the credit. For purposes of this credit, any premium paid pursuant to a salary reduc- tion arrangement under a section 125 cafe- teria plan is not treated as paid by the em- ployer. In calculatingthe credit for a tax- able year beginning in 2010, an employer may count all premiums paid by the em- ployer in the 2010 tax year, including pre- miums that were paid in the 2010 tax year before the Affordable Care Act was en- acted. G. Premiums for Health Insurance Coverage under a Qualifying Arrangement An employer’s premium payments are not taken into account for purposes of the section 45R credit unless they are paid for health insurance coverage under a qualify- ing arrangement. As noted in section II.A of this notice, a qualifying arrangement is an arrangement under which the employer pays premiums for each employee enrolled in health insurance coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage (but see sec- tion V of this notice for transition relief for taxable years beginning in 2010 with re- spect to certain requirements for a qualify- ing arrangement). For years prior to 2014, health insur- ance coverage for purposes of the credit means benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or cer- tificate, hospital or medical service plan contract, or health maintenance organiza- tion contract offered by a health insurance issuer. See section 9832(b)(1). Health insurance coverage for purposes of the sec- tion 45R credit also includes the following plans described in section 9832(c)(2), (3) and (4): limited scope dental or vision; long-term care, nursing home care, home health care, community-based care, or any combination thereof; coverage only for a specified disease or illness; hospital indemnity or other fixed indemnity insur- ance; and Medicare supplemental health insurance; certain other supplemental cov- erage, and similar supplemental coverage provided to coverage under a group health plan. Health insurance coverage does not include the benefits listed in section 9832(c)(1). 2 If an eligible small employer offers any of the plans described in sec- tion 9832(b)(1) or 9832(c)(2), (3) or (4), the premiums paid by the employer for that plan can be countedin calculating the credit if the premiums are paid under a qualifying arrangement. Different types of health insurance plans are not aggregated for purposes of meeting the qualifying arrangement requirement. So, for example, if an em- ployer offers a major medical insurance plan and a stand-alone vision plan, the employer must separately satisfy the re- quirements for a qualifying arrangement with respect to each type of coverage. The amount of an employer’s premium payments that are taken into account in calculating the credit is limited to the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the State (or an area within the State) in which the employer offers coverage were substituted for the actual premium. For example, if an eligible small employer pays 80 percent of the premiums for coverage provided to employees (and employees pay the other 20 percent), the premiums taken into account for purposes of the credit are the lesser of 80 percent of the total actual premiums paid or 80 percent of the premiums that would have been paid for the coverage if the average premium for the small group market in the State (or an area within the State) were substituted for the actual premium. See Rev. Rul. 2010–13, 2010–21 I.R.B. 691, for the average premium for the small group market in a State for the 2010 tax- able year. The average premium for the small group market in the State does not apply separately to each type of coverage de- scribed in section 9832(b)(1), (c)(2), (c)(3) and (c)(4), but rather provides an overall 2 Section 9832(c)(1) includes the following benefits: (A) coverage only for accident, or disability income insurance, or any combination thereof; (B) coverage issued as a supplement to liability insurance; (C) liability insurance, including general liability insurance and automobile liability insurance; (D) worker’s compensation or similar insurance; (E) automobile medical payment insurance; (F) credit-only insurance; (G) coverage for on-site medical clinics; and (H) other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits. June 1, 20107192010–22 I.R.B. cap for all health insurance coverage pro- vided by an eligible small employer. Example 6 — Determining amount of premium payments for purposes of the credit. (i) For the 2010 taxable year, an eligible small employer offers a health insurance plan with single and family cov- erage. Employer has 9 FTEs with average annual wages of $23,000 per FTE. Four employees are en- rolled in single coverage and 5 are enrolled in family coverage. (ii) The employer pays 50% of the premiums for all employees enrolled in single coverage and 50% of the premiums for all employees enrolled in fam- ily coverage (and the employee is responsible for the remainder in each case). The premiums are $4,000 a year for single coverage and $10,000 a year for family coverage. The average premium for the small group market in employer’s State is $5,000 for single cov- erage and $12,000 for family coverage. (iii) The employer’s premium payments for each FTE ($2,000 for single coverage and $5,000 for fam- ily coverage) do not exceed 50% of the average pre- mium for the small group market in employer’s State ($2,500 for single coverage and $6,000 for family coverage). (iv) Thus, the amount of premiums paid by the employer for purposes of computing the credit equals $33,000 ((4 x $2,000) plus (5 x $5,000)). Example 7 — Premium payments exceeding aver- age premium for small group market. (i) Same facts asExample 6, except that the premiums are $6,000 for single coverage and $14,000 for family coverage. (ii) The employer’s premium payments for each employee ($3,000 for single coverage and $7,000 for family coverage) exceed 50% of the average pre- mium for the small group market in the employer’s State ($2,500 for single coverage and $6,000 for family coverage). (iii) Thus, the amount of premiums paid by the employer for purposes of computing the credit equals $40,000 ((4 x $2,500) plus (5 x $6,000)). Example 8 — Offering health insurance plan and dental plan. (i) For the 2010 taxable year, an eligi- ble small employer offers a major medical plan and a dental plan. The employer pays 50% of the premium cost for single coverage for all employees enrolled in the major medical plan and 50% of the premium cost for single coverage for all employees enrolled in the dental plan. (ii) For purposes of calculating the credit, the em- ployer can take into consideration the premiums paid by the employer for both the major medical plan and the dental plan, but only up to 50% of the amount of the average premium for single coverage for the small group market in the employer’s State. Example 9 — Meeting qualifying arrangement re- quirement. (i) Same facts asExample 8, except that the employer pays 40% of the premium cost for sin- gle coverage for all employees enrolled in the dental plan. (ii) For purposes of calculating the credit, the em- ployer can take into consideration only the premiums paid by the employer for the major medical plan, and only up to 50% of the amount of the average premium for single coverage for the small group market in the employer’s State. The employer cannot take into con- sideration premiums paid for the dental plan. III. CALCULATING THE CREDIT A. In General The following steps are followed to cal- culate the section 45R credit: 1. Calculate the maximum amount of the credit (section III.B); 2. Reduce the maximum credit in step 1 in accordance with the phaseout rule (sec- tion III.C), if necessary; and 3. For