Internal Revenue Bulletin 2010-43 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 201
0-43
October 25, 2010
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9495, page 477.
Final regulations under section 1397E of the Code provide
guidance to issuers that issued qualified zone academy bonds
(QZABs) on or before October 3, 2008, relating to expenditures
of bond proceeds, arbitrage, information reporting, remedial
actions for situations when QZAB proceeds are not used for a
qualified purpose, and certain other miscellaneous rules.
T.D. 9496, page 484.
Final regulations under section 6050W of the Code relate to in-
formation reporting requirements, information reporting penal-
ties, and backup withholding requirements for payment card
and third party network transactions.
Notice 2010–67, page 529.
This notice provides transitional relief from the information re-
porting requirements in section 6045A of the Code that apply
totransfersofsecuritiesbybrokers and other custodians.
EMPLOYEE PLANS
T.D. 9494, page 500.
REG–125592–10, page 556.
Final, temporary, and proposed regulations under section 9815
of the Code provide guidance concerning the requirements for
internal claims and appeals and external review processes for
group health plans and health insurance issuers under the Af-
fordable Care Act.
EXCISE TAX
T.D. 9494, page 500.
REG–125592–10, page 556.
Final, temporary, and proposed regulations under section 9815
of the Code provide guidance concerning the requirements for
internal claims and appeals and external review processes for
group health plans and health insurance issuers under the Af-
fordable Care Act.
ADMINISTRATIVE
T.D. 9496, page 484.
Final regulations under section 6050W of the Code relate to in-
formation reporting requirements, information reporting penal-
ties, and backup withholding requirements for payment card
and third party network transactions.
Notice 2010–67, page 529.
This notice provides transitional relief from the information re-
porting requirements in section 6045A of the Code that apply
to transfers of securities by brokers and other custodians.
Rev. Proc. 2010–38, page 530.
This procedure contains the latest revision of Publication 1516,
Specifications for Filing Form 8596, Information Return for Fed-
eral Contracts, Electronically. Rev. Proc. 2008–49 super-
seded.
Announcement 2010–87, page 557.
This announcement contains updates to all publications asso-
ciated with filing information returns through the Filing Informa-
tion Returns Electronically (FIRE) System.
Fi
nding Lists begin on page ii.
Index for July through October begins on page iv.

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.
October 25, 20102010–43 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 1397E
.—Credit to
Holders of Qua
lified Zone
Academy Bonds
26 CFR 1.1397E–1: Qualified Zone Academy Bonds.
T.D. 9495
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Qualified Zone Academy
Bonds; Obligations of States
and Political Subdivisions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document removes the
temporary regulations and provides final
regulations that provide guidance to state
and local governments that issue quali-
fied zone academy bonds and to banks,
insurance companies, and other taxpay-
ers that hold those bonds on the program
requirements for qualified zone academy
bonds. The final regulations implement
the amendments to section 1397E (dis-
cussed in this preamble) and provide guid-
ance on the maximumterm, permissible
use of proceeds, and remedial actions for
qualified zone academy bonds.
DATES:Effective Date:These regulations
are effective on July 30, 2010.
Applicability Date:For dates of appli-
cability, see §1.1397E–1(m) of these regu-
lations.
FOR FURTHER INFORMATION
CONTACT: Zoran Stojanovic, (202)
622–3980 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The c
ollection of information con-
tai
ned in these final regulations has been
rev
iewed and approved by the Office of
Management an
d Budget in accordance
with the Paper
work Reduction Act of 1995
(44 U.S.C. 350
7(d)) under control num-
ber 1545–190
8. This information will be
used to ident
ify issuers of qualified zone
academy bond
s that have established a
defeasance e
scrow as a remedial action
taken becau
se of failure to satisfy certain
requiremen
ts of section 1397E.
An agency ma
y not conduct or sponsor,
and a person
is not required to respond to, a
collection
of information unless it displays
a valid cont
rol number.
Books and re
cords relating to a collec-
tion of info
rmation must be retained as
long as the
ir contents may become mate-
rial in the
administration of any internal
revenue la
w. Generally, tax returns and tax
return inf
ormation are confidential, as re-
quired by
26 U.S.C. 6103.
Backgroun
d
Section 13
97E(a) of the Internal Rev-
enue Code
(Code) provides that an el-
igible ta
xpayer (within the meaning of
section 1
397E(d)(6)) that holds a qual-
ified zon
e academy bond (“QZAB” or
“QZABs”
) on a credit allowance date is
allowed
a credit against Federal income
tax for t
he taxable year that includes
the cred
it allowance date. In general,
aQZABis
a bond issued by a state
or loca
l government to finance certain
eligib
le public school purposes under
sectio
n 1397E(d). Section 1397E(b)
provid
es that the amount of the QZAB
credit
equals the product of the credit rate
and th
e face amount of the bond held
by the
taxpayer on the credit allowance
date.
Under section 1397E(b)(2), the
credi
t rate is determined by the Treasury
Depar
tment and equals the percentage that
the De
partment estimates generally will
perm
it the issuance of QZABs without
disc
ount and without interest cost to the
issu
er. Section 1397E(i)(1) definescredit
allo
wance dateas the last day of the
one-
year period beginning on the issue
dat
e of the issue and the last day of each
suc
cessive one-year period thereafter.
Und
er section 1397E(d)(3), the maximum
ter
m of a QZAB is determined by the
Tre
asury Department and equals the term
that the Depar
tment estimates will result in
the present va
lue of the obligation to repay
the principal
on the bond being equal to
50 percent of
the face amount of the bond.
Section 1397E
(j) provides that the
amount of the
QZAB credit allowed to
the taxpayer
is included in the taxpayer’s
gross income
.
Section 1397
E(e) imposes a national
limitation o
n the amount of QZABs that
may be issued
for each calendar year. The
limitation
is allocated by the Treasury De-
partment am
ong the States on the basis of
their respe
ctive populations of individuals
below the po
verty line.
Section 139
7E was amended by section
107 of the Ta
x Relief and Health Care Act
of 2006, Pu
blic Law 109–432, 120 Stat.
2922 (2006
) (the “2006 Act”), by adding
certain re
quirements for a bond to be a
QZAB. In ge
neral, the 2006 Act added
anewfive
-year spending period require-
ment, arb
itrage investment restrictions,
and infor
mation reporting requirements.
Specific
ally, the 2006 Act added new sec-
tion 1397
E(f), which generally imposes
spendin
g period restrictions under which
an issue
r of QZABs must reasonably ex-
pect, as
of the issue date, that: (1) at least
95 perce
nt of the proceeds from the sale
of the is
sue are to be spent for one or more
qualif
ied purposes with respect to qual-
ified z
one academies within the 5-year
period
beginning on the issue date of the
QZAB; (
2) a binding commitment with a
third p
arty to spend at least 10 percent of
the pr
oceeds from the sale of the issue will
be inc
urred within the six-month period
begin
ning on the issue date of the QZAB;
and (3
) such purposes will be completed
with d
ue diligence and the proceeds from
the s
ale of the issue will be spent with
due d
iligence. New section 1397E(f)(2)
adde
d by the 2006 Act provides authority
to th
e Secretary of the Treasury to ex-
tend
the five-year spending period. To
the e
xtent that less than 95 percent of the
pro
ceeds of the issue are spent within the
fiv
e-year spending period (plus any ex-
ten
sion granted by the Secretary of the
Tre
asury), the 2006 Act requires the issuer
to r
edeem the nonqualified bonds within
90
days after the end of such period.
2010–43 I.R.B.477October 25, 2010

In addition, the 2006 Act added new
section 1397E(g), which generally re-
quires that an issue of QZABs satisfy the
arbitrage investment restrictions of section
148 with respect to the proceeds of the
issue.
Finally, the 2006 Act added new section
1397E(h), which generally requires that is-
suers of QZABs submit information re-
porting returns to the IRS similar to the in-
formation reporting returns required to be
submitted to the IRS under section 149(e)
for tax-exempt state or local bonds.
Section 15316 of the Food, Conserva-
tion, and Energy Act of 2008, Public Law
110–246, 122 Stat. 1651 (2008) (the “2008
Energy Act”), added section 54A to the
Code. Section 54A(a) provides that a tax-
payer that holds a qualified tax credit bond
on one or more credit allowance dates of
the bond occurring during any taxable year
is allowed as a credit against Federal in-
come tax for the taxable year an amount
equal to the sum of the credits determined
under section 54A(b) with respect to such
dates. Section 54A(d)(1) provides that the
termqualified tax credit bond(“QTCB”)
means a certain bond which is part of an
issue that meets the requirements of sec-
tion 54A(d)(2), (3), (4), (5), and (6) regard-
ing expenditures of bond proceeds, infor-
mation reporting, arbitrage, maturity lim-
itations, and prohibitions against financial
conflicts of interest. At the time of its en-
actment, the 2008 Energy Act did not treat
QZABsasQTCBs.
Section 313 of the Tax Extenders and
Alternative Minimum Tax Relief Act of
2008, Div. C of Public Law 110–343, 122
Stat. 3765 (2008) (the “2008 Act”) added
new section 1397E(m) providing that sec-
tion 1397E shall not apply to any obliga-
tion issued after the date of the enactment
of the 2008 Act on October 3, 2008. Ef-
fective for obligations issued after October
3, 2008, the 2008 Act amended section
54A(d)(1) defining a QTCB to include a
qualified zone academy bond under sec-
tion 54E of the Code. The 2008 Act also
added section 54E, which provides revised
program provisions for QZABs in lieu
of the existing provisions under section
1397E and amended section 54A(d)(2)(C)
to provide that, for purposes of section
54A(d)(2), the term “qualified purpose”
for a QZAB means a purpose specified in
section 54E(a)(1).
Section 301 of the Hiring Incentives to
Restore Employment Act, Public Law No.
111–147, 124 Stat. 71 (2010) (the “HIRE
Act”) added subsection (f) to section 6431
of the Code, which authorizes issuers to
elect irrevocably to receive Federal direct
payments of allowances of refundable tax
credits to subsidize a prescribed portion of
their borrowing costs instead of the Fed-
eral tax credits that otherwise would be al-
lowed to holders of certain qualified tax
credit bonds under section 54A. Under sec-
tion 6431(f)(3)(A)(iii), the direct payment
subsidy option under section 6431(f) ap-
plies to qualified zone academy bonds is-
sued under section 54E that meet the re-
quirements to be qualified tax credit bonds
under section 54A.
Temporary regulations (T.D. 8755,
1998–1 C.B. 653) interpreting section
1397E were published on January 7, 1998
(63 FR 671), and amended on July 1,
1999 (T.D. 8826, 1999–2 C.B. 107 [64 FR
35573]). Final regulations under section
1397E (T.D. 8903, 2000–2 C.B. 352) were
published on September 26, 2000 (65 FR
57732) (the “First Final Regulations”).
On March 26, 2004, a notice of proposed
rulemaking (REG–121475–03, 2004–1
C.B. 793) was published in theFederal
Register(69 FR 15747) (the “2004 Pro-
posed Regulations”). The 2004 Proposed
Regulations proposed to amend the First
Final Regulations by providing guidance
on the maximum term, permissible use
of proceeds, and remedial actions for
QZABs. A public hearing was scheduled
for July 21, 2004. The public hearing
was cancelled because no requests to
speak were received. Written comments
on the 2004 Proposed Regulations were
received. After consideration of the
written comments, and in light of the
statutory changes made by the 2006
Act, the need for regulatory guidance
on those statutory changes, and the
close connection between that needed
guidance and the guidance in the 2004
Proposed Regulations, the IRS and the
Treasury Department determined to
issue coordinated guidance as temporary
regulations under T.D. 9339, 2007–2
C.B. 437, which were published in the
Federal Register on July 16, 2007 (72 FR
38767) and which became effective as
of September 14, 2007 (the “Temporary
Regulations”), with an opportunity for
public comment in the corresponding
proposed regulations (the “2007 Proposed
Regulations”).The 2004 Proposed
Regulations were withdrawn. No public
hearing was requested and no written
comments were received pursuant to the
2007 Proposed Regulations.
Accordingly, the IRS and the Treasury
Department adopt the 2007 Proposed Reg-
ulations, in substantially the same form as
the 2007 Proposed Regulations, as final
regulations by this Treasury Decision.
Effective/Applicability Dates
In general, except as otherwise pro-
vided, these final regulations gener-
ally apply to QZABs issued under sec-
tion 1397E that are sold on or after
September 14, 2007.
Pursuant to section 313(b) of the 2008
Act, effective for QZABs that are sold
after October 3, 2008, section 1397E is
inapplicable and successor modified statu-
tory provisions for QZABs apply under
sections 54A and 54E. These final regu-
lations generally do not apply to QZABs
issued under sections 54A and 54E. How-
ever, Notice 2009–30, 2009–16 I.R.B.
852 (April 20, 2009) and Notice 2010–22,
2010–10 I.R.B. 435 (March 8, 2010) (re-
lating to 2009 and 2010 volume cap allo-
cations for QZABs respectively), provide
that for QZABs issued under sections 54A
and 54E that are sold on or after October
4, 2008, pending the promulgation and
effective date of future administrative or
regulatory guidance, taxpayers may rely
on the interim guidance provided in these
notices and, to the extent not inconsis-
tent with these notices and the provisions
of sections 54A and 54E, the Temporary
Regulations issued under section 1397E.
See §601.601 (d)(2)(ii)(b)
The final regulations include a limited
reliance provision for QZABs issued un-
der sections 54A and 54E. Under this re-
liance provision, except to the extent in-
consistent with the successor statutory pro-
visions for QZABs in sections 54A and
54E and public administrative or regula-
tory guidance under those provisions and
except as otherwise provided in a special
restriction against reliance on the remedial
action provisions in the final regulations,
issuersandtaxpayersmayrelyonthefi-
nal regulations for QZABs that are issued
under sections 54A and 54E. In the case
of QZABs that are issued under sections
October 25, 20104782010–43 I.R.B.

54A and 54E for which the issuer elects the
Federal direct payment subsidy option un-
der section 6431(f), issuers and taxpayers
may not rely on the remedial action pro-
visions in §1.1397E–1(h) of the final reg-
ulations. The IRS and Treasury Depart-
ment expect to announce appropriate re-
medial actions tailored to bonds involving
the Federal direct payment subsidy option
under section 6431 in future public guid-
ance.
In addition, except as otherwise pro-
vided, §1.1397E–1(h)(2), (h)(3), (h)(4),
(i), and (j) of the final regulations regard-
ing the five-year spending period, the
arbitrage investment restrictions, and the
information reporting requirement added
by the 2006 Act apply to bonds issued un-
der section 1397E pursuant to allocations
of the national qualified zone academy
bond volume cap authority arising in cal-
endar years after 2005 and sold on or after
September 14, 2007.
In addition, issuers and taxpayers
also may apply the final regulations in
whole, but not in part, to bonds issued
under section 1397E that are sold before
September 14, 2007.
Certain other special effective dates
apply to particular provisions under
§1.1397E–1(m).
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 has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. It is hereby
certified that the collection of information
contained in this regulation will not
have a significant economic impact on
a substantial number of small entities.
Accordingly, a regulatory flexibility
analysis is not required. The collection of
information in this proposed regulation is
in §1.1397E–1(h)(8). This collection of
information is required by the IRS to verify
compliance with section 1397E. This
informationwillbeusedtoidentifyissuers
of qualified zone academy bonds that
have established a defeasance escrow as
a remedial action taken because of failure
to satisfy certain requirements of section
1397E. The collection of information is
required to obtain or retain a benefit.
The likely respondents are states or local
governments that issue qualified zone
academy bonds. The estimated number of
respondents is 6, and the estimated average
annual burden hours per respondent is 30
minutes. In addition, the establishment
of a defeasance escrow need only be
reported once. Accordingly, the number
of, and the burden on, affected small
entities is not significant. Pursuant to
section 7805(f) of the Code, the notice
of proposed rulemaking preceding this
regulation has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small businesses.
Drafting Information
The principal author of these regula-
tionsisZoranStojanovic,OfficeofAs-
sociate Chief Counsel, IRS (Financial In-
stitutions and Products). However, other
personnel from the IRS and the Treasury
Department participated in their develop-
ment.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entry
for “1.1397E–1T” and revising the entry
for “§1.1397E–1” to read as follows
Authority26U.S.C.7805***
Section 1.1397E–1 also issued under
26 U.S.C. 1397E. * * *
Par. 2. Section 1.1397E–1 is amended
by revising paragraphs (a), (d), (h), (i), (j)
and (m) to read as follows:
§1.1397E–1 Qualified zone academy
bonds.
(a)In general—(1)Overview.In
general, a qualified zone academy bond
(QZAB or QZABs) is a taxable bond is-
sued by a state or local government the
proceeds of which are used to improve
certain eligible public schools. An eligi-
ble taxpayer that holds a QZAB generally
is allowed annual Federal income tax
credits in lieu of periodic interest pay-
ments. These credits compensate the
eligible taxpayer for lending money to
the issuer and function as payments of
interest on the bond. Accordingly, this
section generally treats the allowance
of a credit as if it were a payment of
interest on the bond. This section also
provides other rules for QZABs, including
rules governing the credit rate, the private
business contribution requirement, the
maximum term, use and expenditure
of proceeds, remedial actions, eligible
issuers, arbitrage investment restrictions,
and information reporting.
(2)Certain definitions—(i)In general.
For purposes of this section, except as oth-
erwise provided in this section, the follow-
ing definitions apply: the definitions set
forth in this section; the definitions used
for general tax-exempt bond purposes in
§1.150–1; and the definitions used for pur-
poses of the arbitrage investment restric-
tions on tax-exempt bonds in §1.148–1(b).
(ii)Applicable definition of pro-
ceeds—(A)Use and expenditure provi-
sions. Except as provided in paragraphs
(a)(2)(ii)(B) and (a)(2)(ii)(C) of this sec-
tion, for purposes of all applicable require-
ments regarding use and expenditure of
proceeds of QZABs under section 1397E
and this section, “proceeds” means “sale
proceeds,” as defined in §1.148–1(b),
plus “investment proceeds,” as defined in
§1.148–1(b).
(B)Private business contribution re-
quirement. For purposes of the private
business contribution requirement of sec-
tion 1397E(d)(2), “proceeds” means “sale
proceeds,” as defined in §1.148–1(b).
(C)Arbitrage investment restrictions.
For purposes of the scope of application
of the arbitrage investment restrictions un-
der section 1397E(g) and paragraph (i) of
this section, “proceeds” generally means
gross proceeds, as defined in §1.148–1(b).
In addition, in applying the arbitrage in-
vestment restrictions under paragraph (i)
of this section and under section 148, the
various applicable definitions of the vari-
ous types of proceeds of tax-exempt bonds
under §1.148–1(b) shall apply.
*****
(d)Maximum term. The maximum
term for a QZAB is determined under
section 1397E(d)(3) by using a discount
rate equal to 110 percent of the long-term
2010–43 I.R.B.479October 25, 2010

adjusted applicable Federal rate (AFR),
compounded semi-annually, for the month
in which the bond is sold. The Internal
Revenue Service publishes this figure each
month in a revenue ruling that is published
in the Internal Revenue Bulletin. See
§601.601(d)(2)(ii)(b)ofthischapter. A
bond is sold on the sale date, as defined in
§1.150–1(c)(6), which is the first day on
which there is a binding contract in writing
for the sale or exchange of the bond.
*****
(h)Use of proceeds—(1)In general.
Section 1397E(d)(1)provides that a bond
issued as part of an issue is a QZAB only if,
among other requirements, at least 95 per-
cent of the proceeds of the issue are to be
used for a qualified purpose with respect
to a qualified zone academy established
by an eligible local education agency (as
defined in section 1397E(d)(4)(B)), and
the issue meets the requirements of section
1397E(f) and (g). Section 1397E(d)(5)
definesqualified purpose, with respect
to any qualified zone academy, as reha-
bilitating or repairing the public school
facility in which such academy is estab-
lished, providing equipment for use at
such academy, developing course ma-
terials for education to be provided at
such academy, and training teachers and
other school personnel in such academy.
Section 1397E(d)(4)(A) definesqualified
zone academyas any public school (or
academic program within a public school)
that is established by and operated under
the supervision of an eligible local ed-
ucation agency to provide education or
training below the postsecondary level
and that meets the requirements of section
1397E(d)(4)(A)(i), (ii), (iii) and (iv).
(2)Use of proceeds requirements.An
issue meets the requirements of sections
1397E (d)(1)(A) and (f) only if—
(i) The issuer reasonably expects, as of
theissuedateoftheissue,that—
(A) At least 95 percent of the proceeds
from the sale of the issue are to be spent
for qualified purposes with respect to qual-
ified zone academies within the 5-year pe-
riod beginning on the issue date of the
QZAB;
(B) A binding commitment with a third
party to spend at least 10 percent of the
proceeds from the sale of the issue will be
incurred within the 6-month period begin-
ning on the issue date of the QZAB;
(C) At least 95 percent of the proceeds
fromthesaleoftheissuewillbespent
for qualified purposes with respect to a
qualified zone academy with due diligence
(with due diligence measured by the rea-
sonableness standard under §1.148–1(b));
and
(D) At least 95 percent of the proceeds
of the issue will be used for qualified pur-
poses with respect to a qualified zone acad-
emy for the entire term of the issue (with-
out regard to any redemption provision);
and
(ii) Except as otherwise provided in
paragraph (h)(8) of this section, at least
95 percent of the proceeds of the issue
are actually used for qualified purposes
with respect to a qualified academy for the
entire term of the issue (without regard to
any redemption provision).
(3)Extension of 5-year period.The
Commissioner may extend the period de-
scribed in paragraph (h)(2)(i)(A) of this
section if the issuer, prior to the end of
such period, submits a private ruling re-
quest, and establishes to the satisfaction of
the Commissioner that—
(i) The failure to satisfy the 5-year
spending requirement is due to reasonable
cause; and
(ii) The expenditure of at least 95 per-
cent of the proceeds from the sale of the
issue for a qualified purpose with respect
to a qualified zone academy will continue
to proceed with due diligence.
(4)Unspent proceeds. For purposes
of paragraphs (h)(2)(i)(D) and (h)(2)(ii) of
this section, during the period described
in paragraph (h)(2)(i)(A) of this section,
including any extension under paragraph
(h)(3) of this section, unspent proceeds are
treated as used for a qualified purpose with
respect to a qualified zone academy if the
issuer reasonably expects to proceed with
due diligence to spend those proceeds for
a qualified purpose with respect to a qual-
ified zone academy during that period.
(5)Proceeds spent for rehabilitation,
repair or equipment—(i)In general.
Under section 1397E(d)(5)(A) the term
qualified purposewith respect to any
qualified zone academy includes reha-
bilitating or repairing the public school
facility in which such academy is estab-
lished. For this purpose, in determining
whether proceeds are spent for rehabilita-
tion, rules similar to those under section
47(c) (other than sections 47(c)(1)(B) and
47(c)(2)(B)(iv)) shall apply. Under section
1397E(d)(5)(B) the termqualified purpose
also includes providing equipment for use
at such academy. If proceeds of an issue
are spent for a purpose described in sec-
tion 1397E(d)(5)(A) or (B) with respect
to a qualified zone academy, then those
proceeds are treated as used for a quali-
fied purpose with respect to the academy
during any period after such expenditure
that—
(A) The property financed with those
proceeds is used for the purposes of the
academy; and
(B) The academy maintains its status
as a qualified zone academy under section
1397E(d)(4).
(ii)Retirement from service.There-
tirement from service of financed property
due to normal wear or obsolescence does
not cause the property to fail to be used for
a qualified purpose with respect to a qual-
ified zone academy.
(6)Proceeds spent to develop course
materials or train teachers. Section
1397E(d)(5)(C) and (D) provides that the
termqualified purposewith respect to any
qualified zone academy includes develop-
ing course materials for education to be
provided at such academy, and training
teachers and other school personnel in
such academy. If proceeds of an issue are
spent for a purpose described in section
1397E(d)(5)(C) or (D) with respect to a
qualified zone academy, then those pro-
ceeds are treated as used for a qualified
purpose with respectto the academy dur-
ing any period after such expenditure.
(7)Special rule for determining sta-
tus as qualified zone academy. Section
1397E(d)(4)(A)(iv) provides that a pub-
lic school (or academic program within a
public school) is a qualified zone acad-
emy only if, among other requirements, the
public school is located in an empower-
ment zone or enterprise community (as de-
fined in section 1393), or there is a rea-
sonable expectation (as of the issue date
of the issue) that at least 35 percent of the
students attending the school or participat-
ing in the program (as the case may be)
will be eligible for free or reduced-cost
lunches under the school lunch program
established under the Richard B. Russell
National School Lunch Act. For purposes
of determining whether an issue complies
with section 1397E(d)(4)(A)(iv)—
October 25, 20104802010–43 I.R.B.

(i) A public school is treated as lo-
cated in an empowerment zone or enter-
prise community for the entire term of the
issue if the public school is located in an
empowerment zone or enterprise commu-
nity on the issue date of the issue; and
(ii) The determination of whether there
is a reasonable expectation (as of the issue
date of the issue) that at least 35 percent
of the students attending the school or par-
ticipating in the program (as the case may
be) will be eligible for free or reduced-cost
lunches under the school lunch program
established under the Richard B. Russell
National School Lunch Act is based on ex-
pectations regarding the one-year period
following the issue date.
(8)Remedial actions—(i)General
rule. If less than 95 percent of the pro-
ceeds of an issue are properly used (as
determined under paragraph (h)(8)(ii)(D)
of this section), the issue will be treated
as meeting the requirements of section
1397E(d)(1)(A) if the issue met the re-
quirements of paragraph (h)(2)(i) of this
section and a remedial action is taken
under paragraph (h)(8)(ii) or (iii) of this
section.
(ii)Redemption or defeasance—(A)In
general. A remedial action is taken un-
der this paragraph (h)(8)(ii) if the require-
ments of paragraphs (h)(8)(ii)(B) and (C)
of this section are met.
(B)Retirement of nonqualified
bonds—(1)In general. The requirements
of this paragraph (h)(8)(ii)(B) are met if—
(i) All of the nonqualified bonds of the
issue (as determined under §1.142–2(e))
are redeemed within 90 days after the date
on which the failure to properly use pro-
ceeds occurs; or
(ii) To the extent proceeds of the issue
that have been actually spent for a qual-
ified purpose with respect to a qualified
zone academy, if any nonqualified bonds
of the issue are not redeemed within 90
days after the date on which the failure
to properly use such proceeds occurs (the
unredeemed nonqualified bonds), a defea-
sance escrow is established for the unre-
deemed nonqualified bonds within 90 days
after the date on which the failure to prop-
erly use proceeds occurs.
(2)Special rule for dispositions for
cash. If the failure to properly use pro-
ceeds occurs because of a disposition of
financed property described in section
1397E(d)(5)(A) or (B) and the consid-
eration for the disposition is exclusively
cash, the requirements of this paragraph
(h)(8)(ii)(B) are met if all of the dispo-
sition proceeds (as defined in paragraph
(h)(8)(iv) of this section) are used within
90 days after the date of the disposition to
redeem, or establish a defeasance escrow
for, the nonqualified bonds (as determined
under §1.142–2(e)).
(3)Definition of defeasance escrow.
For purposes of this section, a defeasance
escrow is an irrevocable escrow estab-
lished to retire nonqualified bonds on the
earliest call date after the date on which
the failure to properly use proceeds occurs
in an amount that is sufficient to retire
nonqualified bonds on that call date. At
least 90 percent of the weighted average
amount in a defeasance escrow must be
invested in investments (as defined in
§1.148–1(b)), except that no amount in a
defeasance escrow may be invested in any
investment the obligor (or any person that
is a related party with respect to the obligor
within the meaning of §1.150–1(b)) of
which is a user of proceeds of the bonds.
All purchases or sales of an investment in
a defeasance escrow must be made at the
fair market value of the investment within
the meaning of §1.148–5(d)(6).
(C)Additional rules—(1)Limitation on
source of funding. Proceeds of an issue
of QZABs (other than unspent proceeds of
theissueforwhichthefailuretoproperly
use proceeds occurs) must not be used to
redeem or defease nonqualified bonds un-
der paragraph (h)(8)(ii)(B) of this section.
(2)Rebate requirement.Theissuer
must pay to the United States, at the same
time and in the same manner as rebate
amounts are required to be paid under
§1.148–3 (or at such other time or in such
other manner as the Commissioner may
prescribe), any investment earnings on
amounts in a defeasance escrow estab-
lished under paragraph (h)(8)(ii)(B) of this
section that are in excess of the yield on
the issue of QZABs with respect to which
the defeasance escrow was established.
For this purpose, the first computation
period begins on the date on which the
defeasance escrow is established.
(3)Notice of defeasance.Theis-
suer must provide written notice to the
Commissioner, at the place designated in
§1.150–5(a), of the establishment of the
defeasance escrow within 90 days of the
date the defeasance escrow is established.
(D)When a failure to properly use pro-
ceeds occurs—(1)Unspent proceeds.For
unspent proceeds, a failure to properly use
proceeds occurs on the earliest of—
(i) The first date on which the public
school (or academic program within the
public school) fails to constitute a qualified
zone academy;
(ii) The first date on which the issuer
fails to have a reasonable expectation to
proceed with due diligence to spend at
least 95 percent of the proceeds of the is-
sue for a qualified purpose with respect to
a qualified zone academy; or
(iii) The last day of the period described
in paragraph (h)(2)(i)(A) of this section,
including any extension, if less than 95
percent of the proceeds of the issue are
actually spent for a qualified purpose with
respect to a qualified zone academy.
(2)Proceeds spent for rehabilitation,
repair or equipment
. For proceeds that
have been spent for a purpose described in
section 1397E(d)(5)(A) or (B) with respect
to a qualified zone academy, a failure to
properly use proceeds occurs on the earlier
of—
(i) The first date on which the public
school (or academic program within the
public school) fails to constitute a qualified
zone academy; and
(ii) The first date on which an action is
taken that causes the issuer to fail actually
to use at least 95 percent of the proceeds
of the issue for a qualified purpose with
respect to a qualified zone academy.
(3)Proceeds spent for course materi-
alsortraining. If proceeds have been
spent for a purpose described in section
1397E(d)(5)(C) or (D) with respect to a
qualified zone academy, no event subse-
quent to such expenditure shall constitute
a failure to properly use such proceeds.
(iii)Alternative use of disposition pro-
ceeds. A remedial action is taken un-
der this paragraph (h)(8)(iii) if all of the
requirements of paragraphs (h)(8)(iii)(A)
through (D) of this section are met—
(A) The failure to properly use pro-
ceeds (as determined under paragraph
(h)(8)(ii)(D) of this section) is a dispo-
sition of financed property described in
section 1397E(d)(5)(A) or (B) and the
consideration for the disposition is exclu-
sively cash;
(B) The issuer reasonably expects as of
the date of the disposition that—
2010–43 I.R.B.481October 25, 2010

(1) All of the disposition proceeds will
be spent within the two-year period begin-
ning with the date of the disposition for a
qualified purpose with respect to a quali-
fied zone academy; or
(2) To the extent not expected to be so
spent, the disposition proceeds will be used
within 90 days after the date of the disposi-
tion to redeem or defease bonds in a man-
ner that meets the requirements of para-
graph (h)(8)(ii) of this section;
(C) The disposition proceeds are treated
as proceeds for purposes of section 1397E;
and
(D) If all of the disposition proceeds are
not actually used in the manner described
in paragraph (h)(8)(iii)(B) of this section,
the remainder of such amounts are used
within 90 days after the end of the period
described in paragraph (h)(8)(iii)(B)(1)of
this section for a remedial action that meets
the requirements of paragraph (h)(8)(ii) of
this section.
(iv)Definition of disposition pro-
ceeds and allocation among multiple
funding sources. For purposes of this
paragraph (h)(8),disposition proceeds
means disposition proceeds, as defined
in §1.141–12(c)(1), plus amounts derived
from investing disposition proceeds. If
property has been financed with an issue
of QZABs and one or more other funding
sources, any disposition proceeds from
that property are allocated to the issue
under the principles of §1.141–12(c)(3).
(9)Payment of principal, interest or re-
demption price—(i)In general. Except
as provided in paragraphs (h)(9)(ii) and
(h)(9)(iii) of this section, the use of pro-
ceeds of a bond to pay principal, interest,
or redemption price of the bond or another
bond is not a qualified purpose within the
meaning of section 1397E(d)(5).
(ii)Exception for certain eligible reim-
bursements of interim refinancings.The
use of proceeds of a bond (the refinancing
bond) to pay principal, interest, or redemp-
tion price of another bond (the prior bond)
is a qualified purpose within the meaning
of section 1397E(d)(5) to the extent that—
(A) The prior bond was not a QZAB
(and, in the case of a series of refinancings,
no earlier bond in the series was a QZAB);
(B) The proceeds of the prior bond
(or the original bond in the case of a se-
ries of refinancings, as applicable) were
spent for a qualified purpose under section
1397E(d)(5) with respect to a qualified
zone academy (the original expenditure);
and
(C) The issuer makes a valid reimburse-
ment allocation to allocate the proceeds
of the refinancing bond to the payment
of the original expenditure (the reimburse-
ment allocation), which allocation satisfies
the requirements for reimbursements un-
der paragraph (h)(10) of this section. For
purposes of applying the rules for reim-
bursement, a refinancing bond which oth-
erwise meets the requirements of this para-
graph (h)(9)(ii) is eligible for reimburse-
ment and is not treated as a disqualified re-
funding under §1.150–2(g).
(iii)Reissuance of a QZAB. For pur-
poses of determining whether the estab-
lishing of a defeasance escrow under para-
graph (h)(8)(ii)(B)(1)(ii) of this section re-
sults in an exchange under §1.1001–1(a),
the QZAB is treated as a tax-exempt bond
under §1.1001–3(e)(5)(ii)(B)(1).
(10)Reimbursement. An expenditure
for a qualified purpose may be reimbursed
with proceeds of a QZAB. For this pur-
pose, rules similar to those on reimburse-
ment of expenditures in §1.142–4(b) and
§1.150–2 shall apply. In applying these
reimbursement rules, expenditures eligible
for reimbursement under §1.150–2(d)(3)
shall be deemed to mean any expendi-
ture for a qualified purpose under section
1397E(d)(5).
(i)Arbitrage investment restric-
tions—(1)In general. Under section
1397E(g) and this paragraph (i), and
except as otherwise provided in this
paragraph (i), the arbitrage investment
restrictions and rebate requirements un-
der section 148 and §§1.148–1 through
1.148–11, inclusive, and the exceptions to
those restrictions, apply broadly to gross
proceeds of QZABs issued under section
1397E to the same extent and in the same
manner as they apply to gross proceeds
of tax-exempt state or local governmental
bonds. For this purpose, references in
those sections to tax-exempt bonds gen-
erally shall be deemed to refer to QZABs
and, to the extent that any particular arbi-
trage restriction depends on whether bonds
are private activity bonds under section
141, the determination of whether QZABs
are private activity bonds shall be based
on the general definition of private activ-
ity bonds under section 141. In applying
section 148 and the regulations under that
section to QZABs, the modifications set
forth in paragraphs (i)(2) through (i)(6) of
this section shall apply.
(2)5-year temporary period exception
to arbitrage yield restriction. If an issue
of QZABs meets the requirements of sec-
tion 1397E(f)(1) and paragraph (h)(2)(i)
of this section, then the proceeds of the
issue of QZABs are treated as qualifying
for a 5-year temporary period excep-
tion to arbitrage yield restriction under
§1.148–2(e)(2) beginning on the issue date
of the issue.
(3)Disregard QZAB credit in QZAB
yield for arbitrage purposes. In deter-
mining the yield on an issue of QZABs
for arbitrage purposes under §1.148–4,
the QZAB credit allowed under section
1397E(a) is disregarded.
(4)Non-AMT tax-exempt bond invest-
ment exception inapplicable. The excep-
tion to arbitrage yield restriction for in-
vestments of gross proceeds of tax-exempt
bonds in specified tax-exempt bond invest-
ments not subject to section 148(b)(3)(B)
(relating to an exception to the definition
of “investment property” for specified tax-
exempt bonds) and §1.148–2(d)(2)(v) (re-
lating to a corresponding exception to ar-
bitrage yield limitations) is inapplicable.
(5)Application of small issuer excep-
tion to the arbitrage rebate requirement.
Except as otherwise provided in para-
graph (i)(6) of this section, for purposes
of the small issuer exception to the ar-
bitrage rebate requirement under section
148(f)(4)(D) and §1.148–8, QZABs that
are actually issued or reasonably expected
to be issued by the QZAB issuer (and ap-
plicable entities aggregated under section
148(f)(4)(D)) within a calendar year are
taken into account in measuring the appli-
cable size limitation.
(6)Certain defeasance escrow earn-
ings. With respect to a defeasance es-
crow established in a remedial action for
an issue of QZABs that meets the spe-
cial rebate requirement under paragraph
(h)(8)(ii)(C)(2) of this section, the QZAB
issuer is treated as ineligible for the small
issuer exception to arbitrage rebate under
section 148(f)(4)(D) and paragraph (i)(5)
of this section and compliance with that
special rebate requirement is treated as
satisfying applicable arbitrage investment
restrictions under section 148 for that de-
feasance escrow.
(j)Information reporting requirement.
Under section 1397E(h) and this paragraph
October 25, 20104822010–43 I.R.B.

(j), issuers of QZABs are required to sub-
mit information reporting returns to the
IRS similar to the information reporting re-
turnsrequiredtobesubmittedtotheIRS
under section 149(e) for tax-exempt state
or local governmental bonds at the same
time and in the same manner as those re-
ports are required to be submitted to the
IRSonsuchformsasshallbeprescribed
by the Commissioner for such purpose.
*****
(m)Effective/applicability dates—(1)
In general. Except as otherwise provided
in this paragraph (m), this section applies
to bonds issued under section 1397E that
are sold on or after September 14, 2007.
(2)Special effective dates—(i)Effective
dates for paragraphs (h)(2), (h)(3), (h)(4),
(i), and (j) of this section in general. Para-
graphs (h)(2), (h)(3), (h)(4), (i), and (j) of
this section apply to bonds issued under
section 1397E pursuant to allocations of
the national qualified zone academy bond
volume cap authority for calendar years af-
ter 2005 and sold on or after September 14,
2007.
(ii)Permissive retroactive applica-
tion—(A)In general. Except as otherwise
provided in this paragraph (m), issuers
and taxpayers may apply this section in
whole, but not in part, to bonds issued
under section 1397E that are sold before
September 14, 2007.
(B)Special rule for certain provisions.
For purposes of the permissive retroactive
application rule in paragraph (m)(2)(ii)(A)
of this section, paragraphs (h)(2), (h)(3),
(h)(4), (i), and (j) of this section need not
be applied to any bonds issued under sec-
tion 1397E to which those provisions do
not otherwise apply under the general ef-
fective date provisions for those provisions
in paragraph (m)(2)(i) of this section.
(C)Definition of proceeds.Issuersand
taxpayers may apply paragraph (h) of this
section, without regard to the definition of
proceeds in paragraph (a)(2)(ii) of this sec-
tion, to bonds issued under section 1397E
that are sold before September 14, 2007.
(D)Bonds issued before July 1, 1999.
Paragraphs(b)and(h)(10)ofthissection
may not be applied to bonds issued under
section 1397E that are issued before July
1, 1999.
(3)Scope of reliance for bonds issued
under sections 54A and 54E. Except to
the extent inconsistent with the succes-
sor statutory provisions for QZABs in sec-
tions 54A and 54E or applicable public ad-
ministrative or regulatory guidance under
those provisions and except as otherwise
provided in this paragraph (m)(3), issuers
and taxpayers may apply these regulations
to QZABs issued under sections 54A and
54E that are sold after October 3, 2008.
In the case of QZABs that are issued un-
der sections 54A and 54E for which the is-
suer makes an irrevocable election under
section 6431(f) to receive payments with
respect to credits under section 6431, is-
suers and taxpayers may not apply the re-
medial action provisions under paragraph
(h)(8) of this section.
§1.1397E–1T [Removed]
Par. 3. Section 1.1397E–1T is re-
moved.
PART 602–OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 4. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 5. In §602.101, paragraph (b)
is amended by removing the entry for
“1.1397E–1T” and 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.
*****
1.1397E–1...........................................................
1545–1908
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved July 16, 2010.
Michael Mundaca,
Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on July 29, 2010,
8:45 a.m., and published in the issue of the Federal Register
for July
30, 2010, 75 F.R. 44901)
2010–43 I.R.B.483October 25, 2010

Section 6050W.—Returns
Relating to Payments Made
in Settlement
of Payment
Card and Third Party
Network Transactions
26 CFR 1.6050W–1: Information reporting for pay-
ments made in settlement of payment card and third
party network transactions.
T.D. 9496
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, and 301
Informatio
n Reporting for
Payments M
ade in Settlement
of Payment
Card and Third
Party Netw
ork Transactions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations relating to information
reporting requirements, information re-
porting penalties, andbackup withholding
requirements for payment card and third
party network transactions. The final
regulations implement section 6050W
and related statutory changes enacted by
the Housing Assistance Tax Act of 2008
that require payment settlement organi-
zations to report payments in settlement
of payment card and third party network
transactions for each calendar year. The fi-
nal regulations in this document will affect
persons that make payment in settlement
of payment card and third party network
transactions and the payees of these trans-
actions. The final regulations provide
guidance to assist persons required to re-
port payment card and third party network
transactions and to the payees of those
transactions.
DATES:Effective Date:These regulations
are effective on August 16, 2010.
ApplicabilityDate:For
datesofapplicability,see
§§1.6041–1(j),1.6041A–1(d)(4)(iii),
1.6050W–1(j),1.6050W–2(b),
31.3406–(b)(3)–5(e).
FOR FURTHER INFORMATION
CONTACT: Concerning these final regu-
lations, Barbara Pettoni, (202) 622–4910
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regula-
tions implementing amendments to the In-
come Tax Regulations (26 CFR part 1) re-
lating to information reporting under sec-
tions 6041, 6041A, 6050W, and 6051 of
the Internal Revenue Code (Code). This
document also contains final regulations
implementing amendments to the Regu-
lations on Employment Tax and Collec-
tion of Income Tax at the Source (26 CFR
part 31) relating to backup withholding
under section 3406, and to the Regula-
tions on Procedure and Administration (26
CFR part 301) relating to information re-
porting penalties under sections 6721 and
6722. These sections were amended or
added by section 3091(a) of the Housing
Assistance Tax Act of 2008 (Div. C of the
Housing and Economic Recovery Act of
2008), Public Law No. 110–289, 122 Stat.
2654 (the Act) enacted on July 30, 2008.
These regulations are issued under the au-
thority contained in sections 6041, 6041A,
6050W, 6051, 3406, 6721, 6722 and 7805.
On February 6, 2009, the IRS an-
nounced that persons who will be re-
quired to report under section 6050W may
match Taxpayer Identification Numbers
(TINs) under the procedures established
by Rev. Proc. 2003–9. See Announce-
ment 2009–6, “Taxpayer Identification
Number (“TIN”) Matching Program is
AvailabletoPersonsRequiredtoMake
Returns Under New Section 6050W of the
Internal Revenue Code” (Announcement
2009–6, 2009–9 I.R.B. 643 (March 2,
2009)). See §601.601(d)(2)(ii)(b).
Notice 2009–19 invited public com-
ments regarding guidance under section
6050W. See Notice 2009–19, “Informa-
tion Reporting of Payments Made in Set-
tlement of Payment Card and Third Party
Network Transactions” (Notice 2009–19,
2009–10 I.R.B. 660 (March 9, 2009)).
On November 24, 2009, the Treasury
Department and the IRS published in the
Federal Register(74 FR 61294) proposed
regulations (REG–139255–08, 2009–49
I.R.B. 747) reflecting the new require-
ments of the Act. The comments received
in response to Notice 2009–19 were taken
into account in developing the proposed
regulations. Written comments were also
received in response to the proposed regu-
lations, and a public hearing was held on
March 15, 2010.
Summary of Comments and
Explanation of Revisions
Many written comments were received
and are available for public inspection
upon request. The comments are summa-
rized in this preamble. After considering
the public comments, the Treasury De-
partment and the IRS are adopting the
proposed regulations as revised by this
Treasury decision.
These final regulations provide guid-
ance to implement section 6050W, which
requires information reporting for pay-
ments made in settlement of payment
card and third party network transactions.
These final regulations also amend the ex-
isting regulations under sections 6041 and
6041A to provide relief from duplicate
reporting for certain transactions. In addi-
tion, these final regulations amend existing
regulations under sections 6721 and 6722
to expand the penalty provisions of these
sections to apply to failures to file correct
information returns required by section
6050W and to furnish correct payee state-
ments required by section 6050W. These
final regulations also amend existing reg-
ulations under section 3406 to provide that
amounts reportable under section 6050W
are subject to backup withholding.
Payment Settlement Entity
Section 6050W(b)(1) provides that the
termpayment settlement entitymeans, in
the case of a payment card transaction, a
merchant acquiring entity; and, in the case
of a third party network transaction, a third
party settlement organization. Section
6050W(b)(2) definesmerchant acquiring
entityas the bank or other organization
with the contractual obligation to make
payment to participating payees in set-
tlement of payment card transactions.
Section 6050W(b)(3) definesthird party
settlement organizationas the central
organization that has the contractual obli-
gation to make payment to participating
payees of third party network transactions.
October 25, 20104842010–43 I.R.B.

