Internal Revenue Bulletin 2012-15 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 201
2-15
April 9, 2012
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2012–12, page 748.
Federal rates; adjusted federal rates; adjusted federal
long-termrateandthelong-termexemptrate.The March
2012 Applicable Federal Rate is modified to correct the annual
long-term adjusted Applicable Federal Rate and the long-term
tax-exempt rate for ownership changes. Rev. Rul. 2012–9
modified.
T.D. 9576, page 723.
Final regulations under section 901 of the Code provide guid-
ance relating to the determination of who is considered to pay
a foreign income tax for purposes of the foreign tax credit. No-
tice 2007–95 obsoleted in part.
T.D. 9577, page 730.
REG–132736–11, page 793.
Final and temporary regulations under section 909 of the Code
provide guidance addressing situations in which foreign income
taxes have been separated from the related income. Notice
2010–92 obsoleted.
REG–124791–11, page 791.
Proposed regulations under section 6109 of the Code provide
guidance on the eligibility of the tax preparers to obtain or
renew a preparer tax identification number (PTIN).
EMPLOYEE PLANS
T.D. 9575, page 749.
Final regulations under section 9815 of the Code provide guid-
ance regarding disclosure of the summary of benefits and cov-
erage and the uniform glossary for group health plans and
health insurance coverage in the group and individual markets
under the Patient Protection and Affordable Care Act. This doc-
ument implements the disclosure requirements to help plans
and individuals better understand their health coverage, as well
as other coverage options.
EXEMPT ORGANIZATIONS
Announcement 2012–15, page 794.
The IRS has revoked its determination that Budget Right Debt
Management, Inc., of Maitland, FL; Budget Right Debt Manage-
ment, Inc., of Lake Mary, FL; Columbus Building Association of
Kingsville Texas of Kingsville, TX; Garment Industry Day Care
Center of Chinatown, Inc., of New York, NY; and Renewal Min-
istries, Inc., of Spring, TX, qualify as organizations described
in sections 501(c)(3) and 170(c)(2) of the Code.
ESTATE TAX
REG–124791–11, page 791.
Proposed regulations under section 6109 of the Code provide
guidance on the eligibility of the tax preparers to obtain or
renew a preparer tax identification number (PTIN).
(Continued on the next page)
Finding Lists begin on page ii.

GIFT TAX
REG–124791–11, page 791.
Proposed regulations under section 6109 of the Code provide
guidance on the eligibility of the tax preparers to obtain or
renew a preparer tax identification number (PTIN).
EMPLOYMENT TAX
REG–124791–11, page 791.
Proposed regulations under section 6109 of the Code provide
guidance on the eligibility of the tax preparers to obtain or
renew a preparer tax identification number (PTIN).
SELF-EMPLOYMENT TAX
REG–124791–11, page 791.
Proposed regulations under section 6109 of the Code provide
guidance on the eligibility of the tax preparers to obtain or
renew a preparer tax identification number (PTIN).
EXCISE TAX
T.D. 9575, page 749.
Final regulations under section 9815 of the Code provide guid-
ance regarding disclosure of the summary of benefits and cov-
erage and the uniform glossary for group health plans and
health insurance coverage in the group and individual markets
under the Patient Protection and Affordable Care Act. This doc-
ument implements the disclosure requirements to help plans
and individuals better understand their health coverage, as well
as other coverage options.
REG–124791–11, page 791.
Proposed regulations under section 6109 of the Code provide
guidance on the eligibility of the tax preparers to obtain or
renew a preparer tax identification number (PTIN).
ADMINISTRATIVE
REG–124791–11, page 791.
Proposed regulations under section 6109 of the Code provide
guidance on the eligibility of the tax preparers to obtain or
renew a preparer tax identification number (PTIN).
Notice 2012–25, page 789.
This notice invites the public to submit recommendations for
items that should be included on the 2012-2013 Guidance Pri-
ority list.
April 9, 20122012–15 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2012–15 I.R.B.April 9, 2012

April 9, 20122012–15 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 382.—
Limitation
on Net Operati
ng Loss
Carryforwards and Certain
Built-In Losses Following
Owernership Change
The March 2012 Applicable Federal Rate is mod-
ified to correct the annual long-term adjusted Appli-
cable Federal Rate and the long-term tax-exempt rate
for ownership changes. See Rev. Rul. 2012-12, page
748.
Section 901.—Taxes
of Foreign Countries
and of Possessions of
United States
26 CFR 1.706–1: Taxable years of partner and part-
nership.
T.D. 9576
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Definition of a Taxpayer
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal Income Tax Regulations which provide
guidance relating to the determination of
who is considered to pay a foreign income
tax for purposes of the foreign tax credit.
These regulations provide rules for identi-
fying the person with legal liability to pay
the foreign income tax in certain circum-
stances. These regulations affect taxpay-
ers claiming foreign tax credits.
DATES:Effective Date:These regulations
are effective on February 14, 2012.
Applicability Dates:For dates of appli-
cability, see §1.901–2(h)(4).
FOR FURTHER INFORMATION
CONTACT: Suzanne M. Walsh, (202)
622–3850 (not a toll-free call).
SUPPLEMENTAR
Y INFORMATION:
Background
I.Section 90
1 Regulations
On August 4, 2
006, theFederal Reg-
isterpubli
shed proposed regulations
(REG–12415
2–06, 2006–2 C.B. 368
[71 FR 44240
]) under section 901 of the
Internal Re
venue Code concerning the
determinat
ionofthepersonwhopaida
foreign in
come tax for foreign tax credit
purposes (
2006 proposed regulations).
The 2006 pr
oposed regulations would
address th
e inappropriate separation of
foreign i
ncome taxes from the income
on which t
he tax was imposed in certain
circumst
ances. In particular, the 2006
proposed
regulations would provide
guidance
under §1.901–2(f) relating to
the pers
on on whom foreign law imposes
legal li
ability for tax, including in the
case of t
axes imposed on the income of
foreign
consolidated groups and entities
that ha
ve different classifications for U.S.
and for
eign tax law purposes.
The Tre
asury Department and the
IRS rec
eived written comments on
the 200
6 proposed regulations and
held a p
ublic hearing on October 13,
2006. A
ll comments are available at
www.r
egulations.govor upon request.
In Not
ice 2007–95, 2007–2 C.B. 1091
(Dece
mber 3, 2007)), the Treasury
Depar
tment and the IRS announced that
when i
ssued, the final regulations will
be ef
fective for taxable years beginning
afte
r the final regulations are published
in th
eFederal Register. This Treasury
deci
sion adopts, in part, the 2006 proposed
regu
lations with the changes discussed in
this
preamble.
II.
Section 909 and Notice 2010–92
Sec
tion 909 was enacted as part of leg-
isl
ationcommonlyreferredtoastheEd-
uca
tion Jobs and Medicaid Assistance Act
(E
JMAA) on August 10, 2010 (Public Law
11
1–226, 124 Stat. 2389 (2010)). Section
90
9 was enacted to address concerns about
th
e inappropriate separation of foreign in-
co
me taxes and related income.
Section 909 pr
ovides that there is a for-
eign tax credi
t splitting event if a foreign
income tax is p
aid or accrued by a taxpayer
or section 90
2 corporation and the related
income is, or
will be, taken into account by
a covered per
son with respect to such tax-
payerorsect
ion 902 corporation. In such a
case, the ta
x is suspended until the taxable
year in whic
htherelatedincomeistaken
into accoun
t by the payor of the tax or, if
the payor is
a section 902 corporation, by a
section 902
shareholder of the section 902
corporati
on.
On Decembe
r 6, 2010, the Treasury
Departmen
t and the IRS issued Notice
2010–92, 2
010–52 I.R.B. 916, (December
6, 2010)),
which primarily addresses the
applicati
on of section 909 to foreign in-
come taxe
s paid or accrued by a section
902 corpo
ration in taxable years begin-
ning on or
before December 31, 2010
(pre–201
1 taxable years). The notice
provides
rules for determining whether
foreign
income taxes paid or accrued by a
section
902 corporation in pre–2011 tax-
able yea
rs (pre–2011 taxes) are suspended
under se
ction 909 in taxable years begin-
ning af
ter December 31, 2010 (post–2010
taxabl
e years) of a section 902 corporation.
It also
identifies an exclusive list of
arrang
ements that will be treated as giving
rise to
foreign tax credit splitting events
in pre
–2011 taxable years (pre–2011
split
ter arrangements) and provides
guida
nce on determining the amount
of rel
ated income and pre–2011 taxes
paid o
r accrued with respect to pre–2011
spli
tter arrangements. The pre–2011
spli
tter arrangements are reverse hybrid
stru
ctures, certain foreign consolidated
grou
ps, disregarded debt structures in
the c
ontext of group relief and other
loss
-sharing regimes, and two classes of
hyb
rid instruments. The notice states that
fut
ure guidance will provide that foreign
tax
credit splitting events in post–2010
tax
able years will at least include all
of t
he pre–2011 splitter arrangements.
The
notice also states that the Treasury
De
partment and the IRS do not intend to
fi
nalize the portion of the 2006 proposed
re
gulations relating to the determination
of
the person who paid a foreign income
ta
x with respect to the income of a reverse
2012–15 I.R.B.723April 9, 2012

hybrid. See Prop. §1.901–2(f)(2)(iii).
Temporary regulations under section 909
are published elsewhere in this issue of the
Bulletin.
Summary of Comments and
Explanation of Revisions
I.In General
In response to written comments on the
2006 proposed regulations and in light of
the enactment of section 909, the Treasury
Department and the IRS have determined
that it is appropriate to finalize certain
portions of the 2006 proposed regulations.
These final regulations revise several of
the proposed rules to take into account
comments received. Other portions of
those regulations are adopted without
amendment. The Treasury Department
and the IRS have also determined that the
remaining portions of the 2006 proposed
regulations should be withdrawn. The
Treasury Department and the IRS, how-
ever, are continuing to consider whether
and to what extent to revise or clarify the
general rule that tax is considered paid by
the person who has legal liability under
foreign law for the tax. For example, the
Treasury Department and the IRS are con-
tinuing to study whether it is appropriate
to provide a special rule for determining
who has legal liability in the case of a
withholding tax imposed on an amount
of income that is considered received by
different persons for U.S. and foreign tax
purposes, as in the case of certain sale-re-
purchase transactions.
II.Taxes Imposed on Combined Income
Section 1.901–2(f)(2) of the 2006 pro-
posed regulations addresses the applica-
tion of the legal liability rule to foreign
consolidated groups and other combined
income regimes, including those in which
the regime imposes joint and several li-
ability in the U.S. sense, those in which
the regime treats subsidiaries as branches
of the parent corporation (or otherwise
attributes income of subsidiaries to the
parent corporation), and those in which
some of the group members have lim-
ited obligations, or even no obligation,
to pay the consolidated tax. Section
1.901–2(f)(2)(i) of the 2006 proposed reg-
ulations provides that the foreign tax must
be apportioned among the persons whose
income is included in the combined base
pro ratabased on each person’s portion of
the combined income, as computed under
foreign law. Because failure to allocate
appropriately the consolidated tax among
the members of the group may result in
the separation of foreign income tax from
the related income as described in sec-
tion 909, comments recommended that
the proposed rules be finalized in lieu of
treating these arrangements as foreign tax
credit splitting events under section 909,
which would require suspension of split
tax until the related income is taken into
account. The Treasury Department and
theIRSagreewiththecomments,and
accordingly, §1.901–2(f)(3)(i) of the final
regulations adopts with minor modifica-
tions Prop. §1.901–2(f)(2)(i). As these
regulations are generally effective for for-
eign taxes paid or accrued during taxable
years beginning after February 14, 2012,
a foreign tax credit splitting event will not
occur with respect to foreign taxes paid
or accrued on combined income in such
years. However, with respect to foreign
income taxes paid or accrued on combined
income during taxable years beginning
after December 31, 2010, and on or before
February 14, 2012, temporary regulations
under section 909 provide that a foreign
tax credit splittingevent occurs to the ex-
tent that a taxpayer does not allocate the
foreign consolidated tax liability among
the members of the foreign consolidated
group based on each member’s share of
the consolidated taxable income included
in the foreign tax base under the principles
of §1.901–2(f)(3) prior to its amendment
by this Treasury decision.
One comment recommended that com-
bined income subject to preferential tax
rates should be allocated only to group
members with that type of income, in or-
dertomorecloselymatchthetaxwiththe
related income. The Treasury Department
and the IRS agree with this comment, and
§1.901–2(f)(3)(i) of the final regulations
provides that combined income with re-
spect to each foreign tax that is imposed on
a combined basis, and combined income
subject to tax exemption or preferential tax
rates, is computed separately, and the tax
on that combined income base is allocated
separately.
Section 1.901–2(f)(2)(ii) of the 2006
proposed regulations provides that for pur-
poses of §1.901–2(f)(2) of the 2006 pro-
posed regulations, foreign tax is imposed
on the combined income of two or more
persons if such persons compute their tax-
able income on a combined basis under
foreign law. Foreign tax is considered to
be imposed on the combined income of
two or more persons even if the combined
income is computed under foreign law by
attributingtoonesuch person (for exam-
ple, the foreign parent of a foreign con-
solidated group) the income of other such
persons. However, foreign tax is not con-
sidered to be imposed on the combined in-
come of two or more persons solely be-
cause foreign law: (1) permits one per-
son to surrender a net loss to another per-
son pursuant to a group relief or similar
regime; (2) requires a shareholder of a cor-
poration to include in income amounts at-
tributable to taxes imposed on the corpo-
ration with respect to distributed earnings,
pursuant to an integrated tax system that
allows the shareholder a credit for such
taxes; or (3) requires a shareholder to in-
clude, pursuant to an anti-deferral regime
(similar to subpart F of the Internal Rev-
enue Code (sections 951 through 965)), in-
come attributable to the shareholder’s in-
terest in the corporation.
The final regulations adopt
§1.901–2(f)(2)(ii) of the 2006 proposed
regulations with several modifications
in response to comments.Section
1.901–2(f)(3)(ii) of the final regulations
provides that tax is considered to be com-
putedonacombinedbasisiftwoormore
persons that would otherwise be subject
to foreign tax on their separate taxable
incomes add their items of income, gain,
deduction, and loss to compute a single
consolidated taxable income amount for
foreign tax purposes. In addition, foreign
tax is not considered to be imposed on the
combined income of two or more persons
if, because one or more of such persons is
a fiscally transparent entity under foreign
law, only one of such persons is subject
to tax under foreign law (even if two or
more of such persons are corporations
for U.S. tax purposes). The regulations
include additional illustrations clarifying
that foreign tax isnot considered to be
imposed on combined income solely be-
cause foreign law: (1) reallocates income
fromonepersontoarelatedpersonunder
foreign transfer pricing provisions; (2)
requires a person to take into account a
distributive share of taxable income of
April 9, 20127242012–15 I.R.B.

an entity that is a partnership or other
fiscally transparent entity for foreign tax
law purposes; or (3) requires a person to
take all or part of the income of an entity
that is a corporation for U.S. tax purposes
into account because foreign law treats the
entity as a branch or fiscally transparent
entity (a reverse hybrid). A reverse hybrid
does not include an entity that is treated
under foreign law as a branch or fiscally
transparent entity solely for purposes of
calculating combined income of a foreign
consolidated group.
One comment requested clarification
that the exclusions from the definition
of a combined income base (for exam-
ple, foreign integration and anti-deferral
regimes) apply solely for purposes of de-
termining whether a foreign income tax is
imposed on combined income, and do not
apply for purposes of determining each
person’s ratable share of the combined
income base. The Treasury Department
and the IRS agree that these exclusions
from the definition of a combined income
base do not exclude any amount of income
otherwise subject to tax on a combined
basis from the operation of the combined
income rule. However, since nothing in
the list of exclusions affects the amount
of income in the combined income base,
which is computed under foreign law, the
Treasury Department and the IRS believe
a change is unnecessary.
Section 1.901–2(f)(2)(iii) of the 2006
proposed regulationsprovides that a re-
verse hybrid is considered to have legal li-
ability under foreign law for foreign taxes
imposed on the owners of the reverse hy-
brid in respect of each owner’s share of
the reverse hybrid’s income. As stated
in Notice 2010–92, the Treasury Depart-
ment and the IRS will not finalize the por-
tion of the 2006 proposed regulations re-
lating to the determination of the person
whopaidaforeignincometaxwithre-
spect to the income of a reverse hybrid.
Notice 2010–92 identifies reverse hybrids
as pre-2011 splitter arrangements, and the
temporary regulations under section 909
also identify reverse hybrids as splitter ar-
rangements.
Section 1.901–2(f)(2)(iv) of the 2006
proposed regulations provides rules for de-
termining each person’s share of the com-
bined income tax base, generally relying
on foreign tax reporting of separate taxable
income or books maintained for that pur-
pose. The 2006 proposed regulations pro-
vide that payments between group mem-
bers that result in a deduction under both
U.S. and foreign tax law will be given
effect in determining each person’s share
of the combined income. The 2006 pro-
posed regulations, however, explicitly re-
serve with respect to the effect of hybrid
instruments and disregarded payments be-
tween related parties, which the preamble
to the proposed regulations describes as a
matter to be addressed in subsequent pub-
lished guidance. Section 1.901–2(f)(2)(iv)
of the 2006 proposed regulations also pro-
vides special rules addressing the effect of
dividends (and deemed dividends) and net
lossesofgroupmembersonthedetermi-
nation of separate taxable income.
Section1.901–2(f)(3)(iii)of
the final regulations adopts Prop.
§1.901–2(f)(2)(iv) with modifications
reflecting that certain hybrid instruments
and certain disregarded payments are
treated as splitter arrangements subject
to section 909. In particular, the final
regulations provide that in determining
separate taxable income of members of
a combined income group, effect will
be given to intercompany payments that
are deductible under foreign law, even
if such payments are not deductible (or
are disregarded) for purposes of U.S. tax
law. Thus, for example, interest accrued
by one group member with respect to an
instrument held by another member that
is treated as debt for foreign tax purposes
but as equity for U.S. tax purposes would
be considered income of the holder
and would reduce the taxable income
of the issuer. The final regulations,
however, include a cross-reference to
§1.909–2T(b)(3)(i) for rules requiring
suspension of foreign income taxes paid
or accrued by the owner of a U.S. equity
hybrid instrument.
Section 1.901–2(f)(2)(v) of the 2006
proposed regulations provides that U.S.
tax principles apply to determine the tax
consequences if one person remits a tax
that is the legal liability of another per-
son. For example, a payment of tax for
which a corporation has legal liability by
a shareholder of that corporation (includ-
ing an owner of a reverse hybrid), will
ordinarily result in a deemed capital con-
tribution and deemed payment of tax by
the corporation. Prop. §1.901–2(f)(2)(v)
also provides that if the corporation reim-
burses the shareholder for the tax payment,
such reimbursement would ordinarily be
treated as a distribution for U.S. tax pur-
poses. The Treasury Department and the
IRS received several comments regard-
ing Prop. §1.901–2(f)(2)(v) noting that a
shareholder’s payment of a corporation’s
tax and a corporation’s reimbursement of
a shareholder for paying its tax liability
will not result in deemed capital contri-
bution and deemed dividend treatment if
arrangements are in place that treat the
shareholder’s payment of the tax as pur-
suant to a lending or agency arrangement.
In response to these comments, the second
and third sentences of §1.901–2(f)(2)(v)
of the 2006 proposed regulations are not
included in §1.901–2(f)(3)(iv) of the final
regulations, and the final regulations sim-
ply provide that U.S. tax principles apply
to determine the tax consequences if one
person remits a tax that is the legal liability
of another person.
III.Taxes Imposed on Partnerships and
Disregarded Entities
Section 1.901–2(f)(3) of the 2006 pro-
posed regulations provides rules regarding
the treatment of two types of hybrid enti-
ties. First,inthecaseofanentitythatis
treated as a partnership for U.S. income tax
purposes but is taxable at the entity level
under foreign law (which the 2006 pro-
posed regulations define as a hybrid part-
nership),suchentityisconsideredtohave
legal liability under foreign law for for-
eign income tax imposed on the income of
the entity. The 2006 proposed regulations
also provide rules for allocating foreign
tax paid or accrued by a hybrid partner-
ship if the partnership’s U.S. taxable year
closes with respect to one or more (or all)
partners or if there is a change in owner-
ship of the hybrid partnership. See Prop.
§1.901–2(f)(3)(i).
Second, in the case of an entity that is
disregarded as separate from its owner for
U.S. federal income tax purposes, the per-
son that is treated as owning the assets of
such entity for U.S. tax purposes is consid-
ered to have legal liability under foreign
law for tax imposed on the income of the
entity. The 2006 proposed regulations
provide rules for allocating foreign tax
between the old owner and the new owner
of a disregarded entity if there is a change
in the ownership of the disregarded entity
2012–15 I.R.B.725April 9, 2012

during the entity’s foreign taxable year and
such change does not result in a closing of
the entity’s foreign taxable year. See Prop.
§1.901–2(f)(3)(ii). The 2006 proposed
regulations generally provide that for hy-
brid partnerships and disregarded entities,
allocations of tax will be made under the
principles of §1.1502–76(b) based on the
respective portions of the taxable income
of the hybrid entity (as determined under
foreign law) for the foreign taxable year
that are attributable to the period ending
on the date of the ownership change (or the
last day of the terminating partnership’s
U.S. taxable year) and the period ending
after such date. This approach is consistent
with the rule provided in §1.338–9(d) for
apportioning foreign tax paid by a target
corporation that is acquired in a transac-
tion that is treated as an asset acquisition
pursuant to an election under section 338,
if the foreign taxable year of the target
does not close at the end of the acquisition
date.
A change in the ownership of a hy-
brid partnership or disregarded entity dur-
ing the entity’s foreign taxable year that
does not result in the closing of the hybrid
entity’s foreign taxable year may result in
the separation of income from the associ-
ated foreign income taxes. A change in the
ownership occurs if there is a disposition
of all or a portion of the owner’s interest. A
separation of income from the associated
foreign income taxes could occur if the for-
eign tax paid or accrued with respect to
such foreign taxable year has not been allo-
cated appropriately between the old owner
and the new owner. Certain changes of
ownership involving related parties could
be treated as a foreign tax credit splitting
event under section 909. Comments rec-
ommended that the proposed legal liabil-
ity rules addressing the treatment of hy-
brid entities be finalized in lieu of treat-
ing the above-described case of a change
in the ownership of a hybrid entity as a for-
eign tax credit splitting event under sec-
tion 909. The Treasury Department and
the IRS agree, and accordingly, the final
regulations adopt the proposed rules with
modifications in response to comments.
One comment recommended that, if a
termination under section 708(b)(1)(B) re-
quires a closing of the books to allocate
U.S.taxableincomebetweentheoldpart-
nership and new partnership but the for-
eign taxable year does not close, or if a
change in a partner’s interest results in a
closing of the partnership’s taxable year
with respect to the partner and an alloca-
tion of partnership items based on a clos-
ing of the books under section 706, for-
eign tax for the year of change should sim-
ilarly be allocated under the principles of
sections 706 and 708 and the regulations
under those sections based on a closing
of the books, rather than under the princi-
ples of §1.1502–76(b), which permits rat-
able allocation of the foreign tax with an
exception for extraordinary items. The
comment noted that apportioning the for-
eign tax using the same methodology as is
used to apportion U.S. taxable income be-
tween the terminating partnership and the
new partnership, or between the partner
whose interest changes and the other part-
ners, would lead to better matching of for-
eign tax and the associated income. The
Treasury Department and the IRS are con-
cerned about the increased administrative
and compliance burdens associated with
requiring a closing of the foreign tax books
in order to apportion foreign tax for the
year of change. Accordingly, this com-
ment was not adopted.
In response to a comment, the final reg-
ulations apply the same foreign tax allo-
cation rules to section 708 terminations
that arise under section 708(b)(1)(A) in the
case of a partnership that has ceased its
operations, including a change in owner-
ship in which a partnership becomes a dis-
regarded entity. The final regulations also
apply the same allocation rules if there are
multiple ownership changes within a sin-
gle foreign taxable year.
Finally, §1.901–2(f)(3)(i) of the 2006
proposed regulations defines a hybrid part-
nership as an entity that is treated as a part-
nership for U.S. income tax purposes but
is taxable at the entity level under foreign
law. Because the Treasury Department and
the IRS believe that a special definition of
the term hybrid partnership is unnecessary
and could cause confusion, references to
the term hybrid partnership are replaced in
the final regulations with references to the
term partnership. No substantive change is
intended by this revision.
IV.Effective/Applicability Date
The 2006 proposed regulations would
generally apply to foreign taxes paid or ac-
crued during taxable years beginning on or
after January 1, 2007. However, consistent
with Notice 2007–95, §1.901–2(h)(4) pro-
vides that these final regulations are gener-
ally effective for foreign taxes paid or ac-
crued in taxable years beginning after Feb-
ruary 14, 2012.
A comment raised several transition-re-
lated questions arising in situations where
applying the final regulations changes the
person who is considered the taxpayer
with respect to a particular foreign income
tax. First, the comment stated it is un-
clear what happens to the carryover under
section 904(c) of foreign taxes paid or
accrued in a taxable year beginning before
the effective date of the final regulations
(pre-effective date year) to a taxable year
beginning on or after the effective date of
the final regulations (post-effective date
year). The comment recommended that
the regulations clarify the treatment of
foreign tax credit carryovers from pre-ef-
fective date years and foreign tax credit
carrybacks from post-effective date years,
and that the regulations provide that taxes
paid or accrued in a pre-effective date year
that are carried forward to a post-effec-
tive date year be assigned to the taxpayer
that paid or accrued the foreign taxes in
the pre-effective date year. Similarly, the
comment recommended that taxes paid
or accrued in a post-effective date year
that are carried back to the last pre-ef-
fective date year should be treated in the
carryback year as paid or accrued by the
taxpayer that paid or accrued the taxes in
the post-effective date year.
The Treasury Department and the IRS
believe it is clear under current law that
the person who paid or accrued foreign
income taxes in a pre-effective date year
is the person who is eligible under sec-
tion 904(c) to carry forward such taxes to
a post-effective date year, notwithstand-
ing that such person may not be consid-
ered the taxpayer under these final reg-
ulations had the taxes been paid or ac-
crued in the post-effective date carryover
year. Similarly, the Treasury Department
and the IRS believe it is clear that the per-
son who paid or accrued foreign income
taxes in a post-effective date year is the
person who is eligible under section 904(c)
to carry back such taxes to the last pre-ef-
fective date year. Therefore, the Treasury
Department and the IRS believe that revi-
sion of the final regulations to reflect this
comment is unnecessary.
April 9, 20127262012–15 I.R.B.

The comment also recommended that
taxpayers be permitted to apply the final
regulations retroactively, but that taxpay-
ers should not be permitted to take incon-
sistent positions with respect to the inci-
dence of the foreign tax. The comment
recommended that a duty of consistency be
imposed on related parties, or parties that
were related at the time the foreign tax was
imposed. If parties that were related but
are now unrelated do not agree on an elec-
tion to apply the regulations retroactively,
the comment stated no election should be
permitted.
In response to the comment, the final
regulations permit taxpayers to apply the
combined income rules of §1.901–2(f)(3)
of the final regulations to taxable years be-
ginning after December 31, 2010, and on
or before February 14, 2012. This pro-
vision will permit taxpayers to avoid un-
certainty regarding the application of sec-
tion 909 to foreign taxes paid or accrued by
foreign consolidatedgroups in pre-effec-
tive date taxable years beginning in 2011
and 2012. No inference is intended as
to the determination of the person who
paid the foreign tax under the rules in ef-
fect prior to the amendment of the regu-
lations by this Treasury decision. To the
extent that a taxpayer did not allocate for-
eign consolidated tax liability among the
members of a foreign consolidated group
based on each member’s share of the con-
solidated taxable income included in the
foreign tax base under the principles of
§1.901–2(f)(3), the foreign consolidated
group is a foreign tax credit splitting event
under section 909. See Section 4.03 of No-
tice 2010–92 and §1.909–5T.
The Treasury Department and the IRS
have concerns about the administrative
complexity and burden on taxpayers asso-
ciated with requirements to elect to apply
§1.901–2(f)(4) retroactively that would be
necessary to prevent potential whipsaws
from two unrelated persons claiming a
foreign tax credit for a single payment of
foreign income tax, in cases where dif-
ferent persons are considered to pay the
tax under the final regulations and under
prior law. Although taxpayers may not
elect to apply §1.901–2(f)(4) retroactively,
certain portions of that provision, specif-
ically with respect to the person that has
legal liability for a foreign tax paid by a
disregarded entity or a partnership in the
absence of a change in ownership, were
consistent with the rules in effect under
the final regulations prior to amendment
by this Treasury decision. In addition,
to prevent treating more than one per-
son as paying a single amount of tax,
§1.901–2(f)(4) of the final regulations will
not apply to any amount of tax paid or
accrued in a post-effective date year of
any person, if such tax would be treated
as paid or accrued by a different person in
a pre-effective date year under the prior
regulations.
Availability of IRS Documents
IRS notices cited in this preamble are
made available by the Superintendent of
Documents, U.S. Government Printing Of-
fice, Washington, DC 20402.
Effect on Other Documents
The following publication is obsolete in
part as of February 14, 2012.
Notice 2007–95, 2007–2 C.B. 1091.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to this regulation and because the
regulation does not impose a collection of
information requirement on small entities,
the Regulatory Flexibility Act (5 U.S.C.
Chapter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preced-
ing this regulation was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal author of these regula-
tions is Suzanne M. Walsh of the Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.706–1 is amended by
adding paragraph (c)(6) to read as follows:
§1.706–1 Taxable years of partner and
partnership.
*****
(c) * * *
(6)Foreign taxes. For rules relat-
ing to the treatment of foreign taxes
paid or accrued by a partnership, see
§1.901–2(f)(4)(i) and (f)(4)(ii).
*****
Par. 3. Section 1.901–2 is amended by
revising paragraph (f)(3) and adding para-
graphs (f)(4), (f)(5), and (h)(4) to read as
follows:
§1.901–2 Income, war profits, or excess
profits tax paid or accrued.
*****
(f) * * *
(3)Taxes imposed on combined income
of two or more persons—(i)In general.If
foreign tax is imposed on the combined in-
come of two or more persons (for example,
a husband and wife or a corporation and
one or more of its subsidiaries), foreign
law is considered to impose legal liability
on each such person for the amount of the
tax that is attributable to such person’s por-
tion of the base of the tax. Therefore, if
foreign tax is imposed on the combined in-
come of two or more persons, such tax is
allocated among, and considered paid by,
such persons on apro ratabasis in propor-
tion to each person’sportion of the com-
bined income, as determined under foreign
law and paragraph (f)(3)(iii) of this sec-
tion. Combined income with respect to
each foreign tax that is imposed on a com-
bined basis is computed separately, and the
tax on that combined income is allocated
separately under this paragraph (f)(3)(i).
If foreign law exempts from tax, or pro-
vides for specific rates of tax with respect
2012–15 I.R.B.727April 9, 2012

to, certain types of income, or if certain ex-
penses, deductions or credits are taken into
account only with respect to a particular
type of income, combined income with re-
spect to such portions of the combined in-
come is also computed separately, and the
tax on that combined income is allocated
separately under this paragraph (f)(3)(i).
The rules of this paragraph (f)(3) apply re-
gardless of which person is obligated to re-
mit the tax, which person actually remits
the tax, or which person the foreign coun-
try could proceed against to collect the tax
in the event all or a portion of the tax is
not paid. For purposes of this paragraph
(f)(3), the termpersonmeans an individ-
ual or an entity (including a disregarded
entity described in §301.7701–2(c)(2)(i) of
this chapter) that is subject to tax in a for-
eign country as a corporation (or other-
wise at the entity level). In determining
the amount of tax paid by an owner of
a partnership or a disregarded entity, this
paragraph (f)(3) first applies to determine
the amount of tax paid by the partnership
or disregarded entity, and then paragraph
(f)(4) of this section applies to allocate the
amount of such tax to the owner.
(ii)Combined income.For purposes
of this paragraph (f)(3), foreign tax is
imposed on the combined income of two
or more persons if such persons compute
their taxable income on a combined basis
under foreign law and foreign tax would
otherwise be imposed on each such person
on its separate taxable income. For exam-
ple, income is computed on a combined
basis if two or more persons add their
items of income, gain, deduction, and loss
to compute a single consolidated taxable
income amount for foreign tax purposes.
Foreign tax is considered to be imposed
on the combined income of two or more
persons even if the combined income is
computed under foreign law by attribut-
ing to one such person (for example, the
foreign parent of a foreign consolidated
group) the income of other such persons
or by treating persons that would other-
wise be subject to tax as separate entities
as unincorporated branches of a single
corporation for purposes of computing the
foreign tax on the combined income of
the group. However, foreign tax is not
considered to be imposed on the com-
bined income of two or more persons if,
because one or more persons is a fiscally
transparent entity (under the principles of
§1.894–1(d)(3)) under foreign law, only
one of such persons is subject to tax under
foreign law (even if two or more of such
persons are corporations for U.S. Federal
income tax purposes). Therefore, foreign
tax is not considered to be imposed on the
combined income of two or more persons
solely because foreign law:
(A) Permits one person to surrender
a loss to another person pursuant to a
group relief or other loss-sharing regime
described in §1.909–2T(b)(2)(vi);
(B) Requires a shareholder of a corpo-
ration to include in income amounts at-
tributable to taxes imposed on the corpo-
ration with respect to distributed earnings,
pursuant to an integrated tax system that
allows the shareholder a credit for such
taxes;
(C) Requires a shareholder to include,
pursuant to an anti-deferral regime (sim-
ilar to subpart F of the Internal Revenue
Code (sections 951 through 965)), income
attributable to the shareholder’s interest in
the corporation;
(D) Reallocates income from one per-
son to a related person under foreign trans-
fer pricing rules;
(E) Requires a person to take into ac-
count a distributive share of income of an
entity that is a partnership or other fiscally
transparent entity for foreign tax law pur-
poses; or
(F) Requires a person to take all or part
of the income of an entity that is a corpora-
tion for U.S. Federal income tax purposes
into account because foreign law treats the
entity as a branch or fiscally transparent
entity (a reverse hybrid). A reverse hybrid
does not include an entity that is treated
under foreign law as a branch or fiscally
transparent entity solely for purposes of
calculating combined income of a foreign
consolidated group.
(iii)Portion of combined income—(A)
In general.Each person’s portion of the
combined income is determined by refer-
ence to any return, schedule or other doc-
ument that must be filed or maintained
with respect to a person showing such per-
son’s income for foreign tax purposes, as
properly amended or adjusted for foreign
tax purposes. If no such return, sched-
ule or other document must be filed or
maintained with respect to a person for
foreign tax purposes, then, for purposes
of this paragraph (f)(3), such person’s in-
come is determined from the books of ac-
count regularly maintained by or on be-
half of the person for purposes of com-
puting its income for foreign tax purposes.
Each person’s portion of the combined in-
come is determined by adjusting such per-
son’s income determined under this para-
graph (f)(3)(iii)(A) as provided in para-
graph (f)(3)(iii)(B) and (f)(3)(iii)(C) of this
section.
(B)Effect of certain payments—(1)
Each person’s portion of the combined
income is determined by giving effect to
payments and accrued amounts of interest,
rents, royalties, and other amounts be-
tween persons whose income is included
in the combined base to the extent such
amounts would be taken into account in
computing the separate taxable incomes
of such persons under foreign law if they
did not compute their income on a com-
bined basis. Each person’s portion of the
combined income is determined without
taking into account any payments from
other persons whose income is included
in the combined base that are treated as
dividends or other non-deductible dis-
tributions with respect to equity under
foreign law, and without taking into ac-
count deemed dividends or any similar
attribution of income made for purposes
of computing the combined income under
foreign law, regardless of whether any
such deemed dividend or attribution of
income results in a deduction or inclusion
under foreign law.
(2) For purposes of determining each
person’s portion of the combined income,
the treatment of a payment is determined
under foreign law. Thus, for example, in-
terest accrued by one group member with
respect to an instrument held by another
member that is treated as debt for foreign
tax purposes but as equity for U.S. Fed-
eral income tax purposes would be consid-
ered income of the holder and would re-
duce the income of the issuer. See also
§1.909–2T(b)(3)(i) for rules requiring sus-
pension of foreign income taxes paid or ac-
crued by the owner of a U.S. equity hybrid
instrument.
(C)Net losses. If tax is considered to
be imposed on the combined income of
three or more persons and one or more of
such persons has a net loss for the taxable
year for foreign tax purposes, the follow-
ing rules apply. If foreign law provides
mandatory rules for allocating the net loss
among the other persons, then the rules
April 9, 20127282012–15 I.R.B.

that apply for foreign tax purposes apply
for purposes of this paragraph (f)(3). If
foreign law does not provide mandatory
rules for allocating the net loss, the net loss
is allocated among all other such persons
on apro ratabasisinproportiontothe
amount of each person’s income, as deter-
mined under paragraphs (f)(3)(iii)(A) and
(f)(3)(iii)(B) of this section. For purposes
of this paragraph (f)(3)(iii)(C), foreign law
is not considered to provide mandatory
rules for allocating a net loss solely be-
cause such loss is attributed from one per-
son to a second person for purposes of
computing combined income, as described
in paragraph (f)(3)(ii) of this section.
(iv)Collateral consequences.U.S. tax
principles apply to determine the tax con-
sequences if one person remits a tax that is
the legal liability of, and thus is considered
paid by, another person.
(4)Taxes imposed on partnerships and
disregarded entities—(i)Partnerships.If
foreign law imposes tax at the entity level
on the income of a partnership, the part-
nershipisconsideredtobelegallyliable
for such tax under foreign law and there-
fore is considered to pay the tax for U.S.
Federal income tax purposes. The rules
of this paragraph (f)(4)(i) apply regard-
less of which person is obligated to re-
mit the tax, which person actually remits
the tax, or which person the foreign coun-
try could proceed against to collect the
tax in the event all or a portion of the
tax is not paid. See §§1.702–1(a)(6) and
1.704–1(b)(4)(viii) for rules relating to the
determination of a partner’s distributive
share of such tax. If the U.S. taxable year
of a partnership closes for all partners due
to a termination of the partnership under
section 708(b)(1)(A) and the regulations
under that section and the foreign taxable
year of the partnership does not close, then
foreign tax paid or accrued with respect to
the foreign taxable year in which the ter-
mination occurs is allocated between the
terminating partnership and its successors
or assigns. For example, if, as a result of
a change in ownership during a partner-
ship’s foreign taxable year, the partnership
becomes a disregarded entity and the en-
tity’s foreign taxable year does not close,
foreign tax paid or accrued by the owner
of the disregarded entity with respect to
the foreign taxable year is allocated be-
tween the partnership and the owner of
the disregarded entity. If the U.S. taxable
year of a partnership closes for all part-
ners due to a termination of the partner-
ship under section 708(b)(1)(B) and the
regulations under that section and the for-
eign taxable year of the partnership does
not close, then foreign tax paid or accrued
by the new partnership with respect to the
foreign taxable year in which the termi-
nation occurs is allocated between the ter-
minating partnership and the new partner-
ship. If multiple terminations under sec-
tion 708(b)(1)(B) occur within the foreign
taxable year, foreign tax paid or accrued
with respect to that foreign taxable year
by a new partnership is allocated among
all terminating and new partnerships. In
the case of any termination under section
708(b)(1), the allocation of foreign tax is
made based on the respective portions of
the taxable income (as determined under
foreign law) for the foreign taxable year
that are attributable under the principles
of §1.1502–76(b) to the period of exis-
tence of each terminating and new partner-
ship, or successor or assign of a terminat-
ing partnership, during the foreign taxable
year. Foreign tax allocated to a terminating
partnership under this paragraph (f)(4)(i) is
treated as paid or accrued by such partner-
ship as of the close of the last day of its
final U.S. taxable year. In the case of a
change in any partner’s interest in the part-
nership (a variance), except as otherwise
provided in section 706(d)(2) (relating to
certain cash basis items) or 706(d)(3) (re-
lating to tiered partnerships), foreign tax
paid or accrued by the partnership during
its U.S. taxable year in which the variance
occurs is allocated between the portion of
the U.S. taxable year ending on, and the
portion of the U.S. taxable year beginning
on the day after, the day of the variance.
The allocation is made under the princi-
ples of this paragraph (f)(4)(i) as if the
variance were a termination under section
708(b)(1).
(ii)Disregarded entities. If foreign
law imposes tax at the entity level on
the income of an entity described in
§301.7701–2(c)(2)(i) of this chapter (a
disregarded entity), the person (as defined
in section 7701(a)(1)) who is treated as
owning the assets of the disregarded entity
for U.S. Federal income tax purposes is
considered to be legally liable for such
taxunderforeignlaw. Suchpersonis
considered to pay the tax for U.S. Federal
income tax purposes. The rules of this
paragraph (f)(4)(ii) apply regardless of
which person is obligated to remit the tax,
which person actually remits the tax, or
which person the foreign country could
proceed against to collect the tax in the
event all or a portion of the tax is not paid.
If there is a change in the ownership of
such disregarded entity during the entity’s
foreign taxable year and such change does
not result in a closing of the disregarded
entity’s foreign taxable year, foreign tax
paid or accrued with respect to such for-
eign taxable year is allocated between the
transferor and the transferee. If there is
more than one change in the ownership
of a disregarded entity during the entity’s
foreign taxable year, foreign tax paid or
accrued with respect tothat foreign tax-
able year is allocated among all transferors
and transferees. The allocation is made
based on the respective portions of the
taxable income of the disregarded entity
(as determined under foreign law) for the
foreign taxable yearthat are attributable
under the principles of §1.1502–76(b) to
the period of ownership of each transferor
and transferee during the foreign taxable
year. If, as a result of a change in own-
ership, the disregarded entity becomes a
partnership and the entity’s foreign taxable
year does not close, foreign tax paid or
accrued by the partnership with respect to
the foreign taxable year is allocated be-
tween the owner of the disregarded entity
and the partnership under the principles of
this paragraph (f)(4)(ii). If the person who
owns a disregarded entity is a partnership
for U.S. Federal income tax purposes, see
§1.704–1(b)(4)(viii) for rules relating to
the allocation of such tax among the part-
ners of the partnership.
(5)Examples. The following examples
illustrate the rules of paragraphs (f)(3) and
(f)(4) of this section:
Example 1.(i)Facts.A, a United States person,
owns 100 percent of B, an entity organized in country
X. B owns 100 percent of C, also an entity organized
in country X. B and C are corporations for U.S. and
foreign tax purposes that use the “u” as their func-
tional currency. Pursuant to a consolidation regime,
country X imposes an income tax described in (a)(1)
of this section on the combined income of B and C
within the meaning of paragraph (f)(3)(ii) of this sec-
tion. In year 1, C pays 25u of interest to B. If B and
C did not report their income on a combined basis
for country X tax purposes, the interest paid from C
to B would result in 25u of interest income to B and
25u of deductible interest expense to C. For purposes
of reporting the combined income of B and C, coun-
try X first requires B and C to determine their own
2012–15 I.R.B.729April 9, 2012

income (or loss) on a separate schedule. For this pur-
pose, however, neither B nor C takes into account the
25u of interest paid from C to B because the income
of B and C is included in the same combined base.
The separate income of B and C reported on their
country X schedules for year 1, which do not reflect
the 25u intercompany payment, is 100u and 200u, re-
spectively. The combined income reported for coun-
try X purposes is 300u (the sum of the 100u separate
income of B and 200u separate income of C).
(ii)Result. On the separate schedules described
in paragraph (f)(3)(iii)(A) of this section, B’s separate
income is 100u and C’s separate income is 200u. Un-
der paragraph (f)(3)(iii)(B)(1) of this section, the 25u
interest payment from C to B is taken into account for
purposes of determining B’s and C’s portions of the
combined income under paragraph (f)(3)(iii) of this
section, because B and C would have taken the items
into account if they did not compute their income on
a combined basis. Thus, B’s portion of the combined
income is 125u (100u plus 25u) and C’s portion of the
combined income is 175u (200u less 25u). The re-
sult is the same regardless of whether the 25u interest
payment from C to B is deductible for U.S. Federal
income tax purposes. See paragraph (f)(3)(iii)(B)(2)
of this section.
Example 2.(i)Facts. A, a United States person,
owns 100 percent of B, an entity organized in coun-
tryX.BisacorporationforcountryXtaxpurposes,
and a disregarded entity for U.S. income tax purposes.
B owns 100 percent of C and D, entities organized
in country X that are corporations for both U.S. and
country X tax purposes. B, C, and D use the “u” as
their functional currency and file on a combined ba-
sis for country X income tax purposes. Country X
imposes an income tax described in paragraph (a)(1)
of this section at the rate of 30 percent on the tax-
able income of corporations organized in country X.
Under the country X combined reporting regime, in-
come (or loss) of C and D is attributed to, and treated
as income (or loss) of, B. B has the sole obligation to
pay country X income tax imposed with respect to in-
come of B and income of C and D that is attributed to,
and treated as income of, B. Under the law of country
X, country X may proceed against B, but not C or D,
if B fails to pay over to country X all or any portion
of the country X income tax imposed with respect to
such income. In year 1, B has income of 100u, C has
income of 200u, and D has a net loss of (60u). Under
the law of country X, B is considered to have 240u of
taxable income with respect to which 72u of country
X income tax is imposed. Country X does not pro-
vide mandatory rules for allocating D’s loss.
(ii)Result.Under paragraph (f)(3)(ii) of this sec-
tion, the 72u of country X tax is considered to be
imposed on the combined income of B, C, and D.
Because country X law does not provide mandatory
rules for allocating D’s loss between B and C, under
paragraph (f)(3)(iii)(C) of this section D’s (60u) loss
is allocatedpro rata: 20u to B ((100u/300u) x 60u)
and 40u to C ((200u/300u) x 60u). Under paragraph
(f)(3)(i) of this section, the 72u of country X tax must
be allocatedpro rataamongB,C,andD.BecauseD
has no income for country X tax purposes, no coun-
try X tax is allocated to D. Accordingly, 24u (72u x
(80u/240u)) of the country X tax is allocated to B,
and 48u (72u x (160u/240u)) of such tax is allocated
to C. Under paragraph (f)(4)(ii) of this section, A is
considered to have legal liability for the 24u of coun-
try X tax allocated to B under paragraph (f)(3) of this
section.
Example 3.(i)Facts.A, B, and C are U.S. per-
sons that each use the calendar year as their taxable
year. A and B each own 50 percent of the capital and
profits of D, an entity organized in country M. D is
a partnership for U.S. tax purposes, but is a corpora-
tion for country M tax purposes. D uses the “u” as
its functional currency and the calendar year as its
taxable year for both U.S. tax purposes and country
M tax purposes. Country M imposes an income tax
described in paragraph (a)(1) of this section at a rate
of 30 percent at the entity level on the taxable income
of D. On September 30 of Year 1, A sells its 50
percent interest in D to C. A’s sale of its partnership
interest results in a termination of the partnership
under section 708(b)(1)(B) for U.S. tax purposes.
As a result of the termination, “old” D’s taxable
year closes on September 30 of Year 1 for U.S. tax
purposes. New D also has a short U.S. taxable year,
beginning on October 1 and ending on December 31
of Year 1. The sale of A’s interest does not close D’s
taxable year for country M tax purposes. D has 400u
of taxable income for its foreign taxable year ending
December 31, Year 1 with respect to which country
M imposes 120u of income tax, equal to $120 as
translated in accordancewith section 986(a).
(ii)Result.Under paragraph (f)(4)(i) of this sec-
tion, partnership D is legally liable for the $120 of
country M income tax imposed on its foreign tax-
able income. Because D’s taxable year closes on
September 30, Year 1, for U.S. tax purposes, but
does not close for country M tax purposes, under
paragraph (f)(4)(i) of this section the $120 of coun-
try M tax must be allocated under the principles of
§1.1502–76(b) between terminating D and new D.
See §1.704–1(b)(4)(viii) for rules relating to the allo-
cation of terminating D’s country M taxes between A
and B and the allocation of new D’s country M taxes
between B and C.
*****
(h) * * *
(4) Paragraphs (f)(3), (f)(4), and (f)(5)
of this section apply to foreign taxes paid
or accrued in taxable years beginning after
February 14, 2012. However, if an amount
of tax is paid or accrued in a taxable year
of any person beginning on or before Feb-
ruary 14, 2012, and the tax is treated as
paid or accrued by such person under 26
CFR §1.901–2(f) (revised as of April 1,
2011), then paragraph (f)(4) of this section
will not apply, and 26 CFR §1.901–2(f)
(revised as of April 1, 2011) will apply,
to determine the person with legal liabil-
ity for that tax. No other person will be
treated as legally liable for such tax, even
if the tax is paid or accrued on a date that
falls within a taxable year of such other
person beginning after February 14, 2012.
Taxpayers may choose to apply paragraph
(f)(3) of this section to foreign taxes paid
or accrued in taxable years beginning af-
ter December 31, 2010, and on or before
February 14, 2012.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved February 8, 2012.
Emily S. McMahon,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 9,
2011, 4:15 p.m., and published in the issue of the Federal
Register for February 14, 2011, 77 F.R. 8120)
Section 909.—Outlines
of Regulation Provisions
for Section 909
26 CFR 1.909–0T: Outlines of regulation provisions
for section 909 (temporary).
T.D. 9577
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Foreign Tax Credit Splitting
Events
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
final and temporary Income Tax Regula-
tions with respect to a new provision of
the Internal Revenue Code (Code) that ad-
dresses situations in which foreign income
taxes have been separated from the related
income. These regulations are necessary
to provide guidance on applying the new
statutory provision, which was enacted
as part of legislation commonly referred
to as the Education Jobs and Medicaid
Assistance Act (EJMAA) on August 10,
2010. These regulations affect taxpay-
ers claiming foreign tax credits. The text
of the temporary regulations also serves
as the text of the proposed regulations
April 9, 20127302012–15 I.R.B.