employers receiving a State credit or subsidy for health insurance, de- termine the employer’s actual premium payment (section III.D). B. Maximum Credit For taxable years beginning in 2010 through 2013, the maximum credit is 35 percent of a taxable eligible small em- ployer’s premium payments taken into ac- count for purposes of the credit. For a tax- exempt eligible small employer for those years, the maximum credit is 25 percent of the employer’s premium payments taken into account for purposes of the credit. However, for a tax-exempt employer, the amount of the credit cannot exceed the to- tal amount of income tax under section 3402 and Medicare (i.e., Hospital Insur- ance) tax under section 3101(b) that the employer is required to withhold from em- ployees’ wages for the year and the em- ployer share of Medicare tax under section 3111(b) on employees’ wages for the year. C. Credit Phaseout The credit phases out gradually (but not below zero) for eligible small employers if the number of FTEs exceeds 10 or if the average annual wages exceed $25,000. If the number of FTEs exceeds 10, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the number of FTEs in excess of 10 and the denominator of which is 15. If av- erage annual wages exceed $25,000, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the amount by which average annual wages exceed $25,000 and the denominator of which is $25,000. In both cases, the result of the calculation issubtracted from the otherwise applicable credit to determine the credit to which the employer is en- titled. For an employer with both more than 10 FTEs and average annual wages exceeding $25,000, the total reduction is the sum of the two reductions. This may reduce the credit to zero for some employ- ers with fewer than 25 FTEs and average annual wages of less than $50,000. Example 10 — Calculating the maximum credit for a taxable eligible small employer. (i) For the 2010 taxable year, a taxable eligible small employer has 9 FTEs with average annual wages of $23,000 per FTE. The employer pays $72,000 in health insurance premiums for those employees (which does not ex- ceed the average premium for the small group mar- ket in the employer’s State) and otherwise meets the requirements for the credit. (ii) The credit for 2010 equals $25,200 (35% x $72,000). Example 11 — Calculating the maximum credit for a tax-exempt eligible small employer.(i)For the 2010 taxable year, a tax-exempt eligible small employer has 10 FTEs with average annual wages of $21,000 per FTE. The employer pays $80,000 in health insurance premiums for its employees (which does not exceed the average premium for the small group market in the employer’s State) and otherwise meets the requirementsfor the credit. The total amount of the employer’s income tax and Medicare tax withholding plus the employer’s share of the Medicare tax equals $30,000 in 2010. (ii) The credit is calculated as follows: (1) Initial amount of credit determined before any reduction: (25% x $80,000) = $20,000 (2) Employer’s withholding and Medicare taxes: $30,000 (3) Total 2010 tax credit equals $20,000 (the lesser of $20,000 and $30,000). Example 12 — Calculating the credit phase-out if the number of FTEs exceeds 10 or average annual wages exceed $25,000. (i) For the 2010 taxable year, a taxable eligible small employer has 12 FTEs and av- erage annual wages of $30,000. The employer pays $96,000 in health insurance premiums for its employ- ees (which does not exceed the average premium for the small group market in the employer’s State) and otherwise meets the requirements for the credit. (ii) The credit is calculated as follows: (1) Initial amount of credit determined before any reduction: (35% x $96,000) = $33,600 (2) Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480 (3) Credit reduction for average annual wages in excess of $25,000: ($33,600 x $5,000/$25,000) = $6,720 (4) Total credit reduction: ($4,480 + $6,720) = $11,200 (5) Total 2010 tax credit equals $22,400 ($33,600 - $11,200). D. State Credits and State Subsidies for Health Insurance Some States offer tax credits to cer- tain small employers that provide health insurance to their employees. Some of these are refundable credits and others are 2010–22 I.R.B.720June 1, 2010 nonrefundable credits. In addition, some States offer premium subsidy programs for certain small employers under which the State makes a payment equal to a portion of the employees’ health insurance premi- ums under the employer-provided health insurance plan. Generally, the State pays this premium subsidy either directly to the employer or to the employer’s insurance company (or another entity licensed un- der State law to engage in the business of insurance). If the employer is enti- tled to a State tax credit (whether refund- able or nonrefundable) or a premium sub- sidy that is paid directly to the employer, the premium payment made by the em- ployer is not reduced by the credit or sub- sidy for purposes of determining whether the employer has satisfied the “qualify- ing arrangement” requirement to pay an amount equal to a uniform percentage (not less than 50 percent) of the premium cost. Also, except as described below in this section III.D, the maximum amount of the section 45R credit is not reduced by reason of a State tax credit (whether refundable or nonrefundable) or by reason of payments by a State directly to an employer. Generally, if a State makes payments directly to an insurance company (or an- other entity licensed under State law to en- gage in the business of insurance) to pay a portion of the premium for coverage of an employee under employer-provided health insurance (State direct payments), the State is treated as making these payments on behalf of the employer for purposes of determining whether the employer has satisfied the “qualifying arrangement” requirement to pay an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of coverage. Also, except as described below in this section III.D, these premium payments by the State are treated as an employer con- tribution under section 45R for purposes of calculating the credit. Although State tax credits and pay- ments to an employer generally do not reduce an employer’s otherwise applica- ble credit under section 45R, and although State direct payments are generally treated as paid on behalf of an employer, in no event may the amount of the section 45R credit exceed the amount of the employer’s net premium payments. In the case of a State tax credit for an employer or a State subsidy paid directly to an employer, the employer’s net premium payments are cal- culated by subtracting the State tax credit or subsidy from the employer’s actual premium payments. In the case of a State payment directly to an insurance company (or another entity licensed under State law to engage in the business of insurance), the employer’s net premium payments are the employer’s actual premium payments. If a State-administered program (such as Medicaid or another program that makes payments directly to a health care provider or insurance company on be- half of individuals and their families who meet certain eligibility guidelines) makes payments that are not contingent on the maintenance of an employer-provided group health plan, those payments are not taken into account in determining the credit under section 45R. Example 13 — State premium subsidy paid di- rectly to employer. (i) Employer’s State provides a health insurance premium subsidy of up to 40% of the health insurance premiums for each eligible em- ployee. The State pays the subsidy directly to the em- ployer. (ii) Employer has one employee, Employee D. Employee D’s health insurance premiums are $100 per month and are paid as follows: $80 by the em- ployer and $20 by Employee D through salary reduc- tions to a cafeteria plan. The State pays Employer $40 per month as a subsidy for Employer’s payment of insurance premiums on behalf of Employee D. Em- ployer is otherwise an eligible small employer that meets the requirements for the section 45R credit. (iii) For purposes of the requirements for a qual- ifying arrangement, and for purposes of calculating the amount of the section 45R credit, the amount of premiums paid by the employer is $80 per month (the premium payment by the Employer without regard to the subsidy from the State). Example 14 — State premium subsidy paid directly to employer’s insurance company.