The proposed regulations incorporated
these statutory definitions, which are re-
tained in the final regulations.
Commenters asked how the report-
ing obligation applies when two or more
persons qualify as payment settlement en-
tities for a reportable payment transaction.
Commenters stated that, under certain
business models, multiple banks or other
organizations have the contractual obli-
gation to make payment to participating
payees to settle payment card transactions.
The final regulations provide that, if two
or more persons qualify as payment set-
tlement entities for a reportable payment
transaction, then only the payment settle-
ment entity that in fact makes payment
in settlement of the reportable payment
transaction is obligated to report the pay-
ment. The final regulations clarify that
the entity that makes a payment in settle-
ment of a reportable payment transaction
is the entity that actually submits the in-
struction to transfer funds to the account
of the participating payee to settle the
reportable payment transaction. See also
the discussion under “Electronic Payment
Facilitator” later in this preamble.
A commenter requested that, when
multiple parties qualify as payment set-
tlement entities, the parties be permitted
to designate a reporting party. Under the
final regulations, only the payment set-
tlement entity that in fact makes payment
is obligated to report the payment. Thus,
no multiple party reporting obligations
should arise. Nonetheless, the final regu-
lations permit the party with the obligation
to report to designate a different person to
satisfy the reporting obligation under sec-
tion 6050W. If, however, the designated
person fails to satisfy the reporting obliga-
tion, then the party with the obligation to
report is liable for any applicable penalties
under sections 6721 and 6722.
Gross Amount
Section 6050W(a) provides that each
payment settlement entity must report
the gross amount of reportable payment
transactions for eachparticipating payee.
The proposed regulations definedgross
amountas the total dollar amount of aggre-
gate reportable payment transactions for
each participating payee without regard to
any adjustments for credits, cash equiv-
alents, discount amounts, fees, refunded
amounts, or any other amounts.
Several commenters suggested defining
“gross amount” as net sales, taking into
account credit transactions, chargebacks
and other adjustments, on the ground that
gross amount is not a true indicator of rev-
enue. Commenters also suggested defin-
ing “gross amount” as the amount actu-
ally paid to a merchant. Other commenters
favored the rule in the proposed regula-
tions that would require reporting the gross
amount of transactions without reductions.
The final regulations retain the proposed
rule. The plain language of the statute re-
quires reporting the gross amount of trans-
actions rather than the net amount of trans-
actions or payments. The information re-
ported on the return required under these
regulations is not intended to be an exact
match of the net, taxable, or even the gross
income of a payee.
Commenters asked whether the dollar
amount of each transaction is determined
on the date of the transaction, the set-
tlement date, the date that payment is
made, the posting date or some other date.
Because the statuterequires reporting
of the gross amount of reportable pay-
ment “transactions,” the final regulations
provide that the dollar amount of each
reportable payment transaction is deter-
mined on the date of the transaction.
Several commenters expressed concern
that defining “gross amount” as a num-
ber that reflects all positive sales trans-
actions without adjustment for any items
may raise issues related to backup with-
holding. These comments are discussed in
detail later in this preamble.
Payment Card Transactions
Section 6050W(c)(2) defines apay-
ment card transactionas any transaction
in which a payment card is accepted as
payment. Section 6050W(d)(2) defines
apayment cardas a card issued pursuant
to an agreement or arrangement that pro-
vides for: (1) one or more issuers of such
cards; (2) a network of persons unrelated
to each other, and to the issuer, who agree
to accept the cards as payment; and (3)
standards and mechanisms for settling the
transactions between the merchant acquir-
ing entities and the persons who agree
to accept the cards as payment. Section
6050W(d)(2) further provides that the
acceptance as payment of any account
number or other indicia associated with a
payment card is treated as the acceptance
of the payment card. The proposed regu-
lations incorporated these statutory rules.
The proposed regulations further provided
that a payment card includes, but is not
limited to, all credit cards, debit cards, and
stored-value cards (including gift cards).
All of these provisions are retained in the
final regulations.
Several commenters requested an ex-
emption for all private label cards and
quasi-private label cards. According to
one commenter, a private label card is
a card issued by a retailer or financial
institution that can only be used at one
retailer, and a quasi-private label card is a
card issued by a financial institution that
can be used within a limited network of
merchants or service providers that are
unrelated but operate within a particular
industry or share other similar character-
istics. Another commenter requested that
the regulations clarify whether a card that
is accepted as payment by a group of mer-
chants operating within a shopping mall (a
“mall card”) is a payment card.
The final regulations do not provide an
exemption for private label cards, quasi-
private label cards and mall cards. Pri-
vate label cards that can only be used at
one merchant or within a group of related
merchants do not meet the statutory defini-
tion of payment card because they are not
accepted as payment by a network of un-
related persons. Quasi-private label cards
that are accepted as payment by a net-
work of unrelated merchants or service
providers are payment cards if the other re-
quirements of the statutory definition are
met. Similarly, a mall card is a payment
card if it is accepted as payment by a net-
work of unrelated merchants and the other
requirements of the statutory definition are
met. However, if any of the merchants
in the network are related to the issuer, as
might be the case in certain campus card
or mall card transactions, the final regula-
tions clarify that no reporting is required
for any transaction in which the card is ac-
cepted as payment by the related merchant
or other payee. The final regulations pro-
vide additional examples to illustrate the
treatment of private label, quasi-private la-
bel and mall cards.
One commenter requested that the reg-
ulations clarify whether electronic benefit
2010–43 I.R.B.485October 25, 2010

transactions are reportable transactions un-
der the regulations. According to the com-
menter, electronic benefit transactions are
transactions made on cards or other media
issued by a governmental unit for benefit
payments, such as food stamps, welfare or
unemployment. A card issued by a gov-
ernmental unit for benefits is a payment
card if, pursuant to an agreement, it is ac-
cepted as payment by a network of unre-
lated merchants and the other requirements
of the statutory definition are met. Elec-
tronic benefit transactions for the purchase
of goods or services, made on a card that
meets the statutory definition of “payment
card,” are reportableunder section 6050W.
In contrast, the use of a benefits card to ob-
tain cash would not be a reportable trans-
action, as discussed in the next paragraph.
Commenters asked whether the use of
a payment card solely to obtain a loan
or cash advance by the cardholder is re-
portable under the regulations. The final
regulations provide an example to clarify
that the use of a payment card to obtain a
loan or cash advance does not fall within
the statutory definition of “payment card
transaction” because the card is not be-
ing accepted by a merchant as payment.
Rather, the cardholder is merely using the
payment card to obtain a loan from the
issuer. Similarly, the withdrawal of cash
from an automated teller machine is not a
payment card transaction because the card
is not being accepted by a merchant as pay-
ment. Rather, the card is merely being
used to obtain funds from the cardholder’s
own account.
Commenters also asked whether the
use of a paper check associated with a
payment card account (a “convenience
check”) is reportable under the regula-
tions. Section 6050W(d)(2) provides that
the acceptance as payment of any account
number or other indicia associated with a
payment card is treated as the acceptance
of the payment card. Convenience checks
are processed through the banking system
in the same manner as a traditional check
and then processed against a cardholder’s
account as a cash advance. Because
convenience checks are accepted and pro-
cessed as checks, not as payment cards,
the final regulations provide an example
to clarify that the use of a convenience
check is not a “payment card transaction.”
Third Party Network Transactions
Section 6050W(b)(1)(B) provides that,
in the case of a third party network trans-
action, the payment settlement entity is
the third party settlement organization.
Section 6050W(b)(3) definesthird party
settlement organizationas the central
organization that has the contractual obli-
gation to make payment to participating
payees of third party network transac-
tions. Section 6050W(c)(3) definesthird
party network transactionas any transac-
tion that is settled through a third party
payment network. Section 6050W(d)(3)
definesthird party payment networkas
any agreement or arrangement that: (A)
involves the establishment of accounts
with a central organization by a substantial
number of persons who (i) are unrelated
to such organization, (ii) provide goods
or services, and (iii) have agreed to set-
tle transactions for the provision of such
goods or services pursuant to such agree-
ment or arrangement; (B) provides for
standards and mechanisms for settling
such transactions; and (C) guarantees per-
sons providing goods or services pursuant
to an agreement or arrangement that those
persons will be paid for providing those
goods or services.
The proposed regulations incorporated
these statutory definitions. The proposed
regulations also provided that, consistent
with the Joint Committee on Taxation
(JCT) technical explanation, a central
organization is a third party settlement or-
ganizationthatisrequiredtoreporttothe
extent it provides a third party payment
network that enables purchasers to transfer
funds to providers of goods and services.
These provisions are retained in the final
regulations.
One commenter suggested that the reg-
ulations also incorporate the rule in sec-
tion 6050W(d)(3) that a third party pay-
ment network does not include any agree-
ment or arrangement that provides for the
issuance of payment cards. The final reg-
ulations adopt this suggestion.
Healthcare Networks and Self-Insurance
Arrangements
The proposed regulations included an
example to demonstrate that health insur-
ance networks are outside the scope of
section 6050W because a healthcare net-
work does not enable the transfer of funds
from buyers to sellers. Instead, health car-
riers collect premiums from covered per-
sons pursuant to a plan agreement between
the health carrier and the covered person
for the cost of participation in the health-
care network. Separately, health carri-
ers pay healthcare providers to compensate
providers for services rendered to covered
persons pursuant to provider agreements.
This example is retained in the final regu-
lations.
A commenter requested that the final
regulations clarify that a self-insurance
arrangement is also outside the scope of
section 6050W. According to the com-
menter, a typical self-insurance arrange-
ment involves a health insurance entity,
healthcare providers, and the company
that is self-insuring. The company submits
bills for services rendered by a healthcare
provider to the health insurance entity. The
health insurance entity pays the health-
care provider the contracted rate and then
debits the self-insuring company’s bank
account for the payments made to the
healthcare providers.
This suggestion was not adopted be-
cause this arrangement could create a
third party payment network of which the
health insurance entity is the third party
settlement organization to the extent that
the health insurance entity effectively en-
ables buyers (the self-insuring companies)
to transfer funds to sellers of healthcare
goods or services. If so, payments under a
self-insurance arrangement are reportable
provided the arrangement meets both the
statutory definition of a third party pay-
ment network and thede minimisthreshold
(that is, for a given payee, the aggregate
payments for the year exceed $20,000
and the aggregate number of transactions
exceeds 200).
Electronic Checks, Bill Paying Services
and Other Electronic Payment Acceptance
Products
Several commenters requested that
the final regulations exclude electronic
checks, bill paying services, and other
electronic payment acceptance products
from the scope of section 6050W. Fi-
nancial institutions offer a wide array of
services to allow individual and business
customers to make and receive payments.
Whether arrangements involving elec-
October 25, 20104862010–43 I.R.B.

tronic checks, bill paying services or other
electronic payment acceptance products
fall within the statutory definition of “third
party payment network” depends on the
facts and circumstances. For example, a
customer initiated bill payment by means
of an electronic check from the customer’s
bank account to the merchant is merely an
electronic transfer of funds from the buyer
to the seller that would generally not meet
the definition of a third party payment
network.
In contrast, in certain arrangements, a
third party entity may facilitate bill pay-
ment and presentment. According to one
commenter, many financial institutions
offer products and services that allow a
commercial customer who provides goods
or services to (1) send a purchase invoice
electronically to customers; and (2) ac-
cept payment from these customers by
automated clearinghouse (ACH) trans-
fer. In these arrangements, the financial
institution typically enters into an agree-
ment with the merchant customer to settle
payment transactions to an account the
merchant has established at the financial
institution. The individual or business that
has purchased goods or services from the
merchant is not required to establish an
account with the financial institution. For
payments that are made by ACH trans-
fer, the financial institution will initiate
payment through the ACH network. Com-
menters contend that these arrangements
should not qualify as third party pay-
ment networks because the arrangements
require merchants to establish accounts
with a financial institution to accept elec-
tronic payment services but do not also
require purchasers to establish accounts
with the same financial institution. The
commenters requested modifying the def-
inition of a third party payment network
to require purchasers to establish accounts
with the same central organization as the
merchant providers in order to participate
in the arrangement.
This suggestion was not adopted. The
portion of the statutory definition of “third
party payment network” relating to ac-
counts requires only that the agreement or
arrangement involve the establishment of
accounts with a centralorganization by a
substantial number of unrelated persons
who provide goods or services and have
agreed to settle transactions for the provi-
sion of goods or services pursuant to the
agreement or arrangement. Nothing in this
definition requires purchasers also to have
established accounts with the same cen-
tral organization. Therefore, a financial
institution that enters into an agreement
or arrangement with its merchant cus-
tomers to settle payment transactions to an
account the merchant customer has estab-
lished at the financial institution may be
operating a “third party payment network”
if the agreement or arrangement with these
merchants involves the establishment of
accounts with a centralorganization by a
substantial number of unrelated persons
who provide goods or services and have
agreed to settle transactions for the provi-
sion of goods or services pursuant to the
agreement or arrangement, and the central
organization guarantees payment to those
persons for the goods or services.
Automated Clearing House (ACH)
Networks
The proposed regulations provided that
an ACH network is not a third party pay-
ment network. As explained in the pream-
ble to the proposed regulations, an ACH
merely processes electronic payments be-
tween payors and payees, and does not it-
self have contractual agreements with pay-
ees to use the ACH network. Thus, the
ACH does not meet the statutory definition
of a “third party settlement organization.”
A commenter asked that the regulations
provide that an ACH processor is not a
third party settlement organization of a
third party payment network. Accord-
ing to the commenter, an ACH processor
provides a variety of ACH payment pro-
cessing services to a large number of
merchants, such as converting checks
received in payment of bills into ACH
transactions. The ACH processor groups
payment transactions into an ACH file
and transmits the ACH file into the ACH
network on behalf of merchants in order
to initiate payment to merchants through
the ACH network. The ACH processor
will make the payment to the merchant
after the ACH network verifies that the
customers’ accounts have sufficient funds.
This request was not adopted. An ACH
processor’s agreement or arrangement
with merchants could potentially create an
independent third party payment network
separate from the ACH network of which
the ACH processor is the third party set-
tlement organization. Because the ACH
itself is not a third party settlement organ-
ization, a party that makes payment on
behalf of an ACH cannot be an electronic
payment facilitator because it is not acting
on behalf of a payment settlement entity.
Nonetheless, an entity that initiates ACH
entries into an ACH network on behalf
of merchants may itself be operating a
network that falls within the statutory def-
inition of “third party payment network”
if the entity has a separate agreement or
arrangement with these merchants that:
(A) involves the establishment of accounts
with the entity by a substantial number
of merchants or other persons who (i)
are unrelated to the entity, (ii) provide
goods or services, and (iii) have agreed
to settle transactions for the provision of
such goods or services pursuant to such
agreement or arrangement; (B) provides
for standards and mechanisms for settling
such transactions; and (C) guarantees per-
sons providing goods or services pursuant
to such agreement or arrangement that
those persons will be paid for providing
such goods or services. Whether an entity
that initiates ACH entries into an ACH
network has such a separate agreement
or arrangement with merchants depends
on the facts and circumstances. As stated
earlier, the statutory definition of “third
party payment network” does not require
that this entity also have an agreement or
arrangement with purchasers.
Electronic Payment Facilitators
Section 6050W(b)(4)(B) requires that,
if anelectronic payment facilitatoror other
third party “makes payments in settlement
of reportable payment transactions on be-
half of the payment settlement entity,” the
electronic payment facilitator must report
in lieu of the payment settlement entity.
The proposed regulations incorporated this
statutory requirement, which is retained in
the final regulations.
Commenters requested that the final
regulations clarify what it means to “make
payments in settlement of reportable pay-
ment transactions on behalf of the pay-
ment settlement entity.” According to one
commenter, when a merchant acquiring
bank employs the services of a third party
processor, the settlement obligation re-
mains with the merchant acquiring bank.
Another commenter stated that certain
2010–43 I.R.B.487October 25, 2010

payment settlement entities, such as inde-
pendent sales organizations (ISOs), use a
“sponsoring bank” or other third party to
do their payment processing. According
to the commenter, it is not clear whether
this third party processor is an electronic
payment facilitator because the processor
does not have a contract with the partici-
pating payee. Additionally, this processor
generally would only know the net amount
of the payment and would not have the
information necessary to report the gross
amount of the reportable payment trans-
action. Another commenter suggested
defining “electronic payment facilitator”
as the party who contracts with a payment
settlement entity to “facilitate the settle-
ment (directly or indirectly)” of reportable
payment transactions on behalf of the pay-
ment settlement entity.
In response to these comments, the final
regulations provide that a payment settle-
ment entity (or an electronic payment fa-
cilitator acting on behalf of a payment set-
tlement entity) makes a payment in settle-
ment of a reportable payment transaction
if the payment settlement entity (or its fa-
cilitator) submits the instruction to trans-
fer funds to the account of the participat-
ing payee to settle the reportable payment
transaction. In cases involving a processor,
the processor need not have any agreement
or arrangement with the payee to qualify
as an electronic payment facilitator. The
statute requires only that the facilitator act
on behalf of the payment settlement entity.
Also, the payment need not come from
the processor’s account. The processor
need only submit the instruction to transfer
funds from the payment settlement entity’s
account. If a processor merely prepares
payment instructions for the payment set-
tlement entity, which in turn submits these
instructions to initiate the transfer of funds,
then the processor is not an electronic pay-
ment facilitator, and the payment settle-
ment entity retains the reporting obliga-
tion. Electronic payment facilitators that
do not know the gross amount of each re-
portable payment transaction are expected
to obtain this information from the pay-
ment settlement entity. The final regula-
tions include additional examples applying
the electronic payment facilitator rule.
A commenter also expressed concern
that merchants might only be aware of the
merchant acquiring bank or other payment
settlement entity and might, therefore, be
confused when receiving statements from
the electronic paymentfacilitator. To ad-
dress this concern, Form 1099-K, “Mer-
chant Card and Third Party Payments,”
will include the identifying information of
both the payment settlement entity and the
electronic payment facilitator. In addition,
the payee’s copy of Form 1099-K will de-
scribe the entities that are shown on the
form.
Participating Payee—Foreign Address
Exclusion
Section 6050W(d)(1)(B) provides that,
except as provided by the Secretary in reg-
ulations or other guidance, the termpartic-
ipating payeedoes not include any person
with a foreign address (the “address rule”).
The proposed regulations did not exclude
persons with foreign addresses from the
term participating payee, although the
proposed regulations did provide that in
many cases a payment settlement entity
mayrelyonaforeignaddresstoavoid
reporting. Specifically, the proposed regu-
lations provided that a payment settlement
entity that is not a United States (U.S.)
payor or U.S. middleman may rely on a
foreign address for a participating payee
to avoid reporting as long as the payor
neither knows nor has reason to know that
the payee is a U.S. person. The proposed
regulations also provided that a payment
settlement entity that is a person described
as a U.S. payor or U.S. middleman in
§1.6049–5(c)(5) is not required to report
payments to payees with a foreign address
as long as, prior to payment, the payee has
provided the payor with documentation
upon which the payor may rely to treat the
payment as made to a foreign person in
accordance with §1.1441–1(e)(1)(ii).
Commenters expressed concern that
the proposed regulations treat U.S. and
non-U.S. payors inconsistently and may
impose overly burdensome documentation
requirements on U.S. payors, and re-
quested that the address rule apply to U.S.
and non-U.S. payors alike. Alternatively,
commenters requested that documentation
and records maintained consistent with
section 326 of the USA PATRIOT Act
(“Patriot Act”), 31 U.S.C. 5318(l), should
satisfy the documentation requirements
for U.S. payors under these regulations.
The final regulations do not adopt these
recommendations. The final regulations
do not adopt the suggestion that the doc-
umentation standards be made consistent
with the Patriot Act because the customer
identification requirements under the Pa-
triot Act are not intended to identify U.S.
taxpayers and do not adequately address
the tax administration concerns of section
6050W.
The final regulations also do not ex-
tend the address rule to payment settle-
ment entities that are U.S. payors. The
Treasury Department and the IRS under-
stand from meeting with affected parties
that payment settlement entities do not cur-
rently rely solely on an address to iden-
tify a participating payee because payment
settlement entities have a business inter-
est in verifying the identity of the partic-
ipating payee due to the credit and reputa-
tional risks inherent in payment card trans-
actions. The Treasury Department and
the IRS have a similar compliance interest
in ensuring that the participating payee’s
identity is verified, and applying the ad-
dress rule generally to payment settlement
entities that are U.S. payors does not ade-
quately address those concerns. For exam-
ple, where a participating payee receives
payment from a U.S. person inside the
United States or to a U.S. account, the
Treasury Department and the IRS believe
it is appropriate to require the participat-
ing payee to complete a Form W–8BEN
(or other appropriatecertification) thereby
certifying its foreign status and whether
the payment constitutes income that is ef-
fectively connectedwith the conduct of a
trade or business in the United States, as
required under the proposed and final reg-
ulations.
To address the concerns of certain com-
menters regarding the burden that would
be involved in re-documenting existing
participating payees, however, the final
regulations provide a transition rule. For
payments made pursuant to contractual
obligations entered into before January 1,
2011, a payment settlement entity that is
a U.S. payor or middleman may rely on a
foreign address as long as the U.S. payor or
middleman neither knows nor has reason
to know that the payee is a U.S. person.
For this limited purpose, a renewal of such
a contractual obligation will not result in a
new contractual obligation unless there is
a material modification of the contractual
obligation.
October 25, 20104882010–43 I.R.B.

In addition, the final regulations pro-
vide a presumption under which a payment
settlement entity that is a U.S. payor or
middleman making a payment outside
the United States to an offshore account
(as defined in §1.6049–5(c)(1)) need not
report payments to a participating payee
with only a foreign address if the name
of the participating payee indicates that
it is a foreignper secorporation listed
in §301.7701–2(b)(8)(i) and the payment
settlement entity neither knows nor has
reason to know that the participating
payee is a U. S. person. The final regu-
lations also provide a grace period after
account opening to collect documenta-
tion by applying the grace period rules
of §1.6049–5(d)(2)(ii) if the participating
payee has only a foreign address.
Payment settlement entities that are
not U.S. payors or middlemen are not re-
quired to make a return of information if
the participating payee does not have a
U.S. address as long as the payment settle-
ment entity does not know or have reason
to know that the payee is a U.S. person.
Commenters requested additional guid-
ance for situations in which a participating
payee has both a foreign address and a
U.S. address. Under the final regulations,
if the participating payee has any U.S.
address, the non-U.S. payment settlement
entity may treat the participating payee
as a foreign person only if the non-U.S.
payment settlement entity has in its files
documentation upon which the payment
settlement entity may rely to treat the
payment as made to a foreign person in
accordance with §1.1441–1(e)(1)(ii).
Payments Made in Currencies Other Than
the United States Dollar
Several commenters requested that the
final regulations provide a rule for the con-
version into U.S. dollars of amounts paid
in foreign currency. This suggestion was
adopted. The final regulations provide that
when a payment is made or received in a
foreign currency, the U.S. dollar amount
is determined by converting such foreign
currency into U.S. dollars on the date of
the transaction at the spot rate (as defined
in §1.988–1(d)(1)) or pursuant to a rea-
sonable spot rate convention, such as a
month-end spot rate or a monthly average
spot rate.
Duplicate Reporting of the Same
Transaction
Section 6050W(g) provides that the
Secretary may prescribe regulations or
other guidance as necessary or appropri-
ate to carry out section 6050W, including
rules to prevent the reporting of the same
transaction more than once. The proposed
regulations provided that any payment
card transaction that otherwise would
be reportable under both sections 6041
and 6050W must be reported under sec-
tion 6050W and not section 6041. Relief
from reporting under section 6041 was
not provided in the proposed regulations,
however, for third party network transac-
tions because these transactions are not
subject to reporting under section 6050W
unless thede minimisthreshold (more
than 200 transactions aggregating more
than $20,000 per calendar year for a given
payee) is met. Nor was relief provided
from reporting under section 6050W and
other Code sections, including section
3402(t) (relating to withholding on certain
payments made by government entities).
The proposed regulations requested addi-
tional comments regarding the application
of a rule to prevent the reporting of the
same transaction more than once.
Numerous commenters requested that
relief from duplicate reporting under both
sections 6050W and 6041 be extended to
include third party network transactions.
This suggestion was adopted. Accord-
ingly, the final regulations provide that
payment card and third party network
transactions that otherwise would be re-
portable under both sections 6041 and
6050W must be reported under section
6050W and not section 6041. The final
regulations also provide that, solely for
purposes of determining whether a payor
is eligible for relief from reporting under
section 6041, thede minimisthreshold
for third party network transactions in
§1.6050W–1(c)(4) is disregarded because
the section 6041 payor will be unable to
determine whether thede minimisthresh-
old applies.
Commenters also requested relief from
duplicate reporting under both sections
6050W and 3402(t). However, com-
menters have indicated that merchant
acquiring banks and other payment settle-
ment entities would have administrative
difficulty in determining whether payment
card and third party network transactions
will be subject to withholding and re-
porting under section 3402(t). Therefore,
the final regulations do not provide re-
lief for transactions that would otherwise
be reported under both sections 6050W
and 3402(t). However, the Treasury De-
partment and the IRS are continuing to
consider whether relief could be provided
under section 3402(t) or section 6050W.
Several commenters requested relief
from duplicate reporting of the same
transaction under both sections 6050W
and 6041A (relating to returns regarding
payments of remuneration for services
and direct sales). This suggestion was
adopted for payment card transactions and
third party network transactions subject to
section 6041A(a). The final regulations
provide that any transaction that would
otherwise be reported under both sections
6050W and 6041A(a) must be reported
under section 6050W and not section
6041A(a).
Similar relief from duplicate report-
ing of the same transaction under both
sections 6050W and 6041A(b) is not war-
ranted, however, because sections 6050W
and 6041A(b) report different types of
information and serve different purposes.
Section 6041A(b) provides that if any
person engaged in a trade or business, in
the course of the trade or business during
any calendar year, sells $5,000 or more of
consumer goods to any buyer on a buy-sell
basis, a deposit-commission basis, or any
similar basis, for resale in the home or
other than in a permanent retail estab-
lishment, that person must file a return
reporting the amount of the sales to the
buyer during the calendar year. Thus, un-
like section 6050W, which requires payors
to report information about payments to
sellers, section 6041A(b) requires sellers
of certain consumer products to report
information about payments from buy-
ers. Therefore, the final regulations do
not provide relief for transactions that are
reportable under both sections 6050W and
6041A(b).
Electronic Consent Procedures
Section 6050W(f) provides that payee
statements may be furnished electroni-
cally. Prior to the proposed regulations,
commenters requested that the existing
procedures for payee statements be mod-
2010–43 I.R.B.489October 25, 2010

ified to eliminate the requirement for an
affirmative consent to receive the payee
statement under section 6050W electroni-
cally. This request was not adopted in the
proposed regulations. Instead, additional
comments were requested on electronic
consent procedures.
Many commenters suggested elimi-
nating the requirement for an affirmative
consent to receive the payee statement
electronically. Commenters requested
that merchants already receiving business
communications electronically be deemed
to have consented to receive electronic
payee statements under section 6050W.
Commenters also suggested eliminating
the requirement to notify payees about
electronic payee statements in a separate
communication. Commenters suggested
permitting merchants receiving paper
communications to consent to electronic
payee statements by logging onto a web-
site to indicate their consent, with no
further written consent required.
In response to these comments, the fi-
nal regulations simplify existing electronic
consent procedures. Section 1.6050W–2
provides that a recipient consents to re-
ceive the statement required under section
6050W in an electronic format either by
making an affirmative consent or, in the al-
ternative, by previously having consented
to receive from the furnisher other federal
tax statements in an electronic format. The
consent may be made electronically in any
manner that reasonably demonstrates that
the recipient can access the statement in
the electronic format in which it will be
furnished to the recipient. Alternatively,
the consent may be made in a paper docu-
ment if it is confirmed electronically. Sec-
tion 1.6050W–2 sets forth the procedures
for meeting the consent requirements.
Time, Form and Manner for Reporting
Section 6050W(a) provides that the
return required under this section shall
be made at the time and in the form and
manner as required by regulations. The
proposed regulations provided that the
return required by section 6050W must
be made according to the forms and in-
structions published by the IRS. Form
1099-K, “Merchant card and third-party
payments,” requires annual reporting, with
respect to each participating payee, of the
gross amount of the aggregate reportable
payment transactions for the calendar year
and the gross amount of the aggregate
reportable transactions for each month of
the calendar year.
A commenter expressed concern that
the requirement for monthly amounts to
be reported on Form 1099-K would be
burdensome for small businesses and sole
proprietors. The final rules retain the
proposed rule because the inclusion of
monthly amounts on the return filed with
the IRS and furnished to the payee will
aid in reconciling payment card and third
party network transactions for fiscal year
payees.
Backup Withholding
The Act amended section 3406(b)(3)
to provide that amounts reportable un-
der section 6050W are subject to backup
withholding requirements, effective for
amounts paid after December 31, 2011.
The proposed regulations proposed to
amend existing regulations under sec-
tion 3406 to provide that persons making
information returns with respect to any
reportable payment under section 6050W
made after December 31, 2011, are in-
cluded in the definition of “payors” obli-
gated to backup withhold.
Section 6050W(d)(1)(C) provides that,
for purposes of section 6050W, the defi-
nition ofparticipating payeeincludes any
governmental unit. The proposed regu-
lations incorporated this statutory provi-
sion. One commenter asked whether re-
portable payments made to governmental
units are subject to backup withholding un-
der section 3406(a). The Act amended
section 3406(b) to provide that reportable
payments subject to information reporting
under section 6050W are subject to backup
withholding if a condition for backup with-
holding, as set forth in section 3406(a)(1),
exists. The Act, however, did not elim-
inate any of the existing statutory excep-
tions to backup withholding. For example,
section 3406(g) provides that backup with-
holding under section3406(a) shall not ap-
ply to any payment made to any organi-
zation or governmental unit described in
subparagraph (B), (C), (D), (E), or (F) of
section 6049(b)(4). The final regulations
make no changes to the existing statutory
exceptions to backup withholding.
As discussed earlier in this preamble,
several commenters stated that defining
“gross amount” as a number that reflects
all positive sales transactions on the date
of the transaction, without adjustment for
any items, may complicate backup with-
holding, which is generally imposed on
the amount of the payment at the time
of payment rather than on the amount of
the transaction at the time of the transac-
tion. The amount reportable under section
6050W is the gross amount of the transac-
tion on the date of the transaction, which
may differ from the amount and date of
the payment (potentially a net amount paid
on a later date). In response to these com-
ments, the final regulations clarify that the
obligation to withhold arises on the date of
the transaction. A payor is not required,
however, to satisfy its withholding liability
until the time that payment is made. The
amount withheld is based on the total re-
portable amount, that is, the gross amount
of the transaction.
A commenter stated that on the date of
payment, the payee’s account may have
insufficient funds available for backup
withholding. For example, if sales returns
exceed positive sales transactions for the
transaction period, a merchant’s account
balance could be less than the required
amount of backup withholding or even
zero. In response to this concern, the fi-
nal regulations allow backup withholding
from an alternate source maintained by the
payor for the payee if the payee’s account
has insufficient funds. The final regu-
lations further provide that if the payor
cannot locate an alternative source of cash
from which to backup withhold, the payor
may defer its obligation to backup with-
hold until the earlier of the date on which
the payee’s account has sufficient funds
or the close of the fourth calendar year
after the obligation arose. At the close of
the fourth calendar year after the backup
withholding obligation arose, if the payor
has not located an alternate source from
which to backup withhold, and the account
has insufficient funds, then the backup
withholding obligation will cease to exist.
Finally, the final regulations clarify
how to apply the backup withholding rules
to third party network transactions, which
are subject to ade minimisrule. In general,
the amount that is subject to withholding
under section 3406 is the amount subject
to reporting under section 6050W. Section
3406(b)(4) provides that the determination
of whether a payment is a reportable pay-
October 25, 20104902010–43 I.R.B.

ment for purposes of backup withholding
is made without regard to any minimum
amount that must be paid before a return
is required. Accordingly, the final regula-
tions provide that, in the case of payments
made in settlement of third party network
transactions, the amount subject to with-
holding under section 3406 is determined
without regard to the exception forde min-
imispayments by third party settlement
organizations in section 6050W(e) and the
final regulations in this document.
Penalties
The Act amended section 6724(d) by
adding returns required by section 6050W
to the definition of information return for
purposes of penalties for failure to comply
with certain reporting requirements. The
proposed regulations proposed to amend
the regulations to add reportable payments
under section 6050W to the list of informa-
tion returns subject to the penalties under
section 6721 (failure to file correct infor-
mation returns) and section 6722 (failure
to furnish correct payee statements). The
final regulations adopt these amendments.
Commenters requested that the final
regulations specifically waive penalties
for persons who have made a reasonable
and good faith effort to implement sec-
tion 6050W reporting and related backup
withholding but who fail to comply. This
suggestion was not adopted because the
existing regulations under section 6724
provide extensive guidance for waiver of
penalties due to reasonable cause for fail-
ure to file correct information returns and
failure to furnish correct payee statements.
The IRS will continue to work closely
with stakeholders to ensure the smooth
implementation of the provisions in these
regulations, including, in general, the mit-
igation of penalties in the early stages of
implementation, except for particularly
egregious cases.
Effective/Applicability Dates:
The regulations under sections 6041,
6041A, 6050W, 6051, 6721 and 6722 ap-
ply to returns for calendar years beginning
after December 31, 2010. The regulations
under section 3406 apply to amounts paid
after December 31, 2011.
Special Analyses
It has been determined that this final
rule is not a significant regulatory action as
defined in Executive Order 12866. There-
fore, a regulatory assessment is not re-
quired. It also has been determined that
section553(b)oftheAdministrativePro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. Pursuant to the
Regulatory Flexibility Act (5.U.S.C. chap-
ter 6), it is hereby certified that the reg-
ulations will not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that the persons required to re-
port under section 6050W, payment settle-
ment entities, will generally not be small
businesses. Merchant acquiring entities,
the payment settlement entities required to
report payment card transactions, will pri-
marily be banks with over $175 million in
assets. Third party settlement organiza-
tions, the payment settlement entities re-
quired to report third party network trans-
actions, will generally not be small entities
by virtue of the definition of a third party
payment network, which requires the es-
tablishment of accounts with a central or-
ganization (the third party settlement or-
ganization) by a substantial number of per-
sons. Further, section 6050W(e) provides
ade minimisexception that exempts third
party settlement organizations from report-
ing transactions with respect to a payee if
the aggregate amount of such transactions
does not exceed $20,000 or the aggregate
number of such transactions does not ex-
ceed 200. The Treasury Department and
the IRS certify that the regulations in this
document will not have a significant eco-
nomic impact on a substantial number of
small entities. Pursuant to section 7805(f)
of the Code, the notice of proposed rule-
making preceding these regulations was
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on their impact on small busi-
ness.
Drafting Information
The principal author of these proposed
regulations is Barbara Pettoni, Office of
Associate Chief Counsel (Procedure and
Administration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 31 and
301 are 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 1.6041–1 is amended
by adding a sentence at the end of para-
graph (a)(1)(ii), revising paragraph (j) and
adding paragraphs (a)(1)(iv) and (a)(1)(v)
to read as follows:
§1.6041–1 Return of information as to
payments of $600 or more.
(a) * * *(1) * * *(i) * * *
(ii)***Forpaymentcardtransactions
(as described in §1.6050W–1(b)) and third
party network transactions (as defined in
§1.6050W–1(c)) required to be reported
on information returns required under sec-
tion 6050W (relating to payment card and
third party network transactions), see spe-
cial rules in §1.6041–1(a)(1)(iv).
*****
(iv)Information returns required un-
der section 6050W for calendar years
beginning after December 31, 2010.For
payments made by payment card (as de-
fined in §1.6050W–1(b)(3)) or through a
third party payment network (as defined
in §1.6050W–1(c)(3)) after December 31,
2010, that are required to be reported on an
information return under section 6050W
(relating to payment card and third party
network transactions), the following rule
applies. Transactions that are described
in paragraph (a)(1)(ii) of this section that
otherwise would be subject to reporting
under both sections 6041 and 6050W
are reported under section 6050W and
not section 6041. For provisions relat-
ing to information reporting for payment
card and third party network transactions,
see §1.6050W–1. Solely for purposes of
this paragraph, thede minimisthreshold
for third party network transactions in
§1.6050W–1(c)(4) is disregarded in deter-
mining whether the transaction is subject
to reporting under section 6050W.
(v)Examples. The provisions of para-
graph (a)(1)(iv) of this section are illus-
trated by the following examples:
2010–43 I.R.B.491October 25, 2010

Example 1. Restaurant owner A, in the course of
business, pays $600 of fixed or determinable income
to B, a repairman, by credit card. B is one of a net-
work of unrelated persons that has agreed to accept
A’s credit card as payment under an agreement that
provides standards and mechanisms for settling the
transactions between a merchant acquiring bank and
the persons who accept the cards. Merchant acquir-
ing bank Y is responsible for making the payment
to B. Under paragraph (a)(1)(iv) of this section, A,
as payor, is not required to file an information return
under section 6041 with respect to the transaction be-
cause Y, as the payment settlement entity for the pay-
ment card transaction, is required to file an informa-
tion return under section 6050W.
Example 2. Restaurant owner A, in the course of
business, pays $600 of fixed or determinable income
to B, a repairman, through a third party payment net-
work. B is one of a substantial number of persons
who have established accounts with Y, a third party
settlement organization that provides standards and
mechanisms for settling the transactions and guaran-
tees payments to those persons for goods or services
purchased through the network. Y is responsible for
making the payment to B. Under paragraph (a)(1)(iv)
of this section, A, as payor, is not required to file an
information return under section 6041 with respect to
the transaction because the transaction is a third party
network transaction that is subject to reporting under
section 6050W. Solely for purposes of determining
whether A is eligible for relief from reporting under
section 6041, thede minimisthreshold for third party
network transactions in §1.6050W–1(c)(4) is disre-
garded.
*****
(j)Effective/applicability date.The
provisions of paragraphs (b),(c),(e), and (f)
apply to payments made after December
31, 2002. The provisions of paragraphs
(a)(1)(iv) and (a)(1)(v) apply to payments
made after December 31, 2010.
Par. 3. Section 1.6041A–1 is amended
by adding paragraph (d)(4) to read as fol-
lows:
§1.6041A–1 Returns regarding payments
of remuneration for services and certain
direct sales.
*****
(d) * * *
(4)Information returns required under
section 6050W for calendar years begin-
ning after December 31, 2010.(i)For
payments made by payment card (as de-
fined in §1.6050W–1(b)(3)) or through a
third party payment network (as defined
in §1.6050W–1(c)(3)) after December
31, 2010, that are required to be reported
on an information return under section
6050W (relating to payment card and third
party network transactions), the following
rule applies. Transactions that otherwise
would be reportable under both sections
6041A(a) and 6050W are reported under
section 6050W and not section 6041A(a).
For provisions relating to information
reporting for payment card transactions
and third party network transactions, see
§1.6050W–1. Solely for purposes of
this paragraph, thede minimisthreshold
for third party network transactions in
§1.6050W–1(c)(4) is disregarded in deter-
mining whether the transaction is subject
to reporting under section 6050W.
(ii)Examples. The provisions of para-
graph (d)(4) of this section are illustrated
by the following examples:
Example 1. Service-recipient A, in the course of
its business, pays remuneration of $600 to service
provider B by credit card for services performed by
B. B is one of a network of unrelated persons that has
agreed to accept A’s creditcard as payment under an
agreement that provides standards and mechanisms
for settling the transactions between a merchant ac-
quiring bank and the persons who accept the cards.
Merchant acquiring bank Y is responsible for making
the payment to B. Under paragraph (d)(4)(i) of this
section, A is not required to file an information return
under section 6041A(a) with respect to the transac-
tion because Y, as the payment settlement entity for
the payment card transaction, is required to file an in-
formation return under section 6050W.
Example 2. Service-recipient A, in the course of
business, pays $600 of fixed or determinable income
to B, a repairman, through a third party payment net-
work. B is one of a substantial number of persons
who have established accounts with Y, a third party
settlement organization that provides standards and
mechanisms for settling the transactions and guar-
antees payments to those persons for goods or ser-
vices purchased through the network. Y is respon-
sible for making the payment to B. Under paragraph
(d)(4)(i) of this section, A is not required to file an in-
formation return under section 6041A(a) with respect
to the transaction because the transaction is a third
party network transaction that is subject to reporting
under section 6050W. Solely for purposes of deter-
mining whether the transaction is subject to report-
ing under section 6050W, thede minimisthreshold for
third party network transactions in §1.6050W–1(c)(4)
is disregarded.
(iii)Effective/applicability date. Para-
graph (d)(4) of this section applies to pay-
ments made by payment card or through a
third party payment network after Decem-
ber 31, 2010.
*****
Par. 4. Section 1.6050W–1 is added to
read as follows:
§1.6050W–1 Information reporting for
payments made in settlement of payment
card and third party network transactions.
(a)In general—(1)General rule.Ev-
ery payment settlement entity, as defined
in paragraph (a)(4) of this section, must
file an information return for each calen-
dar year with respect to payments made in
settlement of reportable payment transac-
tions, as defined in paragraph (a)(3) of this
section, setting forth the following infor-
mation:
(i) The name, address, and taxpayer
identification number (TIN) of each par-
ticipating payee, as defined in paragraph
(a)(5) of this section, to whom one or more
payments in settlement of reportable pay-
ment transactions are made.
(ii) With respect to each participating
payee, the gross amount, as defined in
paragraph (a)(6) of this section, of—
(A) The aggregate reportable payment
transactions for the calendar year; and
(B) The aggregate reportable payment
transactions for each month of the calendar
year.
(iii) Any other information required by
the form, instructions or current revenue
procedures.
(2)Payments in settlement of reportable
payment transactions. A payment settle-
ment entity, as defined in paragraph (a)(4)
of this section (or an electronic payment
facilitator, as defined in paragraph (d)(2)
of this section), makes a payment in settle-
ment of a reportable payment transaction
if the payment settlement entity (or elec-
tronic payment facilitator) submits the in-
struction to transfer funds to the account of
the participating payee for purposes of set-
tling the reportable payment transaction.
(3)Reportable payment transaction.
The termreportable payment transaction
means any payment card transaction (as
defined in paragraph (b)(1) of this section)
and any third party network transaction
(as defined in paragraph (c)(1) of this sec-
tion).
(4)Payment settlement entity—(i)Def-
inition.Thetermpayment settlement en-
titymeans a domestic or foreign entity that
is—
(A) In the case of a payment card trans-
action, a merchant acquiring entity (as de-
fined in paragraph (b)(2) of this section);
and
October 25, 20104922010–43 I.R.B.