(REG–132736–11) published in this issue
of the Bulletin.
DATES:Effective Date:These regulations
are effective on February 14, 2012.
Applicability Dates:For dates of appli-
cability, see §§1.704–1T(b)(1)(ii)(b)(3),
1.909–1T(e), 1.909–2T(c), 1.909–3T(c),
1.909–4T(b),1.909–5T(c),and
1.909–6T(h).
FOR FURTHER INFORMATION
CONTACT: Suzanne M. Walsh, (202)
622–3850 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
I.Section 909
Section 909 was enacted as part of
EJMAA (Public Law 111–226, 124 Stat.
2389 (2010)) to address situations in which
foreign income taxes have been separated
from the related income. Section 909(a)
provides that if there is a foreign tax credit
splitting event with respect to a foreign
income tax paid or accrued by a taxpayer,
such tax is not taken into account for
federal tax purposes before the taxable
year in which the related income is taken
into account by the taxpayer. Section
909(b) provides special rules with respect
to a “section 902 corporation,” which is
defined in section 909(d)(5) as any for-
eign corporation with respect to which
one or more domestic corporations meets
the ownership requirements of section
902(a) or (b) (a section 902 shareholder
of the relevant section 902 corporation).
If there is a foreign tax credit splitting
event with respect to a foreign income tax
paid or accrued by a section 902 corpo-
ration, the tax is not taken into account
for purposes of section 902 or 960, or
for purposes of determining earnings and
profits under section 964(a), before the
taxable year in which the related income
is taken into account by such section 902
corporation or a section 902 shareholder.
Thus, the tax is not added to the section
902 corporation’s pool of “post-1986 for-
eign income taxes” (as defined in section
902(c)(2) and §1.902–1(a)(8)), and its
pool of “post-1986 undistributed earn-
ings” (as defined in section 902(c)(1) and
§1.902–1(a)(9)) is not reduced by such tax.
Accordingly, section 909 suspends foreign
income taxes paid or accrued by a section
902 corporation at the level of the payor
section 902 corporation. In the case of a
partnership, section 909(a) and (b) apply
at the partner level, and, except as other-
wise provided by the Secretary, a similar
rule applies in the case of an S corporation
or trust. See section 909(c)(1).
For purposes of section 909, there is a
foreign tax credit splitting event with re-
spect to a foreign income tax if the related
income is (or will be) taken into account by
a covered person. See section 909(d)(1).
Section 909 does not suspend foreign in-
come taxes if the same person pays the
tax but takes into account the related in-
come in a different taxable period (or pe-
riods) due to, for example, timing differ-
ences between the U.S. and foreign tax ac-
counting rules. The term “foreign income
tax” means any income, war profits, or ex-
cess profits tax paid or accrued to any for-
eign country or to any possession of the
United States. See section 909(d)(2). The
Joint Committee on Taxation’s technical
explanation of the revenue provisions of
EJMAA states that a foreign income tax
includes any tax paid in lieu of such a tax
within the meaning of section 903. Staff of
the Joint Committee on Taxation, Techni-
cal Explanation of the Revenue Provisions
of the Senate Amendment to the House
Amendment to the Senate Amendment to
H.R. 1586, Scheduled For Consideration
by the House of Representatives on Au-
gust 10, 2010, at 5 (August 10, 2010) (JCT
Explanation). Section 909(d)(3) provides
that the term “related income” means, with
respect to any portion of any foreign in-
come tax, the income (or, as appropriate,
earnings and profits) to which such por-
tion of the foreign income tax relates. The
term “covered person” means, with respect
to any person who pays or accrues a for-
eign income tax (the “payor”): (1) any
entity in which the payor holds, directly
or indirectly, at least a 10 percent owner-
ship interest (determined by vote or value);
(2) any person that holds, directly or in-
directly, at least a 10percent ownership
interest (determined by vote or value) in
the payor; (3) any person that bears a rela-
tionship to the payor described in section
267(b) or 707(b); and (4) any other per-
son specified by the Secretary. See section
909(d)(4).
Except as otherwise provided by the
Secretary, any foreign income tax not cur-
rently taken into account by reason of sec-
tion 909 is taken into account as a for-
eign income tax paid or accrued in the tax-
able year in which, and to the extent that,
the taxpayer, the section 902 corporation
or a section 902 shareholder (as the case
may be) takes the related income into ac-
count under chapter 1 of Subtitle A of the
Code. See section 909(c)(2). Notwith-
standing this general rule, foreign income
taxes are translated into U.S. dollars under
the rules of section 986(a) in the year ac-
tually paid or accrued and suspended, and
not as if they were paid or accrued in the
year in which the related income is taken
into account. See section 909(c)(2).
Section 909(e) provides that the Secre-
tary may issue such regulations or other
guidance as is necessary or appropriate
to carry out the purposes of section 909,
including guidance providing appropriate
exceptions from the provisions of section
909 and for its proper application to hy-
brid instruments. The JCT Explanation
states that such guidance may address the
proper application of section 909 in cases
involving disregarded payments, group re-
lief, or other arrangements having a simi-
lar effect. JCT Explanation at 6. Section
211(c)(1) of EJMAA provides that sec-
tion 909 applies to foreign income taxes
paid or accrued (including foreign income
taxes paid or accrued by section 902 cor-
porations) in taxable years beginning af-
ter December 31, 2010 (post-2010 taxable
years). Section 211(c)(2) of EJMAA pro-
vides that section 909 also applies to for-
eign taxes paid or accrued in taxable years
beginning on or before December 31, 2010
(pre-2011 taxable years), but only for pur-
poses of applying sections 902 and 960 to
periods after December 31, 2010. For this
purpose, there is no increase to a section
902 corporation’s earnings and profits for
the amount of any pre-2011 taxes to which
section 909 applies that were previously
deducted in computing earnings and prof-
its in a pre-2011 taxable year. The JCT Ex-
planation clarifies that the section 902 ef-
fective date rule “applies for purposes of
applying sections 902 and 960 to dividends
paid, and inclusions under section 951(a)
that occur, in taxable years beginning after
December 31, 2010.” JCT Explanation at
6–7.
2012–15 I.R.B.731April 9, 2012

II.Section 901 Proposed Regulations
Issued in 2006
Section 909 was enacted to address
concerns about the inappropriate separa-
tion of foreign income taxes and related
income. These concerns were also the
basis for the issuance in 2006 of pro-
posed regulations under section 901 (2006
proposed regulations) concerning the de-
terminationofthepersonwhopaida
foreign income tax for foreign tax credit
purposes (REG–124152–06, 2006–2 C.B.
368 [71 FR 44240] (Aug. 4, 2006)).
In particular, the proposed regulations
would provide guidance under §1.901–2(f)
relating to the person on whom foreign
law imposes legal liability for tax,
including in the case of taxes imposed
on the income of foreign consolidated
groups and entities that have different
classifications for U.S. and foreign tax law
purposes. The Treasury Department and
the IRS received written comments on the
proposed regulations and held a hearing
on October 13, 2006. All comments are
available atwww.regulations.govor upon
request. After taking into account the
comments received, the 2006 proposed
regulations are adopted, in part, as final
regulations published elsewhere in this
issue of the Bulletin.
III.Notice 2010–92
The Treasury Department and the IRS
issued Notice 2010–92, 2010–52 I.R.B.
916 (December 6, 2010), which primarily
addresses the application of section 909 to
foreign income taxes paid or accrued by
a section 902 corporation in pre-2011 tax-
able years. The notice provides rules for
determining whether foreign income taxes
paid or accrued by a section 902 corpo-
ration in pre-2011 taxable years (pre-2011
taxes) are suspended under section 909 in
post-2010 taxable years of a section 902
corporation. It also identifies an exclusive
list of arrangements that will be treated as
giving rise to foreign tax credit splitting
events in pre-2011 taxable years (pre-2011
splitter arrangements) and provides guid-
ance on determining the amount of related
income and pre-2011 taxes paid or accrued
with respect to pre-2011 splitter arrange-
ments. The pre-2011 splitter arrangements
are reverse hybrid structures, certain for-
eign consolidated groups, disregarded debt
structures in the context of group relief and
other loss-sharing regimes, and two classes
of hybrid instruments. The notice states
that the Treasury Department and the IRS
expect future guidance will treat pre-2011
splitter arrangements as giving rise to for-
eign tax credit splitting events in post-2010
taxable years.
Notice 2010–92 states that future guid-
ance may identify additional transactions
or arrangements to which section 909
applies (including, for example, addi-
tional arrangements involving group relief
regimes), although any such guidance will
apply only with respect to foreign taxes
paid or accrued in post-2010 taxable years.
The notice also states that the Treasury
Department and the IRS do not intend to
finalize the portion of the 2006 proposed
regulations relating to the determination
of the person who paid a foreign income
tax with respect to the income of a reverse
hybrid. See Prop. §1.901–2(f)(2)(iii).
Concerning the effective date of section
909(b) (addressing a foreign tax credit
splitting event with respect to a foreign in-
come tax paid or accrued by a section 902
corporation), Notice 2010–92 provides
that, consistent with the JCT Explanation,
the Treasury Department and the IRS in-
tend to issue regulations providing that
section 909 does not apply in computing
foreign taxes deemed paid under section
902 or 960 before the first day of the
section 902 corporation’s first post-2010
taxable year. Regarding the application of
the section 909 effective date to situations
involving partnerships, the notice states
that in the case of a section 902 corpo-
ration that is a partner in a partnership,
the section 902 corporation’s distributive
share of foreign income taxes paid or ac-
crued by the partnership in a pre-2011
taxable year of the partnership that is in-
cluded in a post-2010 taxable year of the
section 902 corporation will be treated as
a tax paid or accrued by the section 902
corporation in a post-2010 taxable year.
See §1.702–1(a)(6).
Notice 2010–92 alsoprovides guidance
concerning the application of section 909
to partnerships and trusts, as well as the
interaction between section 909 and other
Code provisions. In addition, the notice
solicits comments on issues that should
be addressed in regulations, including
whether portions of the 2006 proposed
regulations should be finalized or modi-
fied in light of the enactment of section
909. The Treasury Department and the
IRS received written comments on Notice
2010–92, which are discussed in this pre-
amble.
Explanation of Provisions
I.Section 704(b)
Section 1.704–1(b)(4)(viii)(d)(3)pro-
vides that if a branch of a partnership
(including a disregarded entity owned by
the partnership) is required to include in
income under foreign law a payment (an
inter-branch payment) it receives from
the partnership or another branch of the
partnership, any creditable foreign tax ex-
penditure (CFTE) imposed with respect
to the payment relates to the income in
the CFTE category that includes the items
attributable to the recipient (the recipient
CFTE category). However, because the
inter-branch payment is disregarded for
U.S. Federal income tax purposes, the in-
come related to the CFTEs imposed with
respect to the payment may remain in the
CFTE category that includes the items at-
tributable to the payor of the inter-branch
payment (the payor CFTE category). This
is an exception to the general application
of the principles of §1.904–6 that would
allocate the CFTEs to the payor CFTE
category that includes the related income.
See §1.704–1(b)(4)(viii)(d)(1). Because
this exception allows the CFTEs and re-
lated income to be allocated to different
CFTE categories, they may potentially
be allocated to the partners in a manner
that separates the CFTEs from the related
income.
Notice 2010–92 statesthat the Treasury
Department and the IRS recognize that
certain allocations of CFTEs and income
of a partnership can result in a separation
of the CFTEs and the related income for
purposes of section 909, notwithstanding
that these allocations satisfy the require-
ments of section 704(b) and the regula-
tions under that section. The notice states
that partnership allocations that satisfy
the requirements of section 704(b) and
the regulations under that section will not
constitute pre-2011 splitter arrangements
except to the extent the arrangement oth-
erwise constitutes one of the arrangements
identified in the notice as a pre-2011 split-
ter arrangement (forexample, allocations
April 9, 20127322012–15 I.R.B.

of taxes paid by a hybrid partnership on
income of a reverse hybrid). However,
the notice also states that the Treasury
Department and the IRS will provide in
future guidance that allocations described
in §1.704–1(b)(4)(viii)(d)(3)willresult
in a foreign tax credit splitting event in
post-2010 taxable years to the extent such
allocations result in foreign income taxes
being allocated to a different partner than
the related income. The notice also so-
licits comments on the extent to which
§1.704–1(b)(4)(viii)(d) and (b)(5),Exam-
ple 24should be modified in light of the
enactment of section 909. A comment
recommended eliminating the special
exception for inter-branch payments set
forth in §1.704–1(b)(4)(viii)(d)(3). The
Treasury Department and the IRS have
determined that the regulations should
be revised to prevent allocations under
§1.704–1(b)(4)(viii)(d)(3) that would re-
sult in such a separation of taxes and
related income from satisfying the safe
harbor, regardless of whether section 909
applies.
These temporary regulations re-
move the special exception for in-
ter-branch payments set forth in
§1.704–1(b)(4)(viii)(d)(3). As a result,
the general principles of §1.904–6 will
apply to an inter-branch payment so that
the CFTEs imposed on that payment will
be allocated to the CFTE category that
includes the related income for U.S. Fed-
eral income tax purposes. Accordingly,
if the CFTEs and related income are al-
located to partners in the same ratios, the
safe harbor is satisfied and the allocation
does not give rise to a foreign tax credit
splitting event. The temporary regula-
tions reviseExample 24of §1.704–1(b)(5)
to reflect these changes. These changes
are generally effective for taxable years
beginning on or after January 1, 2012.
Allocations madein accordance with
§1.704–1(b)(4)(viii)(d)(3) in taxable years
beginning on or after January 1, 2011,
and before January 1, 2012, will result
in a foreign tax credit splitting event and
suspension of foreign income taxes that
are allocated to a different partner than the
covered person that is allocated the related
income. See §1.909–5T(a)(2).
The temporary regulations also pro-
vide a transition rule for partnerships
whose agreements were entered into prior
to February 14, 2012. If there has been
no material modification to the partner-
ship agreement on or after February 14,
then the partnership may apply the pro-
visions of §1.704–1(b)(4)(viii)(c)(3)(ii)
and §1.704–1(b)(4)(viii)(d)(3)asinef-
fect prior to February 14, 2012. See
§1.704–1T(b)(1)(ii)(b)(3). For purposes
of this transition rule, any change in own-
ership constitutes a material modification
to the partnership agreement. This tran-
sition rule does not apply to any taxable
year in which persons bearing a relation-
ship to each other specified in section
267(b) or 707(b) collectively have the
power to amend the partnership agree-
ment without the consent of any unrelated
party (and all subsequent taxable years).
In the case of any partnership that ap-
plies, under the transition rule, the pro-
visions of §1.704–1(b)(4)(viii)(c)(3)(ii)
and §1.704–1(b)(4)(viii)(d)(3) as in effect
prior to February 14, 2012, an allocation
of foreign income taxes paid or accrued
by the partnership with respect to an in-
ter-branch payment will result in a foreign
tax credit splitting event to the extent that
the tax on the inter-branch payment is not
allocated to the partners in proportion to
the distributive shares of income to which
the inter-branch payment tax relates. See
§1.909–2T(b)(4).
II.Section 909
A.In general
The temporary regulations provide an
exclusive list of arrangements that will be
treated as giving rise to foreign tax credit
splitting events under section 909 with re-
spect to foreign income taxes paid or ac-
crued in taxable years beginning on or af-
ter January 1, 2012, as well as an exclusive
list of arrangements that will be treated as
giving rise to foreign tax credit splitting
events with respect to foreign income taxes
paid or accrued in a taxable year begin-
ning on or after January 1, 2011, and be-
fore January 1, 2012. The temporary reg-
ulations further treat the foreign consoli-
dated group splitter arrangement described
in §1.909–6T(b)(2) as giving rise to a for-
eign tax credit splitting event with respect
to foreign income taxes paid or accrued in
a taxable year beginning on or after Jan-
uary 1, 2012, and on or before February 14,
2012. In addition, these regulations pro-
vide rules for determining related income
and split taxes and for coordinating the in-
teraction between section 909 and other
Code provisions. Finally, these regulations
include the guidance described in Notice
2010–92, which primarily addresses the
application of section 909 to foreign in-
come taxes paid or accrued by section 902
corporations in taxable years beginning on
or before December 31, 2010.
B.Definitions and special rules
Section 1.909–1T(a) provides defi-
nitions, and §1.909–1T(b), (c), and (d)
provide rules that apply for purposes
of that section and §§1.909–2T through
1.909–5T. First, §1.909–1T(b) and (c)
provide rules substantially similar to those
set forth in Notice 2010–92 concerning
the application of section 909 to partner-
ships and trusts, except that the temporary
regulations expand the scope of the rules
to include S corporations and taxes paid
or accrued by persons other than section
902 corporations. Section 1.909–1T(b)
provides that under section 909(c)(1), sec-
tion 909 applies at the partner level, and
similar rules apply in the case of an S cor-
poration or trust. Accordingly, in the case
of foreign income taxes paid or accrued
by a partnership, S corporation or trust,
taxes allocated to one or more partners,
shareholders or beneficiaries (as the case
may be) will be treated as split taxes to
the extent such taxes would be split taxes
if the partner, shareholder or beneficiary
had paid or accrued the taxes directly on
the date such taxes are taken into account
by the partner under sections 702 and
706(a), by the shareholder under section
1373(a), or by the beneficiary under sec-
tion 901(b)(5). Any such split taxes will
be suspended in the hands of the partner,
shareholder or beneficiary.
Section 5.02 of Notice 2010–92 pro-
vides that, for purposes of applying sec-
tion 909 in post-2010 taxable years, there
will not be a foreign tax credit splitting
event with respect to a foreign income tax
paid or accrued by a partner with respect
to its distributive share of the related in-
come of a partnership that is a covered per-
son with respect to the partner to the ex-
tent the related income is taken into ac-
count by the partner. A comment rec-
ommended that regulations adopt an ag-
gregate approach in the partnership con-
text in determining whether related income
2012–15 I.R.B.733April 9, 2012

is taken into account by a covered per-
son. The Treasury Department and the IRS
agree with this comment. Accordingly,
§1.909–1T(c) provides that for purposes
of determining whether related income is
taken into account by a covered person, re-
lated income of a partnership, S corpora-
tion or trust is considered to be taken into
account by the partner, shareholder or ben-
eficiary to whom the related income is al-
located.
Second, §1.909–1T(d) addresses the
application of section 909 to annual lay-
ers of pre-1987 accumulated profits and
pre-1987 foreign income taxes of a sec-
tion 902 corporation. Section 909 and
the regulations under that section will ap-
ply to pre-1987 accumulated profits and
pre-1987 foreign income taxes of a section
902 corporation attributable to taxable
years beginning on or after January 1,
2012. Pursuant to section 902(c)(6)
and §1.902–1(a)(10)(i) and (a)(10)(iii),
earnings and profits and associated
foreign income taxes paid or accrued by
a foreign corporation in taxable years
before it was a section 902 corporation
are treated as pre-1987 accumulated
profits and pre-1987 foreign income taxes.
Section 1.909–1T(d) provides that foreign
corporations thatbecome section 902
corporations must account for split taxes
paid or accrued and related income in
pre-acquisition taxable years beginning on
or after January 1, 2012. Suspension of
split taxes paid or accrued with respect to
pre-1987 accumulated profits attributable
to earlier taxable years is not required.
The rules of §1.909–1T apply to tax-
able years beginning on or after January 1,
2011.
C.Splitter arrangements
1.In general
Section 909(d)(1) provides that there is
a foreign tax credit splitting event with re-
spect to a foreign income tax if the related
income is (or will be) taken into account
by a covered person. The Treasury De-
partment and the IRS believe that a trans-
action or arrangement in which the related
income was taken into account by a cov-
ered person before the associated foreign
income tax is paid or accrued (for exam-
ple, due to a timing difference) presents
the same concerns about the inappropriate
separation of foreign income taxes and re-
lated income that section 909 was intended
to address. Accordingly, §1.909–2T(a)(1)
provides that there is a foreign tax credit
splitting event with respect to foreign in-
come taxes paid or accrued if and only if, in
connection with an arrangement described
in §1.909–2T(b) (a splitter arrangement)
the related income was, is or will be taken
into account for U.S. Federal income tax
purposes by a person that is a covered per-
son with respect to the payor of the tax.
Foreign income taxes that are paid or
accrued in connection with a splitter ar-
rangement are split taxes to the extent pro-
vided in §1.909–2T(b). Income (or, as
the case may be, earnings and profits) that
was, is or will be taken into account by a
coveredpersoninconnectionwithasplit-
ter arrangement is related income to the ex-
tent provided in §1.909–2T(b). Split taxes
will not be taken into account for U.S. Fed-
eral income tax purposes before the tax-
able year in which the related income is
taken into account by the payor or, in the
case of split taxes paid or accrued by a
section 902 corporation, by a section 902
shareholder of such section 902 corpora-
tion. Therefore, in the case of split taxes
paid or accrued by a section 902 corpora-
tion, split taxes will not be taken into ac-
count for purposes of section 902 or 960,
or for purposes of determining earnings
and profits under section 964(a), before the
taxable year in which the related income is
taken into account by the payor section 902
corporation, a section 902 shareholder of
the section 902 corporation, or a member
of the section 902 shareholder’s consoli-
dated group. See §1.909–3T(a) for rules
relating to when split taxes and related in-
come are taken into account.
A comment requested that the regula-
tions provide an exclusive list of arrange-
ments that are subject to section 909 for
post-2010 taxable years, similar to the ap-
proach adopted in Notice 2010–92, which
provides an exclusive list of arrangements
that are treated as giving rise to foreign tax
credit splitting events for purposes of ap-
plying section 909 to pre-2011 taxes paid
or accrued by section 902 corporations.
The Treasury Department and the IRS
agree with the comment, and accordingly,
§1.909–2T(b) sets forth an exclusive list of
arrangements that will be treated as giving
rise to foreign tax credit splitting events.
Future guidance may identify additional
transactions or arrangements to which
section 909 applies, although any such
guidance will apply to foreign taxes paid
or accrued in taxable years beginning on
or after the date such guidance is issued.
In particular, the Treasury Department
and the IRS are concerned about certain
types of asset transfers that can result in
the separation of foreign income taxes and
the related income, for example, because
of differences in when income accrues or
how basis is determined for purposes of
U.S. and foreign tax law. Section 901(m)
applies to foreign taxes paid or accrued in
connection with certain transactions that
are covered asset acquisitions described
in section 901(m)(2). The Treasury De-
partment and the IRS considered several
approaches to address the interaction of
sections 901(m) and 909, including pro-
viding taxpayers with an election to apply
section 909 in lieu of section 901(m).
The Treasury Department and the IRS
concluded that applying section 909 to
covered asset acquisitions between related
parties would substantially increase the
complexity and administrative burdens
associated with such transactions. Ac-
cordingly, a covered asset acquisition is
not a foreign tax credit splitting event for
purposes of section 909. Nevertheless,
section 901(m) may apply to foreign taxes
paid or accrued in connection with a for-
eign tax credit splitting event, for example,
if an election under section 338(a) is made
with respect to the acquisition of the in-
terests in a reverse hybrid. In such case,
the Treasury Department and the IRS are
considering the extent to which section
909 should apply to suspend deductions
for foreign income taxes with respect to
which section 901(m) disallows a credit.
The Treasury Department and the IRS
are also considering whether to treat as
foreign tax credit splitting events other ar-
rangements or transactions that can result
in the separation of foreign income taxes
and the related income, for example, be-
cause of differences in when a shareholder
is taxed on a dividend out of earnings of a
covered person. One such arrangement is
a distribution that is a dividend for foreign
tax purposes but for U.S. Federal income
tax purposes is either not includible in the
shareholder’s gross income pursuant to
section 305(a) or is disregarded. See Rev.
Rul. 80–154, 1980–1 C.B. 68 (involving
a series of arrangements that were treated
April 9, 20127342012–15 I.R.B.

as a stock distribution from a foreign cor-
poration to which section 305(a) applies),
and Rev. Rul. 83–142, 1983–2 C.B. 68
(involving a cash payment by a corpora-
tion to its shareholder which was returned
to the corporation and disregarded for
U.S. Federal income tax purposes even
though treated as a dividend subject to
withholding tax under foreign law). The
Treasury Department and the IRS are con-
sidering whether and to what extent such
types of asset transfers and distributions
should be treated as foreign tax credit
splitting events and request comments on
the circumstances in which such treatment
should apply.
2.Reverse hybrid splitter arrangements
Section 1.909–2T(b)(1) describes a re-
verse hybrid splitter arrangement. The
definition of a reverse hybrid splitter ar-
rangement is substantially identical to that
set forth in Notice 2010–92, except that
the scope is extended to cover taxes paid
or accrued by persons other than section
902 corporations. A reverse hybrid is an
entity that is a corporation for U.S. Fed-
eral income tax purposes but is a fiscally
transparent entity (under the principles of
§1.894–1(d)(3)) or a branch under the laws
of a foreign country imposing tax on the
income of the entity. A reverse hybrid is
a splitter arrangement when a payor pays
or accrues foreign income taxes with re-
spect to income of a reverse hybrid. A
reverse hybrid splitter arrangement exists
even if the reversehybrid has a loss or a
deficit in earnings and profits for a partic-
ular year for U.S. Federal income tax pur-
poses (for example, due to a timing differ-
ence). The foreign income taxes paid or
accrued with respect to income of the re-
verse hybrid are split taxes. The related
income with respect to split taxes from a
reverse hybrid splitter arrangement is the
earnings and profits (computed for U.S.
Federal income tax purposes) of the re-
verse hybrid attributable to the activities
of the reverse hybrid that gave rise to in-
come included in the payor’s foreign tax
base with respect to which the split taxes
were paid or accrued. Accordingly, related
income of the reverse hybrid only includes
items of income or expense attributable to
a disregarded entity owned by the reverse
hybrid to the extent that the income attrib-
utable to the activities of the disregarded
entity is included in the payor’s foreign tax
base.
3.Loss-sharing splitter arrangements
Section 1.909–2T(b)(2) expands the
types of loss-sharing arrangements that
Notice 2010–92 treats as splitter arrange-
ments. A foreign group relief or loss-shar-
ing regime is a regime in which one entity
may surrender its loss to offset the income
of one or more other entities. Such a loss
of one entity that, in connection with a
foreign group relief or other loss-sharing
regime, is taken into account by one or
more other entities for foreign tax purposes
is a “shared loss.” Shared losses can be
used to shift foreign tax liability from one
entity to another without a concomitant
shift in U.S. earnings and profits. Notice
2010–92 applied only to shared losses
attributable to debt that is disregarded for
U.S. Federal income tax purposes. A com-
ment suggested that it would be appropri-
ate to treat other loss-sharing arrangements
as foreign tax credit splitter arrangements
as well, in particular, when the payor of
a tax could have used the shared loss to
offset foreign tax on income that is treated
as the payor’s own income under U.S.
Federal income tax principles. The Trea-
sury Department and the IRS agree that
the scope of loss-sharing arrangements
that are treated as splitter arrangements
should be expanded to cover these cases.
Accordingly §1.909–2T(b)(2)(i) defines a
“loss-sharing splitter arrangement” as aris-
ing under a foreign group relief or other
loss-sharing regime to the extent a shared
loss of a U.S. combined income group
could have been used to offset income of
that group (a “usable shared loss”) but is
used instead to offset income of another
U.S. combined income group.
Under §1.909–2T(b)(2)(ii), a U.S.
combined income group consists of a
single individual or corporation and all
other entities (including entities that are
fiscally transparent for U.S. Federal in-
come tax purposes under the principles
of §1.894–1(d)(3)) that for U.S. Federal
income tax purposes combine any of their
respective items of income, deduction,
gain or loss with the income, deduction,
gain or loss of such individual or corpo-
ration. A U.S. combined income group
may arise, for example, as a result of an
entity being disregarded for U.S. Federal
income tax purposes or, in the case of a
partnership or hybrid partnership and a
partner, as a result of the allocation of in-
come or any other item of the partnership
to the partner. For this purpose, a branch is
treated as an entity, all members of a U.S.
consolidated group are treated as a single
corporation, and individuals filing a joint
return are treated as a single individual.
A U.S. combined income group may con-
sist of a single individual or corporation
and no other entities, but cannot include
more than one individual or corporation.
In addition, an entity that combines items
of income, deduction, gain or loss with
the income, deduction, gain or loss of two
or more other entities can belong to more
than one U.S. combined income group.
For example, a hybrid partnership that has
two corporate partners that do not combine
items of income, deduction, gain or loss
with each other belongs to each partner’s
separate U.S. combined income group,
because each partner receives an allocable
share of hybrid partnership items.
Under §1.909–2T(b)(2)(iii)(A), the
income of a U.S. combined group con-
sists of the aggregate amount of taxable
income of the members of the group
that have positive taxable income, as
computed under foreign law. Under
§1.909–2T(b)(2)(iii)(B), the amount of
shared loss of a U.S. combined income
group is the sum of the shared losses
of all members of the group. Section
1.909–2T(b)(2)(iii)(A) and (B) provide
that in the case of an entity that is fis-
cally transparent (under the principles of
§1.894–1(d)(3)) for foreign tax purposes
and that is a member of more than one
U.S. combined income group, the foreign
taxable income or shared loss of the entity
is allocated between or among the groups
under foreign tax law. In the case of an
entity that is not fiscally transparent for
foreign tax purposes and is a member of
more than one U.S. combined income
group, the entity’s foreign taxable income
or shared loss is allocated between the
separate U.S. combined income groups
based on U.S. Federal income tax princi-
ples. Although the allocations are based
on U.S. Federal income tax principles, the
amount of the foreign taxable income or
shared loss to be allocated is determined
under foreign law. In the case of a hybrid
partnership with two partners that are in
different U.S. combined income groups,
2012–15 I.R.B.735April 9, 2012

income or a shared loss incurred by the
hybrid partnership, as determined under
foreign law, is allocated between or among
the U.S. combined income groups based
on how the hybrid partnership allocated
the income or loss under section 704(b).
To the extent the income or shared loss
would be income or loss under U.S. tax
principles in another year, the income or
shared loss is allocated to the U.S. com-
bined income groups based on how the
hybrid partnership would allocate the in-
come or shared loss if it were recognized
for U.S. tax purposes in the year it is rec-
ognized for foreign tax purposes. To the
extent the income or shared loss would
not constitute income or loss under U.S.
tax principles in any year, the income or
shared loss is allocated to the U.S. com-
bined income groups in the same manner
as the partnership items attributable to the
activity giving rise to the income or shared
loss.
Section 1.909–2T(b)(2)(iv) provides
that split taxes from a loss-sharing split-
ter arrangement are foreign income taxes
paid or accrued by a member of a U.S.
combined income group with respect to
income equal to the amount of the usable
shared loss of that U.S. combined income
group that offsets income of a different
U.S. combined income group. Under
§1.909–2T(b)(2)(v),the related income
is an amount of income of the individual
or corporate member of a U.S. combined
income group equal to the amount of in-
come of that U.S. combined income group
that is offset by the usable shared loss of
another U.S. combined income group.
4.Hybrid instrument splitter
arrangements
Section 1.909–2T(b)(3) describes hy-
brid instrument splitter arrangements. The
definition of hybrid instrument splitter
arrangements is substantially identical to
that set forth in Notice 2010–92, except
that the scope is extended to cover taxes
paid or accrued by persons other than
section 902 corporations. In addition,
§1.909–2T(b)(3)(i)(D) defines a U.S. eq-
uity hybrid instrument as an instrument
that is treated as equity for U.S. Federal
income tax purposes but is treated as in-
debtedness for foreign tax purposes, or
with respect to which the issuer is other-
wise entitled to a deduction for foreign tax
purposes for amounts paid or accrued with
respect to the instrument. For example,
an instrument that is treated as equity for
U.S. Federal income tax purposes but with
respect to which amounts paid or accrued
by the issuer are treated for foreign tax
purposes as a deductible notional interest
payment (even though the instrument is
otherwise treated as equity for foreign tax
purposes) is a U.S. equity hybrid instru-
ment. Under §1.909–2T(b)(3)(i)(A), a
U.S. equity hybrid instrument is a splitter
arrangement if foreign income taxes are
paid or accrued by the owner of a U.S.
equity hybrid instrument with respect to
payments or accruals on or with respect to
the instrument that are deductible by the
issuer under the laws of a foreign jurisdic-
tion in which the issuer is subject to tax
but that do not give rise to income for U.S.
Federal income tax purposes.
Under §1.909–2T(b)(3)(i)(B), split
taxes from a U.S. equity hybrid instru-
ment splitter arrangement equal the total
amount of foreign income taxes, including
withholding taxes, paid or accrued by the
owner of the hybrid instrument less the
amount of foreign income taxes that would
have been paid or accrued had the owner of
the U.S. equity hybrid instrument not been
subject to foreign tax on income from the
instrument. Under §1.909–2T(b)(3)(i)(C),
the related income with respect to split
taxes from a U.S. equity hybrid instrument
splitter arrangement is income of the is-
suer of the U.S. equity hybrid instrument
in an amount equal to the payments or
accruals giving rise to the split taxes that
are deductible by the issuer for foreign tax
purposes, determined without regard to
the actual amount of the issuer’s income
or earnings and profits for U.S. Federal
income tax purposes.
Section 1.909–2T(b)(3)(ii)(D) defines
a U.S. debt hybrid instrument as an in-
strument that is treated as equity for for-
eign tax purposes but as indebtedness for
U.S. Federal income tax purposes. Under
§1.909–2T(b)(3)(ii)(A), a U.S. debt hybrid
instrument is a splitter arrangement if for-
eign income taxes are paid or accrued by
the issuer of a U.S. debt hybrid instrument
with respect to income in an amount equal
to the interest (including original issue dis-
count) paid or accrued on the instrument
that is deductible for U.S. Federal income
tax purposes but that does not give rise
to a deduction under the laws of a for-
eign jurisdiction in which the issuer is sub-
ject to tax. Under §1.909–2T(b)(3)(ii)(B),
split taxes from a U.S. debt hybrid instru-
ment splitter arrangement are the foreign
income taxes paid or accrued by the issuer
on the income that would have been off-
set by the interest paid or accrued on the
U.S. debt hybrid instrument had such in-
terest been deductible for foreign tax pur-
poses. Under §1.909–2T(b)(3)(ii)(C), the
related income from a U.S. debt hybrid in-
strument splitter arrangement is the gross
amount of the interest income recognized
for U.S. Federal income tax purposes by
theowneroftheU.S.debthybridinstru-
ment, determined without regard to the ac-
tual amount of the owner’s income or earn-
ings and profits for U.S. Federal income
tax purposes.
5.Partnership inter-branch payment
splitter arrangements
Section 1.909–2T(b)(4) describes a
partnership inter-branch payment split-
ter arrangement. The Treasury Depart-
mentandtheIRSstatedinsection5.03
of Notice 2010–92 that future guidance
would provide that allocations described
in §1.704–1(b)(4)(viii)(d)(3) will result
in a foreign tax credit splitting event in
post-2010 taxable years to the extent such
allocations result in foreign income taxes
being allocated to a different partner than
the related income.
Under §1.909–2T(b)(4)(i), an alloca-
tion of foreign income tax paid or ac-
crued by a partnership with respect to
an inter-branch payment as described in
§1.704–1(b)(4)(viii)(d)(3)(revisedasof
April 1, 2011) (the inter-branch payment
tax), is a splitter arrangement to the extent
the inter-branch payment tax is not allo-
cated to the partners in the same proportion
as the distributive shares of income in the
CFTE category to which the inter-branch
payment tax is or would be assigned
under §1.704–1(b)(4)(viii)(d) without re-
gard to §1.704–1(b)(4)(viii)(d)(3). Under
§1.909–2T(b)(4)(ii), split taxes from a
partnership inter-branch payment split-
ter arrangement equal the excess of the
amount of the inter-branch payment tax
allocated to a partner under the part-
nership agreement over the amount of
the inter-branch payment tax that would
have been allocated to the partner if
the tax had been allocated in the same
April 9, 20127362012–15 I.R.B.

proportion as the distributive shares of
income in that CFTE category. Under
§1.909–2T(b)(4)(iii), related income from
a partnership inter-branch payment splitter
arrangement equals the amount of income
allocated to a partner that exceeds the
amount of income that would have been
allocated to the partner if income in that
CFTE category in the amount of the in-
ter-branch payment had been allocated to
the partners in the same proportion as the
inter-branch payment tax was allocated
under the partnership agreement.
D.Rules regarding related income and
split taxes and coordination rules
Section 4.06 of Notice 2010–92 pro-
vides guidance on determining the amount
of related income and pre-2011 split taxes
paid or accrued with respect to pre-2011
splitter arrangements. A comment re-
quested guidance on the treatment of
related income and split taxes in the case
of certain dispositions that were not de-
scribed in section 4.06 of Notice 2010–92
(specifically, dispositions of section 902
corporations in transactions other than
those that qualify under section 381). The
Treasury Department and the IRS expect
to issue regulations that provide additional
guidance on determining the amount of
related income and split taxes attributable
to a foreign tax credit splitting event, and
intend to address the comment when such
regulations are issued. Until such guid-
ance is issued, §1.909–3T(a) provides that
the principles of §1.909–6T(d) through
1.909–6T(f) (which adopt the rules de-
scribed in section 4.06 of Notice 2010–92)
will apply to related income and split taxes
in taxable years beginning on or after Jan-
uary 1, 2011, except that the alternative
“related income first” method described
in §1.909–6T(d)(4) (which adopts sec-
tion 4.06(b)(4) of Notice 2010–92) for
identifying distributions of related income
applies only to identify the amount of
pre-2011 split taxes of a section 902 cor-
poration that are suspended as of the first
day of the section 902 corporation’s first
taxable year beginning on or after Jan-
uary 1, 2011. A comment recommended
that taxpayers be given the choice to ap-
ply the “related income first” method to
identify post-2010 split taxes of a section
902 corporation, with use of such method
conditioned on the taxpayer not applying
section 902 to distributions from a section
902 corporation until all of the corpora-
tion’s earnings and profits attributable to
related income have been distributed. The
Treasury Department and the IRS believe
that the recommendation would necessi-
tate rules that would result in significant
administrative complexity, and accord-
ingly, the comment was not adopted.
These temporary regulations include
a rule concerning split taxes that was not
described in Notice 2010–92. Section
1.909–3T(b) provides that split taxes in-
clude taxes paid or accrued in taxable
years beginning on or after January 1,
2011, with respect to the amount of a dis-
regarded payment that is deductible by the
payor of the disregarded payment under
the laws of a foreign jurisdiction in which
the payor of the disregarded payment is
subject to tax on related income from a
splitter arrangement. The amount of the
deductible disregarded payment to which
this rule applies is limited to the amount of
related income from such splitter arrange-
ment.
In addition to future guidance on deter-
mining the amount of related income and
split taxes, the Treasury Department and
the IRS expect to issue regulations that
provide additional guidance on the inter-
action between section 909 and other Code
provisions such as sections 904(c), 905(a),
and 905(c). Until such guidance is issued,
§1.909–4T(a) provides that the principles
of §1.909–6T(g), which adopt the rules de-
scribed in section 6 of Notice 2010–92,
will apply to taxable years beginning on or
after January 1, 2011.
E.2011 and certain 2012 splitter
arrangements
Section 909 applies to foreign income
taxes paid or accrued in taxable years be-
ginning after December 31, 2010. Section
1.909–2T(b), setting forth the exclusive
list of splitter arrangements, is effective
for foreign income taxes paid or accrued
in taxable years beginning on or after Jan-
uary 1, 2012. Notice 2010–92 states that
pre-2011 splitter arrangements will give
rise to foreign tax credit splitting events
in post-2010 taxable years. Accordingly,
§1.909–5T(a)(1) provides that foreign in-
come taxes paid or accrued by any person
in a taxable year beginning on or after Jan-
uary 1, 2011, and before January 1, 2012,
in connection with a pre-2011 splitter ar-
rangement (as defined in §1.909–6T(b)),
are split taxes to the same extent that such
taxes would have been treated as pre-2011
split taxes if such taxes were paid or ac-
crued by a section 902 corporation in a
pre-2011 taxable year. The related in-
come with respect to split taxes from such
an arrangement is the related income de-
scribed in §1.909–6T(b), determined as if
the payor were a section 902 corporation.
In addition, Notice 2010–92
states that allocations described in
§1.704–1(b)(4)(viii)(d)(3)willresultin
a foreign tax credit splitting event in
post-2010 taxable years to the extent
such allocations result in foreign income
taxes being allocated to a different partner
than the related income. Accordingly,
§1.909–5T(a)(2) provides that foreign in-
come taxes paid or accrued by any person
in a taxable year beginning on or after
January 1, 2011, and before January 1,
2012, in connection with a partnership
inter-branch payment splitter arrangement
described in §1.909–2T(b)(4) are split
taxes to the extent such taxes are identified
as split taxes in §1.909–2T(b)(4)(ii). The
related income with respect to the split
taxes is the related income described in
§1.909–2T(b)(4)(iii).
Finally, these temporary regulations
provide that foreign income taxes paid or
accrued by any person in a taxable year
beginning on or after January 1, 2012,
and on or before February 14, 2012 in
connection with a foreign consolidated
group splitter arrangement described in
§1.909–6T(b)(2) are split taxes to the same
extent that such taxes would have been
treated as pre-2011 split taxes if such taxes
were paid or accrued by a section 902 cor-
poration in a pre-2011 taxable year. This
rule ensures that section 909 applies to
suspend foreign tax on income of foreign
consolidated groups paid or accrued in
post-2010 taxable years to the extent the
tax is not apportioned among the mem-
bers of the group in accordance with the
principles of Treas. Reg. §1.901–2(f)(3).
Final regulations published elsewhere in
this issue of the Bulletin explicitly apply
the ratable allocation rules of Treas. Reg.
§1.901–2(f)(3) to tax paid on combined
income of foreign consolidated groups,
without regard to whether the group mem-
bers are jointly and severally liable for the
tax under foreign law.
2012–15 I.R.B.737April 9, 2012