(i)Em- ployer’s State provides a health insurance premium subsidy of up to 50% for each eligible employee. The State pays the premium directly to the employer’s health insurance provider. (ii) Employer has one employee, Employee E. Employee E is enrolled in single coverage under Em- ployer’s health insurance plan. (iii) Employee E’s health insurance premiums are $100 per month and are paid as follows: $30 by the employer; $50 by the State and $20 by the employee. The State pays the $50 per month directly to the in- surance company and the insurance company bills the employer for the employer and employee’s share, which equal $50 per month. Employer is otherwise an eligible small employer that meets the require- ments for the section 45R credit. (iv) For purposes of the requirements for a qual- ifying arrangement, and for purposes of calculating the amount of the section 45R credit, the amount of premiums paid by the employer is $80 per month (the sum of the employer’s payment and the State’s pay- ment). Example 15 — Credit limited by employer’s net premium payment. (i) Employer’s State provides a health insurance premium subsidy of up to 50% for each eligible employee. The State pays the premium directly to the employer’s health insurance provider. Employer has one employee, Employee F. Employee F is enrolled in single coverage under Employer’s health insurance plan. Employee F’s health insurance premiums are $100 per month and are paid as follows: $20 by the employer; $50 by the State and $30 by the employee. The State pays the $50 per month directly to the insurance company and the insurance company bills the employer for the employer’s and employee’s shares, which total $50 per month. Employer is oth- erwise an eligible small employer that meets the re- quirements for the section 45R credit. (ii) The amount of premiums paid by the em- ployer for purposes of determining whether the em- ployer meets the qualifying arrangement requirement (the sum of the employer’s payment and the State’s payment) is $70 per month, which is more than 50% of the $100 monthly premium payment. The amount of the premium for calculating the maximum section 45R credit is also $70 per month. The maximum credit is $24.50 ($70 x 35%). (iii) The employer’s net premium payment is $20 (the amount actually paid by the employer excluding the State subsidy). After applying the limit for the employer’s net premium payment , the section 45R credit is $20 per month, (the lesser of $24.50 or $20). IV. CLAIMING THE CREDIT AND EFFECT ON ESTIMATED TAX, ALTERNATIVE MINIMUM TAX AND DEDUCTIONS The section 45R credit is claimed on an eligible small employer’s annual income tax return and offsets an employer’s ac- tual tax liability for the year. For a tax- exempt eligible small employer, the IRS will provide further information on how to claim the credit. For an eligible small em- ployer that is not a tax-exempt employer, the credit is a general business credit and, thus, any unused credit amount can be car- ried back one year and carried forward 20 years (however, because an unused credit amount cannot be carried back to a year be- fore the effective date of the credit, any un- used credit amounts for taxable years be- ginning in 2010 can only be carried for- ward). For a tax-exempt eligible small em- ployer, the credit is a refundable credit, so that even if the employer has no tax- able income, the employer may receive a refund (so long as it does not exceed the tax-exempt eligible small employer’s total income tax withholding and Medicare tax liability for the year). The credit can be reflected in determin- ing estimated tax payments for the year in which the credit applies in accordance June 1, 20107212010–22 I.R.B. with regular estimated tax rules. The credit can also be used to offset an employer’s alternative minimum tax (AMT) liability for the year, subject to certain limitations based on the amount of an employer’s reg- ular tax liability, AMT liability and other allowable credits. Seesection 38(c)(1), as modified by section 38(c)(4)(B)(vi). How- ever, because the credit applies against in- come tax, an employer may not reduce em- ployment tax (i.e., withheld income tax, social security tax under sections 3101(a) and 3111(a), and Medicare tax) deposits and payments during the year in anticipa- tion of the credit. Finally, no deduction is allowed for the employer under section 162 for that portion of the health insurance premiums which is equal to the amount of the section 45R credit. V. TRANSITION RELIEF FOR TAXABLE YEARS BEGINNING IN 2010 Because the section 45R credit applies to taxable years beginning in 2010 (includ- ing the period in 2010 before enactment of the Affordable Care Act), an employer that satisfies the requirements for the transition relief in this section V will be deemed to satisfy the requirement for a qualifying ar- rangement that the employer pay a uni- form percentage (not less than 50 percent) of the premium cost of the health insur- ance coverage (uniformity requirement). Specifically, for taxable years beginning in 2010, an employer that pays an amount equal to at least 50 percent of the pre- mium for single (employee-only) coverage for each employee enrolled in coverage of- fered to employees by the employer will be deemed to satisfy the uniformity require- ment for a qualifying arrangement, even if the employer does not pay the same per- centage of the premium for each such em- ployee. Thus, an employer will be deemed to satisfy the uniformity requirement for a qualifying arrangement if it pays at least 50 percent of the premium for single coverage for each employee receiving single cover- age, and, if the employer offers coverage that is more expensive than single cover- age (such as family or self-plus-one cov- erage), if it pays an amount for each em- ployee receiving thatmore expensive cov- erage that is no less than 50 percent of the premium for single coverage for that em- ployee (even if it is less than 50 percent of the premium for the more expensive cov- erage the employee is actually receiving). Example 16 — Transition relief rule for a quali- fying arrangement. (i) For the 2010 taxable year, an eligible small employer has 9 FTEs with average an- nual wages of $23,000 per FTE. Six employees are enrolled in single coverage and 3 employees are en- rolled in family coverage. (ii) The premiums are $8,000 for single coverage for the year and $14,000 for family coverage for the year (which do not exceed the average premiums for the small group market in the employer’s State). The employer pays 50% of the premium for single cov- erage for each employee enrolled in single or fam- ily coverage (50% x $8,000 = $4,000 for each em- ployee). (iii) Thus, the employer pays $4,000 of the pre- mium for each of the 6 employees enrolled in single coverage and $4,000 of the premium for each of the 3 employees enrolled in family coverage. (iv) The employer is deemed to satisfy the unifor- mity requirement for a qualifying