(B) In the case of a third party network
transaction, a third party settlement organ-
ization (as defined in paragraph (c)(2) of
this section).
(ii)Multiple payment settlement enti-
ties. If two or more persons qualify as
payment settlement entities (as defined in
paragraph (a)(4)(i) of this section) with
respect to a reportable payment transac-
tion, then only the payment settlement en-
tity that in fact makes payment in settle-
ment of the reportable payment transaction
must file the information return required
by paragraph (a)(1) of this section.
(5)Participating payee—(i)Definition.
In general, the termparticipating payee
means any person, including any govern-
mental unit (and any agency or instrumen-
tality thereof), who:
(A) In the case of a payment card trans-
action, accepts a payment card (as defined
in paragraph (b)(3) of this section) as pay-
ment; and
(B) In the case of a third party network
transaction, accepts payment from a third
party settlement organization (as defined
in paragraph (c)(2) of this section) in set-
tlement of such transaction.
(ii)Foreign payees—(A)In general.
For payments pursuant to contractual obli-
gations entered into after December 31,
2010, a payment settlement entity that
is a person described as a U.S. payor or
U.S. middleman in §1.6049–5(c)(5) is not
required to make a return of information
for payments to a participating payee with
a foreign address as long as, prior to pay-
ment, the payment settlement entity has
in its files documentation upon which the
payment settlement entity may rely to treat
the payment as made to a foreign person
in accordance with §1.1441–1(e)(1)(ii).
For purposes of this paragraph (a)(5)(ii),
the provisions of §1.1441–1 shall apply
by substituting the term payor for the
term withholding agent and without re-
gard to the limitation to amounts subject
to withholding under chapter 3 of the In-
ternal Revenue Code and the regulations
under that chapter. Such a payment set-
tlement entity need not make a return of
information for payments made outside
the United States (within the meaning of
§1.6049–5(e)) to an offshore account (as
defined in §1.6049–5(c)(1)) to a partici-
pating payee with onlya foreign address
if the name of the participating payee in-
dicates that it is an entity listed as a per se
corporation under §301.7701–2(b)(8)(i)
and the payment settlement entity does not
know or have reason to know that the par-
ticipating payee is a United States person.
A payment settlement entity may apply the
grace period rules of §1.6049–5(d)(2)(ii)
of the regulations for payments to a partic-
ipating payee with only a foreign address,
without regard to whether the amounts
paid are described in §1.1441–6(c)(2) or
are reportable under section 6042, 6045,
6049, or 6050N. For payments pursuant
to contractual obligations entered into
before January 1, 2011, a payment set-
tlement entity that is a person described
as a U.S. payor or U.S. middleman in
§1.6049–5(c)(5) is not required to make
a return of information for payments to a
participating payee with a foreign address
as long as the payment settlement entity
neither knows nor has reason to know that
the participating payee is a United States
person. For this purpose, a renewal of such
a contractual obligation will not result in a
new contractual obligation unless there is
a material modification to the contractual
obligation.
(B)Non-U.S. payor or middleman.A
payment settlement entity that is not a per-
son described as a U.S. payor or U.S mid-
dleman in §1.6049–5(c)(5) is not required
to make a return of information for a pay-
ment to a participating payee that does not
have a United States address as long as the
payment settlement entity neither knows
nor has reason to know that the partic-
ipating payee is a United States person.
If the participating payee has any United
States address, the payment settlement en-
tity may treat the participating payee as
a foreign person only if the payment set-
tlement entity has in its files documenta-
tion upon which the payment settlement
entity may rely to treat the payment as
made to a foreign person in accordance
with §1.1441–1(e)(1)(ii).
(C)Foreign address; United States ad-
dress. For purposes of this section,for-
eign addressmeans any address that is not
within the United States, as defined in sec-
tion 7701(a)(9) of the Internal Revenue
Code (the States and the District of Colum-
bia).United States addressmeans any ad-
dress that is within the United States.
(6)Gross amount. For purposes of
this section,gross amountmeans the to-
tal dollar amount of aggregate reportable
payment transactions for each participat-
ing payee without regard to any adjust-
ments for credits, cash equivalents, dis-
count amounts, fees, refunded amounts or
any other amounts. The dollar amount of
each transaction is determined on the date
of the transaction.
(b)Payment card transactions—(1)
Definition.The termpayment card trans-
actionmeans any transaction in which a
payment card, or any account number or
other indicia associated with a payment
card, is accepted as payment.
(2)Merchant acquiring entity.The
termmerchant acquiring entitymeans
the bank or other organization that has
the contractual obligation to make pay-
ment to participating payees (as defined in
paragraph (a)(5)(i)(A) of this section) in
settlement of payment card transactions.
(3)Payment card—(i) The termpay-
ment cardmeans any card, including any
stored-value card as defined in paragraph
(b)(4) of this section, issued pursuant to
an agreement or arrangement that provides
for—
(A) One or more issuers of such cards;
(B) A network of persons unrelated to
each other, and to the issuer, who agree to
accept such cards as payment; and
(C) Standards and mechanisms for
settling the transactions between the mer-
chant acquiring entities and the persons
who agree to accept the cards as payment.
(ii) Persons who agree to accept such
cards as payment as described in this
paragraph (b)(3) are participating pay-
ees within the meaning of paragraph
(a)(5)(i)(A) of this section.
(4)Stored-value cards.Theterm
stored-value cardmeans any card with a
prepaid value, including any gift card.
(5)Transactions for which no return
of information is required under section
6050W—(i)Withdrawals and cash ad-
vances. The use of a “payment card” as
defined in paragraph (b)(3) of this section
by a cardholder to withdraw funds at an
automated teller machine, or to obtain a
cash advance or loan against the card-
holder’s account, is not a payment card
transaction under paragraph (b)(1) of this
section because the card is not being ac-
cepted as payment by a merchant or other
payee.
(ii)Convenience checks. The accep-
tance of a check issued in connection with
a payment card account by a merchant or
other payee is not a payment card trans-
2010–43 I.R.B.493October 25, 2010

action under paragraph (b)(1) of this sec-
tion because the check is accepted and pro-
cessed through the banking system in the
same manner as a traditional check, not as
a payment card.
(iii)Payee related to issuer.Noreturn
of information is required under this sec-
tion for any transaction in which a pay-
ment card within the meaning of paragraph
(b)(3) is accepted as payment by a mer-
chant or other payee who is related to the
issuer of the payment card.
(c)Third party network transac-
tions—(1)Definition.The termthird party
network transactionmeans any transac-
tion that is settled through a third party
payment network.
(2)Third party settlement organization.
The termthird party settlement organiza-
tionmeans the central organization that
has the contractual obligation to make pay-
ments to participating payees (as defined
in paragraph (a)(5)(i)(B) of this section) of
third party network transactions. A cen-
tral organization is a third party settlement
organization if it provides a third party
payment network (as defined in paragraph
(c)(3)(i) of this section) that enables pur-
chasers to transfer funds to providers of
goods and services.
(3)Third party payment network.(i)
The termthird party payment network
means any agreement or arrangement
that—
(A) Involves the establishment of ac-
counts with a central organization by a sub-
stantial number of providers of goods or
services who are unrelated to the organiza-
tion and who have agreed to settle transac-
tions for the provision of the goods or ser-
vices to purchasers according to the terms
of the agreement or arrangement;
(B) Provides standards and mechanisms
for settling the transactions; and
(C) Guarantees payment to the persons
providing goods or services in settlement
of transactions with purchasers pursuant to
the agreement or arrangement.
(ii) A third party payment network does
not include any agreement or arrangement
that provides for the issuance of payment
cards.
(iii) Persons who are providers of goods
and services as described in this paragraph
(c)(3) are participating payees within the
meaning of paragraph (a)(5)(i)(B) of this
section.
(4)Exception for de minimis payments.
A third party settlement organization is
required to report any information under
paragraph (a)(1) of this section with re-
spect to third party network transactions of
any participating payee only if—
(i) The amount that would otherwise be
reported under paragraph (a)(1)(ii) of this
section with respect to such transactions
exceeds $20,000; and
(ii) The aggregate number of such trans-
actions exceeds 200.
(d)Special rules—(1)Aggregated pay-
ees. If a person receives payments from
a payment settlement entity (as defined in
paragraph (a)(4) of this section) on behalf
of one or more participating payees and
distributes such payments to one or more
participating payees (as defined in para-
graph (a)(5) of this section), the person is
treated as:
(i) The participating payee with respect
to the payment settlement entity; and
(ii) The payment settlement entity
with respect to the participating payees to
whom the person distributes payments.
(2)Electronic payment facilitator.If
a payment settlement entity (as defined in
paragraph (a)(4) of this section) contracts
with an electronic payment facilitator or
other third party to make payments in set-
tlement of reportable payment transactions
on behalf of the payment settlement entity,
the facilitator must file the annual informa-
tion return under this section in lieu of the
payment settlement entity. The facilitator
need not have any agreement or arrange-
ment with the participating payee. Also,
the payment need not come from the facil-
itator’s account. The facilitator need only
submit instructions to transfer funds to the
account of the participating payee in set-
tlement of the reportable payment transac-
tion. The facilitator is liable for any appli-
cable penalties for failure to comply with
the information reporting requirements of
section 6050W.
(3)Designations. The party with the
obligation to file the annual information
return under this section may designate
by written agreement any other person to
satisfy the requirements of this section.
Thus, notwithstanding the rule in para-
graph (d)(2) of this section imposing the
obligation to file the annual information
return on the electronic payment facilita-
tor in lieu of the payment settlement en-
tity, the payment settlement entity may file
the information return by designation if the
parties agree in writing. However, a des-
ignation does not relieve the party with the
reporting obligation from liability for any
reporting failures. The party with the obli-
gation to file the annual information return
under this section remains liable for any
applicable penalties under sections 6721
and 6722 if the requirements of this sec-
tion are not satisfied.
(4)Conversion into United States dol-
lars of amounts paid in foreign currency.
When a payment is made or received in a
foreign currency, the U.S. dollar amount
shall be determined by converting such
foreign currency into U.S. dollars on the
date of the transaction at the spot rate (as
defined in §1.988–1(d)(1)) or pursuant to
a reasonable spot rate convention. For ex-
ample, a payor may use a month-end spot
rate or a monthly average spot rate. A spot
rate convention must be used consistently
with respect to all non-dollar amounts
reported and from year to year. Such con-
vention cannot be changed without the
consent of the Commissioner or his or her
delegate.
(5)Unrelated persons. For purposes of
this section,unrelatedmeans any person
whoisnotrelatedtoanotherpersonwithin
the meaning of section 267(b) (providing a
list of relationships), including the applica-
tion of section 267(c) and (e)(3) (providing
rules relating to constructive ownership),
and section 707(b)(1) (relationships with
partnerships).
(e)Examples. The following examples
illustrate the provisions of this section:
Example 1.Merchant acquiring entity. Customer
A purchases goods from merchant B using a credit
card issued by Bank X. B is one of a network of un-
related persons that has agreed to accept credit cards
issued by X as payment under an agreement that pro-
vides standards and mechanisms for settling the trans-
action between a merchant acquiring bank and the
persons who accept the cards. Bank Z is the mer-
chant acquiring bank with the contractual obligation
to make payment to B for goods provided to A in
this transaction. As defined in paragraph (b)(2) of
this section, Z is the merchant acquiring entity that
must file the annual information return required under
paragraph (a)(1) of this section to report the payment
made to settle the transaction for the sale of goods
from B to A.
Example 2.Third party settlement organization.
(i) Merchant B is one of a substantial number of per-
sons selling goods or services over the Internet that
have an account with X, an Internet payment service
provider. None of these persons, including B, are re-
lated to X, and all have agreed to settle transactions
for the sale of goods or services to customers accord-
ing to the terms of their contracts with X. X has guar-
October 25, 20104942010–43 I.R.B.

anteed payment to all of these persons, including B,
for the sale of goods or services to customers. Cus-
tomer A purchases goods from B. A pays X for the
goods purchased from B. X, in turn, makes payment
to B in settlement of the transaction for the sale of
goods from B to A.
(ii) X’s arrangement constitutes a third party pay-
ment network as defined inparagraph (c)(3) of this
section because a substantial number of persons that
are unrelated to X, including B, have established ac-
counts with X, and X is contractually obligated to
settle transactions for the provision of goods or ser-
vices by these persons to purchasers. Thus, under
paragraph (c)(2) of this section, X is a third party
settlement organization and the transaction discussed
in thisExampleis a third party network transaction
under paragraph (c)(1) of this section. Therefore, X
must file the annual information return required un-
der paragraph (a)(1) of this section to report the pay-
ment made to B in settlement of the transaction with
A provided that X’s aggregate payments to B from
third party network transactions exceed $20,000 and
the aggregate number of X’s transactions with B ex-
ceeds 200 (as provided in paragraph (c)(4) of this sec-
tion).
Example 3.Automated clearinghouse network.
A operates an automated clearinghouse (“ACH”)
network that merely processes electronic payments
(such as wire transfers, electronic checks, and direct
deposit payments) between buyers and sellers. There
are no contractual agreements between A and the
sellers for the purpose of permitting the sellers to
use the ACH network. Thus, A is not a third party
settlement organization under paragraph (c)(2) of
this section, the ACH network is not a third party
payment network under paragraph (c)(3) of this
section, and the electronic payment transactions are
not third party network transactions under paragraph
(c)(1) of this section. A is not required to file the
annual information return required under paragraph
(a)(1) of this section.
Example 4.ACH processor. B provides a vari-
ety of ACH payment processing services to a large
number of merchants, such as converting checks re-
ceived in payment of bills into ACH transactions. B
groups payment transactions into an ACH file and
transmits the ACH file into the ACH network on be-
half of merchants in order to initiate payment to mer-
chants through the ACH network. B makes payments
to the merchants after the ACH network verifies that
the customers’ accounts have sufficient funds. Be-
cause the ACH network is not a third party payment
network under paragraph (c)(3) of this section, B can-
not be a third party settlement organization with re-
spect to the ACH network. Similarly, because the
ACH itself is not a third party settlement organiza-
tion under paragraph (c)(2) of this section, B can-
not be an electronic payment facilitator because B is
not acting on behalf of a payment settlement entity.
However, B may itself be operating third party pay-
ment network under paragraph (c)(3) of this section
if B has a separate agreement or arrangement that: in-
volves the establishment of accounts with B by a sub-
stantial number of unrelated merchants who provide
goods or services and have agreed to settle transac-
tions for the provision of the goods or services pur-
suant to the agreement or arrangement; provides for
standards and mechanisms for settling the transac-
tions; and guarantees persons providing goods or ser-
vices pursuant to such agreement or arrangement that
these persons will be paid for providing such goods
or services.
Example 5.Gross amount. On Day 1, Customer
A uses a payment card to purchase $100 worth of
goods from merchant B. Bank X, the merchant ac-
quiring entity for B, is the party with the contrac-
tual obligation to make payment to B in settlement
of the transaction. On Day 2, X, after deducting fees
of $2, makes payment of $98 to settle the transaction
for the sale of goods from B to A. Under paragraph
(a)(6) of this section, X must report the amount of
$100, the amount of the transaction on Day 1, with-
out any reduction for fees or any other amount, as
the gross amount of this reportable payment transac-
tion on the annual information return filed under para-
graph (a)(1) of this section.
Example 6.Gift card. (i) Customer A purchases
a gift card from Merchant X that may be used only
at X and its related network of stores. A purchases
the gift card using cash. A gives the gift card to B.
B uses the gift card to purchase goods at one of X’s
stores. The purchase of the gift card by A using cash
is not a payment card transaction described in para-
graph (b)(1) of this section and, thus, is not required
to be reported in a return of information required un-
der paragraph (a)(1) of this section. Under paragraph
(b)(3) of this section, the gift card is not a payment
card because the gift card is only accepted as pay-
ment by persons who are related to the issuer of the
gift card and to each other. Therefore, the use of the
gift card by B is not required to be reported in a return
of information required under paragraph (a)(1) of this
section.
(ii) The facts are the same as in paragraph (i),
except that B adds value to the gift card using a credit
card. The use of the credit card to add value to the gift
card is a reportable payment transaction (as defined in
paragraph (a)(3) of this section) and must be reported
in a return of information under this section by the
bank or other organization that has the contractual
obligation to make payment to X in settlement of the
transaction.
Example 7
.Private label card. Bank B issues a
card imprinted with Retailer C’s logo to cardholder A.
The “C-card” is accepted as payment only at C or at
stores related (within the meaning of section 267(b),
(c) and (e)(3) and, section 707(b)(1)) to C. A uses the
card at C to purchase electronics equipment. Under
paragraph (b)(3) of this section, the C-card is not a
payment card because the card is accepted as payment
only within a network of persons who are related to
each other. Therefore, the use of the card by A at C is
not required to be reported in a return of information
required under paragraph (a)(1) of this section.
Example 8.Quasi-private label card.BankBis-
sues a card to cardholder A. The card, known as an
“E-card,” is issued by B pursuant to an agreement that
provides that the E-card is accepted as payment only
within a limited network of merchants that carry elec-
tronics equipment. The agreement provides for stan-
dards and mechanisms for settling the transactions
between the merchants and the merchant acquiring
entities. The merchants accepting the E-card as pay-
ment are not related (within the meaning of section
267(b), (c) and (e)(3) and section 707(b)(1)) to each
other or to B. A uses the card to purchase electron-
ics equipment at F Store, one of the stores within the
network of merchants accepting the E-card. Under
paragraph (b)(3) of this section, the E-card is a pay-
ment card because the card is issued pursuant to an
agreement that provides for a network of persons un-
related to each other, and to the issuer, who agree to
accept the card as payment. Therefore, the use of the
E-card by A to purchase electronics equipment at F
Store must be reported in a return of information re-
quired under paragraph (a)(1) of this section.
Example 9.Campus card. (i) University Y issues
Student A a card that may be used on campus at var-
ious university-owned merchants and at various lo-
cal merchants unrelated to Y. A uses the card in the
university-owned cafeteria to purchase lunch. Under
paragraph (b)(5)(iii) of this section, no return of infor-
mation is required becausethe card is being accepted
as payment by a person who is related to the issuer of
the card.
(ii) The facts are the same as in paragraph (i), ex-
cept that A uses the campus card to purchase lunch
at a local restaurant, unrelated to Y, that has agreed to
accept the campus card as payment. Under paragraph
(b)(3) of this section, the campus card is a payment
card in this transaction because the card is accepted
as payment by a person that is unrelated to this issuer
ofthecardpursuanttoanagreement. Therefore, the
use of the card by A in the local restaurant for the pur-
chase of lunch must be reported in a return of infor-
mation required under paragraph (a)(1) of this section
by the bank or other organization that has the contrac-
tual obligation to make payment to the restaurant in
settlement of the transaction.
Example 10.Mall card. Customer B purchases
a card that is issued by shopping mall A. Pursuant
to an agreement or arrangement, the card is accepted
as payment by various merchants located within the
mall, who are unrelated to the issuer of the card and
to each other. B uses the card in the mall to purchase
goods from merchant C. Under paragraph (b)(3) of
this section, the mall card is a payment card because
the card is accepted as payment by a network of per-
sons who are unrelated to the issuer of the card and
to the other merchants who have agreed to accept the
card as payment. Therefore, the use of the mall card
by B to purchase goods from merchant C is required
to be reported in a return of information required un-
der paragraph (a)(1) of this section.
Example 11.Electronic benefit transactions card.
Government Agency A issues benefits electronically
to recipients by loading these benefits onto a payment
card. Pursuant to an agreement, a network of mer-
chants unrelated to A, and to each other, has agreed
to accept the benefits card as payment. A issues a card
to B, who uses the card to purchase goods from Mer-
chant C. The card issued by A is a payment card (as
defined in paragraph (b)(3) of this section) because
the card is accepted as payment by a network of per-
sons that are unrelated to the issuer of the card, and
to each other.
The use of the card by B to purchase goods from
C must be reported in a return of information required
under paragraph (a)(1) of this section.
Example 12.Prepaid telephone card. A pur-
chases a prepaid telephone card from Company X
that may be used to make telephone calls using vari-
ous long-distance providers unrelated to X that have
agreed to accept the card as payment. A places a tele-
phone call using the prepaid card as payment for the
telephone call. Under paragraph (b)(3) of this section,
the prepaid telephone card is a payment card because
2010–43 I.R.B.495October 25, 2010

the card is accepted as payment by a person that is un-
related to the issuer of the card pursuant to an agree-
ment. Therefore, the use of the prepaid card to make
payment for the telephone call must be reported in a
return of information required under paragraph (a)(1)
of this section by the bank or other organization that
has the contractual obligation to make payment to the
long distance provider in settlement of the transac-
tion.
Example 13.Transit card. City Z accepts a tran-
sit card as payment for useof its mass transit system.
The transit card is issued by B, an organization unre-
lated to Z. A network of persons, including Z, who are
unrelated to each other and to B, have agreed to ac-
cept the transit card issued by B as payment for tran-
sit and for other goods and services. Transit rider X
purchases a transit card and uses the card to pay for
travel on Z’s mass transit system. Under paragraph
(b)(3) of this section, the transit card is a payment card
because the card is accepted as payment by a person
who is one of a network of persons that are unrelated
to the issuer of the card, and to each other, and that
have agreed to accept the card as payment. There-
fore, the use of the transit card by X to pay for transit
on Z’s mass transit system is a payment card transac-
tion described in paragraph (b)(1) of this section that
must be reported in a return of information required
under paragraph (a)(1) of this section by the bank or
other organization that has the contractual obligation
to make payment to Z. Z is the participating payee,
described in paragraph (a)(5)(i)(A) of this section, of
the payment card transaction.
Example 14.Cash advance. Bank A issues Card-
holder B a credit card that is a payment card under
paragraph (b)(3) of this section. B uses the card at a
local bank to obtain a cash advance. Under paragraph
(b)(5)(i) of this section, B’s use of the payment card
to obtain a cash advance is not a payment card trans-
action (as defined in paragraph (b)(1) of this section)
because the card is not being accepted as payment by
a merchant.
Example 15.Withdrawals from automated teller
machines. Bank A issues Cardholder B a credit card
that is a payment card under paragraph (b)(3) of this
section. B uses the card at an automated teller ma-
chine to obtain cash. Under paragraph (b)(5)(i) of this
section, B’s use of the payment card to obtain cash is
not a payment card transaction (as defined in para-
graph(b)(1)ofthissection) because the card is not
being accepted as payment by a merchant.
Example 16.Convenience checks. Bank A issues
Cardholder B a credit card that is a payment card un-
der paragraph (b)(3) of this section. A sends B paper
checks imprinted with the account number associated
with the credit card. B uses one of the checks to pur-
chase goods from Merchant S. The check is accepted
by S and processed through the bank system in the
same manner as a traditional check. Under paragraph
(b)(5)(ii) of this section, B’s use of the convenience
check to purchase goods is not a payment card trans-
action (as defined in paragraph (b)(1) of this section)
because the check is accepted and processed as a tra-
ditional check, not as a payment card.
Example 17.Healthcare network. Health car-
rier A operates healthcare network Y. A collects
premiums from covered persons pursuant to a plan
agreement between A and the covered persons for
the cost of membership in Y. Separately, A pays
healthcare providers pursuant to provider agreements
to compensate these providers for services rendered
to covered persons who are members of Y. A is not a
third party settlement organization under paragraph
(c)(2) of this section because A does not operate a
third party payment networkthat enables purchasers
to transfer funds to providers of goods and services.
Therefore, A is not required to file the annual infor-
mation return required under paragraph (a)(1) of this
section.
Example 18.Third party accounts payable.X
is a “shared-service” organization that performs ac-
counts payable services for numerous purchasers that
are unrelated to X. A substantial number of providers
of goods and services have established accounts with
X and have agreed to accept payment from X in
settlement of their transactions with purchasers. The
provider agreement with X includes standards and
mechanisms for settling the transactions and guaran-
tees payment to the providers, and the arrangement
enables purchasers to transfer funds to providers.
Under paragraph (c)(3) of this section, X’s accounts
payable services constitute a third party payment
network, of which X is the third party settlement
organization (as defined in paragraph (c)(2) of this
section). For each payee, X must file the annual
information return required under paragraph (a)(1)
of this section to report payments made by X in
settlement of accounts payable to that payee if X’s
aggregate payments to that payee exceed $20,000
and the aggregate number of transactions with that
payee exceeds 200 (as provided in paragraph (c)(4)
of this section).
Example 19.Toll collection network. State A
charges a toll to vehicles that travel its state high-
ways. The tolling agency for A contracted with or-
ganization X to perform its toll collection. X pro-
vides an electronic toll collection system that allows
the toll facility to record the passage of a vehicle with
a transponder affixed to the vehicle. The customer
account associated with the transponder is automat-
ically debited for the amount of the toll. The cus-
tomer funds a balance in the account, which is then
depleted as the toll transactions occur. X periodi-
cally bills the customer to replenish the account. X
then makes payment to A to settle the toll transactions
that are recorded by the transponder. X also contracts
with a substantial number of other entities unrelated
to X that have established accounts with X and have
agreed to accept payment using the electronic toll col-
lection system provided by X. X guarantees payment
to the entities for all toll transactions that are recorded
by the transponders, and the arrangement enables cus-
tomers to transfer funds to State A and other entities
that charge tolls. Under paragraph (c)(3) of this sec-
tion, X’s electronic toll collection system constitutes
a third party payment network, of which X is the third
party settlement organization (as defined in paragraph
(c)(2) of this section). For each payee, including A, X
must file the annual information return required un-
der paragraph (a)(1) of this section to report payments
made by X in settlement of toll transactions if X’s ag-
gregate payments to that payee exceed $20,000 and
the aggregate number of transactions with that payee
exceeds 200 (as provided in paragraph (c)(4) of this
section).
Example 20.Hotel kiosk. Under a “hotel kiosk”
arrangement, Hotel B permits its customers to charge,
to their room account, transactions for goods and ser-
vices at a substantial number of sellers unrelated to
B that operate on B’s premises, or on the premises of
hotels related to B, and that have established accounts
in B’s hotel kiosk system. Customers settle their
room account with B when they check out, and B in
turn settles the hotel kiosk transactions with the unre-
lated sellers. B guarantees payment to the sellers for
these transactions and thearrangement enables cus-
tomers to transfer funds to the sellers by means of one
payment made to the hotel. Under paragraph (c)(3)
of this section, B’s hotel kiosk system constitutes a
third party payment network, of which B is the third
party settlement organization (as defined in paragraph
(c)(2) of this section). For each payee, B must file the
annual information return required under paragraph
(a)(1) of this section to report payments made by B
in settlement of the hotel kiosk transactions if B’s ag-
gregate payments to that payee exceed $20,000 and
the aggregate number of transactions with that payee
exceeds 200 (as provided in paragraph (c)(4) of this
section).
Example 21.Aggregated payee. Corporation A,
acting on behalf of A’s independently-owned fran-
chise stores, receives payment from Bank X for credit
card sales effectuated at these franchise stores. X, the
payment settlement entity (as defined in paragraph
(a)(4)(i) of this section), is required under paragraph
(d)(1)(i) of this section to report the gross amount
of the reportable payment transactions distributed to
A (notwithstanding the fact that A does not accept
payment cards and would not otherwise be treated
as a participating payee). In turn, under paragraph
(d)(1)(ii) of this section, A is required to report the
gross amount of the reportable payment transactions
allocable to each franchise store. X has no reporting
obligation under this section with respect to payments
made by A to its franchise stores.
Example 22.Electronic payment facilitator.(i)
Bank A is a merchant acquiring entity (as defined in
paragraph (b)(2) of this section) with the contractual
obligation to make payments to participating mer-
chants to settle certain credit card transactions. A
enters into a contract with Processor X. Pursuant to
this contract, X prepares and submits instructions to
move funds from A’s account to the accounts of par-
ticipating merchants to settle credit card transactions.
X is making payment on A’s behalf in settlement of
payment card transactions pursuant to a contract be-
tweenXandA.Therefore,underparagraph(d)(2)of
this section, X is an electronic payment facilitator and
must file the information return required under para-
graph (a)(1) of this section with respect to credit card
transactions settled by X. A has no reporting obliga-
tion with respect to payments made by X on A’s be-
half.
(ii) The facts are the sameas in paragraph (i) ex-
cept that A and X state in their contract that A will
file the information return required under paragraph
(a)(1) of this section. A may file the information re-
turn pursuant to this designation. However, X is li-
able for any applicable penalties under sections 6721
and 6722 if the reporting requirements of this section
are not satisfied.
(iii) The facts are the same as in paragraph (i) ex-
cept that X merely prepares the instructions to move
the funds to the accounts of participating merchants,
and the instructions are actually submitted by A. A,
not X, is making payment in settlement of payment
card transactions. Therefore, A retains the obliga-
tion to file the information return required under para-
October 25, 20104962010–43 I.R.B.

graph (a)(1) of this section with respect to credit card
transactions settled by A.
(f)Prescribed form. The return re-
quired by paragraph (a)(1) of this section
must be made according to the forms and
instructions published by the Internal Rev-
enue Service.
(g)Time and place for filing.Returns
made under this section for any calendar
year must be filed on or before February
28th (March 31st if filing electronically) of
the following year at the Internal Revenue
Service Center location designated in the
instructions to the relevant form.
(h)Time and place for furnishing state-
ment—(1)In general. Every payment
settlement entity required to file a return
under this section must also furnish to each
participating payee a written statement
with the same information (as described
in paragraph (h)(2) of this section). The
statement must be furnished to the payee
on or before January 31st of the year fol-
lowing the calendar year in which the
reportable payment is made. If the return
of information is not made on magnetic
media, this requirement may be satisfied
by furnishing to such person a copy of
all Forms 1099-K, “Merchant card and
third-party payments,” or any successor
form with respect to such person filed with
the Internal Revenue Service Center. The
statement will be considered furnished to
the payee if it is mailed to the payee’s last
known address. The payment settlement
entity may furnish the statement electroni-
cally in accordance with the rules provided
in §1.6050W–2.
(2)Information to be shown on state-
ment furnished to payee. Each written
statement furnished under paragraph
(h)(1) of this section must include the fol-
lowing information—
(i) The name, address, and phone num-
ber (or email address if the statement is fur-
nished electronically) of the information
contact of the payment settlement entity.
(ii) With respect to the participating
payee, the gross amount of—
(A) The aggregate reportable payment
transactions for the calendar year; and
(B) The aggregate reportable payment
transactions for each month of the calendar
year.
(iii) Any other information required by
the form, instructions, or current revenue
procedures.
(i)Cross-reference to penalties.For
provisions relating to the penalty for fail-
uretofiletimelyacorrect information
return required under section 6050W,
see section 6721 and the associated reg-
ulations. For provisions relating to the
penalty for failure to furnish timely a
correct payee statement required under
section 6050W(f), see section 6722 and
the associated regulations. See section
6724 and the associated regulations for
the waiver of a penalty if failure is due to
reasonable cause and is not due to willful
neglect.
(j)Effective/applicability date.The
rules in this section apply to returns for
calendar years beginning after December
31, 2010.
Par. 5. Section 1.6050W–2 is added to
read as follows:
§1.6050W–2 Electronic furnishing of
information statements for payments
made in settlement of payment card and
third party network transactions.
(a)Electronic furnishing of state-
ments—(1)In general. A person required
by section 6050W to furnish a written
statement (furnisher)regarding payments
made in settlement of payment card and
third party network transactions to the per-
son to whom it is required to be furnished
(recipient) may furnish the statement in an
electronic format in lieu of a paper format.
A furnisher who meets the requirements
of paragraphs (a)(2) through (a)(5) of this
section is treated as furnishing the required
statement.
(2)Consent—(i)In general. The recip-
ient must have affirmatively consented to
receive the statement required under sec-
tion 6050W in an electronic format or, in
the alternative, have previously consented
to receive other federal tax statements in an
electronic format from the furnisher. The
consent may be made electronically in any
manner that reasonably demonstrates that
the recipient can access the statement in
the electronic format in which it will be
furnished to the recipient. Alternatively,
the consent may be made in a paper docu-
ment if it is confirmed electronically. Con-
sents must be kept at all times available
for inspection by the Internal Revenue Ser-
vice. Recipients currently receiving elec-
tronic communications from the furnisher
may elect to receive the statement required
under section 6050W in a paper document
in lieu of an electronic format. The elec-
tion to receive a paper document may be
made by notifying the furnisher electroni-
cally or in a paper document.
(ii)Withdrawal of consent. The con-
sent requirement of paragraph (a)(2)(i) of
this section is not satisfied if the recipi-
ent withdraws the consent to receive elec-
tronic statements and the withdrawal takes
effect before the statement is furnished.
The furnisher may provide that a with-
drawal of consent takes effect either on the
date it is received by the furnisher or on a
subsequent date. The furnisher may also
provide that a request for a paper statement
will be treated as a withdrawal of consent.
(iii)Change in hardware or software re-
quirements. If a change in the hardware
or software required to access the state-
ment creates a material risk that the recip-
ient will not be able to access the state-
ment, the furnisher must, prior to changing
the hardware or software, provide notice to
the recipient. The notice must describe the
revised hardware and software required to
access the statement andinform the recipi-
ent that a new consent to receive the state-
ment in the revised electronic format must
be provided to the furnisher. After im-
plementing the revised hardware and soft-
ware, the furnisher must obtain from the
recipient, in the manner described in para-
graph (a)(2)(i) of this section, a new con-
sent or confirmation of consent to receive
the statement electronically.
(iv)Examples. The following examples
illustrate the rules of this paragraph (a)(2):
Example 1. Recipient R has consented to receive
the statements required under section 6041 in elec-
tronic format from Furnisher F. F has retained R’s
consent and keeps it available for inspection by the
IRS. F may furnish to R the statement required un-
der section 6050W in electronic format without se-
curing an affirmative consent from R with respect to
the statements required under section 6050W.
Example 2. Recipient R has not consented to re-
ceive any electronic federal income tax statements
from Furnisher F. F may not furnish to R the state-
ments required under section 6050W unless F first
secures from R a consent to receive those statements
in electronic format in accordance with the require-
ments of paragraphs (a)(2) through (a)(5) of this sec-
tion.
Example 3. Furnisher F sends Recipient R a letter
stating that R may consent to receive statements re-
quired by section 6050W(f) electronically on a web-
site instead of in a paper format. The letter contains
instructions explaining how to consent to receive the
statements electronically by accessing the website,
downloading the consent document, completing the
consent document, and e-mailing the completed con-
2010–43 I.R.B.497October 25, 2010

sent back to F. The consent document posted on the
website uses the same electronic format that F uses to
furnish statements electronically. R reads the instruc-
tions and submits the consent in the manner provided
in the instructions. R has consented to receive the
statements electronically in the manner described in
paragraph (a)(2)(i) of this section.
Example 4. Furnisher F sends Recipient R an
e-mail stating that R may consent to receive state-
ments required by section 6050W(f) electronically in-
stead of in a paper format. The e-mail contains an
attachment instructing R how to consent to receive
the statements electronically. The e-mail attachment
uses the same electronic format that F uses to furnish
statements electronically. R opens the attachment,
reads the instructions, and submits the consent in the
manner provided in the instructions. R has consented
to receive the statements electronically in the manner
described in paragraph (a)(2)(i) of this section.
Example 5. Furnisher F posts a notice on its web-
site stating that Recipient R may receive statements
required by section 6050W(f) electronically instead
of in a paper format. The website contains instruc-
tions on how R may access a secure web page and
consent to receive the statements electronically. By
accessing the secure web page and giving consent, R
has consented to receive the statements electronically
in the manner described in paragraph (a)(2)(i) of this
section.
(3)Required disclosures—(i)In gen-
eral. Prior to, or at the time of, a recipient’s
consent, the furnisher must provide to the
recipient a clear and conspicuous disclo-
sure statement containing each of the dis-
closures described in paragraphs (a)(3)(ii)
through (a)(3)(viii) of this section.
(ii)Paper statement. The recipient must
be informed that the statement will be fur-
nished on paper if the recipient does not
consent to receive it electronically.
(iii)Scope and duration of consent.The
recipient must be informed of the scope
and duration of the consent. For example,
the recipient must be informed whether the
consent applies to statements furnished ev-
ery year after the consent is given until it
is withdrawn in the manner described in
paragraph (a)(3)(v)(A) of this section or
only to the statement required to be fur-
nished on or before the January 31st im-
mediately following the date on which the
consent is given.
(iv)Post-consent request for a paper
statement. The recipient must be informed
of any procedure for obtaining a paper
copy of the recipient’s statement after
giving the consent described in paragraph
(a)(2)(i) of this section and whether a re-
quest for a paper statement will be treated
as a withdrawal of consent.
(v)Withdrawal of consent. The recipi-
entmustbeinformedthat—
(A) The recipient may withdraw a con-
sent by writing (electronically or on pa-
per) to the person or department whose
name, mailing address, telephone number,
and e-mail address is provided in the dis-
closure statement;
(B) The furnisher will confirm the with-
drawal and the date on which it takes effect
in writing (either electronically or on pa-
per); and
(C) A withdrawal of consent does not
apply to a statement that was furnished
electronically in the manner described in
this paragraph (a) before the date on which
the withdrawal of consent takes effect.
(vi)Notice of termination. The recipi-
ent must be informed of the conditions un-
der which a furnisher will cease furnishing
statements electronically to the recipient.
(vii)Updating information. The recip-
ient must be informed of the procedures
for updating the information needed by the
furnisher to contact the recipient. The fur-
nisher must inform the recipient of any
change in the furnisher’s contact informa-
tion.
(viii)Hardware and software require-
ments. The recipient must be provided
with a description of the hardware and
software required to access, print, and re-
tain the statement, and the date when the
statement will no longer be available on
the website.
(4)Format. The electronic version of
the statement must contain all required
information and comply with applicable
revenue procedures relating to substitute
statements to recipients.
(5)Notice—(i)In general. If the state-
ment is furnished on a website, the fur-
nisher must notify the recipient that the
statement is posted on a website. The no-
tice may be delivered by mail, electronic
mail, or in person. The notice must provide
instructions on how to access and print the
statement. The notice must include the fol-
lowing statement in capital letters, “IM-
PORTANT TAX RETURN DOCUMENT
AVAILABLE.”Ifthenoticeisprovided
by electronic mail, the foregoing statement
must be on the subject line of the electronic
mail.
(ii)Undeliverable electronic address.
If an electronic notice described in para-
graph (a)(5)(i) of this section is returned
as undeliverable, and the correct electronic
address cannot be obtained from the fur-
nisher’s records or from the recipient, then
the furnisher must furnish the notice by
mail or in person within 30 days after the
electronic notice is returned.
(b)Effective/applicability date.The
rules in this section apply to returns for
calendar years beginning after December
31, 2010.
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE
Par. 6. The authority citation for part
31 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 7. Section 31.3406–0 is amended
as follows:
1. Entries for §31.3406(b)(3)–5(a), (b),
(c), (d), and (e) are added.
2. Entry for §31.3406(g)–1 is amended
by adding paragraphs (d), (e), and (f).
The additions read as follows:
§31.3406–0 Outline of the backup
withholding regulations.
*****
§31.3406(b)(3)–5 Reportable payments
of payment card and third party network
transactions.
(a) Payment card and third party net-
work transactions subject to backup with-
holding.
(b) Amount subject to backup withhold-
ing.
(c) Time when payments are considered
to be subject to backup withholding.
(d) Backup withholding from an alter-
nate source.
(e) Effective/applicability date.
*****
§31.3406(g)–1 Exception for payments
to certain payees and certain other
payments.
*****
(d) Reportable payments made to Cana-
dian nonresident alien individuals.
(e) Certain reportable payments made
outside the United States by foreign per-
sons, foreign offices of United States
banks and brokers, and others.
(f) Special rule for certain payment card
transactions.
*****
October 25, 20104982010–43 I.R.B.

Par. 8. Section 31.3406(a)–2 is
amended by revising paragraph (a) to read
as follows:
§31.3406(a)–2 Definition of payors
obligated to backup withhold.
(a)In general.Payormeans the per-
sonthatisrequiredtomakeaninforma-
tion return under section 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A, 6050N,
or 6050W with respect to any reportable
payment (as described in section 3406(b)),
or that is described in paragraph (b) of this
section.
*****
Par. 9. Section 31.3406(b)(3)–5 is
added to read as follows:
§31.3406(b)(3)–5 Reportable payments
of payment card and third party network
transactions.
(a)Payment card and third party net-
work transactions subject to backup with-
holding. The gross amount of a reportable
transaction that is required to be reported
under section 6050W (relating to informa-
tion reporting for payment card and third
party network transactions) is a reportable
payment for purposes of section 3406. See
§31.6051–4 for the requirement to furnish
a statement to the payee if tax is withheld
under section 3406.
(b)Amount subject to backup withhold-
ing. In general, the amount described in
paragraph (a) of this section that is sub-
ject to withholding under section 3406 is
the amount subject to reporting under sec-
tion 6050W. In the case of payments made
in settlement of third party network trans-
actions, the amount subject to withholding
under section 3406 is determined without
regard to the exception forde minimispay-
ments by third party settlement organiza-
tions in section 6050W(e) and the associ-
ated regulations.
(c)Time when payments are considered
to be subject to backup withholding—(1)
In general. In the case of a payment card or
third party network transaction reportable
under section 6050W, the obligation to
withhold arises on the date of the trans-
action. A payor is not required, however,
to satisfy its withholding liability until the
time that payment is made.
(2)Example. The provisions of para-
graph (c)(1) are illustrated by the follow-
ing example:
Example. On Day 1, Customer A uses a payment
card to purchase $100 worth of goods from Merchant
B. Bank X, the merchant acquiring entity for B, is
the party with the contractual obligation to make pay-
ment to B in settlement of the transaction. On Day 2,
X, after deducting fees of $2, makes payment of $98
to settle the transaction for the sale of goods from B
to A. Under paragraph (a)(6) of §1.6050W–1, X must
report the amount of $100, the amount of the transac-
tion on Day 1, without any reduction for fees or any
other amount, as the gross amount of this reportable
payment transaction on the annual information return
filed under paragraph (a)(1) of §1.6050W–1. Under
paragraph (c)(1) of this section, X’s obligation, if any,
to backup withhold arises on Day 1, the backup with-
holding obligation must be satisfied on Day 2, and the
amount subject to backup withholding is $100 (the
gross amount of the reportable payment transaction
(as defined in paragraph (a)(6) of §1.6050W–1)).
(d)Backupwithholdingfromanalter-
nate source—(1)In general.Apayormay
not withhold under section 3406 from a
source maintained by the payor other than
the source with respect to which there ex-
ists a liability to withhold under section
3406 with respect to the payee. See section
3403 and §31.3403–1, which provide that
the payor is liable for the amount required
to be withheld regardless of whether the
payor withholds.
(2)Exceptions for backup withholding
when there are no funds available—(i)
Backup withholding from an alternative
source. In the event there are no funds
available in the source with respect to
which there exists a liability to withhold
under section 3406 with respect to the
payee, the payor may withhold under sec-
tion 3406 from another source maintained
by the payee with the payor. The source
from which the tax is withheld under sec-
tion 3406 must be payable to at least one
of the persons listed on the account subject
to withholding. If the account or source is
not payable exclusively to the same person
or persons listed on the account subject
to withholding under section 3406, then
the payor must obtain a written statement
from all other persons to whom the ac-
count or source is payable authorizing the
payor to withhold under section 3406 from
the alternative account or source. A payor
that elects to withhold under section 3406
from an alternative source may determine
the account or source from which the tax
is to be withheld, or may allow the payee
to designate the alternative source.
(ii)Deferral of withholding.If
the payor cannot locate, with reason-
able care (following procedures sub-
stantially similar to those set forth in
§31.3406(d)–5(c)(3)(ii)(A) and (B)), an
alternative source of cash from which the
payor may satisfy its withholding obliga-
tion pursuant to paragraph (d)(2)(i) of this
section, the payor may defer its obligation
to withhold under section 3406 until the
earlier of—
(A) The date on which cash, in a suf-
ficient amount to satisfy the obligation in
full, is deposited in the account subject to
withholding under section 3406; or
(B) The close of the fourth calendar
year after the obligation arose.
(iii)Termination of obligation to
backup withhold.If,atthecloseofthe
fourth calendar year after the backup with-
holding arose, the payor has not located
an alternate source of cash from which
the payor may satisfy its withholding obli-
gation, and sufficient cash to satisfy the
obligation in full has not been deposited
in the account subject to withholding un-
der section 3406, then the obligation to
backup withhold terminates at the close of
the fourth calendar year.
(e)Effective/applicability date.The
provisions of this section apply to amounts
paid after December 31, 2011.
Par. 10. Section 31.3406(d)–1 is
amended by revising paragraph (d) to read
as follows:
§31.3406(d)–1 Manner required for
furnishing a taxpayer identification
number.
*****
(d)Rents, commissions, nonemployee
compensation, certain fishing boat oper-
ators, and payment card and third party
network transactions, etc.—Manner re-
quired for furnishing a taxpayer identifi-
cation number. For accounts, contracts,
or relationships subject to information
reporting under section 6041 (relating to
information reporting at source on rents,
royalties, salaries, etc.), section 6041A(a)
(relating to information reporting of pay-
ments for nonemployee services), section
6050A (relating to information reporting
by certain fishing boat operators), section
6050N (relating to information report-
ing of payments of royalties), or section
6050W (relating to information reporting
2010–43 I.R.B.499October 25, 2010

for payment card and third party network
transactions), the payee must furnish the
payee’s taxpayer identification number
to the payor either orally or in writing.
Except as provided in §31.3406(d)–5,
the payee is not required to certify under
penalties of perjury that the taxpayer iden-
tification number is correct regardless of
when the account, contract, or relationship
is established.
Par. 11. Section 31.6051–4 is amended
by revising paragraph (c)(2) to read as fol-
lows:
§31.6051–4 Statement required in case of
backup withholding.
*****
(c)***
(2) The amount subject to reporting un-
der section 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A, 6050N, or 6050W
whether or not the amount of the reportable
payment is less than the amount for which
an information return is required. If tax
is withheld under section 3406, the state-
ment must show the amount of the pay-
ment withheld upon;
*****
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 12. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Par. 13. Section 301.6721–1(g) is
amended by:
1. Removing the language “or” at the
end of paragraph (g)(3)(xii).
2.Redesignating paragraphs
(g)(3)(viii),(g)(3)(ix),(g)(3)(x),
(g)(3)(xi), (g)(3)(xii) and (g)(3)(xiii) as
(g)(3)(ix), (g)(3)(x), (g)(3)(xi), (g)(3)(xii),
(g)(3)(xiii) and (g)(3)(xiv).
3. Adding the language “or” at the end
of newly designated paragraph (g)(3)(xiii).
4. Adding new paragraph (g)(3)(viii).
The revisions and additions read as fol-
lows:
§301.6721–1 Failure to file correct
information returns.
*****
(g)* * * (3)* * *
(viii) Section 6050W (relating to infor-
mation returns with respect to payments
made in settlement of payment card and
third party network transactions (effective
for information returns required to be filed
for calendar years beginning after Decem-
ber 31, 2010)),
*****
Par. 14. Section 301.6722–1 is
amended by:
1. Removing the language “and” at the
end of paragraph (d)(2)(xviii).
2.Redesignating paragraphs
(d)(2)(xvi), (d)(2)(xvii), (d)(2)(xviii) and
(d)(2)(xix) as (d)(2)(xvii), (d)(2)(xviii),
(d)(2)(xix) and (d)(2)(xx).
3. Adding new paragraph (d)(2)(xvi).
4. Adding the language “and” at the
end of the newly designated paragraph
(d)(2)(xix).
The revisions and additions read as fol-
lows:
§301.6722–1 Failure to furnish correct
payee statements.
*****
(d)* * * (2)* * *
(xvi) Section 6050W (relating to infor-
mation returns with respect to payments
made in settlement of payment card and
third party network transactions (effective
for information returns required to be filed
for calendar years beginning after De-
cember 31, 2010) , generally the recipient
copy),
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved August 3, 2010.
Michael Mundaca,
Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on August 13,
2010, 8:45 a.m., and published in the issue of the Federal
Register for August 16, 2010, 75 F.R. 49821)
Section 9815.—Additional
Market Reforms
26 CFR 54.9815–2719T: Internal claims and appeals
and external review process (temporary).
T.D. 9494
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2590
RIN 1210–AB45
DEPARTMENT OF HEALTH
AND HUMAN SERVICES
OCIIO–9993–IFC
45 CFR Part 147
RIN 1210–AB45
Interim Final Rules for Group
Health Plans and Health
Insurance Issuers Relating
to Internal Claims and
Appeals and External Review
Processes under the Patient
Protection and Affordable
Care Act
AGENCIES:Internal Revenue Service,
Department of the Treasury; Employee
Benefits Security Administration, De-
partment of Labor; Office of Consumer
Information and Insurance Oversight, De-
partment of Health and Human Services.
ACTION:Interim final rules with request
for comments.
SUMMARY:This document contains in-
terim final regulations implementing the
requirements regarding internal claims and
appeals and external review processes for
group health plans and health insurance
coverage in the group and individual mar-
kets under the Patient Protection and Af-
fordable Care Act. The regulations will
generally affect health insurance issuers;
group health plans; and participants, ben-
October 25, 20105002010–43 I.R.B.