F.Pre-2011 foreign tax credit splitting
events
Section 1.909–6T adopts the rules de-
scribed in Notice 2010–92 regarding pre-
2011 foreign tax credit splitting events and
the application of section 909 to foreign in-
come taxes paid or accrued by a section
902 corporation in pre-2011 taxable years.
Availability of IRS Documents
IRS notices and revenue rulings cited
in this preamble are made available by the
Superintendent of Documents, U.S. Gov-
ernment Printing Office, Washington, DC
20402.
Effect on Other Documents
The following publication is obsolete as
of February 14, 2012:
Notice 2010–92, 2010–52 I.R.B. 916.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. For
the applicability of the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6), refer to the
Special Analyses section of the preamble
of the cross-referenced notice of proposed
rulemaking published in this issue of the
Bulletin. 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 Adminis-
tration for comment on its impact on small
businesses.
Drafting Information
The principal author of these regula-
tions is Suzanne M. Walsh of the Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.704–1 is amended as
follows:
1.Paragraph (b)(0) is
amendedbyaddinganentryfor
§1.704–1(b)(1)(ii)(b)(3) and revising the
entry for §1.704–1(b)(4)(viii)(d)(3).
2. Paragraph (b)(1)(ii)(b)(3) is added.
3. Paragraph (b)(4)(viii)(c)(3)(ii)isre-
vised.
4. Paragraph (b)(4)(viii)(d)(3)isre-
vised.
5. Paragraph (b)(5)Example 24is re-
vised.
The additions and revisions read as fol-
lows:
§1.704–1. Partner’s distributive share.
*****
(b)Determination of partner’s distribu-
tive share—(0)Cross-references.
HeadingSection
*****
[Reserved]............................................... 1.704–1(b)(1)(ii)(b)(3)
*****
[Reserved]............................................... 1.704–1(b)(4)(viii)(d)(3)
*****
(1) * * *
(ii) * * *
(b)***
(3) [Reserved]. For further guidance,
see §1.704–1T(b)(1)(ii)(b)(3).
*****
(4) * * *
(viii) * * *
(c)***
(3)***
(ii)Special rules. Income attributable
to an activity shall include the amount in-
cluded in a partner’s income as a guaran-
teed payment (within the meaning of sec-
tion 707(c)) from the partnership to the ex-
tent that the guaranteed payment is not de-
ductible by the partnership under foreign
law. See paragraph (b)(5)Example 25 (iv)
of this section. Income attributable to an
activity shall not include an item of part-
nership income to the extent the alloca-
tion of such item of income (or payment
thereof) results in a deduction under for-
eign law. See paragraph (b)(5)Example
25 (iii)and(iv)of this section. Similarly,
income attributable to an activity shall not
include net income that foreign law would
exclude from the foreign tax base as a re-
sult of the status of a partner. See para-
graph (b)(5)Example 27of this section.
(d)***
(3) [Reserved]. For further guidance,
see §1.704–1T(b)(4)(viii)(d)(3).
*****
(5) * * *
Example 24. [Reserved]. For further
guidance, see §1.704–1T(b)(5)Example
24.
*****
Par. 3. Section 1.704–1T is added to
read as follows:
§1.704–1T Partner’s distributive share
(temporary).
(a) through (b)(1)(ii)(b)(2) [Reserved].
For further guidance, see §1.704–1(a)
through (b)(1)(ii)(b)(2).
(3)Special rules for cer-
taininter-branchpayments—(A)
In general.The provisions of
§1.704–1(b)(4)(viii)(c)(3)(ii)and
§1.704–1(b)(4)(viii)(d)(3)applyfor
partnership taxable years beginning on or
after January 1, 2012.
(B)Transition rule. Transition re-
lief is provided herein to partnerships
whose agreements were entered into
April 9, 20127382012–15 I.R.B.

prior to February 14, 2012. In such
case, if there has been no material mod-
ification to the partnership agreement
on or after February 14, 2012, then
the partnership may apply the provi-
sions of §1.704–1(b)(4)(viii)(c)(3)(ii)and
§1.704–1(b)(4)(viii)(d)(3)(revisedasof
April 1, 2011). For purposes of this para-
graph (b)(1)(ii)(b)(3), any change in own-
ership constitutes a material modification
to the partnership agreement. This transi-
tion rule does not apply to any taxable year
in which persons bearing a relationship
to each other that is specified in section
267(b) or section 707(b) collectively have
the power to amend the partnership agree-
ment without the consent of any unrelated
party (and all subsequent taxable years).
(b)(1)(iii) through (b)(4)(viii)(d)(2)
[Reserved].For further guidance,
see§1.704–1(b)(1)(iii)through
(b)(4)(viii)(d)(2).
(3)Special rules for inter-branch pay-
ments. For rules relating to foreign tax
paid or accrued in partnership taxable
years beginning before January 1, 2012 in
respect of certain inter-branch payments,
see 26 CFR 1.704–1(b)(4)(viii)(d)(3)(re-
vised as of April 1, 2011).
(b)(4)(ix) through (b)(5)Example 23
[Reserved]. For further guidance, see
§1.704–1(b)(4)(ix) through (b)(5)Exam-
ple 23.
Example 24. (i) The facts are the same as inEx-
ample 21, except that businesses M and N are con-
ducted by entities (DE1 and DE2, respectively) that
are corporations for country X and Y tax purposes
and disregarded entities for U.S. tax purposes. Also,
assume that DE1 makes payments of $75,000 during
2012 to DE2 that are deductible by DE1 for coun-
try X tax purposes and includible in income of DE2
for country Y tax purposes. As a result of such pay-
ments, DE1 has taxable income of $25,000 for coun-
try X purposes on which $10,000 of taxes are imposed
and DE2 has taxable income of $125,000 for country
Y purposes on which $25,000 of taxes are imposed.
For U.S. tax purposes, $100,000 of AB’s income is
attributable to the activities of DE1 and $50,000 of
AB’s income is attributable to the activities of DE2.
Pursuant to the partnershipagreement, all partner-
ship items from business M, excluding CFTEs paid
or accrued by business M, are allocated 75 percent
to A and 25 percent to B, and all partnership items
from business N, excluding CFTEs paid or accrued
by business N, are split evenly between A and B (50
percent each). Accordingly, A is allocated 75 percent
of the income from business M ($75,000), and 50 per-
cent of the income from business N ($25,000). B is
allocated 25 percent of the income from business M
($25,000), and 50 percent of the income from busi-
ness N ($25,000).
(ii) Because the partnership agreement provides
for different allocations of the net income attribut-
able to businesses M and N, the net income attrib-
utable to each of business M and business N is in-
come in separate CFTE categories. See paragraph
(b)(4)(viii)(c)(2) of this section. Under paragraph
(b)(4)(viii)(c)(3) of this section, the $100,000 of net
income attributable to business M is in the business
M CFTE category and the $50,000 of net income at-
tributable to business N is in the business N CFTE
category. Under paragraph (b)(4)(viii)(d)(1) of this
section, the $10,000 of country X taxes is allocated
to the business M CFTE category and $10,000 of the
country Y taxes is allocated to the business N CFTE
category. The additional $15,000 of country Y tax
imposed with respect to the inter-branch payment is
assigned to the business M CFTE category because
for U.S. tax purposes, the related $75,000 of income
that country Y is taxing is in the business M CFTE
category. Therefore, $25,000 of taxes ($10,000 of
country X taxes and $15,000 of the country Y taxes)
is related to the $100,000 of net income in the busi-
ness M CFTE category and the other $10,000 of coun-
try Y taxes is related to the $50,000 of net income
in the business N CFTE category. See paragraph
(b)(4)(viii)(c)(1) of this section. The allocations of
country X taxes will be in proportion to the distribu-
tive shares of income to which they relate and will be
deemed to be in accordance with the partners’ inter-
ests in the partnership if such taxes are allocated 75
percent to A and 25 percent to B. The allocations of
country Y taxes will be in proportion to the distribu-
tive shares of income to which they relate and will
be deemed to be in accordance with the partners’ in-
terests in the partnership if $15,000 of such taxes is
allocated 75 percent to A and 25 percent to B and the
other $10,000 of such taxes is allocated 50 percent
to A and 50 percent to B. No inference is intended
with respect to the application of other provisions to
arrangements that involve disregarded payments.
(iii) Assume that the facts are the same as in para-
graph (i) of thisExample 24, except that in order to
reflect the $75,000 payment from DE1 to DE2, the
partnership agreement allocates $75,000 of the in-
come attributable to business M equally between A
and B (50 percent each). In order to prevent separat-
ing the CFTEs from the related foreign income, the
$75,000 payment is treated as a divisible part of the
business M activity and, therefore, a separate activ-
ity. See paragraph (b)(4)(viii)(c)(2)(iii) of this sec-
tion. Because items from the disregarded payment
and business N are both shared equally between A
and B, the disregarded payment activity and the busi-
ness N activity are treated as a single CFTE cate-
gory. See paragraph (b)(4)(viii)(c)(2)(i)ofthissec-
tion. Accordingly, $25,000 of net income attributable
to business M is in the business M CFTE category and
$75,000 of income of business M attributable to the
disregarded payment and the $50,000 of net income
attributable to business N are in the business N CFTE
category. Under paragraph (b)(4)(viii)(d)(1) of this
section, the $10,000 of country X taxes is allocated to
the business M CFTE category and all $25,000 of the
country Y taxes is allocated to the business N CFTE
category. The allocations of country X taxes will be
in proportion to the distributive shares of income to
which they relate and will be deemed to be in accor-
dance with the partners’ interests in the partnership if
such taxes are allocated 75 percent to A and 25 per-
cent to B. The allocations of country Y taxes will be
in proportion to the distributive shares of income to
which they relate and will be deemed to be in accor-
dance with the partners’ interests in the partnership if
such taxes are allocated 50 percent to A and 50 per-
cent to B.
Example 25through (e) [Reserved].
For further guidance, see §1.704–1(b)(5)
Example 25through (e).
(f)Expiration date. The applicability of
this section expires on February 9, 2015.
Par. 4. Section 1.909–0T is added to
read as follows:
§1.909–0T Outline of regulation
provisions for section 909 (temporary).
This section lists the headings for
§§1.909–1T through 1.909–6T.
§1.909–1T Definitions and special rules
(temporary).
(a) Definitions.
(b) Taxes paid or accrued by a partner-
ship, S corporation or trust.
(c) Related income of a partnership,
S corporation or trust.
(d) Application of section 909
to pre-1987 accumulated profits and
pre-1987 foreign income taxes.
(e) Effective/applicability date.
(f) Expiration date.
§1.909–2T Splitter arrangements
(temporary).
(a) Foreign tax credit splitting event.
(1) In general.
(2) Split taxes not taken into account.
(b) Splitter arrangements.
(1) Reverse hybrid splitter arrange-
ments.
(i) In general.
(ii) Split taxes from a reverse hybrid
splitter arrangement.
(iii) Related income from a reverse hy-
brid splitter arrangement.
(iv) Reverse hybrid.
(2) Loss-sharing splitter arrangements.
(i) In general.
(ii) U.S. combined income group.
(iii) Income and shared loss of a U.S.
combined income group.
(iv) Split taxes from a loss-sharing split-
ter arrangement.
(v) Related income from a loss-sharing
splitter arrangement.
(vi) Foreign group relief or other loss-
sharing regime.
(vii) Examples.
2012–15 I.R.B.739April 9, 2012

(3) Hybrid instrument splitter arrange-
ments.
(i) U.S. equity hybrid instrument split-
ter arrangement.
(ii) U.S. debt hybrid instrument splitter
arrangement.
(4) Partnership inter-branch payment
splitter arrangements.
(i) In general.
(ii) Split taxes from a partnership inter-
branch payment splitter arrangement.
(iii) Related incomefrom a partnership
inter-branch payment splitter arrangement.
(c) Effective/applicability date.
(d) Expiration date.
§1.909–3T Rules regarding related
income and split taxes (temporary).
(a) Interim rules for identifying related
income and split taxes.
(b) Split taxes on deductible disre-
garded payments.
(c) Effective/applicability date.
(d) Expiration date.
§1.909–4T Coordination rules
(temporary).
(a) Interim rules.
(b) Effective/applicability date.
(c) Expiration date.
§1.909–5T 2011 and 2012 splitter
arrangements (temporary).
(a) Taxes paid or accrued in taxable
years beginning in 2011.
(b) Taxes paid or accrued in certain tax-
able years beginning in 2012 with respect
to a foreign consolidated group splitter ar-
rangement.
(c) Effective/applicability date.
(d) Expiration date.
§1.909–6T Pre-2011 foreign tax credit
splitting events (temporary).
(a) Foreign tax credit splitting event.
(1) In general.
(2) Taxes not subject to suspension un-
der section 909.
(3) Taxes subject to suspension under
section 909.
(b) Pre-2011 splitter arrangements.
(1) Reverse hybrid structure splitter ar-
rangements.
(2) Foreign consolidated group splitter
arrangements.
(3) Group relief or other loss-sharing
regime splitter arrangements.
(i) In general.
(ii) Split taxes and related income.
(4) Hybrid instrument splitter arrange-
ments.
(i) In general.
(ii) U.S. equity hybrid instrument split-
ter arrangement.
(iii) U.S. debt hybrid instrument splitter
arrangement.
(c) General rules for applying section
909topre-2011splittaxesandrelatedin-
come.
(1) Annual determination.
(2) Separate categories.
(d) Special rules regarding related in-
come.
(1) Annual adjustments.
(2) Effect of separate limitation losses
and deficits.
(3)Pro ratamethod for distributions
out of earnings and profits that include
both related income and other income.
(4) Alternative method for distributions
out of earnings and profits that include
both related income and other income.
(5) Distributions, deemed distributions,
and inclusions out of related income.
(6) Carryover of related income.
(7) Related income taken into account
by a section 902 shareholder.
(8) Related income taken into account
by a payor section 902 corporation.
(9) Related income taken into account
by an affiliated groupof corporations that
includes a section 902 shareholder.
(10) Distributions of previously-taxed
earnings and profits.
(e) Special rules regarding pre-2011
split taxes.
(1) Taxes deemed paidpro rataout of
pre-2011 split taxes and other taxes.
(2) Pre-2011 split taxes deemed paid in
pre-2011 taxable years.
(3) Carryover of pre-2011 split taxes.
(4) Determining when pre-2011 split
taxes are no longer treated as pre-2011 split
taxes.
(f) Rules relating to partnerships and
trusts.
(1) Taxes paid or accrued by partner-
ships.
(2) Section 704(b) allocations.
(3) Trusts.
(g) Interaction between section 909 and
other Code provisions.
(1) Section 904(c).
(2) Section 905(a).
(3) Section 905(c).
(4) Other foreign tax credit provisions.
(h) Effective/applicability date.
(i) Expiration date.
Par. 5. Sections 1.909–1T, 1.909–2T,
1.909–3T, 1.909–4T, 1.909–5T, and
1.909–6T are added to read as follows:
§1.909–1T Definitions and special rules
(temporary)
.
(a)Definitions. For purposes of section
909, this section, and §§1.909–2T through
–5T, the following definitions apply:
(1) The termsection 902 corpora-
tionmeans any foreign corporation with
respect to which one or more domestic
corporations meet the ownership require-
mentsofsection902(a)or(b).
(2) The termsection 902 shareholder
means any domestic corporation that
meets the ownership requirements of sec-
tion 902(a) or (b) with respect to a section
902 corporation.
(3) The termpayormeans a person
that pays or accrues a foreign income tax
within the meaning of §1.901–2(f), and
also includes a person that takes foreign
income taxes paid or accrued by a part-
nership, S corporation, estate or trust into
account pursuant to section 702(a)(6), sec-
tion 901(b)(5) or section 1373(a).
(4) The termcovered personmeans,
with respect to a payor—
(i) Any entity in which the payor holds,
directly or indirectly, at least a 10 percent
ownership interest (determined by vote or
value);
(ii) Any person that holds, directly or
indirectly, at least a 10 percent ownership
interest (determined by vote or value) in
the payor; or
(iii) Any person that bears a relation-
ship that is described in section 267(b) or
707(b) to the payor.
(5) The termforeign income taxmeans
any income, war profits, or excess profits
tax paid or accrued to any foreign country
or to any possession of the United States.
A foreign income tax includes any tax paid
in lieu of such a tax within the meaning of
section 903.
(6) The termpost-1986 foreign in-
come taxeshas the meaning provided in
§1.902–1(a)(8).
April 9, 20127402012–15 I.R.B.

(7) The termpost-1986 undistributed
earningshas the meaning provided in
§1.902–1(a)(9).
(8) The termdisregarded entitymeans
an entity that is disregarded as an entity
separate from its owner, as provided in
§301.7701–2(c)(2)(i).
(9) The termhybrid partnershipmeans
a partnership that is subject to income tax
in a foreign country as a corporation (or
otherwise at the entity level) on the basis
of residence, place of incorporation, place
of management or similar criteria.
(b)Taxes paid or accrued by a partner-
ship, S corporation or trust. Under sec-
tion 909(c)(1), section 909 applies at the
partner level, and similar rules apply in the
case of an S corporation or trust. Accord-
ingly, in the case of foreign income taxes
paid or accrued by a partnership, S cor-
poration or trust, taxes allocated to one or
more partners, shareholders or beneficia-
ries (as the case may be) will be treated as
split taxes to the extent such taxes would
be split taxes if the partner, shareholder or
beneficiary had paid or accrued the taxes
directly on the date such taxes are taken
into account by the partner under sections
702 and 706(a), by the shareholder under
section 1373(a), or by the beneficiary un-
der section 901(b)(5). Any such split taxes
will be suspended in the hands of the part-
ner, shareholder or beneficiary.
(c)Related income of a partnership,
S corporation or trust. For purposes
of determining whether related income
is taken into account by a covered
person, related income of a partnership,
S corporation or trust is considered to
be taken into account by the partner,
shareholder or beneficiary to whom the
related income is allocated.
(d)Application of section 909 to
pre-1987 accumulated profits and
pre-1987 foreign income taxes. Section
909 and §§1.909–1T through –5T will
apply to pre-1987accumulated profits
(as defined in §1.902–1(a)(10)(i)) and
pre-1987 foreign income taxes (as defined
in §1.902–1(a)(10)(iii)) of a section 902
corporation attributable to taxable years
beginning on or after January 1, 2012.
(e)Effective/applicability date.This
section applies to taxable years beginning
on or after January 1, 2011.
(f)Expiration date. The applicability of
this section expires on February 9, 2015.
§1.909–2T Splitter arrangements
(temporary).
(a)Foreign tax credit splitting
event—(1)In general. There is a foreign
tax credit splitting event with respect to
foreign income taxes paid or accrued if
and only if, in connection with an ar-
rangement described in paragraph (b) of
this section (asplitter arrangement)the
related income was, is or will be taken
into account for U.S. Federal income tax
purposes by a person that is a covered
person with respect to the payor of the
tax. Foreign income taxes that are paid
or accrued in connection with a splitter
arrangement are split taxes to the extent
provided in paragraph (b) of this section.
Income (or, as appropriate, earnings and
profits) that was, is or will be taken into
account by a covered person in connection
with a splitter arrangement is related in-
come to the extent provided in paragraph
(b)ofthissection.
(2)Split taxes not taken into account.
Split taxes will not be taken into account
for U.S. Federal income tax purposes be-
fore the taxable year in which the related
income is taken into account by the payor
or, in the case of split taxes paid or accrued
by a section 902 corporation, by a section
902 shareholder of such section 902 corpo-
ration. Therefore, in the case of split taxes
paid or accrued by a section 902 corpora-
tion, split taxes will not be taken into ac-
count for purposes of sections 902 or 960,
or for purposes of determining earnings
and profits under section 964(a), before the
taxable year in which the related income is
taken into account by the payor section 902
corporation, a section 902 shareholder of
the section 902 corporation, or a member
of the section 902 shareholder’s consoli-
dated group. See §1.909–3T(a) for rules
relating to when split taxes and related in-
come are taken into account.
(b)Splitter arrangements. The arrange-
ments set forth in this paragraph (b) are
splitter arrangements.
(1)Reverse hybrid splitter arrange-
ments—(i)In general. A reverse hybrid
is a splitter arrangement when a payor
pays or accrues foreign income taxes with
respect to income of a reverse hybrid. A
reverse hybrid splitter arrangement exists
even if the reverse hybrid has a loss or a
deficit in earnings and profits for a par-
ticular year for U.S. Federal income tax
purposes (for example, due to a timing
difference).
(ii)Split taxes from a reverse hybrid
splitter arrangement. The foreign income
taxes paid or accrued with respect to in-
come of the reverse hybrid are split taxes.
(iii)Related income from a reverse hy-
brid splitter arrangement. The related in-
come with respect to split taxes from a
reverse hybrid splitter arrangement is the
earnings and profits (computed for U.S.
Federal income tax purposes) of the re-
verse hybrid attributable to the activities
of the reverse hybrid that gave rise to in-
come included in the payor’s foreign tax
base with respect to which the split taxes
were paid or accrued. Accordingly, related
income of the reversehybrid only includes
items of income or expense attributable to
a disregarded entity owned by the reverse
hybrid to the extent that the income attrib-
utable to the activities of the disregarded
entity is included in the payor’s foreign tax
base.
(iv)Reverse hybrid.Thetermreverse
hybridmeans an entity that is a corporation
for U.S. Federal income tax purposes but
is a fiscally transparent entity (under the
principles of §1.894–1(d)(3)) or a branch
under the laws of a foreign country impos-
ing tax on the income of the entity.
(2)Loss-sharing splitter arrange-
ments—(i)In general. A foreign group
relief or other loss-sharing regime is a
loss-sharing splitter arrangement to the ex-
tent that a shared loss of a U.S. combined
income group could have been used to
offset income of that group (usable shared
loss) but is used instead to offset income
of another U.S. combined income group.
(ii)U.S. combined income group.
The termU.S. combined income group
means an individual or a corporation and
all entities (including entities that are
fiscally transparent for U.S. Federal in-
come tax purposes under the principles
of §1.894–1(d)(3)) that for U.S. Federal
income tax purposes combine any of their
respective items of income, deduction,
gain or loss with the income, deduction,
gain or loss of such individual or corpo-
ration. A U.S. combined income group
can arise, for example, as a result of an
entity being disregarded or, in the case of
a partnership or hybrid partnership and
a partner, as a result of the allocation of
income or any other item of the partner-
ship to the partner. For purposes of this
2012–15 I.R.B.741April 9, 2012

paragraph (b)(2)(ii), a branch is treated as
an entity, all members of a U.S. affiliated
group of corporations (as defined in sec-
tion 1504) that file a consolidated return
are treated as a single corporation, and
two or more individuals that file a joint
return are treated as a single individual. A
U.S. combined income group may consist
of a single individual or corporation and
no other entities, but cannot include more
than one individual or corporation. In ad-
dition, an entity may belong to more than
one U.S. combined income group. For
example, a hybrid partnership with two
corporate partners that do not combine
any of their items of income, deduction,
gain or loss for U.S. Federal income tax
purposes is in a separate U.S. combined
income group with each of its partners.
(iii)Income and shared loss of a U.S.
combined income group—(A)Income.
Except as otherwise provided in this
paragraph (b)(2)(iii)(A), the income of
a U.S. combined income group is the
aggregate amount of taxable income rec-
ognized or taken into account for foreign
tax purposes by those members that have
positive taxable income for foreign tax
purposes. In the case of an entity that
is fiscally transparent (under the princi-
ples of §1.894–1(d)(3)) for foreign tax
purposes and that is a member of more
than one U.S. combined income group,
the foreign taxable income of the entity
is allocated between or among the groups
under foreign tax law. In the case of an
entity that is not fiscally transparent for
foreign tax purposes and that is a member
of more than one U.S. combined income
group, the foreign taxable income of that
entity is allocated between or among those
groups based on U.S. Federal income tax
principles. For example, in the case of
a hybrid partnership, the foreign taxable
income of the partnership is allocated be-
tween or among the groups in the manner
the partnership allocates the income under
section 704(b). To the extent the foreign
taxable income would be income under
U.S. tax principles in another year, the
income is allocated between or among
the groups based on how the hybrid part-
nership would allocate the income if the
income were recognized for U.S. tax pur-
poses in the year in which the income
is recognized for foreign tax purposes.
To the extent the foreign taxable income
would not constitute income under U.S.
tax principles in any year, the income is
allocated between or among the groups in
the same manner as the partnership items
attributable to the activity giving rise to
the foreign taxable income.
(B)Shared loss.Thetermshared loss
means a loss of one entity for foreign tax
purposes that, in connection with a foreign
group relief or other loss-sharing regime,
is taken into account by one or more other
entities. Except as otherwise provided in
this paragraph (b)(2)(iii)(B), the amount
of shared loss of a U.S. combined income
group is the sum of the shared losses of
all members of the U.S. combined income
group. In the case of an entity that is fis-
cally transparent (under the principles of
§1.894–1(d)(3)) for foreign tax purposes
and that is a member of more than one U.S.
combined income group, the shared loss of
the entity is allocated between or among
the groups under foreign tax law. In the
case of an entity that is not fiscally trans-
parent for foreign tax purposes and that is a
member of more than one U.S. combined
income group, the shared loss of that en-
tity will be allocated between or among
those groups based on U.S. Federal income
tax principles. For example, in the case
of a hybrid partnership, the shared loss of
the partnership will be allocated between
or among the groups in the manner the
partnership allocates the loss under sec-
tion 704(b). To the extent the shared loss
would be a loss under U.S. tax principles
in another year, the loss is allocated be-
tween or among the groups based on how
the partnership would allocate the loss if
the loss were recognized for U.S. tax pur-
poses in the year in which the loss is rec-
ognized for foreign tax purposes. To the
extent the shared loss would not constitute
a loss under U.S. tax principles in any year,
the loss is allocated between or among the
groups in the same manner as the partner-
ship items attributable to the activity giv-
ing rise to the shared loss.
(iv)Split taxes from a loss-sharing
splitter arrangement. Split taxes from
a loss-sharing splitter arrangement are
foreign income taxes paid or accrued by
a member of the U.S. combined income
group with respect to income equal to the
amount of the usable shared loss of that
group that offsets income of another U.S.
combined income group.
(v)Related income from a loss-sharing
splitter arrangement. The related income
with respect to split taxes from a loss-shar-
ing splitter arrangement is an amount of in-
come of the individual or corporate mem-
ber of the U.S. combined income group
equal to the amount of income of that U.S.
combined income group that is offset by
the usable shared loss of another U.S. com-
bined income group.
(vi)Foreign group relief or other loss-
sharing regime. A foreign group relief or
other loss-sharing regime exists when an
entity may surrender its loss to offset the
income of one or more other entities. A
foreign group relief or other loss-sharing
regime does not include an allocation of
loss of an entity that is a partnership or
other fiscally transparent entity (under the
principles of §1.894–1(d)(3)) for foreign
tax purposes or regimes in which foreign
tax is imposed on combined income (such
as a foreign consolidated regime), as de-
scribed in §1.901–2(f)(3).
(vii)Examples. The following exam-
ples illustrate the rules of paragraph (b)(2)
of this section.
Example 1.(i)Facts. USP, a domestic corpora-
tion, wholly owns CFC1, a corporation organized in
country A. CFC1 wholly owns CFC2 and CFC3, both
corporations organized in country A. CFC2 wholly
owns DE, an entity organized in country A. DE is a
corporation for country A tax purposes and a disre-
garded entity for U.S. Federal income tax purposes.
Country A has a loss-sharing regime under which a
loss of CFC1, CFC2, CFC3 or DE may be used to
offset the income of one or more of the others. Coun-
try A imposes an income tax at the rate of 30% on
the taxable income of corporations organized in coun-
try A. In year 1, before any loss sharing, CFC1 has
no income, CFC2 has income of 50u, CFC3 has in-
come of 200u, and DE has a loss of 100u. Under
the provisions of country A’s loss-sharing regime, the
group decides to use DE’s 100u loss to offset 100u of
CFC3’s income. After the loss is shared, for coun-
try A’s tax purposes, CFC2 still has 50u of income
on which it pays 15u of country A tax. CFC3 has
income of 100u (200u less the 100u shared loss) on
which it pays 30u of country A tax. For U.S. tax
purposes, the loss sharing with CFC3 is not taken
into account. Because DE is a disregarded entity, its
100u loss is taken into account by CFC2 and reduces
its earnings and profits for U.S. Federal income tax
purposes. Accordingly, before application of section
909, CFC2 has a loss for earnings and profits pur-
poses of 65u (50u income less 15u taxes paid to coun-
try A less 100u loss of DE). CFC2 also has the U.S.
dollar equivalent of 15u of foreign taxes to add to
its post-1986 foreign income taxes pool. CFC3 has
earnings and profits of 170u (200u income less 30u
of taxes) and the dollar equivalent of 30u of foreign
taxes to add to its post-1986 foreign income taxes
pool.
(ii)Result. Pursuant to §1.909–2T(b)(2)(ii),
CFC2 and DE constitute one U.S. combined income
group, while CFC1 and CFC3 each constitute sep-
April 9, 20127422012–15 I.R.B.

arate U.S. combined income groups. Pursuant to
§1.909–2T(b)(2)(iii)(A), the income of the CFC2
combined income group is 50u (CFC2’s country A
taxable income of 50u). The income of the CFC3
U.S. combined income group is 200u (CFC3’s
country A taxable income of 200u). Pursuant to
§1.909–2T(b)(2)(iii)(B), the shared loss of the CFC2
U.S. combined income group includes the 100u of
shared loss incurred by DE. The usable shared loss
of the CFC2 U.S. combined income group is 50u,
the amount of the group’s shared loss that could have
otherwise offset CFC2’s 50u of country A taxable
income that is included in the income of the CFC2
U.S. combined income group. There is a splitter
arrangement because the 50u usable shared loss of
the CFC2 U.S. combined income group was used
instead to offset income of CFC3, which is included
in the CFC3 U.S. combined income group. Pursuant
to §1.909–2T(b)(2)(iv), the split taxes are the 15u
of country A income taxes paid by CFC2 on 50u
of income, an amount of income of the CFC2 U.S.
combined income group equal to the amount of us-
able shared loss of that group that was used to offset
income of the CFC3 U.S. combined income group.
Pursuant to §1.909–2T(b)(2)(v), the related income
is the 50u of CFC3’s income that equals the amount
of income of the CFC3 U.S. combined income group
that was offset by the usable shared loss of the CFC2
U.S. combined income group.
Example 2.(i)Facts. USP, a domestic corpora-
tion, wholly owns CFC1, a corporation organized in
country B. CFC1 wholly owns CFC2 and CFC3, both
corporations organized in country B. CFC2 wholly
owns DE, an entity organized in country B. DE is a
corporation for country B tax purposes and a disre-
garded entity for U.S. Federal income tax purposes.
CFC2 and CFC3 each own 50% of HP1, an entity or-
ganized in country B. HP1 is a corporation for country
B tax purposes and a partnership for U.S. Federal in-
come tax purposes. Assume that all items of income
and loss of HP1 are allocated for U.S. Federal in-
come tax purposes equally between CFC2 and CFC3,
and that all entities use the country B currency “u” as
their functional currency. Country B has a loss-shar-
ing regime under which a loss of any of CFC1, CFC2,
CFC3,DE,andHP1maybeusedtooffsettheincome
of one or more of the others. Country B imposes an
income tax at the rate of 30% on the taxable income of
corporations organized in country B. In year 1, before
any loss sharing, CFC2 has income of 100u, CFC1
and CFC3 have no income, DE has a loss of 100u,
and HP1 has income of 200u. Under the provisions
of country B’s loss-sharing regime, the group decides
to use DE’s 100u loss to offset 100u of HP1’s income.
After the loss is shared, for country B tax purposes,
CFC2 has 100u of income on which it pays 30u of
country B income tax, and HP1 has 100u of income
(200u less the 100u shared loss) on which it pays 30u
of country B income tax. For U.S. Federal income tax
purposes, the loss sharing with HP1 is not taken into
account, and, because DE isa disregarded entity, its
100u loss is taken into account by CFC2 and reduces
CFC2’s earnings and profitsfor U.S. Federal income
tax purposes. The 200u income of HP1 is allocated
50/50 to CFC2 and CFC3, as is the 30u of country
B income tax paid by HP1. Accordingly, before ap-
plication of section 909, for U.S. Federal income tax
purposes, CFC2 has earnings and profits of 55u (100u
income + 100u share of HP1’s income - 100u loss of
DE-30ucountryBincometaxpaidbyCFC2-15u
share of HP1’s country B income tax) and the dollar
equivalent of 45u of country B income tax to add to its
post-1986 foreign income taxes pool. CFC3 has earn-
ings and profits of 85u (100u share of HP1’s income
less 15u share of HP1’s country B income taxes) and
the dollar equivalent of 15u of country B income tax
to add to its post-1986 foreign income taxes pool.
(ii)U.S. combined income groups.Pursuantto
§1.909–2T(b)(2)(ii), because the income and loss of
HP1 are combined in part with the income and loss of
both CFC2 and CFC3, it belongs to both of the sepa-
rate CFC2 and CFC3 U.S. combined income groups.
DE is a member of the CFC2 U.S. combined income
group.
(iii)Income of the U.S. combined income groups.
Pursuant to §1.909–2T(b)(2)(iii)(A), the income of
the CFC2 U.S. combined income group is the 200u
country B taxable income of the members of the
group with positive taxable incomes (CFC2’s country
B taxable income of 100u + 50% of HP1’s country B
taxable income of 200u, or 100u). Because DE does
not have positive taxable income for country B tax
purposes, its 100u loss is not included in the income
of the CFC2 U.S. combined income group. The
income of the CFC3 U.S. combined income group
is 100u (50% of HP1’s country B taxable income of
200u, or 100u).
(iv)Shared loss of the U.S. combined income
groups. Pursuant to §1.909–2T(b)(2)(iii)(B), the
shared loss of the CFC2 U.S. combined income
group is the 100u loss incurred by DE that is used
to offset 100u of HP1’s income. The CFC3 U.S.
combined income group has no shared loss. Pursuant
to §1.909–2T(b)(2)(i), the usable shared loss of the
CFC2 U.S. combined income group is 100u, the full
amount of the group’s 100u shared loss that could
have been used to offset income of the CFC2 U.S.
combined income group had the loss been used to
offset 100u of CFC2’s country B taxable income.
(v)Income offset by shared loss. The shared loss
of the CFC2 combined income group is used to offset
100u country B taxable income of HP1. Because the
taxable income of HP1 is allocated 50/50 between the
CFC2 and CFC3 U.S. combined income groups, the
shared loss is treated as offsetting 50u of the CFC2
U.S. combined income group’s income and 50u of the
CFC3 U.S. combined income group’s income.
(vi)Splitter arrangement. There is a splitter ar-
rangement because 50u of the 100u usable shared
loss of the CFC2 U.S. combined income group was
used to offset income of the CFC3 U.S. combined
income group. Pursuant to §1.909–2T(b)(2)(iv), the
split taxes are the 15u of country B income tax paid
by CFC2 on 50u of its income, which is equal to the
amount of the CFC2 U.S. combined income group’s
usable shared loss that was used to offset income of
another U.S. combined income group. Pursuant to
§1.909–2T(b)(2)(v), the related income is the 50u of
CFC3’s income that was offset by the usable shared
loss of the CFC2 U.S. combined income group.
(3)Hybrid instrument splitter arrange-
ments—(i)U.S. equity hybrid instrument
splitter arrangement—(A)In general.A
U.S. equity hybrid instrument is a splitter
arrangement if payments or accruals on or
with respect to such instrument:
(1) Give rise to foreign income taxes
paid or accrued by the owner of such in-
strument;
(2) Are deductible by the issuer under
thelawsofaforeignjurisdictioninwhich
the issuer is subject to tax; and
(3) Do not give rise to income for U.S.
Federal income tax purposes.
(B)Split taxes from a U.S. equity hy-
brid instrument splitter arrangement.Split
taxes from a U.S. equity hybrid instrument
splitter arrangement equal the total amount
of foreign income taxes paid or accrued by
the owner of the hybrid instrument less the
amount of foreign income taxes that would
have been paid or accrued had the owner of
the U.S. equity hybrid instrument not been
subject to foreign tax on income from the
instrument.
(C)Related income from a U.S. equity
hybrid instrument splitter arrangement.
The related income with respect to split
taxes from a U.S. equity hybrid instrument
splitter arrangement is income of the is-
suer of the U.S. equity hybrid instrument
in an amount equal to the payments or
accruals giving rise to the split taxes that
are deductible by the issuer for foreign tax
purposes, determined without regard to
the actual amount of the issuer’s income
or earnings and profits for U.S. Federal
income tax purposes.
(D)U.S. equity hybrid instrument.The
termU.S. equity hybrid instrumentmeans
an instrument that is treated as equity for
U.S. Federal income tax purposes but is
treated as indebtedness for foreign tax pur-
poses, or with respect to which the issuer
is otherwise entitled to a deduction for for-
eign tax purposes for amounts paid or ac-
crued with respect to the instrument.
(ii)U.S. debt hybrid instrument splitter
arrangement—(A)In general.AU.S.debt
hybrid instrument is a splitter arrangement
if foreign income taxes are paid or accrued
by the issuer of a U.S. debt hybrid instru-
ment with respect to income in an amount
equal to the interest (including original is-
sue discount) paid or accrued on the instru-
ment that is deductible for U.S. Federal in-
come tax purposes but that does not give
rise to a deduction under the laws of a for-
eign jurisdiction in which the issuer is sub-
ject to tax.
(B)Split taxes from a U.S. debt hybrid
instrument splitter arrangement.Split
taxes from a U.S. debt hybrid instrument
splitter arrangement are the foreign in-
2012–15 I.R.B.743April 9, 2012

come taxes paid or accrued by the issuer
on the income that would have been offset
by the interest paid or accrued on the U.S.
debt hybrid instrument had such interest
been deductible for foreign tax purposes.
(C)Related income from a U.S. debt hy-
brid instrument splitter arrangement.The
related income from a U.S. debt hybrid in-
strument splitter arrangement is the gross
amount of the interest income recognized
for U.S. Federal income tax purposes by
the owner of the U.S. debt hybrid instru-
ment, determined without regard to the ac-
tual amount of the owner’s income or earn-
ings and profits for U.S. Federal income
tax purposes.
(D)U.S. debt hybrid instrument.The
termU.S. debt hybrid instrumentmeans
an instrument that is treated as equity for
foreign tax purposes but as indebtedness
for U.S. Federal income tax purposes.
(4)Partnership inter-branch payment
splitter arrangements—(i)In general.An
allocation of foreign income tax paid or
accrued by a partnership with respect to
an inter-branch payment as described in
§1.704–1(b)(4)(viii)(d)(3)(revisedasof
April 1, 2011) (theinter-branch payment
tax) is a splitter arrangement to the extent
the inter-branch payment tax is not allo-
cated to the partners in the same proportion
as the distributive shares of income in the
CFTE category to which the inter-branch
payment tax is or would be assigned under
§1.704–1(b)(4)(viii)(d) without regard to
§1.704–1(b)(4)(viii)(d)(3).
(ii)Split taxes from a partnership in-
ter-branch payment splitter arrangement.
The split taxes from a partnership inter-
branch splitter arrangement equal the ex-
cess of the amount of the inter-branch pay-
ment tax allocated to a partner under the
partnership agreement over the amount of
the inter-branch payment tax that would
have been allocated to the partner if the
inter-branch payment tax had been allo-
cated to the partners in the same propor-
tion as the distributive shares of income in
the CFTE category referred to in paragraph
(b)(4)(i) of this section.
(iii)Related income from a partner-
ship inter-branch payment splitter ar-
rangement. The related income from a
partnership inter-branch payment splitter
arrangement equals the amount of income
allocated to a partner that exceeds the
amount of income that would have been
allocated to the partner if income in the
CFTE category referred to in paragraph
(b)(4)(i) of this section in the amount of the
inter-branch payment had been allocated
to the partners in the same proportion as
the inter-branch payment tax was allocated
under the partnership agreement.
(c)Effective/applicability date.This
section applies to foreign income taxes
paid or accrued in taxable years beginning
on or after January 1, 2012.
(d)Expiration date. The applicability
of this section expires on February 9, 2015.
§1.909–3T Rules regarding related
income and split taxes (temporary).
(a)Interim rules for identifying related
income and split taxes. The principles of
paragraphs (d) through (f) of §1.909–6T
apply to related income and split taxes in
taxable years beginning on or after Jan-
uary 1, 2011, except that the alternative
method for identifying distributions of re-
lated income described in §1.909–6T(d)(4)
applies only to identify the amount of pre-
2011 split taxes of a section 902 corpora-
tion that are suspended as of the first day of
the section 902 corporation’s first taxable
year beginning on or after January 1, 2011.
(b)Split taxes on deductible disre-
garded payments. Split taxes include taxes
paid or accrued in taxable years beginning
on or after January 1, 2011, with respect
to the amount of a disregarded payment
that is deductible by the payor of the dis-
regarded payment under the laws of a
foreign jurisdiction in which the payor
of the disregarded payment is subject to
tax on related income from a splitter ar-
rangement. The amount of the deductible
disregarded payment to which this para-
graph (b) applies is limited to the amount
of related income from such splitter ar-
rangement.
(c)Effective/applicability date.The
rules of this section apply to taxable years
beginning on or after January 1, 2011.
(d)Expiration date. The applicability
of this section expires on February 9, 2015.
§1.909–4T Coordination rules
(temporary).
(a)Interim rules. The principles of
paragraph (g) of §1.909–6T apply to tax-
able years beginning on or after January 1,
2011.
(b)Effective/applicability date.The
rules of this section apply to taxable years
beginning on or after January 1, 2011.
(c)Expiration date. The applicability
of this section expires on February 9, 2015.
§1.909–5T 2011 and 2012 splitter
arrangements (temporary).
(a)Taxes paid or accrued in taxable
years beginning in 2011.(1)Foreignin-
come taxes paid or accrued by any person
in a taxable year beginning on or after Jan-
uary 1, 2011, and before January 1, 2012,
in connection with a pre-2011 splitter ar-
rangement (as defined in §1.909–6T(b)),
are split taxes to the same extent that such
taxes would have been treated as pre-2011
split taxes if such taxes were paid or ac-
crued by a section 902 corporation in a tax-
able year beginning on or before Decem-
ber 31, 2010. The related income with re-
spect to split taxes from such an arrange-
ment is the related income described in
§1.909–6T(b), determined as if the payor
were a section 902 corporation.
(2) Foreign income taxes paid or ac-
crued by any person in a taxable year
beginning on or after January 1, 2011,
and before January 1, 2012, in connec-
tion with a partnership inter-branch pay-
ment splitter arrangement described in
§1.909–2T(b)(4) are split taxes to the
extent that such taxes are identified as
split taxes in §1.909–2T(b)(4)(ii). The
related income with respect to the split
taxes is the related income described in
§1.909–2T(b)(4)(iii).
(b)Taxes paid or accrued in certain tax-
able years beginning in 2012 with respect
to a foreign consolidated group splitter ar-
rangement. Foreign income taxes paid or
accrued by any person in a taxable year be-
ginning on or after January 1, 2012, and on
or before February 14, 2012, in connection
with a foreign consolidated group splitter
arrangement described in §1.909–6T(b)(2)
are split taxes to the same extent that such
taxes would have been treated as pre-2011
split taxes if such taxes were paid or ac-
cruedbyasection902corporationina
taxable year beginning on or before De-
cember 31, 2010. The related income
with respect to split taxes from such an ar-
rangement is the related income described
in §1.909–6T(b)(2), determined as if the
payor were a section 902 corporation.
April 9, 20127442012–15 I.R.B.