arrangement under the transition relief rule. Example 17 — Arrangement that does not satisfy requirement for transition relief. (i) Same facts asEx- ample 16, except that the employer pays 50% of the premium for employees enrolled in single coverage ($4,000 for each of those 6 employees) but pays none of the premium for employees enrolled in family cov- erage. (ii) The employer does not satisfy the uniformity requirement for a qualifying arrangement. VI. EFFECTIVE DATE Section 45R is effective for taxable years beginning after December 31, 2009. REQUEST FOR COMMENTS The IRS and Treasury intend to issue future guidance that will address addi- tional issues under section 45R, including the application of the uniformity require- ment and the 50-percent requirement for taxable years beginning after 2010. Com- ments are requested on issues that should be addressed in that future guidance. Comments should be submitted on or before September 1, 2010, and should include a referenceto Notice 2010–44. Send submissions to CC:PA:LPD:PR (Notice 2010–44), Room 5203, Inter- nal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand de- liveredMonday through Fridaybe- tween the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2010–44), Courier’s Desk, Internal Revenue Ser- vice, 1111 Constitution Avenue, NW, Washington, DC 20044, or sent electron- ically, via the following e-mail address: Notice.comments@irscounsel.treas.gov. Please include “Notice 2010–44” in the subject line of any electronic communication. All material submitted will be available for public inspection and copying. DRAFTING INFORMATION The principal author of this notice is Mireille Khoury of the Office of Division Counsel/Associate Chief Counsel (Tax Ex- empt and Government Entities). For fur- ther information regarding this notice, con- tact Ms. Khoury at (202) 622–6080 (not a toll-free call). 2010–22 I.R.B.722June 1, 2010 Part IV. Items o fGeneralInterest Notice of Prop osed Rulemaking by Cross-Refere nce to Temporary Re gulations Group Health Plans and Health Insurance Is suers Providing Dependent C overage of Children to Age 26 under the Patien tProtectionand Affordabl eCareAct REG–114494–10 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Not ice of proposed rulemaking by cross-r eference to temporary regula- tions. SUMMARY: Elsewhere in this issue of the Bulletin, the IRS is issuing temporary reg- ulations (T.D. 9482) under the provisions of the Patient Protection and Affordable Care Act (the Affordable Care Act) deal- ing with coverage of dependent children to age26. TheIRSisissuingthetemporary regulations at the same time that the Em- ployee Benefits Security Administration of the U.S. Department of Labor and the Office of Consumer Information and In- surance Oversight of the U.S. Department of Health and Human Services are issu- ing substantially similar interim final reg- ulations with respect to group health plans and health insurance coverage offered in connection with a group health plan under the Employee Retirement Income Security Act of 1974 and the Public Health Ser- vice Act. The temporary regulations pro- vide guidance to employers, group health plans, and health insurance issuers provid- ing group health insurance coverage. The text of those temporary regulations also serves as the text of these proposed regu- lations. DATES: Written or electronic comments and requests for a public hearing must be received by August, 11. 2010. ADDRE SSES: Send submissions to: CC:PA :LPD:PR(REG–114494–10), room 5205, Int ernal Revenue Service, P.O. Box 7604, BenFranklinSta- tion, Washing ton, DC 20044. Sub- missions may b e hand-delivered to: CC:PA:LPD:PR (REG–114494–10), Courier’s De sk, Internal Revenue Ser- vice, 1111 Co nstitution Avenue, NW, Washington D C 20224. Alternatively, taxpayers ma y submit comments elec- tronically via the Federal eRulemaking Portal atht tp://www.regulations.gov(IRS REG–114494 –10). FOR FURTHER INFORMATION CONTACT: Co ncerning the regula- tions, Kar en Levin at 202–622–6080; concernin g submissions of comments, Richard.A .Hurst@irscounsel.treas.gov, 202–622–7 180 (not toll-free numbers) . SUPPLEMEN TARY INFORMATION: Paperwork Reduction Act The collec tion of information contained in this not ice of proposed rulemaking has been subm itted to the Office of Manage- ment and B udget for review in accordance with the P aperwork Reduction Act of 1995 (44 U.S.C . 3507(d)). Comments on the collect ion of information should be sent to theOffi ce of Management and Budget, Attn: De sk Officer for the Department of the Tr easury, Office of Information and Regu latory Affairs, Washington, DC 20503, with copies to theInternal Rev- enue Se rvice, Attn: IRS Reports Clear- ance Of ficer, SE:W:CAR:MP:T:T:SP, Washin gton, DC 20224. Comments on the col lection of information should be recei ved by July 12, 2010. Comments are speci fically requested concerning: •Wheth er the proposed collection of infor mation is necessary for the proper perfo rmance of the functions of the Inter nal Revenue Service, including wheth er the information will have prac tical utility; •The ac curacy of the estimated burdens asso ciated with the proposed collec- tion of information (see the preamble to th e temporary regulations published else where in this issue of the Bulletin); •How t o enhance the quality, utility, and clar ityoftheinformationtobecol- lect ed; •How to minimiz e the burden of com- plying with th e proposed collection of information, including the application of automated c ollection techniques or other forms of information technology; and •Estimates of c apital or start-up costs and costs of o peration, maintenance, and purchase of services to provide in- formation. The collecti on of information is in §54.9815–27 14T(f) (see the temporary regulation s published elsewhere in this issue of the Bulletin). The temporary reg- ulations re quire that group health plans and group he alth insurance coverage offer an enrollme nt opportunity (including writ- ten notice o f the enrollment opportunity) to certain individuals who did not obtain coverage u nder a group health plan or group heal th insurance coverage prior to the effect ive date of amendments made by the Affor dable Care Act to section 2714 of the Publi c Health Service Act (which is in- corporat ed by reference into section 9815 of the Cod e). The individuals to whom the enro llment opportunity must be given are thos e who were not eligible for depen- dent cov erage of a child below the age of 26 but, a fter the effective date of section 2714 of t he Public Health Service Act, are entitl ed to be eligible for coverage under agroup health plan or group health insur- ance co verage. The likely respondents are busine ss or other for-profit institutions, and non profit institutions. Responses to this co llection of information are manda- tory. An age ncy may not conduct or sponsor, and a p erson is not required to respond to, a colle ction of information unless it displays avali d control number assigned by the Of- fice o f Management and Budget. Books or records relating to a collection of inf ormation must be retained as long as th eir contents may become material in the a dministration of any internal revenue law. Generally tax returns and tax return info rmation are confidential, as required by 26 U.S.C. 6103. Back ground The t emporary regulations published else whereinthisissueoftheBulletinadd June 1, 20107232010–22 I.R.B. §54.9815–2714T to the Miscellaneous Ex- cise Tax Regulations. The proposed and temporary regulationsare being published as part of a joint rulemaking with the De- partment of Labor and the Department of Health and Human Services (the joint rulemaking). The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulationsexplains the tempo- rary regulations. 