eficiaries, and enrollees in health insur-
ance coverage and in group health plans.
The regulations provide plans and issuers
with guidance necessary to comply with
the law.
DATES:Effective date.These interim fi-
nal regulations are effective on September
21, 2010.
Comment date.Comments are due on
or before September 21, 2010.
Applicability dates. These interim fi-
nal regulations generally apply to group
health plans and group health insurance is-
suers for plan years beginning on or after
September 23, 2010. These interim final
regulations generally apply to individual
health insurance issuers for policy years
beginning on or after September 23, 2010.
ADDRESSES:Written comments may be
submitted to any of the addresses specified
below. Any comment that is submitted to
any Department will be shared with the
other Departments. Please do not submit
duplicates.
All comments will be made available
to the public.WARNING:Donotin-
clude any personally identifiable informa-
tion (such as name, address, or other con-
tact information) or confidential business
information that you do not want publicly
disclosed. All comments are posted on the
Internet exactly as received, and can be
retrieved by most Internet search engines.
No deletions, modifications, or redactions
will be made to the comments received, as
they are public records. Comments may be
submitted anonymously.
Department of Labor. Comments to the
Department of Labor, identified by RIN
1210–AB45, by one of the following meth-
ods:
•FederaleRulemakingPortal:
http://www.regulations.gov.Follow
the instructions for submitting
comments.
•Email:
E-OHPSCA2719.EBSA@dol.gov.
•Mail or Hand Delivery:Officeof
Health Plan Standards and Compliance
Assistance, Employee Benefits Secu-
rity Administration, Room N–5653,
U.S. Department of Labor, 200 Con-
stitution Avenue NW, Washington, DC
20210,Attention: RIN 1210–AB45.
Comments received by the Depart-
ment of Labor will be posted without
change tohttp://www.regulations.govand
http://www.dol.gov/ebsa, and available for
public inspection at the Public Disclosure
Room, N–1513, Employee Benefits
Security Administration, 200 Constitution
Avenue, NW, Washington, DC 20210.
Department of Health and Human Ser-
vices. In commenting, please refer to file
code OCIIO–9993–IFC. Because of staff
and resource limitations, we cannot accept
comments by facsimile (FAX) transmis-
sion.
You may submit comments in one of
four ways (please choose only one of the
ways listed):
1.Electronically. You may submit
electronic comments on this regulation
tohttp://www.regulations.gov. Follow
the instructions under the “More Search
Options” tab.
2.By regular mail.Youmaymail
written comments to the following address
ONLY:
Office of Consumer Information and
Insurance Oversight
Department of Health and
Human Services,
Attention: OCIIO–9993–IFC,
P.O. Box 8016,
Baltimore, MD 21244–1850.
Please allow sufficient time for mailed
comments to be received before the close
of the comment period.
3.By express or overnight mail.You
maysendwrittencommentstothefollow-
ing address ONLY:
Office of Consumer Information and
Insurance Oversight,
Department of Health and
Human Services,
Attention: OCIIO–9993–IFC,
Mail Stop C4–26–05,
7500 Security Boulevard,
Baltimore, MD 21244–1850.
4.By hand or courier. If you prefer,
you may deliver (by hand or courier) your
written comments before the close of the
comment period to either of the following
addresses:
a. For delivery in Washington, DC—
Office of Consumer Information and
Insurance Oversight,
Department of Health and
Human Services,
Room 445-G, Hubert H.
Humphrey Building,
200 Independence Avenue, SW,
Washington, DC 20201
(Because access to the interior of the
Hubert H. Humphrey Building is not read-
ily available to persons without Federal
government identification, commenters
are encouraged to leave their comments in
the OCIIO drop slots located in the main
lobby of the building. A stamp-in clock is
available for persons wishing to retain a
proof of filing by stamping in and retain-
ing an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD—
Centers for Medicare &
Medicaid Services,
Department of Health and
Human Services,
7500 Security Boulevard,
Baltimore, MD 21244–1850
If you intend to deliver your comments
to the Baltimore address, please call (410)
786–7195 in advance to schedule your ar-
rival with one of our staff members.
Comments mailed to the addresses in-
dicated as appropriate for hand or courier
delivery may be delayed and received after
the comment period.
Submission of comments on paperwork
requirements. You may submit comments
on this document’s paperwork require-
ments by following the instructions at the
end of the “Collection of Information Re-
quirements” section in this document.
Inspection of Public Comments:All
comments received before the close of the
comment period are available for view-
ing by the public, including any person-
ally identifiable or confidential business
information that is included in a comment.
We post all comments received before the
close of the comment period on the fol-
lowing website as soon as possible after
they have been received:http://www.regu-
lations.gov. Follow the search instructions
on that Web site to view public comments.
Comments received timely will also
be available for public inspection as they
are received, generally beginning ap-
2010–43 I.R.B.501October 25, 2010

proximately three weeks after publication
of a document, at the headquarters of
the Centers for Medicare & Medicaid
Services, 7500 Security Boulevard, Balti-
more, Maryland 21244, Monday through
Friday of each week from 8:30 a.m. to
4p.m. EST.Toscheduleanappoint-
ment to view public comments, phone
1–800–743–3951.
Internal Revenue Service. Comments
to the IRS, identified by REG–125592–10,
by one of the following methods:
•FederaleRulemakingPortal:
http://www.regulations.gov.Follow
the instructions for submitting com-
ments.
•Mail:CC:PA:LPD:PR
(REG–125592–10), room 5205, Inter-
nal Revenue Service, P.O. Box 7604,
Ben Franklin Station, Washington, DC
20044.
•Hand or courier delivery: Monday
through Friday between the hours of
8 a.m. and 4 p.m. to: CC:PA:LPD:PR
(REG–125592–10), Courier’s Desk,
Internal Revenue Service, 1111
Constitution Avenue, NW, Washington
DC 20224.
All submissions to the IRS will be open
to public inspection and copying in room
1621, 1111 Constitution Avenue, NW,
Washington, DC from 9 a.m. to 4 p.m.
FOR FURTHER INFORMATION
CONTACT:Amy Turner or Beth Baum,
Employee Benefits Security Adminis-
tration, Department of Labor, at (202)
693–8335; Karen Levin, Internal Rev-
enue Service, Department of the Treasury,
at (202) 622–6080; Ellen Kuhn, Office
of Consumer Information and Insurance
Oversight, Department of Health and Hu-
man Services, at (301) 492–4100.
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.healthreform.gov.
SUPPLEMENTARY INFORMATION:
I. Background
The Patient Protection and Affordable
Care Act (the Affordable Care Act), Pub.
L. 111–148, was enacted on March 23,
2010; the Health Care and Education Rec-
onciliation Act (the Reconciliation Act),
Pub. L. 111–152, was enacted on March
30, 2010. The Affordable Care Act and
the Reconciliation Act reorganize, amend,
and add to the provisions of part A of title
XXVII of the Public Health Service Act
(PHS Act) relating to group health plans
and health insurance issuers in the group
and individual markets. The term “group
health plan” includes both insured and
self-insured group health plans.
1
The Af-
fordable Care Act adds section 715(a)(1)
to the Employee Retirement Income Secu-
rity Act (ERISA) and section 9815(a)(1)
to the Internal Revenue 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 providing health insurance cover-
age in connection with group health plans.
The PHS Act sections incorporated by this
reference are sections 2701 through 2728.
PHS Act sections 2701 through 2719A are
substantially new, though they incorporate
some provisions of prior law. PHS Act
sections 2722 through 2728 are sections of
prior law renumbered, with some, mostly
minor, changes.
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
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 insur-
ance coverage except to the extent that
such standard or requirement prevents
the application of a requirement” of the
Affordable Care Act.Accordingly, State
laws that impose on health insurance is-
suers requirements that are stricter than
those imposed by the Affordable Care Act
will not be superseded by the Affordable
Care Act.
The Departments of Health and Human
Services, Labor, and the Treasury (the De-
partments) are issuing regulations in sev-
eral phases implementing the revised PHS
Act sections 2701 through 2719A and re-
lated provisions of the Affordable Care
Act. The first phase in this series was
the publication of a Request for Informa-
tion relating to the medical loss ratio pro-
visions of PHS Act section 2718, pub-
lished in theFederal Registeron April 14,
2010 (75 FR 19297). The second phase
was interim final regulations implement-
ing PHS Act section 2714 (requiring de-
pendent coverage of children to age 26),
published in theFederal Registeron May
13, 2010 (T.D. 9482, 2010–22 I.R.B. 698
[75 FR 27122]). The third phase was in-
terim final regulations implementing sec-
tion 1251 of the Affordable Care Act (re-
lating to status as a grandfathered health
plan), published in theFederal Register
on June 17, 2010 (T.D. 9489, 2010–29
I.R.B. 55 [75 FR 34538]). The fourth
phase was interim final regulations im-
plementing PHS Act sections 2704 (pro-
hibiting preexisting condition exclusions),
2711 (regarding lifetime and annual dol-
lar limits on benefits), 2712 (regarding re-
strictions on rescissions), and 2719A (re-
garding patient protections), published in
theFederal Registeron June 28, 2010
(T.D. 9491, 2010–32 I.R.B. 186 [75 FR
37188]). The fifth phase was interim final
regulations implementing PHS Act sec-
tion 2713 (regarding preventive health ser-
vices), published in theFederal Regis-
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.
October 25, 20105022010–43 I.R.B.

teron July 19, 2010 (T.D. 9493, 2010–35
I.R.B. 273 [75 FR 41726]). These interim
final regulations are being published to im-
plement PHS Act section 2719, relating to
internal claims and appeals and external
review processes. PHS Act section 2719
is generally effective for plan years (in the
individual market, policy years) beginning
on or after September 23, 2010, which is
six months after the March 23, 2010 date of
enactment of the Affordable Care Act. The
implementation of other provisions of PHS
Act sections 2701 through 2719A will be
addressed in future regulations.
II. Overview of the Regulations: PHS
Act Section 2719, Internal Claims and
Appeals and External Review Processes
(26 CFR 54.9815–2719T, 29 CFR
2590.715–27109, 45 CFR 147.136)
a.Scope and definitions
These interim final regulations set forth
rules implementing PHS Act section 2719
for internal claims and appeals and ex-
ternal review processes for group health
plans and health insurance coverage; these
requirements do not apply to grandfa-
thered health plans under section 1251 of
the Affordable Care Act. With respect to
internal claims and appeals processes for
group health coverage, PHS Act section
2719 provides that plans and issuers must
initially incorporate the internal claims
and appeals processes set forth in 29 CFR
2560.503–1 and update such processes in
accordance with standards established by
the Secretary of Labor. Similarly, with
respect to internal claims and appeals
processes for individual health insurance
coverage, issuers must initially incor-
porate the internal claims and appeals
processes set forth in applicable State law
and update such processes in accordance
with standards established by the Secre-
tary of Health and Human Services. These
interim final regulations provide such
updated standards for compliance. The
Department of Labor is also considering
further updates to 29 CFR 2560.503–1 and
expects to issue future regulations that will
propose additional, more comprehensive
updates to the standards for plan internal
claims and appeals processes.
With respect to external review, PHS
Act section 2719 provides a system for
applicability of either a State external re-
view process or a Federal external review
process. These regulations provide rules
for determining which process applies, as
well as guidance regarding each process.
Consistent with the statutory structure,
these interim final regulations adopt an
approach thatbuilds on applicable State
external review processes. For plans and
issuers subject to existing State external
review processes, the regulations include a
transition period until July 1, 2011. During
this period, the State process applies and
the Departments will work individually
with States on an ongoing basis to assist
in making any necessary changes to in-
corporate additional consumer protections
so that the State process will continue to
apply after the end of the transition pe-
riod. For plans and issuers not subject to
an existing State external review process
(including self-insured plans), a Federal
process will apply for plan years (in the
individual market, policy years) beginning
on or after September 23, 2010. The De-
partments will be issuing more guidance
in the near future on the Federal external
review process.
These interim final regulations also set
forthrulesrelatedtotheformandmanner
of providing notices in connection with
internal claims and appeals and external
review processes. The regulations also
reiterate and preserve the Departments’
authority, pursuant to PHS Act section
2719(c), to deem external review pro-
cesses in operation on March 23, 2010, to
be in compliance with the requirements of
PHS Act section 2719, either permanently
or temporarily.
Paragraph (a)(2) of 26 CFR
54.9815–2719T, 29 CFR 2590.715–2719,
45 CFR 147.136 sets forth definitions
relevant for these interim final regulations,
including the definitions of an adverse
benefit determination and a final inter-
nal adverse benefit determination. An
adverse benefit determination is defined
by incorporating the definition under
the Department of Labor’s regulations
governing claims procedures at 29 CFR
2560.503–1 (DOL claims procedure
regulation), and also includes a rescission
of coverage. A final internal adverse
benefit determination is the upholding of
an adverse benefit determination at the
conclusion of the internal appeals process
or an adverse benefit determination with
respect to which the internal appeals
process has been deemed exhausted.
b.Internal claims and appeals process
Paragraph (b) of 26 CFR
54.9815–2719T, 29 CFR 2590.715–2719,
45 CFR 147.136 requires group health
plans and health insurance issuers offering
group or individual health insurance
coverage to implement an effective
internal claims and appeals process. The
regulations set forth separate rules for
group health coverage and individual
health insurance coverage.
1.Group health plans and health
insurance issuers offering group health
insurance coverage
A group health plan and a health in-
surance issuer offering group health insur-
ance coverage must comply with all the
requirements applicable to group health
plans under the DOL claims procedure
regulation. Therefore, for purposes of
compliance with these interim final regu-
lations, a health insurance issuer offering
health insurance coverage in connection
with a group health plan is subject to the
DOL claims procedure regulation to the
same extent as if it were a group health
plan.
These interim final regulations also set
forth six new requirements in addition to
those in the DOL claims procedure regula-
tion.
First, for purposes of these interim fi-
nal regulations, the definition of an ad-
verse benefit determination is broader than
the definition in the DOL claims procedure
regulation, in that an adverse benefit deter-
mination for purposes of these interim fi-
nal regulations also includes a rescission of
coverage. By referencing the DOL claims
procedure regulation, an adverse benefit
determination eligible for internal claims
and appeals processes under these interim
final regulations includes a denial, reduc-
tion, or termination of, or a failure to pro-
vide or make a payment (in whole or in
part) for a benefit, including any such de-
nial, reduction, termination, or failure to
provide or make a payment that is based
on:
•A determination of an individual’s eli-
gibility to participate in a plan or health
insurance coverage;
2010–43 I.R.B.503October 25, 2010

•A determination that a benefit is not a
covered benefit;
•The imposition of a preexisting condi-
tion exclusion, source-of-injury exclu-
sion, network exclusion, or other lim-
itation on otherwise covered benefits;
or
•A determination that a benefit is exper-
imental, investigational, or not medi-
cally necessary or appropriate.
A denial, reduction, or termination of,
orafailuretoprovideormakeapay-
ment (in whole or in part) for a benefit
can include both pre-service claims (for
example, a claim resulting from the ap-
plication of any utilization review), as
well as post-service claims. Failure to
make a payment in whole or in part in-
cludes any instance where a plan pays less
than the total amount of expenses sub-
mitted with regard to a claim, including
a denial of part of the claim due to the
terms of a plan or health insurance cov-
erage regarding copayments, deductibles,
or other cost-sharing requirements.
3
Un-
der these interim final regulations, an
adverse benefit determination also in-
cludes any rescission of coverage as de-
fined in the regulations restricting rescis-
sions (26 CFR 54.9815–2712T(a)(2),
29 CFR 2590.715–2712(a)(2), and 45 CFR
147.128(a)(2)), whether or not there is an
adverse effect on any particular benefit
at that time. The regulations restricting
rescissions generally define a rescission
as a cancellation or discontinuance of
coverage that has retroactive effect, except
to the extent it is attributable to a failure
to timely pay required premiums or
contributions towards the cost of coverage.
Rescissions of coverage must also comply
with the requirements of the regulations
restricting rescissions.
4
Second, these interim final regulations
provide that a plan or issuer must no-
tify a claimant of a benefit determination
(whether adverse or not) with respect to
a claim involving urgent care (as defined
in the DOL claims procedure regulation)
5
as soon as possible, taking into account
the medical exigencies, but not later than
24 hours after the receipt of the claim
by the plan or health insurance coverage,
unless the claimant fails to provide suf-
ficient information to determine whether,
or to what extent, benefits are covered or
payable under the plan or health insurance
coverage.
6
This is a change from the re-
quirements of the DOL claims procedure
regulation, which generally requires a de-
termination not later than 72 hours after
receipt of the claim by a group health plan
for urgent care claims. The Departments
expect that electronic communication will
enable faster decision-making today than
in the year 2000, when the final DOL
claims procedure regulation was issued.
Third, these interimfinal regulations
provide additional criteria to ensure that
a claimant receives a full and fair review.
Specifically, in addition to complying with
the requirements of the DOL claims pro-
cedure regulation, the plan or issuer must
provide the claimant, free of charge, with
any new or additional evidence consid-
ered, relied upon, or generated by the plan
or issuer (or at the direction of the plan
or issuer) in connection with the claim.
7
Such evidence must be provided as soon as
possible and sufficiently in advance of the
date on which the notice of adverse benefit
determination on review is required to be
provided to give the claimant a reasonable
opportunity to respond prior to that date.
Additionally, before the plan or issuer can
issue an adverse benefit determination on
review based on a new or additional ratio-
nale, the claimant must be provided, free
of charge, with the rationale. The ratio-
nale must be provided as soon as possible
and sufficiently in advance of the date on
which the notice of adverse benefit deter-
mination on review is required to be pro-
vided to give the claimant a reasonable op-
portunity to respond prior to that date.
Fourth, these interim final regulations
provide new criteria with respect to avoid-
ing conflicts of interest. The plan or issuer
must ensure that all claims and appeals are
adjudicated in a manner designed to ensure
the independence and impartiality of the
persons involved in making the decision.
Accordingly, decisions regarding hiring,
compensation, termination, promotion, or
other similar matters with respect to any
individual (such as aclaims adjudicator or
medical expert) must not be made based
upon the likelihood that the individual will
support a denial of benefits. For example,
a plan or issuer cannot provide bonuses
based on the number of denials made by a
claims adjudicator. Similarly, a plan or is-
suer cannot contract with a medical expert
based on the expert’s reputation for out-
comes in contested cases, rather than based
on the expert’s professional qualifications.
Fifth, these interim final regulations
provide new standards regarding notice
to enrollees. Specifically, the statute and
these interim final regulations require a
plan or issuer to provide notice to en-
rollees, in a culturally and linguistically
appropriate manner (standards for which
are described later in this preamble). Plans
and issuers must comply with the require-
mentsofparagraphs(g)and(j)oftheDOL
claims procedure regulation, which detail
requirements regarding the issuance of a
notice of adverse benefit determination.
8
Moreover, for purposes of these interim
final regulations, additional content re-
3
See the Department of Labor’s Frequently Asked Questions (FAQs) About the Benefit Claims Procedure Regulations, FAQ C–12, atwww.dol.gov/ebsa.
4
These regulations generally provide that a plan or issuer must not rescind coverage with respect to an individual once the individual is covered, except in the case of an act, practice, or
omission that constitutes fraud, or an intentional misrepresentation of material fact, as prohibited by the terms of the plan or coverage.
5
Under the DOL claims procedure regulation, a “claim involving urgent care” is a claim for medical careor treatment with respect to which the application of the time periods for making
non-urgent care determinations could seriously jeopardize the life or health of the claimant or the ability of the claimant to regain maximum function; or, in the opinion of a physician with
knowledge of the claimant’s medical condition, would subject the claimant to severe pain that cannot be adequately managed without the care or treatment that is the subject of the claim.
6
In the case of a failure to provide sufficient information, under the DOL claims procedure regulation the claimant must be notified as soon as possible, but not later than 24 hours after receipt
of the claim, of the specific information necessary to complete the claim. The claimant must be afforded a reasonable amount of time, taking into account the circumstances, but not less than
48 hours, to provide the specified information.
7
This language underscores and is not inconsistent with the scope of the disclosure requirement under the existing Department of Laborclaims procedure regulation. That is, the Department
of Labor interprets 29 USC 1133 and the DOL claims procedure regulation as already requiring that plans provide claimants with new or additional evidence or rationales upon request and
an opportunity to respond in certain circumstances.SeeBrief of amicus curiae Secretary of the United States Department of Labor,Midgett v. Washington Group International Long Term
Disability Plan, 561 F.3d 887 (8th Cir. 2009) (No.08–2523) (expressing disagreement with cases holding that there is no such requirement).
8
Paragraph (g) of the DOL claims procedure regulation requires that the notice must be written in a manner calculated to be understood by the claimant and generally must include any specific
reasons for the adverse determination, reference to the specific provisionon which the determination is based, a description of any additional informationrequiredtoperfecttheclaim,and
a description of the internal appeal process. Paragraph (i) of the DOL claimsprocedure regulation requires that the notice must also be provided in accordance with specified timeframes for
urgent care claims, pre-service claims, and post-service claims.
October 25, 20105042010–43 I.R.B.

quirements apply for these notices. A
plan or issuer must ensure that any notice
of adverse benefit determination or final
internal adverse benefit determination in-
cludes information sufficient to identify
the claim involved. This includes the date
of service, the health care provider, and
the claim amount (if applicable)
9
,aswell
as the diagnosis code (such as an ICD–9
code, ICD–10 code, or DSM-IV code)
10
,
the treatment code (such as a CPT code)
11
,
and the corresponding meanings of these
codes. A plan or issuer must also ensure
that the reason or reasons for the adverse
benefit determination or final internal
adverse benefit determination includes
the denial code (such as a CARC and
RARC)
12
and its corresponding mean-
ing. It must also include a description
of the plan’s or issuer’s standard, if any,
thatwasusedindenyingtheclaim(for
example, if a plan applies a medical ne-
cessity standard in denying a claim, the
notice must include a description of the
medical necessity standard). In the case
of a notice of final internal adverse ben-
efit determination, this description must
include a discussion of the decision. Ad-
ditionally, the plan or issuer must provide
a description of available internal appeals
and external review processes, including
information regarding how to initiate an
appeal. Finally, the plan or issuer must
disclose the availability of, and contact
information for, any applicable office of
health insurance consumer assistance or
ombudsman established under PHS Act
section 2793 to assist enrollees with the
internal claims and appeals and external
review processes. The Departments intend
to issue model notices that could be used
to satisfy all the notice requirements under
these interim final regulations in the very
near future. These notices will be made
available athttp://www.dol.gov/ebsaand
http://www.hhs.gov/ociio/.
Sixth, these interimfinal regulations
provide that, in the case of a plan or is-
suer that fails to strictly adhere to all the
requirements of the internal claims and ap-
peals process with respect to a claim, the
claimant is deemed to have exhausted the
internal claims and appeals process, re-
gardless of whether the plan or issuer as-
serts that it substantially complied with
these requirements or that any error it com-
mitted wasde minimis. Accordingly, upon
such a failure, the claimant may initiate an
external review and pursue any available
remedies under applicable law, such as ju-
dicial review.
In addition to the six new requirements,
the statute and these interim final regu-
lations require a plan and issuer to pro-
vide continued coverage pending the out-
come of an internal appeal. For this pur-
pose, the plan or issuer must comply with
the requirements of the DOL claims pro-
cedure regulation, which, as applied un-
der these interim final regulations, gener-
ally prohibits a plan or issuer from reduc-
ing or terminating an ongoing course of
treatment without providing advance no-
tice and an opportunity for advance re-
view. Additionally, individuals in urgent
care situations and individuals receiving
an ongoing course of treatment may be al-
lowed to proceed with expedited external
review at the same time as the internal ap-
peals process, under either a State exter-
nal review process or the Federal exter-
nal review process, in accordance with the
Uniform Health Carrier External Review
Model Act promulgated by the National
Association of Insurance Commissioners
(NAIC Uniform Model Act). The provi-
sion of the NAIC Uniform Model Act re-
quiring simultaneous internal appeals and
external review is discussed later in this
preamble.
2.Health insurance issuers offering
individual health insurance coverage
The statute requires the Secretary of
Health and Human Services to set forth
processes for internal claims and appeals
in the individual market. Under these
interim final regulations, the Secretary
of Health and Human Services has de-
termined that a health insurance issuer
offering individual health insurance cov-
erage must generally comply with all the
requirements for the internal claims and
appeals process that apply to group health
coverage.
13
The process and protections
of the group health coverage standards
are also pertinent to the individual health
insurance market. Furthermore, many is-
suers in the individual market also provide
coverage in the group market. To facilitate
compliance, it is preferable to have similar
processes in the group and individual mar-
kets. Accordingly, an individual health
insurance issuer is subject to the DOL
claims procedure regulation as if the issuer
were a group health plan. Moreover, an
individual health insurance issuer must
also comply with the additional standards
in these interim final regulations imposed
on group health insurance coverage.
To address certain relevant differences
in the group and individual markets, health
insurance issuers offering individual
health insurance coverage must comply
with three additional requirements. First,
these interim final regulations expand the
scope of the group health coverage inter-
nal claims and appeals process to cover
initial eligibility determinations for indi-
vidual health insurance coverage. This
protection is importantbecause eligibility
determinations in the individual market
are frequently based on the health status
of the applicant, including preexisting
conditions. With the prohibition against
preexisting condition exclusions taking
effect for policy years beginning on or
after September 23, 2010 for children un-
der 19 and for all others for policy years
beginning on or after January 1, 2014,
applicants in the individual market should
have the opportunity for a review of a de-
nial of eligibility of coverage to determine
whether the issuer is complying with the
new provisions in making the determina-
tion.
Second, although the DOL claims
procedure regulation permits plans to
have a second level of internal appeals,
these interim final regulations require that
9
The amount of the claim may not be knowable or available at the time, such as in a case of preauthorization, or there may be no specific claim, such as in a case of rescission.
10
ICD–9 and ICD–10 codes refer to the International Classification of Diseases, 9th revision and 10th revision, respectively. The DSM-IV codes refer to the Diagnostic and Statistical Manual
of Mental Disorders, Fourth Edition.
11
CPT refers to Current Procedural Terminology.
12
CARC refers to Claim Adjustment Reason Code and RARC refers to Remittance Advice Remark Code.
13
The special rules in the DOL claims procedure regulation applicable only to multiemployer plans (generally defined in section 3(37) of ERISA as plansmaintained pursuant to one or more
collective bargaining agreements for the employees of two or more employers)donotapplytohealthinsurance issuers in the individual market.
2010–43 I.R.B.505October 25, 2010

health insurance issuers offering individ-
ual health insurance coverage have only
one level of internal appeals. This allows
the claimant to seek either external review
or judicial review immediately after an
adverse benefit determination is upheld
in the first level of the internal appeals
process. There is no need for a second
level of an internal appeal in the individual
market since the issuer conducts all levels
of the internal appeal, unlike in the group
market, where a third party administrator
may conduct the first level of the internal
appeal and the employer may conduct a
second level of the internal appeal. Ac-
cordingly, after an issuer has reviewed an
adverse benefit determination once, the
claimant should be allowed to seek ex-
ternal review of the determination by an
outside entity.
Finally, these interim final regulations
require health insurance issuers offering
individual health insurance coverage to
maintain records of all claims and notices
associated with their internal claims and
appeals processes. The records must be
maintained for at least six years, which
is the same requirement for group health
plans under the ERISA recordkeeping re-
quirements. An issuer must make such
records available for examination upon
request. Accordingly, a claimant or State
or Federal agency official generally would
be able to request and receive such docu-
ments free of charge. Other Federal and
State law regarding disclosure of person-
ally identifiable health information may
apply, including the HIPAA privacy rule.
14
c.State standards for external review
The statute and these interim final regu-
lations provide that plans and issuers must
comply with either a State external re-
view process or the Federal external re-
view process. These interim final regula-
tions provide a basis for determining when
plans and issuers must comply with an ap-
plicable State external review process and
when they must comply with the Federal
external review process.
For health insurance coverage, if a
State external review process that applies
to and is binding on an issuer includes,
at a minimum, the consumer protections
in the NAIC Uniform Model Act in place
on July 23, 1010,
15
then the issuer must
comply with the applicable State external
review process and not with the Federal
external review process. In such a case,
to the extent that benefits under a group
health plan are provided through health in-
surance coverage, the issuer is required to
satisfy the obligation to provide an exter-
nal review process, so the plan itself is not
required to comply with either the State
external review process or the Federal
external review process. The Departments
encourage States to establish external re-
view processes that meet the minimum
consumer protections of the NAIC Uni-
form Model Act. The Departments prefer
having States take the lead role in regulat-
ing health insurance issuers, with Federal
enforcement only as a fallback measure.
These interim final regulations do not
preclude a State external review process
from applying to and being binding on a
self-insured group health plan under some
circumstances. Whilethe preemption pro-
visions of ERISA ordinarily would prevent
a State external review process from ap-
plying directly to an ERISA plan, ERISA
preemption does not prevent a State exter-
nal review process from applying to some
self-insured plans, such as nonfederal gov-
ernmental plans and church plans not cov-
ered by ERISA preemption, and multi-
ple employer welfare arrangements, which
can be subject to both ERISA and State
insurance laws. A State external review
process could apply to such plans if the
process includes, at a minimum, the con-
sumer protections in the NAIC Uniform
Model Act.
Under these interim final regulations,
any plan or issuer not subject to a State
external review process must comply
with the Federal external review process.
(However, to the extent a plan provides
health insurance coverage that is subject to
an applicable State external review process
that provides the minimum consumer pro-
tections in the NAIC Uniform Model Act,
the plan does not have to comply with
the Federal external review process.) A
plan or issuer is subject to the Federal
external review process where the State
external review process does not meet, at
a minimum, the consumer protections in
the NAIC Uniform Model Act, as well as
where there is no applicable State external
review process.
For a State external review process
to apply instead of the Federal external
review process, the Affordable Care Act
provides that the State external review
process must include, at a minimum,
the consumer protections of the NAIC
Uniform Model Act. Accordingly, the
Departments have determined that the fol-
lowing elements from the NAIC Uniform
Model Act are the minimum consumer
protections that must be included for a
State external review process to apply.
The State process must:
•Provide for the external review of ad-
verse benefit determinations (and fi-
nal internal adverse benefit determina-
tions) that are based on medical neces-
sity, appropriateness, health care set-
ting, level of care, or effectiveness of
a covered benefit.
•Require issuers to provide effective
written notice to claimants of their
rights in connection with an external
review for an adverse benefit determi-
nation.
•To the extent the State process requires
exhaustion of an internal claims and
appeals process, make exhaustion un-
necessary if: the issuer has waived the
exhaustion requirement, the claimant
has exhausted (or is considered to have
exhausted) the internal claims and ap-
peals process under applicable law, or
the claimant has applied for expedited
external review at the same time as ap-
plying for an expedited internal appeal.
•Provide that the issuer against which
a request for external review is filed
must pay the cost of an independent re-
view organization (IRO) for conduct-
ing the external review. While having
the issuer pay the cost of the IRO’s re-
view is reflected in the NAIC Uniform
Model Act, if the State pays this cost,
the Departments would treat the State
process as meeting this requirement;
this alternative is just as protective to
the consumer because the cost of the
14
See 45 CFR §164.500et seq.
15
These interim final regulations specify that the relevant NAIC Uniform Model Act is the version in place on the date these interim final regulations are published. If the NAIC Uniform
Model Act is later modified, the Departments will review the changes and determine to what extent any additional requirements will be incorporated into the minimum standards for State
external review processes by amending these regulations. This version of the NAIC Uniform Model Act is available athttp://www.dol.gov/ebsaandhttp://www.hhs.gov/ociio/.
October 25, 20105062010–43 I.R.B.

review is not imposed on the consumer.
Notwithstanding this requirement that
the issuer (or State) must pay the cost
of the IRO’s review, the State process
mayrequireanominalfilingfeefrom
the claimant requesting an external re-
view. For this purpose, to be consid-
ered nominal, a filing fee must not ex-
ceed $25, it must be refunded to the
claimant if the adverse benefit deter-
mination is reversed through external
review, it must be waived if payment
of the fee would impose an undue fi-
nancial hardship, and the annual limit
on filing fees for any claimant within a
single year must not exceed $75.
•Not impose a restriction on the mini-
mum dollar amount of a claim for it to
be eligible for external review (for ex-
ample, a $500 minimum claims thresh-
old).
•Allow at least four months after the
receipt of a notice of an adverse benefit
determination or final internal adverse
benefit determination for a request for
an external review to be filed.
•Provide that an IRO will be assigned
on a random basis or another method
of assignment that assures the indepen-
dence and impartiality of the assign-
ment process (for example, rotational
assignment) by a State or independent
entity, and in no event selected by the
issuer, plan, or individual.
•Provide for maintenance of a list of
approved IROs qualified to conduct
the review based on the nature of the
health care service that is the subject
of the review. The State process must
provide for approval only of IROs that
are accredited by a nationally recog-
nized private accrediting organization.
•Provide that any approved IRO has no
conflicts of interest that will influence
its independence.
•Allow the claimant to submit to the
IRO in writing additional information
that the IRO must consider when con-
ducting the external review and require
that the claimant is notified of such
righttodoso. Theprocessmustalso
require that any additional information
submitted by the claimant to the IRO
must be forwarded to the issuer within
one business day of receipt by the IRO.
•Provide that the decision is binding
on the plan or issuer, as well as the
claimant, except to the extent that other
remedies are available under State or
Federal law.
•Provide that, for standard external re-
view, within no more than 45 days af-
ter the receipt of the request for exter-
nal review by the IRO, the IRO must
provide written notice to the issuer and
the claimant of its decision to uphold
or reverse the adverse benefit determi-
nation.
•Provide for an expedited external re-
view in certain circumstances and, in
such cases, the State process must pro-
vide notice of the decision as expedi-
tiously as possible, but not later than 72
hours after the receipt of the request.
•Require that issuers include a descrip-
tion of the external review process in
the summary plan description, policy,
certificate, membership booklet, out-
line of coverage, or other evidence of
coverage it provides to claimants, sub-
stantially similar to what is set forth
insection17oftheNAICUniform
Model Act.
•Require that IROs maintain written
records and make them available upon
request to the State, substantially sim-
ilar to what is set forth in section 15 of
the NAIC Uniform Model Act.
•Follow procedures for external re-
view of adverse benefit determinations
involving experimental or investiga-
tional treatment, substantially similar
to what is set forth in section 10 of the
NAIC Uniform Model Act.
The Departments invite comments on this
list of minimum consumer protections and
whether other elements of the NAIC Uni-
form Model Act should be included in the
list.
The Department of Health and Human
Services will determine whether a State
external review process meets these re-
quirements (and thus whether issuers (and,
if applicable, plans) subject to the State ex-
ternal review process must comply with
the State external review process rather
than the Federal external review process).
A transition period will be provided, how-
ever, during which existing State external
review processes may be treated as satis-
fying these requirements.
Under PHS Act section 2719, if a State
external review process does not provide
the minimum consumer protections of the
NAIC Uniform Model Act, health insur-
ance issuers in the State must implement
the Federal external review process. The
Departments’ initial review of existing
State external review processes indicates
that not all State external review processes
provide the minimum consumer protec-
tions of the NAIC Uniform Model Act.
Under PHS Act section 2719(c), the De-
partments are provided with discretion
to consider an external review process
in place on the date of enactment of the
Affordable Care Act to be in compli-
ance with the external review requirement
under section 2719(b) “as determined ap-
propriate.” In order to allow States time
to amend their laws to meet or go beyond
the minimum consumer protections of the
NAIC Uniform Model Act set forth in
these interim final regulations, the Depart-
ments are using their authority under PHS
Act section 2719(c) to treat existing State
external review processes as meeting the
minimum standards during a transition
period for plan years (in the individual
market, policy years) beginning before
July 1, 2011.
Thus, for plan or policy years begin-
ning before July 1, 2011, a health insur-
ance issuer subject to an existing State ex-
ternal review process must comply with
that State external review process and not
the Federal external review process. The
applicable external review process for plan
or policy years beginning on or after July 1,
2011 depends on the type of coverage and
whether the State external review process
has been determined by the Department of
Health and Human Services to satisfy the
minimum standards of the NAIC Uniform
Model Act.
The applicable external review process
for any particular claim is based on the
external review process applicable to the
plan or issuer at the time a final internal
adverse benefit determination (or, in the
case of simultaneous internal appeals and
external review, the adverse benefit deter-
mination) is provided. For this purpose,
the final internal adverse benefit determi-
nation includes a deemed final internal ad-
verse benefit determination in which the
internal claims and appeals process is ex-
hausted because of the failure by the plan
or issuer to comply with the requirements
of the internal claims and appeals process.
Thus, for an issuer with a calendar year
plan year in a State in which the State
external review process fails to meet the
2010–43 I.R.B.507October 25, 2010

minimum standards, external review of fi-
nal internal adverse benefit determinations
provided prior to the first day of the first
calendar year on or after July 1, 2011 (that
is, January 1, 2012) must comply with the
State external review process, while exter-
nal reviews of final internal adverse bene-
fit determinations provided on or after Jan-
uary 1, 2012 must meet the alternative Fed-
eral external review requirements.
An additional provision of the NAIC
Uniform Model Act not addressed in the
interim final regulations is the required
scope of an applicable State external re-
view process. The NAIC Uniform Model
Act applies to all issuers in a State. The
Departments’ initial review of existing
State external review processes indicates
that some States do not apply the State
external review process to all issuers in
the State. For example, some State exter-
nal review processes only apply to HMOs
and do not apply to other types of health
coverage. The Departments believe that
State external review processes are more
effective, and thus more protective, where
the external review process is market-wide
and available to all claimants with insured
coverage. As States with external review
processes decide whether to enact legis-
lation amending their laws to provide the
consumer protections that would satisfy
the requirements of these interim final
regulations, the Departments encourage
States to establish external review pro-
cesses that are available for all insured
health coverage. This is consistent with
the Departments general approach of hav-
ing States take a lead role in providing
consumer protections, with Federal en-
forcement only as a fallback measure.
That said, these interim final regula-
tions do not set a specific standard for
availability of the State external review
process that is considered to meet the min-
imum consumer protections of the NAIC
Uniform Model Act. If it is determined
that market-wide application of the State
external review process is required, plans
and issuers would be subject to the Federal
external review process in States that do
not apply the State external review process
to all issuers in the State. Alternatively,
if it is determined that universal availabil-
ity is not required, those plans and issuers
that are not subject to the State external re-
view process would be, as are self-insured
plans, subject to the Federal external re-
view process. The Departments seek com-
ments whether the Federal external review
process should apply to all plans and is-
suers in a State if the State external review
process does not apply to all issuers in the
State. After reviewing the comments, the
Departments expect to issue future guid-
ance addressing the issue.
d.Federal external review process
PHS Act section 2719(b)(2) requires
the Departments to establish standards,
“through guidance,”governing an external
review process that is similar to the State
external appeals process that meets the
standards in these regulations. These in-
terim final regulations set forth the scope
of claims eligible for review under the Fed-
eral external review process. Specifically,
under the Federal external review process,
the terms “adverse benefit determination”
and “final internal adverse benefit deter-
mination” are defined the same as they
are for purposes of internal claims and
appeals (and, thus, include rescissions of
coverage). However, an adverse benefit
determination or final internal adverse
benefit determination that relates to a par-
ticipant’s or beneficiary’s failure to meet
the requirements for eligibility under the
terms of a group health plan (i.e., worker
classification and similar issues) is not
within the scope of the Federal external
review process.
These interim final regulations set
forth the standards that would apply to
claimants, plans, and issuers under this
Federal external review process, and the
substantive standards that would be ap-
plied under this process. They also reflect
the statutory requirement that the process
established through guidance from the
Departments be similar to a State exter-
nal review process that complies with the
standards in these regulations. They also
provide that the Federal external review
process, like the State external review
process, will provide for expedited ex-
ternal review and additional consumer
protections with respect to external review
for claims involving experimental or in-
vestigational treatment. The Departments
will address in sub-regulatory guidance
how non-grandfathered self-insured group
health plans that currently maintain an in-
ternal appeals process that otherwise meets
the Federal external review standards may
comply or be brought into compliance
with the requirements of the new Federal
external review process.
e.Culturally and linguistically
appropriate
The statute and these interim final reg-
ulations require that notices of available
internal claims and appeals and exter-
nal review processes be provided in a
culturally and linguistically appropriate
manner. Plans and issuers are considered
to provide relevant notices in a cultur-
ally and linguistically appropriate manner
if notices are provided in a non-English
language as described these interim final
regulations.
16
Under these interim final
regulations, the requirement to provide
notices in a non-English language is based
on thresholds of the number of people
who are literate in the same non-English
language. In the group market, the thresh-
old differs depending on the number of
participants in the plan. For a plan that
covers fewer than 100 participants at the
beginning of a plan year, the threshold
is 25 percent of all plan participants be-
ing literate only in the same non-English
language. For a plan that covers 100 or
more participants at the beginning of a
plan year, the threshold is the lesser of
500 participants, or 10 percent of all plan
participants, being literate only in the
same non-English language. The thresh-
olds are adapted from the Department of
Labor’s regulations regarding style and
format for a summary plan description, at
29 CFR 2520.102–2(c). In the individual
market, the threshold is 10 percent of the
population residing in the county being
literate only in the same non-English lan-
guage.
17
The Department of Health and
16
For internal claims involving urgent care (for which the claim is generally made by a health care provider), where paragraph (g) of the DOL claims procedure regulation permits an initial
oral notice of determination must be made within 24 hours and follow-up in written or electronic notification within 3 days of the oral notification, it may not be reasonable, practicable, or
appropriate to provide notice in a non-English language within 24 hours. Insuch situations, the requirement to provide notice in a culturally and linguistically appropriate manner is satisfied
if the initial notice is provided in English and the follow-upnotice is provided in the appropriate non-English language.
17
The county-by-county approach is generally adapted from the approach used under the Medicare Advantage program.
October 25, 20105082010–43 I.R.B.