(c)Effective/applicability date.The
rules of this section apply to foreign taxes
paid or accrued in taxable years beginning
on or after January 1, 2011, and on or
before February 14, 2012.
(d)Expiration date. The applicability
of this section expires on February 9, 2015.
§1.909–6T Pre-2011 foreign tax credit
splitting events (temporary).
(a)Foreign tax credit splitting
event—(1)In general. This section pro-
vides rules for determining whether for-
eign income taxes paid or accrued by a
section 902 corporation (as defined in sec-
tion 909(d)(5)) in taxable years beginning
on or before December 31, 2010 (pre-2011
taxable yearsandpre-2011 taxes)are
suspended under section 909 in taxable
years beginning after December 31, 2010,
(post-2010 taxable years)ofasection902
corporation. Paragraph (b) of this section
identifies an exclusive list of arrangements
that will be treated as giving rise to for-
eign tax credit splitting events in pre–2011
taxable years (pre-2011 splitter arrange-
ments). Paragraphs (c), (d), and (e) of this
section provide rules for determining the
related income and pre-2011 split taxes
paid or accrued with respect to pre-2011
splitter arrangements. Paragraph (f) of
this section provides rules concerning the
application of section 909 to partnerships
and trusts. Paragraph (g) of this section
provides rules concerning the interaction
between section 909 and other Internal
Revenue Code (Code) provisions.
(2)Taxes not subject to suspension un-
der section 909. Pre-2011 taxes that will
not be suspended under section 909 or
paragraph (a) of this section are:
(i) Any pre-2011 taxes that were not
paid or accrued in connection with a
pre-2011 splitter arrangement identified in
paragraph (b) of this section;
(ii) Any pre-2011 taxes that were paid
or accrued in connection with a pre-2011
splitter arrangement identified in para-
graph (b) of this section (pre-2011 split
taxes) but that were deemed paid under
section 902(a) or 960 on or before the last
day of the section 902 corporation’s last
pre-2011 taxable year;
(iii) Any pre-2011 split taxes if either
the payor section 902 corporation took the
related income into account in a pre-2011
taxable year or a section 902 shareholder
(as defined in §1.909–1T(a)(2)) of the rel-
evant section 902 corporation took the re-
lated income into account on or before the
last day of the section 902 corporation’s
last pre-2011 taxable year; and
(iv) Any pre-2011 split taxes paid or ac-
crued by a section 902 corporation in tax-
able years of such section 902 corporation
beginning before January 1, 1997.
(3)Taxes subject to suspension under
section 909. To the extent that the section
902 corporation paid or accrued pre-2011
split taxes that are not described in para-
graph (a)(2) of this section, section 909 and
the regulations under that section will ap-
ply to such pre-2011 split taxes for pur-
poses of applying sections 902 and 960 in
post-2010 taxable years of the section 902
corporation. Accordingly, these taxes will
be removed from the section 902 corpora-
tion’s pools of post-1986 foreign income
taxes and suspended under section 909 as
of the first day of the section 902 corpora-
tion’s first post-2010 taxable year. There
is no increase to a section 902 corpora-
tion’s earnings and profits for the amount
of any pre-2011 taxes to which section 909
applies that were previously deducted in
computing earnings and profits in a pre-
2011 taxable year.
(b)Pre-2011 splitter arrangements.
The arrangements set forth in this para-
graph (b) are pre-2011 splitter arrange-
ments.
(1)Reverse hybrid structure splitter ar-
rangements. A reverse hybrid structure ex-
ists when a section 902 corporation owns
an interest in a reverse hybrid. A reverse
hybrid is an entity that is a corporation for
U.S. Federal income tax purposes but is a
pass-through entity or a branch under the
laws of a foreign country imposing tax on
the income of the entity. As a result, the
owner of the reverse hybrid is subject to
tax on the income of the entity under for-
eign law. A pre-2011 splitter arrangement
involving a reverse hybrid structure exists
when pre-2011 taxes are paid or accrued
by a section 902 corporation with respect
to income of a reversehybrid that is a cov-
ered person with respect to the section 902
corporation. A pre-2011 splitter arrange-
ment involving a reverse hybrid structure
may exist even if the reverse hybrid has
a deficit in earnings and profits for a par-
ticular year (for example, due to a tim-
ing difference). Such taxes paid or ac-
crued by the section 902 corporation are
pre-2011 split taxes. The related income
is the earnings and profits (computed for
U.S. Federal income tax purposes) of the
reverse hybrid attributable to the activities
of the reverse hybrid that gave rise to in-
come included in the foreign tax base with
respect to which the pre-2011 split taxes
were paid or accrued. Accordingly, related
income of the reverse hybrid would not in-
clude any item of income or expense at-
tributable to a disregarded entity (as de-
fined in §301.7701–2(c)(2)(i) of this chap-
ter) owned by the reverse hybrid if income
attributable to the activities of the disre-
garded entity is not included in the foreign
tax base.
(2)Foreign consolidated group splitter
arrangements. A foreign consolidated
group exists when a foreign country im-
poses tax on the combined income of two
or more entities. Tax is considered im-
posed on the combined income of two or
more entities even if the combined income
is computed under foreign law by attribut-
ingtoonesuchentitytheincomeofone
or more entities. A foreign consolidated
group is a pre-2011 splitter arrangement
to the extent that the taxpayer did not
allocate the foreign consolidated tax lia-
bility among the members of the foreign
consolidated group based on each mem-
ber’s share of the consolidated taxable
income included in the foreign tax base
under the principles of §1.901–2(f)(3) (re-
vised as of April 1, 2011). A pre-2011
splitter arrangement involving a foreign
consolidated group may exist even if one
or more members has a deficit in earnings
and profits for a particular year (for exam-
ple, due to a timing difference). Pre-2011
taxes paid or accrued with respect to the
income of a foreign consolidated group
are pre-2011 split taxes to the extent that
taxes paid or accrued by one member of
the foreign consolidated group are im-
posed on a covered person’s share of the
consolidated taxable income included in
the foreign tax base. The related income
is the earnings and profits (computed for
U.S. Federal income tax purposes) of such
other member attributable to the activities
of that other member that gave rise to
income included in the foreign tax base
with respect to which the pre-2011 split
taxes were paid or accrued. No inference
should be drawn from the treatment of
foreign consolidated groups under section
909 as to the determination of the person
2012–15 I.R.B.745April 9, 2012

whopaidtheforeignincometaxforU.S.
Federal income tax purposes.
(3)Group relief or other loss-sharing
regime splitter arrangements—(i)In gen-
eral. A foreign group relief or other loss-
sharing regime exists when one entity with
alosspermitsthelosstobeusedtooffset
the income of one or more entities (shared
loss). A pre-2011 splitter arrangement in-
volving a shared loss exists when the fol-
lowing three conditions are met:
(A) There is an instrument that is
treated as indebtedness under the laws
of the jurisdiction in which the issuer is
subject to tax and that is disregarded for
U.S. Federal income tax purposes (dis-
regarded debt instrument). Examples of
a disregarded debt instrument include a
debt obligation between two disregarded
entities that are owned by the same section
902 corporation, two disregarded entities
that are owned by a partnership with one
or more partners that are section 902 cor-
porations, a section 902 corporation and
a disregarded entity that is owned by that
section 902 corporation, or a partnership
in which the section 902 corporation is
a partner and a disregarded entity that is
ownedbysuchpartnership.
(B) The owner of the disregarded debt
instrument pays a foreign income tax at-
tributable to a payment or accrual on the
instrument.
(C) The payment or accrual on the dis-
regarded debt instrument gives rise to a de-
duction for foreign tax purposes and the is-
suer of the instrument incurs a shared loss
that is taken into account under foreign law
by one or more entities that are covered
persons with respect to the owner of the in-
strument.
(ii)Split taxes and related income.In
situations described in paragraph (b)(3)(i)
of this section, pre-2011 taxes paid or ac-
crued by the owner of the disregarded debt
instrument with respect to amounts paid
or accrued on the instrument (up to the
amount of the shared loss) are pre-2011
split taxes. The related income of a cov-
ered person is an amount equal to the
shared loss, determined without regard to
the actual amount of the covered person’s
earnings and profits.
(4)Hybrid instrument splitter arrange-
ments—(i)In general. A hybrid instru-
ment for purposes of this paragraph (b)(4)
is an instrument that either is treated as
equity for U.S. Federal income tax pur-
poses but is treated as indebtedness for for-
eign tax purposes (U.S. equity hybrid in-
strument), or is treated as indebtedness for
U.S. Federal income tax purposes but is
treated as equity for foreign tax purposes
(U.S. debt hybrid instrument).
(ii)U.S. equity hybrid instrument split-
ter arrangement. If the issuer of a U.S. eq-
uity hybrid instrument is a covered person
with respect to a section 902 corporation
that is the owner of the U.S. equity hy-
brid instrument, there is a pre-2011 split-
ter arrangement with respect to the por-
tion of the pre-2011 taxes paid or accrued
by the owner section 902 corporation with
respect to the amounts on the instrument
that are deductible by the issuer as interest
under the laws of a foreign jurisdiction in
which the issuer is subject to tax but that
do not give rise to income for U.S. Federal
income tax purposes. Pre-2011 split taxes
paid or accrued by the section 902 corpo-
ration equal the total amount of pre-2011
taxes paid or accrued by the section 902
corporation less the amount of pre-2011
taxes that would have been paid or accrued
had the section 902 corporation not been
subject to tax on income from the U.S.
equity hybrid instrument. The related in-
come of the issuer of the U.S. equity hy-
brid instrument is an amount equal to the
amounts that are deductible by the issuer
for foreign tax purposes, determined with-
out regard to the actual amount of the is-
suer’s earnings and profits.
(iii)U.S. debt hybrid instrument split-
ter arrangement. If the owner of a U.S.
debt hybrid instrument is a covered per-
son with respect to a section 902 corpora-
tion that is the issuer of the U.S. debt hy-
brid instrument, there is a pre-2011 split-
ter arrangement with respect to the portion
of the pre-2011 taxes paid or accrued by
the section 902 corporation on income in
an amount equal to the interest (including
original issue discount) paid or accrued on
the instrument that is deductible for U.S.
Federal income tax purposes but that does
not give rise to a deduction under the laws
of a foreign jurisdiction in which the issuer
is subject to tax. Pre-2011 split taxes are
the pre-2011 taxes paid or accrued by the
section 902 corporation on the income that
would have been offset by the interest paid
or accrued on the U.S. debt hybrid instru-
ment had such interest been deductible for
foreign tax purposes. The related income
with respect to a U.S. debt hybrid instru-
ment is the gross amount of the interest in-
come recognized for U.S. Federal income
tax purposes by the owner of the U.S. debt
hybrid instrument, determined without re-
gard to the actual amount of the owner’s
earnings and profits.
(c)General rules for applying section
909 to pre-2011 split taxes and related
income—(1)Annual determination.The
determination of related income, other
income, pre-2011 split taxes, and other
taxes, and the portion of these amounts
that were distributed, deemed paid or oth-
erwise transferred or eliminated must be
made on an annual basis beginning with
the first taxable year of the section 902
corporation beginning after December 31,
1996 (post-1996 taxable year)inwhich
the section 902 corporation paid or ac-
crued a pre-2011 tax with respect to a
pre-2011 splitter arrangement and ending
with the section 902 corporation’s last
pre-2011 taxable year. Annual amounts
of related income and pre-2011 split taxes
are aggregated for each separate pre-2011
splitter arrangement.
(2)Separate categories. The determi-
nation of annual and aggregate amounts
of related income and pre-2011 split taxes
with respect to each pre-2011 splitter ar-
rangement must be made for each sepa-
rate category as defined in §1.904–4(m)
of the section 902 corporation, each cov-
ered person, and any other person that suc-
ceeds to the related income and pre-2011
split taxes. In the case of a pre-2011 split-
ter arrangement involving a shared loss (as
described in paragraph (b)(3) of this sec-
tion), the amount of the related income in
each separate category of the covered per-
son is equal to the amount of income in
that separate category that was offset by
the shared loss for foreign tax purposes.
In the case of a pre-2011 splitter arrange-
ment involving a U.S. equity hybrid instru-
ment (as described in paragraph (b)(4)(ii)
of this section), the related income is as-
signed to the issuer’s separate categories
in the same proportions as the pre-2011
split taxes. Earnings and profits, including
related income, are assigned to separate
categories under the rules of §§1.904–4,
1.904–5, and 1.904–7. Foreign income
taxes, including pre-2011 split taxes, are
assigned to separate categories under the
rules of §1.904–6. A section 902 share-
holder must consistently apply methodolo-
gies for determining pre-2011 split taxes
April 9, 20127462012–15 I.R.B.

and related income with respect to all pre-
2011 splitter arrangements.
(d)Special rules regarding related in-
come—(1)Annual adjustments.Inthe
case of each pre-2011 splitter arrangement
involving a reverse hybrid or a foreign
consolidated group (as described in para-
graphs (b)(1) and (b)(2) of this section, re-
spectively), a covered person’s aggregate
amount of related income must be adjusted
each year by the net amount of income and
expense attributable to the activities of the
coveredpersonthatgiverisetoincomein-
cluded in the foreign tax base, even if the
net amount is negative and regardless of
whether the section 902 corporation paid
or accrued any pre-2011 split taxes in such
year.
(2)Effect of separate limitation losses
and deficits. Related income is deter-
mined without regard to the application
of §1.960–1(i)(4) (relating to the effect
of separate limitation losses on earnings
and profits in another separate category)
or section 952(c)(1) (relating to certain
earnings and profits deficits).
(3)Pro rata method for distributions
out of earnings and profits that include
both related income and other income.
If the earnings and profits of a covered
person include amounts attributable to
both related income and other income,
including earnings and profits attrib-
utable to taxable years beginning be-
fore January 1, 1997, then distributions,
deemed distributions, and inclusions out
of earnings and profits (for example, under
sections 301, 304, 367(b), 951(a), 964(e),
1248, or 1293) of the covered person are
considered made out of related income
and other income on apro ratabasis. Any
reduction of a covered person’s earnings
and profits that results from a payment
on stock that is not treated as a dividend
for U.S. Federal income tax purposes (for
example, pursuant to section 312(n)(7))
will also reduce related income and other
income on apro ratabasis.
(4)Alternative method for distributions
out of earnings and profits that include
both related income and other income.
Solely for purposes of identifying the
amount of pre-2011 split taxes of a section
902 corporation that are suspended as of
the first day of the section 902 corpora-
tion’s first post-2010 taxable year, in lieu
of the rule set forth in paragraph (d)(3) of
this section, a section 902 shareholder may
choose to treat all distributions, deemed
distributions, and inclusions out of earn-
ings and profits of a covered person as
attributable first to related income. A sec-
tion 902 shareholder may choose to use
this alternative method on a timely filed
original income tax return for the first
post-2010 taxable year in which the share-
holder computes anamount of foreign
income taxes deemed paid with respect to
a section 902 corporation that paid or ac-
crued pre-2011 split taxes. Such choice by
a section 902 shareholder is evidenced by
employing the method on its income tax
return; the section 902 shareholder need
not file a separate statement. A section 902
shareholder that chooses this alternative
method must consistently apply it with re-
spect to all pre-2011 splitter arrangements.
(5)Distributions, deemed distributions,
and inclusions of related income.Dis-
tributions, deemed distributions, and in-
clusions of related income (including in-
directly through a partnership) to persons
other than the payor section 902 corpo-
ration retain their character as related in-
come with respect to the associated pre-
2011 split taxes.
(6)Carryover of related income.Re-
lated income carries over to other corpo-
rations in the same manner as earnings
and profits carry over under section 381,
§1.367(b)–7, or similar rules, and retains
its character as related income with respect
to the associated pre-2011 split taxes.
(7)Related income taken into account
by a section 902 shareholder. Related in-
come will be considered taken into account
by a section 902 shareholder to the ex-
tent that the relatedincome is recognized
as gross income by the section 902 share-
holder, or by an affiliated corporation de-
scribed in paragraph (d)(9) of this section,
upon a distribution, deemed distribution,
or inclusion (such asunder section 951(a))
out of the earnings and profits of the cov-
ered person attributable to such related in-
come.
(8)Related income taken into account
by a payor section 902 corporation.Re-
lated income will be considered taken into
account by a payor section 902 corporation
if:
(i) The related income is reflected in
the earnings and profits of such section
902 corporation for U.S. Federal income
tax purposes by reason of a distribution,
deemed distribution, or inclusion out of the
earnings and profits of the covered person
attributable to such related income; or
(ii) The payor section 902 corporation
and the covered person are combined in a
transaction described in section 381(a)(1)
or (a)(2).
(9)Related income taken into account
by an affiliated group of corporations that
includes a section 902 shareholder. A sec-
tion 902 shareholder will be considered
to have taken related income into account
if one or more members of an affiliated
group of corporations (as defined in sec-
tion 1504) that files a consolidated Federal
income tax return that includes the section
902 shareholder takes the related income
into account.
(10)Distributions of previously-taxed
earnings and profits. Distributions and
deemed distributions described in para-
graph (d) of this section (including in the
case of a section 902 shareholder that has
chosen the alternative method described
in paragraph (d)(4) of this section) do not
include distributions of amounts described
in section 959(c)(1) or (c)(2), which are
distributed before amounts described in
section 959(c)(3).
(e)Special rules regarding pre-2011
split taxes—(1)Taxes deemed paid
pro-rata out of pre-2011 split taxes and
other taxes. If the pre-2011 taxes of a sec-
tion 902 corporation include both pre-2011
split taxes and other taxes, then foreign
taxes deemed paid under section 902 or
960 or otherwise removed from post-1986
foreign income taxes in pre-2011 taxable
years will be treated as attributable to
pre-2011 split taxes and other taxes on a
pro-ratabasis.
(2)Pre-2011 split taxes deemed paid
in pre-2011 taxable years. Pre-2011 split
taxes deemed paid in pre-2011 taxable
years in connection with a dividend paid to
a shareholder described in section 902(b)
retain their character as pre-2011 split
taxes. The section 902(b) shareholder will
be treated as the payor section 902 corpo-
ration with respect to those pre-2011 split
taxes.
(3)Carryover of pre-2011 split taxes.
Pre-2011 split taxes that carry over to an-
other foreign corporation, including un-
der section 381, §1.367(b)–7 or similar
rules, retain their character as pre-2011
split taxes. The transferee foreign corpora-
tion will be treated as the payor section 902
2012–15 I.R.B.747April 9, 2012

corporation with respect to those pre-2011
split taxes.
(4)Determiningwhenpre-2011split
taxes are no longer treated as pre-2011
split taxes. For each pre-2011 splitter
arrangement, as related income is taken
into account by the payor section 902 cor-
poration or a section 902 shareholder as
provided in paragraph (d) of this section, a
ratable portion of the associated pre-2011
split taxes will no longer be treated as
pre-2011 split taxes. In the case of a
pre-2011 splitter arrangement involving a
reverse hybrid or a foreign consolidated
group (as described in paragraphs (b)(1)
and (b)(2) of this section, respectively),
if aggregate related income is reduced to
zero (other than as a result of a distri-
bution, deemed distribution, or inclusion
described in paragraph (d) of this section)
or less than zero, pre-2011 split taxes will
retain their character as pre-2011 split
taxes until the amount of aggregate related
income is positive and the related income
is taken into account by the payor section
902 corporation or a section 902 share-
holder as provided in paragraph (d) of this
section.
(f)Rules relating to partnerships and
trusts—(1)Taxes paid or accrued by part-
nerships. In the case of foreign income
taxes paid or accrued by a partnership, the
taxes will be treated as pre-2011 split taxes
to the extent such taxes are allocated to
one or more section 902 corporations and
would be pre-2011 split taxes if the part-
ner section 902 corporation had paid or ac-
crued the taxes directly on the date such
taxes are included by the section 902 cor-
poration under sections 702 and 706(a).
Further, any foreign income taxes subject
tosection909willbesuspendedinthe
hands of the partner section 902 corpora-
tion.
(2)Section 704(b) allocations.Part-
nership allocations that satisfy the require-
ments of section 704(b) and the regula-
tions thereunder will not constitute pre-
2011 splitter arrangements except to the
extent the arrangement is otherwise de-
scribed in paragraph (b) of this section (for
example, a payment or accrual on a disre-
garded debt instrument that gives rise to a
shared loss).
(3)Trusts. Rules similar to the rules of
paragraph (f)(1) of this section will apply
in the case of any trust with one or more
beneficiaries that is a section 902 corpora-
tion.
(g)Interaction between section 909
and other Code provisions—(1)Section
904(c). Section 909 does not apply to ex-
cess foreign income taxes that were paid
or accrued in pre-2011 taxable years and
carried forward and deemed paid or ac-
crued under section 904(c) in a post-2010
taxable year.
(2)Section 905(a). For purposes of
determining in post-2010 taxable years
the allowable deduction for foreign in-
come taxes paid or accrued under section
164(a), the carryover of excess foreign
income taxes under section 904(c), and
the extended period for claiming a credit
or refund under section 6511(d)(3)(A),
foreign income taxes to which section 909
applies are first taken into account and
treated as paid or accrued in the year in
which the related income is taken into ac-
count, and not in the earlier year to which
the tax relates (determined without regard
to section 909).
(3)Section 905(c). If a redetermination
of foreign taxes claimed as a direct credit
under section 901 occurs in a post-2010
taxable year and the foreign tax redetermi-
nation relates to a pre-2011 taxable year, to
the extent such foreign tax redetermination
increased the amount of foreign income
taxes paid or accrued with respect to the
pre-2011 taxable year (for example, due to
an additional assessment of foreign tax or
a payment of a previously accrued tax not
paid within two years), section 909 will not
apply to such taxes. If a redetermination
of foreign tax paid or accrued by a section
902 corporation occurs in a post-2010 tax-
able year and increases the amount of for-
eign income taxes paid or accrued by the
section 902 corporation with respect to a
pre-2011 taxable year (for example, due to
an additional assessment of foreign tax or
a payment of a previously accrued tax not
paid within two years), such taxes will be
treated as pre-2011 taxes. Section 909 will
apply to such taxes if they are pre-2011
split taxes and the taxes will be suspended
in the post-2010 taxable year in which they
would otherwise be taken into account as a
prospective adjustment to the section 902
corporation’s pools of post-1986 foreign
income taxes.
(4)Other foreign tax credit provisions.
Section 909 does not affect the applicabil-
ity of other restrictions or limitations on
the foreign tax credit under existing law,
including, for example, the substantiation
requirements of section 905(b).
(h)Effective/applicability date.This
section applies to foreign income taxes
paid or accrued by section 902 corpora-
tions in pre-2011 taxable years for pur-
poses of computing foreign income taxes
deemed paid with respect to distributions
or inclusions out of earnings and profits of
section 902 corporations in taxable years
of the section 902 corporation beginning
after December 31, 2010.
(i)Expiration date. The applicability of
this section expires on February 9, 2015.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved February 8, 2012.
Emily S. McMahon,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 9,
2012, 4:15 p.m., and published in the issue of the Federal
Register for February 14, 2012, 77 F.R. 8127)
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 382, 1288.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.The March 2012
Applicable Federal Rate is modified to cor-
rect the annual long-term adjusted Appli-
cable Federal Rate and the long-term tax-
exempt rate for ownership changes. Rev.
Rul. 2012–9 modified.
Rev. Rul. 2012–12
This revenue ruling modifies Rev. Rul.
2012–9, 2012–11 I.R.B. 475, which pro-
vides various prescribed rates for federal
income tax purposes for March 2012, to
correct two of the rates.
Table 2 of Rev. Rul. 2012–9 con-
tains short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for March 2012 for purposes of sec-
tion 1288(b) of the Internal Revenue Code.
TheratepublishedinTable2ofRev.Rul.
2012–9 as the annual long-term adjusted
April 9, 20127482012–15 I.R.B.

AFR (3.47 percent) is corrected to be 2.97
percent.
Table 3 of Rev. Rul. 2012–9 sets
forth the adjusted federal long-term rate
for March 2012 and the long-term tax-ex-
empt rate described in section 382(f) for
March 2012. The rate published in Table 3
of Rev. Rul. 2012–9 as the long-term tax-
exempt rate for ownership changes during
March 2012 (3.55 percent) is corrected to
be 3.47 percent.
EFFECT ON OTHER REVENUE
RULING(S)
Rev. Rul. 2012–9 is modified.
PROSPECTIVE APPLICATION
Under the authority of section 7805(b),
the corrected rates will not be applied ad-
versely with respect to debt instruments is-
sued on or before March 20, 2012, or to
ownership changes that occurred on or be-
fore March 20, 2012.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Andrea M. Hoffenson of the Office
of Associate Chief Counsel (Financial
Institutions & Products). For further
information regarding this revenue ruling,
contact Andrea M. Hoffenson at (202)
622–4188 (not a toll-free call).
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The March 2012 Applicable Federal Rate is mod-
ified to correct the annual long-term adjusted Appli-
cable Federal Rate and the long-term tax-exempt rate
for ownership changes. See Rev. Rul. 2012-12, page
748.
Section 9815.—Additional
Market Reforms
26 CFR 54.9815–2715: Summary of benefits and
coverage and uniform glossary.
T.D. 9575
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2590
DEPARTMENT OF HEALTH
AND HUMAN SERVICES
CMS–9982–F
45 CFR Part 147
Summary of Benefits and
Coverage and Uniform
Glossary
AGENCIES:Internal Revenue Service,
Department of the Treasury; Employee
Benefits Security Administration, Depart-
ment of Labor; Centers for Medicare &
Medicaid Services, Department of Health
and Human Services.
ACTION:Final rule.
SUMMARY: This document contains
final regulations regarding the summary
of benefits and coverage and the uni-
form glossary for group health plans and
health insurance coverage in the group
and individual markets under the Patient
Protection and Affordable Care Act. This
document implements the disclosure re-
quirements under section 2715 of the
Public Health Service Act to help plans
and individuals better understand their
health coverage, as well as other coverage
options. A guidance document published
elsewhere in this issue of the Bulletin
provides further guidance regarding com-
pliance.
DATES:Effective Date:These final regu-
lations are effective April 16, 2012.
Applicability date:The requirements
to provide an SBC, notice of modifica-
tion, and uniform glossary under PHS Act
section 2715 and these final regulations
apply for disclosures to participants and
beneficiaries who enroll or re-enroll in
group health coverage through an open
enrollment period (including re-enrollees
and late enrollees) beginning on the first
day of the first open enrollment period
that begins on or after September 23,
2012. For disclosures to participants and
beneficiaries who enroll in group health
plan coverage other than through an open
enrollment period (including individuals
who are newly eligible for coverage and
special enrollees), the requirements under
PHS Act section 2715 and these final reg-
ulations apply beginning on the first day
of the first plan year that begins on or after
September 23, 2012. For disclosures to
plans, and to individuals and dependents
in the individual market, these require-
ments are applicable to health insurance
issuers beginning on September 23, 2012.
FOR FURTHER INFORMATION
CONTACT:AmyTurneror
Heather Raeburn, Employee Benefits
Security Administration, Department of
Labor, at (202) 693–8335; Karen Levin,
Internal Revenue Service, Department
of the Treasury, at (202) 622–6080;
Jennifer Libster or Padma Shah, Centers
for Medicare & Medicaid Services,
Department of Health and Human
Services, at (301) 492–4222.
SUPPLEMENTARY INFORMATION:
Customer Service Information:In-
dividuals interested in obtaining infor-
mation from the Department of Labor
concerning employment-based health cov-
erage laws may call the EBSA Toll-Free
Hotline at 1–866–444–EBSA (3272) or
visit the Department of Labor’s web-
site (http://www.dol.gov/ebsa). In ad-
dition, information from HHS on pri-
vate 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)and
information on health reform can be found
athttp://www.healthcare.gov.
2012–15 I.R.B.749April 9, 2012

I. Executive Summary
A.Purpose of the Regulatory Action
1.Need for Regulatory Action
Under section 2715 of the Public Health
Service Act (PHS Act), as added by the Pa-
tient Protection and Affordable Care Act
(Affordable Care Act), the Departments of
Health and Human Services, Labor, and
the Treasury (the Departments) are to de-
velop standards for use by group health
plans and health insurance issuers offering
group or individual health insurance cov-
erage in compiling and providing a sum-
mary of benefits and coverage (SBC) that
“accurately describes the benefits and cov-
erage under the applicable plan or cover-
age.” PHS Act section 2715 also calls for
the “development of standards for the def-
initions of terms used in health insurance
coverage.”
This regulation establishes the stan-
dards required to be met under PHS Act
section 2715. Among other things, these
standards ensure this information is pre-
sented in clear language and in a uniform
format that helps consumers to better un-
derstand their coverage and better compare
coverage options. The current patchwork
of non-uniform consumer disclosure re-
quirements makes shopping for coverage
inefficient, difficult, and time-consuming,
particularly in the individual and small
group market, but also in some large em-
ployer plans in which workers may be
confused about the value of their health
benefits as part of their total compensa-
tion. As a result of this confusion, health
insurance issuers and employers may face
less pressure to compete on price, benefits,
and quality, contributing to inefficiency in
the health insurance and labor markets.
The statute is detailed but not self-im-
plementing, contains ambiguities, and
specifically requiresthe Departments to
develop standards, consult with the Na-
tional Association of Insurance Commis-
sioners, and issue regulations. Therefore
these consumer protections cannot be es-
tablished without this regulation.
2.Legal Authority
The substantive authority for this regu-
lation is generally PHS Act section 2715,
which is incorporated by reference into
Employee Retirement Income Security
Act (ERISA) section 715 and the Internal
Revenue Code (Code) section 9815. PHS
Act section 2792, ERISA section 734,
and Code section 9833 also provide rule-
making authority. (For a fuller discussion
of the Departments’ legal authority, see
section V. of this preamble.)
B.Summary of the Major Provisions of
This Regulatory Action
Paragraph (a) of the final regulations
implements the general disclosure require-
ment and sets forth the standards for who
provides an SBC, to whom, and when. The
regulations outline three different scenar-
ios under which an SBC will be provided:
(1) by a group health insurance issuer to
a group health plan; (2) by a group health
insurance issuer and a group health plan to
participants and beneficiaries; and (3) by a
health insurance issuer to individuals and
dependents in the individual market. For
each scenario, an SBC must be provided
in several different circumstances, such as
upon application for coverage, by the first
day of coverage (if information in the SBC
has changed), upon renewal or reissuance,
and upon request. The final regulations
also include special rules to prevent unnec-
essary duplication in the provision of an
SBC with respect to group health coverage
and individual healthinsurance coverage.
The final regulations set forth a list
of requirements for the SBC that gener-
ally mirror those set forth in the statute.
There are a total of 12 required content
elements under the regulations, including
uniform standard definitions of medical
and health coverage terms, which will
help consumers better understand their
coverage; a description of the coverage
including the cost sharing requirements
such as deductibles, coinsurance, and
co-payments; and information regarding
any exceptions, reductions, or limitations
under the coverage. The final regulations
also require inclusion of coverage exam-
ples, which illustrate benefits provided
under the plan or coverage for common
benefits scenarios. In addition, the regu-
lations specify requirements related to the
appearance of the SBC, which generally
must be presented in a uniform format,
cannot exceed four double-sided pages in
length, and must not include print smaller
than 12-point font. These requirements
are detailed further in a notice published
elsewhere in today’s Federal Register pro-
viding additional guidance related to PHS
Act section 2715 and these final regula-
tions.
PHS Act section 2715 and the final reg-
ulations also require that plans and issuers
provide notice of modification in any of
the terms of the plan or coverage involved
that would affect the content of the SBC,
that is not reflected in the most recently
provided SBC, and that occurs other than
in connection with a renewal or reissuance
of coverage.
Finally, the statute directs the Depart-
ments to develop standards for definitions
for certain insurance-related and medical
terms, as well as other terms that will
help consumers understand and compare
the terms of coverage and the extent of
medical benefits (including any excep-
tions and limitations). Group health plans
and health insurance issuers must provide
the uniform glossary in the appearance
specified by the Departments, so that the
glossary is presented in a uniform format
and uses terminology understandable by
the average plan enrollee or individual
covered under an individual policy. A
guidance document published elsewhere
in today’sFederal Registerprovides fur-
ther guidance with respect to the uniform
glossary.
The requirements to provide an SBC,
notice of modification, and uniform glos-
sary under PHS Act section 2715 and these
final regulations apply for disclosures with
respect to participants and beneficiaries
who enroll or re-enroll in group health
coverage through an open enrollment
period (including re-enrollees and late en-
rollees), beginning on the first day of the
first open enrollment period that begins on
or after September 23, 2012. For disclo-
sures to participants and beneficiaries who
enroll in group health plan coverage other
than through an open enrollment period
(including individuals who are newly eli-
gible for coverage and special enrollees),
the requirements under PHS Act section
2715 and these final regulations apply
beginning on the first day of the first plan
year that begins on or after September
23, 2012. For disclosures to plans, and
to individuals and dependents in the indi-
vidual market, these requirements apply
to health insurance issuers beginning on
September 23, 2012.
April 9, 20127502012–15 I.R.B.

C. Costs and Benefits
The direct benefits of these final regu-
lations come from improved information,
which will enable consumers, both indi-
viduals and employers, to better under-
stand the coverage they have and make
better coverage decisions, based on their
preferences with respect to benefit design,
level of financial protection, and cost. The
Departments believe that such improve-
ments will result in a more efficient, com-
petitive market. These final regulations
will also benefit consumers by reducing
the time they spend searching for and com-
piling health plan and coverage informa-
tion.
Under the final regulations, group
health plans and health insurance issuers
will incur costs to compile and provide
the summary of benefits and coverage and
uniform glossary of health coverage and
medical terms. The Departments estimate
that the annualized cost may be around
$73 million. As is common with regu-
lations implementing new policies, there
is considerable uncertainty arising from
general data limitations and the degree to
which economies of scale exist for dis-
closing this information. Nonetheless, the
Departments believe that these final regu-
lations lower overall administrative costs
from the proposed regulations because of
several policy changes, notably flexibil-
ity in the instructions for completing the
SBC, the omission of premium (or cost
of coverage) information from the SBC,
the reduction in the number of coverage
examples required from three to two, and
provisions allowing greater flexibility for
electronic disclosure.
In accordance withExecutive Orders
12866 and 13563, the Departments believe
that the benefits of this regulatory action
justify the costs.
II. Background
The Patient Protection and Affordable
Care Act, Pub. L. 111–148, was enacted
on March 23, 2010; the Health Care and
Education Reconciliation Act, Pub. L.
111–152, was enacted on March 30, 2010
(these are collectively known as the “Af-
fordable Care Act”). The Affordable Care
Act reorganizes, amends, and adds to the
provisions of part A of title XXVII of the
Public Health Service Act (PHS Act) re-
lating to group health plans and health in-
surance issuers in the group and individual
markets. The term “group health plan” in-
cludes both insured and self-insured group
health plans.
1
The Affordable Care Act
adds section 715(a)(1) to the Employee
Retirement Income Security Act (ERISA)
and section 9815(a)(1) to the Internal Rev-
enue Code (the Code) to incorporate the
provisions of part A of title XXVII of
the PHS Act into ERISA and the Code,
and make them applicable to group health
plans, and health insurance issuers provid-
ing health insurance coverage in connec-
tion with group health plans. The PHS
Act sections incorporated by this reference
are sections 2701 through 2728. PHS Act
sections 2701 through 2719A are substan-
tially 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.
Subtitles A and C of title I of the Af-
fordable Care Act amend the requirements
of title XXVII of the PHS Act (changes
to which are incorporated into ERISA
by section 715). The preemption provi-
sions of ERISA section 731 and PHS Act
section 2724
2
(implemented in 29 CFR
2590.731(a) and 45 CFR 146.143(a)) ap-
ply so that the requirements of part 7 of
ERISA and title XXVII of the PHS Act,
as amended by 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 or individual health insurance
coverage except to the extent that such
standard or requirement prevents the ap-
plication of a requirement” of provisions
added to the PHS Act by the Affordable
Care Act. Accordingly, State laws with
stricter health insurance issuer require-
ments than those imposed by the PHS Act
will not be superseded by those provisions.
(Preemption and State flexibility under
PHS Act section 2715 are discussed more
fully below under section III.D.)
The Departments of Health and Human
Services (HHS), Labor, and the Treasury
(the Departments) are taking a phased
approach to issuing regulations imple-
menting the revised PHS Act sections
2701 through 2719A and related provi-
sions of the Affordable Care Act. These
final regulations are being published to im-
plement the disclosure requirements under
PHS Act section 2715. As discussed more
fully below, a document containing fur-
ther guidance for compliance is published
elsewhere in this issue of the Bulletin.
III. Overview of the Final Regulations
A.Summary of Benefits and Coverage
1. In General
Section 2715 of the PHS Act, added by
the Affordable Care Act, directs the De-
partments to develop standards for use by
a group health plan and a health insurance
issuer offering group or individual health
insurance coverage in compiling and pro-
viding a summary of benefits and coverage
(SBC) that “accurately describes the bene-
fits and coverage under the applicable plan
or coverage.” PHS Act section 2715 also
calls for the “development of standards for
the definitions of terms used in health in-
surance coverage.”
The statute directs the Departments,
in developing such standards, to “consult
with the National Association of Insur-
ance Commissioners” (referred to in this
document as the “NAIC”), “a working
group composed of representatives of
health insurance-related consumer ad-
vocacy organizations, health insurance
issuers, health care professionals, patient
advocates including those representing
individuals with limited English profi-
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.
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.
2012–15 I.R.B.751April 9, 2012

ciency, and other qualified individuals.”
3
On July 29, 2011, the NAIC provided its
final recommendations to the Departments
regarding the SBC. On August 22, 2011,
the Departments published in theFederal
Registerproposed regulations (76 FR
52442) and an accompanying document
with templates, instructions, and related
materials (76 FR 52475) for implementing
the disclosure provisions under PHS Act
section 2715. The proposed regulations
and accompanying document adhered to
the recommendations of the NAIC. After
consideration of all the comments received
on the proposed regulations and accom-
panying document, the Departments are
publishing these final regulations. In con-
junction with these final regulations, the
Departments are also publishing a guid-
ance document elsewhere in this issue of
the Bulletin that contains further guidance
for compliance, including information on
how to obtain the SBC template (with
instructions and sample language for com-
pleting the template) and the uniform
glossary. All of these items are displayed
atwww.dol.gov/ebsa/healthreformand
www.cciio.cms.gov.
2.Providing the SBC
Paragraph (a) of the final regulations
implements the general disclosure require-
ment and sets forth the standards for who
provides an SBC, to whom, and when.
PHS Act section 2715 generally requires
that an SBC be provided to applicants,
enrollees, and policyholders or certifi-
cate holders. PHS Act section 2715(d)(3)
places the responsibility to provide an
SBC on “(A) a health insurance issuer
(including a group health plan that is not
a self-insured plan) offering health insur-
ance coverage within the United States;
or (B) in the case of a self-insured group
health plan, the plan sponsor or designated
administrator of the plan (as such terms
are defined in section 3(16) of ERISA).”
4
Accordingly, the final regulations interpret
PHSActsection2715toapplytoboth
group health plans andhealth insurance
issuers offering groupor individual health
insurance coverage. In addition, consis-
tent with the statute, the final regulations
hold the plan administrator of a group
health plan responsible for providing an
SBC. Under the final regulations, the SBC
must be provided in writing and free of
charge.
Several commenters argued that large
group health plans or self-insured group
health plans should be exempt from the re-
quirement to provide the SBC. Many of
these commenters noted that such plans al-
ready provide a wealth of useful informa-
tion, including a summary plan descrip-
tion and open season materials that ac-
curately describe the plan and any cover-
age options. However, the statute includes
no such exemption for large or self-in-
sured plans. Moreover, the Departments
believe that the SBC’s uniform format and
appearance requirements will allow indi-
viduals to easily compare coverage op-
tions across different types of plans and in-
surance products, including those offered
through Affordable Insurance Exchanges
(Exchanges) beginning in 2014.
Several commenters asked whether the
SBC is required to be provided with re-
spect to all group health plans, including
certain account-type arrangements such
as health flexible spending arrangements
(health FSAs)
5
, health reimbursement ar-
rangements (HRAs)
6
, and health savings
accounts (HSAs)
7
. An SBC need not be
provided for plans, policies, or benefit
packages that constitute excepted benefits.
Thus, for example, an SBC need not be
provided for stand-alone dental or vision
plans or health FSAs if they constitute
excepted benefits under the Departments’
regulations.
8
If benefits under a health
FSA do not constitute excepted benefits,
the health FSA is a group health plan gen-
erally subject to the SBC requirements.
For a health FSA that does not meet the
criteria for excepted benefits and that is
integrated with other major medical cov-
erage, the SBC is prepared for the other
major medical coverage, and the effects
of the health FSA can be denoted in the
appropriate spaces on the SBC for de-
ductibles, copayments, coinsurance, and
benefits otherwise not covered by the
major medical coverage. A stand-alone
health FSA must satisfy the SBC require-
ments independently.
An HRA is a group health plan. Bene-
fits under an HRA generally do not consti-
tute excepted benefits, and thus HRAs are
generally subject to the SBC requirements.
A stand-alone HRA generally must sat-
isfy the SBC requirements (though many
of the limitations that apply under tradi-
tional fee-for-service or network plans do
not apply under stand-alone HRAs). An
HRA integrated with other major medical
coverage need not separately satisfy the
SBC requirements; the SBC is prepared
for the other major medical coverage, and
the effects of employer allocations to an
account under the HRA can be denoted
in the appropriate spaces on the SBC for
deductibles, copayments, coinsurance, and
benefits otherwise not covered by the other
major medical coverage.
HSAs generally are not group health
plans and thus generally are not subject to
the SBC requirements. Nevertheless, an
SBC prepared for a high deductible health
plan associated with an HSA can mention
the effects of employer contributions to
HSAs in the appropriate spaces on the SBC
for deductibles, copayments, coinsurance,
and benefits otherwise not covered by the
high deductible health plan.
There are three general scenarios under
which an SBC will be provided: (1) by a
group health insurance issuer to a group
health plan; (2) by a group health insur-
3
The NAIC convened a working group (NAIC working group) comprised of a diversegroup of stakeholders. This working group met frequently each month for over one year while developing
its recommendations. In developing its recommendations, the NAIC considered the results of various consumer testing sponsored by both insurance industry and consumer associations.
Throughout the process, NAIC working group draft documents and meeting notes were displayed on the NAIC’s websitefor public review, and several interested parties filed formal comments.
In addition to participation from the NAIC working group members, conference calls and in-person meetings were open to other interested parties and individuals and provided an opportunity
for non-member feedback. Seewww.naic.org/committees_b_consumer_information.htm.
4
ERISA section 3(16) defines an administrator as: (i) the person specificallydesignated by the terms of the instrument under which the plan is operated; (ii) if an administrator is not so
designated, the plan sponsor; or (iii) in the case of a plan for which an administrator is not designated and plan sponsor cannot be identified, such other person as the Secretary of Labor may
by regulation prescribe.
5
See Code section 106(c)(2).
6
See IRS Notice 2002–45, 2002–2 C.B. 93.
7
See Code section 223.
8
See 26 CFR 54.9831–1(c), 29 CFR 2590.732(c), 45 CFR 146.145(c).
April 9, 20127522012–15 I.R.B.