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 this proposed reg- ulation. It is hereby certified that the col- lection of information contained in this no- tice of proposed rulemaking will not have a significant impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. The temporary regulations require both group health insurance issuers and group health plans to provide a notice of opportunity to enroll to certain individuals who, prior to the effective date of the amendments made to section 2714 of the Public Health Ser- vice Act, were not eligible to enroll for de- pendent coverage of children but who are eligible after those amendments take ef- fect. Under the temporary regulations, if a health insurance issuer satisfies this notice obligation, it is satisfied not just for the is- suer but also for the group health plan. For group health plans maintained by small en- tities, it is anticipated that the health insur- ance issuer will satisfy this notice obliga- tion for both the plan and the issuer in al- most all cases. For this reason, the infor- mation collection requirement will not im- pose a significant impact on a substantial number of small entities. For further infor- mation and for analyses relating to the joint rulemaking, see the preamble to the joint rulemaking. Pursuant to section 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Ad- ministration for comment on its impact on small business. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. Comments are specifi- cally requested on the clarity of the pro- posed regulations and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be sched- uled if requested in writing by a person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in theFederal Register. Drafting Information The principal author of these pro- posed regulations is Karen Levin, Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), IRS. The proposed regulations, as well as the temporary regulations, have been developed in coordination with personnel from the U.S. Department of Labor and the U.S. Department of Health and Human Services. ***** Proposed Amendments to the Regulations Accordingly, 26 CFR part 54 is pro- posed to be amended as follows: PART 54—PENSION EXCISE TAXES Paragraph 1. The authority citation for part 54 is amended by adding an entry in numerical order to read as follows: Authority: 26 U.S.C. 7805 * * * Section 54.9815–2714 also issued un- der 26 U.S.C. 9833. * * * Par. 2. Section 54.9815–2714 is added to read as follows: §54.9815–2714 Eligibility of children untilatleastage26. [The text of proposed §54.9815–2714 is the same as the text of §54.9815–2714T published elsewhere in this issue of the Bulletin]. Steven T. Miller, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on May 10, 2010, 4:15 p.m., and published in the issue of the Federal Register for May 13, 2010, 75 F.R. 27141) AJCA Modifications to the Section 6011 Regulations; Correction Announcement 2010–39 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Correcting amendment. SUMMARY: This document contains a correction to final regulations (T.D. 9350, 2007–2 C.B. 614) which were published in theFederal Registeron Friday, August 3, 2007 (72 FR 43146) that modify the rules relating to the disclosure of reportable transactions under section 6011. DATES: This correction is effective on May 11, 2010, and is applicable on August 3, 2007. FOR FURTHER INFORMATION CONTACT: Charles D. Wien or Michael H. Beker, (202) 622–3070 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background The final regulations (T.D. 9350) that are the subject of this document are under section 6011 of the Internal Revenue Code. Need for Correction As published, the final regulations (T.D. 9350) contain an error that may prove to be misleading and is in need of clarification. ***** Correction of Publication Accordingly, 26 CFR part 1 is cor- rected by making the following correcting amendment: 2010–22 I.R.B.724June 1, 2010 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 1.6011–4 is amended by revising the fifth sentence of paragraph (e)(1) to read as follows: §1.6011–4 Requirement of statement disclosing participation in certain transactions by taxpayers. ***** (e) * * * (1)***Inthecaseofataxpayerthatis a partnership, an S corporation, or a trust, the disclosure statement for a reportable transaction must be attached to the part- nership, S corporation, or trust’s tax return for each taxable year in which the part- nership, S corporation, or trust participates in the transaction under the rules of para- graph (c)(3)(i) of this section. * * * LaNita Van Dyke, Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel, (Procedure and Administration). (Filed by the Office of the Federal Register on May 10, 2010, 8:45 a.m., and published in the issue of the Federal Register for May 11, 2010, 75 F.R. 26061) Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code Announcement 2010–40 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 onJune 1, 2010and would end on the date the court first deter- mines that the organization is not described in section 170(c)(2) asmore particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction pro- tected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revo- cation. Action for Affordable Housing Englewood, CO All Gods Creatures Shelter for Abused & Abandoned Animals Tampa, FL Carranor Hunt & Polo Club Perrysburg, OH Debt Monster Credit Counseling Services, Inc. Rancho Santa Margarita, CA Farm Mutual Insurance Baltic, SC Germania Purchasing Group Brenham, TX Orchard Living View, Inc., Sterling Heights, MI Silver Ridge Park Golden Oldies Toms River, NJ WJ Consumer Credit of Texas Kyle, TX Eastland Praise and Worship Aiken, NC The Second Chance Foundation, Inc. Vineyard Haven, MA Currier Family Foundation Salt Lake City, UT Chipper Preschool & Kindergarten Chicago, IL Desilynn Multiple Sclerosis Foundation Layton, UT Hawaii Consumer Credit Counseling Honolulu, HI The Leonard & Beverly Graham Foundation for the Arts Salt Lake City, UT Panther’s House of Pride, Inc., Decatur, GA Seed America Foundation Cummings, GA Carey C. Jones Memorial Park Apex, NC Capital Athletic Foundation Silver Spring, MD June 1, 20107252010–22 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. 2010–22 I.R.B.iJune 1, 2010 Numerical Finding List 1 Bulletins 2010–1 through 2010–22 Announcements: 2010-1, 2010-4 I.R.B.333 2010-2, 2010-2 I.R.B.271 2010-3, 2010-4 I.R.B.333 2010-4, 2010-5 I.R.B.384 2010-5, 2010-6 I.R.B.402 2010-6, 2010-6 I.R.B.402 2010-7, 2010-6 I.R.B.403 2010-8, 2010-7 I.R.B.408 2010-9, 2010-7 I.R.B.408 2010-10, 2010-7 I.R.B.410 2010-11, 2010-10 I.R.B.438 2010-12, 2010-7 I.R.B.410 2010-13, 2010-8 I.R.B.426 2010-14, 2010-11 I.R.B.449 2010-15, 2010-10 I.R.B.438 2010-16, 2010-11 I.R.B.450 2010-17, 2010-13 I.R.B.515 2010-18, 2010-12 I.R.B.460 2010-19, 2010-14 I.R.B.529 2010-20, 2010-15 I.R.B.551 2010-21, 2010-15 I.R.B.551 2010-22, 2010-16 I.R.B.602 2010-23, 2010-16 I.R.B.602 2010-24, 2010-15 I.R.B.587 2010-25, 2010-15 I.R.B.588 2010-26, 2010-16 I.R.B.604 2010-27, 2010-18 I.R.B.657 2010-28, 2010-17 I.R.B.616 2010-29, 2010-17 I.R.B.616 2010-30, 2010-19 I.R.B.668 2010-31, 2010-19 I.R.B.681 2010-32, 2010-19 I.R.B.681 2010-33, 2010-18 I.R.B.658 2010-34, 2010-20 I.R.B.685 2010-35, 2010-20 I.R.B.685 2010-36, 2010-21 I.R.B.696 2010-37, 2010-20 I.R.B.685 2010-38, 2010-21 I.R.B.696 2010-39, 2010-22 I.R.B.724 2010-40, 2010-22 I.R.B.725 Notices: 2010-1, 2010-2 I.R.B.251 2010-2, 2010-2 I.R.B.251 2010-3, 2010-2 I.R.B.253 2010-4, 2010-2 I.R.B.253 2010-5, 2010-2 I.R.B.256 2010-6, 2010-3 I.R.B.275 2010-7, 2010-3 I.R.B.296 2010-8, 