Human Services will publish guidance
that issuers may consult to establish these
county level estimates on its website at
http://www.hhs.gov/ociio/by September
23, 2010. The Department of Health and
Human Services welcomes comments on
whether the threshold should remain 10
percent and whether it should continue to
be applied on a county-by-county basis.
If an applicable threshold is met, notice
must be provided upon request in the non-
English language with respect to which the
threshold is met. In addition, the plan
or issuer must also include a statement in
the English versions of all notices, promi-
nently displayed in the non-English lan-
guage, offering the provision of such no-
tices in the non-English language. Once
a request has been made by a claimant,
the plan or issuer must provide all subse-
quent notices to a claimant in the non-Eng-
lish language. In addition, to the extent the
plan or issuer maintains a customer assis-
tance process (such as a telephone hotline)
that answers questions or provides assis-
tance with filing claims and appeals, the
plan or issuer must provide such assistance
in the non-English language.
f.Secretarial authority
The statute provides the Departments
with the authority to deem an external re-
view process of a group health plan or
health insurance issuer, in operation as of
March 23, 2010, to be in compliance with
PHS Act section 2719. These interim final
regulations provide the Departments may
determine that the external review process
ofaplanorissuer,inoperationasofMarch
23, 2010, is considered in compliance with
a State external review process or the Fed-
eral external review process, as applicable.
g.Applicability date
The requirements to implement effec-
tive internal and external claims and ap-
peals processes apply for plan years (in
the individual market, policy years) be-
ginning on or after September 23, 2010.
The statute and these interim final regula-
tions do not apply to grandfathered health
plans.See26 CFR 54.9815–1251T, 29
CFR 2590.715–1251, and 45 CFR 147.140
(75 FR 34538, June 17, 2010).
III. Interim Final Regulations and
Request for Comments
Section 9833 of the Code, section 734
ofERISA,andsection2792ofthePHS
Act authorize the Secretaries of the Trea-
sury, Labor, and HHS (collectively, the
Secretaries) to promulgate any interim fi-
nal rules that they determine are appropri-
ate to carry out the provisions of chapter
100 of the Code, part 7 of subtitle B of ti-
tle I of ERISA, and part A of title XXVII of
the PHS Act, which include PHS Act sec-
tions 2701 through 2728 and the incorpo-
ration of those sections into ERISA section
715 and Code section 9815.
In addition, under Section 553(b) of
the Administrative Procedure Act (APA)
(5 U.S.C. 551et seq.) a general notice
of proposed rulemaking is not required
when an agency, for good cause, finds
that notice and public comment thereon are
impracticable, unnecessary, or contrary to
the public interest. The provisions of the
APA that ordinarily require a notice of pro-
posed rulemaking do not apply here be-
cause of the specific authority granted by
section 9833 of the Code, section 734 of
ERISA, and section 2792 of the PHS Act.
However, even if the APA were applica-
ble, the Secretaries have determined that it
would be impracticable and contrary to the
public interest to delay putting the provi-
sions in these interim final regulations in
place until a full public notice and com-
ment process was completed. As noted
above, the internal claims and appeals and
external review provisions of the Afford-
able Care Act are applicable for plan years
(in the individual market, policy years) be-
ginning on or after September 23, 2010,
six months after date of enactment. Had
the Departments published a notice of pro-
posed rulemaking, provided for a 60-day
comment period, and only then prepared
final regulations, which would be subject
to a 60-day delay in effective date, it is
unlikely that it would have been possi-
ble to have final regulations in effect be-
fore late September, when these require-
ments could be in effect for some plans
or policies. Moreover, the requirements
in these interim final regulations require
significant lead time in order to imple-
ment. These interim final regulations re-
quire plans and issuers to provide inter-
nal claims and appeals and external re-
view processes and to notify participants,
beneficiaries, and enrollees of their rights
to such processes. Plans and issuers will
presumably need to amend current inter-
nal claims and appeals procedures, adopt
new external review processes, and notify
participants, beneficiaries, and enrollees
of these changes before they go into ef-
fect. Moreover, group health plans and
health insurance issuers subject to these
provisions will have to take these changes
into account in establishing their premi-
ums, and in making other changes to the
designs of plan or policy benefits. In some
cases, issuers will need time to secure ap-
proval for these changes in advance of the
plan or policy year in question.
Accordingly, in order to allow plans and
health insurance coverage to be designed
and implemented on a timely basis, regu-
lations must be published and available to
the public well in advance of the effective
date of the requirements of the Affordable
Care Act. It is not possible to have a full
notice and comment process and to publish
final regulations in the brief time between
enactment of the Affordable Care Act and
the date regulations are needed.
The Secretaries further find that is-
suance of proposed regulations would not
be sufficient because the provisions of the
Affordable Care Act protect significant
rights of plan participants and beneficia-
ries and individuals covered by individual
health insurance policies and it is essential
that participants, beneficiaries, insureds,
plan sponsors, and issuers have certainty
about their rights and responsibilities.
Proposed regulations are not binding and
cannot provide the necessary certainty.
By contrast, the interim final regulations
provide the public with an opportunity for
comment, but without delaying the effec-
tive date of the regulations.
For the foregoing reasons, the Depart-
ments have determined that it is imprac-
ticable and contrary to the public interest
to engage in full notice and comment rule-
making before putting these interim final
regulations into effect, and that it is in the
public interest to promulgate interim final
regulations.
2010–43 I.R.B.509October 25, 2010

IV. Economic Impact and Paperwork
Burden
A.Summary—Department of Labor
and Department of Health and Human
Services
As stated earlier in this preamble, these
interim final regulations implement PHS
Act section 2719, which sets forth rules
with respect to internal claims and appeals
and external appeals processes for group
health plans and health insurance issuers
that are not grandfathered health plans.
18
This provision generally is effective for
plan years (in the individual market, policy
years) beginning on or after September 23,
2010, which is six months after the March
23, 2010 date of enactment of the Afford-
able Care Act.
The Departments have crafted these in-
terim final regulations to secure the pro-
tections intended by Congress in the most
economically efficient manner possible. In
accordance with OMB Circular A–4, the
Departments have quantified the benefits
and costs where possible and provided a
qualitative discussion of some of the ben-
efits and costs that may stem from these
interim final regulations.
B.Executive Order 12866—Department
of Labor and Department of Health and
Human Services
Under Executive Order 12866 (58 FR
51735), “significant” regulatory actions
are subject to review by the Office of
Management and Budget (OMB). Section
3(f) of the Executive Order defines a “sig-
nificant regulatory action” as an action
that is likely to result in a rule (1) having
an annual effect on the economy of $100
millionormoreinanyoneyear,orad-
versely and materially affecting a sector
of the economy, productivity, competi-
tion, jobs, the environment, public health
or safety, or State, local or tribal govern-
ments or communities (also referred to as
“economically significant”); (2) creating
a serious inconsistency or otherwise inter-
fering with an action taken or planned by
another agency; (3) materially altering the
budgetary impacts of entitlement grants,
user fees, or loan programs or the rights
and obligations of recipients thereof; or
(4) raising novel legal or policy issues
arising out of legal mandates, the Presi-
dent’s priorities, or the principles set forth
in the Executive Order. OMB has deter-
mined that this rule is significant within
the meaning of section 3(f)(1) of the Ex-
ecutive Order, because it is likely to have
an effect on the economy of $100 million
in any one year. Accordingly, OMB has
reviewed these rules pursuant to the Exec-
utive Order. The Departments provide an
assessment of the potential costs and ben-
efits of each regulatoryprovision below,
summarized in table 1.
TABLE. 1—Accounting Table
Benefits
Qualitative: A more uniform, rigorous, and consumer friendly system of claims and appeals processing will provide a broad
range of direct and indirect benefits thatwill accrue to varying degrees to all of theaffected parties. These interim final
regulations could improve the extent to which employee benefit plans provide benefits consistent with the established terms of
individual plans. While paymentof these benefits will largely constitute transfers, the transfers will be welfare improving,
because incorrectly denied benefits will bepaid. Greater certainty and consistency inthe handling of benefit claims and appeals
and improved access to information about the manner in which claims and appeals are adjudicated should lead to efficiency
gains in the system, both in terms of the allocation of spending across plans and enrollees as well as operational efficiencies
among individual plans. This certainty and consistency can also be expected to benefit, to varying degrees, all parties within
the system, particularly consumers, and to lead to broader social welfare gains.
CostsEstimateYear Dollar
Discount
Rate
Period
Covered
51.2
20107%2011–2013
Annualized Monetized ($millions/year)
51.6
20103%2011–2013
Qualitative: The Departments have quantified the primary sourceof costs associated with these interim final regulations that
will be incurred to (i) administer and conduct the internal and external review process, (ii) prepare and distribute required
disclosures and notices, and (iii) bring plan and issuers’ internal and external claims and appeals procedures into compliance
with the new requirements. The Departments also have quantified the start-up costs for issuers in the individual market to
bring themselves into compliance.
18
The Affordable Care Act adds Section 715 to the Employee Retirement Income Security Act (ERISA) and section 9815 to the Internal Revenue Code (the Code) to make the provisions of
part A of title XXVII of the PHS Act applicable to group health plans, and health insurance issuers providing health insurance coverage in connection with group health plans, under ERISA
and the Code as if those provisions of the PHS Act were included in ERISA and the Code.
October 25, 20105102010–43 I.R.B.

Reversals
24.420107%2011–2013
Annualized Monetized ($millions/year)
24.720103%2011–2013
Qualitative: The Departments estimated the dollar amount of claim denials reversed in the external review process. While this
amount is a cost to plans, it represents a payment of benefits that should have previously been paid to participants, but was
denied. Part of this amount is a transferfrom plans and issuers to those now receiving payment for denied benefits. These
transfers will improve equity, because incorrectly denied benefits will be paid. Part of the amount could also be a cost if the
reversal leads to services and hence resources being utilized now that had been denied previously. The Departments are not
able to distinguish between the two types, but believethat most reversals are associated with a transfer.
1.Need for Reg
ulatory Action
Before the ena
ctment of the Affordable
Care Act, hea
lth plan sponsors and issuers
were not unif
ormlyrequiredtoimplement
claims and ap
peals processes. For ex-
ample, ERISA
-covered group health plan
sponsors wer
e required to implement inter-
nal claims a
nd appeal processes that com-
plied with t
he DOL claims procedure reg-
ulation,
19
while group health plans that
were not cov
ered by ERISA, such as plans
sponsored
by State and local governments
were not. H
ealth insurance issuers offering
coverage i
n the individual insurance mar-
ket were re
quired to comply with various
applicab
le State internal appeals laws but
were not r
equiredtocomplywiththeDOL
claims pr
ocedure regulation.
With resp
ect to external appeal pro-
cesses, b
efore the enactment of the Af-
fordable
Care Act, sponsors of fully-in-
sured ERI
SA-covered group health plans,
fully-i
nsured State and local governmental
plans, a
nd fully-insured church plans were
require
d to comply with State external re-
view law
s, while self-insured ERISA-cov-
ered gro
up health plans were not subject
to such l
aws due to ERISA preemption.
20
In the i
ndividual health insurance market,
issuer
s in States with external review laws
were re
quired to comply with such laws.
Howeve
r, uniform external review stan-
dards d
id not apply, because State external
revie
w laws vary from State-to-State.
Moreo
ver, at least six States did not have
exter
nal review laws when the Affordable
Care A
ct was enacted; therefore, issuers
in tho
se States were not required to imple-
ment
an external review process.
Under this reg
ulatory system, inconsis-
tent claims an
d appeals processes applied
to plan spons
ors and issuers and a patch-
work of consu
mer protections were pro-
videdtopart
icipants, beneficiaries, and en-
rollees. The
applicable processes and pro-
tections de
pended on several factors in-
cluding whe
ther (i) plans were subject to
ERISA, (ii)
benefits were self-funded or
financed by
the purchase of an insurance
policy, (i
ii) issuers were subject to State
internal c
laims and appeals laws, and (iv)
issuers we
re subject to State external re-
view laws,
and if so, the scope of such
laws (such
as, whether the laws only ap-
ply to one
segment of the health insurance
market,e
.g., managed care or HMO cov-
erage). T
hese uneven protections created
an appear
ance of unfairness, increased cost
for issue
rs and plans operating in multi-
ple Stat
es, and may have led to confusion
among co
nsumers about their rights.
Congres
s enacted new PHS Act section
2719 to e
nsure that plans and issuers im-
plement
ed more uniform internal and ex-
ternal c
laims and appeals processes and to
set a mi
nimum standard of consumer pro-
tectio
ns that are available to participants,
benefi
ciaries, and enrollees. These interim
final r
egulations are necessary to provide
rules t
hat plan sponsors and issuers can use
to imp
lement effective internal and exter-
nal cl
aims and appeals processes that meet
the re
quirements of new PHS Act section
2719.
2.PHS Act Sect
ion 2719 — Claims and
Appeals Proce
ss (26 CFR 54.9815–2719T,
29 CFR 2590.7
15–2719, 45 CFR 147.136)
a.
Summary
As discussed
earlier in this preamble,
section 1001
of the Affordable Care Act
adds new PHS A
ct section 2719, which re-
quires all no
n-grandfathered group health
plans and he
alth insurance issuers offer-
ing group or
individual health coverage
to implemen
t uniform internal claims and
appeals and
external appeals processes.
Under PHS A
ct section 2719 and these
interim fi
nal regulations, all sponsors of
non-grand
fathered group health plans and
health ins
urance issuers offering group or
individu
al health insurance coverage must
comply wi
th all requirements of the DOL
claims pr
ocedures regulation
21
as well as
the new st
andards that are established by
the Secre
tary of Labor and the Secretary
of Healt
h and Human Services in para-
graphs (
b)(2) and (b)(3) of these interim
final re
gulations.
On the ex
ternal appeals side, all group
health p
lans or health insurance issuers of-
fering g
roup or individual health insurance
coverag
e that are not grandfathered must
comply
with an applicable State external
review
process that, at a minimum, in-
cludes
the consumer protections set forth
in the U
niform Heath Carrier External Re-
view Mo
del Act promulgated by the Na-
tiona
l Association of Insurance Commis-
sione
rs (the “NAIC Uniform Model Act”)
and is
binding on the plan or issuer. If the
State
has not established an external re-
view p
rocess that meets the requirements
19
29 CFR 2560.503–1.
20
To the extent that the ERISA preemption provisions do not prevent a State external review process from applying to a self-insured plan (for example, for self-insured nonfederal governmental
plans, self-insured church plans, and self-insured multiple employer welfare arrangements) the State could make its external review process applicable to them. The Departments are unaware
of the number of these plans that are subject to State external review laws.
21
Please note that under these interim final regulations, the individual health insurance market is not required to comply with the requirements of theDepartment of Labor’s claims and appeals
procedure regulation that apply to multiemployer plans.
2010–43 I.R.B.511October 25, 2010

of the NAIC Uniform Model Act or a plan
is not subject to State insurance regula-
tion, (including a State law that establishes
an external review process) because it is a
self-insured plan, the plan or issuer must
comply with the requirements of a Federal
external review process set forth in para-
graph (d) of these interim final regulations.
b.Estimated Number of Affected Entities
For purposes of the new requirements
in the Affordable Care Act that apply to
group health plans and health insurance
issuers in the group and individual mar-
kets, the Departments have defined a large
group health plan as an employer plan with
100 or more workers and a small group
plan as an employer plan with fewer than
100 workers. The Departments make the
following estimates about plans and is-
suers affected by these interim final regu-
lations: (1) there are approximately 72,000
large and 2.8 million small ERISA-cov-
ered group health plans with an estimated
97.0 million participants in large group
plans and 40.9 million participants in small
group plans;
22
(2) there are 126,000 gov-
ernmental plans with 36.1 million partici-
pants in large plans and 2.3 million partic-
ipants in small plans;
23
and (3) there are
16.7 million individuals under age 65 cov-
ered by individual health insurance poli-
cies.
24
As described in the Departments’ in-
terim final regulations relating to status as
a grandfathered health plan,
25
the Afford-
able Care Act preserves the ability of in-
dividuals to retain coverage under a group
health plan or health insurance coverage
in which the individual was enrolled on
March 23, 2010 (a grandfathered health
plan). Group health plans and individual
health insurance coverage that are grand-
fathered health plans do not have to meet
the requirements of these interim final reg-
ulations. Therefore, only plans and issuers
offering group and individual health insur-
ance coverage that are not grandfathered
health plans will be affected by these in-
terim final regulations.
Plans can choose to make certain dis-
qualifying changes and relinquish their
grandfather status.
26
The Affordable Care
Act provides plans with the ability to
maintain grandfathered status in order
to promote stability for consumers while
allowing plans and sponsors to make rea-
sonable adjustments to lower costs and
encourage the efficient use of services.
Basedonananalysisofthechangesplans
have made over the past few years, the
Departments expect that more plans will
choose to make these changes over time
and therefore the number of grandfathered
health plans is expected to decrease. Cor-
respondingly, the number of plans and
policies affected by these interim final
regulations is likely to increase over time.
In addition, the number of individuals re-
ceiving the full benefits of the Affordable
Care Act is likely to increase over time.
The Departments estimate that 18 percent
of large employer plans and 30 percent
of small employer plans would relinquish
grandfather status in 2011, increasing
over time to 45 percent and 66 percent
respectively by 2013, although there is
substantial uncertainty surrounding these
estimates.
27
The Departments also es-
timate that in 2011, roughly 31 million
people will be enrolled in group health
plans subject to PHS Act section 2719 and
these interim final regulations, growing to
approximately 78 million in 2013.
28
In the individual market, one study esti-
mated that 40 percent to 67 percent of indi-
vidual policies terminate each year.
29
Be-
cause newly purchased individual policies
are not grandfathered, the Departments ex-
pect that a large proportion of individual
policies will not be grandfathered, cover-
ing up to and perhaps exceeding 10 million
individuals.
Not all potentially affected individuals
will be affected equally by these interim
final regulations. As stated in the Need for
Regulatory Action section above, spon-
sors of ERISA-covered group health plans
were required to implement an internal
appeals process that complied with the
DOL claims procedure regulation before
the Affordable Care Act’s enactment,
and the Departments also understand that
many non-Federal governmental plans and
church plans that are not subject to ERISA
nonetheless implement internal claims
and appeals processes that comply with
the DOL claims procedure regulation.
30
Therefore, participants and beneficiaries
covered by such plans only will be af-
fected by the new internal claims and
appeals standards that are provided by the
Secretary of Labor inparagraph (b)(2)(ii)
of these interim final regulations.
These interim final regulations will
have the largest impact on individuals
covered in the individual health insurance
market, because as discussed earlier in this
preamble, for the first time, these issuers
willberequiredtocomplywiththeDOL
claims procedure regulation for internal
claims and appeals as well as the addi-
tional standards added by the Secretary
22
All participant counts and the estimates of individual policies are from theU.S. Department of Labor, EBSA calculations using the March 2009 CurrentPopulation Survey Annual Social
and Economic Supplement and the 2008 Medical Expenditure Panel Survey.
23
Estimate is from the 2007 Census of Government.
24
US Census Bureau, Current Population Survey, March 2009.
25
75 FR 34538 (June 17, 2010).
26
See 75 FR 34538 (June 17, 2010).
27
See 75 Fed. Reg. 34538 (June 17, 2010) for a detailed description of the derivation of the estimates for the percentages of grandfathered health plans.In brief, the Departments used
data from the 2008 and 2009 Kaiser Family Foundations/Health Research and Educational Trust survey of employers to estimate the proportion of plans that made changes in cost-sharing
requirements that would have caused them to relinquish grandfather status if those same changes were made in 2011, and then applied a set of assumptions about how employer behavior
might change in response to the incentives createdby the grandfather regulations to estimate the proportion of plans likely to relinquish grandfather status. The estimates of changes in 2012
and2013werecalculatedbyusingthe2011calculationsandassumingthatanidentical percentage of plan sponsors will relinquish grandfather statusineachyear.
28
To estimate the number of individuals covered in grandfathered health plans, the Departments extended the analysis described in 75 Fed. Reg. 34538, and estimated a weighted average
of the number of employees in grandfathered health plans in the large employer and small employer markets separately, weighting by the number of employees in each employer’s plan.
Estimates for the large employer and small employer markets were then combined, using the estimates supplied above that there are 133.1 million covered lives in the large group market, and
43.2 million in the small group market.
29
Adele M. Kirk. The Individual Insurance Market: A Building Block for Health Care Reform?Health Care Financing Organization Research Synthesis. May 2008.
30
This understanding is based on the Departments’ conversations with industry experts. In addition, the Departments understand that ERISA-covered plans, State and local government plans,
and non-ERISA covered church plans generally use the same insurance issuers and service providers who apply the ERISA claims and appeals requirements to all types of plans.
October 25, 20105122010–43 I.R.B.

of the Department of Health and Human
Services in paragraph (b)(3) of these in-
terim final regulations that are in some
cases more protective than the ERISA
standard.
31
On the external appeals side, before
theenactmentoftheAffordableCareAct,
issuers offering coverage in the group
and individual health insurance market al-
readywererequiredtocomplywithState
external review laws. At that time, all
States except Alabama, Mississippi, Ne-
braska, North Dakota, South Dakota, and
Wyoming had external review laws, and
thirteen States had external review laws
that apply only to certain market segments
(for example, managed care or HMOs).
Therefore, the extent to which enrollees
coveredbypoliciesissuedbytheseissuers
will be affected by these interim final
regulations depends on whether the appli-
cable State external review law complies
with the minimum consumer protections
set forth in the NAIC Uniform Model Act,
because if it does not, the policies will
become subject to the Federal external
review process that applies to self-insured
plans that are not subject to State regu-
lation
32
and plans and policies in States
that do not have external review laws that
meet the minimum consumer protections
set forth in the NAIC Uniform Model Act.
Individuals participating in ERISA-
covered self-insured group health plans
will be among those most affected by the
external review requirements contained in
these interim final regulations, because the
preemption provisions of ERISA prevent
a State’s external review process from
applying directly to an ERISA-covered
self-insured plan.
33
These plans now will
be required to comply with the Federal
external review process set forth under
paragraph (d) of these interim final regu-
lations.
In summary, the number of affected in-
dividuals depends on several factors, in-
cluding whether (i) a health plan retains
its grandfather status, (ii) the plan is sub-
ject to ERISA, (iii) benefits provided un-
der the plan are self-funded or financed by
the purchase of an insurance policy, (iii)
the applicable State has enacted an internal
claims and appeals law, and (iv) the appli-
cable State has enactedan external review
law,andifsothescopeofsuchlaw,and
(v) the number of new plans and enrollees
in such plans.
c.Benefits
In developing these interim final reg-
ulations, the Departments closely consid-
ered their potential economic effects, in-
cluding both costs and benefits. Because
of data limitations and a lack of effective
measures, the Departments did not attempt
to quantify expected benefits. Nonethe-
less, the Departments were able to identify
with confidence several of the interim final
regulation’s major economic benefits.
These interim final regulations will
help transform the current, highly variable
health claims and appeals process into a
more uniform and structured process. As
stated in the Need for Regulatory Action
above, before the enactment of the Af-
fordable Care Act, inconsistent internal
and external claims and appeals standards
appliedtoplansponsorsandissuers,anda
patchwork of consumer protections were
provided to participants, beneficiaries, and
enrollees that depended on several factors
including whether (i) plans were subject
to ERISA, (ii) benefits were self-funded
or financed by the purchase of an insur-
ance policy, (iii) issuers were subject to
State internal claims and appeals laws, and
(iv) issuers were subject to State external
review laws, and if so, the scope of such
laws (such as, whether the laws only apply
to one segment of the health insurance
market,e.g., managed care or HMO cov-
erage).
A more uniform, rigorous, and con-
sumer friendly system of claims and
appeals processing will provide a broad
range of direct and indirect benefits that
will accrue to varying degrees to all of
the affected parties. In general, the De-
partments expect that these interim final
regulations will improve the extent to
which employee benefit plans provide
benefits consistent with the established
terms of individual plans. This will cause
some participants to receive benefits that,
absent the fuller protections of the reg-
ulation, they might otherwise have been
incorrectly denied. In other circumstances,
expenditures by plans may be reduced as a
fuller and fairer system of claims and ap-
peals processing helps facilitate enrollee
acceptance of cost management efforts.
Greater certainty and consistency in the
handling of benefit claims and appeals and
improved access to information about the
manner in which claims and appeals are
adjudicated may lead to efficiency gains in
the system, both in terms of the allocation
of spending at a macro-economic level
as well as operational efficiencies among
individual plans. This certainty and con-
sistency can also be expected to benefit, to
varying degrees, all parties within the sys-
tem and to lead to broader social welfare
gains, particularly for consumers.
By making claims and appeals pro-
cesses more uniform, these interim final
regulations will increase efficiency in the
operation of employee benefit plans and
health care delivery as well as health in-
surance and labor markets. These interim
final regulations are expected to increase
efficiency by reducing complexity that
arises when different market segments
are subject to varying claims and appeals
standards. Idiosyncratic requirements,
time-frames, and procedures for claims
processing impose substantial burdens
on participants, their representatives, and
service providers. By establishing a more
uniform and complete set of minimum
requirements and consumer protections,
these interim final regulations will reduce
the complexity of claims and appeals pro-
cessing requirements, thereby increasing
efficiency.
31
To address certain relevant differences in the group and individual markets, health insurance issuers offering individual health insurance coverage must comply with the following three
additional requirements: (1) expand the scope of the claims and appeals process to cover initial eligibility determinations; (2) provide only one level of internal appeal (although the DOL
claims procedure regulation permits group healthplans to have a second level of internal appeals),which allows claimants to seek either an externalappeal or judicial review immediately
after an adverse determination is upheld in the first level of internal appeal; and (3) maintain records of all claims and notices associated with their internal claims and appeals processes and
make such records available for examination upon request by claimants and Federal or State regulatory officials.
32
To the extent that the ERISA preemption provisions do not prevent a State external review process from applying to a self-insured plan (for example, for self-insured nonfederal governmental
plans, self-insured church plans, and self-insured multiple employer welfare arrangements) the State could make its external review process applicable to such plans if it includes, at a minimum,
the consumer protections in the NAIC Uniform Model Act.
33
While it is possible that some ERISA-covered self-insured plans may have adopted external review procedures as a matter of good business practice, the Departments are uncertain regarding
the level to which this has occurred.
2010–43 I.R.B.513October 25, 2010

The Departments expect that these
interim final regulations also will im-
prove the efficiency of health plans by
enhancing their transparency and fostering
participants’ confidence in their fairness.
When information about the terms and
conditions under which benefits will be
provided is unavailable to enrollees, they
could discount the value of benefits to
compensate for the perceived risk. The en-
hanced disclosure and notice requirements
of these interim final regulations will help
participants, beneficiaries, and enrollees
better understand the reasons underlying
adverse benefit determinations and their
appeal rights.
The Departments believe that excessive
delays and inappropriate denials of health
benefits are relatively rare. Most claims
are approved in a timely fashion. Many
claim denials and delays are appropriate
given the plan’s terms and the circum-
stances at hand. Nonetheless, to the ex-
tent that delays and inappropriate denials
occur, substantial harm can be suffered by
participants, beneficiaries, and enrollees,
which can also lead to an associated loss
of confidence in the fairness and benefits
of the system. A more timely and com-
plete review process required under these
interim final rules regulations should re-
duce the levels of delay and error in the
system and improve health outcomes.
The voluntary nature of the employ-
ment-based health benefit system in con-
junction with the open and dynamic char-
acter of labor markets make explicit as
well as implicit negotiations on compen-
sation a key determinant of the prevalence
of employee benefits coverage. The preva-
lence of benefits is therefore largely de-
pendent on the efficacy of this exchange.
If workers perceive that there is the po-
tential for inappropriate denial of benefits
or handling of appeals, they will discount
the value of such benefits to adjust for
this risk. This discount drives a wedge in
compensation negotiation, limiting its ef-
ficiency. With workers unwilling to bear
the full cost of the benefit, fewer benefits
will be provided. To the extent that work-
ers perceive that these interim final regula-
tions, supported by enforcement authority,
reduces the risk of inappropriate denials of
benefits, the differential between the em-
ployers’ costs and workers’ willingness to
accept wage offsets is minimized.
Effective claims procedures also can
improve health care, health plan quality,
and insurance market efficiency by serv-
ing as a communication channel, provid-
ing feedback from participants, beneficia-
ries, and providers to plans about quality
issues. Aggrieved claimants are especially
likely to disenroll if they do not understand
their appeal rights, or if they believe that
their plans’ claims and appeals procedures
will not effectively resolve their difficul-
ties. Unlike appeals, however, disenroll-
ments fail to alert plans to the difficulties
that prompted them. More uniform and ef-
fective appeals procedures can give par-
ticipants and beneficiaries an alternative
way to respond to difficulties with their
plans. Plans in turn can use the informa-
tion gleaned from the appeals process to
improve services.
The Departments also expect that these
interim final regulations’ higher standard
for more uniform internal and external
claims appeals adjudication will enhance
some insurers’ and group health plans’
abilities to effectively control costs by lim-
iting access to inappropriate care. Provid-
ing a more formally sanctioned framework
for internal and external review and con-
sultation on difficult claims facilitates the
adoption of cost containment programs by
employers who, in the absence of a regu-
lation providing some guidance, may have
opted to pay questionable claims rather
than risk alienating participants or being
deemed to have breached a fiduciary duty.
In summary, the interim final regula-
tions’ more uniform standards for handling
health benefit claims and appeals will re-
duce the incidence of excessive delays and
inappropriate denials, averting serious,
avoidable lapses in health care quality and
resultant injuries andlosses to participant,
beneficiaries and enrollees. They also will
enhance enrollees’ level of confidence
in and satisfaction with their health care
benefits and improve plans’ awareness
of participant, beneficiary, and provider
concerns, prompting plan responses that
improve health care quality. Finally, by
helping to ensure prompt and precise
adherence to contract terms and by im-
proving the flow of information between
plans and enrollees, the interim final regu-
lations will bolster the efficiency of labor,
health care, and insurance markets. The
Departments therefore conclude that the
economic benefits of these interim final
regulations will justify their costs.
d.Costs and Transfers
The Departments have quantified the
primary source of costs associated with
these interim final regulations that will
be incurred to (i) administer and conduct
the internal and external review process,
(ii) prepare and distribute required dis-
closures and notices, and (iii) bring plan
and issuers’ internal and external claims
and appeals procedures into compliance
with the new requirements. The Depart-
ments also have quantified the start-up
costs for issuers in the individual market
to bring themselves into compliance and
the costs and the transfers associated with
the reversal of denied claims during the
external review process. These costs and
the methodology used to estimate them
are discussed below.
i.Internal Claims and Appeals
As discussed above, these interim final
regulations require all group health plans
and issuers offering coverage in the group
and individual health insurance market to
comply with the DOL claims procedure
regulation. The ERISA-covered market,
with an estimated 2.8 million plans and
138 million covered participants, already
is required to comply with the DOL claims
procedure regulation and is far larger than
either the non-Federal governmental plan
market, with an estimated 126,000 govern-
mental plans and 30 million participants,
or the individual market, with 16.7 million
participants. As stated in the Estimated
Number of Affected Entities section, the
Departments understand that many non-
Federal governmental plans comply with
the DOL claims procedure regulation, be-
cause they use the same issuers and ser-
vice providers as ERISA-covered plans,
and these issuers and service providers im-
plement the internal claims and appeals
process for plans in both markets. There-
fore, for purposes of this regulatory impact
analysis, the Departments assume that 90
percent of the claims volume in the non-
Federal governmental group health plan
October 25, 20105142010–43 I.R.B.

market already complies with the DOL
claims procedure regulation.
34
The Departments estimate that 170 is-
suers offer policies only in the individual
market.
35
While the Departments believe
that some issuers are subject to applica-
ble state laws governing internal appeals
processes, and have evidence that some is-
suersalreadycomplywiththeDOLclaims
procedure regulation, some issuers will
have to change their internal claims and
appeals processes to comply with these
interim final regulations.
36
The Depart-
ments estimate that issuers would incur
astart-upcostof$3.5millioninthefirst
year to comply with these interim final
regulations by revising processes, creat-
ing or revising forms, modifying systems,
andtrainingpersonnel. These costs are
mitigated by the model notice of initial
benefit determination the Departments
will be issuing in subregulatory guidance.
This notice will not require any data to
be provided that cannot be automatically
populated by plans and issuers.
ii.Cost Required to Implement DOL
Claims Procedure Regulation Require-
ments. The Departments’ estimates of
the annual costs for plans and issuers to
comply with the DOL claims procedure
regulation are based on the methodology
used for the Paperwork Reduction Act
(PRA) hour and cost burden analysis of
DOL claims procedure regulation.
37
The
Department first estimated the number
of individuals covered by non-grandfa-
thered plans using the March 2009 Current
Population Survey Annual Social and Eco-
nomic Supplement and the 2008 Medical
Expenditure Panel Survey. Each covered
individual was estimated to generate 10.2
claims on average per year,
38
82 percent
of which were filed electronically.
39
The
Departmentsthenassumedthat15per-
cent of these claims were denied.
40
The
Departments assume that three percent of
these claims were pre-service with the re-
maining being post-service claims.
41
The
number of post-service claims extended
was based on the share of “clean” claims
that took more than 30 days to complete
processing.
42
The share of denials ex-
pected to be appealed, 0.2 percent, was
basedonaRANDstudy.
43
The Depart-
ments expect half of these appeals to be
reversed,
44
and those not reversed were
divided between “medical claims” (28.9
percent) and “administrative claims” (71.1
percent).
The Departments attributed costs to no-
tifying individuals of denied claims and
processing appeals. Initial denials were as-
sumed to only take a few minutes for a
clerical worker to draft and send an ad-
verse benefit determination notice based
on the model notice that will be issued
by the Departments that does not require
any information to be included that can-
not be auto-populated. Appealed denials
deemed “medical” are assumed to require
a physician, with an estimated labor rate
of $154.07 to review and was expected to
take 4 1/2 hours to decide and draft a re-
sponse, regardless of outcome.
45
Appealed
denials deemed “administrative” require a
legal professional with an estimated labor
rate of $119.03, and a decision and re-
sponse was expected to take two minutes
for a reversal and two hours for a denial.
46
Mailing costs for the notice of adverse de-
termination and notice of decision of inter-
nal appeal is estimated at 54 cents a notice
for material, printing, and postage costs.
Because ERISA-covered plans already
are required to comply with the DOL
claims procedure regulation, the Depart-
ments did not attribute any cost to these
plans to comply with the rule. As stated
above, the Departments understand from
consulting with industry experts that a
substantial majority of State and local gov-
ernment plans also currently comply with
the existing DOL claims procedure regula-
tion; therefore, the Departments assumed
that only ten percent of the estimated
claims of individuals covered by these
plans would constitute a new expense. All
claims in non-grandfathered plans in the
individual market were assumed to bear
the full cost of compliance, because these
policies are being required to comply with
the DOL claims procedure regulation for
the first time. Table 2 shows the estimated
number of claims.
34
The Departments are uncertain regarding the 90 percent compliance rate forState and local government plans. Therefore, to establish a range, the Departments estimated the cost assuming
75 percent State and local governmental plan compliance. Assuming 75 percent compliance, the cost of State and local plan internal review compliancewould increase from $2 million to $5
million in 2011, $3.6 million to $9.1 million in 2012, and $5 million to $12.4 million in 2012.
35
Source: Estimates are from NAIC 2007 financial statements data and the California Department of Managed Healthcare (2009) (http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx)
36
Discussions with the National Association of Insurance Commissioners suggest that three States require issuers in the individual market to follow the NAIC internal grievance appeals
model. Eleven States have no set procedures in place, while the rest have varying requirements. Some issuers voluntarily follow the ERISA claims and appeals procedures.
37
The OMB Control Number for the DOL procedure regulation is 1210–0053. OMB approved the three-year renewal of the Control Number through May 31, 2013, on May 21, 2010.
38
Research at the time of the Claims Regulation as well as responses to the Claims RFI reported a wide range of claims per participant — between 5 and 18. TheDepartment eventually
settled on 10.2.
39
AHIP, “Update: A Survey of Health Care ClaimsReceipt and Processing Times, 2009,” January 2010.
40
Health Insurance Association of America (HIAA, which later merged with AHIP) reported a denial rate of 14 percent in “Results from an HIAA Survey on Claims Payment Process,” March
2003. These included duplicate claims as well as denied claims that were appeals. RAND reported an increased trend in claim denials in, “Inside the Black Box of Managed Care Decisions,”
Research Brief, 2004 from 3 percent to between 8 and 10 percent.
41
The assumption that 3 percent of claims are pre-service is based on comments the Department received in response to the proposed DOL claims procedure regulation in 2000.
42
AHIP, “Update: A Survey of Health Care ClaimsReceipt and Processing Times, 2009,” January 2010.
43
“Inside the Black Box of Managed Care Decisions,” Research Brief, 2004
44
The Department based this assumption on the number of appealed Medicare pre-authorization denials. They received comments for the proposed regulation arguing this estimate was either
too high or too low and so the Department chose to retain the assumption.
45
The Department in its initial claims regulation assumed that an expert consultation would cost $500 which translated into roughly 5 hours of a physician’s time. EBSA has revised this
slightly downward based on the costs reported by IROs to review medical claims.
46
The Departments’ estimates of labor rates include wages, other benefits, and overhead based on the National Occupational Employment Survey (May 2008, Bureau of Labor Statistics) and
the Employment Cost Index June 2009, Bureau of Labor Statistics).
2010–43 I.R.B.515October 25, 2010

TABLE. 2—Estimated Claims and Appeals in Non-grandfathered Coverage
201120122013
Private
Sector
ESI
Government
Sector
ESI
Individual
Market
Private
Sector
ESI
Government
Sector
ESI
Individual
Market
Private
Sector
ESI
Government
Sector
ESI
Individual
Market
Total Enrollees
(millions)138.039.015.1138.039.015.1138.039.015.1
Non-Grandfathe
red
Enrollees24.46.96.044.512.69.761.017.211.8
Total Claims
(millions)248.970.461.5453.8128.398.5622.4175.9120.6
Pre-Service
Claim Approved6.31.81.611.63.32.515.94.53.1
Claim Denied1.10.30.32.00.60.42.80.80.5
Post-Service
Claims Approved196.255.545.2357.8101.172.3490.7138.788.6
Claim Denied36.210.29.066.018.714.390.625.617.6
Claim Extended9.02.55.616.44.68.922.56.310.9
Total Internal
Appeals (thousands)85.424.152.8155.744.084.5213.660.4103.5
Appeals Upheld34.29.721.162.317.633.885.424.141.4
Appeals Denied51.214.531.793.426.450.7128.136.262.1
Medical sub
total
24.77.015.345.012.724.461.717.429.9
Appeals Upheld9.92.86.118.05.19.824.77.012.0
Appeals Denied14.84.29.227.07.614.637.010.517.9
Administrative
subtotal60.717.237.5110.731.360.1151.842.973.6
Appeals U
pheld
24.36.915.044.312.524.060.717.229.4
Appeals Denied36.410.322.566.418.836.091.125.844.1
Total New External
Appeals (thousands)2.00.60.23.71.10.35.01.50.4
As shown in Table 3 below, the Depart-
ments estimate that the cost of the internal
process, including the costs of internal ap-
peals and notice distribution, is $1.5 mil-
lion in 2011 and rises to $3.8 million in
2013 as the number of non-grandfathered
plans increases. The Departments estimate
that the cost for the internal review process
for the individual market is $28.8 million
in 2011 and rises to $56.4 million in 2013.
iii.Additional Requirements for Group
Health Plans.As discussed earlier in this
preamble, paragraph (b)(2)(i) of these in-
terim final regulations imposes additional
requirements to the DOL claims procedure
regulation that must be satisfied by group
health plans and issuers offering group and
individual coverage in the individual and
group health insurance markets. The De-
partments believe that the additional re-
quirements have modest costs associated
with them, because they merely clarify
provisions of the DOL claims procedure
regulation. These requirements and their
associated costs are discussed below.
Definition of adverse determination.
These interim final regulations expand the
definition of adverse benefit determina-
tion to include rescissions of coverage.
While new, the methodology used to es-
timate the burden for the internal appeals
process already captures this burden as
most rescissions are associated with a
claim and therefore would already be ac-
counted for. The requirement allows for
appeal of rescinded coverage that does not
have an associated claim. While the De-
partments lack data to estimate the number
of rescissions that occur without an asso-
ciated claim for benefits, the Departments
believe this number is small.
Expedited notification of benefit deter-
mination involving urgent care.Thecur-
rent DOL claims procedure regulation re-
quires that a plan or issuer provide notifi-
cation in the case of an urgent care claim
as soon as possible taking into account the
medical exigencies, but no later than 72
hours after receipt of the claim by the plan.
These interim final regulations reduce the
time limit to no later than 24 hours after the
receipt of the claim by the plan or issuer.
The Departments are not able to quantify
the costs of this requirement. However,
two factors could suggest this requirement
does not impose substantial cost. First,
the DOL claims procedure regulation re-
quires urgent care notification to be made
as soon as possible; therefore, it is likely
October 25, 20105162010–43 I.R.B.

that some claims currently are handled in
less than the 24 hours. In addition, the
technological developments that have oc-
curred since the 72 hour standard was is-
sued in the 2000 DOL claims procedure
regulation should facilitate faster notifica-
tion at reduced costs. However, plans and
issuers would incur additional cost for ur-
gent care notices that take longer than the
required 24 hours to produce. Speeding up
the notification process for these determi-
nations might necessitate incurring addi-
tional cost to add more employees or find
other ways to shorten the timeframe. Ad-
ditional costs may be associated with this
requirement if a shorter timeframe results
in claims being denied that would not have
been under a 72 hour standard or claims
being approved that would have been de-
nied under a longer notification period.
Full and fair review. These interim fi-
nal regulations require the plan or issuer to
provide the claimant, free of charge, with
any new or additional evidence relied upon
or generated by the plan or issuer and the
rationale used for a determination during
the appeals process sufficiently in advance
of the due date of the response to an ad-
verse benefit determination. This require-
ment increases the administrative burden
on plans and issuers to prepare and deliver
the new and additional information to the
claimant. The Departments are not aware
of data suggesting how often plans rely on
new or additional evidence during the ap-
peals process or the volume of materials
that are received.
For purposes of this regulatory impact
analysis, the Departments assume, as an
upper bound, that allappealed claims will
involve a reliance on additional evidence.
The Departments assume that this require-
ment will impose a cost of just under $1
million in 2013, the year with the highest
cost. The Departments estimated this cost
by assuming that it will require medical of-
fice staff with a labor rate of $26.85 five
minutes
47
to collect and distribute the ad-
ditional evidence considered, relied on, or
generated during the appeals process. The
Departments estimate that on average, ma-
terial, printing and postage costs will be
$2.24 per mailing. The Departments fur-
ther assume that 38 percent of all mail-
ings will be distributed electronically with
no associated material, printing or postage
costs.
48
Eliminating conflicts of interest.As
discussed earlier in this preamble, these in-
terim final regulations require plans and is-
suers to ensure that all claims and appeals
are adjudicated in a manner designed to
ensure the independence and impartiality
of the persons involved in making the de-
cision. Accordingly, decisions regarding
hiring, compensation, termination, promo-
tion, or other similar matters with respect
to any individual (such as a claims ad-
judicator or medical expert) must not be
made based upon the likelihood or per-
ceived likelihood that the individual will
support or tend to support the denial of
benefits.
This requirement could require plans or
issuers to change policies that currently
create a conflict of interest and to dis-
continue practices that create such con-
flicts. The Departments believe that many
plans and issuers already have such re-
quirements in place as a matter of good
business practice, but do not have suffi-
cient data to provide an estimate. How-
ever, the Departments believe that the cost
associated with thisrequirement will be
minimal.
Enhanced notice. These interim final
regulations provide new standards regard-
ing notice to enrollees. Specifically, the
statute and these interim final regulations
require a plan or issuer to provide notice
to enrollees, in a culturally and linguis-
tically appropriate manner (standards for
which are described later in this pream-
ble). Plans and issuers must comply with
the requirements of paragraphs (g) and (j)
of the DOL claims procedure regulation,
which detail requirements regarding the is-
suance of a notice of adverse benefit de-
termination. Moreover, for purposes of
these interim final regulations, additional
content requirements apply for these no-
tices. A plan or issuer must ensure that
any notice of adverse benefit determina-
tion or final adverse benefit determination
includes information sufficient to identify
the claim involved. This includes the date
of service, the health care provider, and the
claim amount (if applicable), as well as the
diagnosis code (such as an ICD–9 code,
ICD–10 code, or DSM-IV code), the treat-
ment code (such as a CPT code), and the
corresponding meanings of these codes. A
plan or issuer must also ensure that de-
scription of the reason or reasons for the
denial includes a description of the stan-
dard that was used in denying the claim. In
the case of a notice of final adverse bene-
fit determination, this description must in-
clude a discussion of the decision. Addi-
tionally, the plan or issuer must provide
a description of available internal appeals
and external review processes, including
information regarding how to initiate an
appeal. Finally, the plan or issuer must dis-
close the availability of, and contact infor-
mation for, any applicable office of health
insurance consumer assistance or ombuds-
man established under PHS Act section
2793 to assist such enrollees with the inter-
nal claims and appeals and external review
process. The Departments intend to issue
model notices that could be used to satisfy
all the notice requirements under these in-
terim final regulations in the very near fu-
ture that will mitigate the cost associated
with providing them. These notices will be
made available athttp://www.dol.gov/ebsa
andhttp://www.hhs.gov/ociio/.Thecostof
sending the notices is included in the costs
of the internal and external review process.
The Departments were unable to estimate
the cost of providing the model notices
in a linguistically and culturally appropri-
ate manner. However the Departments be-
lieve the overall costs to be small as only
a small number of plans are believed to be
affected. The Departments request com-
ments that could help in estimating these
costs, particularly with respect to the indi-
vidual insurance market.
Deemed exhaustion of internal process.
These interim final regulations provide
that, in the case of a plan or issuer that fails
to strictly adhere toall the requirements
of the internal claims and appeals process
with respect to a claim, the claimant is
deemed to have exhausted the internal
claims and appeals process, regardless of
whether the plan or issuer asserts that it
substantially complied with these require-
ments or that the error wasde minimis.
Accordingly, under such deemed exhaus-
47
EBSA estimates of labor rates include wages, other benefits, and overhead based on the National Occupational Employment Survey (May 2008, Bureau of Labor Statistics) and the Em-
ployment Cost Index June 2009, Bureau of Labor Statistics).
48
Thisestimateisbasedonthemethodologyusedtoanalyze the cost burden for the DOL claims procedure regulation (OMB Control Number 1210–0053).
2010–43 I.R.B.517October 25, 2010

tion, the claimant may initiate an external
review and pursue any available reme-
dies under applicable law, such as judicial
review. The Departments are unable to
quantify the costs that are associated with
this requirement. While this provision
possibly could result in an increased num-
ber of external appeals it could reduce
overall costs if costly litigation is avoided.
Continued coverage. Finally, the
statute and these interim final regulations
require a plan and issuer to provide con-
tinued coverage pending the outcome of
an internal appeal. For this purpose, the
plan or issuer must comply with the re-
quirements of paragraph (f)(2)(ii) of the
DOL claims procedure regulation, which
generally provide that a plan or issuer can-
not reduce or terminate an ongoing course
of treatment without providing advance
notice and an opportunity for advance re-
view. Moreover, as described more fully
earlier in this preamble, the plan or issuer
must also provide simultaneous external
review in advance of a reduction or termi-
nation of an ongoing course of treatment.
This provision would not impose any
additional cost on plans and issuers that
comply with the DOL claims procedure
regulation; however, costs would be in-
curred by issuers in the individual mar-
ket. The Departments are unable to quan-
tify the cost associated with this require-
ment, because they lack sufficient data on
the number of simultaneous reviews that
are conducted.
49
iv.Additional requirements for issuers in
the individual insurance market
To address certain relevant differences
in the group and individual markets, health
insurance issuers offering individual
health insurance coverage must comply
with three additional requirements. First,
these interim final regulations expand the
scope of the group health coverage inter-
nal claims and appeals process to cover
initial eligibility determinations. This
protection is important since eligibility
determinations in the individual market
are frequently based on the health status
of the applicant, including preexisting
conditions. The Departments do not have
sufficient data to quantify the costs asso-
ciated with this requirement.
50
Second, although the DOL claims pro-
cedure regulation permits group health
plans to have a second level of internal
appeals, these interim final regulations
require health insurance issuers offering
individual health insurance coverage to
have only one level of internal appeals.
This allows the claimant to seek either
external review or judicial review imme-
diately after an adverse determination is
upheld in the first level of internal appeals.
The Departments have factored this cost
into their estimate of the cost for issuers
offering coverage in the individual market
to comply with requirement.
Finally, these interim final regulations
require health insurance issuers offering
individual health insurance coverage to
maintain records of all claims and notices
associated with their internal claims and
appeals processes. An issuer must make
such records available for examination
upon request. Accordingly, a claimant
or State or Federal agency official gener-
ally would be able to request and receive
such documents free of charge. The De-
partments believe that minimal costs are
associated with this requirement, because
most issuers retain the required informa-
tion in the normal course of their business
operations.
v.External appeals
The analysis of the cost associated with
implementing an external review process
under these interim final regulations fo-
cuses on the cost incurred by the following
three groups that were not required to im-
plement an external review process before
the enactment of the Affordable Care Act:
plans and participants in ERISA-covered
self-insured plans; plans and participants
in States with no external review laws, and
plans and participants in States that have
State laws only covering specific market
segment (usually HMOs or managed care
coverage).
The Departments estimate that there are
about 76.9 million participants in self-in-
sured ERISA-covered plans and approxi-
mately 13.8 million participants in self-in-
sured State and local governmental plans.
In the States which currently have no exter-
nal review laws there are an estimated 4.2
million participants (2.5 million partici-
pants in ERISA-covered plans, 1.2 million
participants in governmental plans and 0.6
million in individual with policies in the
individual market). In the States that cur-
rently have limited external review laws,
there are 15.6 million participants (8.4 mil-
lion participants in ERISA-covered plans,
4.2 million participants in governmental
plans and 3.0 million individuals with in-
dividual health insurance in the individual
market). These estimates lead to a total of
110.5 million participants, however, only
the 44.2 million participants in non-grand-
fathered plans will be newly covered by
the external review requirement in 2011.
As plans relinquish their grandfather sta-
tus in subsequent years, more individuals
will be covered.
The Departments assume that there are
an estimated 1.3 external appeals for ev-
ery 10,000 participants,
51
and that there
will be approximately 2,600 external ap-
peals in 2011. As required by these in-
terim final regulations or applicable State
law, plans or issuers are required to pay
for most of the cost of the external review
while claimants may be charged a mod-
est filing fee. A recent report finds that
the average cost of a review was approx-
imately $605.
52
While the actual cost per
review will vary by state and also type of
review (standard or expedited), an older
study covering many States suggests this
is a reasonable estimate.
53
These estimates
49
The Departments do not have a basis to estimate this, because the Departments do not know how often this denial takes place or how often they are appealed. The costs should be minimal,
because the decisions will be made quickly, and the period of coverage will be brief. The Departments expect the cost to be small relative to the cost of reversals, which the Departments have
estimated.
50
However, the Departments believe this number to be small. Approximately 10to 15 percent of applicants are declined coverage in the individual market, while the Departments do not
know how many of those denied coverage will appeal, using appeal rates for internal and external appeals would result in only a few thousand appeals. See “Fundamentals of Underwriting
in the nongroup Health Insurance Market,” pages 10–12, April 13, 2005.
51
AHIP Center for Policy and Research, “An Update on State External Review Programs, 2006,” July 2008.
52
North Carolina Department of Insurance “Healthcare Review Program: Annual Report,” 2008.
53
Pollitz, Karen, Jeff Crowley, Kevin Lucia, and Eliza Bangit “Assessing State External Review Programs and the Effects of Pending Federal Patient’s Rights Legislation.” Kaiser Family
Foundation (2002) page 27.
October 25, 20105182010–43 I.R.B.