ance issuer and a group health plan to par-
ticipants and beneficiaries; and (3) by a
health insurance issuer to individuals and
dependents in the individual market. In
general, the proposed regulations directed
that, in each of these scenarios, the SBC be
provided when an employer or individual
is comparing health coverage options, in-
cluding prior to purchasing or enrolling in
a particular plan or policy.
Some commenters asserted that certain
timing requirements in the proposed regu-
lations could be administratively difficult
for plans and issuers to meet under certain
conditions, such as when negotiations of
policy terms are ongoing less than 30 days
before renewal, making the proposed time-
frame for providing the SBC difficult or
impossible to achieve. In response to pub-
lic comments, the final regulations stream-
line and harmonize the rules for provid-
ing the SBC, while ensuring that individ-
uals and employers have timely and com-
plete information under all three scenar-
ios in which an SBC might be provided.
Moreover, in certain circumstances, the fi-
nal regulations provide plans and issuers
with additional time to provide the SBC.
For example, under the proposed regula-
tions, an SBC would have been required to
be provided as soon as practicable follow-
ing an application for health coverage or a
request for an SBC, but in no event later
than seven days following the application
or request. For all three scenarios under
which an SBC might be provided, the final
regulations substitute a seven business day
period for the seven calendar day period
in the proposed regulations in each place
it appeared.
The Departments also received com-
ments regarding issuance of an SBC at
renewal or reissuance of coverage. The
proposed regulations would have required
that, if written application materials are re-
quired for renewal, the SBC must be pro-
vided no later than the date on which the
materials are distributed. This requirement
has been retained without change in the fi-
nal regulations. In addition, upon an auto-
matic renewal of coverage (that is, when
written application materials are not re-
quired for renewal), the proposed regula-
tions would have required a new SBC to be
provided no later than 30 days prior to the
first day of coverage under the new plan or
policy year. The final regulations require
that, in general, if renewal or reissuance
of coverage is automatic, the SBC must be
provided no later than 30 days prior to the
first day of the new plan or policy year.
However, with respect to insured cover-
age, in situations in which the SBC cannot
be provided within this timeframe because,
for instance, the issuer and the purchaser
have not yet finalized the terms of cover-
age for the new policyyear, the final reg-
ulations provide an exception. Under that
circumstance, the SBC must be provided
as soon as practicable, but in no event later
than seven business days after the issuance
of the policy, certificate, or contract of in-
surance (for simplicity, referred to collec-
tively as a “policy” in the remainder of this
preamble), or the receipt of written con-
firmation of intent to renew, whichever is
earlier. The regulations provide this flexi-
bility only when the terms of coverage are
finalized in fewer than 30 days in advance
of the new policy year; otherwise, the SBC
must be provided upon automatic renewal
no later than 30 days prior to the first day
of coverage under the new plan or policy
year.
a.Provision of the SBC by an Issuer to
aPlan
Paragraph (a)(1)(i) of the final regula-
tions requires a health insurance issuer of-
fering group health insurance coverage to
provide an SBC to a group health plan (in-
cluding, for this purpose, its sponsor) upon
an application by the plan for health cov-
erage. The SBC must be provided as soon
as practicable following receipt of the ap-
plication, but in no event later than seven
business days following receipt of the ap-
plication. If there is any change to the in-
formation required to be in the SBC before
the first day of coverage, the issuer must
update and provide a current SBC to the
plan no later than the first day of coverage.
If the information is unchanged, the SBC
does not need to be provided again in con-
nection with coverage for that plan year,
except upon request. As noted later in this
preamble, the final regulations, in contrast
to the proposed regulations, do not include
premium or cost of coverage information
as a required element of the SBC. In many
cases, the only change to the information
the proposed regulations required to be in
the SBC between application for coverage
and the first day of coverage is the pre-
mium or cost of coverage information. Be-
cause these final regulations eliminate the
requirement to include premium or cost of
coverage information in the SBC, the De-
partments anticipate that the number of cir-
cumstances in which issuers will have to
provide a second SBC will be significantly
fewer under the final regulations than they
would have been under the proposed regu-
lations.
b.Provision of the SBC by a Plan or
Issuer to Participants and Beneficiaries
Under paragraph (a)(1)(ii) of the final
regulations, a group health plan (includ-
ing the plan administrator), and a health in-
surance issuer offering group health insur-
ance coverage, must provide an SBC to a
participant or beneficiary
9
with respect to
each benefit package offered by the plan
or issuer for which the participant or ben-
eficiary is eligible.
10
Some commenters
stated that SBCs should only be provided
to participants, not beneficiaries, or that
the SBC should only be provided to ben-
eficiaries upon request. The statutory lan-
guage, which refers to “applicants” and
“enrollees,” could be interpreted to support
either interpretation. These final regula-
tions retain the requirement that the SBC
be provided to both participants and ben-
eficiaries. However, as described below,
the final regulations include an anti-dupli-
cation rule under which a single SBC may
be provided to a family unless any bene-
ficiaries are known to reside at a different
address. Accordingly, separate SBCs need
9
ERISA section 3(7) defines a participant as: any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become
eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employers or members of such organization, or whose beneficiaries may be eligible to
receive any such benefit. ERISA section 3(8) defines a beneficiary as: a person designated by a participant, or by the terms of an employee benefit plan,whoisormaybecomeentitledtoa
benefit thereunder.
10
With respect to insured group health plan coverage, PHS Act section 2715 generally places the obligation to provide an SBC on both a plan and issuer. As discussed below, under section
III.A.2.d., “Special Rules to Prevent Unnecessary Duplication With Respectto Group Health Coverage”, if either the issuer or the plan provides the SBC, both will have satisfied their
obligations. As they do with other notices required of both plans and issuers under Part 7 of ERISA, Title XXVII of the PHS Act, and Chapter 100 of the Code, the Departments expect plans
and issuers to make contractual arrangements for sending SBCs. Accordingly, the remainder of this preamble generally refers to requirements for plans or issuers.
2012–15 I.R.B.753April 9, 2012

to be provided to beneficiaries only in lim-
ited circumstances.
The SBC must be provided as part of
any written application materials that are
distributed by the plan or issuer for enroll-
ment. If the plan does not distribute writ-
ten application materials for enrollment,
the SBC must be distributed no later than
the first date the participant is eligible to
enroll in coverage for the participant or any
beneficiaries. If there is any change to the
informationrequiredtobeintheSBCbe-
tween the application for coverage and the
first day of coverage, the plan or issuer
must update and provide a current SBC to a
participant or beneficiary no later than the
first day of coverage.
Under the final regulations, the plan
or issuer must alsoprovide the SBC to
special enrollees.
11
The proposed regula-
tions would have required that the SBC be
provided within seven calendar days of a
request for special enrollment. One com-
menter stated that special enrollees should
not be distinguished from other enrollees
with such expedited disclosure, particu-
larly since they have already enrolled in
coverage and are no longer comparing
coverage options. The final rule provides
that special enrollees must be provided
the SBC no later than when a summary
plan description is required to be provided
under the timeframe set forth in ERISA
section 104(b)(1)(A) and its implementing
regulations, which is 90 days from en-
rollment. The revised timing requirement
related to providing an SBC in connec-
tion with special enrollment is expected
to reduce administrative costs for provid-
ing SBCs to these individuals, who have
already chosen the plan, policy, or benefit
package in which to enroll. To the extent
individuals who are eligible for special
enrollment and are contemplating their
coverage options would like to receive
SBCs earlier, they may always request an
SBC with respect to any particular plan,
policy, or benefit package and the SBC is
required to be provided as soon as prac-
ticable, but in no event later than seven
business days following receipt of the re-
quest (as discussed more fully below).
c.Provision of the SBC Upon Request in
Group Health Coverage
As discussed earlier in this preamble,
a health insurance issuer offering group
health insurance coverage must provide
theSBCtoagrouphealthplan(andaplan
or issuer must provide the SBC to a par-
ticipant or beneficiary) upon request for
an SBC or summary information about the
health coverage, as soon as practicable,
but in no event later than seven business
days following receipt of the request. The
Departments received several comments
addressing the requirement to provide the
SBC upon request. Many comments were
supportive of this approach, especially
with regards to participants and benefi-
ciaries needing information about their
coverage in the middle of a plan year after
life changes. Other comments suggested
that providing SBCs to employers and
individuals who are only “shopping” for
coverage and not yet enrolled is unneces-
sary and will require multiple SBCs to be
provided as employers and individuals go
through underwriting.
The final regulations retain the re-
quirement that the SBC be provided upon
request to participants, beneficiaries and
employers, including prior to submitting
an application for coverage, because the
SBC provides information that not only
helps consumers understand their cover-
age, but also helps consumers compare
coverage options prior to selecting cov-
erage. The Departments believe it is
essential for employers, participants, and
beneficiaries to have this information to
help make informed coverage decisions
and believe that the modifications to the
SBC template, including the removal
of premium information, adequately ad-
dresses the concerns that health insurance
issuers will have to provide multiple SBCs
to employers and individuals prior to un-
derwriting.
Health insurance issuers offering indi-
vidual market coverage must also provide
the SBC to individuals upon request, to
allow consumers reviewing coverage op-
tions the same ability to compare coverage
options in the individual market, as well in
the Exchanges and the group markets.
d.Special Rules to Prevent Unnecessary
Duplication With Respect to Group Health
Coverage
The proposed regulations provided
three rules to streamline provision of the
SBC and prevent unnecessary duplication
with respect to group health plan coverage.
Paragraph (a)(1)(iii) of the final regula-
tions retains these special rules, with some
modifications. The first states that the
requirement to provide an SBC generally
will be considered satisfied for all entities
if it is provided by any entity, so long as
all timing and content requirements are
satisfied. The second states that a single
SBC may be provided to a participant and
any beneficiaries at the participant’s last
known address. However, if a benefi-
ciary’s last known address is different than
the participant’s last known address, a sep-
arate SBC is required to be provided to the
beneficiary at the beneficiary’s last known
address. Finally, under the special rule
providing that SBCs are not required to be
provided automatically upon renewal for
benefit packages in which the participant
or beneficiary is not enrolled, a plan or
issuer generally has up to seven business
days (rather than seven calendar days, as
specified in the proposed regulation) to
respond to a request to provide the SBC
with respect to another benefit package
for which the participant or beneficiary is
eligible.
Many commenters pointed out the po-
tential duplication and confusion that can
result with carve-out arrangements, which
is generally when a plan or issuer contracts
with an administrative service provider
(such as a pharmacy benefit manager or
managed behavioral health organization)
to manage prescribed functions such as
managed care and utilization review. Plans
and issuers should coordinate with their
service providers, and with each other,
to ensure that the SBCs they provide are
accurate.
e.Provision of the SBC by an Issuer
Offering Individual Market Coverage
Under these final regulations, the Sec-
retary of HHS sets forth standards applica-
ble to individual health insurance coverage
about who provides an SBC, to whom,
and when. The provisions of the final
11
Regulations regarding special enrollment are available at 26 CFR 54.9801–6, 29 CFR 2590.701–6, and 45 CFR 146.117.
April 9, 20127542012–15 I.R.B.

regulations for individual market coverage
parallel the group market requirements
described above, with only those changes
necessary to reflect the differences be-
tween the two markets, and the provisions
of the final regulations are intended to
more clearly reflect the similarity between
the two sets of rules. For example, indi-
viduals and dependents in the individual
market are comparable to group health
plan participants and beneficiaries. Ac-
cordingly, an issuer offering individual
health insurance coverage must provide an
SBC to an individual or dependent upon
receiving an application for any health
insurance policy, as soon as practicable
following receipt of the application, but in
no event later than seven business days fol-
lowing receipt of the application. If there
isanychangeintheinformationrequired
to be in the SBC between the application
for coverage and the first day of coverage,
the issuer must update and provide a cur-
rent SBC to an individual or dependent no
later than the first day of coverage.
12
Ad-
ditionally, an issuer must provide the SBC
to any individual or dependent upon re-
quest for an SBC or summary information
about a health insurance product as soon
as practicable, but in no event later than
seven business days following the request.
Similar to the group market, a request for
an SBC or summary information includes
a request made at any time, including prior
to applying for coverage.
The final regulations retain the individ-
ual market anti-duplication rule, similar to
the group health coverage anti-duplication
rule, for individual health insurance cov-
erage that covers more than one individ-
ual (or an application for coverage that is
being made for more than one individual).
In that case, as under the proposed regula-
tions, a single SBC may generally be pro-
vided to one address, unless any depen-
dents are known to reside at a different ad-
dress.
3.Content
PHS Act section 2715(b)(3) generally
provides that the SBC must include:
a. Uniform definitions of standard insur-
ance terms and medical terms so that
consumers may compare health cov-
erage and understand the terms of (or
exceptions to) their coverage;
b. A description of the coverage, includ-
ing cost sharing, for each category
of benefits identified by the Depart-
ments;
c. The exceptions, reductions, and limi-
tations on coverage;
d. The cost-sharing provisions of the
coverage, including deductible, coin-
surance, and copayment obligations;
e. The renewability and continuation of
coverage provisions;
f. A coverage facts label that includes
examples to illustrate common ben-
efits scenarios (including pregnancy
and serious or chronic medical condi-
tions) and related cost sharing based
on recognized clinical practice guide-
lines;
g. A statement about whether the plan
provides minimum essential coverage
as defined under section 5000A(f) of
the Code, and whether the plan’s or
coverage’s share of the total allowed
costs of benefits provided under the
plan or coverage meets applicable re-
quirements;
h. A statement that the SBC is only a
summary and that the plan document,
policy, or certificate of insurance
should be consulted to determine the
governing contractual provisions of
the coverage; and
i. A contact number to call with ques-
tions and an Internet web address
where a copy of the actual individual
coverage policy or group certificate
of coverage can be reviewed and ob-
tained.
The proposed regulations generally
mirrored the content elements set forth in
the statute, with four additional elements
recommended by the NAIC: (1) for plans
and issuers that maintain one or more net-
works of providers, an Internet address (or
similar contact information) for obtaining
a list of the network providers; (2) for plans
and issuers that maintain a prescription
drug formulary, an Internet address where
an individual may find more information
about the prescription drug coverage un-
der the plan or coverage; (3) an Internet
address where an individual may review
and obtain the uniform glossary; and (4)
premiums (or cost of coverage for self-in-
sured group health plans). The proposed
regulations solicited comments on these
additional four content elements. In ad-
dition, the proposed regulations solicited
comments on whether the SBC should
include a disclosure informing individuals
of their right to receive a paper copy of the
glossary upon request.
These final regulations retain the first
two proposed additional content elements
without change, modify the third, and
delete the fourth. The final regulations
retain: (1) the inclusion of an Internet
address (or other contact information) for
obtaining a list of the network providers,
and (2) the inclusion of an Internet address
(or similar contact information) where
an individual may find more information
about the prescription drug coverage under
the plan or coverage. The final regula-
tions also retain the requirement of the
inclusion of an Internet address where an
individual may review and obtain the uni-
form glossary, with a modification. The
Departments received several comments
regarding the inclusion of information
concerning the uniformglossary including
a suggestion that individuals be informed
of their right to request a paper copy of the
uniform glossary. Commenters noted that
the omission of such a disclosure would
deny important information to some in-
dividuals who are most in need of this
information. After review and considera-
tion of the comments, the final regulations
require information for obtaining copies
of the uniform glossary, which includes an
Internet address where an individual may
review the uniform glossary, a contact
phone number to obtain a paper copy of
the uniform glossary, and a disclosure that
paper copies of the uniform glossary are
available. It is important to note that the
definitions in the glossary are solely for
the purpose of these regulations; they do
not, for example, apply to Medicare cover-
age policy nor the Secretary of Health and
Human Services’ definition of essential
health benefits.
The final regulations do not require
the SBC to include premium or cost of
coverage information. The Departments
12
As noted elsewhere in this preamble, the final regulations, in contrast to theproposed regulations, do not include premium information as a requiredelement of the SBC. Because, in many
cases, the only change to the information required to be in the SBC before the first day of coverage is the premium, the Departments anticipate that the number of circumstances in which
issuers will have to provide a second SBC before the first day of coverage will significantly decrease under the final regulation.
2012–15 I.R.B.755April 9, 2012

received numerous comments on this is-
sue. Comments supporting the inclusion
of premium information stated that this
information was essential for consumers
to make meaningful coverage compar-
isons, and it was necessary for consumers
to make coverage comparisons and un-
derstand their total financial exposure, as
well as useful to encourage competition in
the markets on both price and value. One
comment stated that employees also need
this information to know if the coverage
offeredbyanemployermeetstheAfford-
able Care Act’s affordability test,
13
which
determines the eligibility of employees
for premium tax credits with respect to
qualified health plans purchased on an
Exchange.
14
Comments opposing this ad-
ditional content requirement stated that
this requirement would be administra-
tively burdensome in the group market,
where health insurance issuers do not have
information on employer contributions,
and would not be able to provide accurate
cost of coverage information to employ-
ees. In addition, some comments noted
that it would not be possible to provide
an accurate premium estimate prior to
medical underwriting. Some comments
recommended that premium information
be provided in a separate document, for
example, a premium table.
After considering all of the comments,
the final regulations do not require the
SBC to include premium or cost of cov-
erage information. The Departments
understand that it is administratively and
logistically complex to convey this in-
formation to individuals in an SBC in
divergent circumstances in both the indi-
vidual and group markets, including, for
example, when premiums differ based on
family size and when, in the group mar-
ket, employer contributions impact cost of
coverage. The Departments recognize that
the inclusion of premium information in
the SBC could result in numerous SBCs
being required to be provided to individ-
uals. However, if premium information is
not required, only a single SBC might be
necessary. The Departments believe that
premium information can be more effi-
ciently and effectively provided by means
other than the SBC. For example, in the in-
dividual market, the Departments note that
some of this information may be available
through the Federal health care reform
Web portal,HealthCare.gov,
15
to individ-
uals shopping for coverage. Furthermore,
the Departments anticipate that premium
information for qualified health plans will
be made widely available through Ex-
changes for coverage effective beginning
in 2014.
With respect to the uniform definitions
required by the statute, the Departments
proposed to follow the NAIC’s recom-
mended two-part approach, requiring pro-
vision of — (1) a uniform glossary, which
includes definitions of health coverage
terminology, to be provided in connection
withtheSBC,and(2)a“WhythisMat-
ters” column for the SBC template (with
instructions for plans and issuers to use
in completing the SBC template).
16
The
Departments retain this approach in the
final regulations. The guidance document
published elsewhere in today’sFederal
Registeraddresses comments received
on the SBC and related materials (includ-
ing the uniform glossary) and details the
changes from the initial proposal.
The statute also directs that the SBC in-
clude a statement about whether a plan or
coverage provides minimum essential cov-
erage, as defined under section 5000A(f)
of the Code, (minimum essential coverage
statement) and whether the plan’s or cov-
erage’s share of the total allowed costs of
benefits provided under the plan or cover-
age meets applicable minimum value re-
quirements (minimum value statement).
17
However, this content is not relevant un-
til other elements of the Affordable Care
Act are implemented. Therefore, the fi-
nal regulations require the minimum es-
sential coverage and minimum value state-
ments to be included in SBCs with re-
spect to coverage beginning on or after
January 1, 2014.
18
Future guidance will
address the minimum essential coverage
and minimum value statements.
The statute also requires that an SBC
contain a “coverage facts label.” For ease
of reference, the proposed regulations used
the term “coverage examples” in place of
the statutory term. The Departments re-
ceived many comments regarding the cov-
erage examples. Some comments sup-
ported the general approach in the pro-
posed regulations and indicated that cov-
erage examples would be a valuable com-
parison tool for consumers. Other com-
ments expressed concerns that the cover-
age examples would cause confusion for
consumers, as the examples do not repre-
sent the actual treatment plan for any par-
ticular individual, or might not represent
the actual costs that an individual might in-
cur for a similar cost of treatment. Some
such comments urged the Departments to
take a different approach to the coverage
examples, such as providing an actual cost
calculator. The Departments also received
comments on the number of coverage ex-
amples that should be required, as well as
which benefit scenarios should be included
in the final regulations. Comments var-
ied with regards to the number of recom-
mended coverage examples, ranging from
one to more than six.
These final regulations retain the gen-
eral approach to the coverage examples
13
See Code section 36B(c)(2)(C)(i)(II), as added by section 1401 of the Affordable Care Act.
14
Providing information in the SBC for individuals relating to Exchanges and the premium tax credit is addressed in the document containing further compliance guidance that is published
elsewhere in this issue of the Bulletin.
15
Established pursuant to 45 CFR 159.120 (75 FR 24470).
16
National Association of Insurance Commissioners, Consumer Information Working Group, December 17, 2010, Final Package of Attachments.Availableat
http://www.naic.org/documents/committees_b_consumer_information_ppaca_final_materials.pdf.
17
PHS Act section 2715(b)(3)(G) provides that this statement must indicate whether the plan or coverage (1) provides minimum essential coverage (as defined under section 5000A(f) of the
Code) and (2) ensures that the plan’s or coverage’sshare of the total allowed costs of benefits provided under the plan or coverage is not less than 60 percent of such costs. The minimum
essential coverage and minimum value requirements are part of a larger set of health coverage reforms that take effect on January 1, 2014.
18
In the notice providing compliance guidance published separately in today’s Federal Register, the Departments state that the SBC template (with instructions, samples, and a guide for
coverage example calculations to be used in completing the SBC template) does not provide language to comply with these requirements because the notice authorizes these documents only
with respect to the first year of applicability. Information on the minimum essential coverage statement and the minimum value statement will be provided in future guidance.
April 9, 20127562012–15 I.R.B.

that was proposed.
19
Consumer test-
ing performed on behalf of the NAIC
20
demonstrated that the coverage examples
facilitated individuals’ understanding of
the benefits and limitations of a plan or
policy and helped them make more in-
formed choices about their options. Such
testing also showed that individuals were
able to comprehend that the examples
were only illustrative. Additionally, while
some plans provide very useful coverage
calculators to their enrollees to help them
make health care decisions, they are not
uniform across all plans and most are not
available to individuals prior to enroll-
ment, making it difficult for individuals
and employers to make coverage compar-
isons. Nonetheless, as discussed in the
guidance document issued elsewhere in
this issue of the Bulletin, the Departments
are taking a phased approach to imple-
menting the coverage examples and intend
to consider additional feedback from con-
sumer testing in the future.
To the extent a plan’s terms that are re-
quired to be in the SBC template cannot
reasonably be described in a manner con-
sistent with the template and instructions,
the plan or issuer must accurately describe
the relevant plan terms while using its best
efforts to do so in a manner that is still con-
sistent with the instructions and template
format as reasonably possible. Such sit-
uations may occur, for example, if a plan
provides a different structure for provider
network tiers or drug tiers than is contem-
plated by the template and these instruc-
tions, if a plan provides different benefits
based on facility type (such as hospital in-
patient versus non-hospital inpatient), in a
case where the effects of a health FSA or an
HRA are being described, or if a plan pro-
vides different cost sharing based on par-
ticipation in a wellness program.
Finally, the Departments solicited com-
ments on whether any special rules are
necessary to accommodate expatriate
plans and received comments related to
adjustments needed for expatriate plan
coverage. Some commenters noted that
PHS Act section 2715(d)(3) refers to a
health insurance issuer “offering health
insurance coverage within the United
States.”
21
Other commenters suggested
that coverage information that is partic-
ularly important to expatriates (such as
medical evacuation, repatriation benefits,
and country-appropriate care) be exempt
from the requirements under PHS Act sec-
tion 2715. These final regulations include
a special provision that provides that, in
lieu of summarizing coverage for items
and services provided outside the United
States, a plan or issuer may provide an
Internet address (or similar contact infor-
mation) for obtaining information about
benefits and coverage provided outside
the United States. Also, to the extent the
plan or policy provides coverage available
within the United States, the plan or issuer
is still required to provide an SBC in ac-
cordance with PHS Act section 2715 that
accurately summarizes benefits and cov-
erage available within the United States.
4.Appearance
PHS Act section 2715 sets forth stan-
dards related to the appearance of the SBC.
Specifically, the statute provides that the
SBC is to be presented in a uniform for-
maţutilizing terminology understandable
by the average plan enrollee, that does not
exceed four pages in length, and does not
include print smaller than 12-point font.
The final regulations retain the interpreta-
tion from the proposed regulations that the
four-page limitation is four double-sided
pages.
22
The proposed regulations requested
comments regarding the requirement to
provide the SBC as a stand-alone doc-
ument. Specifically, comments were
requested about whether the SBC should
be allowed to be included in a summary
plan description (SPD) if it is intact and
prominently displayed and the timing re-
quirements for delivery of the SBC are
met. The Departments received many
comments in response to this request.
Some comments opposed allowing the
SBC to be included alongside or within an
SPD, noting that SPDs tend to be lengthy
documents and allowing this would be
contrary to the purpose of requiring a short
summary document. However, many
comments supported this approach, indi-
cating that permitting this option would
reduce burdens and costs associated with
printing and disseminating the SBC docu-
ments.
Paragraph (a)(3) of these final regula-
tions requires plans and issuers to provide
the SBC in the form specified by the Sec-
retaries in guidance and completed in ac-
cordance with the instructions for complet-
ing the SBC that are specified by the Sec-
retaries in guidance. A guidance docu-
ment published elsewhere in this issue of
the Bulletin provides such guidance. The
notice specifies that SBCs provided in con-
nection with group health plan coverage
may be provided either as a stand-alone
document or in combination with other
summary materials (for example, an SPD),
if the SBC information is intact and promi-
nently displayed at the beginning of the
materials (such as immediately after the
Table of Contents in an SPD) and in ac-
cordance with the timing requirements for
providing an SBC. For health insurance
coverage offered in the individual market,
the SBC must be provided as a stand-alone
document, but HHS notes that it can be in-
cluded in the same mailing as other plan
materials. This guidance regarding ap-
pearance may be modified for years after
the first year of applicability.
19
The Departments are making one technical change in these final regulations. The proposed regulations stated that the underlying benefits scenario for a coverage example must be based
on recognized clinical practice guidelines “available through” the National Guideline Clearinghouse (NGC), Agency for Healthcare Research and Quality. The Departments believe that
the proposed regulations would have inadvertentlyexcluded recognized clinical practice guidelines available through other sources, such as the National Comprehensive Cancer Network.
Accordingly, these final regulations provide that a benefits scenario must be based on recognized clinical guidelines “as defined by” the NGC. Currently, the NGC uses a definition set forth
by the Institute of Medicine. The current definition of clinical practice guidelines adopted by NGC is available athttp://www.guideline.gov/about/inclusion-criteria.aspx.
20
A summary of the focus group testing done by America’s Health Insurance Plans is available at:http://www.naic.org/documents/committees_b_consumer_information_101012_ahip_fo-
cus_group_summary.pdf, a summary of the focus group testing done by Consumers Union on the coverage examples is available at:http://prescriptionforchange.org/wordpress/wp-content/up-
loads/2011/08/A_New_Way_of_Comparing_Health_Insurance.pdf.
21
The Departments note that, in the context of group health plan coverage, section 4(b)(4) of ERISA provides that a plan maintained outside the United States primarily for the benefit of
persons substantially all of whom are nonresident aliens is exempt from ERISA title I, including ERISA section 715.
22
PHS Act section 2715(b)(1) does not prescribe whether the four pages are foursingle-sided pages or four double-sided pages. The SBC template transmitted by NAIC exceeded four
single-sided pages. After considering the extent of statutorily-required content in PHS Act section 2715(b)(3), as well as the appearance and language requirements of PHS Act sections
2715(b)(1) and (2), the Departments are interpreting four pages to be four double-sided pages, in order to ensure that this information is presented in an understandable and meaningful way.
2012–15 I.R.B.757April 9, 2012

5.Form
a.Grouphealthplancoverage
To facilitate faster and less burdensome
disclosure of the SBC, and to be consistent
with PHS Act section 2715(d)(2), which
permits disclosure in either paper or elec-
tronic form, the proposed regulations set
forth rules to permit greater use of elec-
tronic transmittal of the SBC. Those pro-
posed regulations generally permitted is-
suers to provide the SBC to plans electron-
ically (such as an e-mail or Internet post-
ing) if certain conditions were met, and re-
quired plans and issuers providing the SBC
to participants and beneficiaries to com-
ply with the Department of Labor’s elec-
tronic disclosure safe harbor requirements
at 29 CFR 2520.104b–1(c). In all circum-
stances, the proposed regulations permit-
tedplansandissuerstoprovideSBCsin
paper form.
Comments generally supported permit-
ting provision of the SBC electronically;
however, some comments also asked for
more flexibility with regard to electronic
provision to participants and beneficiaries.
These comments generally requested the
rule for provision to participants and ben-
eficiaries mirror the rule for provision to
plans, and suggested this change would re-
duce costs and burdens associated with de-
livery. Other comments raised concerns
about decreased consumer protection if the
rules for providing an electronic SBC are
too flexible. Some commenters also asked
to extend to the group market the option
available to individual market issuers to
provide information toHealthCare.govto
be in compliance with the requirement to
provide the SBC upon request for informa-
tion about coverage prior to submitting an
application.
After taking into account all of the com-
ments, these final regulations generally re-
tain the approach from the proposed reg-
ulations with respect to an SBC provided
electronically by an issuer to a plan. For
SBCs provided electronically by a plan
or issuer to participants and beneficiaries,
these final regulations make a distinction
between a participant or beneficiary who
is already covered under the group health
plan, and a participant or beneficiary who
is eligible for coverage but not enrolled in a
group health plan. This distinction should
provide new flexibility in some circum-
stances, while also ensuring adequate con-
sumer protections where necessary. For
participants and beneficiaries who are al-
ready covered under the group health plan,
these final regulations permit provision of
the SBC electronically if the requirements
of the Department of Labor’s regulations at
29 CFR 2520.104b–1 are met. (Paragraph
(c) of those regulations includes an elec-
tronic disclosure safe harbor.
23
) For par-
ticipants and beneficiaries who are eligible
for but not enrolled in coverage, these final
regulations permit the SBC to be provided
electronically if the format is readily ac-
cessible and a paper copy is provided free
of charge upon request. Additionally, if the
electronic form is an Internet posting, the
plan or issuer must timely advise the indi-
vidual in paper form (such as a postcard) or
email that the documents are available on
the Internet, provide the Internet address,
and notify the individual that the docu-
ments are available in paper form upon re-
quest. The Departments note that the rules
for participants and beneficiaries who are
eligible for but not enrolled in coverage are
substantially similar to the requirements
for an issuer providing an electronic SBC
to a plan. Finally, as in the proposed regu-
lations, plans, and participants and benefi-
ciaries (both covered, and eligible but not
enrolled) have the right to receive an SBC
in paper format, free of charge, upon re-
quest.
b.Individual health insurance coverage
The Departments received several com-
ments on the proposed regulations, which
generally required paper delivery of the
SBC and set forth certain circumstances in
which electronic disclosure is permissible.
Some comments recommended the SBC
for individual market coverage be pro-
vided in paper form by default, unless the
individual explicitly elects electronic de-
livery. These comments cautioned against
assuming individuals have regular access
to a computer or a requisite level of com-
puter literacy simply because an individual
submits a request online. Instead, they ar-
gued individuals should be able to specify
the form in which they prefer to receive
the SBC.
Other comments recommended greater
flexibility for electronic delivery to reduce
the costs of compliance, including elim-
inating the requirement to acknowledge
receipt of an SBC provided through elec-
tronic delivery methods. These comments
urged the Departments to adopt broader
standards that reflect the current state of
technology. Specifically, they recom-
mended extending the electronic delivery
rules that apply to disclosure from the
issuer to the plan in paragraph (a)(4)(i)
of the final regulations, to disclosure in
the individual market. Some comments
also suggested that plans provide in their
enrollment materials a notice of the indi-
vidual’s right to receive a paper copy of
the SBC upon request, and a telephone
number or other contact information for
making such request.
The Departments determined it is ap-
propriate to amend the individual market
standards in the proposed regulations re-
latedtotheformandmannerofdeliv-
ery. Rather than specifying the circum-
stances making paper or electronic appro-
priate, these final regulations establish the
general standard that an issuer offering in-
dividual health insurance coverage must
provide the SBC in a manner that can rea-
sonably be expected to provide actual no-
tice regardless of the format. These fi-
nal regulations provide several examples
of methods of delivery that may satisfy this
requirement. For instance, an issuer may
reasonably expect an individual or depen-
dent to receive actual notice if the issuer
provides the SBC by e-mail to an indi-
vidual who has agreed to receive the SBC
(or other electronic disclosures) by e-mail
from the issuer and who has provided an
e-mail address for that purpose. Or, if the
SBCispostedontheInternet,anindivid-
ual may reasonably be expected to receive
actual notice if the issuer timely advises
the individual in paper form (such as a
postcard) that the documents are available
on the Internet and includes the applicable
Internet address.
These final regulations substantially re-
tain the safeguards for electronic disclo-
sure in the proposed regulations. Under
these final regulations, an issuer providing
23
On April 7, 2011, the Department of Labor published a Request for Informationregarding electronic disclosure at 76 FR 19285. In it, the Department of Labor stated that it is reviewing
the use of electronic media by employee benefit plans to furnish information to participants and beneficiaries covered by employee benefit plans subject to ERISA. Because these regulations
adopt the ERISA electronic disclosure rules by cross-reference, any changes that may be made to 29 CFR 2520.104b–1 in the future would also apply to theSBC.
April 9, 20127582012–15 I.R.B.

the SBC electronically must ensure that the
format is readily accessible; the SBC is
placed in a location that is prominent and
readily accessible; the SBC is provided in
an electronic form that is consistent with
the appearance, content, and language re-
quirements of these final regulations; and
that the issuer notifies the individual or
dependent that the SBC is available from
the issuer in paper form without charge
upon request. These final regulations re-
move the “acknowledge receipt” require-
ment. However, the regulations also re-
quire that the SBC be provided in an elec-
tronic form which can be electronically re-
tained and printed. These final regulations
provide standards for the form and manner
of providing the SBC that balance the ob-
jective of protecting consumers by provid-
ing accessible information with the goal
of simplifying information collection bur-
dens on issuers.
Finally, the final regulations clarify the
provision that would deem health insur-
ance issuers in the individual market to be
in compliance with the requirement to pro-
vide the SBC to an individual requesting
information about coverage prior to sub-
mitting an application if the issuer pro-
vides the information toHealthCare.gov.
The final regulations clarify that a health
insurance issuer offering individual health
insurance coverage must provide all of the
content required under paragraph (a)(2), as
specified in guidance by the Secretary, to
HealthCare.govto be deemed compliant
with the requirement to provide an SBC
to an individual requesting summary in-
formation prior to submitting an applica-
tion for coverage. The final regulations
further clarify that any SBC furnished pur-
suant to a request for an SBC, at the time of
application or subsequently, would be re-
quired to be provided in a form and manner
consistent with the rules described above.
The Departments determined that this pro-
vision is consistent with the standards for
electronic disclosure and reduces the bur-
den of providing an SBC to individuals
shopping for individual health insurance
coverage.
The Departments received comments
in support of this approach which stated
HealthCare.govprovides useful summary
information about health insurance prod-
ucts that are available to both individuals
and small employers shopping for cover-
age and recommended the final regulations
similarly extend the “deemed compliance”
provision to the small group market. At
this time, the Departments are reviewing
comments requesting that the regulations
extend the deemed compliance provision
to the small group market and may issue
future guidance on this issue.
6.Language
PHS Act section 2715(b)(2) provides
that standards shall ensure that the SBC “is
presented in a culturally and linguistically
appropriate manner.” The final regula-
tions retain the approach of the proposed
regulations and provide that, to satisfy
the requirement to provide the SBC in
a culturally and linguistically appropri-
ate manner, a plan or issuer follows the
rules for providing notices with respect to
claims and appeals in a culturally and lin-
guistically appropriate manner under PHS
Act section 2719, and paragraph (e) of its
implementing regulations.
24
Note, noth-
ing in these final regulations should be
construed as limiting an individual’s rights
under Federal or State civil rights statutes,
such as Title VI of the Civil Rights Act of
1964 (Title VI) which prohibits recipients
of Federal financial assistance, including
issuers participating in Medicare Advan-
tage, from discriminating on the basis of
race, color, or national origins. To ensure
non-discrimination on the basis of national
origin, recipients are required to take rea-
sonable steps to ensure meaningful access
to their programs and activities by lim-
ited English proficient persons. For more
information, see, “Guidance to Federal
Financial Assistance Recipients Regard-
ing Title VI Prohibition Against National
Origin Discrimination Affecting Limited
English Proficient Persons,” available
athttp://www.hhs.gov/ocr/civilrights/re-
sources/specialtopics/lep/policyguidance-
document.html. While the Departments
received several comments regarding the
thresholds set forth in the claims and ap-
peals regulations, the Departments are
not making any changes to those stan-
dards through these final regulations. Any
changes suggested will be considered as
part of future rulemakings related to the
regulations under PHS Act section 2719,
so that the two rules remain consistent.
B.Notice of Modification
PHS Act section 2715(d)(4) directs that
a group health plan or health insurance is-
suer offering group or individual health
insurance coverage must provide notice
of any material modification if it makes
a material modification (as defined under
ERISA section 102) in any of the terms
of the plan or coverage involved that is
not reflected in the most recently provided
SBC. The comments generally supported
the standards regarding the notice of modi-
fication in the proposed regulations, which
are adopted as final regulations without
change.
However, some comments requested
clarification concerning the requirement
to provide a notice of modification. For
example, several comments requested
clarification on what changes in the terms
of coverage would rise to the level of a
material modification. For purposes of
PHS Act section 2715, the proposed and
final regulations interpret the statutory
reference to the SBC to mean that only
a material modification in the terms of
the plan or coverage that would affect the
content of the SBC; that is not reflected
in the most recently provided SBC; and
that occurs other than in connection with a
renewal or reissuance of coverage would
trigger the notice. In these circumstances,
thenoticewouldberequiredtobepro-
vided to enrollees (or, in the individual
market, covered individuals) no later than
60 days prior to the date on which such
change will become effective. A mate-
rial modification, within the meaning of
section 102 of ERISA, includes any mod-
ification to the coverage offered under a
plan or policy that, independently, or in
conjunction with other contemporaneous
modifications or changes, would be con-
sidered by an average plan participant (or
in the case of individual market coverage,
an average individual covered under a pol-
icy) to be an important change in covered
benefits or other terms of coverage under
the plan or policy.
25
A material modifica-
tion could be an enhancement of covered
24
See75 FR 43330 (July 23, 2010), as amended by 76 FR 37208 (June 24, 2011).
25
SeeDOL Information Letter, Washington Star/Washington-Baltimore Newspaper Guild to Munford Page Hall, II, Baker & McKenzie (February 8, 1985).
2012–15 I.R.B.759April 9, 2012

benefits or services or other more gener-
ous plan or policy terms. It includes, for
example, coverage of previously excluded
benefits or reduced cost-sharing. A mate-
rial modification could also be a material
reduction in covered services or benefits,
as defined in 29 CFR 2520.104b–3(d)(3)
of the Department of Labor’ regulations,
or more stringent requirements for receipt
of benefits. As a result, it also includes
changes or modifications that reduce or
eliminate benefits, increase cost-sharing,
or impose a new referral requirement.
26
(However, changes to the information in
the SBC resulting from changes in the
regulatory requirements for an SBC are
not changes to the plan or policy requir-
ing the mid-year provision of a notice of
modification, unless specified in such new
requirements.)
The Departments also received com-
mentsseekingclarificationonwhena
notice of modification must be provided.
Several comments suggested that this
notice must also be provided for modifi-
cations effective for new plan or policy
years. The final regulations require that
this notice be provided only for changes
other than in connection with a renewal or
reissuance of coverage. At renewal, plans
and issuers must provide an updated SBC
in accordance with the requirements other-
wise applicable to SBCs. PHS Act section
2715 and paragraph (b) of the final regu-
lations specify the timing for providing a
notice of modification in situations other
than in connection with a renewal or reis-
suance of coverage. To the extent a plan or
policy implements a mid-year change that
is a material modification, that affects the
content of the SBC, and that occurs other
than in connection with a renewal or reis-
suance of coverage, the final regulations
require a notice of modification to be pro-
vided 60 days in advance of the effective
date of the change. Comments generally
supported the flexibility provided in the
proposed regulations, which permitted
plans and issuers to either provide an up-
dated SBC reflecting the modifications or
provide a separate notice describing the
material modifications. Plans and issuers
continue to have this flexibility under
these final regulations.
For ERISA-covered group health plans
subject to PHS Act section 2715, this no-
tice is required in advance of the timing
requirements under the Department of La-
bor’s regulations at 29 CFR 2520.104b–3
for providing a summary of material mod-
ification (SMM) (generally not later than
210 days after the close of the plan year
in which the modification or change was
adopted, or, in the case of a material re-
duction in covered services or benefits, not
later than 60 days after the date of adoption
of the modification or change). In situa-
tions where a complete notice is provided
in a timely manner under PHS Act section
2715(d)(4), an ERISA-covered plan will
also satisfy the requirement to provide an
SMM under Part 1 of ERISA.
C.Uniform Glossary
Section 2715(g)(2) of the PHS Act di-
rects the Departments to develop standards
for definitions for at least the following
insurance-related terms: co-insurance,
co-payment, deductible, excluded ser-
vices, grievance and appeals, non-pre-
ferred provider, out-of-network co-pay-
ments, out-of-pocket limit, preferred
provider, premium, and UCR (usual, cus-
tomary and reasonable) fees. Section
2715(g)(3) of the PHS Act directs the
Departments to develop standards for def-
initions for at least the following medical
terms: durable medical equipment, emer-
gency medical transportation, emergency
room care, home health care, hospice
services, hospital outpatient care, hospi-
talization, physician services, prescription
drug coverage, rehabilitation services, and
skilled nursing care. Additionally, the
statute directs the Departments to develop
standards for such other terms as will help
consumers understand and compare the
terms of coverage and the extent of medi-
cal benefits (including any exceptions and
limitations).
The final regulations adopt the ap-
proach of the proposed regulations with
respect to the uniform glossary. This
includes the adoption of the NAIC rec-
ommendation to include the following
additional terms in the uniform glossary:
allowed amount, balance billing, compli-
cations of pregnancy, emergency medical
condition, emergency services, habilita-
tion services, health insurance, in-network
co-insurance, in-network co-payment,
medically necessary, network, out-of-net-
work co-insurance, plan, preauthorization,
prescription drugs, primary care physi-
cian, primary care provider, provider,
reconstructive surgery, specialist, and ur-
gent care.
The Departments received a number of
comments on the proposed uniform glos-
sary. Several comments recommended
that the final glossary include additional
terms. In general, these comments recom-
mended additional terms to provide con-
sumers with additional information to help
them better understand their coverage and
the content of the SBC. These comments
suggested the glossary include additional
terms that may appear in the SBC and
that may cause confusion, including spe-
cialty drugs, mentalhealth services and
behavioral health, cosmetic surgery, and
preventive care. Inaddition, some com-
menters recommended including defini-
tions for complex or potentially confusing
insurance terms, including explanations
of plan types (such as health maintenance
organizations or ERISA plans) and terms
such as actuarial value and cost-sharing.
Other commenters warned against making
the uniform glossary too long.
Some commenters recommended mod-
ifications to certain definitions in the
uniform glossary. For example, several
comments recommended modification
to the term “medical necessity.” In de-
veloping the final uniform glossary, the
Departments were very cognizant of the
consumer testing performed by the NAIC
with respect to the uniform glossary in-
cluded in the proposed regulations and the
need to convey in concise, easy-to-under-
stand language basic medical and coverage
terms.
27
Accordingly, very minor changes
were made in the final uniform glossary,
and it continues to include a disclaimer
that the terms and definitions of terms in
particular plans or policies may differ from
those contained in the glossary, together
with information on how to get a copy of
the actual policy or plan document.
26
See,e.g., Ward v. Maloney, 386 F. Supp.2d 607, 612 (M.D.N.C. 2005), which discusses judicial interpretations of when an amendment is and is not a material modification.
27
A summary of the focus group testing done by America’s Health Insurance Plans is available at:http://www.naic.org/documents/committees_b_consumer_information_101012_ahip_fo-
cus_group_summary.pdf, a summary of the focus group testing done by Consumers Union on the SBC template and the uniform glossary is available at:http://www.commonwealthfund.org/Pub-
lications/Issue-Briefs/2011/Feb/Making-Health-Insurance-Cost-Sharing-Clear.aspx.
April 9, 20127602012–15 I.R.B.