2010-3 I.R.B.297 2010-9, 2010-3 I.R.B.298 Notices— Continued: 2010-10, 2010-3 I.R.B.299 2010-11, 2010-4 I.R.B.326 2010-12, 2010-4 I.R.B.326 2010-13, 2010-4 I.R.B.327 2010-14, 2010-5 I.R.B.344 2010-15, 2010-6 I.R.B.390 2010-16, 2010-6 I.R.B.396 2010-17, 2010-14 I.R.B.519 2010-18, 2010-14 I.R.B.525 2010-19, 2010-7 I.R.B.404 2010-20, 2010-8 I.R.B.422 2010-21, 2010-12 I.R.B.451 2010-22, 2010-10 I.R.B.435 2010-23, 2010-11 I.R.B.441 2010-24, 2010-12 I.R.B.452 2010-25, 2010-14 I.R.B.527 2010-26, 2010-14 I.R.B.527 2010-27, 2010-15 I.R.B.531 2010-28, 2010-15 I.R.B.541 2010-29, 2010-15 I.R.B.547 2010-30, 2010-18 I.R.B.650 2010-31, 2010-16 I.R.B.594 2010-32, 2010-16 I.R.B.594 2010-33, 2010-17 I.R.B.609 2010-34, 2010-17 I.R.B.612 2010-35, 2010-19 I.R.B.660 2010-36, 2010-17 I.R.B.612 2010-37, 2010-18 I.R.B.654 2010-38, 2010-20 I.R.B.682 2010-40, 2010-21 I.R.B.693 2010-41, 2010-22 I.R.B.715 2010-43, 2010-22 I.R.B.716 2010-44, 2010-22 I.R.B.717 Proposed Regulations: REG-132232-08, 2010-6 I.R.B.401 REG-134235-08, 2010-16 I.R.B.596 REG-137036-08, 2010-6 I.R.B.398 REG-101896-09, 2010-5 I.R.B.347 REG-117501-09, 2010-11 I.R.B.442 REG-131028-09, 2010-4 I.R.B.332 REG-148681-09, 2010-11 I.R.B.443 REG-114494-10, 2010-22 I.R.B.723 Revenue Procedures: 2010-1, 2010-1 I.R.B.1 2010-2, 2010-1 I.R.B.90 2010-3, 2010-1 I.R.B.110 2010-4, 2010-1 I.R.B.122 2010-5, 2010-1 I.R.B.165 2010-6, 2010-1 I.R.B.193 2010-7, 2010-1 I.R.B.231 2010-8, 2010-1 I.R.B.234 2010-9, 2010-2 I.R.B.258 2010-10, 2010-3 I.R.B.300 Revenue Procedures— Continued: 2010-11, 2010-2 I.R.B.269 2010-12, 2010-3 I.R.B.302 2010-13, 2010-4 I.R.B.329 2010-14, 2010-12 I.R.B.456 2010-15, 2010-7 I.R.B.404 2010-16, 2010-19 I.R.B.664 2010-17, 2010-8 I.R.B.425 2010-18, 2010-9 I.R.B.427 2010-19, 2010-13 I.R.B.469 2010-20, 2010-14 I.R.B.528 2010-21, 2010-13 I.R.B.473 Revenue Rulings: 2010-1, 2010-2 I.R.B.248 2010-2, 2010-3 I.R.B.272 2010-3, 2010-3 I.R.B.272 2010-4, 2010-4 I.R.B.309 2010-5, 2010-4 I.R.B.312 2010-6, 2010-6 I.R.B.387 2010-7, 2010-8 I.R.B.417 2010-8, 2010-10 I.R.B.432 2010-9, 2010-13 I.R.B.461 2010-10, 2010-13 I.R.B.461 2010-11, 2010-14 I.R.B.516 2010-12, 2010-18 I.R.B.617 2010-13, 2010-21 I.R.B.691 Tax Conventions: 2010-2, 2010-2 I.R.B.271 2010-26, 2010-16 I.R.B.604 2010-27, 2010-18 I.R.B.657 Treasury Decisions: 9474, 2010-4 I.R.B.322 9475, 2010-4 I.R.B.304 9476, 2010-5 I.R.B.336 9477, 2010-6 I.R.B.385 9478, 2010-4 I.R.B.315 9479, 2010-18 I.R.B.618 9480, 2010-11 I.R.B.439 9481, 2010-17 I.R.B.605 9482, 2010-22 I.R.B.698 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin 2009–52, dated December 28, 2009. June 1, 2010ii2010–22 I.R.B. Finding List of Current Actions on Previously Published Items 1 Bulletins 2010–1 through 2010–22 Announcements: 2009-23 Corrected by Ann. 2010-29, 2010-17 I.R.B.616 2009-51 Supplemented and superseded by Ann. 2010-16, 2010-11 I.R.B.450 2010-4 Corrected by Ann. 2010-10, 2010-7 I.R.B.410 2010-22 Corrected by Ann. 2010-34, 2010-20 I.R.B.685 Notices: 2005-88 Superseded by Notice 2010-13, 2010-4 I.R.B.327 2006-87 Superseded by Notice 2010-27, 2010-15 I.R.B.531 2007-25 Superseded by Notice 2010-27, 2010-15 I.R.B.531 2007-77 Superseded by Notice 2010-27, 2010-15 I.R.B.531 2008-14 Modified and superseded by Notice 2010-33, 2010-17 I.R.B.609 2008-41 Modified by Notice 2010-7, 2010-3 I.R.B.296 2008-55 Modified by Notice 2010-3, 2010-2 I.R.B.253 2008-88 Modified by Notice 2010-7, 2010-3 I.R.B.296 2008-107 Superseded by Notice 2010-27, 2010-15 I.R.B.531 2008-113 Modified by Notice 2010-6, 2010-3 I.R.B.275 Notices— Continued: 2008-115 Modified by Notice 2010-6, 2010-3 I.R.B.275 2008-116 Modified and superseded by Notice 2010-32, 2010-16 I.R.B.594 2009-11 Amplified by Notice 2010-9, 2010-3 I.R.B.298 2009-13 Obsoleted by T.D. 9478, 2010-4 I.R.B.315 REG-131028-09, 2010-4 I.R.B.332 2009-35 Supplemented by Notice 2010-17, 2010-14 I.R.B.519 2009-38 Amplified and superseded by Notice 2010-2, 2010-2 I.R.B.251 2009-62 Modified and supplemented by Notice 2010-23, 2010-11 I.R.B.441 Proposed Regulations: REG-127270-06 Hearing scheduled by Ann. 2010-6, 2010-6 I.R.B.402 REG-134235-08 Hearing scheduled by Ann. 2010-33, 2010-18 I.R.B.658 Revenue Procedures: 80-59 Modified and superseded by Rev. Proc. 2010-11, 2010-2 I.R.B.269 87-35 Obsoleted by Rev. Proc. 2010-3, 2010-1 I.R.B.110 2001-18 Superseded by Rev. Proc. 2010-16, 2010-19 I.R.B.664 2008-14 Updated by Rev. Proc. 2010-15, 2010-7 I.R.B.404 2009-1 Superseded by Rev. Proc. 2010-1, 2010-1 I.R.B.1 2009-2 Superseded by Rev. Proc. 2010-2, 2010-1 I.R.B.90 Revenue Procedures— Continued: 2009-3 Superseded by Rev. Proc. 2010-3, 2010-1 I.R.B.110 2009-4 Superseded by Rev. Proc. 2010-4, 2010-1 I.R.B.122 2009-5 Superseded by Rev. Proc. 2010-5, 2010-1 I.R.B.165 2009-6 Superseded by Rev. Proc. 2010-6, 2010-1 I.R.B.193 2009-7 Superseded by Rev. Proc. 2010-7, 2010-1 I.R.B.231 2009-8 Superseded by Rev. Proc. 2010-8, 2010-1 I.R.B.234 2009-9 Superseded by Rev. Proc. 2010-9, 2010-2 I.R.B.258 2009-15 Amplified and superseded by Rev. Proc. 2010-12, 2010-3 I.R.B.302 2009-17 Superseded by Rev. Proc. 2010-21, 2010-13 I.R.B.473 2009-25 Superseded by Rev. Proc. 2010-3, 2010-1 I.R.B.110 2009-55 Corrected by Ann. 2010-11, 2010-10 I.R.B.438 2010-1 Corrected by Ann. 2010-5, 2010-6 I.R.B.402 Revenue Rulings: 67-436 Obsoleted by REG-101896-09, 2010-5 I.R.B.347 92-19 Supplemented in part by Rev. Rul. 2010-7, 2010-8 I.R.B.417 2008-52 Supplemented and superseded by Rev. Rul. 2010-2, 2010-3 I.R.B.272 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin 2009–52, dated December 28, 2009. 2010–22 I.R.B.iiiJune 1, 2010 Treasury Decisions: 9350 Corrected by Ann. 2010-38, 2010-21 I.R.B.696 Ann. 2010-39, 2010-22 I.R.B.724 9424 Corrected by Ann. 2010-18, 2010-12 I.R.B.460 9443 Corrected by Ann. 2010-8, 2010-7 I.R.B.408 9458 Corrected by Ann. 2010-7, 2010-6 I.R.B.403 June 1, 2010iv2010–22 I.R.B. INDEX Internal Revenue Bulletins 2010–1 through 2010–22 The abbreviation and number in parenthesis following the index entry refer to the specific item; numbers in roman and italic type following the parenthesis refers to the Internal Revenue Bulletin in which the item may be found and the page number on which it appears. Key to Abbreviations: AnnAnnouncement CDCourt Decision DODelegation Order EOExecutive Order PLPublic Law PTEProhibited Transaction Exemption RPRevenue Procedure RRRevenue Ruling SPRStatement of Procedural Rules TCTax Convention TDTreasury Decision TDOTreasury Department Order EMPLOYEE PLANS Correction of certain failures of nonqualified deferred compen- sation plans to comply with the plan document requirements of section 409A (Notice 6) 3,275 Defined benefit plans, determination letters (Ann 20) 15,551 Dependent coverage of children under group health plans to age 26 (TD 9482) 22,698; (REG–114494–10) 22,723 Determination letters, issuing procedures (RP 6) 1,193 FBAR administrative relief forsignature authority and certain commingled funds (Notice 23) 11,441 FBAR filing requirements (Ann 16) 11,450 Full funding limitations, weighted average interest rates, seg- ment rates for: January 2010 (Notice 14) 5,344 February 2010 (Notice 20) 8,422 March 2010 (Notice 24) 12,452 April 2010 (Notice 36) 17,612 May2010(Notice40)21,693 Health care benefits with respect to children under age 27, tax treatment (Notice 38) 20,682 Letter rulings: And determination letters, areas which will not be issued from: Associates Chief Counsel and Division Counsel (TE/GE) (RP 3) 1,110 Associate Chief Counsel (International) (RP 7) 1,231 And general information letters, procedures (RP 4) 1,122 User fees, request for letter rulings (RP 8) 1,234 Parity in mental health and substance use disorder benefits under group health plans (TD 9479) 18,618 EMPLOYEE PLANS—Cont. Proposed regulations: 26 CFR 