lead to an estimated cost of the external
review of $1.6 million (2,600 reviews *
$605) in 2011. Using a similar method and
adjusting for the number of non-grandfa-
thered plans in subsequent years, the De-
partments estimate that the total cost for
external review is $2.9 million in 2012 and
$3.9 million in 2013.
On average, about 40 percent of denials
are reversed on external appeal.
54
An es-
timate of the dollar amount per claim re-
versed in $12,400.
55
This leads to $13.4
million in additional claims being reversed
by the external review process in 2011,
which increases to $33.1 million in 2013.
While this amount is a cost to plans, it rep-
resents a payment of benefits that should
have previously been paid to participants,
but was denied. Part of this amount is
a transfer from plans and issuers to those
now receiving payment for denied bene-
fits. Part of the amount could also be a cost
if the reversal leads to services and hence
resources being utilized now that had been
denied previously. The Departments are
not able to distinguish between the two
types but believe that most reversals are as-
sociated with a transfer.
These interim final regulations also re-
quire claimants to receive a notice inform-
ing them of the outcome of the appeal.
The independent review organization that
conducts the externalreview is required to
prepare the notice; therefore, the cost of
preparing and delivering this notice is in-
cludedinthefeepaidthembytheinsurer
to conduct the review.
3.Summary
These interim final rules extend the
protections of the DOL claims procedure
regulation to non-Federal governmental
plans, and the market for individual cov-
erage. Additional protections are added
that cover these two markets and also the
market for ERISA covered plans. These
interim final regulations also extend the
requirement to provide an independent
external review. The Departments esti-
mate that the total costs for these interim
final regulations is $50.4 million in 2011,
$78.8 million in 2012, and $101.1 million
in 2013. The estimates are summarized in
table 3, below.
TABLE. 3—Monetized Impacts of Interim Final Regulations (in millions)
201120122013
ERISA Market
$1.4$2.5$3.5
External Review
$1.2$2.2$3.1
Internal Review*
$0.0$0.0$0.0
Fair and Fu
ll Review
$0.2$0.3$0.4
State & Lo
cal Government Market
$2.4$4.3$6.0
External Review
$0.4$0.6$0.9
Internal
Review**
$2.0$3.6$5.0
Fair and Full Review
$0.05$0.1$0.1
Individual Market
$32.5$46.4$56.8
Externa
lReview
$0.1$0.2$0.2
Internal Review
$28.8$46.0$56.4
Fair and Full Review
$0.1$0.2$0.2
Recordkeeping
$0.1$0.1$0.1
Start-up Costs
$3.5$0.0$0.0
Total Costs
$36.2$53.2$66.2
Amount of Reversals***
$14.2$25.6$34.9
ERIS
APlans
$10.3$18.7$25.7
State & Local Government Plans
$3.0$5.4$7.4
Individual Market
$0.
9
$1.
5
$1.
9
*Ass
umes that ERISA plans already comply with ERISA claims and appeals regulations.
**Assumes that 90 percent of State and Local Government plans alreadycomplywiththeERISAclaims and appeals regulation.
***This amount includes both transfers and costs with identical offsetting benefits.
C.R
egulatory Flexibility
Act
—Department of Labor and
De
partment of Health and Human
Se
rvices
The
Regulatory Flexibility Act
(5 U
.S.C. 601 et seq.) (RFA) imposes
ce
rtain requirements with respect to
Fe
deral rules that are subject to the notice
an
d comment requirements of section
55
3(b) of the APA (5 U.S.C. 551et seq.)
and
that are likely to have a significant
eco
nomic impact on a substantial number
of
small entities. Section 9833 of the Code,
se
ction 734 of ERISA, and section 2792
of
the PHS Act authorize the Secretaries
to
promulgate any interim final rules that
54
AHIP Center for Policy and Research, “An Update on State External Review Programs, 2006,” July 2008.
55
North Carolina Department of Insurance “Healthcare Review Program: Annual Report,” 2008.
2010–43 I.R.B.519October 25, 2010

they determine are appropriate to carry
out the provisions of chapter 100 of the
Code, part 7 of subtitle B or title I of
ERISA, and part A of title XXVII of the
PHS Act, which include PHS Act sections
2701 through 2728 and the incorporation
of those sections into ERISA section 715
and Code section 9815.
Moreover, under Section 553(b) of the
APA, a general notice of proposed rule-
making is not required when an agency,
for good cause, finds that notice and pub-
lic comment thereon are impracticable, un-
necessary, or contrary to the public inter-
est. These interim final regulations are ex-
empt from APA, because the Departments
made a good cause finding that a general
notice of proposed rulemaking is not nec-
essary earlier in this preamble. Therefore,
the RFA does not apply and the Depart-
ments are not required to either certify that
the rule would not have a significant eco-
nomic impact on a substantial number of
small entities or conduct a regulatory flex-
ibility analysis.
Nevertheless, the Departments care-
fully considered the likely impact of the
rule on small entities in connection with
their assessment under Executive Order
12866. Consistent with the policy of
the RFA, the Departments encourage the
public to submit comments that suggest
alternative rules that accomplish the stated
purpose of the Affordable Care Act and
minimize the impact on small entities.
D.Special Analyses-Department of the
Treasury
Notwithstanding the determinations of
the Department of Labor and Department
of Health and Human Services, for pur-
poses of the Department of the Treasury, it
has been determined that this Treasury de-
cision is not a significant regulatory action
for purposes of Executive Order 12866.
Therefore, a regulatory assessment is not
required. It has alsobeen determined that
section 553(b) of the APA (5 U.S.C. chap-
ter 5) does not apply to these interim fi-
nal regulations. For the applicability of the
RFA, refer to the Special Analyses section
in the preamble to the cross-referencing
notice of proposed rulemaking published
elsewhere in this issue of the Bulletin. Pur-
suant to section 7805(f) of the Code, these
temporary regulations have been submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
nesses.
E.Paperwork Reduction Act
1.Department of Labor and Department
of the Treasury
As discussed above in the Department
of Labor and Department of the Treasury
PRA section, these interim final regula-
tions require group health plans and health
insurance issuers offering group or indi-
vidual health insurance coverage to com-
ply with the DOL claims procedure regula-
tion with updated standards. They also re-
quire such plans and issuers to implement
an external review process.
Currently, the Departments are solicit-
ing 60 days of public comments concern-
ing these disclosures. The Departments
have submitted a copy of these interim fi-
nal regulations to OMB in accordance with
44 U.S.C. 3507(d) for review of the infor-
mation collections. The Departments and
OMB are particularly interested in com-
ments that:
•Evaluate whether the collection of in-
formation is necessary for the proper
performance of the functions of the
agency, including whether the infor-
mation will have practical utility;
•Evaluate the accuracy of the agency’s
estimate of the burden of the collection
of information, including the validity
of the methodology and assumptions
used;
•Enhance the quality, utility, and clarity
of the information to be collected; and
•Minimize the burden of the collection
of information on those who are to re-
spond, including through the use of
appropriate automated, electronic, me-
chanical, or othertechnological collec-
tion techniques or other forms of in-
formation technology, for example, by
permitting electronic submission of re-
sponses.
Comments should be sent to the Office
of Information and Regulatory Affairs,
Attention: Desk Officer for the Employee
Benefits Security Administration either
by fax to (202) 395–7285 or by email to
oira_submission@omb.eop.gov.Acopy
of the ICR may be obtained by contact-
ing the PRA addressee: G. Christopher
Cosby, Office of Policy and Research,
U.S. Department of Labor, Employee
Benefits Security Administration, 200
Constitution Avenue, NW, Room N–5718,
Washington, DC 20210. Telephone:
(202) 693–8410; Fax: (202) 219–4745.
These are not toll-free numbers. E-mail:
ebsa.opr@dol.gov. ICRs submitted to
OMB also are available at reginfo.gov
(http://www.reginfo.gov/public/do/PRA-
Main).
a.Department of Labor and Department
of the Treasury: Affordable Care
Act Internal Claims and Appeals
and External Review Disclosures for
Non-Grandfathered Plans
As discussed earlier in this preamble,
under PHS Act section 2719 and these
interim final regulations, all sponsors of
non-grandfathered group health plans and
health insurance issuers offering group
health insurance coverage must com-
ply with all requirements of the DOL
claims procedure regulation (29 CFR
2560.503–1) as well as the new standards
in paragraph (b)(2)(ii) of these interim
final regulations.
Before the enactment of the Affordable
Care Act, ERISA-covered group health
plans already were required to comply
with the requirements of the DOL claims
procedure regulation. The DOL claims
procedure regulation requires, among
other things, plans to provide a claimant
who is denied a claim with a written or
electronic notice that contains the specific
reasons for denial, a reference to the rele-
vant plan provisions on which the denial
is based, a description of any additional
information necessary to perfect the claim,
and a description of steps to be taken if the
participant or beneficiary wishes to appeal
the denial. The regulation also requires
that any adverse decision upon review be
in writing (including electronic means)
and include specific reasons for the de-
cision, as well as references to relevant
plan provisions. The Departments are not
soliciting comments concerning an infor-
mation collection request (ICR) pertaining
to the requirement for ERISA-covered
group health plans to meet the disclosure
requirements of DOL’s claims procedure
regulation, because the costs and burdens
associated with complying with these
previsions already are accounted for un-
October 25, 20105202010–43 I.R.B.

der the Department of Labor’s Employee
Benefit Plan Claims Procedure Under
ERISA regulation (OMB Control Number
1210–0053).
Additional hour and cost burden is asso-
ciated with paragraph (b)(2)(ii)(C) of these
interim final regulations, which requires
non-grandfathered ERISA-covered group
health plans to provide the claimant, free
of charge, with any new or additional evi-
dence considered relied upon, or generated
by the plan or issuer in connection with
the claim.
56
This requirement increases the
administrative burden on plans and issuers
to prepare and deliver the additional infor-
mation to the claimant.
Additional hour and cost burden also is
associated with the requirement in para-
graphs (c) and (d) of the regulations which
set forth the external review requirements.
The requirement for group health plans
to implement an external review process
will impose an hour and cost burden on
plans that were not required to implement
such a process before the enactment of the
Affordable Care Act, such as self-insured
plans, plans in states with no external re-
view laws, and plans in states with limited
scope external review laws (such as laws
that only impact specific market segments
like HMOs).
The Departments estimate that approx-
imately 93 percent of large benefit and all
small benefit plans administer claims us-
ing a third-party provider, or roughly 5
percent of covered individuals. In-house
administration burdens are accounted for
as hours, while purchased services are ac-
counted for as dollar costs. Based on the
foregoing, total burden hours are estimated
at 300 hours in 2011, 500 hours in 2012,
and 700 hours in 2013. Equivalent costs
are $11,000, $19,000, and $26,000 respec-
tively.
As stated in the preceding paragraph,
the bulk of claims will be processed by
third-party service providers. Total cost is
estimated by multiplying the number of re-
sponses by the amount of time required to
prepare the documents and then multiply-
ing this by the appropriate hourly cost of
either clerical workers ($26.14) or doctors
($154.07),
57
andthenaddingthecostof
copying and mailing responses ($0.54 each
for those not sent electronically). Based
on the foregoing, the Departments esti-
mate that the total estimated cost burden
for those plans that use service providers,
including the cost of mailing all responses
(including mailing costs for those prepared
in-house listed in Table 2), is $243,000 in
2011, $443,000 in 2012, and $607,000 in
2013.
Type of Review: New collection.
Agencies: Employee Benefits Security
Administration, Department of Labor; In-
ternal Revenue Service, U.S. Department
of the Treasury,
Title: Affordable Care Act Internal
Claims and Appeals and External Review
Disclosures for Non-Grandfathered Plans
OMB Number:1210–0144;
1545–2182.
Affected Public: Business or other for-
profit; not-for-profit institutions.
Total Respondents: 607,000.
Total Responses: 62,000.
Frequency of Response: Occasionally.
Estimated Total Annual Burden Hours:
150 hours (Employee Benefits Security
Administration); 150 hours (Internal Rev-
enue Service).
Estimated Total Annual Burden Cost:
$121,500 (Employee Benefits Security
Administration); $121,500 (Internal Rev-
enue Service).
2.Department of Health and Human
Services
As discussed above in the Department
of Labor and Department of the Treasury
PRA section, these interim final regula-
tions require group health plans and health
insurance issuers offering group or indi-
vidual health insurance coverage to com-
ply with the DOL claims procedure regula-
tion with updated standards. They also re-
quire such plans and issuers to implement
an external review process.
a.ICR Regarding Affordable Care
Act Internal Claims and Appeals
and External Review Disclosures for
Non-grandfathered Plans
As discussed earlier in the preamble,
paragraph (b)(2) and (b)(3) of these in-
terim final regulations require all group
health plan sponsors and health insurance
issuers offering coverage in the group and
individual health insurance markets to
comply with the requirements of DOL’s
claims procedure regulation for their in-
ternal claims and appeals processes. Plan
sponsors and issuers offering coverage
in the group market also are required to
satisfy the additional standards that are
imposed on group health plans and issuers
in paragraph (b)(2)(ii) of these interim
final regulations, while issuers offering
coverage in the individual health insur-
ance market are required to satisfy the
additional standards set forth in paragraph
(b)(3)(ii) of these interim final regulations.
On the external review side, for pur-
poses of this PRA analysis, the Depart-
ment estimates the hour and cost burden
for plans that were not previously sub-
ject to any external review requirements
(self-insured plans, plans in states with no
external review programs, and non-man-
aged care plans in states that require exter-
nal review only for managed care plans) to
implement an external review process.
Based on the foregoing, the Department
estimates that state and local governmental
plans and issuers offering coverage in the
individual market will incur a total hour
burden hours of 566,000 hours in 2011,
989,000 hours in 2012, and 1.2 million
hours in 2013 to comply with equivalent
costs of $28.1 million in 2011, $57.1 mil-
lion in 2012, and $70.1 million in 2013.
The total estimated cost burden for those
plans that use service providers, including
the cost of mailing all responses is esti-
mated to be $20.7 million in 2011, $37.4
million in 2012, and $51.1 million in 2013
The hour and cost burden is summa-
rized below:
Type of Review: New collection.
Agency: Department of Health and Hu-
man Services.
56
Such evidence must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on reviewisrequiredtobeprovidedtogive
the claimant a reasonable opportunity to respond prior to that date. Additionally, before the plan or issuer can issue an adverse benefit determination on review based on a new or additional
rationale, the claimant must be provided, free of charge, with the rationale. The rationale must be provided as soon as possible and sufficiently in advance of the date on which the notice of
adverse benefit determination on review is required to be provided to give the claimant a reasonable opportunity to respond prior to that date.
57
EBSA estimates of labor rates include wages, other benefits, and overhead based on the National Occupational Employment Survey (May 2008, Bureau of Labor Statistics) and the Em-
ployment Cost Index June 2009, Bureau of Labor Statistics).
2010–43 I.R.B.521October 25, 2010

Title: Affordable Care Act Internal
Claims and Appeals and External Review
Disclosures
OMB Number: 0938–1098.
Affected Public: Business; State, Local,
or Tribal Governments.
Respondents: 27,829.
Responses: 132,035,000.
Frequency of Response: Occasionally.
Estimated Total Annual Burden Hours:
566,000 hours.
Estimated Total Annual Burden Cost:
$20,700,000.
b.ICR Regarding Affordable Care
Act Recordkeeping Requirement for
Non-grandfathered Plans
As discussed earlier in this preamble, a
health insurance issuer offering individual
health insurance coverage must gener-
ally comply with all the requirements for
the internal claims and appeals process
that apply to group health coverage.
58
In addition to these standards, paragraph
(b)(3)(ii)(H) of 45 CFR 147.136 requires
health insurance issuers offering individ-
ual health insurance coverage to maintain
records of all claims and notices associ-
ated with their internal claims and appeals
processes. The records must be main-
tained for at least six years, which is the
same requirement for group health plans
under the ERISA recordkeeping require-
ments. An issuer must make such records
available for examination upon request.
Accordingly, a claimant or State or Federal
agency official generally would be able to
request and receive such documents free
of charge.
The Department assumes that most
of these records will be kept in the or-
dinary course of the issuers’ business.
Therefore, the Department estimates that
the recordkeeping burden imposed by
this ICR will require five minutes of a
legal professional’s time (with a rate of
$119.03/hour) to determine the relevant
documents that must be retained and ten
minutes of clerical staff time (with a labor
rate of $26.14/hour) to organize and file
the required documents to ensure that they
are accessible to claimants and Federal
and State governmental agency officials.
As shown in Table 4, below, overall, the
Department estimates that there to be a
total annual hour burden of 1,800 hours
with an equivalent cost of $105,000.
TABLE 4.—Total Hour Burden and Equivalent Cost
Number
(A)
Hours
(B)
Hourly Labor
Cost
(C)
Hour Burden
A*B
Equivalent Cost
A*B*C
Record Keeping (attorney):
individual7,3500.08$119613$72,906
Record Kee
ping(clerical):
Individua
l
7,3500.17$261,225$32,022
Total1,838
$104,927
Because this burden is borne solely by
the insurers offering coverage in the indi-
vidual health insurance market, and these
issuers are assumed to process all claims
in-house, there is no annual cost burden
associated with this collection of informa-
tion.
These paperwork burden estimates are
summarized as follows:
Type of Review: New collection.
Agency: Department of Health and Hu-
man Services.
Title: Affordable Care Act Recordkeep-
ing Requirements.
OMB Number: 0938–1098.
Affected Public: For Profit Business.
Respondents:490.
Responses:7,350.
Frequency of Response: Occasionally.
Estimated Total Annual Burden Hours:
1800 hours.
Estimated Total Annual Burden Cost:
$0.
If you comment on any of these infor-
mation collection requirements, please do
either of the following:
1. Submit your comments electroni-
cally as specified in the ADDRESSES sec-
tion of this proposed rule; or
2. Submit your comments to the Office
of Information and Regulatory Affairs, Of-
fice of Management and Budget,
Attention:CMS Desk Officer,
OCIIO–9994–IFC
Fax: (202) 395 6974; or
Email:OIRA_submis-
sion@omb.eop.gov
F.Congressional Review Act
These interim final regulations are
subject to the Congressional Review Act
provisions of the Small Business Regula-
tory Enforcement Fairness Act of 1996 (5
U.S.C. 801et seq.) and have been trans-
mitted to Congress and the Comptroller
General for review.
G.Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act of
1995 (Public Law 104–4) requires agen-
cies to prepare severalanalytic statements
before proposing any rules that may re-
sult in annual expenditures of $100 million
(as adjusted for inflation) by State, local
and tribal governments or the private sec-
tor. These interim final regulations are not
subject to the Unfunded Mandates Reform
Act because they are being issued as in-
terim final regulations. However, consis-
tent with the policy embodied in the Un-
funded Mandates Reform Act, the regu-
58
The special rules in the DOL claims procedure regulation applicable only to multiemployer plans, as described earlier in this preamble, do not apply to health insurance issuers in the
individual market.
October 25, 20105222010–43 I.R.B.

lation 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.
H.Federalism Statement—Department
of Labor and Department of Health and
Human Services
Executive Order 13132 outlines fun-
damental principles of federalism, and
requires the adherence to specific criteria
by Federal agencies in the process of their
formulation and implementation of poli-
cies that have “substantial direct effects”
on the States, the relationship between the
national government and States, or on the
distribution of power and responsibilities
among the various levels of government.
Federal agencies promulgating regulations
that have 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 interim
final regulations have federalism impli-
cations, because they have direct effects
on the States, the relationship between
the national government and States, or on
the distribution of power and responsibili-
ties among various levels of government.
However, in the Departments’ view, the
federalism implications of these interim fi-
nal regulations are substantially mitigated
because, with respect to health insurance
issuers, the Departments expect that the
majority of States will enact laws or take
other appropriate action to implement an
internal and external appeals process that
will meet or exceed federal standards.
In general, through section 514, ERISA
supersedes State laws to the extent that
they relate to any covered employee ben-
efit plan, and preserves State laws that
regulate insurance, banking, or securities.
While ERISA prohibits States from regu-
lating a plan as an insurance or investment
company or bank, the preemption provi-
sions of section 731 of ERISA and section
2724 of the PHS Act (implemented in 29
CFR 2590.731(a) and 45 CFR 146.143(a))
apply so that the HIPAA requirements (in-
cluding those of the Affordable Care Act)
are not to be ’’construed to supersede any
provision of State law which establishes,
implements, or continues in effect any
standard or requirement solely relating
to health insurance issuers in connection
with group health insurance coverage ex-
cept to the extent that such standard or
requirement prevents the application of a
requirement” of a Federal standard. The
conference report accompanying HIPAA
indicates that this is intended to be the
’’narrowest’’ preemption of State laws.
(See House Conf. Rep. No. 104–736, at
205, reprinted in 1996 U.S. Code Cong. &
Admin. News 2018.) States may continue
to apply State law requirements except to
the extent that such requirements prevent
the application of the Affordable Care
Act requirements that are the subject of
this rulemaking. State insurance laws
that are more stringent than the Federal
requirements are unlikely to ’’prevent the
application of’’ the Affordable Care Act,
and be preempted. Accordingly, States
have significant latitude to impose re-
quirements on health insurance issuers
that are more restrictive than the Federal
law. Furthermore, the Departments have
opined that, in the instance of a group
health plan providing coverage through
group health insurance, the issuer will be
required to follow the external review pro-
cedures established in State law (assuming
the State external review procedure meets
the minimum standards set out in these
interim final rules).
In compliance with the requirement of
Executive Order 13132 that agencies ex-
amine closely any policies that may have
federalism implications or limit the pol-
icy making discretion of the States, the
Departments have engaged in efforts to
consult with and work cooperatively with
affected State and localofficials, includ-
ing attending conferences of the National
Association of Insurance Commissioners,
meeting with NAIC staff counsel on is-
sues arising from these interim final reg-
ulations and consulting with State insur-
ance officials on an individual basis. It
is expected that the Departments will act
in a similar fashion in enforcing the Af-
fordable Care Act requirements, including
the provisions of section 2719 of the PHS
Act. Throughout the process of develop-
ing these interim final regulations, to the
extent feasible within the specific preemp-
tion provisions of HIPAA as it applies to
the Affordable Care Act, the Departments
have attempted to balance the States’ in-
terests in regulating health insurance is-
suers, and Congress’ intent to provide uni-
form minimum protections to consumers
in every State. By doing so, it is the De-
partments’ view that they have complied
with the requirements of Executive Order
13132.
V. Statutory Authority
The Department of the Treasury tem-
porary regulations are adopted pursuant to
the authority contained in sections 7805
and 9833 of the Code.
The Department of Labor interim final
regulations are adopted pursuant to the
authority contained in 29 U.S.C. 1027,
1059, 1135, 1161–1168, 1169, 1181–1183,
1181 note, 1185, 1185a, 1185b, 1191,
1191a, 1191b, and 1191c; sec. 101(g),
Pub. L.104–191, 110 Stat. 1936; sec.
401(b), Pub. L. 105–200, 112 Stat. 645
(42 U.S.C. 651 note); sec. 512(d), Pub. L.
110–343, 122 Stat. 3881; sec. 1001, 1201,
and 1562(e), Pub. L. 111–148, 124 Stat.
119, as amended by Pub. L. 111–152, 124
Stat. 1029; Secretary of Labor’s Order
6–2009, 74 FR 21524 (May 7, 2009).
The Department of Health and Hu-
man Services interim final regulations are
adopted pursuant to the authority con-
tained in sections 2701 through 2763,
2791, and 2792 of the PHS Act (42 USC
300gg through 300gg–63, 300gg–91, and
300gg–92), as amended.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement,
Internal Revenue Service.
ApprovedJuly 19, 2010.
Michael F. Mundaca,
Assistant Secretary of
theTreasury(TaxPolicy).
Signed this16thday ofJuly, 2010.
Phyllis C. Borzi,
Assistant Secretary
Employee Benefits
Security Administration
Department of Labor.
Dated:July 19, 2010.
2010–43 I.R.B.523October 25, 2010

Jay Angoff,
Director,
Office of Consumer Information
and Insurance Oversight.
Dated:July 19, 2010.
Kathleen Sebelius,
Secretary,
Department of Health
and Human Services.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Chapter 1
Accordingly, 26 CFR Parts 54 and 602
are amended as follows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation for
part 54 is amended by adding an entry
for §54.9815–2719T in numerical order to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.9815–2719T also issued un-
der 26 U.S.C. 9833.
Par. 2. Section 54.9815–2719T is
added to read as follows:
§54.9815–2719T Internal claims and
appeals and external review processes
(temporary).
(a)Scope and definitions—(1)Scope.
This section sets forth requirements with
respect to internal claims and appeals and
external review processes for group health
plans and health insurance issuers that
are not grandfathered health plans under
§54.9815–1251T. Paragraph (b) of this
section provides requirements for internal
claims and appeals processes. Paragraph
(c) of this section sets forth rules gov-
erning the applicability of State external
review processes. Paragraph (d) of this
section sets forth a Federal external re-
view process for plans and issuers not
subject to an applicable State external re-
view process. Paragraph (e) of this section
prescribes requirements for ensuring that
notices required to be provided under this
section are provided in a culturally and lin-
guistically appropriate manner. Paragraph
(f) of this section describes the authority
of the Secretary to deem certain external
review processes in existence on March
23, 2010 as in compliance with paragraph
(c) or (d) of this section. Paragraph (g) of
this section sets forth the applicability date
for this section.
(2)Definitions. For purposes of this
section, the following definitions apply —
(i)Adverse benefit determination.An
adverse benefit determinationmeans an
adverse benefit determination as defined
in 29 CFR 2560.503–1, as well as any
rescission of coverage, as described in
§54.9815–2712T(a)(2) (whether or not, in
connection with the rescission, there is an
adverse effect on any particular benefit at
that time).
(ii)Appeal (or internal appeal).An
appealorinternal appealmeans review
by a plan or issuer of an adverse benefit
determination, as required in paragraph (b)
of this section.
(iii)Claimant.Claimantmeans an indi-
vidual who makes a claim under this sec-
tion. For purposes of this section, refer-
ences to claimant include a claimant’s au-
thorized representative.
(iv)External review.External review
means a review of an adverse benefit
determination (including a final internal
adverse benefit determination) conducted
pursuant to an applicable State external re-
view process described in paragraph (c) of
this section or the Federal external review
process of paragraph (d) of this section.
(v)Final internal adverse benefit deter-
mination.Afinal internal adverse bene-
fit determinationmeans an adverse bene-
fit determination that has been upheld by a
plan or issuer at the completion of the inter-
nal appeals process applicable under para-
graph (b) of this section (or an adverse ben-
efit determination with respect to which
the internal appeals process has been ex-
hausted under the deemed exhaustion rules
of paragraph (b)(2)(ii)(F) of this section).
(vi)Final external review decision.A
final external review decision,asusedin
paragraph (d) of this section, means a de-
termination by an independent review or-
ganization at the conclusion of an external
review.
(vii)Independent review organization
(or IRO).Anindependent review organi-
zation(orIRO) means an entity that con-
ducts independent external reviews of ad-
verse benefit determinations and final in-
ternal adverse benefit determinations pur-
suant to paragraph (c) or (d) of this section.
(viii)NAIC Uniform Model Act.The
NAIC Uniform Model Actmeans the Uni-
form Health Carrier External Review
Model Act promulgated by the National
Association of Insurance Commissioners
in place on July 23, 2010.
(b)Internal claims and appeals
process—(1)In general. A group health
plan and a health insurance issuer offer-
ing group health insurance coverage must
implement an effective internal claims
and appeals process, as described in this
paragraph (b).
(2)Requirements for group health plans
and group health insurance issuers.A
group health plan and a health insurance is-
suer offering group health insurance cover-
age must comply with all the requirements
of this paragraph (b)(2). In the case of
health insurance coverage offered in con-
nection with a group health plan, if ei-
ther the plan or the issuer complies with
the internal claims and appeals process of
this paragraph (b)(2), then the obligation to
comply with this paragraph (b)(2) is satis-
fied for both the plan and the issuer with
respect to the health insurance coverage.
(i)Minimum internal claims and ap-
peals standards. A group health plan
and a health insurance issuer offering
group health insurance coverage must
comply with all the requirements applica-
ble to group health plans under 29 CFR
2560.503–1, except to the extent those
requirements are modified by paragraph
(b)(2)(ii) of this section. Accordingly,
under this paragraph (b), with respect to
health insurance coverage offered in con-
nection with a group health plan, the group
health insurance issuer is subject to the
requirements in 29 CFR 2560.503–1 to the
same extent as the group health plan.
(ii)Additional standards. In addition
to the requirements in paragraph (b)(2)(i)
of this section, the internal claims and ap-
peals processes of a group health plan and
a health insurance issuer offering group
health insurance coverage must meet the
requirements of this paragraph (b)(2)(ii).
(A)Clarification of meaning of adverse
benefit determination. For purposes of
this paragraph (b)(2), an “adverse benefit
determination” includes an adverse bene-
fit determination as defined in paragraph
(a)(2)(i) of this section. Accordingly, in
complying with 29 CFR 2560.503–1, as
well as the other provisions of this para-
graph (b)(2), a plan or issuer must treat
October 25, 20105242010–43 I.R.B.

a rescission of coverage (whether or not
the rescission has an adverse effect on any
particular benefit at that time) as an ad-
verse benefit determination. (Rescissions
of coverage are subject to the requirements
of §54.9815–2712T.)
(B)Expedited notification of bene-
fit determinations involving urgent care.
Notwithstanding the rule of 29 CFR
2560.503–1(f)(2)(i) that provides for noti-
fication in the case of urgent care claims
not later than 72 hours after the receipt
of the claim, for purposes of this para-
graph (b)(2), a plan and issuer must notify
a claimant of a benefit determination
(whether adverse or not) with respect to
a claim involving urgent care as soon as
possible, taking into account the medical
exigencies, but not later than 24 hours
after the receipt of the claim by the plan
or issuer, unless the claimant fails to pro-
vide sufficient information to determine
whether, or to what extent, benefits are
covered or payable under the plan or health
insurance coverage. The requirements of
29 CFR 2560.503–1(f)(2)(i) other than the
rule for notification within 72 hours con-
tinue to apply to the plan and issuer. For
purposes of this paragraph (b)(2)(ii)(B), a
claim involving urgent care has the mean-
ing given in 29 CFR 2560.503–1(m)(1).
(C)Full and fair review. A plan and is-
suer must allow a claimant to review the
claim file and to present evidence and tes-
timony as part of the internal claims and
appeals process. Specifically, in addition
to complying with the requirements of 29
CFR 2560.503–1(h)(2) —
(1) The plan or issuer must provide the
claimant, free of charge, with any new
or additional evidence considered, relied
upon, or generated by the plan or issuer (or
at the direction of the plan or issuer) in con-
nection with the claim; such evidence must
be provided as soon as possible and suf-
ficiently in advance of the date on which
the notice of final internal adverse bene-
fit determination is required to be provided
under 29 CFR 2560.503–1(i) to give the
claimant a reasonable opportunity to re-
spond prior to that date; and
(2) Before the plan or issuer can issue
a final internal adverse benefit determina-
tion based on a new or additional ratio-
nale, the claimant must be provided, free
of charge, with the rationale; the ratio-
nale must be provided as soon as possible
and sufficiently in advance of the date on
which the notice of final internal adverse
benefit determination is required to be pro-
vided under 29 CFR 2560.503–1(i) to give
the claimant a reasonable opportunity to
respond prior to that date.
(D)Avoiding conflicts of interest.In
addition to the requirements of 29 CFR
2560.503–1(b) and (h) regarding full and
fair review, the plan and issuer must ensure
that
all claims and appeals are adjudicated
in a manner designed to ensure the inde-
pendence and impartiality of the persons
involved in making the decision. Accord-
ingly, decisions regarding hiring, compen-
sation, termination, promotion, or other
similar matters with respect to any individ-
ual (such as a claims adjudicator or medi-
cal expert) must not be made based upon
the likelihood that the individual will sup-
port the denial of benefits.
(E)Notice. A plan and issuer must
provide notice to individuals, in a cultur-
ally and linguisticallyappropriate manner
(as described in paragraph (e) of this sec-
tion) that complies with the requirements
of 29 CFR 2560.503–1(g) and (j). The
plan and issuer must also comply with the
additional requirements of this paragraph
(b)(2)(ii)(E).
(1) The plan and issuer must ensure that
any notice of adverse benefit determina-
tion or final internal adverse benefit deter-
mination includes information sufficient to
identify the claim involved (including the
date of service, the health care provider,
the claim amount (if applicable), the diag-
nosis code and its corresponding meaning,
and the treatment codeand its correspond-
ing meaning).
(2) The plan and issuer must ensure that
the reason or reasons for the adverse bene-
fit determination or final internal adverse
benefit determination includes the denial
code and its corresponding meaning, as
well as a description of the plan’s or is-
suer’s standard, if any, that was used in
denying the claim. In the case of a notice
of final internal adverse benefit determina-
tion, this description must include a dis-
cussion of the decision.
(3) The plan and issuer must provide
a description of available internal appeals
and external review processes, including
information regarding how to initiate an
appeal.
(4) The plan and issuer must disclose
the availability of, and contact information
for, any applicable office of health insur-
ance consumer assistance or ombudsman
established under PHS Act section 2793 to
assist individuals with the internal claims
and appeals and external review processes.
(F)Deemed exhaustion of internal
claims and appeals processes. In the case
of a plan or issuer that fails to strictly
adhere to all the requirements of this para-
graph (b)(2) with respect to a claim, the
claimant is deemed to have exhausted the
internal claims and appeals process of this
paragraph (b), regardless of whether the
plan or issuer asserts that it substantially
complied with the requirements of this
paragraph (b)(2) or that any error it com-
mitted wasde minimis. Accordingly the
claimant may initiate an external review
under paragraph (c) or (d) of this section,
as applicable. The claimant is also en-
titled to pursue any available remedies
under section 502(a) of ERISA or under
State law, as applicable, on the basis that
the plan or issuer has failed to provide
a reasonable internal claims and appeals
process that would yield a decision on the
merits of the claim. If a claimant chooses
to pursue remedies under section 502(a)
of ERISA under such circumstances, the
claim or appeal is deemed denied on re-
view without the exercise of discretion by
an appropriate fiduciary.
(iii)Requirement to provide contin-
ued coverage pending the outcome of an
appeal. A plan and issuer subject to the
requirements of this paragraph (b)(2) are
required to provide continued coverage
pending the outcome of an appeal. For
this purpose, the plan and issuer must
comply with the requirements of 29 CFR
2560.503–1(f)(2)(ii), which generally pro-
vides that benefits for an ongoing course
of treatment cannot be reduced or termi-
nated without providing advance notice
and an opportunity for advance review.
(c)State standards for external re-
view—(1)In general. (i) If a State external
review process that applies to and is bind-
ing on a health insurance issuer offering
group health insurance coverage includes
at a minimum the consumer protections in
the NAIC Uniform Model Act, then the
issuer must comply with the applicable
State external review process and is not
required to comply with the Federal ex-
ternal review process of paragraph (d) of
this section. In such a case, to the extent
that benefits under a group health plan are
2010–43 I.R.B.525October 25, 2010

provided through health insurance cover-
age, the group health plan is not required
to comply with either this paragraph (c)
or the Federal external review process of
paragraph (d) of this section.
(ii) To the extent that a group health
plan provides benefits other than through
health insurance coverage (that is, the plan
is self-insured) and is subject to a State ex-
ternal review process that applies to and
is binding on the plan (for example, is not
preempted by ERISA) and the State exter-
nal review process includes at a minimum
the consumer protections in the NAIC Uni-
form Model Act, then the plan must com-
ply with the applicable State external re-
view process and is not required to comply
with the Federal external review process of
paragraph (d) of this section.
(iii) If a plan or issuer is not required un-
derparagraph(c)(1)(i)or(c)(1)(ii)ofthis
sectiontocomplywiththerequirementsof
this paragraph (c), then the plan or issuer
must comply with the Federal external re-
view process of paragraph (d) of this sec-
tion, except to the extent, in the case of a
plan, the plan is not required under para-
graph (c)(1)(i) of this section to comply
with paragraph (d) of this section.
(2)Minimum standards for State ex-
ternal review processes. An applicable
State external review process must meet
all the minimum consumer protections in
this paragraph (c)(2). The Department of
Health and Human Services will determine
whether State external review processes
meet these requirements.
(i) The State process must provide for
the external review of adverse benefit de-
terminations (including final internal ad-
verse benefit determinations) by issuers
(or, if applicable, plans) that are based on
the issuer’s (or plan’s) requirements for
medical necessity, appropriateness, health
care setting, level of care, or effectiveness
of a covered benefit.
(ii) The State process must require is-
suers (or, if applicable, plans) to provide
effective written notice to claimants of
their rights in connection with an external
review for an adverse benefit determina-
tion.
(iii) To the extent the State process re-
quires exhaustion of an internal claims and
appeals process, exhaustion must be un-
necessary where the issuer (or, if appli-
cable, the plan) has waived the require-
ment, the issuer (or the plan) is consid-
ered to have exhausted the internal claims
and appeals process under applicable law
(including by failing to comply with any
of the requirements for the internal appeal
process, as outlined in paragraph (b)(2) of
this section), or the claimant has applied
for expedited external review at the same
time as applying for an expedited internal
appeal.
(iv) The State process provides that the
issuer (or, if applicable, the plan) against
which a request for external review is filed
must pay the cost of the IRO for conduct-
ing the external review. Notwithstanding
this requirement, the State external review
process may require a nominal filing fee
from the claimant requesting an external
review. For this purpose, to be considered
nominal, a filing fee must not exceed $25,
it must be refunded to the claimant if the
adverse benefit determination (or final in-
ternal adverse benefit determination) is re-
versed through external review, it must be
waived if payment of the fee would impose
an undue financial hardship, and the an-
nual limit on filing fees for any claimant
within a single plan year must not exceed
$75.
(v) The State process may not impose a
restriction on the minimum dollar amount
ofaclaimforittobeeligibleforexter-
nal review. Thus, the process may not im-
pose, for example, a $500 minimum claims
threshold.
(vi) The State process must allow at
least four months after the receipt of a no-
tice of an adverse benefit determination
or final internal adverse benefit determina-
tion for a request for an external review to
be filed.
(vii) The State process must provide
that IROs will be assigned on a random ba-
sis or another method of assignment that
assures the independence and impartiality
of the assignment process (such as rota-
tional assignment) by a State or indepen-
dent entity, and in no event selected by the
issuer, plan, or the individual.
(viii) The State process must provide
for maintenance of a list of approved IROs
qualified to conduct the external review
based on the nature of the health care ser-
vice that is the subject of the review. The
State process must provide for approval
only of IROs that are accredited by a na-
tionally recognized private accrediting or-
ganization.
(ix) The State process must provide that
any approved IRO has no conflicts of in-
terest that will influence its independence.
Thus, the IRO may not own or control, or
be owned or controlled by a health insur-
ance issuer, a group health plan, the spon-
sor of a group health plan, a trade asso-
ciation of plans or issuers, or a trade as-
sociation of health care providers. The
State process must further provide that the
IRO and the clinical reviewer assigned to
conduct an external review may not have
a material professional, familial, or finan-
cial conflict of interest with the issuer or
plan that is the subject of the external re-
view; the claimant (and any related par-
ties to the claimant) whose treatment is
the subject of the external review; any of-
ficer, director, or management employee
of the issuer; the plan administrator, plan
fiduciaries, or planemployees; the health
care provider, the health care provider’s
group, or practice association recommend-
ing the treatment that is subject to the ex-
ternal review; the facility at which the rec-
ommended treatment would be provided;
or the developer or manufacturer of the
principal drug, device, procedure, or other
therapy being recommended.
(x) The State process allows the
claimant at least five business days to
submit to the IRO in writing additional
information that the IRO must consider
when conducting the external review and
it requires that the claimant is notified of
the right to do so. The process must also
require that any additional information
submitted by the claimant to the IRO must
be forwarded to the issuer (or, if applica-
ble, the plan) within one business day of
receipt by the IRO.
(xi) The State process must provide
that the decision is binding on the issuer
(or, if applicable, the plan), as well as the
claimant except to the extent that other
remedies are available under State or Fed-
eral law.
(xii) The State process must require,
for standard external review, that the IRO
provide written notice to the claimant and
the issuer (or, if applicable, the plan) of
its decision to uphold or reverse the ad-
verse benefit determination (or final inter-
nal adverse benefit determination) within
no more than 45 days after the receipt of
the request for external review by the IRO.
(xiii) The State process must provide
for an expedited external review if the ad-
October 25, 20105262010–43 I.R.B.