Some commenters requested flexibil-
ity to use their own, plan-specific or pol-
icy-specific terms in the glossary. PHS
Act section 2715(g) is titled “Development
of Standard Definitions.” The NAIC de-
veloped the uniform glossary to provide
generalized, plain-English definitions for
common coverage and medical terms. The
document was intended to help consumers
understand the basics of insurance. At the
same time, the document specifically cau-
tions that it is intended to be a general edu-
cational tool and that individual plan terms
may differ (and refers consumers to the
SBC for information on how to get an ac-
curate description of their actual plan or
policy terms). A guidance document pub-
lished elsewhere in this issue of the Bul-
letin announces the availability of the final
uniform glossary. The SBC may be used
by plans and issuers to convey more accu-
rate descriptions, where appropriate.
Like the proposed regulations, the fi-
nal regulations direct a plan or issuer to
make the uniform glossary available upon
request within seven business days. A
plan or issuer satisfies this requirement by
complying with the content requirement
described in paragraph (a)(2)(i)(L) of the
final regulations, which requires that the
SBC include an Internet address where an
individual may review and obtain the uni-
form glossary, a contact phone number to
obtain a paper copy of the uniform glos-
sary, and a disclosure that paper copies are
available upon request. The Internet ad-
dress may be a place where the document
can be found on the plan’s or issuer’s web-
site, or the website of either the Depart-
ment of Labor or HHS. However, a plan
or issuer must make a paper copy of the
glossary available within seven business
days upon request. Group health plans and
health insurance issuers must provide the
uniform glossary in the appearance speci-
fied by the Departments, so that the glos-
sary is presented in a uniform format and
uses terminology understandable by the
average plan enrollee or individual cov-
ered under an individual policy.
D.Preemption
Section 2715 of the PHS Act is in-
corporated into ERISA section 715, and
Code section 9815, and is subject to the
preemption provisions of ERISA section
731 and PHS Act section 2724 (imple-
mented in 29 CFR 2590.731(a) and 45
CFR 146.143(a)). Under these provisions,
the requirements of part 7 of ERISA and
partAoftitleXXVIIofthePHSAct,
as amended by 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 or individual health insurance
coverage except to the extent that such
standard or requirement prevents the
application of a requirement” of part A of
title XXVII of the PHS Act. Accordingly,
State laws that impose requirements on
health insurance issuers that are stricter
than those imposed by the Affordable
Care Act will not be superseded by the
Affordable Care Act. Moreover, PHS Act
section 2715(e) provides that the standards
developed under PHS Act section 2715(a),
“shall preempt any related State standards
that require [an SBC] that provides
less information to consumers than that
required to be provided under this section,
as determined by the [Departments].”
Reading these two preemption provi-
sions together, the final regulations do not
prevent States from imposing separate, ad-
ditional disclosure requirements on health
insurance issuers.
The Departments received several
comments seeking clarification on the
preemption of State disclosure standards.
These comments indicate that many States
have existing disclosure requirements that
may be duplicative and noted consumers
could be confused by multiple disclosures.
These final regulations retain the preemp-
tion standard as stated in the proposed reg-
ulations. However, the Departments take
note of the concerns about the potential
for consumer confusion, and encourage
States to take steps to harmonize exist-
ing State requirements with these Federal
consumer disclosure requirements. The
Departments will work with States to clar-
ify the requirements, potential differences,
and options.
In addition, some comments requested
clarification that States may not require
the modification of the SBC or uniform
glossary in their own disclosure standards.
Comments stated that any State modifica-
tions to these documents would defeat the
purpose of having an SBC template and
uniform glossary, and one comment re-
quested that any State law modifications
to these documents be preempted, and that
any additional content required by State
law be limited to an addendum to the SBC.
If States require health insurance issuers to
provide information not contained in the
SBC or uniform glossary, then they may
require issuers to provide that information
only if it is provided in a document that is
separate from the SBC. This separate doc-
ument can, however, be provided at the
same time as the SBC.
E.Failure to Provide
PHS Act section 2715(f), incorporated
into ERISA section 715 and Code section
9815, provides that a group health plan (in-
cluding its administrator), and a health in-
surance issuer offering group or individual
health insurance coverage, that “willfully
fails to provide the information required
under this section shall be subject to a fine
of not more than $1,000 for each such fail-
ure.” In addition, under PHS Act section
2715(f), a separate fine may be imposed
for each individual or entity for whom
there is a failure to provide an SBC. Due
to the different enforcement jurisdictions
of the Departments, as well as their differ-
ent underlying enforcement structures, the
mechanisms for imposing the new penalty
vary slightly, as discussed below.
1.DepartmentofHHS
Enforcement of Part A of Title XXVII
of the PHS Act, including section 2715,
is generally governed by PHS Act sec-
tion 2723 and corresponding regulations
at 45 CFR 150.101et seq. Under those
provisions, a State has the discretion
to enforce the provisions against health
insurance issuers in the first instance, and
the Secretary of HHS only enforces a
provision after the Secretary determines
that a State has failed to substantially
enforce the provision. If a State enforces a
provision such as PHS Act section 2715, it
uses its own enforcement mechanisms. If
the Secretary enforces, the statute provides
for penalties of up to $100 per day for each
affected individual.
PHS Act section 2715(f) provides that
an entity that willfully fails to provide the
information required under PHS Act sec-
tion 2715 shall be subject to a fine of not
more than $1,000 for each such failure.
Such failure constitutes a separate offense
2012–15 I.R.B.761April 9, 2012

with respect to each enrollee. This penalty
can only be imposed by the Secretary.
Paragraph (e) of the final regulations
clarifies that States have primary enforce-
ment authority over health insurance is-
suers for any violations, whether willful
or not, using their own remedies and that
PHS Act section 2715 does not limit the
Secretary’s authority to impose penalties
for willful violations regardless of State
enforcement. However, the Secretary in-
tends to use enforcement discretion if the
Secretary determines that the State is ade-
quately addressing willful violations.
The Secretary of HHS has direct en-
forcement authority for violations by
non-Federal governmental plans, and will
use the appropriate penalty for violations
of section 2715, depending on whether
the violation is willful. Paragraph (e) of
the HHS final regulations cross references
the enforcement regulations at 45 CFR
150.101et seq., and states that they re-
late to any failure, regardless of intent, by
a health insurance issuer or non-Federal
governmental plan, to comply with any
requirement of PHS Act section 2715.
2.Departments of Labor and the Treasury
The Department of Labor enforces the
requirements of part 7 of ERISA with
respect to ERISA-covered group health
plans (generally, plans other than church
plans or plans maintained by a govern-
mental entity) and the Department of the
Treasury enforces the requirements of
chapter 100 of the Code with respect to
group health plans maintained by an en-
tity that is not a governmental entity. On
April 21, 1999, pursuant to section 104 of
the Health Insurance Portability and Ac-
countability Act of 1996 (HIPAA), Pub.
L. 104–191, the Secretaries entered into
a memorandum of understanding
28
that,
among other things, established a mech-
anism for coordinating enforcement and
avoiding duplication of effort for shared
jurisdiction. The memorandum of under-
standing applies, as appropriate, to health
legislation enacted after April 21, 1999
over which at least two of the Departments
share jurisdiction, including PHS Act sec-
tion 2715 as incorporated into ERISA
and the Code. Therefore, in enforcing
PHS Act section 2715, the Departments
of Labor and the Treasury will coordinate
to avoid duplication in the case of group
health plans that are not church plans and
that are not maintained by a governmental
entity.
a.Department of Labor
The Department of Labor will issue
separate regulations in the future describ-
ing the procedures for assessment of the
civil fine provided under PHS Act section
2715(f) as incorporated by section 715 of
ERISA. In accordance with ERISA sec-
tion 502(b)(3), 29 U.S.C. 1132(b)(3), the
Secretary of Laboris not authorized to
assess this fine against a health insurance
issuer.
b.Department of the Treasury
If a group health plan (other than a plan
maintained by a governmental entity) fails
to comply with the requirements of chap-
ter 100 of the Code, an excise tax is im-
posed under section 4980D of the Code.
The excise tax is generally $100 per day
per individual for each day that the plan
fails to comply with chapter 100 with re-
spect to that individual. Numerous rules
under section 4980D reduce the amount of
the excise tax for failures due to reason-
able cause and not to willful neglect. Spe-
cial rules apply for church plans. Taxpay-
ers subject to the excise tax under section
4980D are required to report the failures
under chapter 100 and the amount of the
excise tax on IRS Form 8928. See 26 CFR
54.4980D–1, 54.6011–2, and 54.6151–1.
Section 2715(f) of the PHS Act sub-
jects a plan sponsor or designated admin-
istrator to a fine of not more than $1,000
for each failure to provide an SBC. Unless
and until future guidance provides other-
wise, group health plans subject to chap-
ter 100 of the Code should continue to re-
port the excise tax of section 4980D on IRS
Form 8928 with respect to failures to com-
ply with PHS Act section 2715. The Sec-
retaries of Labor and the Treasury will co-
ordinate to determine appropriate cases in
which the fine of PHS Act section 2715(f)
should be imposed on group health plans
that are in the jurisdiction of both Depart-
ments.
F.Applicability
PHS Act section 2715 provides that the
requirement for group health plans and
health insurance issuers to provide an SBC
applies not later than 24 months after the
date of enactment of the Affordable Care
Act (which is March 23, 2012). PHS
Actsection2715alsoprovidesthatgroup
health plans and health insurance issuers
shall provide the SBC pursuant to stan-
dards developed by the Departments. The
proposed regulations proposed an appli-
cability date beginning March 23, 2012.
At the same time, the Departments invited
comments generally, as well as on a range
of discrete issues, including the timing of
the application of the SBC requirement.
On November 17, 2011, the Departments
issued guidance
29
providing that, until fi-
nal regulations are issued and applicable,
plans and issuers are not required to com-
ply with PHS Act section 2715.
The Departments received numerous
comments on the applicability date of
the regulations. Several comments stated
plans and issuers would need time to
make changes to their systems and work-
flow processes and could not come into
compliance by March 23, 2012 without in-
curring significant cost and administrative
challenges. Some comments recommend
delaying applicability for 12 months,
noting that PHS Act section 2715 contem-
plates that plans and issuers would have
12 months from the date the Secretary
develops standards to begin providing
the SBC, while others recommended de-
laying applicability for 18 to 24 months
to allow sufficient time for group health
plans to revise and coordinate service ven-
dor agreements. Other comments stated
the requirements should apply beginning
with a plan’s open enrollment period to
avoid disruption during the plan year. Still
others recommended phasing in the re-
quirements by marketsegment, starting
with the individual market initially and
broadening over time to include the group
market. These commenters emphasized
the complexity in the group market of
coordinating between the plan and the
28
See64 FR 70164 (December 15, 1999).
29
See FAQs About Affordable Care Act Implementation Part VIIand Mental Health Parity Implementation, available atwww.dol.gov/ebsa/faqs/faq-aca7.htmlandcciio.cms.gov/re-
sources/factsheets/aca_implementation_faqs7.html.
April 9, 20127622012–15 I.R.B.

issuer (and perhaps across multiple is-
suers and/or service providers) and the
greater need for standardized information
in the individual market (where there are
no other Federal requirements to provide
summary information). Finally, some
comments expressed support for the pro-
posed March 23, 2012 applicability date,
arguing individuals and employers should
receive the consumer protections of PHS
Act section 2715 no later than the date
intended by statute.
Following review of the comments
submitted on this issue and further consid-
eration of the administrative and systems
changes required to implement these re-
quirements, the Departments have deter-
mined it would not be feasible to require
plans and issuers to comply with the stan-
dards in the final regulations beginning
March 23, 2012 and have delayed the
applicability date for six months from
that which was proposed to provide suf-
ficient time for plans and issuers to come
into compliance with these provisions.
The Departments agree that implementing
these provisions to coincide with employ-
ers’ typical open enrollment processes in
the group market will reduce confusion
for current enrollees who typically make
enrollment decisions during annual open
enrollment periods and will avoid unnec-
essary cost to group health plan sponsors
of producing these materials off-cycle.
The final regulations provide that the re-
quirements to provide an SBC, notice of
modification, and uniform glossary under
PHS Act section 2715 and these final reg-
ulations apply for disclosures with respect
to participants and beneficiaries who en-
roll or re-enroll in group health coverage
through an open enrollment period (in-
cluding re-enrollees and late enrollees),
beginning on the first day of the first open
enrollment period that begins on or after
September 23, 2012. For administrative
simplicity, with respect to disclosures to
participants and beneficiaries who enroll
in group health plan coverage other than
through an open enrollment period (in-
cluding individuals who are newly eligible
for coverage and special enrollees), PHS
Act section 2715 and these final regula-
tions apply on the first day of the first plan
year that begins on or after September 23,
2012. For disclosures to plans, and to in-
dividuals and dependents in the individual
market, these requirements are applica-
ble to health insurance issuers beginning
September 23, 2012.
IV. Economic Impact and Paperwork
Burden
A. Executive Orders 12866 and
13563—Department of Labor and
Department of Health and Human
Services
Executive Orders 12866 and 13563
direct agencies to assess all costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects; distributiveimpacts; and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, of reducing costs, of harmonizing
rules, and of promoting flexibility. This
rule has been designated a “significant
regulatory action” under section 3(f) of
Executive Order 12866. Accordingly, the
rule has been reviewed by the Office of
Management and Budget.
A regulatory impact analysis (RIA)
must be prepared for major rules with eco-
nomically significant effects ($100 million
or more in any 1 year). As discussed
below, the Departments have concluded
that these final regulations would not have
economic impacts of $100 million or more
in any one year or otherwise meet the
definition of an “economically signifi-
cant rule” under Executive Order 12866.
Nonetheless, consistent with Executive
Orders 12866 and 13563, the Departments
have provided an assessment of the poten-
tial benefits and the costs associated with
this final regulation.
The Departments have updated the cost
estimates from what was presented in the
proposed regulations. Since publication
of the proposed regulations, the Depart-
ments have continued to refine assump-
tions and estimates to take into account
policy decisions made in the final regula-
tions and to incorporate better data. The
estimates presented in this rule are a re-
sult of those efforts and represent the De-
partments’ best estimate. Discussion of
the public comments and the updates to
the Departments’ estimates are included in
the relevant sectionsof the impact anal-
ysis. While the Departments believe the
estimates in these final regulations repre-
sent the Departments’ best estimate, the
Departments emphasize there is consider-
able uncertainty, as is common with regu-
lations implementing new policies, and the
discussion throughout the impact analysis
reflects this.
1. Current Regulatory Framework
Health plan sponsors and issuers do not
currently uniformly disclose information
to consumers about benefits and coverage
in a simple and consistent way. ERISA-
covered group health plans are required to
describe important plan information con-
cerning eligibility, benefits, and partici-
pant rights and responsibilities in a sum-
mary plan description (SPD). But as these
documents have increased in size and com-
plexity — for example, due to the inser-
tion of more legalistic language that is de-
signed to mitigate the employer’s risk of
litigation — they have become more dif-
ficult for participants and beneficiaries to
understand.
30
Indeed, a recent analysis of
SPDs from 40 employerhealth plans from
across the United States (varying based on
geography, firm size, and industry sector)
found that, on average, SPDs are generally
written at a first year college reading level
(with readability ranging from a 9th grade
reading level to nearly a college graduate
reading level).
31
Moreover, the formats of
existing SPDs are not standardized. For
example, while these documents could be
dozens of pages long, there is no require-
ment that they include an executive sum-
mary. Additionally, group health plans not
covered by ERISA, such as plans spon-
sored by State and local governments, are
not required to comply with such disclo-
sure requirements.
In the individual market, health insur-
ance issuers are subject to various, di-
verse State disclosure laws. For example,
30
ERISA Advisory Council. Report of the Working Group on health and Welfare Benefit Plans’ Communication. November 2005. Available at:http://www.dol.gov/ebsa/publica-
tions/AC_1105c_report.html.
31
“How Readable Are Summary Plan Descriptions For Health Care Plans?” Employee Benefit Research Institute (EBRI) Notes. October 2006, Vol. 27, No. 10.Available at:
http://www.ebri.org/pdf/notespdf/EBRI_Notes_10–20061.pdf.
2012–15 I.R.B.763April 9, 2012

States like Massachusetts,
32
New York,
33
Rhode Island,
34
Utah
35
and Vermont
36
have established minimum standards for
disclosure of health insurance informa-
tion. However, even within such States,
consumer disclosures vary widely with
respect to their required content. Addi-
tionally, some State disclosure laws are
limitedtocurrentenrollees,sothatin-
dividuals shopping for coverage do not
receive information about health insurance
coverage options. Other State disclosure
requirements only extend to managed care
organizations, and not to other segments
of the market.
37
2. Need for Regulatory Action
Congress added new PHS Act section
2715 through the Affordable Care Act
to ensure that plans and issuers provide
benefits and coverage information in a
more uniform format that helps consumers
to better understand their coverage and
better compare coverage options. These
final regulations are necessary to provide
standards for a summary of benefits and
coverage (SBC) and a uniform glossary of
terms used in health coverage. This ap-
proach is consistent with Executive Order
13563, which directs agencies to “iden-
tify and consider regulatory approaches
that reduce burdens and maintain flexibil-
ity and freedom of choice for the public.
These approaches include... disclosure
requirements as well as provision of infor-
mation to the public in a form that is clear
and intelligible.”
The current patchwork of consumer
disclosure requirements makes the process
of shopping for coverage an inefficient,
difficult, and time-consuming task. Con-
sumers incur significant search costs while
trying to locate reliable cost, coverage and
benefit data.
38
Such search costs arise, in
part, due to a lack of uniform information
across the various coverage options, par-
ticularly in the individual and small group
markets, but also in large employer plans.
Although not directly comparable, in
Medigap, a market with standardized ben-
efits, the average per-beneficiary search
cost was estimated at $72 —far higher
than in other insurance markets, such as
auto insurance.
39
In addition to individual consumers,
employers, especially small business
employers, also face a daunting search
process when they shop for health cov-
erage. A 2011 study of the commercial
health insurance market found that many
employers, especially small businesses,
lack the necessary knowledge, sophistica-
tion, and information to efficiently choose
appropriate health plans to purchase on
behalf of their employees. This lack of
knowledge, sophistication, and informa-
tion requires health insurers to spend more
money on marketing to target small busi-
ness employers. Health insurers then pass
the extra marketing costs on to employers
in the form of higher premiums. The study
determined that in 1997, this inefficiency
cost consumers in the fully insured market
$34.4 billion. Employers’ lack of knowl-
edge, sophistication, and information also
produces incentives for health insurers to
charge different prices for identical prod-
ucts to different customers, depending
upon the customer’s negotiating skills.
This price variability causes 64 percent
more turnover in plan membership, than
would otherwise occur. High levels of
turnover discourage health insurers from
promoting healthy lifestyles and investing
in the future health of their policyhold-
ers.
40
Given this difficulty in obtaining com-
parable information across and within
health insurance markets, consumers may
not always make informed purchase deci-
sions that best meet the health and finan-
cial needs of themselves, their families, or
their employees. Similarly, workers may
overestimate or underestimate the value of
employer-sponsored health benefits, and
thus their total compensation; and health
insurance issuers and employers may face
less pressure to compete on price, benefits,
andquality,leadingtoinefficiencyinthe
health insurance and labor markets.
Furthermore, research suggests that
many consumers do not understand how
health coverage works. Oftentimes, con-
tracts and benefit descriptions are written
in technical language that requires a so-
phisticated level of literacy that many
people do not have.
41
One study found
that consumers have particular difficulty
understanding cost sharing and tend to
underestimate their coverage for mental
health, substance abuse and prescription
drug benefits, while overestimating their
coverage for long-term care.
42
3. Summary of Impacts
Table 1 below depicts an accounting
statement summarizing the Departments’
assessment of potential benefits, costs, and
transfers associated with this regulatory
action. The Departments have limited the
32
M.G.L.A. 176Q §5 (2010).
33
NY Ins. Law §3217–a (2010).
34
Office of the Health Insurance Commissioner Regulation 5: Standards for Readability of Health Insurance Forms, State of Rhode Island and ProvidencePlantations, August 21, 2010.
35
Utah Code §31A–22–613.5 (2010).
36
Division of Health Care Administration, Rule 10.000: Quality Assurance Standards and Consumer Protections for Managed care Plans, State of Vermont, September 20, 1997.
37
For example, New York requires Health Maintenance Organizations to provideto prospective members, as well as policyholders, information on cost-sharing, including out-of-network
costs, limitations and exclusions on benefits, prior authorization requirements, and other disclosures such as appeal rights. NY Ins. Law section 3217–a (2010). Utah requires each insurer
issuing a health benefit plan to provide all enrollees, prior to enrollment in the health benefit plan, written disclosure of restrictions or limitations on prescription drugs and biologics, coverage
limits under the plan, and any limitation or exclusion of coverage. Utah Code section 31A–22–613.5 (2010). Rhode Island requires all health insurance forms to meet minimum readability
standards. Office of the Health Insurance Commissioner Regulation 5: Standards for Readability of Health Insurance Forms, State of Rhode Island andProvidence Plantations, August 21,
2010.
38
M. Susan Marquiset al., “Consumer Decision Making in the Individual Health Insurance Market,” 25 Health Affairs w.226, w.231-w.232 (May 2006). Available at:http://content.healthaf-
fairs.org/content/25/3/w226.full.pdf+html.
39
Nicole Maestaset al., “Price Variation in Markets with Homogenous Goods: The Case of Medigap,” National Bureau of Economic Research (January 2009).
40
Cebul, Randall D., James B. Rebitzer, Lowell J. Taylor, and Mark E. Votruba.2011. “Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance.”
American Economic Review, 101 (August 2011): 1842–1871.
41
For example, as discussed earlier, the average Summary Plan Description iswritten at a first-year college reading level. See Employee Benefit Research Institute, October 2006.
42
D.W. Garnick, A.M. Hendricks, K.E. Thorpe, J.P. Newhouse, K. Donelan and R.J. Blendon. “How well do Americans understand their health coverage?” Health Affairs, 12(3). 1993:204–12.
Available at:http://content.healthaffairs.org/content/12/3/204.full.pdf.
April 9, 20127642012–15 I.R.B.

period covered by the RIA to 2012–2013.
Estimates are not provided for subsequent
years, because there will be significant
changes in the marketplace in 2014, in-
cluding those related to the offering of new
individual and small group plans through
the Affordable Insurance Exchanges, and
new market reforms outside of the new
Exchanges, and the wide-ranging scope of
these changes makes it difficult to project
results for 2014 and beyond.
The direct benefits of these final regu-
lations come from improved information,
which will enable consumers, both indi-
viduals and employers, to better under-
stand the coverage they have and allow
consumers choosing coverage to more eas-
ily compare coverage options. As a re-
sult, consumers may make better cover-
age decisions, which more closely match
their preferences with respect to benefit
design, level of financial protection, and
cost. The Departments believe that such
improvements will result in a more effi-
cient, competitive market. These final reg-
ulations would also benefit consumers by
reducing the time they spend searching for
and compiling health plan and coverage in-
formation.
Under the final regulations, group
health plans and health insurance issuers
would incur costs to compile and provide
the summary of benefits and coverage
disclosures and a uniform glossary of
health coverage and medical terms. The
Departments estimate that the annualized
cost may be around $73 million, although
there is considerable uncertainty arising
from general data limitations and the de-
gree to which economies of scale exist
for disclosing this information. The De-
partments’ annualized cost estimates for
the final regulation are higher than the
estimated annualized cost of $50 million,
which was set forth in the proposed reg-
ulations, because, among other things,
the Departments now have narrowed the
cost estimate period from 2011–2013 to
2012–2013. This change reflects the fact
that the Departments issued guidance on
November 17, 2011 providing that, until
final regulations are issued and applicable,
plans and issuers are not required to com-
ply with PHS Act section 2715, and the
fact that these final regulations are being
published in 2012.
43
Nonetheless, these
final regulations lower overall administra-
tive costs compared to the proposed regu-
lations because of several policy changes,
notably the omission of premium or cost
of coverage information from SBCs, the
provision of only two coverage examples,
and provisions allowing greater flexibility
for electronic disclosures prior to enroll-
ment in coverage.
The Departments anticipate that the
provisions of these final regulations will
help consumers, including employers,
make better health coverage choices and
more easily understand their coverage. In
accordance with Executive Orders 12866
and 13563, the Departments believe that
the benefits of this regulatory action jus-
tify the costs.
Table 1. Accounting Table
Benefits:
Qualitative:
Improved information will enable consumers, including applicants, enrollees, and policyholders, to more easily and efficiently
understand and compare coverage, and as a result, make better choices.
Costs:EstimateYear
Dollar
Discount
Rate
Percent
Period Covered
$73
201272012–2013
Annualized Monetized
($ millions/year)
$73
201232012–2013
4. Benefits
In developing these final regulations,
the Departments carefully considered their
potential effects, including costs, benefits,
and transfers. Because of data limitations,
the Departments did not attempt to quan-
tify expected benefits of these final regula-
tions. Nonetheless, the Departments were
able to identify several benefits, which are
discussed below.
These final regulations could generate
significant economic and social welfare
benefits to consumers. Under these final
regulations, health insurance issuers and
group health plans would provide clear
and consistent information to consumers.
Uniform disclosure is anticipated to ben-
efit individuals shopping for, or enrolled
in, group and individual health insurance
coverage and group health plans. The
direct benefits of these final regulations
come from improved information, which
will enable consumers to better understand
the coverage they have and allow con-
sumers choosing coverage to more easily
compare options. As a result, consumers
will make better coverage decisions, which
more closely match their preferences with
respect to benefit design, level of financial
protection, and cost.The Departments be-
lieve that such improvements will result in
a more efficient, competitive market.
These final regulations would also
benefit consumers by reducing the time
they spend searching for and compiling
health plan and coverage information.
As stated above, consumers in the indi-
vidual market, as well as consumers in
some large employer-sponsored plans,
have a number of coverage options and
must make a choice using disclosures
43
See FAQs About Affordable Care Act Implementation Part VIIand Mental Health Parity Implementation, available atwww.dol.gov/ebsa/faqs/faq-aca7.htmlandcciio.cms.gov/re-
sources/factsheets/aca_implementation_faqs7.html.
2012–15 I.R.B.765April 9, 2012

and tools that vary widely in content and
format. A growing body of decision-mak-
ing research suggests that the abundance
and complexity of information can over-
whelm consumers and create a significant
non-price barrier to coverage.
44
For ex-
ample, a RAND study of California’s
individual market found that reducing bar-
riers to information about health insurance
products would lead to increases in pur-
chase rates comparable to modest price
subsidies.
45
By ensuring consumers have
access to readily available, concise, and
understandable information about their
coverage options, these final regulations
could reduce consumers’ cost of obtain-
ing information and may increase health
insurance purchase rates and satisfaction
with the plan purchased.
Furthermore, greater transparency in
pricing and benefits information will allow
consumers to make more informed pur-
chasing decisions, resulting in cost-sav-
ings for some value-conscious consumers
who today pay higher premiums because
of imperfect information about benefits.
46
In particular, the use of coverage examples
called for by these final regulations would
better enable consumers to understand
how key coverage provisions operate in
the context of recognizable health care sit-
uations and more meaningfully compare
the level of financial protection offered
by a plan or coverage, resulting in poten-
tial cost-savings.
47
,
48
The Departments
therefore expect that uniform disclosures
under these final regulations will enable
consumers to derive more value from their
health coverage and enhance the abil-
ity of plan sponsors, particularly small
businesses, to purchase products that are
appropriate to both their needs and the
health and financial needs of their employ-
ees.
Finally, these final regulations are ex-
pected to facilitateconsumers’ ability
to understand their coverage. As stated
above, research suggests that consumers
do not understand how coverage works
or the terminology used in health insur-
ance policies. Consequently, consumers
may face unexpected medical expenses if
they become seriously ill. They may also
become confused by a coverage or pay-
ment decision made by their plan or issuer,
leadingtoinefficiencyintheoperationof
employee benefit plans and health insur-
ance coverage. By making it easier for
consumers to understand the key features
of their coverage, these final regulations
would enhance consumers’ ability to use
their coverage. Additionally, the uniform
format will make it easier for consumers
who change jobs or insurance coverage to
see how their new plan or coverage bene-
fits are similar to and different from their
previous coverage.
5. Costs
Section 2715 of the PHS Act and these
final regulations direct group health plans
and health insurance issuers to compile
and provide an SBC and a uniform glos-
sary of health coverage and medical terms.
The Departments have attempted to quan-
tify one-time start-up costs as well as
maintenance costs associated with these
requirements. However, there is consid-
erable uncertainty arising from general
data limitations and the degree to which
economies of scale can be realized to
reduce costs for issuers and third party
administrators (TPAs).
In the proposed regulations, the Depart-
ments estimated total administrative costs
to be $25 million in 2011, $73 million in
2012, and $58 million in 2013. The De-
partments now estimate that issuers and
TPAs will incur approximately $90 million
in one-time costs and maintenance costs
in 2012, and $55 in maintenance costs in
2013. These costs and the methodology
used to estimate them are discussed below,
and presented in Tables 2–6 below.
General Assumptions
In order to assess the potential adminis-
trative costs relating to these final regula-
tions, the Departments consulted with sev-
eral industry experts, including individuals
at large health insurance issuers and repre-
senting a TPA association, individuals who
formerly worked at health insurance com-
panies, and insurance market researchers,
to gain insight into the tasks and level of
resources required. The discussions fo-
cusedonestimatingthecoststhatwould
be start-up versus maintenance, and deter-
mining which functions or departments of
an insurance company or TPA would be
involved in implementing the provision.
In addition, we reviewed the analyses of
other Affordable Care Act regulations that
impose new requirements on health insur-
ance issuers and TPAs, to determine ap-
propriate work levels and categories for
this regulation. Particularly, we analyzed
the Medical Loss Ratio (MLR) interim fi-
nal rule (75 FR 74918). Based on these
discussions, the Departments estimate that
there will be two categories of principal
costs associated with the standards in these
final regulations: one-time start-up costs
and ongoing maintenance costs. The one-
time start-up costs include costs to develop
teams to review the new standards and
costs to implement workflow and process
changes, particularly the development of
information technology (IT) systems in-
terfaces that would generate SBC disclo-
sures through data housed in a number
of different systems. The maintenance
costs include costs to maintain and update
IT systems in compliance with the final
standards; to produce, review, distribute,
and update the SBC disclosures; to pro-
duce and distribute notices of modifica-
tions; and to provide the glossary in paper
form upon request.
With respect to the individual market,
issuers are responsiblefor generating, re-
viewing, updating, and distributing SBCs.
With respect to employer-sponsored cov-
44
Judith H. Hibbard and Ellen Peters, “Supporting Informed Consumer Health Care Decisions: Data Presentation Approaches that Facilitate the Use of Information in Choice,” 24Annu.
Rev. Public Health413, 416 (2003).
45
M. Susan Marquis et al., “Consumer Decision Making in the Individual HealthInsurance Market,” 25 Health Affairs w.226, w.231-w.232 (May 2006). Available at:http://content.healthaf-
fairs.org/content/25/3/w226.full.pdf+html.
46
A study of California’s individual market found that 25 percent of consumers chose products with premiums that were more than 30 percent higher than the median price for an actuarially
equivalent product for a similar person. Melinda Beeuwkes Buntinet al., “Trends and Variability In Individual Insurance Products,” Health Affairs w3.449, w3.457 (2003), available at
http://content.healthaffairs.org/content/early/2003/09/24/hlthaff.w3.449.citation.
47
Shoshanna Sofaeret al., “Helping Medicare Beneficiaries Choose Health Insurance: The Illness Episode Approach, 30 The Gerontologist 308–315 (1990).
48
Michael Schoenbaumet al., “Health Plan Choice and Information about Out-of-Pocket Costs: An Experimental Analysis,” 38Inquiry35–48 (Spring 2001).
April 9, 20127662012–15 I.R.B.

erage, the Departments assume that fully-
insured plans will rely on health insur-
ance issuers, and self-insured plans will
rely on TPAs, to perform these functions.
Some commenters stated that some em-
ployers internally prepare plan materials
and do not rely on TPAs. While the De-
partments acknowledge that some plans
may internally prepare the SBC disclo-
sures, the Departments do not have suf-
ficient data to develop separate estimates
for such plans. Therefore, the Depart-
ments continue to make this simplifying
assumption because most plans appear to
rely on issuers and TPAs for the purpose
of administrative duties such as enrollment
and claims processing.
49
Thus, the De-
partments have used health insurance is-
suers and TPAs as the units of analysis for
the purposes of estimating administrative
costs in this regulatory impact analysis.
As discussed in the MLR interim fi-
nal rule, the Departments estimate there
are about 440 firms offering comprehen-
sive coverage in the individual, small, or
large group markets, and 75 million cov-
ered lives therein.
50
The number of cov-
ered lives includes individuals in the indi-
vidual market as well as those in insured
group health plans.
With respect to the self-insured mar-
ket, the Departments estimate there are
77 million individuals in self-insured
ERISA-covered plans and approximately
14 million individuals in self-insured
non-Federal governmental plans.
51
The
Departments note that, according to 2007
Economic Census data, there are 2,243
TPAs providing administrative services
for health and/or welfare funds. However,
there is some uncertainty as to whether
all of those TPAs serve self-insured plans;
many issuers, for example, have subsidiary
lines of business through administrative
services only (ASO) contracts through
which they perform third-party adminis-
trative functions for self-insured plans.
52
Based on conversations with a national
TPA association, the Departments assume
that about one-third of the total number
of TPAs, or about 748 TPAs, are relevant
for purposes of this analysis. However,
given the considerable overlap between
issuers and TPAs, the Departments recog-
nize there may be fewer affected TPAs, so
these estimates should be considered an
upper bound of burden estimates.
Because the SBC disclosures are
closely related to disclosures that issuers
and TPAs provide today as a part of their
normal operations (for example, covered
benefits and cost sharing), the Depart-
ments estimate that the incremental costs
of compiling and providing such read-
ily available information in the final,
standardized format is estimated to be
modest.
53
The regulated community has
taken exception to this assumption, and
it has stated in written comments, and
discussions with the Departments, that
information will need to be pulled from
multiple sources. However, an opposite
conclusion appears to have been reached
by a November 2011 survey related to the
regulated community’spreparedness for
SBCs. Particularly, the survey noted that
existing communications practices and
technology would allow affected entities
to be in compliance even by the statutory
compliance date of March 23, 2012.
54
The results of this survey are also consis-
tent with comments indicating that timely
compliance is feasible.
The per-issuer or per-TPA cost will
largelybedeterminedbysize(basedon
annual premium revenues) and current
practices—most importantly, whether the
issuer or TPA maintains a robust informa-
tion technology infrastructure, including a
plan benefits design database. Moreover,
with regard to issuers, administrative costs
may be related to the number of markets
in which a company operates (that is,
individual, small group, or large group
market); the number of policies it offers;
and the number of States and licensed
entities through which it offers coverage.
To account for variations among is-
suers, the Departments classify them by
size as small, medium, and large issuers
based on 2009 premium revenue for in-
dividual, small group, and large group
comprehensive coverage.
55
Consistent
with the assumptions that were used in the
MLR interim final rule, small issuers are
defined as those earning up to $50 mil-
lion in annual premium revenue; medium
issuers as those earning between $50 mil-
lion and $1 billion in annual premium
revenue; and large issuers as those earning
more than $1 billion in annual premium
revenue. Based on these assumptions, the
Departments estimate there are 140 small,
230 medium, and 70 large issuers.
To account for variations among TPAs,
the Departments applied the proportions of
small, medium, and large issuers to the es-
timated 750 TPAs. The Departments ac-
knowledge that issuers and TPAs are dif-
ferent and may not have the same size vari-
ation. Nonetheless, given general data lim-
itations, the Departments have adopted this
methodology, and, on its basis, estimate
that there are 240 small, 390 medium, and
120 large TPAs. Table 2 below summa-
rizes the estimated number of issuers and
TPAs.
49
See, for example, the Department of Labor’s March 2011 report to Congress on self-insured health plans, available athttp://www.dol.gov/ebsa/pdf/ACAReportToCongress032811.pdf.
50
The NAIC data actually indicate 442 issuers and 74,830,101 covered lives. But the Departments have limited these values to only two significant figures given general data uncertainty.
For example, the NAIC data do not include issuers regulated by California’sDepartment of Managed Health Care (DMHC) as well as small, single-State issuers that are not required by State
regulators to submit NAIC annual financial statements.
51
U.S. Department of Labor, EBSA calculations using the March 2009 Current Population Survey Annual Social and Economic Supplement and the 2009 Medical Expenditure Panel Survey;
see also interim final rule for internal claims and appeals and external review processes (75 FR 43330, 43345).
52
See, for example, the Department of Labor’s March 2011 report to Congress on self-insured health plans, available athttp://www.dol.gov/ebsa/pdf/ACAReportToCongress032811.pdf.
53
For example, issuers in the individual and small group markets already report some of the SBC information to HHS for display in the plan finder on theHealthCare.govwebsite. Issuers
have been reporting data to HHS since May 2010 and have refreshed that data on aquarterly basis. These reporting entities have demonstrated that they have the capacity to report information
on plan benefit design. Seehttp://finder.healthcare.gov/. Further, ERISA-covered plans already report some of the SBC information in summary plan descriptions (SPDs).
54
See December 13, 2011 news release for HighRoads Pulse Study, available athttp://newsroom.highroads.com/hr-compliance-connection/highroads-study-shows-employers-will-not-elim-
inate-benefits-coverage-due-to-health-care-reform.Among other things, the study’s author noted, “SBCs have not caused a great concern among organizations...This is partly a reflection of
current communications practices—many employers are already providing a level of communication close to that required by the SBC regulations—and partly a reflection of HR departments
embracing technology. By using automation to leverage existing data, they are better able to respond to required changes. That will enable timely compliance once the new deadline is
determined.”
55
The premium revenue data come from the 2009 NAIC financial statements, also known as “Blanks,” where insurers report information about their variouslines of business.
2012–15 I.R.B.767April 9, 2012

Table 2.Issuer and TPA size classification
SmallMediumLarge
Issuers14023070
TPAs240390120
Staffing Assumptions
Table 5 below summarizes the Depart-
ments’ staffing assumptions, including the
estimated number of hours for each task
for a small, medium, or large issuer/TPA
as well as the percentage of time that dif-
ferent professionals devote to each task.
The following assumptions are based on
the best information available to the De-
partments at this time. Particularly, the
following series of assumptions are based
on conversations with industry experts, the
Departments’ understanding of the regu-
lated community, and previous analysis in
the MLR interim final rule.
IT Systems and Workflow Process
Changes
In the proposed regulations, the Depart-
ments estimated that it would take a large
issuer/TPA about 960 hours to implement
IT systems and workflow process changes,
based on discussions with a large issuer.
These final regulations incorporate policy
changes designed to reduce administrative
burden. The Departments estimate that
the administrative burden to implement
IT systems and workflow process changes
would be reduced, at least, by about 10
percent.
56
Accordingly, the Departments
are reducing the 960 hours time burden
downward,by10percent,to864hours.
The Departments continue to assume that
IT systems and workflow process changes
would be implemented only by IT pro-
fessionals. Furthermore, the Departments
continue to assume that a medium is-
suer/TPA would need about 75 percent of
a large issuer’s/TPA’s time, and a small
issuer would need about 50 percent of a
large issuer’s/TPA’s time, to implement IT
systems and workflow process changes.
These estimates are based on the assump-
tion that medium and smaller issuers and
TPA’s have fewer products/clients that
need to come into compliance.
In the proposed regulations, the Depart-
ments estimated that it would take a large
issuer/TPA about 160 hours to develop
teams to analyze the new standards in re-
lation to their current workflow processes.
These final regulations incorporate policy
changes designed to reduce administrative
burden. The Departments estimate that the
administrative burden to develop teams
would be reduced by about 10 percent.
Accordingly, the Departments are revising
the 160 hours time burden downward, by
10 percent, to 144 hours. The Departments
continue to assume teams would be com-
prised of IT professionals (45 percent),
benefits/sales professionals (50 percent),
and attorneys (5 percent), based on techni-
cal analysis presented in the MLR interim
final rule. The Departments also continue
to scale down the burden for medium and
small issuers/TPAs by assuming the same
relative proportion as above (that is, 75
percent and 50 percent, respectively).
In the proposed regulations, the De-
partments assumed that, in 2013, each
issuer/TPA would incur a separate main-
tenance cost to maintain IT systems and
address changes in regulatory provisions.
The Departments assumed the mainte-
nance cost would equal 15% of the total
one-time burden noted above (for exam-
ple, the Departments assumed it will take
a large issuer 15% of 1008 hours, or 151
hours). The Departments further assumed
that the teams to implement the mainte-
nance tasks would be comprised of IT
professionals (55%), benefits/sales pro-
fessionals (40%), and attorneys (5%). The
Departments maintain these assumptions
in these final regulations.
The Departments continue to assume
that the one-time and maintenance costs
to implement IT systems changes and ad-
dress regulatory requirements would be
split between the costs to produce SBCs
and the costs to produce the coverage ex-
amples (CEs).
Production and Review of SBCs and CEs
In the proposed regulations, the De-
partments estimated that each issuer/TPA
would need 3 hours to produce, and 1 hour
to review, SBCs (not including CEs) for
all products. Some commenters thought
this time burden was an underestimate.
However, these commenters did not pro-
vide data that could allow the Departments
to adjust their estimates. Accordingly, in
these final regulations, the Departments
are retaining their original estimates. The
Departments also continue to assume that
the 3 hours needed to produce SBCs would
be equally divided between IT profession-
als and benefits/sales professionals. The
Departments also continue to assume that
the 1 hour needed to review SBCs would
be equally divided between financial man-
agers for benefits/sales professionals and
attorneys, based on previous analyses re-
lated to the MLR regulation.
In the proposed regulations, the De-
partments estimated it would take each is-
suer/TPA about 90 hours to produce, and
about 30 hours to review, CEs related to
three benefits scenarios for all applicable
products, based on the MLR regulation.
However, under the guidance document
published elsewhere in this issue of the
Bulletin, issuers and TPAs will need to
produce a CE related to only two benefits
scenarios in 2012 and 2013. Accordingly,
in these final regulations, the Departments
are adjusting the time burden downward
by one-third. The Departments now es-
timate that each issuer/TPA would need
about 60 hours to produce, and about 20
hours to review, two CEs for all products.
The Departments continue to assume that
the 60 hours to produce the two CEs would
56
A 10 percent is a conservative estimate of the reduction in administrativeburden. A national association of insurance companies informed the Departments that premium information alone
may account for 10 percent of compliance costs. Given that the omission of premium information from SBCs is one of several policy changes in these finalregulations, we conclude that there
could be, at a minimum, a 10 percent reduction in administrative burden.
April 9, 20127682012–15 I.R.B.

be equally divided between IT profession-
als and benefits/sales professionals. The
Departments also continue to assume that
the 20 hours to review the two CEs would
be equally divided between financial man-
agers and attorneys.
For each individual who receives the
SBC in paper form, the Departments es-
timate that printing and distributing the
paper disclosures would take clerical staff
about 1 minute (0.02 hours) in the group
markets and about 2 minutes (0.03 hours)
in the individual market. The Depart-
ments assume that the individual market
has lower economies of scale and, thus,
increased distribution costs.
Labor Cost Assumptions
Table 7 below presents the Depart-
ments’ hourly labor cost assumptions
(stated in 2012 dollars) for each staff
category based on Bureau of Labor Sta-
tistics (BLS) data. The Departments
use mean hourly wage estimates from
the BLS May 2010 National Occupa-
tional Employment and Wage Estimates
(accessed athttp://www.bls.gov/oes/cur-
rent/oes_nat.htm#00–0000)forcom-
puter systems analysts (Occupation Code
15–1121), insurance underwriters (Occu-
pation Code 13–2053), financial managers
(Occupation Code 23–1011), executive
secretaries and administrative assistants
(Occupation Code 43–6011), and attor-
neys (Occupation Code 23–1011) as the
basis for estimating labor costs for 2012
through 2013 and adjust the hourly wage
rate to include a 33 percent fringe benefit
estimate for private sector employees.
57
Distribution Assumptions
The Departments make the following
assumptions regarding the distribution of
the SBC disclosures (including CEs).
58
These assumptions are based on the best
information available to the Departments
at this time. Particularly, the following
series of assumptions are based on con-
versations with industry experts, the De-
partments’ understanding of the regulated
community, and previous analysis in the
MLR interim final rule. The distribution
assumptions are as follows:
•The SBCs would be limited to one per
household for family members located
at the same residence. According to
one large issuer, there are 2.2 covered
lives per family.
•The number of individuals who would
receive an SBC before enrolling in the
plan or coverage equals 20 percent of
the number of enrollees at any point
during the course of a year.
59
•In 2012 and 2013, respectively, about
2.5 percent and 5 percent of covered
individuals who receive a paper SBC
would receive a paper glossary from is-
suers and TPAs. The Departments as-
sume that the burden and cost of pro-
viding paper glossaries would be pro-
portional to the burden and cost of pro-
viding papers SBCs, excluding cover-
age examples. The Departments also
assume that individuals who do not re-
quest a paper copy of the glossary will
access it electronically using the Inter-
net address provided in the SBC. These
assumptions, presented here in these fi-
nal regulations, have not changed from
the proposed regulations.
•In 2013, about 2 percent of covered
individuals would receive a notice of
modifications.
60
Further, the burden
and cost of providing such notices
would be proportional to the com-
bined burden and cost of providing the
SBCs, including CEs. In 2012, the
first year of implementation, the num-
ber of notices of modifications would
be negligible.
•In the proposed regulations, the De-
partments estimated that electronic
distribution would account for 38 per-
cent of all disclosures in the group
market and 70 percent of all disclo-
sures in the individual market. The es-
timate for the group market was based
on the methodology used to analyze
the cost burden for the Department of
Labor’s claims procedure regulation
(OMB Control Number 1210–0053).
61
•In these final regulations, the Depart-
ments are revising upward their esti-
mate of electronic distribution in the
group market to 50 percent for pre-en-
rollment disclosures. This upward re-
vision is justified,because, for partic-
ipants and beneficiaries who are eligi-
ble but not enrolled for coverage, these
final regulations permit the SBC to be
provided electronically if the format is
readily accessible and a paper copy is
provided free of charge upon request.
•The estimate for the group market re-
mains the same for post-enrollment
disclosures. The estimate for the indi-
vidual market also remains the same,
and is based on statistics set forth by
the National Telecommunications and
Information Administration, which in-
dicate that 30 percent of Americans do
not use the Internet.
62
•SBC disclosures would be distributed
with usual marketing and enrollment
materials, thus, costs to mail the docu-
ments will be negligible. However, pa-
per glossaries and notices of modifica-
tions would require mailing and supply
costs as follows: $0.45 postage cost
per mailing and $0.05 supply cost per
mailing. The postage costs have in-
creased by $0.01 from the $0.44, as set
57
See the Technical Appendix to the MLR interim final rule, available athttp://cciio.cms.gov.
58
Although CEs are an integral component of SBCs, the costs associated with CEs are different from the rest of the SBC, and, thus, are separately calculated within this analysis.
59
Based on this assumption, the Departments make the following estimate. Prior to enrollment in a given year,180,000 individuals would receive SBCs from small issuers or TPAs; 3,700,000
individuals would receive SBCs from medium issuers or TPAs; 11,000,000 individuals would receive SBCs from large issuers or TPAs.
60
ERISA section 104(b) requires ERISA-covered plansto furnish participants and beneficiaries with a Summary of Material Modifications (SMM) no later than 210 days after the end of the
plan year in which the material change was adopted or in the case of a materialreduction in covered services or benefits, no later than 60 days after adoption of the modification or change. As
part of its analysis for the Department of Labor’s SPD/SMM regulations (29 CFR 2520.104b–3), the Department estimated that about 20 percent of healthplans would need to distribute SMM
in a given year due to plan amendments. However, almost all of these modifications occur between plan years — not during a plan year; therefore, the modifications would be required to be
disclosed in a SBC that is distributed upon renewal of coverage. The Departments, thus, expect that only two percent of plans will need to issue a noticeof modification in the middle of a plan
year, because mid-year changes that would result in an update to the SBC are very rare, based on the Department of Labor’s experience with ERISA plans. For purposes of simplification, the
Departments extend this assumption to the individual market as well.
61
See the ERISA e-disclosure rule at 29 CFR 2520.104b–1.
62
U.S. Department of Commerce, National Telecommunications and Information Administration,Digital Nation(February 2010), available athttp://www.ntia.doc.gov/reports/2010/NTIA_in-
ternet_use_report_Feb2010.pdf.
2012–15 I.R.B.769April 9, 2012

forth in the proposed regulations, to re-
flect new first-class postage rates ef-
fective January 22, 2012.
•Printing costs $0.03 per side of a
page. The Departments estimate that
it would cost $0.18 to print a com-
plete SBC (which is six sides of a page
based on the length of the NAIC sam-
ple completed SBC) and $0.12 to print
the uniform glossary (which is four
sides of a page, based on the length
of the NAIC recommended uniform
glossary). This cost burden is in addi-
tion to the time it would take clerical
staff to print and distribute the SBC or
glossary.
Cost Estimate
The Tables below present costs and bur-
den hours for issuers and TPAs associated
with the final disclosure requirements of
PHS Act section 2715. Tables 3–4 contain
cost estimates for 2012 and 2013, derived
from the labor hours presented in Table
5 and the hourly rate estimates presented
in Table 6, as well as estimates of non-
labor costs. Labor hour estimates were
developed for each one-time and mainte-
nance task associated with analyzing re-
quirements, developing IT systems, and
producing SBCs (that include CEs).
TABLE 3. 2012 Hour Burden, Equivalent Cost, and Cost Burden — 2012 Dollars
Number of
Affected
Entities
Hour Burden
Equivalent Cost Cost Burden
(non-labor)
Number of
Disclosures
SBC Requirements — Issuers440
570,000
$21,000,000$2,700,000
570,000
SBC Requirements — TPAs
750
760,000
$30,000,000$3,600,000
760,000
Coverage Example
Requirements — Issuers
440193,000
$10,500,000$1,400,000
193,000
Coverage Example
Requirements — TPAs
750
330,000
$17,900,000$1,800,000
330,000
Glossary Requests — Issuers44010,000
$310,000$350,000
10,000
Glossary Requests — TPAs
750
12,000
$380,000$460,000
12,000
Subtotal
1,900,000
$80,000,000$10,000,000
1,900,000
Total 2012 Costs
$90,000,000
TABLE 4. 2013 Hour Burden, Equivalent Cost, and Cost Burden — 2012 Dollars
Number of
Affected
Entities
Hour Burden
Equivalent Cost Cost Burden
(non-labor)
Number of
Disclosures
SBC Requirements — Issuers440430,000
$14,000,000$2,700,000
41,000,000
SBC Requirements — TPAs
750540,000
$18,000,000$3,600,000
49,000,000
Coverage Example
Requirements — Issuers
440
59,000
$3,300,000$1,400,000
41,000,000
Coverage Example
Requirements — TPAs
750
100,000
$5,600,000$1,800,000
49,000,000
Notice of Material
Modifications — Issuers
4408,900
$290,000$310,000
820,000
Notice of Material
Modifications — TPAs
750
11,000
$380,000$400,000
990,000
Glossary Requests — Issuers44020,000
$630,000$710,000
1,100,000
Glossary Requests — TPAs
75025,000
$760,000$920,000
1,500,000
Subtotal
1,200,000
$43,000,000$12,000,000
94,000,000
Total 2013 Costs
$55,000,000
April 9, 20127702012–15 I.R.B.