54.9815–2714, added; dependent coverage of chil- dren under group health plans to age 26 (REG–114494–10) 22,723 Regulations: 26 CFR 54.9812–1T, revised; 602.101, amended; interim final rules under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) (TD 9479) 18,618 26 CFR 54.9815–2714T, added; 602.101, amended; depen- dent coverage of children under group health plans to age 26 (TD 9482) 22,698 Technical advice to IRS employees (RP 5) 1,165 Qualified plans: Changes in funding method (Ann 3) 4,333 Military services, HEART Act (Notice 15) 6,390 EMPLOYMENT TAX Definition of last known address (RP 16) 19,664 Designation of section 3504 agent for FUTA tax purposes (REG–137036–08) 6,398 Frivolous tax return positions (Notice 33) 17,609 Furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Health care benefits with respect to children under age 27, tax treatment (Notice 38) 20,682 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1;correction(Ann5)6,402 Proposed regulations: 26 CFR 1.6109–2, amended; furnishing identifying number of tax return preparer (REG–134235–08) 16,596 26 CFR 31.3504, revised; section 3504 agent employment tax liability (REG–137036–08) 6,398 Technical Advice Memoranda (TAMs) (RP 2) 1,90 ESTATE TAX Definition of last known address (RP 16) 19,664 FBAR administrative relief for signature authority and certain commingled funds (Notice 23) 11,441 FBAR filing requirements (Ann 16) 11,450 Frivolous tax return positions (Notice 33) 17,609 Furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1;correction(Ann5)6,402 Proposed regulations: 26 CFR 1.6109–2, amended; furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Technical Advice Memoranda (TAMs) (RP 2) 1,90 2010–22 I.R.B.vJune 1, 2010 EXCISE TAX Dependent coverage of children under group health plans to age 26 (TD 9482) 22,698; (REG–114494–10) 22,723 FBAR administrative relief forsignature authority and certain commingled funds (Notice 23) 11,441 Frivolous tax return positions (Notice 33) 17,609 Furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1;correction(Ann5)6,402 Parity in mental health and substance use disorder benefits under group health plans (TD 9479) 18,618 Proposed regulations: 26 CFR 1.6109–2, amended; furnishing identifying number of tax return preparer (REG–134235–08) 16,596 26 CFR 54.9815–2714, added; dependent coverage of chil- dren under group health plans to age 26 (REG–114494–10) 22,723 Technical Advice Memoranda (TAMs) (RP 2) 1,90 Regulations: 26 CFR 54.9812–1T, revised; 602.101, amended; interim final rules under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) (TD 9479) 18,618 26 CFR 54.9815–2714T, added; 602.101, amended; depen- dent coverage of children under group health plans to age 26 (TD 9482) 22,698 EXEMPT ORGANIZATIONS Definition of last known address (RP 16) 19,664 FBAR administrative relief forsignature authority and certain commingled funds (Notice 23) 11,441 FBAR filing requirements (Ann 16) 11,450 Frivolous tax return positions (Notice 33) 17,609 Letters rulings: And determination letters: Areas which will not be issued from Associates Chief Counsel and Division Counsel (TE/GE) (RP 3) 1,110 Exemption application determination letter rulings under sec- tions 501 and 521 (RP 9) 2,258 And general information letters, procedures (RP 4) 1,122 User fees, request for letter rulings (RP 8) 1,234 List of organizations classifiedas private foundations (Ann 23) 16,602; (Ann 29) 17,616; (Ann 31) 19,681;(Ann36)21,696 Procedures for charitable trusts to obtain Type III supporting or- ganization classification rulings and refunds of section 4940 taxes for 2008 (Ann 19) 14,529 Revocations (Ann 1) 4,333;(Ann4)5,384;correction(Ann10) 7,410;(Ann13)8,426; (Ann 15) 10,438; (Ann 24) 15,587; (Ann 28) 17,616; (Ann 35) 20,685; (Ann 40) 22,725 Technical advice to IRS employees (RP 5) 1,165 GIFT TAX Definition of last known address (RP 16) 19,664 FBAR administrative relief for signature authority and certain commingled funds (Notice 23) 11,441 FBAR filing requirements (Ann 16) 11,450 Frivolous tax return positions (Notice 33) 17,609 Furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1;correction(Ann5)6,402 Proposed regulations: 26 CFR 1.6109–2, amended; furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Technical Advice Memoranda (TAMs) (RP 2) 1,90 Treatment of transfers made in trust during 2010 (Notice 19) 7, 404 INCOME TAX American Jobs Creation Act (AJCA) modification to the Section 6011 regulations, correction (Ann 38) 21,696; additional cor- rection (Ann 39) 22,724 Accounting methods, December 2009 revision of Form 3115 (Ann 32) 19,681 Advance Pricing Agreement (APA) program, 2009 (Ann 21) 15, 551 Apportionment of tax items among the members of a controlled group of corporations (TD 9476) 5,336 Arbitrage treatment of certain perpetual funds (Notice 5) 2,256 Basis reporting by securities brokers and basis determination for stock (REG–101896–09) 5,347 Bonds: Allocation of qualified school construction bonds (QSCBs), national limitation for 2010 (Notice 17) 14,519 Midwestern Disaster Area Bonds, Hurricane Ike Bonds, Gulf Opportunity Zone Bonds (Notice 10) 3,299 Qualified zone academy bond limitation for year 2010 (Notice 22) 10,435 Reissuance of tax-exempt bonds (Notice 7) 3,296 Consumer Price Index (CPI) adjustments, certain loans under section 1274A for 2010 (RR 2) 3,272 Corporations: Nonshareholder contribution to capital, Smart Grid Invest- ment Grant (RP 20) 14,528 Reorganizations, distributionunder sections 368(a)(1)(D) and 354(b)(1)(B) (TD 9475) 4,304 Credits: Section 45R: Average premium for the small group market (RR 13) 21, 691 Tax credit for employee health insurance expenses of small employers (Notice 44) 22,717 Low-income housing tax credit: 2010 population figures usedfor calculation (Notice 21) 12,451 June 1, 2010vi2010–22 I.R.B. INCOME TAX—Cont. American Recovery and Reinvestment Tax Act of 2009 clarifications (Notice 18) 14,525 Nonconventional source fuel credit, inflation adjustment fac- tor and phase-out amount for CY 2009 (Notice 31) 16,594 Renewable electricity, refined coal, and Indian coal produc- tion credit, 2010 inflation adjustment (Notice 37) 18,654 Specified tax credit bonds (Notice 35) 19,660 Stripping transactions for qualified tax credit bonds (Notice 28) 15,541 Damages received on account of personal physical injuries or physical sickness, hearing on REG–127270–06 (Ann 6) 6,402 Deemed dispositions by individuals emigrating from Canada (RP 19) 13,469 Definition of last known address (RP 16) 19,664 Definition of foreign partnership, sections 7701(a)(4), 7701(a)(5), and 7805 (Notice 41) 22,715 Depreciation, 2010 limitations on depreciation deductions for passenger automobiles (RP 18) 9,427 Disciplinary actions involving attorneys, certified public accoun- tants, enrolled agents, and enrolled actuaries (Ann 12) 7,410; (Ann 25) 15,588; (Ann 37) 20,685 Disclosure of activity grouping under Code section 469 (RP 13) 4,329 Disclosure or use of information by return preparers: Amendments to section 7216 regulations (TD 9478) 4,315; (REG–131028–09) 4,332 In communicating with taxpayers (RR 4) 4,309 In connection with professional liability insurance (RR 5) 4, 312 Draft schedule and instructionsfor uncertain tax positions pro- posal (Ann 30) 19,668 Electronic filing, waiver request procedures (Notice 13) 4,327 Employer-provided vehicles,cents-per-mile rule, maximum 2010 values for vehicle (RP 10) 3,300 Expenses, housing cost amounts eligible for exclusion or deduc- tion, 2010 (Notice 27) 15,531 Extension of interim guidance on section 67 limitation on estates or trusts (Notice 32) 16,594 Extension of timeframe for disclosures to persons designated in a written request or consent pursuant to