verse benefit determination (or final in-
ternal adverse benefit determination) con-
cerns an admission, availability of care,
continued stay, or health care service for
which the claimant received emergency
services, but has not been discharged from
a facility; or involves a medical condi-
tion for which the standard external review
time frame would seriously jeopardize the
life or health of the claimant or jeopardize
the claimant’s ability to regain maximum
function. As expeditiously as possible but
within no more than 72 hours after the re-
ceipt of the request for expedited external
review by the IRO, the IRO must make its
decision to uphold or reverse the adverse
benefit determination (or final internal ad-
verse benefit determination) and notify the
claimant and the issuer (or, if applicable,
the plan) of the determination. If the no-
tice is not in writing, the IRO must provide
written confirmation of the decision within
48 hours after the date of the notice of the
decision.
(xiv) The State process must require
that issuers (or, if applicable, plans) in-
clude a description of the external review
process in or attached to the summary plan
description, policy,certificate, member-
ship booklet, outline of coverage, or other
evidence of coverage it provides to partic-
ipants, beneficiaries, or enrollees, substan-
tially similar to what is set forth in section
17 of the NAIC Uniform Model Act.
(xv) The State process must require that
IROs maintain written records and make
them available upon request to the State,
substantially similar to what is set forth in
section15oftheNAICUniformModel
Act.
(xvi) The State process follows proce-
dures for external review of adverse bene-
fit determinations (or final internal adverse
benefit determinations) involving experi-
mental or investigational treatment, sub-
stantially similar to what is set forth in sec-
tion 10 of the NAIC Uniform Model Act.
(3)Transition period for existing exter-
nal review processes—(i) For plan years
beginning before July 1, 2011, an applica-
ble State external review process applica-
ble to a health insurance issuer or group
health plan is considered to meet the re-
quirements of this paragraph (c). Accord-
ingly, for plan years beginning before July
1, 2011, an applicable State external re-
view process will be considered binding
on the issuer or plan (in lieu of the re-
quirements of the Federal external review
process). If there is no applicable State ex-
ternal review process, the issuer or plan is
requiredtocomplywiththerequirements
of the Federal external review process in
paragraph (d) of this section.
(ii) For final internal adverse benefit de-
terminations (or, in the case of simulta-
neous internal appeal and external review,
adverse benefit determinations) provided
after the first day of the first plan year be-
ginning on or after July 1, 2011, the Fed-
eral external review process will apply un-
less the Department of Health and Human
Services determines that a State law meets
all the minimum standards of paragraph
(c)(2) of this section as of the first day of
the plan year.
(d)Federal external review process.A
plan or issuer not subject to an applicable
State external review process under para-
graph (c) of this section must provide an
effective Federal external review process
in accordance with this paragraph (d) (ex-
cept to the extent, in the case of a plan, the
plan is described in paragraph (c)(1)(i) of
this section as not having to comply with
this paragraph (d)). In the case of health
insurance coverage offered in connection
with a group health plan, if either the plan
or the issuer complies with the Federal ex-
ternal review process of this paragraph (d),
thentheobligationtocomplywiththis
paragraph (d) is satisfied for both the plan
and the issuer with respect to the health in-
surance coverage.
(1)Scope. The Federal external review
process established pursuant to this para-
graph (d) applies to any adverse benefit de-
termination or final internal adverse bene-
fit determination as defined in paragraphs
(a)(2)(i) and (a)(2)(v) of this section, ex-
cept that a denial, reduction, termination,
or a failure to provide payment for a ben-
efit based on a determination that a partic-
ipant or beneficiary fails to meet the re-
quirements for eligibility under the terms
of a group health plan is not eligible for the
external review process under this para-
graph (d).
(2)External review process standards.
The Federal external review process es-
tablished pursuant to this paragraph (d)
will be similar to the process set forth in
the NAIC Uniform Model Act and will
meet standards issued by the Secretary.
These standards will comply with all of the
requirements described in this paragraph
(d)(2).
(i) These standards will describe how a
claimant initiates an external review, pro-
cedures for preliminary reviews to deter-
mine whether a claim is eligible for ex-
ternal review, minimum qualifications for
IROs, a process for approving IROs eligi-
ble to be assigned to conduct external re-
views, a process for random assignment of
external reviews to approved IROs, stan-
dards for IRO decision-making, and rules
for providing notice of a final external re-
view decision.
(ii) These standards will provide an ex-
pedited external review process for —
(A) An adverse benefit determination,
if the adverse benefit determination in-
volves a medical condition of the claimant
for which the timeframe for completion
of an expedited internal appeal under
paragraph (b) of this section would se-
riously jeopardize the life or health of
the claimant, or would jeopardize the
claimant’s ability to regain maximum
function and the claimant has filed a re-
quest for an expedited internal appeal
under paragraph (b) of this section; or
(B) A final internal adverse benefit
determination, if the claimant has a med-
ical condition where the timeframe for
completion of a standard external review
pursuant to paragraph (d)(3) of this sec-
tion would seriously jeopardize the life or
health of the claimant or would jeopardize
the claimant’s ability to regain maximum
function, or if the final internal adverse
benefit determination concerns an admis-
sion, availability of care, continued stay, or
health care service for which the claimant
received emergency services, but has not
been discharged from a facility.
(iii) With respectto claims involving
experimental or investigational treatments,
these standards will also provide addi-
tional consumer protections to ensure that
adequate clinical and scientific experience
and protocols are taken into account as
part of the external review process.
(iv) These standards will provide that an
external review decision is binding on the
plan or issuer, as well as the claimant, ex-
cept to the extent other remedies are avail-
able under State or Federal law.
(v) These standards may establish ex-
ternal review reporting requirements for
IROs.
2010–43 I.R.B.527October 25, 2010

(vi) These standards will establish addi-
tional notice requirements for plans and is-
suers regarding disclosures to participants
and beneficiaries describing the Federal
external review procedures (including the
right to file a request for an external review
of an adverse benefit determination or a fi-
nal internal adverse benefit determination
in the summary plan description, policy,
certificate, membership booklet, outline of
coverage, or other evidence of coverage it
provides to participants or beneficiaries).
(vii) These standards will require plans
and issuers to provide information relevant
to the processing of the external review, in-
cluding, but not limited to, the information
considered and reliedoninmakingthead-
verse benefit determination or final inter-
nal adverse benefit determination.
(e)Form and manner of notice.(1)For
purposes of this section, a group health
plan and health insurance issuer offering
group health insurance coverage are con-
sidered to provide relevant notices in a cul-
turally and linguistically appropriate man-
ner—
(i) For a plan that covers fewer than 100
participants at the beginning of a plan year,
if the plan and issuer provide notices upon
request in a non-English language in which
25 percent or more of all plan participants
are literate only in the same non-English
language; or
(ii) For a plan that covers 100 or more
participants at the beginning of a plan year,
if the plan and issuer provide notices upon
request in a non-English language in which
the lesser of 500 or more participants, or
10 percent or more of all plan participants,
are literate only in the same non-English
language.
(2) If an applicable threshold described
in paragraph (e)(1) of this section is met,
the plan and issuer must also—
(i) Include a statement in the English
versions of all notices, prominently dis-
played in the non-English language, offer-
ingtheprovisionofsuchnoticesinthe
non-English language;
(ii) Once a request has been made by a
claimant, provide all subsequent notices to
the claimant in the non-English language;
and
(iii) To the extent the plan or issuer
maintains a customer assistance process
(such as a telephone hotline) that answers
questions or provides assistance with filing
claims and appeals, the plan or issuer must
provide such assistance in the non-English
language.
(f)Secretarial authority. The Secretary
may determine that the external review
process of a group health plan or health in-
surance issuer, in operation as of March 23,
2010, is considered in compliance with the
applicable process established under para-
graph (c) or (d) of this section if it substan-
tially meets the requirements of paragraph
(c) or (d) of this section, as applicable.
(g)Applicability/effective date.The
provisions of this section apply for plan
years beginning on or after September
23, 2010. See §54.9815–1251T for deter-
mining the application of this section to
grandfathered health plans (providing that
these rules regarding internal claims and
appeals and external review processes do
not apply to grandfathered health plans).
(h)Expiration date. The applicability
of this section expires on July 22, 2013 or
on such earlier date as may be provided in
final regulations or other action published
in theFederal Register.
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.
*******
54.9815–2719T
...........................................................
1545–2182
*******
(Filed by the Office of the Federal Register on July 22, 2010,
8:45 a.m
., and published in the issue of the Federal Register
for July 23, 2010, 75 F.R. 43329)
October 25, 20105282010–43 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Information Reporting
Requirements Relating to
Transfers of Securities
Notice 2010–67
PURPOSE
This notice provides transitional relief
from the information reporting require-
ments in section 6045A of the Internal
Revenue Code (“Code”) that apply be-
ginning in 2011 to transfers of securities
by brokers and other custodians. The no-
tice provides that, solely for transfers of
stock in 2011 described in the notice, the
Internal Revenue Service will not assert
penalties for failure to furnish a transfer
statement under section 6045A and that
the transferred stock may be treated as a
noncovered security upon its subsequent
sale or transfer.
BACKGROUND
Section 403 of the Energy Improve-
ment and Extension Act of 2008, Div. B
of Pub. L. No. 110–343, 122 Stat. 3765,
enacted on October 3, 2008, added sec-
tions 6045(g), 6045A, and 6045B to the
Code. Section 6045(g) provides that, in
the case of a covered security, every bro-
ker required to report the gross proceeds
from the sale of the security under section
6045(a) must also report the customer’s
adjusted basis in thesecurity and whether
any gain or loss with respect to the security
is long-term or short-term. The report-
ing is generally done on Form 1099-B,
“Proceeds from Broker and Barter Ex-
change Transactions.” A covered security
includes all stock acquired beginning in
2011 except stock in a regulated invest-
ment company for which the average basis
method is available and stock acquired in
connection with a dividend reinvestment
plan, both of which are covered securities
if acquired beginning in 2012. A noncov-
ered security is any security that is not a
covered security.
To enable brokers to meet the require-
ments of section 6045(g) for securities
transferred between accounts, section
6045A provides that, beginning in 2011, a
broker and any other person specified in
Treasury Regulations that transfers cus-
tody of a covered security to a receiving
broker must furnish to the receiving broker
a written statement that allows the receiv-
ing broker to satisfy the basis reporting
requirements of section 6045(g). Except
as provided by the Secretary, the statement
must be furnished to the receiving broker
within fifteen days after the date of the
transfer. A covered security remains a
covered security if transferred, but only
if the receiving broker receives a transfer
statement for the transfer.
To enable brokers to meet the require-
ments of section 6045(g) after an issuer of
stock takes an organizational action such
as a stock split, merger, or acquisition that
affects basis, section 6045B provides that,
beginning in 2011, an issuer must report
to the Service and to each stockholder or
nominee a description of any such action
and the quantitativeeffect of that action
on basis. This requirement does not apply
until 2012 to regulated investment compa-
nies.
On December 17, 2009, the Treasury
Department and the Service published a
notice of proposed rulemaking and no-
tice of public hearing (REG–101896–09,
2010–5 I.R.B. 347 [74 FR 67010]), on the
information reporting requirements un-
der sections 6045(g), 6045A, and 6045B.
Many commenters on the proposed reg-
ulations stated that brokers and other
custodians may have insufficient time to
make programming changes necessary
to comply in 2011 with final regulations.
Commenters requested relief in 2011 from
the transfer statement requirement under
section 6045A in order to allow indus-
try to focus initially on building the core
systems for reporting the sale of covered
securities under section 6045(g) beginning
in 2011. However, commenters stated
that existing systems could accommodate
reporting for any transfer of stock that is
incidental to the stock’s purchase or sale
using a cash-on-delivery account or mul-
tiple broker arrangement. See Treas. Reg.
§1.6045–1(c)(3)(iii)-(iv).
TRANSITIONAL RELIEF FOR
CERTAIN 2011 TRANSFERS
Section 6722 imposes a penalty on any
transferor that fails to timely furnish a
correct transfer statement under section
6045A to the receiving broker. In order to
promote industry readiness to comply with
the reporting requirements for the sale of
covered securities under section 6045(g)
beginning in 2011, the Service will not
assert penalties under section 6722 for a
failure to furnish a transfer statement un-
der section 6045A for any transfer of stock
in 2011 that is not incidental to the stock’s
purchase or sale as described in Treas.
Reg. §1.6045A–1(a)(1)(ii). Further, a
receiving broker may treat this stock as a
noncovered security.
DRAFTING INFORMATION
The principal author of this notice
is Stephen Schaeffer of the Office of
Associate Chief Counsel (Procedure &
Administration). For further informa-
tion regarding this notice, please contact
Stephen Schaeffer at (202) 622–4910 (not
a toll-free call).
2010–43 I.R.B.529October 25, 2010

Use this revenue procedure to prepare Tax Year 2010 and prior year information returns for submission to Internal Revenue Service
(IRS) electronically using theFiling Information Returns Electronically (FIRE) System.
Rev. Proc. 2010–38
TABLE OF CONTENTS
Part A. General
SEC. 1. PURPOSE................................................................................................. 531
SEC. 2. NATURE OF CHANGES..................................................................................... 531
SEC. 3. WHERE TO FILE AND HOW TO CONTACT THE IRS, INFORMATION RETURNS BRANCH (IRB).................. 531
SEC. 4. FORM 4419, APPLICATION FOR FILING INFORMATION RETURNS ELECTRONICALLY
(FIRE)
................................................................................................ 532
SEC. 5. FILING REQUIREMENTS.................................................................................. 532
SEC. 6. FILING OF INFORMATION RETURNS FOR FEDERAL CONTRACTS........................................... 534
SEC. 7. FILING DATES............................................................................................ 534
SEC. 8. HOW TO FILE CORRECTED RETURNS...................................................................... 534
SEC. 9. TAXPAYER IDENTIFICATION NUMBERS.................................................................... 537
SEC. 10. STATE ABBREVIATIONS.................................................................................. 537
Part B. Electronic Filing Specifications
SEC. 1. GENERAL................................................................................................ 538
SEC. 2. ELECTRONIC FILING APPROVAL PROCEDURE............................................................. 538
SEC. 3. ELECTRONIC SUBMISSIONS............................................................................... 538
SEC. 4. PIN REQUIREMENTS...................................................................................... 539
SEC. 5. ELECTRONIC FILING SPECIFICATIONS.................................................................... 539
SEC. 6. CONNECTING TO THE FIRE SYSTEM....................................................................... 539
SEC. 7. COMMON PROBLEMS AND QUESTIONS ASSOCIATED WITH E
LECTRONIC FILING
.........
.................. 541
Part C. Record Format Specifications and Record Layouts
SEC. 1. GENERAL................................................................................................. 542
SEC. 2. TRANSMITTER “T” RECORD — GENERAL FIELD DESCRIPTIONS............................................ 543
SEC. 3. TRANSMITTER “T” RECORD — RECORD LAYOUT.......................................................... 544
SEC. 4. PAYER “A” RECORD — GENERAL FIELD DESCRIPTIONS.................................................... 545
SEC. 5. PAYER “A” RECORD — RECORD LAYOUT.................................................................. 546
SEC. 6. PAYEE “B” RECORD — GENERAL FIELD DESCRIPTIONS.................................................... 547
SEC. 7. PAYEE “B” RECORD — RECORD LAYOUT................................................................... 552
SEC. 8. END OF PAYER “C” RECORD — GENERAL FIELD DESCRIPTIONS AND RECORD LAYOUT.................... 553
October 25, 20105302010–43 I.R.B.

SEC. 9. END OF TRANSMISSION “F” RECORD — GENERAL FIELD DESCRIPTIONS AND RECORD
LAYOUT
............................................................................................. 554
SEC. 10. FILE RECORD LAYOUT................................................................................... 555
Part A. General
Sec. 1. Purpose
.01Section 6050M of the Internal Revenue Code, which was addedby section 1522 of the Tax Reform Act of 1986 (Public Law
99–514) and amended by section 1015(f) of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100–647), requires
Federal Executive Agencies to file an information return with the Internal Revenue Service (IRS) reporting the name, address and Tax-
payer Identification Number (TIN) of each person and/or corporation with whom the agency enters into a contract, together with any
other information required by Treasury regulations. Such reporting is required when the contract amount equals or exceeds $25,000.00
including any amendments to the original contract.
.02The purpose of this revenue procedure is to provide the specifications for filing Form 8596, Information Return for Federal
Contracts, and Form 8596-A, Quarterly Transmittal of Information Returns for Federal Contracts, with IRS electronically through the
Filing Information Returns Electronically (FIRE) System.
.03This revenue procedure applies to Federal Executive Agencies, United States Postal Service and the Postal Rate Commission
with respect to reporting their contracts and contract amendments where the net value of the contract exceeds $25,000.00 Federal
Executive Agencies generally must report contracts in excess of $25,000.00 to the Federal Procurement Data Center (FPDC) and
therefore are permitted to make an election to have the FPDC file withthe Internal Revenue Service on their behalf. If the election is
made by the Federal Executive Agency, it must be made by the headof the Agency (or his or her delegate). The agency must not file
directly with IRS. See Part A, Section 5. Please read this Revenue Procedure carefully.
.04This Revenue Procedure supersedes Rev. Proc. 2008–49, reprinted as Publication 1516 (Rev. 2010–38), Specifications for
Filing Forms 8596, Information Returns for Federal Contracts, Electronically. Use this Revenue Procedure for filing Forms 8596
electronically for the quarter beginning January 2011.
Sec. 2. Nature of Changes
In this publication, all pertinent changes for Tax Year2010are emphasized by the use ofitalics. Portions of text that require special
attention are in boldface text. Filers are always encouraged to read the publication in its entirety.
.01Change in contact name from IRS/ECC-MTB to IRS/IRB (Information Returns Branch), Information Reporting Program to
Information Returns Branch and added Mail Stop 4360 to mailing address.
.02 Payer “A” Record, expanded Type of Return field from a one position to a two position field. Previously the field position
was 27, now it is field positions 26–27.
.03Technical security standards added to Part B, Sec. 6.06 for the FIRE System.
Sec.3.WheretoFileandHowtoContacttheIRS,InformationReturnsBranch
.01All information returns filed electronically are processed at IRS/IRB. Files containing information returns and requests for IRS
electronic filing information shouldbe sent to the following address:
Internal Revenue Service
Information Returns Branch
230 Murall Drive, Mail Stop 4360
Kearneysville, WV 25430
.02Telephone inquiries for the Information Reporting Program Customer Service Section may be made between 8:30 a.m. and
4:30 p.m. Eastern time, Monday through Friday.
.03The telephone numbers for electronic submission inquiries are:
2010–43 I.R.B.531October 25, 2010

Information Reporting Program Customer Service Section
TOLL-FREE 1–866–455–7438 or outside the U.S. 1–304–263–8700
304–579–4827 — TDD
(Telecommunication Device for the Deaf)
Toll-free — 877–477–0572 — Fax Machine
Outside the U.S. use 304–579–4105
Electronic Filing — FIRE system
http://fire.irs.gov
TO OBTAIN FORMS:
1–800–TAX–FORM (1–800–829–3676)
w
ww.irs.gov—IRS website access to forms
Sec. 4. Form 4419, Application for Filing Information Returns Electronically (FIRE)
.01Transmitters are required to submit Form 4419, Application for Filing Information Returns Electronically, to request authoriza-
tion to file information returns with IRS/IRB. A single Form 4419 should be filed no matter how many types of returns the transmitter
will be submitting electronically. For example, if a transmitterplans to file Forms 8596, one Form 4419 should be submitted. If, at a
later date, another type of form (Forms 1097, 1098, 1099, 3921, 3922, 5498 and W–2G) is to be filed, the transmitter does not need
to submit a new Form 4419.
Note: EXCEPTIONS — An additional Form 4419 is required for filing each of the following types of returns: Form 1042-S,
Foreign Person’s U.S. Source Income Subject to Withholding, Form 8027, Employer’s Annual Information Return of Tip
Income and Allocated Tips and Forms 8955-SSA, Annual Registration Statement Identifying Separated Participants with
Deferred Vested Benefits. See the back of Form 4419 for detailed instructions.
.02Electronically filed returns may not be submitted to IRS/IRB until the application has been approved. Please read the instruc-
tions on the back of Form 4419 carefully. Forms may be obtained by calling1–800–TAX–FORM (1–800–829–3676). The form is
also available on the IRS website atw
ww.irs.gov. This form may be photocopied.
.03Upon approval, a five-character alpha/numeric Transmitter Control Code (TCC) will be assigned and included in an approval
letter. The TCCmustbe coded in the Transmitter “T” Record. IRS/IRB usesthe TCC to identify payers/transmitters and to track
their files through theprocessing system.
.04Form 4419 may be submitted anytime during the year; however, itmustbe submitted to IRS/IRB at least 30 days before the
due date of the return(s) for current year processing. This will allow IRS/IRB the minimum amount of time necessary to process and
respond to applications.
.05Once a transmitter is approved to file electronically, it is not necessary to reapplyunless:
(a)The payer has discontinued filing electronically for two consecutive years. The payer’s TCC may have been reassigned by
IRS/IRB. Payers who are aware that their TCC will no longer be used are requested to notify IRS/IRB so these numbers
may be reassigned.
(b)The payer’s files were transmitted in the past by a service bureau using the service bureau’s TCC, but now the payer has
computer equipment compatible with that of IRS/IRB and wishes to prepare his or her own files. The payer must request a
TCC by filing Form 4419.
.06Ifanyof the information (name, TIN or address) on Form 4419 changes, please notify IRS/IRB in writing so the IRS/IRB
database can be updated. The transmitter should include the TCC in all correspondence.
.07Approval to file does not imply endorsement by IRS/IRB of any computer software or of the quality of tax preparation services
provided by a service bureau or software vendor.
Sec. 5. Filing Requirements
.01The requirements for Federal Contracts are governed by section 6011(e)(2)(A) and section 6050M of the Internal Revenue Code
and Regulation section 1.6050M–1. The term Federal Executive Agency means: (1) any Executive Agency (as defined in Section 105
of title 5, United States Code) other than the Government Accountability Office; (2) any military department as defined in section 102
of such title; and (3) the United States Postal Service and the Postal Rate Commission. AFederal Executive Agency that files 250 or
more reportable contracts during a one yearperiod, must file Form 8596 on an electronic file for each quarter of that one year period.
October 25, 20105322010–43 I.R.B.

.02The information returns required by this section with respect tocontracts of a Federal Executive Agency entered into on or
after January 1, 1989, must be filed on a quarterly basis for the calendar quarters ending on the last day of March, June, September,
and December, on or before the last day of the month following that quarter for which the returns are being made.
.03The information returns required by this section may be made in one submission or in multiple submissions.
.04If a Federal Executive Agency has reasonable expectations to enter into fewerthan 250 reportable contracts during a one year
period, the agency may file paper Forms 8596 and 8596-A to: Department of the Treasury, Internal Revenue Service Center, Kansas
City, MO 64999–2222.
.05 Election to have the Director of the Federal Procurement Data Center file returns on behalf of an agency.Except for
the U.S. Postal Service and the Postal RateCommission, a Federal Executive Agency may elect to have the Director of the Federal
Procurement Data Center (FPDC) file the required returns withIRS on behalf of the agency. Theagency must comply with the re-
quirements of the Federal Procurement Data System (FPDS) in submitting the information and must not file with the Internal Revenue
Service.
.06In order to make this election, the head of a Federal Executive Agency (or his or her delegate) shall attach a signed statement
to its submission to the FPDC for that quarter stating the following:
(a)The Director of the FPDC (or his or her delegate) is authorizedto submit the required returns on behalf of the agency for
contracts for that quarter in accordance with an election under 26 CFR, section 1.6050M–1(d)(5).
(b)Under the penalties of perjury, the official has examined the information submitted by the agency to the FPDC for use in
making returns to be submitted to the IRS and the official certifies that information to be, to the best of his or her knowledge
and belief, an accurate compilation of agency records maintained in the normal course of business for the purpose of making
true, correct, and complete returns as required by section 6050M.
.07An agency that elects to have the FPDC file its returns must not submit those same returns to the IRS.
.08If a contract is increased by more than $25,000.00 under one action,the action should be treated asa new contract and reported
to IRS for the calendar quarter in which theincrease occurs. This could occur through theexercise of an option contained in a basic or
initial contract or under any other rule of contract law, expressed or implied, when the amount of money or other property obligated
under the contract is increased by $25,000.00.
.09 Special rules to filing requirements are as follows:
(a)If a subcontract is entered into by the Small Business Administration (SBA) under a prime contract between SBA and a
procuring Federal agency pursuant to section 8(a) of the Small Business Act, the procuring agency, not the SBA, will be
required to file Forms 8596 and 8596-A.
(b)A Federal Supply Schedule Contract or an Automated Data Processing Schedule Contract entered into by the General Ser-
vices Administration (GSA), or a scheduled contract entered into by the Department of Veterans Affairs (VA) on behalf of
one or more Federal Executive Agencies, is not to be reported by the GSA or VA at the time of execution. When a Federal
Executive Agency, including the GSA or the VA, places an order under a schedule contract, the Federal Executive Agency
must file Forms 8596 and 8596-A.
.10 Exceptions:The following are not required to be reported under section 6050M:
(a)Any contract action of $25,000.00 or less;
(b)Any contract which provides that all amounts payable underthe contract by a Federal ExecutiveAgencywillbepaidonor
before the 120th day following the date of the contract action and for which it is reasonable to expect that all amounts will
be so paid;
(c)A license granted by a Federal Executive Agency;
(d)An obligation of a contractor (other than a Federal Executive Agency) to a subcontractor;
(e)Debt instruments of the U.S. Government or a Federal agency, such as Treasury Notes, Treasury Bonds, Treasury Bills,
U.S. Savings Bonds, or similar instruments;
(f)An obligation of a Federal Executive Agency to lend money, lease property to someone, or sell property;
(g)A blanket purchase agreement. However, when an order is placed under a blanket purchase agreement, a contract then
exists and Forms 8596 and 8596-A must be filed;
(h)Any contract with a contractor who, in making the agreement,is acting in his or her capacity as an employee of a Federal
Executive Agency (e.g., any contract of employment under which the employee is paid wages subject to Federal income
tax withholding);
(i)Any contract between a Federal Executive Agency and another Federal Governmental unit or any subsidiary agency;
(j)Any contract with a foreign government or agency or any subsidiary agency;
(k)Any contract with a state or local government or agency or any subsidiary agency;
(l)Any contract with a person who is not required to have a Taxpayer Identification Number (TIN), such as a nonresident alien,
foreign corporation or foreign partnership, any of which does not have income effectively connected with the conduct of
a trade or business in the United States and does not have anoffice or place of business as a fiscal or paying agent in the
United States;
(m)Certain confidential or classified contracts that meet the requirements of section 6050M(e);
2010–43 I.R.B.533October 25, 2010

(n)Any contract that provides that all payments made after the120th day after the date of the contract action will be made by
someone other than a Federal Executive Agency or an agent ofsuch an agency. For example, a contract under which the
contractor will collect amounts owed to aFederal Executive Agency for the agency’s debtor and will remit to the Federal
Executive Agency the money collectedless an amount for the contractor’sconsideration under the contract;
(o)Contracts entered into using nonappropriated funds.
.11All paper Forms 8596 and 8596-A for both original and corrected returns should be filed with the (Department of Treasury)
IRS, Kansas City, MO 64999–2222. Forms 8596 and 8596-A may be obtained by calling 1–800–TAX–FORM (1–800–829–3676).
Sec. 6. Filing of Information Returns For Federal Contracts
.01Paper information returns must be sent to the IRS KansasCity Service Center using Form 8596 and Form 8596-A.Returns
filedonpaperformsmustnotbesenttotheIRS/IRB.
.02If a Federal Executive Agency elects to have the FPDC make returns on its behalf, the FPDC shall mail or fax a copy of that
agency’s signed statement, making the election, to IRS/IRB for that agency for that quarter (See Part A, Sec. 3).
.03Thetransmittermustnotreportthesameinformation on paper forms that isreported electronically.If parts of the
returns are reported on paper and part electronically, the transmitter must be sure that duplicate information is not included on both.
This does not mean that corrected documents should not be filed. If a return has been prepared and submitted improperly, a corrected
return must be filed as soon as possible. See Part A, Sec. 8 for requirements and instructions on filing corrected returns.
.04Agencies are required to retain a copy oftheinformationreturnsfiledwithIRSfor at least three years or have the ability to
reconstruct the data.
Sec. 7. Filing Dates
.01The information returns required by this section must be filedon a quarterly basis for the calendar quarters as follows:
Q
UARTERDUEDATE
January, February, MarchApril 30
April, May, JuneJuly 31
July, August, SeptemberOctober 31
October, November, DecemberJanuary 31
.02The director of the FPDC (or his or her delegate) shall submit the required return quarterly to IRS on or before the earlier date
of:
(a)45 days following the date that the contract information is required to be submitted to the FPDC, or
(b)90 days following the end of the calendar quarter for which the election is made, except that, if the calendar quarter ends
September 30, 105 days following the end of that quarter.
.03If any due date falls on a Saturday, Sunday or legal holiday, the filing deadline is extended to the next day that is not a Saturday,
Sunday, or legal holiday.
Sec. 8. How to File Corrected Returns
•Acorrectionis an information return submitted by the transmitter to correct an information return that was previously submit-
ted to and processed by IRS/IRB, but contained erroneous information.
•DO NOT SEND YOUR ENTIRE FILE AGAIN.Onlysendtheinformationreturns in need of correction.
•Information returns omitted from the original filemust notbe coded as corrections. Submit them under a separate Payer “A”
Record as original returns.
•Before creating your correction file, reviewthe following guidelines chart carefully.
.01When corrections are necessary, they must be filed in the next filing quarter. If the entire file submitted electronically was in
error, the IRS/IRB should be contacted immediately (See Part A, Sec. 3 for the address).
.02Corrections should be filedas soon as possible. All fields must be completed with the correct information, not just the data
fields needing correction. Submit corrections only for the returns filed in error, not the entire file. Furnish corrected statements to
recipients as soon as possible.
Note: Do NOT resubmit your entire file as corrections. This willresult in duplicate filing and erroneous notices may be sent
to payees. Submit only those returns which need to be corrected.
October 25, 20105342010–43 I.R.B.

.03There are numerous types of errors, and in some cases, more than one transaction may be required to correct the initial error.
If the original return was filed as an aggregate, the filers must consider this in filing corrected returns.
.04Corrected returns may be included on the same file as original returns; however, separate “A” Records are required. If filers
discover that certain information returns were omitted on their original file, they must not code these documents as corrections. The
file must be coded and submitted as originals.
.05Review the chart that follows. Errors normally fall under oneof the two categories listed. Next to each type of error is a list of
instructions on how to file the corrected return.
Guidelines for Filing Corrected Returns Electronically
Error Made on the Original ReturnHow To File the Corrected Return
One transaction is required to make the following corrections properly. (See Note.)
E
RRORTYPE1CORRECTION
1.
Original return was filed with one or more of the
following errors:
A.
Prepare a new file. The first record on the file will be
the Transmitter “T” Record.
B.Make a separate “A” Record for each payer being
reported. The information in the “A” Record will be
exactlythesameasitwasintheoriginalsubmission.
C.
The Payee “B” Records must show the correct record
information as well as a Corrected Return Indicator
Code of “G” in Field Position 6.
D.Corrected returns submitted to IRS/IRB using “G”
coded “B” Records may be on the same file as those
returns submitted without the “G” coded “B” Records;
however, separate “A” Records are required.
E.Prepare a separate “C” Record for each payer being
reported.
(a)Incorrect dollar amountin the Payee “B” Record
(b)Incorrect payee address
F.The last record on the file will be the End of
Transmission “F” Record.
File layoutonestep corrections
Transmitter
“T”
Record
Payer
“A”
Record
“G”
coded
Payee “B”
Record
“G”
coded
Payee “B”
Record
End of Payer
“C”
Record
End of
Transmission
“F” Record
2010–43 I.R.B.535October 25, 2010

Guidelines for Filing Corrected Returns Electronically
Error Made on the Original ReturnHow To File the Corrected Return
Two (2) separate transactions are required to make the following corrections properly. Follow the directions for both
Transactions 1 and 2. DO NOT use the two step correction process to correct money amounts.
E
RRORTYPE2CORRECTION
1.
Original return was filed with one or more of the
following errors:
Transaction 1: Identify incorrect returns.
A.
Prepare a new file. The first record on the file will be
the Transmitter “T” Record.
B.Make a separate “A” Record for each type of return
and each payer being reported. The information in
the “A” Record will beexactlythe same as it was in
the original submission.
C.
The Payee “B” Records must containexactly the
sameinformation as submitted previously,except,
insert a Corrected Return Indicator Code of “G” in
Field Position 6 of the “B” Records, and enter “0”
(zeros) in all payment amounts.
(a)No payee TIN (SSN, EIN, ITIN)
(b)Incorrect payee TIN
(c)Incorrect payee name
D.Corrected returns submitted to IRS/IRB using “G”
coded “B” Records may be on the same file as those
returns submitted with a “C” code;however, separate
“A” Records are required.
E.Prepare a separate “C” Record for each type of return
and each payer being reported.
F.Continue with Transaction 2 to complete the
correction.
Transaction 2: Report the correct information.
A.
Make a separate “A” Record for each type of return
and each payer being reported.
B.The Payee “B” Records must show the correct
information as well as a Corrected Return Indicator
Code of “C” in Field Position 6.
C.
Corrected returns submitted to IRS/IRB using “C”
coded “B” Records may be on the same file as those
returns submitted with “G” codes;however, separate
“A” Records are required.
D.Prepare a separate “C” Record for each type of return
and each payer being reported.
E.The last record on the file will be the End of
Transmission “F” Record.
File layouttwostep corrections
Transmitter
“T”
Record
Payer
“A”
Record
“G”
coded
Payee “B”
Record
“G”
coded
Payee “B”
Record
End of Payer
“C”
Record
Payer
“A”
Record
October 25, 20105362010–43 I.R.B.

“C”
coded
Payee “B”
Record
“C”
coded
Payee “B”
Record
End of Payer
“C”
Record
End of
Transmission
“F” Record
Note : If a filer is correcting the name and/or TIN in addition to any errors listed in item 2 of the chart, two transactions will
be required. If a filer is reporting “G” coded, “C” coded and/or “Non-coded” (original) returns on the same file, each category
must be reported under separate “A” Records.
Sec. 9. Taxpayer Identification Numbers
.01Contractors are required to furnish Taxpayer Identification Numbers (TINs) to the agency under section 6109 of the Internal
Revenue Code.
.02The contractor’s TIN and name combination is used to associate information returns reported to IRS with corresponding in-
formation on tax returns. It is imperative thatcorrectsocial security number (SSN) or employer identification number (EIN) for
contractors be provided to IRS.Do not enter hyphens or alpha characters. Entering all zeros, ones, twos, etc., will have the effect
of an incorrect TIN.
.03IRS validates the SSN by using the Name Control of the surname of the individual who has been assigned this number. For this
reason, the surname should be provided in the Payee Name Line and/or the Name Control in positions 7–10 of the Payee “B” Record.
It is imperative to provide correct information for IRS to validate the SSN. IRS validates an EIN by using the name control of the
business to which the EIN has been assigned. If an EIN is reportedfor a contractor, the correct business name should be provided in
the First Payee Name Line and/or Name Control in positions 7–10 of the Payee “B” Record.
.04For sole proprietors, the owner’s name (not the doing business as (DBA) name) must appear in the Payee Name Line. The TIN
for a sole proprietor may be either an EIN or SSN.
.05The TIN to be furnished to IRS depends primarily upon the manner in which the account is maintained or set up on the agency’s
record. The payer and payee names and TINs should be consistentwith the names and numbers used on other tax returns. The TIN
must be that of the contractor. If the contract is recorded in more than one name, the transmitter must furnish the TIN and name of
one of the contractors. The TIN provided must be associated with the name of the contractor provided in the First Payee Name Line
of the Payee “B” Record.
Sec. 10. State Abbreviations
.01The following state and U.S. territory abbreviations are to be used when developing the state code portion of address fields.
StateCodeStateCodeStateCode
AlabamaALKentuckyKYNo. Mariana IslandsMP
AlaskaAKLouisianaLAOhioOH
American SamoaASMaineMEOklahomaOK
ArizonaAZMarshall IslandsMHOregonOR
ArkansasARMarylandMDPennsylvaniaPA
CaliforniaCAMassachusettsMAPuerto RicoPR
ColoradoCOMichiganMIRhode IslandRI
ConnecticutCTMinnesotaMNSouth CarolinaSC
DelawareDEMississippiMSSouth DakotaSD
District of ColumbiaDCMissouriMOTennesseeTN
Federated States of Micronesia FMMontanaMTTexasTX
FloridaFLNebraskaNEUtahUT
GeorgiaGANevadaNVVermontVT
GuamGUNew HampshireNHVirginiaVA
HawaiiHINew JerseyNJU.S. Virgin IslandsVI
IdahoIDNew MexicoNMWashingtonWA
IllinoisILNew YorkNYWest VirginiaWV
2010–43 I.R.B.537October 25, 2010

StateCodeStateCodeStateCode
IndianaINNorth CarolinaNCWisconsinWI
IowaIANorth DakotaNDWyomingWY
KansasKS
.02Filers must adhere to the city, state, and ZIP Code format for U.S. addresses in the “B” Record. This also includes American
Samoa, Federated States of Micronesia, Guam, Marshall Islands, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.
.03For foreign country addresses, filers may use a 51 position free format which should include city, province or state, postal code,
and name of country in this order. This is allowable only if a “1” (one) appears in the Foreign Country Indicator, Field Position 247
of the “B” Record.
.04When reporting APO/FPO addresses use the following format:
EXAMPLE:
Payee NamePVT Willard J. Doe
Mailing AddressCompany F, PSC Box 100
167 Infantry REGT
Payee CityAPO (or FPO)
Payee StateAE, AA, or AP*
Payee ZIP Code098010100
*AE is the designation for ZIP codes beginning with 090–098, AA for ZIP 340, and AP for ZIP codes 962–966.
Part B. Electronic Filing Specifications
Sec. 1. General
.01Electronic filing of Form 8596 returns, originals, corrections, and replacements isoffered as an alternative to paper filing. There
is no minimum of number of forms filing requirement; therefore, any number of forms may be filed electronically. Payers who are
under the filing threshold requirement are encouraged to file electronically.
.02All electronic filing of information returns are received at IRS/IRB via the FIRE (Filing Information Returns Electronically)
System. To connect to the FIRE System, point your browser to http://fire.irs.gov. The system is designed to support the electronic
filing of information returns only.
.03The electronic filing of information returns is not affiliated with any other IRS electronic filing programs. Filers must obtain
separate approval to participate in each of them. Only inquiries concerning electronic filing of information returns should be directed
to IRS/IRB.
.04Files submitted to IRS/IRB electronicallymust be in standard ASCII code. Do not send paper forms with the same information
as electronically submitted files. This would create duplicate reporting resulting in penalty notices.
.05If a Federal Executive Agency elects to have the FPDC make returns on its behalf, the FPDC shall mail or fax a copy of that
agency’s signed statement, making the election, to IRS/IRB (see Part A, Sec. 3).
.06See Part C, Record Format Specifications and Record Layouts.
Sec. 2. Electronic Filing Approval Procedure
.01Filers must obtain a Transmitter Control Code (TCC) prior to submitting files electronically. Filers who currently have a TCC
may use their assigned TCC for electronic filing. Refer to Part A, Sec. 4, for information on how to obtain a TCC.
.02Once a TCC is obtained, electronic filers create their own User ID, password and Personal Identification Number (PIN) and do
not need prior or special approval. See Part B, Sec. 4, for more information on the PIN.
.03If a filer is submitting files for more than one TCC, it is notnecessary to create a separate logon and password for each TCC.
.04For all passwords, it is the user’s responsibility to rememberthe password and not allow the password to be compromised.
Passwords are user created at first logon and must be 8 alpha/numerics containing at least 1 uppercase, 1 lowercase, and 1 numeric.
However, filers who forget their password or PIN can calltoll-free 1–866–455–7438for assistance. The FIRE System will require
users to change their passwords periodically. Users can changetheir passwords at any time from the Main Menu. Prior passwords
cannot be used.
Sec. 3. Electronic Submissions
.01Electronically filed information may be submitted to IRS/IRB 24 hours a day, 7 days a week. Technical assistance will be
available Monday through Friday between 8:30 a.m. and 4:30 p.m. Eastern time by callingtoll-free at 1–866–455–7438.
October 25, 20105382010–43 I.R.B.

.02 The FIRE System will be down from the last week of December through the first week of January.This allows IRS/IRB
to update its system to reflect current yearchanges. In addition, the FIRE System may be down every Wednesday from 3:00 a.m. to
5:00 a.m. ET for maintenance.
.03Your file size cannot exceed 2.5 million records. If you are sending files larger than10,000 records electronically, data com-
pression is encouraged. WinZip and PKZip are the only acceptable compression packages. IRS/IRB cannot accept self-extracting zip
files or compressed files containing multiplefiles. The time required to transmit information returns electronically will vary depend-
ing upon the type of connection to the Internet and if data compression is used.The time required to transmit a file can be reduced
by as much as 95 percent by using compression.
.04Transmitters may create files using self assigned filename(s). Files submitted electronicallywill be assigned a new unique
file name by the FIRE System. The filename assigned by the FIRE System will consist of submission type (ORIG [original], CORR
[correction], and REPL [replacement]), the filer’s TCC and a four-digit number sequence. The sequence number will be incremented
for every file sent. For example, if it is your first original file for the calendar year and your TCC is 44444, the IRS assigned filename
would be ORIG.44444.0001.Record the filename.This information will be needed by IRS/IRB to identify the file, if assistance is
required.
.05If a timely submitted file is bad, the filer will have up to 60 days from the day the file was transmitted to submit an acceptable
replacement file. If an acceptable replacement file is not received within 60 days, then the payer could be subject to late filing penalties.
This only applies to files originally submitted electronically.
.06The following definitions have been provided to help distinguish between a correction and a replacement:
•Acorrectionis an information return submitted by the transmitter to correct an information return that was previously submit-
ted to and successfully processed by IRS/IRB, but contained erroneous information.(See Note.)
Note:Corrections should only be made torecords that have been submitted incorrectly, not the entire file.
•Areplacementis an information return file sent by the filer because the CHECK FILE STATUS option on the FIRE System
indicated the original file was bad. After the necessary changes have been made, the file must be transmitted through the FIRE
System. (See Note.)
Note: Filers should never transmit anything to IRS/IRB as a “Replacement” file unless the CHECK FILE STATUS option on
the FIRE System indicates a previous file is bad.
Sec. 4. PIN Requirements
.01The user will be prompted to create a PIN consisting of 10 numeric characters when establishing their initial User ID and
password.
.02The PIN is required each time an ORIGINAL, CORRECTION, or REPLACEMENT file is sent electronically and is permis-
sion to release the file. An authorized agent may enter their PIN,however, the payer is responsible for the accuracy of the returns.
The payer will be liable for penalties for failure to comply with filing requirements. If you forget your PIN, please calltoll-free at
1–866–455–7438for assistance.
.03If the file is good, it is released for mainline processing after 10 calendar days from receipt. Contact ustoll-free at
1–866–455–7438within this 10-day period if there is a reason the file should not be released for further processing. If the file is
unacceptable, follow normal replacement procedures.
Sec. 5. Electronic Filing Specifications
.01The FIRE System is designed exclusively for the filing of Forms 1042-S, 1097, 1098, 1099, 3921, 3922, 5498, 8027, 8596,
and W–2G.
.02A transmitter must have a TCC (see Part A,Sec. 4) before a file can be transmitted.
.03After 1–2 business days, the results of the electronic transmission will be e-mailed to you providing you supply an accurate
e-mail address on the “Verify Your Filing Information” screen. If you are using e-mail filtering software, configure your software to
accept e-mail fromfire@irs.govandirs.e-helpmail@irs.gov. If after receiving the e-mail it indicates that your file is bad, you must
log into the FIRE system and select CHECK FILE STATUS area to determine what the errors are in your file.
Sec. 6. Connecting to the FIRE System
.01Before connecting, have your TCC and TIN available.
.02Filers should turn off pop-up blocking software before transmitting their files.
.03Your browser must support the security standards listed below.
.04Your browser must be set to receive “cookies.” Cookies are used to preserve your User ID status.
.05Point your browser tohttp://fire.irs.govto connect to the FIRE System.
.06FIRE Internet Security Technical Standards are:
2010–43 I.R.B.539October 25, 2010

HTTP 1.1 Specification (http://www.w3.org/Protocols/rfc2616/rfc2616.txt)
SSL 3.0 or TLS 1.0. SSL and TLS are implemented using SHA and RSA 1024 bits during the asymmetric handshake.
SSL 3.0 Specifications (h
ttp://wp/netscape.com/eng/ssl3)
TLS 1.0 Specifications (h
ttp://www.ief.org/rfc/rfc2246.txt)
The filer can use one of the following encryption algorithms, listed in order of priority, using SSL or TLS:
AES 256-bit (FIPS–197)
AES 128-bit (FIPS–197)
TDES 168-bit (FIPS–46–3)
F
irsttimeconnectiontotheFIRESystem(If you have logged on previously, skip to Subsequent Connections t
otheFIRE
System.)
Click“Create New Account”.
Fill out the registration form and click“Submit”.
Create yourUser ID(most users’ logon with their first and last name).
Create and verify yourpassword(the password is user assigned and must be 8 alpha/numerics,
containing at least 1 uppercase, 1 lowercase,and 1 numeric). FIRE will require you to change
the password periodically.
Click“Create”.
If you receive the message“Account Created”,click“OK”.
Create and verify your 10-digit self-assigned PIN (Personal Identification Number).
Click“Submit”.
If you receive the message“Your PIN has been successfully created!”,click“OK”.
Read the bulletin(s) and/or“Click here to continue”.
S
ubsequentconnectionstotheFIRESystem
Click“Log On”.
Enter yourUser ID.
Enter yourpassword(the password is user assigned and is case sensitive).
Read the bulletin(s) and/or“Click here to continue”.
U
ploadingyourfiletotheFIRESystem
At Menu Options:
Click“Send Information Returns”
Enter yourTCC:
Enter yourTIN:
Click“Submit”.
The system will then display the company name, address, city, state, ZIP code, telephone number,
contact, and e-mail address. This information will be used to e-mail transmitters regarding their
transmission. Update as appropriate and/or Click“Accept”.
Note: Please ensure that the e-mail address is accurate so that the correct person receives
the e-mail and it does not return to us undeliverable. If you are using SPAM filtering
software, please configure it to allow an e-mail fromfire@irs.govandirs.e-helpmail@irs.gov.
Click one of the following:
Original File
Correction File
Replacement File(Click on the file to be replaced).
October 25, 20105402010–43 I.R.B.