TABLE 5.Estimated Staffing Hours for Small, Medium, and Large Issuers and TPAs
Percent of
Hours by Task
Hours
STAFFING HOUR
ASSUMPTIONS
Small Issuer/
TPA
Medium Issuer/
TPA
Large Issuer/
TPA
IT Development and
Workflow Process
Change
One-Time
Develop Teams
/Analyze
Requirements (IT,
underwriting /
sales)
72108144
IT Professionals
45%
3249
65
Benefits / Sales
Professionals
50%
36
54
72
Attorneys
5%
4
5
7
Implementing
Systems Changes
(IT and workflow)
432648864
IT Professionals100%432648864
Maintenance
Updating to
Address Changes
in Requirements
76113151
IT Professionals
55%
426283
Benefits / Sales
Professionals40%30
45
60
Attorneys
5%
468
SBC Requirement
(maintenance)
Producing SBCs333
IT Professionals
50%1.51.51.5
Benefits / Sales
Professionals
50%1.51.51.5
Internal Review of
SBCs
111
Financial
Managers —
50%0.50.50.5
Benefits / Sales
Professionals
Attorneys
50%0.50.50.5
2012–15 I.R.B.771April 9, 2012

Producing and
Distributing Paper
Version of SBCs
(Group Markets)
Clerical Staff100%0.020.020.02
Producing and
Distributing
Paper Version of
SBCs (Individual
Market)
Clerical Staff100%0.030.030.03
CE Requirement
(maintenance)
Producing CEs606060
IT Professionals
50%
303030
Benefits / Sales
Professionals
50%
303030
Internal Review of
CEs
202020
Financial
Managers —
Benefits / Sales
Professionals
50%
101010
Attorneys
50%
101010
TABLE 6. Estimated Loaded Hourly Wages for Staff Categories
Staff CategoryBLS Code
Loaded Hourly
Wage (2012 Dollars)
IT ProfessionalsComputer Systems Analysts
(Occupation Code 15–1121)
$54.52
Financial Professionals — Benefits / SalesInsurance Underwriters
(Occupation Code 13–2053)
$43.76
Financial ManagerFinancial Managers
(Occupation Code 11–3031)
$78.50
AttorneysLawyers
(Occupation Code 23–1011)
$86.86
Clerical StaffExecutive Secretaries and Administrative
Assistants
(Occupation Code 43–6011)
$30.78
The Departments received many com-
ments stating that the preliminary cost
analysis underestimated the one-time
start-up costs as well as maintenance costs.
For example, one commenter did a sur-
vey of its members (hereinafter “regulated
community survey”),wherein36member
companies responded to questions re-
garding implementation and maintenance
costs. The commenter extrapolated the
survey results to all enrollees with cover-
age in the United States. Accordingly, the
commenter projected that one-time imple-
mentation costs would be $188 million and
maintenance costs would be $194 million
per year. The commenter stated that a sig-
nificant cost driver was the March 23, 2012
deadline to switch from current benefit
April 9, 20127722012–15 I.R.B.

descriptions to the new uniform SBCs.
Accordingly, the commenter estimated
that there could be a savings of 23
percent with an 18-month extension of the
implementation timeline. The commenter
also stated that additional factors affecting
costs were, among other things, the
proposed regulations’ requirement to
provide premium information; the number
and complexity of coverage examples; the
renewal process and timeframe to provide
SBCs; the number of variations of SBCs to
be delivered to each applicant or enrollee;
paper delivery of SBCs to most group
enrollees; and insufficient flexibility in the
SBC template. As discussed elsewhere in
this preamble, the Departments have taken
steps to ease administrative burden related
to most of these factors, and therefore
believe that these estimates do not reflect
the policies in the final rule.
Because the regulated community sur-
vey, as well other commenters’ cost esti-
mates, did not provide specific, detailed
cost information, it is difficult for the De-
partment to acquire more than a general
understanding of the differences between
the Departments’ cost estimates and the
commenters’ cost estimates. Accordingly,
the Departments continue to believe that
there is considerable uncertainty arising
from general data limitations and the de-
gree to which economies of scale are
achievable.
Even if the Departments were to utilize
the regulated community survey, or other
commenters’ cost estimates, it would be
necessary for the Departments to discount
those projected costs to account for pol-
icy changes in these final regulations. Par-
ticularly, these final regulations now omit
premium or cost of coverage information
from SBCs, provide for only two coverage
examples, and allow greater flexibility for
electronic disclosures prior to enrollment
in coverage.
6. Regulatory Alternatives
Several provisions in these final reg-
ulations involved policy choices. A first
policy choice involved the applicabil-
ity date of these final regulations. The
Departments received many comments in-
dicating that the proposed March 23, 2012
applicability date was not practical for
compliance. Accordingly, in these final
regulations, the Departments are delaying
the applicability of these provisions by
six months to provide plans and issuers
additional time to comply. As discussed
elsewhere in this preamble, for disclosures
to plans, and to individuals and dependents
in the individual market, these final reg-
ulations apply to health insurance issuers
beginning September 23, 2012. Similarly,
for the group market, for disclosures with
respect to participants and beneficiaries
whoenrollorre-enrollthroughanopen
enrollment period (including re-enrollees
and late enrollees), these final regulations
apply beginning on the first day of the first
open enrollment period that begins on or
after September 23, 2012. For disclosures
with respect to participants and beneficia-
ries who enroll otherthan through an open
enrollment period (including individuals
who are newly eligible for coverage and
special enrollees), these final regulations
apply on the first day of the first plan
year that begins on or after September 23,
2012. This approach to implementation
should lessen administrative burden on the
regulated community.
A second policy choice involved
whether to include premium or cost of
coverage information in the SBC. The
Departments received many comments
that expressed concerns about the com-
plexity of conveying such information in
both the individual and group markets.
As noted above in the preamble to these
final regulations, the Departments believe
that premium information can be more
efficiently and effectivelyprovidedindoc-
umentation other than the SBC. Therefore,
the Departments are not requiring plans
and issuers to include premium or cost of
coverage information in the SBC. Accord-
ingly, this policy choice should also lessen
administrative burden on the regulated
community.
A third policy choice involved the num-
ber of coverage examples that plans is-
suers must provide in the SBC. The De-
partments received a number of comments
about the potential cost and burden asso-
ciated with providing coverage examples.
To address these concerns, the guidance
document published elsewhere in this is-
sue of the Bulletin clarifies that for the
first year of applicability, the SBC will in-
clude only two coverage examples — hav-
ing a baby (normal delivery) and routine
maintenance of well-controlled type 2 dia-
betes. Additional coverage examples will
be added in later years. This policy choice
should also lessen administrative burden
on the regulated community.
A fourth policy choice involved deter-
mining how to minimize the burden of
providing the SBC to individuals shop-
ping for health insurance coverage. The
Departments recognize it may be difficult
for issuers to provide accurate informa-
tion about the terms of coverage prior
to underwriting. Accordingly, these fi-
nal regulations provide that if individual
health insurance issuers provide the infor-
mation required by these final regulations
and as specified in guidance published by
the Secretary to the HHS Secretary’s Web
portal (HealthCare.gov), as established
by 45 CFR 159.120, then they will be
deemed to have satisfied the requirement
to provide an SBC to individuals
who request summary information
about coverage prior to submitting an
application. The Departments determined
this approach promotes regulatory
efficiency, minimizing the administrative
burden on health insurance issuers without
significantly lessening the protections
under PHS Act section 2715.
A fifth policy choice related to elec-
tronic distribution of SBCs. The De-
partments received comments about the
electronic transmission of SBCs to par-
ticipants and beneficiaries in the group
market. Specifically, some comments re-
quested that plans and issuers be permitted
to provide SBCs to participants and ben-
eficiaries in a manner other than those set
forth by the Department of Labor’s elec-
tronic disclosure safe harbor requirements
at 29 CFR 2520.104b–1(c). These final
regulations retain the proposed require-
ments, but make a distinction between a
participant or beneficiary who is already
covered under the group health plan, and
a participant or beneficiary who is eli-
gible for coverage but not enrolled in a
group health plan. This distinction should
provide new flexibility in some circum-
stances, while also ensuring adequate con-
sumer protections where necessary, and
will help reduce the burden of providing
the SBC to participants and beneficiaries
prior to enrollment.
A sixth policy choice related to
whether, in the case of covered individuals
residing at the same address, one SBC
would satisfy the disclosure requirement
with respect to all such individuals, or
2012–15 I.R.B.773April 9, 2012

whether multiple SBCs would be required
to be provided. Under these final regula-
tions, a single SBC may be provided to a
family unless any individuals are known
to reside at a different address. Separate
SBCs will therefore need to be provided
only in limited circumstances.
A seventh policy choice related to how
many SBCs a participant or beneficiary
would automatically receive from a group
health plan at renewal. The final regula-
tions would further limit burden by requir-
ing a plan or issuer to provide, at renewal,
a new SBC for only the benefit package
in which a participant or beneficiary is en-
rolled. That is, if the plan offers multi-
ple benefits packages, an SBC is not re-
quired for each benefit package offered un-
der the group health plan, which the De-
partments believe would otherwise create
an undue burden during open season. Par-
ticipants and beneficiaries would be able to
receive upon request an SBC for any ben-
efits package for which they are eligible.
The Departments believe this balanced ap-
proach addresses the needs of plans, is-
suers, and consumers, at renewal.
An eighth policy choice related to the
interpretation of the PHS Act section
2715(d)(4), which requires notice of any
material modification in any of the terms
of the plan or coverage that is not reflected
in the most recently provided SBC. The
Departments note that a material modifi-
cation, within the meaning of section 102
of ERISA and its implementing regula-
tions at 29 CFR 2520.104b–3, is broadly
definedtoincludeanymodificationtothe
coverage offered under the plan or policy,
that independently, or in conjunction with
other contemporaneous modifications or
changes, would be considered by the av-
erage plan participant to be an important
change in covered benefits or other terms
of coverage under the plan or policy. The
final regulations interpret this provision as
requiring notice only for a material mod-
ification that would affect the content of
the SBC; that is not reflected in the most
recently provided SBC; and that occurs
other than in connection with renewal or
reissuance of coverage (that is, a mid-plan
or -policy year change). This approach is
consistent with the language of PHS Act
section 2715(d)(4) and is more narrowly
focused on what we interpret to be the
purpose of that provision.
B. Regulatory Flexibility Act—Department
of Labor and Department of Health and
Human Services
The Regulatory Flexibility Act (RFA)
requires agencies that issue a regulation
to analyze options for regulatory relief of
small businesses if a final rule has a sig-
nificant impact on a substantial number of
small entities. The RFA generally defines
a “small entity’’ as (1) a proprietary firm
meeting the size standards of the Small
Business Administration (SBA), (2) a non-
profit organization that is not dominant in
its field, or (3) a small government ju-
risdiction with a population of less than
50,000. (States and individuals are not in-
cluded in the definition of “small entity.’’)
The Departments use as their measure of
significant economic impact on a substan-
tial number of small entities a change in
revenues of more than 3 to 5 percent.
AsdiscussedintheWebPortalinterim
final rule (75 FR 24481), HHS examined
the health insurance industry in depth in
the Regulatory Impact Analysis that HHS
prepared for the final rule on establish-
ment of the Medicare Advantage program
(69 FR 46866, August 3, 2004). In that
analysis, HHS determined that there were
few if any insurance firms underwriting
comprehensive health insurance policies
(in contrast, for example, to travel insur-
ance policies or dental discount policies)
that fell below the size thresholds for
“small’’ business established by the SBA.
Currently, the SBA size threshold is $7
million in annual receipts for both health
insurers (North American Industry Classi-
fication System, or NAICS, Code 524114)
and TPAs (NAICS Code 524292).
Additionally, as discussed in the Med-
ical Loss Ratio interim final rule (75 FR
74918), HHS used a data set created from
2009 National Association of Insurance
Commissioners (NAIC) Health and Life
Blank annual financial statement data to
develop an updated estimate of the num-
ber of small entities that offer comprehen-
sive major medical coverage in the indi-
vidual and group markets. For purposes of
that analysis, HHS used total Accident and
Health (A&H) earned premiums as a proxy
for annual receipts. HHS estimated that
there were 28 small entities with less than
$7millioninA&Hearnedpremiumsof-
fering individual or group comprehensive
major medical coverage; however, this es-
timate may overstate the actual number
of small health insurance issuers offering
such coverage, sinceit does not include re-
ceipts from these companies’ other lines of
business. These 28 small entities represent
about 6.4 percent of the approximately 440
health insurers that are accounted for in
this RIA. Based on this calculation, the De-
partments assume that there are an equal
percentage of TPAs that are small entities.
That is, 48 small entities represent about
6.4 percent of the approximately 750 TPAs
that are accounted for in this RIA.
The Departments estimate that issuers
and TPAs earning less than $50 million
in annual premium revenue, including the
76 small entities mentioned above, would
incur costs of approximately $33,000 and
$10,000 per issuer/TPA in 2012 and 2013,
respectively. Numbers of this magnitude
do not approach the amounts necessary
to be considered a “significant economic
impact” on firms with revenues in the or-
der of millions of dollars. Additionally, as
discussed earlier, the Departments believe
that these estimates overstate the number
of small entities that will be affected by
the requirements in this final regulation,
as well as the relative impact of these re-
quirements on these entities, because the
Departments have based their analysis on
the affected entities’ total A&H earned
premiums (rather than their total annual
receipts). Accordingly, the Departments
have determined and certify that these fi-
nal regulations will not have a significant
economic impact on a substantial number
of small entities, and that a regulatory
flexibility analysis is not required.
C. Special Analyses—Department of the
Treasury
For purposes of the Department of the
Treasury it has been determined that this
Treasury decision is not a significant reg-
ulatory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It has also been deter-
mined that section 553(b) of the Adminis-
trative Procedure Act (5 U.S.C. chapter 5)
does not apply to these final regulations.
It is hereby certified that the collections of
informationcontainedinthisTreasuryde-
cision will not have a significant impact
on a substantial number of small entities.
Accordingly, a regulatory flexibility anal-
ysis under the Regulatory Flexibility Act
April 9, 20127742012–15 I.R.B.

(5 U.S.C. chapter 6) is not required. Sec-
tion 54.9815–2715 of the final regulations
requires both group health insurance is-
suers and group health plans to distribute
an SBC and notice of any material modifi-
cations to the plan that affect the informa-
tion required in the SBC. Under these final
regulations, if a health insurance issuer sat-
isfies the obligations to distribute an SBC
and a notice of modifications, those obli-
gations are satisfied not just for the issuer
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 these obligations
for both the plan and the issuer in almost
all cases. For this reason, these informa-
tion collection requirements will not im-
pose a significant impact on a substantial
number of small entities. Pursuant to sec-
tion 7805(f) of the Code, the notice of pro-
posed rulemaking preceding these regula-
tions was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
D. Unfunded Mandates Reform
Act—Department of Labor and
Department of Health and Human
Services
Section 202 of the Unfunded Mandates
Reform Act (UMRA) of 1995 that agen-
cies assess anticipated costs and benefits
before issuing any final rule that includes
a Federal mandate that could result in ex-
penditure in any one year by State, local or
Tribal governments, in the aggregate, or by
the private sector, of $100 million in 1995
dollars updated annually for inflation. In
2011, that threshold level is approximately
$136 million. These final regulations in-
clude no mandates on State, local, or Tribal
governments. These final regulations in-
clude directions to produce standardized
consumer disclosures that will affect pri-
vate sector firms (for example, health in-
surance issuers offering coverage in the
individual and group markets, and third-
party administrators providing administra-
tive services to group health plans), but we
conclude that these costs will not exceed
the $136 million threshold. Thus, we con-
clude that these final regulations do not im-
pose an unfunded mandate on State, local
or Tribal governments or the private sec-
tor. Regardless, consistent with policy em-
bodied in UMRA, this notice of final rule-
making has been designed to be the least
burdensome alternative for State, local and
Tribal governments, and the private sector
while achieving the objectives of the Af-
fordable Care Act.
E. Paperwork Reduction Act
1. Department of Labor and Department
of the Treasury
Section 2715 of the PHS Act directs
the Departments, in consultation with the
National Association of Insurance Com-
missioners (NAIC) and a working group
comprised of stakeholders, to “develop
standards for use by a group health plan
and a health insurance issuer in compil-
ing and providing to applicants, enrollees,
and policyholders and certificate hold-
ers a summary of benefits and coverage
explanation that accurately describes the
benefits and coverage under the applica-
ble plan or coverage.” For disclosures to
plans, and to individuals and dependents
in the individual market, these final reg-
ulations apply to health insurance issuers
beginning September 23, 2012. Similarly,
for the group market, for disclosures with
respect to participants and beneficiaries
whoenrollorre-enrollthroughanopen
enrollment period (including re-enrollees
and late enrollees), these final regulations
apply beginning on the first day of the first
open enrollment period that begins on or
after September 23, 2012. For disclosures
with respect to participants and beneficia-
ries who enroll otherthan through an open
enrollment period (including individuals
who are newly eligible for coverage and
special enrollees), these final regulations
apply on the first day of the first plan year
that begins on or after September 23, 2012.
To implement this provision, collection
of information requirements relate to the
provision of the following:
•Summary of benefits and coverage.
•Coverage examples (as components of
each SBC).
•A uniform glossary of health coverage
and medical terms (uniform glossary).
•Notice of modifications.
A copy of the ICR may be ob-
tained by contacting the PRA ad-
dressee: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:
ebsa.opr@dol.gov. ICRs submitted to
OMB also are available atreginfo.gov
(http://www.reginfo.gov/public/do/
PRAMain).
The Departments estimate 858 respon-
dents each year from 2012–2013. This es-
timate reflects approximately 220 issuers
offering comprehensive major medical
coverage in the small and large group mar-
kets, and approximately 638 third-party
administrators (TPAs).
63
To account for variation in firm size, the
Departments estimate a weighted burden
on the basis of issuer’s 2009 total earned
premiums for comprehensive major med-
ical coverage.
64
The Departments define
small issuers as those with total earned
premiums less than $50 million; medium
issuers as those with total earned premi-
ums between $50 million and $999 mil-
lion; and large issuers as those with to-
tal earned premiums of $1 billion or more.
Accordingly, the Departments estimate ap-
proximately 70 small, 115 medium, and
35 large issuers. Similarly, the Depart-
ments estimate approximately 204 small,
332 medium, and 102 large TPAs.
2012 Burden Estimate
In 2012, the Departments estimate a
one-time administrative burden of about
620,000 hours with an equivalent cost of
about $34,000,000 across the industry to
prepare for the provisions of these final
regulations. This calculation is made as-
suming issuers and TPAs will need to im-
63
The Departments estimate that there are 440 issuers and 750 TPAs. Because the Department of Labor and the Department of the Treasury share the hour and cost burden for issuers and
TPAs with the Department of Health and Human Services, the burden to produce the SBCs including Coverage Examples for group health plans is calculatedusing half the number of issuers
(220) and 85 percent of the TPAs (638). While the group health plans could preparetheirownSBCs,theDepartmentsassumethatSBCswouldbepreparedbyservice providers,i.e.,issuers
and TPAs.
64
The premium revenue data come from the 2009 NAIC financial statements, also known as “Blanks,” where insurers report information about their variouslines of business
2012–15 I.R.B.775April 9, 2012

plement two principal tasks: (1) develop
teams to analyze current workflow pro-
cesses against the new rules and (2) make
appropriate changes to IT systems and pro-
cesses.
With respect to task (1), the Depart-
ments estimate about 88,000 burden
hours with an equivalent cost of about
$4,500,000. The Departments calculate
these estimates as follows:
65
Task 1: Analyze current workflow and new rules
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professionals
$54.52
32
$1,800
49
$2,600
65
$3,500
Benefits/Sales
Professionals
$43.76
36
$1,600
54
$2,400
72
$3,200
Attorneys
$86.86
4
$310
5
$500
7
$630
Total per
issuer/TPA
72
$3,700
108
$5,500
144
$7,300
Total for all
issuers/TPAs
20,000
$1,000,000
48,000
$2,500,000
20,000
$1,000,000
With respect to task (2), the Depart-
ments estimate about 530,000 burden
hours with an equivalent cost of about $29,000,000. The Departments calculate
these estimates as follows:
Task 2: IT Changes
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professionals
$54.52
432
$24,000
648
$35,000
864
$47,000
Total per
issuer/TPA
432
$24,000
648
$35,000
864
$47,000
Total for all
issuers/TPAs
120,000
$6,600,000
290,000
$16,000,000
120,000
$6,400,000
In addition to the one-time administra-
tive costs mentioned above, the Depart-
ments assume that plans and issuers will
incur additional administrative burden.
With regard to this administrative burden,
the estimated hour and cost burden for the
collections of information in 2012 are as
follows:
•The Departments estimate that there
will be about 77,000,000 SBCs.
•The Departments assume 50 percent
of the total number of SBCs would be
sent electronically prior to enrollment,
and 38 percent would be sent elec-
tronically after enrollment, in the small
and large group markets. Accordingly,
the Departments estimate that about
31,000,000 SBCs would be electroni-
cally distributed, and about 46,000,000
SBCs would be distributed in paper
form. The Departments assume there
are costs only for paper disclosures, but
no costs for electronic disclosures.
Task 3: SBCs— The estimated hour
burden for preparing the SBCs is about
780,000 hours with an equivalent cost of
about $24,000,000, and a cost burden of
about $5,500,000. The Departments cal-
culate these estimates as follows:
65
For the purposes of these and other estimates inthis section IV.E, the Departments again use the assumptions outlined above in section IV.A.5.
April 9, 20127762012–15 I.R.B.

Task 3: Equivalent Costs for Producing SBCs (Except Coverage Examples)
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professionals
$54.52
1.5
$82
1.5
$82
1.5
$82
Benefits/Sales
Professionals
$43.76
1.5
$66
1.5
$66
1.5
$66
Financial
Managers
$78.50
0.5
$39
0.5
$39
0.5
$39
Attorneys
$86.86
0.5
$43
0.5
$43
0.5
$43
Total per
issuer/TPA
4
$230
4
$230
4
$230
Total for all
issuers/TPAs
1,100
$63,000
1,800
$100,000
500
$32,000
Task 3: Equivalent Costs for Distributing SBCs
Hourly Wage
Rate
Hours per SBC Total Number
of SBCs
Total HoursTotal Equivalent
Cost
Clerical Staff
$30.78
0.01746,000,000780,000
$24,000,000
Task 3: Cost Burden for Printing SBCs
Cost per SBCTotal Number of SBCsTotal Cost Burden
Printing Costs
$0.12
46,000,000
$5,500,000
Task 4: Two Coverage Examples—
The estimated hour burden for producing
and printing coverage examples is about
69,000 hours with an equivalent cost of
about $4 million, and a cost burden of
about $2,800,000. The Departments cal-
culate these estimates as follows:
Task 4: Equivalent Costs for Producing Coverage Examples
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professiona
ls
$54.52
30
$1,640
30
$1,640
30
$1,640
Benefits/Sales
Professionals
$43.76
30
$1,310
30
$1,310
30
$1,310
Financial
Managers
$78.50
10
$780
10
$780
10
$780
Attorneys
$86.86
10
$870
10
$870
10
$870
Total per
issuer/TPA
80
$4,600
80
$4,600
80
$4,600
Total for all
issuers/TPAs
21,900
$1,260,000
36,000
$2,100,000
11,000
$630,000
2012–15 I.R.B.777April 9, 2012

Task 4: Cost Burden for Printing Coverage Examples
Printing Cost Per CE SetTotal CE Sets PrintedTotal Cost Burden
Printing Costs
$0.06
46,000,000
$2,800,000
Task 5: Glossary Requests—The De-
partments assume that, in 2012, issuers and
TPAs will begin responding to glossary re-
quests from covered individuals, and that
2.5 percent of covered individuals, who re-
ceive paper SBCs, will request glossaries
in paper form. The Departments estimate
that the hour and cost burden of provid-
ing the notices to be 2.5 percent of the
hour and cost burden of distributing pa-
per SBCs, plus an additional cost burden
of $0.50 for each glossary (including $0.45
for first-class postage and $0.05 for supply
costs). Accordingly,in 2012, the Depart-
ments estimate an hour burden of about
24,000 hours with an equivalent cost of
about $740,000 and a cost burden of about
$740,000 associated with about 1,200,000
glossary requests.
The total 2012 burden estimate is about
1,500,000 hours with an equivalent cost
of about $63,000,000 and cost burden of
about $9,000,000.
2013 Burden Estimate
Task 1: SBCs— The number of dis-
closures is assumed to remain constant at
about 77,000,000. Accordingly, in 2013,
the Departments again estimate a burden
of about 780,000 hours with an equiva-
lent cost of about $5,500,000 and a cost
burden of about $24,000,000 for preparing
and distributing SBCs.
Task 2: Two Coverage Examples—
The Departments again estimate about
69,000 hours with an equivalent cost of
about $4,000,000 and a cost burden of
about $2,800,000 for producing and print-
ing coverage examples.
Task 3: Notices of Modifications—
The Departments assume that, in 2013,
issuers and TPAs would send notices of
modifications to covered individuals, and
that two percent of covered individuals
would receive such notice. The Depart-
ments estimate that the hour and cost
burden of providing the notices to be two
percent of the combined hour and cost
burden of providing the SBCs including
the coverage examples, plus an additional
cost burden of $0.50 for each paper notice
(including $0.45 for first-class postage
and $0.05 for supply costs). Accordingly,
in 2013, the Departments estimate an hour
burden of about 17,000 hours with an
equivalent cost of $570,000 and a cost
burden of about $630,000 associated with
preparing and distributing about 1,500,000
notices of modification.
Task 4: Glossary Requests—The
Departments assume that, in 2013, issuers
and TPAs will again respond to glossary
requests from covered individuals, and
that five percent of covered individuals,
who receive paper SBCs, will request
glossaries in paper form. The Depart-
ments estimate that the burden and cost of
providing the glossaries to be five percent
of the hour and cost burden of distributing
paper SBCs, plus an additional cost bur-
den for $0.50 for each glossary (including
$0.45 for first-class postage and $0.05 for
supply costs). Accordingly, in 2013, the
Departments estimate an hour burden of
about 39,000 hours with an equivalent
cost of about $1,200,000 and a cost bur-
den of about $1,400,000 associated with
2,300,000 glossary requests.
Task 5: Maintenance Administrative
Costs— In 2013, the Departments as-
sume that issuers and TPAs will need to
make updates to address changes in stan-
dards, and, thus, incur 15 percent of the
one-time administrative burden. Accord-
ingly, the estimated hour burden is about
93,000 hours, with an equivalent cost of
about $4,800,000. The Departments cal-
culate these estimates as follows:
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professionals
$54.52
42
$2,300
62
$3,400
83
$4,500
Benefits/Sales
Professionals
$43.76
30
$1,300
45
$2,000
60
$2,600
Attorneys
$86.86
4
$350
6
$520
8
$690
Total per
issuer/TPA
76
$4,000
113
$5,900
151
$7,800
Total for all
issuers/TPAs
21,000
$1,100,000
51,000
$2,600,000
21,000
$1,100,000
The total 2013 burden estimate is about
1,000,000 hours with an equivalent cost of
nearly $35,000,000 and a cost burden of
$10,000,000.
Estimates are not provided for subse-
quent years, because there will be signifi-
April 9, 20127782012–15 I.R.B.

cant changes in the marketplace in 2014,
including those related to the offering
of new individual and small group plans
through the Affordable Insurance Ex-
changes, and new market reforms outside
of the new Exchanges, and the wide-rang-
ing scope of these changes makes it diffi-
cult to project results for 2014 and beyond.
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.
The 2012–2013 paperwork burden esti-
mates are summarized as follows:
Type of Review:New collection.
Agencies:Employee Benefits Security Administration, Department of Labor; Internal Revenue Service, U.S. Department of
the Treasury.
Title:Affordable Care Act Uniform Explanation of Coverage Documents
OMB Number:1210–0147; 1545–2229.
Affected Public:Business or other for profit; not-for-profit institutions.
Total Respondents:858.
Total Responses:79,500,000.
Frequency of Response:On-going.
Estimated Total Annual Burden Hours (two year average):620,000 hours (Employee Benefits Security Administration); 620,000
hours (Internal Revenue Service).
Estimated Total Annual Cost Burden (two year average):$4,800,000 (Employee Benefits Security Administration); $4,800,000
(Internal Revenue Service).
2. Department of Health and Human
Services
ICRs Related to the Summary of Benefits
and Uniform Glossary (45 CFR 147.200)
The Department estimates 333 respon-
dents each year from 2012–2013. This es-
timate reflects the approximately 220 is-
suers offering comprehensive major med-
ical coverage in the individual market and
to fully-insured non-federal governmen-
tal plans, and 113 TPAs acting as service
providers for self-insured non-federal gov-
ernmental plans.
66
To account for variation in firm size, the
Department estimates a weighted burden
on the basis of issuers’ 2009 total earned
premiums for comprehensive major med-
ical coverage.
67
The Department defines
small issuers as those with total earned pre-
miums less than $50 million; medium is-
suers as those with total earned premiums
between $50 million and $999 million; and
large issuers as those with total earned pre-
miums of $1 billion or more. Accordingly,
the Department estimates approximately
70 small, 115 medium, and 35 large is-
suers. Similarly, the Department estimates
approximately 36 small, 59 medium, and
18 large TPAs.
2012 Burden Estimate
In 2012, the Department estimates a
one-time administrative burden of about
230,000 hours with an equivalent cost of
about $13,000,000 across the industry to
prepare for the provisions of these final
regulations. This calculation is made as-
suming issuers and TPAs will need to im-
plement two principal tasks: (1) develop
teams to analyze current workflow pro-
cesses against the new standards and (2)
make appropriate changes to IT systems
and processes.
With respect to task (1), the Department
estimates about 34,000 burden hours with
an equivalent cost of about $1,800,000.
The Department calculates these estimates
as follows:
68
66
The Department estimates that there are 440 issuers and 750 TPAs. Because the Department shares thehour and cost burden for issuers with the Department of Labor and the Department
of the Treasury, the burden to produce the SBCs including coverage examples for non-federal governmental plans and issuers in the individual market is calculated using half the number of
issuers (221) and 15% of TPAs (113). While non-federal governmental plans could prepare their own SBCs, the Department assumes that SBCs would be prepared by service providers,i.e.,
issuers and TPAs.
67
The premium revenue data come from the 2009 NAIC financial statements, also known as “Blanks,” where insurers report information about their variouslines of business
68
For the purposes of these and other estimates inthis section IV.E, the Department again use the assumptions outlined above in section IV.A.5.
2012–15 I.R.B.779April 9, 2012

Task 1: Analyze Current Workflow and New Rules
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professionals
$54.52
32
$1,800
49
$2,600
65
$3,500
Benefits/Sales
Professionals
$43.76
36
$1,600
54
$2,400
72
$3,200
Attorneys
$86.86
4
$310
5
$500
7
$600
Total per
issuer/TPA
72
$3,700
108
$6,000
144
$7,000
Total for all
issuers/TPAs
7,600
$390,000
19,000
$1,000,000
7,600
$370,000
With respect to task (2), the Department
estimates about 200,000 burden hours with
an equivalent cost of about $11,000,000. The Department calculates these estimates
as follows:
Task 2: IT Changes
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professionals
$54.52
432
$24,000
648
$35,000
864
$50,000
Total per
issuer/TPA
432
$24,000
648
$35,000
864
$50,000
Total for all
issuers/TPAs
46,000
$2,500,000
110,000
$6,100,000
46,000
$2,700,000
In addition to the one-time administra-
tive costs mentioned above, the Depart-
ment assumes that plans and issuers will
incur additional administrative burden.
With regard to this administrative burden,
the estimated hour and cost burden for the
collections of information in 2012 are as
follows:
•The Department estimates that there
will be about 13,000,000 SBCs.
•The Department assumes 50 percent
of the total number of SBCs would be
sent electronically prior to enrollment,
and 38 percent would be sent electron-
ically after enrollment, in the small
and large group markets. The De-
partment further assumes 70 percent
of SBCs would be sent electronically
in the individual market. Accord-
ingly, the Department estimates that
about 7,100,000 disclosures would be
electronically distributed, and about
6,200,000 disclosures would be dis-
tributed in paper form. The Depart-
ment assumes there are costs only for
paper disclosures, but no costs for
electronic disclosures
Task 3: SBCs— The estimated hour
burden is about 130,000 hours with an
equivalent cost of about $4,200,000, and
a cost burden of about $740,000. The De-
partment calculates these estimates as fol-
lows:
April 9, 20127802012–15 I.R.B.

Task 3: Equivalent Costs for Producing SBCs (Except Coverage Examples)
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professionals
$54.52
1.5
$82
1.5
$82
1.5
$82
Benefits/Sales
Professionals
$43.76
1.5
$66
1.5
$66
1.5
$66
Financial
Managers
$78.50
0.5
$39
0.5
$39
0.5
$39
Attorneys
$86.86
0.5
$43
0.5
$43
0.5
$43
Total per issuer4
$230
4
$230
4
$230
Total for all
issuers
420
$24,000
700
$40,000
210
$12,000
Task 3: Equivalent Costs for Distributing SBCs (Including Coverage Examples)
Hourly Wage
Rate
Hours per SBC Total Number
of SBCs
Total HoursTotal
Equivalent Cost
Clerical Staff, Individual Market
$30.78
0.0331,700,000
56,000
$1,700,000
Clerical, Group Market
$30.78
0.017
4,500,000
77,000
$2,400,000
Total6,200,000130,000
$4,100,000
Task 3: Cost Burden for Printing SBCs (Except Coverage Examples)
Cost per SBCTotal SBCsCost Burden
Printing Costs
$0.12
6,200,000
$740,000
Task 4: Two Coverage Examples—
The estimated hour burden for producing
and printing coverage examples is about
27,000 hours with an equivalent cost of
about $1,500,000, and a cost burden of
about $370,000. The Department calcu-
latestheseestimatesasfollows:
Task 4: Equivalent Costs for Producing Coverage Examples
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHoursEquivalent
Cost
HoursEquivalent
Cost
IT Profession
als
$54.52
30
$1,640
30
$1,640
30
$1,640
Benefits/Sales
Professionals
$43.76
30
$1,310
30
$1,310
30
$1,310
Financial Managers
$78.50
10
$780
10
$780
10
$780
Attorneys
$86.86
10
$870
10
$870
10
$870
Total per issu
er/TPA
80
$4,600
80
$4,600
80
$4,600
Total for all
issuers/TPAs
8,500
$490,000
14,000
$800,000
4,200
$240,000
2012–15 I.R.B.781April 9, 2012

Task 4: Cost Burden for Printing Coverage Examples
Printing Cost Per CE SetTotal CE Sets PrintedTotal Cost Burden
Printing Costs
$0.06
6,200,000
$370,000
Task 5: Glossary Requests—The
Department assumes that, in 2012, issuers
andTPAswillbeginrespondingtoglos-
sary requests from covered individuals,
and that 2.5 percent of covered individu-
als, who receive paper SBCs, will request
glossaries in paper form. The Department
assumes that the hour and cost burden of
providing the glossaries to be 2.5 percent
of the hour and cost burden of distributing
paper SBCs, plus an additional cost bur-
den of $0.50 for each glossary (including
$0.45 for first-class postage and $0.05
for supply costs). Accordingly, in 2012,
the Department estimates an hour burden
of about 2,700 hours with an equivalent
cost of about $82,000 and a cost burden
of about $99,000 associated with about
160,000 glossary requests.
The total 2012 burden estimate is about
390,000 hours, or 1,200 hours per respon-
dent, with an equivalent cost of about
$19,000,000, or $57,000 per respondent,
and cost burden of about $1,200,000, or
$3,600 per respondent.
2013 Burden Estimate
Task 1: SBCs— The number of dis-
closures is assumed to remain constant at
13,000,000. Thus, in 2013, the Depart-
ment again estimates an hour burden of
about 130,000 hours with an equivalent
cost of about $4,200,000 and cost burden
of about $740,000.
Task 2: Two Coverage Examples—
The Department again estimates an hour
burden of about 27,000 hours with an
equivalent cost of about $1,500,000 and
cost burden of about $370,000 for produc-
ing and printing coverage examples.
Task 3: Notices of Modifications—
The Department assumes that, in 2013, is-
suers will begin sending notices of mod-
ifications to covered individuals, and that
two percent of covered individuals would
receive such notice. The Department es-
timates that the hour and cost burden of
providing the notices to be two percent
of the combined hour and cost burden of
providing the SBCs including the cover-
age examples, plus an additional cost bur-
den of $0.50 for each paper notice (in-
cluding $0.45 for first-class postage and
$0.05 for supply costs). Accordingly, in
2013, the Department estimates an hour
burden of about 3,100 hours with an equiv-
alent cost of about $118,000 and a cost bur-
den of about $22,000 associated with about
260,000 notices of modification.
Task 4: Glossary Requests—The
Department assumes that, in 2013, issuers
and TPAs will again respond to glossary
requests from covered individuals, and
that five percent of covered individuals,
who receive paper SBCs, will request
glossaries in paper form. The Department
estimates that the hour and cost burden of
providing the glossaries to be 5 percent of
the hour and cost burden of distributing
paper SBCs, plus an additional cost bur-
den of $0.50 for each glossary (including
$0.45 for first-class postage and $0.05 for
supply costs). Accordingly, in 2013, the
Department estimates an hour burden of
about 5,300 hours with an equivalent cost
of $160,000 and a cost burden of about
$190,000 associated with 310,000 glos-
sary requests.
Task 5: Maintenance Administrative
Costs— In 2013, the Department assumes
that issuers and TPAs will need to make
updates to address changes in standards,
and, thus, incur 15 percent of the one-time
administrative burden. Accordingly, the
estimated hour burden is about 36,000
hours with an equivalent cost of about
$1,800,000. The Department calculates
these estimates as follows:
Small Issuer / TPAMedium Issuer/TPALarge Issuer/TPA
Hourly
Wage
Rate
HoursEquivalent CostHours Equivalent Cost Hours Equivalent Cost
IT Professionals
$54.52
42
$2,300
62
$3,400
83
$4,500
Benefits/Sales
Professionals
$43.76
30
$1,300
45
$2,000
60
$2,600
Attorneys
$86.86
4
$350
6
$520
8
$690
Total per
issuer/TPA
76
$4,000
113
$5,900
151
$7,800
Total for all
issuers/TPAs
8,100
$420,000
20,000
$1,000,000
8,000
$410,000
The total 2013 burden estimate is about
200,000 hours, or about 600 hours per re-
spondent, with an equivalent cost of about
$7,800,000, or $23,000 per respondent,
and cost burden of about $1,400,000, or
$4,200 per respondent.
April 9, 20127822012–15 I.R.B.

Estimates are not provided for subse-
quent years, because there will be signifi-
cant changes in the marketplace in 2014,
including those related to the offering
of new individual and small group plans
through the Affordable Insurance Ex-
changes, and new market reforms outside
of the new Exchanges, and the wide-rang-
ing scope of these changes makes it diffi-
cult to project results for 2014 and beyond.
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.
The 2012–2013 paperwork burden esti-
mates are summarized as follows:
Type of Review:New collection (Request for a new OMB Control Number).
Agency:Department of Health and Human Services.
Title:Affordable Care Act Uniform Explanation of Coverage Documents
CMS Identifier (OMB Control Number):CMS–10407 (0938–1146).
Affected Public:Business; State, Local, or Tribal Governments.
Total Respondents:333.
Total Responses:13,000,000.
Frequency of Response:On-going.
Estimated Total Annual Burden Hours (two year average):300,000 hours.
Estimated Total Annual Cost Burden (two year average):$1,300,000.
ICRs Related to Deemed Compliance
Reporting (45 CFR 147.200(a)(4)(iii)(C))
Under 45 CFR 147.200(a)(4)(iii)(C),
if individual health insurance issuers pro-
vide information required by these final
regulations to the HHS Secretary’s Web
portal (HealthCare.gov), as established
by 45 CFR 159.120, then they will be
deemed to have satisfied the requirement
to provide an SBC to individuals who
request information about coverage prior
to submitting an application for coverage.
Individual health insurance issuers already
provide most SBC content elements to
HealthCare.gov, except for five data
elements related to patient responsibility
for each coverage example: deductibles,
co-payments, co-insurance, limits or
exclusions, and the total of all four
cost-sharing amounts.
Accordingly, the additional burden
associated with the requirements under
§147.200(a)(4)(iii)(C) is the time and ef-
fort it would take each of the 220 issuers
in the individual market to enter the five
additional data elements into an Excel
spreadsheet. We estimate that it will take
these issuers about 110 hours, at a total
estimated cost of about $3,300, for each
coverage example. For two coverage ex-
amples, the burden and cost would be
about 220 hours at a cost of about $6,600.
In deriving these figures, we used the
following hourly labor rates and estimated
the time to complete each task: $ 30.78/hr
and 0.5 hr/issuer for clerical staff to enter
data into an Excel spreadsheet, or about
$15 per respondent per coverage example.
This information collection require-
ment reflects the clarification in these final
regulations that issuers must provide all
content required in the SBC, including
the information necessary for coverage
examples, toHealthcare.govto be deemed
compliant. The aforementioned burden es-
timates will be submitted for OMB review
and approval as a revision to the informa-
tion collection request currently approved
under OMB control number 0938–1086.
To obtain copies of the supporting
statement and any related forms for
the final paperwork collections refer-
enced above, access CMS’ Web site at
http://www.cms.gov/PaperworkReduc-
tionActof1995/PRAL/list.asp#TopOfPage
or email your request, including your
address, phone number, OMB number,
and CMS document identifier, toPaper-
work@cms.hhs.gov, or call the Reports
Clearance Office at 410–786–1326.
F. 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 federalism implications must
consult with State and local officials and
describe the extent of their consultation
and the nature of the concerns of State
and local officials in the preamble to the
regulation.
In the Departments’ view, these final
rules have federalism implications, be-
cause it would have direct effects on the
States, the relationship between national
governments and States, or on the distribu-
tion of power and responsibilities among
various levels of government relating to
the disclosure of health insurance cov-
erage information to consumers. Under
these final rules, all group health plans and
health insurance issuers offering group
or individual health insurance coverage,
including self-funded non-federal govern-
mental plans as defined in section 2791 of
the PHS Act, would be required to follow
uniform standards for compiling and pro-
viding a summary of benefits and coverage
to consumers. Such Federal standards
developed under PHS Act section 2715(a)
would preempt any related State standards
that require a summary of benefits and
coverage that provides less information to
2012–15 I.R.B.783April 9, 2012

consumers than that required to be pro-
vided under PHS Act section 2715(a).
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 securi-
ties. While ERISA prohibits States from
regulating a plan as an insurance or in-
vestment company or bank, the preemp-
tion provisions of section 731 of ERISA
and section 2724 of the PHS Act (im-
plemented in 29 CFR 2590.731(a) and
45 CFR 146.143(a)) apply so that the
HIPAA requirements (including those of
theAffordableCareAct)arenottobe
“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 except to the
extent that such standard or requirement
prevents the application of a requirement”
of a Federal standard. The conference
report accompanyingHIPAA 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. Accordingly, States have
significant latitude to impose requirements
on health insurance issuers that are more
restrictive than the Federal law. However,
under these final rules, a State would not
be allowed to impose a requirement that
modifies the summary of benefits and
coverage required to be provided under
PHS Act section 2715(a), because it would
prevent the application of this final rule’s
uniform disclosure requirement.
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 States, including consulting with,
and attending conferences of, the National
Association of Insurance Commissioners
and consulting with State insurance offi-
cials on an individual basis. It is expected
that the Departments will act in a similar
fashion in enforcing the Affordable Care
Act, including the provisions of section
2715 of the PHS Act. Throughout the
process of developing these final regula-
tions, to the extent feasible within the spe-
cific preemption provisions of HIPAA as
it applies to the Affordable Care Act, the
Departments have attempted to balance the
States’ interests in regulating health insur-
ance issuers, and Congress’ intent to pro-
vide uniform minimum protections to con-
sumers in every State. By doing so, it is
the Departments’ view that they have com-
plied 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 this final rule,
the Departments certify that the Employee
Benefits Security Administration and the
Centers for Medicare & Medicaid Services
have complied with the requirements of
Executive Order 13132 for the attached fi-
nal rule in a meaningful and timely man-
ner.
G. Congressional Review Act
This regulation is subject to the Con-
gressional Review Act provisions of the
Small Business Regulatory Enforcement
Fairness Act of 1996 (5 U.S.C. 801et
seq.), which specifies that before a rule can
take effect, the Federal agency promulgat-
ing the rule shall submit to each House
of the Congress and to the Comptroller
General a report containing a copy of the
rule along with other specified informa-
tion, and has been transmitted to Congress
and the Comptroller General for review.
V. Statutory Authority
The Department of the Treasury regula-
tions are adopted pursuant to the authority
contained in sections 7805 and 9833 of the
Code.
The Department of Labor regulations
are adopted pursuant to the authority con-
tained in 29 U.S.C. 1027, 1059, 1135,
1161–1168, 1169, 1181–1183, 1181 note,
1185, 1185a, 1185b, 1185d, 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 3–2010,
75 FR 55354 (September 10, 2010).
The Department of Health and Human
Services regulations are adopted pursuant
to the authority contained 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.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement,
Internal Revenue Service.
Approved February 7, 2012.
Emily S. McMahon,
Acting Assistant Secretary,
of the Treasury (Tax Policy).
Signed this7thday ofFebruary, 2012.
April 9, 20127842012–15 I.R.B.