section 6103(c) (Notice 8) 3,297 Extension of time to submit comments on Announcement 2010–9 regarding reporting uncertain tax positions, draft schedule, and implementation date (Ann 17) 13,515 FATCA, implementation and request for comments (Ann 22) 16, 602; correction (Ann 34) 20,685 FBAR administrative relief forsignature authority and certain commingled funds (Notice 23) 11,441 FBAR filing requirements (Ann 16) 11,450 Foreign earned income exclusion (RP 17) 8,425 Frivolous tax return positions (Notice 33) 17,609 Furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Guidance priority list, recommendations for 2010–2011 (Notice 43) 22,716 INCOME TAX—Cont. Health care benefits with respect to children under age 27, tax treatment (Notice 38) 20,682 Information reporting, deadline to furnish payee statements (No- tice 9) 3,298 Insurance companies: Interest rate tables (RR 7) 8,417 Life insurance reserves, actuarial guideline XLIII, AG 43, CARVM (Notice 29) 15,547 Loss payment patterns and discount factors for the 2009 acci- dent year, correction to RP 2009–55 (Ann 11) 10,438 Interest: Certain applicable high yield discount obligations issued in 2010 (Notice 11) 4,326 Investment: Federal short-term, mid-term, and long-term rates for: January 2010 (RR 1) 2,248 February 2010 (RR 6) 6,387 March 2010 (RR 8) 10,432 April 2010 (RR 11) 14,516 May 2010 (RR 12) 18,617 Rates: Underpayments and overpayments, quarter beginning: April 1, 2010 (RR 9) 13,461 Investment in U.S. property, extension of regulations (Notice 12) 4,326 Letter rulings: And determination letters, areas which will not be issued from: Associate Chief Counsel and Division Counsel (TE/GE) (RP 3) 1,110 Associates Chief Counsel(International) (RP 7) 1,231 And information letters issued byAssociate Offices, determi- nation letters issued by Operating Divisions (RP 1) 1,1; correction (Ann 5) 6,402 Like-kind exchanges (RP 14) 12,456 Military Spouses Residency Relief Act (MSRRA), transitional guidance for taxpayers claiming relief (Notice 30) 18,650 Modification to consolidated return regulation (TD 9458) per- mitting an election to treat a liquidation of a target, followed by a recontribution to a new target, as a cross-chain reorgani- zation(Ann7)6,403 Penalties, substantial understatement, preparer penalty (RP 15) 7,404 Personal exemption, additional for Hurricane Katrina displaced individual (TD 9474) 4,322 PFIC shareholder reporting under new section 1298(f) for tax years beginning before March 18, 2010 (Notice 34) 17,612 Postponement of certain tax-related deadlines by reason of a fed- erally declared disaster or terroristic or military action, correc- tiontoTD9443(Ann8)7,408 Private foundations, organizations now classified as (Ann 23) 16, 602;(Ann29)17,616; (Ann 31) 19,681; (Ann 36) 21,696 Proposed Regulations: 26 CFR 1.304–4 revised; use of controlled corporations to avoid the application of section 304 (REG–132232–08) 6, 401 2010–22 I.R.B.viiJune 1, 2010 INCOME TAX—Cont. 26 CFR 1.408–7, amended; 1.1012–1, amended; 1.6039–2, amended; 1.6042–4, amended; 1.6044–5, amended; 1.6045–1 thru –5, amended; 1.6045A–1, added; 1.6045B–1, added; 1.6049–6, amended; 31.3406(b)(3)–2, amended; 31.6051–4, amended; 301.6721–1, amended; 301.6722–1, amended; basis reporting by securities bro- kers and basis determination for stock (REG–101896–09) 5,347 26 CFR 1.6109–2, amended; furnishing identifying number of tax return preparer (REG–134235–08) 16,596 26 CFR 1.6654–2, amended; reduced 2009 estimated income tax payments for individuals with small business income (REG–117501–09) 11,442 26 CFR 301.7216–2, amended; amendments to section 7216 regulations-disclosure or use of information by preparers of returns (REG–131028–09) 4,332 Publications: 1167, General Rules and Specifications for Substitute Forms and Schedules (RP 21) 13,473 Qualified disasters: Chile earthquake occurring in February 2010 (Notice 26) 14, 527 Haiti earthquake occurring in January 2010 (Notice 16) 6,396 Reduced 2009 estimated income tax payments for indi- viduals with small business income (TD 9480) 11,439; (REG–117501–09) 11,442 Regulations: 26 CFR 1.162–24, added; 301.9100–4T; amended; 602.101, amended; travel expenses of state legislators (TD 9481) 17, 605 26 CFR 1.304–4, added; 1.304–4T, revised; use of controlled corporations to avoid the application of section 304 (TD 9477) 6,385 26 CFR 1.358–2, amended; 1.368–2, amended; 1.368–2T, removed; 1.1502–13, amended; corporate reorganizations, distribution under sections 368(a)(1)(D) and 354(b)(1)(B) (TD 9475) 4,304 26 CFR 1.924(a), amended; 1.1502–43, amended; 1.1502–43T, removed; 1.1502–47, amended; 1.1502–47T, removed; 1.561–0 thru –3, added;1.1561–0T thru –3T, removed; apportionment of tax items among the members of a controlled groups of corporation (TD 9476) 5,336 26 CFR 1.1502–13T, amended; modification to consolidated return regulation permitting an election to treat a liquidation of a target, followed by a recontribution to a new target, as a cross-chain reorganization; correction to TD 9458 (Ann 7) 6,403 26CFR1.6011–4,revised;correctiontoTD9350(Ann39) 22,724 26 CFR 1.6654–2, amended; 1.6654–2T, added; reduced 2009 estimated income tax payments for individuals with small business income (TD 9480) 11,439 26 CFR 1.9300–1, added; 1.9300–1T, removed; reduction in taxable income for housing Hurricane Katrina displaced in- dividuals (TD 9474) 4,322 INCOME TAX—Cont. 26 CFR 301.7216–0, –2, amended; 301.7216–0T, –2T, added; amendments to section 7216 regulations-disclosure or use of information by preparers of returns (TD 9478) 4,315 Requirements, trustee of a blind trust (RP 11) 2,269 Revocations, exempt organizations (Ann 1) 4,333;(Ann4)5, 384; correction (Ann 10) 7,410; (Ann 13) 8,426; (Ann 15) 10,438;(Ann24)15,587; (Ann 28) 17,616;(Ann35)20, 685; (Ann 40) 22,725 Section 305 distributions of stock (RP 12) 3,302 Section 338 election, qualified foreign contract (Notice 1) 2,251 Section 368 reorganizations, continuity of interest (Notice 25) 14,527 Section 382 limitation, ownership changes, pre-change losses (Notice 2) 2,251 Section 385, auction rate preferred stock (Notice 3) 2,253 Section 1256(g)(7)(C) qualified board or exchange (RR 3) 3,272 Standard Industry Fare Level (SIFL) formula (RR 10) 13,461 State legislators, section 162(h) election to deduct deemed living expenses (TD 9481) 17,605 Substitute forms and schedules, general rules and specifications (RP 21) 13,473 Technical Advice Memoranda (TAMs) (RP 2) 1,90 Tax conventions: U.S.-Belgium Tax Convention,agreement on pension plans under Article 17 (Ann 27) 18,657 U.S.-Canada Tax Convention,Article XIII(7) election (RP 19) 13,469 U.S.-Germany agreement with respect to consular employees (Ann 2) 2,271 U.S.-Netherlands agreement with respect to the elimination of the Dutch “qualification” certification (Ann 26) 16,604 Transfers of stock or securities to foreign corporations under sec- tion 304 (TD 9477) 6,385; (REG–132232–08) 6,401 Uncertain tax positions, policy of restraint (Ann 9) 7,408 Unified rule for loss on subsidiary stock (Ann 18) 12,460 Widely held fixed investment trusts (WHIFT) transition guid- ance (Notice 4) 2,253 SELF-EMPLOYMENT TAX Frivolous tax return positions (Notice 33) 17,609 Furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Letter rulings and information letters issued by Associate Of- fices, determination letters issued by Operating Divisions (RP 1) 1,1;correction(Ann5)6,402 Proposed regulations: 26 CFR 1.6109–2, amended; furnishing identifying number of tax return preparer (REG–134235–08) 16,596 Technical Advice Memoranda (TAMs) (RP 2) 1,90 June 1, 2010viii2010–22 I.R.B. 2010–22 I.R.B.June 1, 2010 June 1, 20102010–22 I.R.B. 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