Phyllis C. Borzi,
Assistant Secretary,
Employee Benefits Security Administration,
Department of Labor.
CMS–9982–F
Dated: February 6, 2012.
Marilyn Tavenner,
Acting Administrator,
Centers for Medicare & Medicaid Services.
Dated: February 6, 2012.
Kathleen Sebelius,
Secretary,
Department of Health and Human Services.
CMS–9982–F
BILLING CODE 4120–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Chapter 1
Accordingly, the Internal Revenue Ser-
vice amends 26 CFR Parts 54 and 602 as
follows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation for
Part54isamendedbyaddinganentryfor
§54.9815–2715 in numerical order to read
in part as follows:
Authority: 26 U.S.C. 7805. ***
Section 54.9815–2715 also issued un-
der 26 U.S.C. 9833.
Par. 2. Section 54.9815–2715 is added
to read as follows:
§54.9815–2715 Summary of benefits and
coverage and uniform glossary.
(a)Summary of benefits and cover-
age—(1)In general. A group health plan
(and its administrator as defined in section
3(16)(A) of ERISA), and a health insur-
ance issuer offering group health insurance
coverage, is required to provide a written
summary of benefits and coverage (SBC)
for each benefit package without charge to
entities and individuals described in this
paragraph (a)(1) in accordance with the
rules of this section.
(i)SBC provided by a group health in-
surance issuer to a group health plan—(A)
Upon application. A health insurance is-
suer offering group health insurance cover-
agemustprovidetheSBCtoagrouphealth
plan (or its sponsor) upon application for
health coverage, as soon as practicable fol-
lowing receipt of the application, but in no
event later than seven business days fol-
lowing receipt of the application.
(B)By first day of coverage (if there
are changes). If there is any change in the
information required to be in the SBC that
was provided upon application and before
the first day of coverage, the issuer must
update and provide a current SBC to the
plan (or its sponsor) no later than the first
day of coverage.
(C)Upon renewal. If the issuer renews
or reissues the policy, certificate, or con-
tract of insurance (for example, for a suc-
ceeding policy year), the issuer must pro-
vide a new SBC as follows:
(1) If written application is required (in
either paper or electronic form) for re-
newal or reissuance, the SBC must be pro-
vided no later than the date the written ap-
plication materialsare distributed.
(2) If renewal or reissuance is auto-
matic, the SBC must be provided no later
than 30 days prior to the first day of the
new plan or policy year; however, with re-
spect to an insured plan, if the policy, cer-
tificate, or contract of insurance has not
been issued or renewed before such 30-day
period, the SBC must be provided as soon
as practicable but in no event later than
seven business days after issuance of the
new policy, certificate, or contract of insur-
ance, or the receipt of written confirmation
of intent to renew, whichever is earlier.
(D)Upon request. If a group health
plan (or its sponsor) requests an SBC or
summary information about a health insur-
ance product from a health insurance is-
suer offering group health insurance cov-
erage, an SBC must be provided as soon as
practicable, but in no event later than seven
business days following receipt of the re-
quest.
(ii)SBC provided by a group health in-
surance issuer and a group health plan
to participants and beneficiaries—(A)In
general. A group health plan (including
its administrator, as defined under section
3(16) of ERISA), and a health insurance is-
suer offering group health insurance cov-
erage, must provide an SBC to a partici-
pant or beneficiary (as defined under sec-
2012–15 I.R.B.785April 9, 2012

tions 3(7) and 3(8) of ERISA), and consis-
tent with paragraph (a)(1)(iii) of this sec-
tion, with respect to each benefit package
offered by the plan or issuer for which the
participant or beneficiary is eligible.
(B)Upon application.TheSBCmust
be provided as part of any written appli-
cation materials that are distributed by the
plan or issuer for enrollment. If the plan
or issuer does not distribute written appli-
cation materials for enrollment, the SBC
must be distributed no later than the first
date on which the participant is eligible to
enroll in coverage for the participant or any
beneficiaries.
(C)By first day of coverage (if there
are changes). If there is any change to the
informationrequiredtobeintheSBCthat
was provided upon application and before
the first day of coverage, the plan or issuer
must update and provide a current SBC to a
participant or beneficiary no later than the
first day of coverage.
(D)Special enrollees. The plan or is-
suer must provide the SBC to special en-
rollees (as described in §54.9801–6) no
later than the date by which a summary
plan description is required to be provided
under the timeframe set forth in ERISA
section 104(b)(1)(A) and its implementing
regulations, which is 90 days from enroll-
ment.
(E)Upon renewal. If the plan or is-
suer requires participants or beneficiaries
to renew in order to maintain coverage (for
example, for a succeeding plan year), the
plan or issuer must provide a new SBC
when the coverage is renewed, as follows:
(1) If written application is required
for renewal (in either paper or electronic
form), the SBC must be provided no later
than the date on which the written appli-
cation materials are distributed.
(2) If renewal is automatic, the SBC
must be provided no later than 30 days
prior to the first day of the new plan or
policy year; however, with respect to an
insured plan, if the policy, certificate, or
contract of insurance has not been issued
or renewed before such 30-day period, the
SBC must be provided as soon as practica-
ble but in no event later than seven busi-
ness days after issuance of the new policy,
certificate, or contractof insurance, or the
receipt of written confirmation of intent to
renew, whichever is earlier.
(F)Upon request. A plan or issuer must
provide the SBC to participants or benefi-
ciaries upon request for an SBC or sum-
mary information about the health cover-
age, as soon as practicable, but in no event
later than seven business days following
receipt of the request.
(iii)Special rules to prevent unnec-
essary duplication with respect to group
health coverage—(A) An entity required
to provide an SBC under this paragraph
(a)(1) with respect to an individual sat-
isfies that requirement if another party
provides the SBC, but only to the extent
that the SBC is timely and complete in
accordance with the other rules of this sec-
tion. Therefore, for example, in the case
of a group health plan funded through an
insurance policy, the plan satisfies the re-
quirement to provide an SBC with respect
to an individual if the issuer provides a
timely and complete SBC to the individ-
ual.
(B)IfasingleSBCisprovidedtoapar-
ticipant and any beneficiaries at the partici-
pant’s last known address, then the require-
ment to provide the SBC to the participant
and any beneficiaries is generally satisfied.
However, if a beneficiary’s last known ad-
dress is different than the participant’s last
known address, a separate SBC is required
to be provided to the beneficiary at the ben-
eficiary’s last known address.
(C) With respect to a group health
plan that offers multiple benefit packages,
the plan or issuer is required to provide
a new SBC automatically upon renewal
only with respect to the benefit package
in which a participant or beneficiary is
enrolled; SBCs are not required to be pro-
vided automatically upon renewal with
respect to benefit packages in which the
participant or beneficiary is not enrolled.
However, if a participant or beneficiary
requests an SBC with respect to another
benefit package (or more than one other
benefit package) for which the participant
or beneficiary is eligible, the SBC (or
SBCs, in the case of a request for SBCs
relating to more than one benefit package)
must be provided upon request as soon
as practicable, but in no event later than
seven business days following receipt of
the request.
(2)Content—(i)In general. Subject
to paragraph (a)(2)(iii) of this section, the
SBC must include the following:
(A) Uniform definitions of standard in-
surance terms and medical terms so that
consumers may compare health coverage
and understand the terms of (or excep-
tions to) their coverage, in accordance with
guidance as specified by the Secretary;
(B) A description of the coverage, in-
cluding cost sharing, for each category
of benefits identified by the Secretary in
guidance;
(C) The exceptions, reductions, and
limitations of the coverage;
(D) The cost-sharing provisions of the
coverage, including deductible, coinsur-
ance, and copayment obligations;
(E) The renewability and continuation
of coverage provisions;
(F) Coverage examples, in accordance
with paragraph (a)(2)(ii) of this section;
(G) With respect to coverage beginning
on or after January 1, 2014, a statement
about whether the plan or coverage pro-
vides minimum essential coverage as de-
fined under section 5000A(f) and whether
the plan’s or coverage’s share of the total
allowed costs of benefits provided under
the plan or coverage meets applicable re-
quirements;
(H) A statement that the SBC is only
a summary and that the plan document,
policy, certificate, or contract of insurance
should be consulted to determine the gov-
erning contractual provisions of the cover-
age;
(I) Contact information for questions
and obtaining a copy of the plan docu-
ment or the insurance policy, certificate, or
contract of insurance (such as a telephone
number for customer service and an Inter-
net address for obtaining a copy of the plan
document or the insurance policy, certifi-
cate, or contract of insurance);
(J) For plans and issuers that maintain
one or more networks of providers, an
Internet address (or similar contact infor-
mation) for obtaining a list of network
providers;
(K) For plans and issuers that use a for-
mulary in providing prescription drug cov-
erage, an Internet address (or similar con-
tact information) for obtaining information
on prescription drug coverage; and
(L) An Internet address for obtaining
the uniform glossary, as described in para-
graph (c) of this section, as well as a con-
tact phone number to obtain a paper copy
of the uniform glossary, and a disclosure
that paper copies are available.
(ii)Coverage examples.TheSBC
must include coverage examples specified
by the Secretary in guidance that illus-
April 9, 20127862012–15 I.R.B.

trate benefits provided under the plan or
coverage for common benefits scenar-
ios (including pregnancy and serious or
chronic medical conditions) in accordance
with this paragraph (a)(2)(ii).
(A)Number of examples. The Secretary
may identify up to six coverage examples
thatmayberequiredinanSBC.
(B)Benefits scenarios. For purposes
of this paragraph (a)(2)(ii), a benefits sce-
nario is a hypothetical situation, consisting
of a sample treatment plan for a specified
medical condition during a specific pe-
riod of time, based on recognized clinical
practice guidelines as defined by the Na-
tional Guideline Clearinghouse, Agency
for Healthcare Research and Quality. The
Secretary will specify, in guidance, the
assumptions, including the relevant items
and services and reimbursement informa-
tion, for each claim in the benefits sce-
nario.
(C)Illustration of benefit provided.For
purposes of this paragraph (a)(2)(ii), to il-
lustrate benefits provided under the plan
or coverage for a particular benefits sce-
nario, a plan or issuer simulates claims pro-
cessing in accordance with guidance is-
sued by the Secretary to generate an esti-
mate of what an individual might expect to
pay under the plan, policy, or benefit pack-
age. The illustration of benefits provided
will take into account any cost sharing, ex-
cluded benefits, and other limitations on
coverage, as specified by the Secretary in
guidance.
(iii)Coverage provided outside the
United States. In lieu of summarizing
coverage for items and services provided
outside the United States, a plan or is-
suer may provide an Internet address (or
similar contact information) for obtaining
information about benefits and coverage
provided outside the United States. In any
case, the plan or issuer must provide an
SBC in accordance with this section that
accurately summarizes benefits and cov-
erage available under the plan or coverage
within the United States.
(3)Appearance. A group health plan
and a health insurance issuer must provide
an SBC in the form, and in accordance
with the instructions for completing the
SBC, that are specified by the Secretary in
guidance. The SBC must be presented in
a uniform format, use terminology under-
standable by the average plan enrollee, not
exceed four double-sided pages in length,
and not include print smaller than 12-point
font.
(4)Form— (i) An SBC provided by
an issuer offering group health insurance
coverage to a plan (or its sponsor), may be
provided in paper form. Alternatively, the
SBC may be provided electronically (such
as by email or an Internet posting) if the
following three conditions are satisfied —
(A) The format is readily accessible by
the plan (or its sponsor);
(B) The SBC is provided in paper form
free of charge upon request; and
(C) If the electronic form is an Internet
posting, the issuer timely advises the plan
(or its sponsor) in paper form or email that
thedocumentsareavailableontheInternet
and provides the Internet address.
(ii) An SBC provided by a group health
plan or health insurance issuer to a partici-
pant or beneficiary may be provided in pa-
per form. Alternatively, the SBC may be
provided electronically (such as by email
or an Internet posting) if the requirements
of this paragraph (a)(4)(ii) are met.
(A) With respect to participants and
beneficiaries covered under the plan, the
SBC may be provided electronically if the
requirements of 29 CFR 2520.104b–1 are
met.
(B) With respect to participants and
beneficiaries who are eligible but not
enrolled for coverage, the SBC may be
provided electronically if—
(1) The format is readily accessible;
(2) The SBC is provided in paper form
free of charge upon request; and
(3) In a case in which the electronic
form is an Internet posting, the plan or is-
suer timely notifies the individual in pa-
per form (such as a postcard) or email that
the documents are available on the Inter-
net, provides the Internet address, and no-
tifies the individual that the documents are
available in paper form upon request.
(5)Language. A group health plan
or health insurance issuer must provide
the SBC in a culturally and linguisti-
cally appropriate manner. For purposes
of this paragraph (a)(5), a plan or issuer
is considered to provide the SBC in a
culturally and linguistically appropriate
manner if the thresholds and standards of
§54.9815–2719T(e) are met as applied to
the SBC.
(b)Notice of modification.Ifagroup
health plan, or health insurance issuer of-
fering group health insurance coverage,
makes any material modification (as de-
fined under section 102 of ERISA) in any
of the terms of the plan or coverage that
would affect the content of the SBC, that
is not reflected in the most recently pro-
vided SBC, and that occurs other than in
connection with a renewal or reissuance
of coverage, the plan or issuer must pro-
vide notice of the modification to enrollees
not later than 60 days prior to the date on
which the modification will become effec-
tive. The notice of modification must be
provided in a form that is consistent with
paragraph (a)(4) of this section.
(c)Uniform glossary—(1)In general.
A group health plan, and a health insur-
ance issuer offering group health insurance
coverage, must make available to partici-
pants and beneficiaries the uniform glos-
sary described in paragraph (c)(2) of this
section in accordance with the appearance
and the form and manner requirements of
paragraphs (c)(3) and (4) of this section.
(2)Health-coverage-related terms and
medical terms. The uniform glossary must
provide uniform definitions, specified by
the Secretary in guidance, of the following
health-coverage-related terms and medical
terms:
(i) Allowed amount, appeal, bal-
ance billing, co-insurance, complications
of pregnancy, co-payment, deductible,
durable medical equipment, emergency
medical condition, emergency medical
transportation, emergency room care,
emergency services, excluded services,
grievance, habilitation services, health
insurance, home health care, hospice
services, hospitalization, hospital out-
patient care, in-network co-insurance,
in-network co-payment, medically nec-
essary, network, non-preferred provider,
out-of-network co-insurance, out-of-net-
work co-payment, out-of-pocket limit,
physician services, plan, preauthorization,
preferred provider, premium, prescription
drug coverage, prescription drugs, primary
care physician, primary care provider,
provider, reconstructive surgery, reha-
bilitation services, skilled nursing care,
specialist, usual customary and reasonable
(UCR), and urgent care; and
(ii) Such other terms as the Secretary
determines are important to define so that
individuals and employers may compare
and understand the terms of coverage and
medical benefits (including any exceptions
to those benefits), as specified in guidance.
2012–15 I.R.B.787April 9, 2012

(3)Appearance. A group health plan,
and a health insurance issuer, must provide
the uniform glossary with the appearance
specified by the Secretary in guidance to
ensure the uniform glossary is presented in
a uniform format and uses terminology un-
derstandable by the average plan enrollee.
(4)Form and manner. A plan or is-
suer must make the uniform glossary de-
scribed in this paragraph (c) available upon
request, in either paper or electronic form
(as requested), within seven business days
after receipt of the request.
(d)Preemption. State laws that require
a health insurance issuer to provide an
SBC that supplies less information than re-
quired under paragraph (a) of this section
are preempted.
(e)Failure to provide. A group health
plan or health insurance issuer that will-
fully fails to provide information required
under this section to a participant or bene-
ficiary is subject to a fine of not more than
$1,000 for each such failure. A failure with
respect to each participant or beneficiary
constitutes a separate offense for purposes
of this paragraph (e).
(f)Effective/Applicability date—(1)
This section is applicable to group health
plans and group health insurance issuers
in accordance with this paragraph (f). (See
§54.9815–1251T(d), providing that this
section applies to grandfathered health
plans.)
(i) For disclosures with respect to par-
ticipants and beneficiaries who enroll or
re-enroll through an open enrollment pe-
riod (including re-enrollees and late en-
rollees), this section applies beginning on
the first day of the first open enrollment pe-
riod that begins on or after September 23,
2012; and
(ii) For disclosures with respect to
participants and beneficiaries who enroll
in coverage other than through an open
enrollment period (including individuals
who are newly eligible for coverage and
special enrollees), this section applies be-
ginning on the first day of the first plan
year that begins on or after September 23,
2012.
(2) For disclosures with respect to
plans, this section is applicable to health
insurance issuers beginning September 23,
2012.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION
ACT
Par. 3. The authority citation for part
602 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 4. Section 602.101(b) is amended
by adding the following entry in numerical
order to the table to read as follows:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section
where Identified and
described
Current OMB
control No.
*****
54.9815–2715
...........................................................
1545–2229
*****
April 9, 20127882012–15 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Public Comment Invited
on Recommendations for
2012–2013 Guidance Priority
List
Notice 2012–25
The Department of Treasury and the
Internal Revenue Service invite public
comment on recommendations for items
that should be included on the 2012–2013
Guidance Priority List.
The Treasury Department’s Office of
Tax Policy and the Service use the Guid-
ance Priority Listeach 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 2012–2013 Guidance Priority List
will establish the guidance that the Trea-
sury Department and the Service intend
to work on from July 1, 2012, through
June 30, 2013. 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. Pub-
lished guidance plays an important role in
increasing voluntary compliance by help-
ing to clarify ambiguous areas of the tax
law.
As is the case whenever significant
legislation is enacted, the Treasury De-
partment and the Service have dedicated
substantial resources during the current
plan year to published guidance projects
necessary to implement the provisions of
the multitude of tax Acts that have been
enacted over the past several years in-
cluding, but not limited to, the American
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 Employ-
ment Act, Pub. L. No. 111–147, 124 Stat.
71, which was enacted on March 18, 2010;
the Patient Protection and Affordable Care
Act, Pub. L. No. 111–148, 124 Stat. 119,
which was enacted on March 23, 2010; the
Health Care and Education Reconciliation
Act, Pub. L. 111–152, 124 Stat. 1029,
which was enacted on March 30, 2010; the
Small Business Jobs Act of 2010, Pub. L.
No. 111–240, 124 Stat 2504, which was
enacted on September 27, 2010; the Tax
Relief, Unemployment Insurance Reau-
thorization, and Job Creation Act of 2010,
Pub. L. No. 111–312, 124 Stat. 3296,
which was enacted on December 17, 2010;
and the 3% Withholding Repeal and Job
Creation Act, Pub. L. No. 112–56, 125
Stat. 711, which was enacted on Novem-
ber 21, 2011. The Treasury Department
and the Service will continue to evaluate
the priority of each guidance project in
light of the above-mentioned tax legis-
lation and other developments occurring
during the 2012–2013 plan year.
In reviewing recommendations and
selecting projects for inclusion on the
2012–2013 Guidance Priority List, the
Treasury Department and the Service will
consider the following:
1. Whether the recommended guidance
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 toeasily understand
and apply the guidance;
4. Whether the recommended guid-
ance involves regulations that are
outmoded, ineffective, insufficient,
or excessively burdensome and that
should be modified, streamlined, ex-
panded, or repealed;
5. Whether the Service can administer
the recommended guidance on a uni-
form basis; and
6. Whether the recommended guidance
reduces controversy and lessens the
burden on taxpayers or the Service.
Recommendations for the 2012–2013
Guidance Priority List.
Please submit recommendations by
May 1, 2012, for possible inclusion on
the original 2012–2013 Guidance Priority
List. The Treasury Department and the
Service may update the 2012–2013 Guid-
ance Priority List periodically to reflect
additional guidancethat the Treasury De-
partment and the Service intend to work
on during the plan year. The periodic
updates allow the Treasury Department
andtheServicetorespondtoneedsfor
additional guidance that may arise during
the plan year. Note, however, that the
additional guidance items that are added
to the Guidance Priority List as part of
a periodic update usually are limited to
those that have been published during an
update period or that address situations
the Treasury Department and the Service
determine require immediate guidance,
such as recently enacted legislation with
provisions that take effect upon enactment
or shortly thereafter,high priority Service
initiatives, adverse court opinions, or po-
tentially abusive matters.
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 2012–25)
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 2012–25)
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
2012–25” in the subject line. All
2012–15 I.R.B.789April 9, 2012

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).
April 9, 20127902012–15 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking
Furnishing Id
entifying Number
of Tax Return P
reparer
REG–124791–11
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations that provide guidance
on the eligibility of tax return preparers to
obtain a preparer tax identification num-
ber (PTIN). These proposed regulations
expand the list of tax return preparers
who may obtain and renew a PTIN. The
proposed regulations additionally provide
guidance concerning those tax forms sub-
mitted to the Internal Revenue Service
that are considered returns of tax or claims
for refund of tax for purposes of the re-
quirement to obtain a PTIN and related
provisions. This document also invites
comments from the public regarding these
proposed regulations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by May 15, 2012.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–124791–11), room
5205, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–124791–11),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224, or sent elec-
tronically via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–124791–11).
FOR F
URTHER INFORMATION
CONT
ACT: Concerning the proposed reg-
ulat
ions, Stuart Murray at (202) 622–4940;
con
cerning submissions of comments and
req
uests for a hearing, Oluwafunmilayo
(Fu
nmi) Taylor at (202) 622–7180 (not a
tol
l-free numbers).
SUPPLEMENTAR
Y INFORMATION:
Background
This document
contains proposed
amendments to
regulations under section
6109 of the Int
ernal Revenue Code (Code)
relating to th
e identifying number of a tax
return prepa
rer and furnishing a tax return
preparer’s i
dentifying number on tax re-
turns and cla
ims for refund of tax. The
Department o
f Treasury and the Internal
Revenue Serv
icepublishedintheFederal
Registeron
September 30, 2010 (T.D.
9501, 2010–
46 I.R.B. 651 [75 FR 60309])
final regul
ations under section 6109 that
prescribe c
ertain requirements relating to
the identi
fying number of tax return pre-
parers.
In particu
lar, the final regulations pro-
vided that
for tax returns or claims for re-
fund of tax
filed after December 31, 2010,
the identi
fyingnumberofataxreturnpre-
parer is a
PTIN or other identifying num-
ber that t
he IRS prescribes in forms, in-
structio
ns, or other guidance. The final
regulati
ons also provided that after De-
cember 31
, 2010, a tax return preparer
must hav
e a PTIN that is applied for and
renewed
in the manner the IRS prescribes.
The fina
l regulations added §1.6109–2(d)
to the re
gulations under title 26, providing
that to o
btain a PTIN or other prescribed
identi
fying number, a tax return preparer
must be
an attorney, certified public ac-
counta
nt, enrolled agent, or registered tax
return
preparer authorized to practice be-
fore th
e IRS under Treasury Department
Circu
lar No. 230, 31 CFR Part 10 (which
Treas
ury and the IRS amended in final reg-
ulati
ons published in theFederal Regis-
teron
June 3, 2011 (T.D. 9527, 2011–27
I.R.B
. 1 [76 FR 32286])). For purposes of
thes
e requirements, atax return preparer
mean
s any individual who is compensated
for p
reparing, or assisting in the prepara-
tion
of, all or substantially all of a tax re-
turn
or claim for refund of tax. The final
regu
lations under section 6109 addition-
all
y added §1.6109–2(f), which provides
tha
t the IRS may conduct a Federal tax
com
pliance check on a tax return preparer
who
applies for or renews a PTIN or other
pre
scribed identifying number.
Alt
hough the rules in the final regula-
tio
ns under section 6109 went into effect
on January 1, 2
011, §1.6109–2(h) allows
Treasury and t
he IRS to prescribe, through
forms, instru
ctions, or other appropri-
ate guidance,
exceptions to the rules in
§1.6109–2, as
necessary, in the interest
of effective
tax administration. Section
1.6109–2(h)
also provides that the IRS
may specify t
hrough other appropriate
guidance “sp
ecific returns, schedules, and
other forms
that qualify as tax returns or
claims for r
efund for purposes of these
regulation
s.”
After §1.61
09–2 was amended, Trea-
sury and the
IRS issued Notice 2011–6,
2011–3 I.R.
B. 315, January 17, 2011)
(see §601.
601(d)(2)(ii)(b)ofthischapter),
which prov
ides additional guidance on
the implem
entation of §1.6109–2. Specif-
ically, No
tice 2011–6, in part, provides
further gu
idance as to tax return preparers
who may ob
tain a PTIN. As explained
in Notice
2011–6, the IRS “decided to
allow cer
tain individuals who are not
attorney
s, certified public accountants,
enrolle
d agents, or registered tax return
prepare
rs to obtain a PTIN and prepare,
or assis
t in the preparation of, all or sub-
stantia
lly all of a tax return in certain
discret
e circumstances.” Pursuant to the
author
ity in §1.6109–2(h), Notice 2011–6
establ
ished two additional categories of
tax ret
urnpreparerswhomayobtaina
PTIN: (
1) tax return preparers supervised
by atto
rneys, certified public accountants,
enrol
led agents, enrolled retirement plan
agent
s, and enrolled actuaries (see §1.02a
of Not
ice 2011–6); and (2) tax return pre-
parer
s who prepare tax returns not covered
by a co
mpetency examination applica-
ble t
o registered tax return preparers (see
§1.0
2b of Notice 2011–6). Notice 2011–6
pres
cribes the requirements an individual
must
satisfy under each of these two cat-
egor
ies, including passing a Federal tax
comp
liance check and asuitability check
(wh
en available). Individuals who obtain
or r
enew a PTIN under either of these
cat
egories are not registered tax return
pre
parers. Registered tax return preparers
are
subject to separate, more extensive
re
quirements in Circular 230, including
co
ntinuing education.
Al
so pursuant to the authority in
§1
.6109–2(h), the IRS in Notice 2011–6
sp
ecified that all tax returns, claims for
2012–15 I.R.B.791April 9, 2012

refund, and other tax forms submitted
totheIRSareconsideredtaxreturnsor
claims for refund of tax for purposes of
§1.6109–2 unless the IRS provides oth-
erwise. Section 1.03 of Notice 2011–6
explains that the IRS interprets the term
“tax forms” broadly for this purpose, and
a tax return preparer must obtain a PTIN
to prepare for compensation, or to assist
in preparing for compensation, all or sub-
stantially all of “any form” except those
forms that the IRS explicitly excludes.
Notice 2011–6 lists the forms by number
and title that are currently excluded.
Explanation of Provisions
Treasury and the IRS propose to in-
corporate the relevant provisions of No-
tice 2011–6 discussed earlier in this pre-
amble in §1.6109–2. The proposed regula-
tions provide for two additional categories
oftaxreturnpreparerstoobtainaPTIN
(or other identifying number the IRS pre-
scribes), namely, certain supervised tax re-
turn preparers and tax return preparers who
prepare tax returns and claims for refund
that are not covered by a competency ex-
amination. As to the first category, the pro-
posed regulations provide that any individ-
ual 18 years of age or older is eligible for
a PTIN if the individual is supervised as a
taxreturnpreparerbyanattorney,certified
public accountant, enrolled agent, enrolled
retirement plan agent, or enrolled actuary
authorized to practice before the IRS under
Circular 230. The proposed regulations
provide that the supervision must be in ac-
cordance with any requirements the IRS
may prescribe; these requirements are cur-
rently set forth in §1.02a of Notice 2011–6.
As to the second category, the proposed
regulations provide that any individual 18
years of age or older is eligible for a PTIN
if the individual exclusively prepares tax
returns and claims for refund that are not
covered by any minimum competency test
or tests that the IRS prescribes for reg-
istered tax return preparers. To be eligi-
ble for a PTIN, an individual must certify,
at the time and in whatever manner the
IRS may prescribe, that the individual only
prepares tax returns and claims for refund
that are not covered by a minimum compe-
tency test. Under the proposed regulations,
the individual must also comply with any
other eligibility requirements that the IRS
may prescribe; these requirements are cur-
rently set forth in §1.02b of Notice 2011–6.
The proposed regulations provide that
for purposes of §1.6109–2, the termstax
returnandclaim for refund of taxin-
clude all tax forms submitted to the IRS
except forms that the IRS specifically
excludes in other appropriate guidance.
Notice 2011–6 (§1.03) is the current guid-
ance specifying the excluded tax forms.
The proposed regulations also amend
§1.6109–2(f) to clarify that the IRS may
conduct a suitability check, in addition
to a Federal tax compliance check, on
certain tax return preparers who apply
for or renew a PTIN or other prescribed
identifying number. This clarification is
consistent with the provisions in both the
final Circular 230 regulations and Notice
2011–6 stating that certain individuals
who apply to obtain or renew a PTIN or
to become a registered tax return preparer
will be subject to a suitability check, as
well as a tax compliance check.
Proposed Effective/Applicability Date
These regulations are effective on the
date that final regulations are published in
theFederal Register. For proposed dates
of applicability, see §1.6109–2(i).
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866, as supplemented by Execu-
tive Order 13563. Therefore, a regulatory
assessment is not required. It has also
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regu-
lations, and because the regulation does
not impose a collection of information
on small entities, the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
has been submitted to the Chief Counsel
for Advocacy of the Small Business
Administration for comment on its impact
on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submitted
timely to the IRS. Treasury and the IRS re-
quest comments on all aspects of the pro-
posed rules. All comments that are sub-
mitted by the public will be available for
public inspection and copying. A public
hearing will be scheduled if requested in
writing by any person who timely submits
comments. If a public hearing is sched-
uled, notice of the date, time, and place for
the public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these proposed
regulations is Stuart Murray of the Office
of the Associate Chief Counsel, Procedure
and Administration.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section1.6109–2alsoissuedunder
26 U.S.C. 6109(a) * * *
Par. 2. Section 1.6109–2 is amended
by adding a new sentence to the end of
paragraph (a)(1) and revising paragraphs
(d), (f), (h) and (i) to read as follows:
§1.6109–2 Tax return preparers furnishing
identifying numbers for returns or claims
for refund and related requirements.
(a) * * * (1) * * * For purposes of this
section only, the termstax returnandclaim
for refund of taxinclude all tax forms sub-
mitted to the Internal Revenue Service un-
less specifically excluded by the Internal
Revenue Service in other appropriate guid-
ance.
*****
(d)(1) Beginning after December 31,
2010, all tax return preparers must have a
preparer tax identification number or other
prescribed identifying number that was ap-
plied for and received at the time and in the
manner, including the payment of a user
April 9, 20127922012–15 I.R.B.

fee, as may be prescribed by the Internal
Revenue Service in forms, instructions, or
other appropriate guidance.
(2) Except as provided in paragraph (h)
of this section, to obtain a preparer tax
identification number or other prescribed
identifying number, a tax return preparer
must be one of the following:
(i) An attorney;
(ii) A certified public accountant;
(iii) An enrolled agent;
(iv) A registered tax return preparer
authorized to practice before the Internal
Revenue Service under 31 U.S.C. 330 and
the regulations thereunder;
(v) An individual 18 years of age or
older who is supervised, in the manner
the Internal Revenue Service prescribes
in forms, instructions, or other appropri-
ate guidance, as a tax return preparer by
an attorney, certified public accountant,
enrolled agent, enrolled retirement plan
agent, or enrolled actuary authorized to
practice before the Internal Revenue Ser-
vice under 31 U.S.C. 330 and the regula-
tions thereunder; or
(vi) An individual 18 years of age or
older who certifies that the individual is
a tax return preparer exclusively with re-
spect to tax returns and claims for refund of
tax that are not covered, at the time the tax
return preparer applies for or renews the
number, by a minimum competency exam-
ination prescribed by the Internal Revenue
Service in forms, instructions, or other ap-
propriate guidance. An individual must
comply with any requirements at the time
and in the manner that the Internal Rev-
enue Service may prescribe in forms, in-
structions, or other appropriate guidance.
*****
(f) As may be prescribed in forms, in-
structions, or other appropriate guidance,
the Internal Revenue Service may conduct
a Federal tax compliance check and a suit-
ability check on a tax return preparer who
applies for or renews a preparer tax identi-
fication number or other prescribed identi-
fying number.
*****
(h) The Internal Revenue Service,
through forms, instructions, or other ap-
propriate guidance, may prescribe excep-
tions to the requirements of this section,
including the requirement that an individ-
ual be authorized to practice before the
Internal Revenue Service before receiving
a preparer tax identification number or
other prescribed identifying number, as
necessary in the interest of effective tax
administration.
(i)Effective/applicability date. Para-
graph (a)(1) of this section applies to tax
returns and claims for refund filed after
December 31, 2008, except the last sen-
tence of paragraph (a)(1), which applies to
tax returns and claims for refund filed on
or after the date that final regulations are
published in theFederal Register. Para-
graph (a)(2)(i) of this section applies to
tax returns and claims for refund filed on
or before December 31, 2010. Paragraph
(a)(2)(ii) of this section applies to tax re-
turns and claims for refund filed after De-
cember 31, 2010. Paragraph (d)(1) of this
section applies to tax return preparers af-
ter December 31, 2010. Paragraph (d)(2)
of this section applies to tax return prepar-
ers on or after the date that final regula-
tions are published in theFederal Regis-
ter. Paragraph (e) of this section applies
after September 30, 2010. Paragraph (f)
of this section applies on or after the date
that final regulations are published in the
Federal Register. Paragraphs (g) and (h)
of this section apply after September 30,
2010.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on February 14,
2012, 8:45 a.m., and published in the issue of the Federal
Register for February 15, 2012, 77 F.R. 8753)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Foreign Tax Credit Splitting
Events
REG–132736–11
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9577) that provide guidance relat-
ing to a new provision of the Internal Rev-
enue Code (Code) that addresses situations
in which foreign income taxes have been
separated from the related income. Those
regulations are necessary to provide guid-
ance on applying the new statutory provi-
sion, which was enacted as part of legis-
lation commonly referred to as the Edu-
cation Jobs and Medicaid Assistance Act
(EJMAA) on August 10, 2010. The text
of those temporary regulations published
in this issue of the Bulletin also serves as
the text of these proposed regulations.
DATES: Comments and requests for
a public hearing must be received by
May 14, 2012.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–132736–11), room
5205, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–132736–11),
Courier’s desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20044, or sent elec-
tronically, via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–132736–11).
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Suzanne M. Walsh, (202) 622–3850;
concerning submissions of comments,
Oluwafunmilayo Taylor, (202) 622–7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin contain amendments to the In-
come Tax Regulations (26 CFR Part 1)
whichproviderulesrelatingtoanewpro-
vision of the Code that was enacted as part
of EJMAA (Public Law 111–226, 124 Stat.
2389 (2010)) which addresses situations in
which foreign income taxes have been sep-
arated from the related income. The text of
those regulations also serves as the text of
these proposed regulations. The preamble
to the temporary regulations explains the
temporary regulations and these proposed
2012–15 I.R.B.793April 9, 2012

regulations. The regulations affect taxpay-
ers claiming foreign tax credits.
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
assessment is not required. It has also
been determined thatsection 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations, and because the regulations do
not impose a collection of information
on small entities, the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f), these
regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under “Addresses.” The
Treasury Department and the IRS request
comments on all aspects of the proposed
rules. All comments will be available
atwww.regulations.govor upon request.
A public hearing will be scheduled if
requested in writing by any person that
timely submits comments. If a public
hearing is scheduled, notice of the date,
time, and place for the public hearing will
be published in theFederal Register.
Drafting Information
The principal author of these regula-
tions is Suzanne M. Walsh of the Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and the Treasury Department participated
in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.704–1 is amended as
follows:
1. Paragraph (b)(1)(ii)(b)(3)isadded.
2. Paragraph (b)(4)(viii)(d)(3)and
paragraph (b)(5)Example 24are revised.
The addition and revisions read as fol-
lows:
§1.704–1 Partner’s distributive share.
*****
(b) * * *
(1) * * *
(ii) * * *
(b)***
(3) [The text of the proposed amend-
mentsto§1.704–1(b)(1)(ii)(b)(3)
is the same as the text of
§1.704–1T(b)(1)(ii)(b)(3)published
elsewhere in this issue of the Bulletin.]
*****
(4) * * *
(viii) * * *
(d)***
(3) [The text of the proposed amend-
ments to §1.704–1(b)(4)(viii)(d)(3)
is the same as the text of
§1.704–1T(b)(4)(viii)(d)(3)published
elsewhere in this issue of the Bulletin.]
*****
(5) * * *
Example 24. [The text of the proposed amend-
ments to §1.704–1(b)(5)Example 24isthesameas
the text of §§1.704–1T(b)(5)Example 24published
elsewhere in this issue of the Bulletin.]
*****
Par. 3. Section 1.909–0 is added to read
as follows:
§1.909–0 Outline of regulation provisions
for section 909.
[The text of proposed §1.909–0 is the
same as the text of §1.909–0T published
elsewhere in this issue of the Bulletin.]
Par. 4. Sections 1.909–1 through
1.909–6 are added to read as follows:
§1.909–1 Definitions and special rules.
[The text of proposed §1.909–1 is the
same as the text of §1.909–1T(a) through
(e) published elsewhere in this issue of the
Bulletin.]
§1.909–2 Splitter arrangements.
[The text of proposed §1.909–2 is the
same as the text of §1.909–2T(a) through
(c) published elsewhere in this issue of the
Bulletin.]
§1.909–3 Rules regarding related income
and split taxes.
[The text of proposed §1.909–3 is the
same as the text of §1.909–3T(a) through
(c) published elsewhere in this issue of the
Bulletin.]
§1.909–4 Coordination rules.
[The text of proposed §1.909–4 is the
same as the text of §1.909–4T(a) through
(b) published elsewhere in this issue of the
Bulletin.]
§1.909–5 2011 and 2012 Splitter
arrangements.
[The text of proposed §1.909–5 is the
same as the text of §1.909–5T(a) through
(c) published elsewhere in this issue of the
Bulletin.]
§1.909–6 Pre-2011 foreign tax credit
splitting events.
[The text of proposed §1.909–6 is the
same as the text of §1.909–6T(a) through
(h) 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 February 9,
2012, 4:15 p.m., and published in the issue of the Federal
Register for February 14, 2012, 77 F.R. 8184)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2012–15
The Internal Revenue Service has re-
voked its determination that the organi-
April 9, 20127942012–15 I.R.B.

zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on April 9, 2012, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
Budget Right Debt Management, Inc.
Maitland, FL
Budget Right Debt Management, Inc.
Lake Mary, FL
Columbus Building Association of
Kingsville Texas
Kingsville, TX
Garment Industry Day Care Center of
Chinatown, Inc.
New York, NY
Renewal Ministries, Inc.
Spring, TX
2012–15 I.R.B.795April 9, 2012

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
April 9, 2012i2012–15 I.R.B.

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

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2012–1 through 2012–15
Announcements:
2002-44
Supplemented by
Notice 2012-13, 2012-9 I.R.B.421
2010-19
Obsoleted by
Ann. 2012-12, 2012-12 I.R.B.562
2011-63
Corrected by
Ann. 2012-9, 2012-7 I.R.B.377
Notices:
2006-87
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2006-99
Superseded in part by
Notice 2012-20, 2012-13 I.R.B.574
2007-25
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2007-77
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2007-95
Obsoleted in part by
T.D. 9576, 2012-15 I.R.B.723
2008-107
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2010-27
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2010-88
As modified by Ann. 2011-40, is superseded by
Notice 2012-1, 2012-2 I.R.B.260
2010-92
Obsoleted by
T.D. 9577, 2012-15 I.R.B.730
2011-8
Superseded by
Notice 2012-19, 2012-10 I.R.B.440
2011-28
Superseded by
Notice 2012-9, 2012-4 I.R.B.315
Proposed Regulations:
REG-208274-86
Withdrawn by
Ann. 2012-11, 2012-13 I.R.B.611
Revenue Procedures:
2000-43
Amplified, modified and superseded by
Rev. Proc. 2012-18, 2012-10 I.R.B.455
2003-61
Superseded by
Notice 2012-8, 2012-4 I.R.B.309
2007-44
Modified by
Ann. 2012-3, 2012-4 I.R.B.335
2011-1
Superseded by
Rev. Proc. 2012-1, 2012-1 I.R.B.1
2011-2
Superseded by
Rev. Proc. 2012-2, 2012-1 I.R.B.92
2011-3
Superseded by
Rev. Proc. 2012-3, 2012-1 I.R.B.113
2011-4
Superseded by
Rev. Proc. 2012-4, 2012-1 I.R.B.125
2011-5
Superseded by
Rev. Proc. 2012-5, 2012-1 I.R.B.169
2011-6
Superseded by
Rev. Proc. 2012-6, 2012-1 I.R.B.197
2011-7
Superseded by
Rev. Proc. 2012-7, 2012-1 I.R.B.232
2011-8
Superseded by
Rev. Proc. 2012-8, 2012-1 I.R.B.235
2011-9
Superseded by
Rev. Proc. 2012-9, 2012-2 I.R.B.261
2011-10
Superseded by
Rev. Proc. 2012-10, 2012-2 I.R.B.273
2011-14
Modified and clarified by
Rev. Proc. 2012-19, 2012-14 I.R.B.689
Rev. Proc. 2012-20, 2012-14 I.R.B.700
Revenue Procedures— Continued:
2011-37
Obsoleted in part by
Rev. Proc. 2012-16, 2012-10 I.R.B.452
2011-40
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2011-49
Modified by
Ann. 2012-3, 2012-4 I.R.B.335
2011-50
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2011-51
Corrected by
Ann. 2012-6, 2012-6 I.R.B.366
2012-8
Corrected by
Ann. 2012-7, 2012-6 I.R.B.367
Revenue Rulings:
92-19
Supplemented in part by
Rev. Rul. 2012-6, 2012-6 I.R.B.349
2008-40
Modified by
Notice 2012-6, 2012-3 I.R.B.293
2011-1
Modified by
Notice 2012-6, 2012-3 I.R.B.293
2012-9
Modified by
Rev. Rul. 2012-12, 2012-15 I.R.B.748
Treasury Decision:
9517
Corrected by
Ann. 2012-4, 2012-4 I.R.B.335
Ann. 2012-5, 2012-5 I.R.B.348
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin 2011–52, dated December 27,
2011.
April 9, 2012iii2012–15 I.R.B.

2012–15 I.R.B.April 9, 2012

April 9, 20122012–15 I.R.B.

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