•Electronic Repl
acement(bad file was originally transmitted, on FIRE System)
Click the file to
be replaced.
Enter your 10-di
git PIN.
Click“Submit”.
Click“Browse”to locate the file and open it.
Click“Upload”.
When the upload is complete, the screenwill display the total bytes received and tell you the name of the file you just
uploaded. Print this pageand keep it for your records.
If you have more files to upload for that TCC:
Click“File
Another?”;otherwise,
Click“Main Menu”.
It is your responsibility to check the acceptability of your file; therefore, be sure to check back into the system in 1–2
business days using the CHECK FILE STATUS option.
CheckingyourFILESTATUS
If the correct e-mail address was provided on the “Verify Your Filing Information” screen when the file was sent, an e-mail will be
sent regarding your FILE STATUS. If the results in the e-mail indicate “Good, not Released” and you agree with the “Count of
Payees”, then you are finished with this file. If you have any other results, please follow the instructions below.
At the Main Menu:
Click“Check File Status”.
Enter yourTCC:
Enter your
TIN:
Click“Search”.
If “Results” indicate:
“Good, Not Released”and you agree with the “Count of Payees”, you
are finished with this file. The file will automatically be released after 10
calendar days unless you contact us within this timeframe.
“Good, Released”— File has been released to our mainline processing.
“Bad”— Click on filename to view error message(s).Correct the errors and
timely resubmit the file as a “replacement”.
“Not ye
t processed”— File has been received, but we do not have results
availa
ble yet. Please check back in a few days.
Click on the desired file for a detailed report of your transmission.
When y
ou are finished, click onMain Menu.
Click“Log Out”
Close your Web Browser.
Sec.
7. Common Problems and Questions Associated with Electronic Filing
IRS/
IRB encourages filers to verify the format and content of eachtype of record to ensure the accuracy of the data. This may
elim
inate the need for IRS/IRB to request replacement files. This may be important for those payers who have either had their files
prep
ared by a service bureau or who have purchased software packages.Filers who engage a service bureau to transmit their files
on th
eir behalf should be careful not to report duplicate data, which may generate penalty notices. This section lists some of the
prob
lems most frequently encountered with electronic files submitted to IRS/IRB. These problems may result in IRS/IRB requesting
repl
acement files.
2010–43 I.R.B.541October 25, 2010

1. Transmitter does not check the FIRE System to determine file acceptability.
The results of your file transfer are posted to the FIRE System within two business days. If the correct e-mail address was provided
on the “Verify Your Filing Information” screen when the file was sent, an e-mail will be sent regarding your FILE STATUS. If the
results in the e-mail indicate “Good, not Released” and you agreewith the “Count of Payees”, then you are finished with this file.
If you have any other results, please follow the instructions in the “Check File Status” option. If the file contains errors, you can
get an online listing of the errors. Date received and number of payee records are also displayed.If the file is good, but you do not
want the file processed, you must contact IRS/IRB within 10 calendar days from the transmission of your file.
2. SPAM filters are not set to receive e-mail fromfire@irs.govandirs.e-helpmail@irs.gov.
If you want to receive e-mails concerning yourfiles, processing results,reminders and notices, setyour SPAM filter to receive
e-mail fromf
ire@irs.govandirs.e-helpmail@irs.gov.
3. Incorrect e-mail address provided.
When the “Verify Your Filing Information” screen is displayed,make sure your correct e-mail address is listed. If not, please
update with the correct e-mail address.
4. Incorrect file is not replaced timely.
If your file is bad, correct the file and timely resubmit as a replacement.
5. Transmitter compresses several files into one.
Only compress one file at a time. For example, if you have 10 uncompressed files to send, compress each file separately and
send 10 separate compressed files.
6. Transmitt
er sends a file and CHECK FILE STATUS indicates that the file is good, but the transmitter wants to send a
replacement
or correction file to replace the original/correction/replacement file.
Once a file has been transmitted, you cannot send a replacement file unless CHECK FILE STATUS indicates the file is bad
(1–2 business days after file was transmitted). If you donot want us to process the file, you must first contact ustoll-free at
1–866–455–7438to see if this is a possibility.
7. Transmitter sends an original file that is good, and then sends a correction file for the entire file even though there are
only a few changes.
The correcti
on file, containing the proper coding, should only contain the records needing correction, not the entire file.
8. File is formatted as EBCDIC.
All files submitted electronicallymust be in standard ASCII code.
9. Transmitter has one TCC number, but is filing for multiple companies, which EIN should be used submitting the file?
When sending the file electronically, youwill need to enter the EIN of the company assigned to the TCC. When you upload the
file, it will contain the TINs for the other companies that you are filing for. This is the information that will be passed forward.
10. Transmitter sent the wrong file, what should be done?
Call us as soon as possibletoll-free at 1–866–455–7438.We may be able to stop the file before it has been processed.Please do
not send a replacement for a file that is marked as a good file.
Part C. Record Format Specifications and Record Layouts
Sec. 1. General
.01The specifications contained in this part of the Revenue Procedure defines the required formation and contents of the records
to be included in the electronic files.
.02A provision is made in the “B” Records for entries which are optional. If the field is not used, enter blanks to maintain a fixed
record length of 750 positions. Each field descriptionexplains the intended use of specific field positions.
October 25, 20105422010–43 I.R.B.

Sec. 2. Transmitter “T” Record — General Field Descriptions
.01The Transmitter “T” Record identifies the entity transmitting the electronic file and contains information which is critical if it
is necessary for IRS/IRB to contact the filer.
.02The Transmitter “T” Record is the first record on each file and is followed by a Payer “A” Record. A file format diagram is
located at the end of Part C. A replacement file will be requested by IRS/IRB if the “T” Record is not present.
.03For all fields marked“Required”, the transmitter must provide the information described under Description and Remarks.
For those fields not marked“Required”, a transmitter must allow for the field, but may be instructed to enter blanks or zeros in the
indicated field positions and for the indicated length.
.04All records must be a fixed length of 750 positions.
.05All alpha characters entered in the “T” Record must be upper-case, except e-mail addresses which may be case sensitive.Do
notuse punctuation in the name and address fields.
Record Name: Transmitter “T” Record
Field
PositionField TitleLength Description and Remarks
1Record Type1
Required. Enter “T”.
2–5
Payment Year4
Required.Enter the 4-digit year in which the contract is signed.
6TypeofReturn1
Required. Enter “G”.
7–15
Transmitter’s TIN9
Required. Must be the valid nine-digit number TIN assigned by IRS to the
Federal Executive Agency. Do not enter hyphens or alpha characters. Entering
all zeros, ones, twos, etc., will have the effect of an incorrect TIN.
16–20Transmitter Control
Code
5Required.Enter the five-character alpha/numeric Transmitter Control Code
(TCC) assigned by IRS/IRB. A TCC must be obtained to file data within this
program.
21–29Blank9Enter blanks.
30–69Transmitter Name40
Required.Enter the name of the transmitter in the manner in which it is used in
normal business. If someone other than the Federal Agency is transmitting data,
enter the name of the transmitter. The name of the transmittermustbe consistent
through the entire file. Left-justify and fill unused positions with blanks.
70–109Transmitter Name
(Continuation)
40Enter any additional information that may be part of the name. Left-justify
information and fill unused positions with blanks.
Note: All the information “Required” in Field Positions110 thru 280 MUST contain the address information where
correspondence relating to problems can be sent.
110–149Agency Name40
Required.Enter the name of the agency to be associated with the address where
correspondence should be sent.
150–189
Agency Name
(Continuation)
40Enter any additional information that may be part of the name of the company
where correspondence should be sent.
190–229Agency Mailing
Address
40
Required.Enter the mailing address where correspondence should be sent.
230–269Agency City40
Required.Enter the city, town, or post office where correspondence should
be sent.
270–271Agency State2
Required.Enter the valid U.S. Postal Service state abbreviation for states. Refer
to the chart of valid state codes in Part A, Sec. 10.
272–280Agency ZIP Code9
Required.Enter the valid nine-digit ZIP Code assigned by the U.S. Postal
Service. If only the first five digits are known, left-justify information and fill
unused positions with blanks.
281–303Blank23Enter blanks.
2010–43 I.R.B.543October 25, 2010

Record Name: Transmitter “T” Record
Field
PositionField TitleLength Description and Remarks
304–343Contact Name40
Required.Enter the name of the person to be contacted if IRS/IRB encounters
problems with the file.
344–358
Contact Phone
Number & Extension
15Required.Enter the telephone number of the person to contact regarding
electronic files. Omit extension hyphens. If no extension is available, left-justify
information and fill unused positions with blanks. For example, the IRS/IRB
Customer Service Section telephone number of 866–455–7438 with an extension
of 52345 would be 866455743852345.
359–408
Contact E-mail
Address
50Required if available.Enter the e-mail address of the person to contact
regarding electronic files. Left-justify information. If no e-mail address is
available, enter blanks.
409–499Blank91Enter blanks.
500–507
Record Sequence
Number
8
Required.Enter the number of the record as it appears within your file. The
record sequence number for the “T” record will always be “1” (one), since it is
the first record on your file and you can have only one “T” record in a file.
Each record, thereafter, must be incremented by one in ascending numerical
sequence,i.e., 2, 3, 4, etc. Right-justify numbers with leading zeros in the field.
For example, the “T” record sequence number would appear as “00000001”
in the field, the first “A” record would be “00000002”, the first “B” record,
“00000003”, the second “B” record, “00000004” and so on until you reach the
final record of the file, the “F” record.
508–748
Blank241 Enter blanks.
749–750
Blank2Enter blanks, or carriage return/line feed (CR/LF) characters.
Sec. 3. Transmitter “T” Record — Record Layout
Record
Type
Payment
Year
Type of ReturnTransmitter’s
TIN
Transmitter
Control
Code
Blank
1
2–5
6
7–15
16–2021–29
Transmitter
Name
Transmitter
Name
(Contd.)
Agency
Name
Agency
Name
(Contd.)
Agency
Mailing
Address
30–6970–109110–149
150–189
190–229
Agency
City
Agency
State
Agency ZIP
Code
BlankContact
Name
Contact
Phone
Number &
Extension
Contact
E-mail
Address
230–269270–271272–280281–303304–343
344–358359–408
BlankRecord
Sequence
Number
BlankBlank or
CR/LF
409–499
500–507508–748749–750
October 25, 20105442010–43 I.R.B.

Sec. 4. Payer “A” Record — General Field Descriptions
.01The Payer “A” Record identifies the agency that made the payments and provides parameters for the succeeding Payee “B”
Records. IRS computer programs rely on the absolute relationship between the parameters and data fields in the “A” Record and the
data fields in the “B” Record to which they apply.
.02All records must be a fixed length of 750 positions.
.03An “A” Record may be blocked with “B” Records; however, the initial record on a file must be a Transmitter “T” Record
followed by a Payer “A” Record. IRS/IRB will accept an “A” Record after a “C” Record.
.04The number of “A” Records appearing on the file will depend on the number of agencies being reported. A separate “A” Record
is required for each agency followed by the Payee “B” Records forthe agency. Each set of “B” Records is followed by a summary
“C” Record. If more than one agency is being reportedonafile,an“A”Recordmayfollowa“C”Record(i.e., The “A”, “B”, and
“C” Records for one agency may be followed by “A”, “B”, and “C” Records for the next agency, etc.).
.05All alpha characters entered in the “A” Record must be uppercase.
.06Do not begin any record at the end of a block and continue the same record into the next block.
.07For all fields marked“Required”, the transmitter must provide the information described under Description and Remarks.
For those fields not marked“Required”, a transmitter must allow for the field, but may be instructed to enter blanks or zeros in the
indicated file position(s) and for the indicated length.
Record Name: Payer “A” Record
Field
PositionField TitleLengthDescription and Remarks
1Record Type1
Required.Enter “A”.
2–5
Payment Year4
Required. Enter the 4-digit year in which the contract is signed.
6–11Blank6Enter blanks.
12–20Payer’s
Taxpayer
Identification
Number (TIN)
9
Required.Must be thevalidnine-digit Taxpayer Identification Number assigned to
the Federal Executive Agency.Do not enter blanks, hyphens, or alpha characters.
All zeros, ones, twos, etc., will have the effect of an incorrect TIN.
21–24Payer Name
Control
4Generally, the Name Control is the first four characters of the payer’s name. The
word “the” should be disregarded when itis the first word of the name, unless the
name contains only two words. This field should be left blank if the name control is
not determinable.
25Blank1Enter blank.
26–27
Type of Return2
Required. Enter “G”.Left-justify, blank fill.
28Amount
Indicator
1
Required.Enter “8”.
29–51
Blank23 Enter blanks.
52
Foreign Entity
Indicator
1Enter a “1” (one) if the payer is a foreign entity and income is paid by the foreign
entity to a U.S. resident. If the payer is not a foreign entity, enter a blank.
53–92
First Payer
Name Line
40
Required. Enter the name of the Federal Agency whose TIN appears in positions
12–20 of the “A” Record. The name of the agency must be entered in the manner in
which it is used in normal business. Any extraneous information must be deleted.
Left-justify information, and fill unused positions with blanks.
93–132Second Payer
Name Line
40
Required. Enter the name and title of the person to whom requests for an offset
against any unpaid tax liability of the contractor can be sent. If necessary, please
abbreviate.
133Blank1Enter blank.
134–173Payer Shipping
Address
40
Required. Enter the address of the person to whom requests for an offset against any
unpaid tax liability of the contract can besent. The street address should include
number, street, apartment or suite number (or P.O. Box if mail is not delivered to a
street address). Left-justify and fill with blanks.
2010–43 I.R.B.545October 25, 2010

Record Name: Payer “A” Record
Field
PositionField TitleLengthDescription and Remarks
For U.S. addresses, the payer city, state, and ZIP Code must be reported as 40, 2, and 9 position fields, respectively.Filers must
adhere to the correct format for the payer city, state, and ZIP Code.
For foreign addresses, filers may use the payer city, state, and ZIP Code as a continuous 51 position field. Enter information
inthefollowingorder:city,provinceorstate,postalcode,and the name of the country. When reporting a foreign address, the
Foreign Entity Indicator in position 52 must contain a “1” (one).
174–213Payer City40
Required. Enter the city of the person to whom requests for an offset against any
unpaid tax liability of the contractor can be sent. Left-justify and fill with blanks.
214–215
Payer State2
Required. Enter the valid U.S. Postal Service state abbreviations for states. Refer to
the chart of valid state abbreviations in Part A, Sec. 10.
216–224Payer ZIP Code 9
Required. Enter the valid nine-digit ZIP Code assigned by the U.S. Postal Service.
If only the first five digits are known, left-justify information and fill the unused
positions with blanks.
225–239
Payer’s Phone
Number &
Extension
15
Enter the payer’s telephone number and extension.
240–499Blank260Enter blanks.
500–507
Record
Sequence
Number
8
Required.Enter the number of the record as it appears within your file. The record
sequence number for the “T” record will always be “1” (one), since it is the first
record on your file and you can have onlyone “T” record in a file. Each record,
thereafter, must be incremented by one in ascending numerical sequence,i.e.,2,3,
4, etc. Right-justify numbers with leading zeros in the field. For example, the “T”
record sequence number would appear as “00000001” in the field, the first “A” record
would be “00000002”, the first “B” record, “00000003”, the second “B” record,
“00000004” and so on until you reach the final record of the file, the “F” record.
508–748
Blank241Enter blanks.
749–750
Blank2Enter blanks or carriage return/line feed (CR/LF) characters.
Sec. 5. Payer “A” Record — Record Layout
Record
Type
Payment
Year
BlankPayer’s
TIN
Payer Name
Control
Blank
1
2–5
6–1112–2021–24
25
Type
of
Return
Amount
Indicator
BlankForeign
Entity
Indicator
First
Payer Name
Line
26–2728
29–515253–92
Second Payer
Name
Line
BlankPayer
Shipping
Address
Payer
City
Payer
State
Payer
ZIP
Code
Payer’s
Phone &
Extension
93–132133134–173174–213
214–215
216–224
225–239
October 25, 20105462010–43 I.R.B.

BlankRecord
Sequence
Number
BlankBlank
or CR/LF
240–499
500–507508–748749–750
Sec. 6. Payee “B” Record — General Field Descriptions
.01The Payee “B” Record contains payment information from the individual contracts.
When filing information documents electronically, the format for the Payee “B” Records will remain constant.
.02All records must be a fixed length of 750 positions.
.03The following specifications include a field in the payee records called “NameControl” in which the first four characters of
the payee’s surname are to be entered by the filer.
(a)If filers are unable to determine the first four characters of the surname, the Name Control Field may be left blank. Com-
pliance with the following will facilitate IRS computer programs in identifying the correct name control:
(1)The surname of the payee whose TIN is shown in the “B” Recordshould always appear first. If, however, the records
have been developed using the first name first, the filer must leave a blank space between the first and last names.
(2)In the case of multiple payees, only the surname of the payee whose TIN (SSN, EIN or ITIN) is shown in the “B” Record
must be present in the First Payee Name Line. Surnames of any other payees may be entered in the Second Payee Name
Line.
.04For all fields marked“Required”, the transmitter must provide the information described under Description and Remarks. For
those fields not marked“Required”, the transmitter must allow for the field, but may be instructed to enter blanks or zeros in the
indicated field position(s)and for the indicated length.
.05All alpha characters entered in the “B” Record must be uppercase.
.06Decimal points (.) cannot be used to indicate dollars and cents.
.07 IRS strongly encourages filers to review data for accuracy before submission tofacilitate the collection of delinquent
federal tax liabilities from contractors. Filers should be especially careful that names, TINs, and income amounts are correct.
Record Name: Payee “B” Record
Field
Position Field TitleLengthDescription and Remarks
1Record Type1
Required. Enter “B.”
2–5
Payment Year4
Required. Enter the 4-digit year in which the contract is signed.
6Corrected Return Indicator1
Required for corrections only.Indicates a corrected return.
(See Note.)CodeDefinition
GIf this is a one-transactioncorrectionorthefirstof
a two-transaction correction.
CIf this is the second transaction of a two transaction
correction.
BlankIf this is not a return being submitted to correct
information already processed by IRS.
Note: C, G, and non-coded records must be reported using separate Payer “A” Records. Refer to Part A, Sec. 8, for
specific instructions on how to file corrected returns.
2010–43 I.R.B.547October 25, 2010

Record Name: Payee “B” Record
Field
Position Field TitleLengthDescription and Remarks
7–10Name Control4If determinable, enter thefirst four (4) characters of the surname of
the person whose TIN is being reported in positions 12–20 of the
“B” Record; otherwise, enter blanks. This usually is the contractor.
Surnames of less than four (4) characters should be left-justified,
filling the unused positions withblanks. Special characters and
imbedded blanks should be removed. In the case of a business, other
than a sole proprietorship, use the first four significant characters
of the business name. Disregard the word “the” when it is the first
word of the name, unless there are only two words in the name.
A dash (-) and an ampersand (&) are the only acceptable special
characters. Surname prefixes are considered part of the surname,
e.g., for Van Elm, the name control would be VANE.
Note:Imbedded blanks, extraneous words, titles, and special characters (i.e., Mr., Mrs., Dr., period [.], apostrophe [’])
should be removed from the Payee Name Lines. This information may be dropped during subsequent processing at
IRS/IRB. A dash (-) and an ampersand (&) are the only acceptable special characters.
The following examples may be helpful to filers developing the Name Control.
N
ame
NameControl
Individuals:
JaneB
rownBROW
John A.L
eeLEE*
James P.E
n,Sr.EN*
JohnO
’Neil
ONEI
MaryV
anBurenVANB
JuanD
eJesusDEJE
Gloria A.E
l-RoyEL-R
Mr. JohnS
mith
SMIT
JoeM
cCarthy
MCCA
PedroT
or
res-Lopes**
TORR
MariaL
opez Moreno**LOPE
Binh ToL
aLA*
Nhat ThiP
hamPHAM
MarkD
’Allesandro
DALL
Corporations:
TheF
irstNationalBank
FIRS
T
heHid
eaway
THEH
A
&BCafe
A&BC
1
1THStreet Inc.
11TH
Sole Proprietor:
MarkH
emlock
DBA The Sunshine Club
HEML
Partnership:
RobertA
spen
and Bess Willow
ASPE
HaroldF
ir,BruceElm,
and Joyce Spruce et al Ptr
FIR*
October 25, 20105482010–43 I.R.B.

Record Name: Payee “B” Record
Field
Position Field TitleLengthDescription and Remarks
Estate:
FrankW
hiteEstate
WHIT
Estate of SheilaB
lueBLUE
Trusts and Fiduciaries:
D
aisy Corporation Employee
Benefit Trust
DAIS
Trust FBO The
C
herryblossom
Society
CHER
Exempt Organizations:
L
aborer’s Union, AFL-CIOLABO
S
t.Bernard’s Methodist
Church Bldg. Fund
STBE
*Name Controls of less than four (4) significant characters must be left-justified and blank-filled.
**For Hispanic names, when two last names are shown for an individual, derive the name control from the first last name.
11Type of TIN1This field is used to identify the Taxpayer Identification Number
(TIN) in positions 12–20 as eitheran Employer Identification Num-
ber (EIN), a Social Security Number (SSN), or an Individual Tax-
payer Identification Number (ITIN). Enter the appropriate code from
the following table:
CodeTypeofTINTypeofAccount
1EINA business, organization, sole pro-
prietor, or other entity
2SSNAn individual, including a sole
proprietor or
2ITINAn individual required to have a
taxpayer identification number,
but who is not eligible to obtain an
SSN
BlankN/AIf the type of TIN is not deter-
minable, enter a blank.
12–20Contractor’s Taxpayer
Identification Number (TIN)
9
Required. Enter the nine-digit Taxpayer Identification Number of
the contractor (SSN, ITIN, or EIN). If an identification number has
been applied for but not received,enter blanks.Do not enter hy-
phens or alpha characters.All zeros, ones, twos, etc., will have the
effect of an incorrect TIN. If the TIN is not available, enter blanks.
21–29Common Parent’s Taxpayer
Identification Number (TIN)
9
Requir
ed.If applicable, enter the validnine-digit number assigned
to the c
ontractor’s common parent; otherwise,enter blanks.Do not
enter h
yphens or alpha characters.All zeros, ones, twos, etc., will
have th
e effect of an incorrect TIN.
30–54
Blank
25
Enter b
lanks.
55–138
Zero84
Required. Enter zeros.
139–15
0
TotalAmountObligatedUnder
Contract
12
Requir
ed.The amount reported in this field represents Total Amount
Oblig
ated Under the Contract. The Under Contract amount must be
enter
ed inU.S. dollars and cents. Dollar signs, commas, decimal
point
s, or negative payments are not acceptable. Amount obligated
must b
e right-justified and unusedpositions must be zero filled.
2010–43 I.R.B.549October 25, 2010

Record Name: Payee “B” Record
Field
Position Field TitleLengthDescription and Remarks
151–198
Zero48
Required.Enter zeros.
199–246 Blank48Enter blanks.
247Foreign Country Indicator1
If the address of the payee is in a foreign country, enter a “1” (one)
in this field;otherwise,enter blank. When filers use this indicator,
they may use a free format for the payee city, state, and ZIP Code.
Address information must not appear in the First or Second Payee
Name Lines.
248–287 First Payee Name Line40
Required. Enter the name of the contractor (preferably surname first)
whose Taxpayer Identification Number (TIN) was provided in posi-
tions 12–20 of the “B” Record. Left-justify and fill unused positions
with blanks. If more space is required for the name, utilize the Sec-
ond Payee Name Line Field. If there are multiple payees, only the
name of the payee whose TIN has been provided should be entered
in this field. The names of the other payees may be entered in the
Second Payee Name Line Field. If reporting information for a sole
proprietor, the individual’s namemust alwaysbe present on the First
Payee Name Line. The use of the business name is optional in the
SecondPayeeNameLineField.
288–327 Second Payee Name Line40If there are multiple payees, (e.g., partners or joint owners), use this
field for those names not associated with the TIN provided in posi-
tions 12–20 of the “B” Record or if not enough space was provided
in the First Payee Name Line, continue the name in this field (See
Notes).Do not enter address information.It is important that filers
provide as much payee information to IRS/IRB as possible to iden-
tify the payee associated with the TIN. Left-justify and fill unused
positions with blanks.
Note: End First Payee Name Line with a full word. Do not split words. Begin Second Payee Name Line with the next
sequential word.
If applicable, enter the business name of the sole proprietor in this field.
328–367 Blank40Enter blanks.
368–407 Payee Mailing Address40
Required. Enter the mailing address of the contractor. The street
address should include number, street, apartment or suite number (or
P.O. Box if mail is not delivered to street address). Left-justify in-
formation and fill unused positions with blanks. This fieldmust not
contain any data other than the payee’s mailing address.
For U.S. addresses, the payee city, state, and ZIP Code must be reported as 40, 2, and 9 positionfields, respectively.Filers must
adhere to the correct format for the payee city, state, and ZIP Code.
For foreign addresses,filers may use the payee city, state, and ZIP Code as acontinuous 51 position field. Enter information
inthefollowingorder:city,provinceorstate,postalcode,and the name of the country. When reporting a foreign address, the
Foreign Country Indicator in position 247 must contain a “1” (one).
408–447 Blank40Enter blanks.
448–487 Payee City40
Required.Enter the city, town, or post office. Left-justify informa-
tion and fill the unused positions with blanks. Enter APO or FPO if
applicable. Do not enter state and ZIP Code information in this field.
488–489 Payee State2
Required. Enter the valid U.S. Postal Service state abbreviations for
states or the appropriate postal identifier (AA, AE, or AP) described
in Part A, Sec. 10.
October 25, 20105502010–43 I.R.B.

Record Name: Payee “B” Record
Field
Position Field TitleLengthDescription and Remarks
490–498 Payee ZIP Code9
Required.Enter the valid nine-digit ZIP Code assigned by the U.S.
Postal Service. If only the first five digits are known, left-justify in-
formation and fill the unused positions with blanks. For foreign coun-
tries, alpha characters are acceptable as long as the filer has entered
a “1” (one) in the Foreign Country Indicator, located in position 247
of the “B” Record.
499Blank1Enter blank.
500–507
Record Sequence Number8
Required.Enter the number of the record as it appears within your
file. The record sequence number for the “T” record will always be
“1” (one), since it is the first record on your file and you can have
only one “T” record in a file. Each record, thereafter, must be in-
cremented by one in ascending numerical sequence,i.e.,2,3,4,etc.
Right-justify numbers with leading zeros in the field. For example,
the “T” record sequence numberwould appear as “00000001” in the
field, the first “A” record would be “00000002”, the first “B” record,
“00000003”, the second “B” record, “00000004” and so on until you
reach the final record of the file, the “F” record.
508–544
Blank37Enter blanks.
545
Filing Quarter1
Required.Enter quarter;i.e.,1,2,3,or4. Seethechartbelowto
determine the appropriate quarter.
Quarter
1 ........... January,February,March
2 ........... April,May,June
3 ........... July,August,September
4 ........... October,N
ovember, December
546–553
Blank8Enter blan
ks.
554–568
Contract Number
15Required(if available).Enter the contract number assigned by the
Federal Executive Agency. Left-justify and fill the unused positions
with blanks.
569
Blank1Enter blank.
570–573
Contract M
odification Number
4
Required(if available). Enter the number assigned to the contract
or order to designate a modification or termination. If this field is not
utilized, enter blanks.
574
Blank1Enter blank.
575–589
Contract Office Order Number
15Required
(if available).Enter the number assigned by the
contract
ing office. Left-justify and fill the unused positions with
blanks.
590
Blank1Enter bla
nk.
591–594
Reporting Agency Code4
Required.Enter the four-digit agency and sub-agency code.
595
Blank1Enter blank.
596–600
Contrac
t Office Number
5Required(if available). Enter the number assigned by the Federal
Executive Agency that identifies the purchasing or contracting
office.
601Blank1Enter blank.
602–609 Date of Contract Action8
Required.Enter the date of the action. Use YYYYMMDD (e.g.,
20080214).
2010–43 I.R.B.551October 25, 2010

Record Name: Payee “B” Record
Field
Position Field TitleLengthDescription and Remarks
610Blank1Enter blank.
611–618 Contract Completion Date8
Required.Enter the expected date of completion of contract such
as the contract delivery date under the contract schedule. Use
YYYYMMDD. If completion date is not available, enter blanks.
619–658
Name of Common Parent40
Required(if applicable). If the contractor is a member of an
affiliated group of corporationsthat files its income tax returns
on a consolidated basis, enter the name of the common parent of
the affiliated group. The name entered should match the EIN in
positions 21–29. If this field is not utilized, enter blanks.
659–748
Blank90Enter blanks.
749–750
Blank2Enter blanks or carriage return line feed (CR/LF) characters.
Sec. 7. Payee “B” Record — Record Layout
Record TypePayment YearCorrected Return
Indicator
Name ControlType of TINContractor’s
Taxpayer
Identification
Number (TIN)
1
2–5
67–101112–20
Common
Parent’s
Taxpayer
Identification
Number (TIN)
BlankZeroTotal Amount
Obligated
Under Contract
ZeroBlankForeign
Country
Indicator
21–29
30–5455–138139–150151–198
199–246247
First Payee
Name Line
Second Payee
Name Line
BlankPayee
Mailing
Address
BlankPayee CityPayee StatePayee ZIP
Code
248–287288–327328–367368–407408–447448–487488–489490–498
BlankRecord
Sequence
Number
BlankFiling
Quarter
BlankContract
Number
BlankContract
Modification
Number
499
500–507508–544545546–553554–568569570–573
BlankContract Office
Order Number
BlankReporting
Agency Code
BlankContract Office
Number
Blank
574575–589590591–594595596–600
601
October 25, 20105522010–43 I.R.B.

Date of Contract
Action
BlankContract
Completion Date
Name of Common
Parent
BlankBlank or CR/LF
602–609610611–618
619–658659–748749–750
Sec. 8. End of Payer “C” Record — General Field Descriptions and Record Layout
.01The End of Payer “C” Record is a fixed record length of 750 positions.
.02The control total field is 18 positions in length.
.03The End of Payer “C” Record is a summary record for a given payer.
.04The “C” Record will contain the total number of payees and total of the payment amounts of a given payer. The “C” Record
must be written after the last Payee “B” Record for a given payer. For each “A” Record and group of “B” Records on the file, there
must be a corresponding “C” Record.
.05Payers/Transmitters should verify theaccuracy of the totals since data with missing or incorrect “C” Records will require a
replacement.
Record Name: End of Payer “C” Record
Field
Position Field TitleLengthDescription and Remarks
1Record Type1
Required.Enter “C”.
2–9Number of Payees8
Required.Enter the total number of “B” Records covered by the
preceding “A” Record. Right-justify information and fill unused
positions with zeros.
10–15
Blank6Enter blanks.
16–141Zero126Enter zeros
142–159
Control Total18
Required.Enter the total amount paid to contractors for all contracts
present in the preceding Payee “B” Records.The Control Total
must be entered inU.S. dollars and cents. Dollar signs, commas,
decimal points, or negative payments are not acceptable. Total must
be right-justified and unused positions must be zero filled.
160–231 Zero72Enter zeros.
232–499 Blank268Enter blanks.
500–507
Record Sequence Number8
Required.Enter the number of the record as it appears within
your file. The record sequencenumber for the “T” record will
always be “1” (one), since it is the first record on your file and you
can have only one “T” record in a file. Each record, thereafter,
must be incremented by one inascending numerical sequence,
i.e., 2, 3, 4, etc. Right-justify numbers with leading zeros in
the field. For example, the “T” record sequence number would
appear as “00000001” in the field, the first “A” record would be
“00000002”, the first “B” record, “00000003”, the second “B”
record, “00000004” and so on until you reach the final record of
the file, the “F” record.
508–748
Blank241Enter Blanks.
749–750
Blank2Enter blanks, or carriage return/line feed (CR/LF) characters.
End of Payer “C” Record — Record Layout
Record TypeNumber of PayeesBlankZeroControl TotalZero
12–9
10–15
16–141
142–159
160–231
2010–43 I.R.B.553October 25, 2010

BlankRecord Sequence NumberBlankBlank or CR/LF
232–499
500–507508–748749–750
Sec. 9. End of Transmission “F” Record — General Field Descriptions and Record Layout
.01The End of Transmission “F” record is a fixed record length of 750 positions.
.02The“F”Recordisasummaryofthenumber of payers in the entire file.
.03This record should be written after the last “C” Record of the entire file.
Record Name: End of Transmission “F” Record
Field
Position Field TitleLengthDescription and Remarks
1Record Type1
Required. Enter “F.”
2–9Number of “A” Records8Enter the total number of Payer “A” Records in the entire file
(right-justify and zero fill).
10–30Zero21Enter zeros.
31–499Blank469Enter blanks.
500–507
Record Sequence Number8
Required.Enter the number of the record as it appears within
your file. The record sequencenumber for the “T” record will
always be “1” (one), since it is the first record on your file and you
can have only one “T” record in a file. Each record, thereafter,
must be incremented by one inascending numerical sequence,
i.e., 2, 3, 4, etc. Right-justify numbers with leading zeros in
the field. For example, the “T” record sequence number would
appear as “00000001” in the field, the first “A” record would be
“00000002”, the first “B” record, “00000003”, the second “B”
record, “00000004” and so on until you reach the final record of
the file, the “F” record.
508–748
Blank241Enter blanks.
749–750
Blank2Enter blanks or carriage return/line feed (CR/LF) characters.
End of Transmission “F” Record — Record Layout
Record TypeNumber of “A”
Records
ZeroBlankRecord
Sequence
Number
BlankBlank or CR/LF
12–910–3031–499
500–507508–748749–750
October 25, 20105542010–43 I.R.B.

Sec. 10. File Record Layout
2010–43 I.R.B.555October 25, 2010

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking by
Cross-Refere
nce to
Temporary Re
gulations
Requirement
s for Group
Health Plans
and Health
Insurance I
ssuers Relating
to Internal
Claims and
Appeals an
dExternalReview
Processes
under the Patient
Protecti
on and Affordable
Care Act
REG–1255
92–10
AGENCY: I
nternal Revenue Service
(IRS), Tr
easury.
ACTION: N
otice of proposed rulemaking
by cross
-reference to temporary regula-
tions.
SUMMARY
: Elsewhere in this issue of the
Bulleti
n, the IRS is issuing temporary reg-
ulation
s (T.D. 9494) under the provisions
of the Pa
tient Protection and Affordable
Care Ac
t (the Affordable Care Act) regard-
ing int
ernal claims and appeals and exter-
nal rev
iew processes. The IRS is issuing
the tem
porary regulations at the same time
that t
he Employee Benefits Security Ad-
minis
tration of the U.S. Department of La-
bor an
d the Office of Consumer Informa-
tion a
nd Insurance Oversight of the U.S.
Depar
tment of Health and Human Services
are is
suing substantially similar interim fi-
nal r
egulations with respect to group health
plan
s and health insurance coverage of-
fere
d in connection with a group health
plan
under the Employee Retirement In-
come
Security Act of 1974 and the Pub-
lic
Health Service Act. The temporary
reg
ulations provide guidance to employ-
ers
, group health plans, and health insur-
anc
e issuers providing group health insur-
anc
e coverage. The text of those tempo-
rar
y regulations also serves as the text of
th
ese proposed regulations.
DA
TES: Written or electronic comments
an
d requests for a public hearing must be
re
ceived by October 21, 2010.
ADDRESSES: Se
nd submissions to:
CC:PA:LPD:PR
(REG–125592–10),
room 5205, Int
ernal Revenue Service,
P.O. Box 7604,
BenFranklinSta-
tion, Washing
ton, DC 20044. Sub-
missions may
be hand-delivered to:
CC:PA:LPD:P
R(REG–125592–10),
Courier’s De
sk, Internal Revenue Ser-
vice, 1111 Co
nstitution Avenue, NW,
Washington
DC 20224. Alternatively,
taxpayers m
ay submit comments elec-
tronically
via the Federal eRulemaking
Portal atht
tp://www.regulations.gov(IRS
REG–12559
2–10).
FOR FURTHE
R INFORMATION
CONTACT: C
oncerning the regulations,
Karen Levi
n at 202–622–6080; concern-
ing submis
sions of comments, Oluwa-
funmilayo
Taylor at 202–622–7180 (not
toll-fre
e numbers).
SUPPLEME
NTARY INFORMATION:
Backgrou
nd and Explanation of
Provisio
ns
The tempo
rary regulations published
elsewher
e in this issue of the Bulletin add
§54.9815
–2719T to the Miscellaneous Ex-
cise Tax
Regulations. The proposed and
tempora
ry regulations are being published
as part o
f a joint rulemaking with the De-
partmen
t of Labor and the Department
of Healt
h and Human Services (the joint
rulema
king). The text of those temporary
regula
tions also serves as the text of these
propos
ed regulations. The preamble to
the tem
porary regulations explains the
tempor
ary regulations and these proposed
regul
ations.
Speci
al Analyses
It has b
een determined that this notice
of pro
posed rulemaking is not a significant
regul
atory action as defined in Executive
Order
12866. Therefore,a regulatory as-
sessm
ent is not required. It has also been
deter
mined that section 553(b) of the Ad-
mini
strative Procedure Act (5 U.S.C. chap-
ter 5
) does not apply to this proposed regu-
lati
on. It is hereby certified that the collec-
tion
s of information contained in this no-
tice
of proposed rulemaking will not have
asi
gnificant impact on a substantial num-
ber
of small entities. Accordingly, a reg-
ulatory flexi
bility analysis under the Reg-
ulatory Flexi
bility Act (5 U.S.C. chapter
6) is not requi
red. Section 54.9815–2719T
of the tempora
ry regulations requires both
group health i
nsurance issuers and group
health plans
to establish internal claims
and appeals a
nd external review processes
for adverse b
enefit determinations. Those
processes re
quire the plan and issuer to
disclose ev
idence relied upon in making
an adverse b
enefit determination, to dis-
close any ne
w rationale for upholding an
adverse ben
efit determination as part of
an interna
l appeal, to provide notice of
an adverse
benefit determination and of
a final int
ernal adverse benefit determina-
tion, and t
o disclose the right to an ex-
ternal rev
iew. Under the temporary reg-
ulations
, if a health insurance issuer sat-
isfies th
e obligations to have effective in-
ternal cl
aims and appeals and external re-
view proc
esses (including these informa-
tion col
lection requirements that are an in-
herent p
art of those processes), those obli-
gations
are satisfied not just for the issuer
but also
for the group health plan. For
group he
alth plans maintained by small en-
tities
, it is anticipated that the health insur-
ance is
suer will satisfy those obligations to
have ef
fective internal claims and appeals
and ext
ernal review processes (including
these i
nformation collection requirements
that a
re an inherent part of those processes)
for bo
th the plan and the issuer in almost
all ca
ses. For this reason, these informa-
tion c
ollection requirements will not im-
pose a
significant impact on a substantial
numb
er of small entities. Pursuant to sec-
tion
7805(f) of the Internal Revenue Code,
this
regulation has been submitted to the
Chie
f Counsel for Advocacy of the Small
Busi
ness Administration for comment on
its i
mpact on small business.
Comm
ents and Requests for a Public
Hear
ing
Befor
e these proposed regulations are
adopt
ed as final regulations, consideration
will
be given to any written comments
(a si
gned original and eight (8) copies)
or el
ectronic comments that are submitted
time
ly to the IRS. Comments are specifi-
call
y requested on the clarity of the pro-
pose
d regulations and how they may be
mad
e easier to understand. All comments
October 25, 20105562010–43 I.R.B.

will be available for public inspection and
copying. A public hearing may be sched-
uled if requested in writing by a person
that timely submits written comments. If
a public hearing is scheduled, notice of the
date, time, and place for the hearing will
be published in theFederal Register.
Drafting Information
The principal author of these proposed
regulations is Karen Levin, Office of the
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties), IRS. The proposed regulations, as
well as the temporary regulations, have
been developed in coordination with per-
sonnel from the U.S. Department of Labor
and the U.S. Department of Health and Hu-
man Services.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 54 is pro-
posedtobeamendedasfollows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation for
part 54 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.9815–2719 also issued un-
der 26 U.S.C. 9833.
Par. 2. Section 54.9815–2719 is added
to read as follows:
§54.9815–2719 Internal claims and
appeals and external review processes.
[The text of proposed §54.9815–2719
is the same as the text of paragraphs (a)
through (f) of §54.9815–2719T 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 July 22, 2010,
8:45 a.m., and published in the issue of the Federal Register
for July 23, 2010, F.R. 43109)
Update to all Publications
associated with filing
information returns through
the FIRE (Filing Information
Returns Electronically) System
Announcement 2010–87
This announcement affects all filers
who use the FIRE System and may wish
to submit test files. Effective November 1,
2010, filers who wish to submit electronic
test files must now point their browser
tohttp://fire.test.irs.gov. This system is
designed to support electronic filing tests
of information returns only. Electronic
filing test dates for Tax Year 2010 are
November 1, 2010, through February 15,
2011. If you have questions concerning
the announcement, please call toll-free
1–866–455–7438.
2010–43 I.R.B.557October 25, 2010

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.
October 25, 2010i2010–43 I.R.B.

Numerical Finding List
1
Bulletins 2010–27 through 2010–43
Announcements:
2010-43, 2010-27 I.R.B.42
2010-44, 2010-28 I.R.B.54
2010-45, 2010-29 I.R.B.87
2010-46, 2010-29 I.R.B.87
2010-47, 2010-30 I.R.B.173
2010-48, 2010-32 I.R.B.234
2010-49, 2010-34 I.R.B.272
2010-50, 2010-33 I.R.B.260
2010-51, 2010-33 I.R.B.261
2010-52, 2010-36 I.R.B.315
2010-53, 2010-36 I.R.B.323
2010-54, 2010-38 I.R.B.386
2010-55, 2010-37 I.R.B.346
2010-56, 2010-39 I.R.B.398
2010-57, 2010-38 I.R.B.386
2010-58, 2010-38 I.R.B.387
2010-59, 2010-39 I.R.B.399
2010-60, 2010-40 I.R.B.417
2010-61, 2010-40 I.R.B.417
2010-62, 2010-40 I.R.B.417
2010-63, 2010-40 I.R.B.417
2010-64, 2010-40 I.R.B.418
2010-65, 2010-40 I.R.B.418
2010-66, 2010-40 I.R.B.418
2010-67, 2010-40 I.R.B.418
2010-68, 2010-40 I.R.B.418
2010-69, 2010-40 I.R.B.418
2010-70, 2010-40 I.R.B.418
2010-71, 2010-40 I.R.B.418
2010-72, 2010-40 I.R.B.419
2010-73, 2010-40 I.R.B.419
2010-74, 2010-40 I.R.B.419
2010-75, 2010-41 I.R.B.428
2010-76, 2010-41 I.R.B.432
2010-77, 2010-41 I.R.B.433
2010-78, 2010-41 I.R.B.433
2010-79, 2010-42 I.R.B.475
2010-82, 2010-42 I.R.B.476
2010-87, 2010-43 I.R.B.557
Notices:
2010-48, 2010-27 I.R.B.9
2010-49, 2010-27 I.R.B.10
2010-50, 2010-27 I.R.B.12
2010-51, 2010-29 I.R.B.83
2010-52, 2010-30 I.R.B.88
2010-53, 2010-31 I.R.B.182
2010-54, 2010-40 I.R.B.403
2010-55, 2010-33 I.R.B.253
2010-56, 2010-33 I.R.B.254
2010-57, 2010-34 I.R.B.267
Notices— Continued:
2010-58, 2010-37 I.R.B.326
2010-59, 2010-39 I.R.B.396
2010-60, 2010-37 I.R.B.329
2010-61, 2010-40 I.R.B.408
2010-62, 2010-40 I.R.B.411
2010-63, 2010-41 I.R.B.420
2010-64, 2010-41 I.R.B.421
2010-65, 2010-41 I.R.B.424
2010-66, 2010-42 I.R.B.437
2010-67, 2010-43 I.R.B.529
Proposed Regulations:
REG-139343-08, 2010-33 I.R.B.256
REG-151605-09, 2010-31 I.R.B.184
REG-153340-09, 2010-42 I.R.B.469
REG-112841-10, 2010-27 I.R.B.41
REG-118412-10, 2010-29 I.R.B.85
REG-119046-10, 2010-40 I.R.B.415
REG-120391-10, 2010-35 I.R.B.310
REG-120399-10, 2010-32 I.R.B.239
REG-125592-10, 2010-43 I.R.B.556
Revenue Procedures:
2010-25, 2010-27 I.R.B.16
2010-26, 2010-30 I.R.B.91
2010-27, 2010-31 I.R.B.183
2010-28, 2010-34 I.R.B.270
2010-29, 2010-35 I.R.B.309
2010-30, 2010-36 I.R.B.316
2010-31, 2010-40 I.R.B.413
2010-32, 2010-36 I.R.B.320
2010-33, 2010-38 I.R.B.347
2010-34, 2010-41 I.R.B.426
2010-35, 2010-42 I.R.B.438
2010-36, 2010-42 I.R.B.439
2010-37, 2010-42 I.R.B.440
2010-38, 2010-43 I.R.B.530
2010-39, 2010-42 I.R.B.459
Revenue Rulings:
2010-18, 2010-27 I.R.B.1
2010-19, 2010-31 I.R.B.174
2010-20, 2010-36 I.R.B.312
2010-21, 2010-39 I.R.B.388
2010-22, 2010-39 I.R.B.388
2010-23, 2010-39 I.R.B.388
2010-24, 2010-40 I.R.B.400
Tax Conventions:
2010-48, 2010-32 I.R.B.234
2010-52, 2010-36 I.R.B.315
Treasury Decisions:
9486, 2010-27 I.R.B.3
9487, 2010-28 I.R.B.48
Treasury Decisions— Continued:
9488, 2010-28 I.R.B.51
9489, 2010-29 I.R.B.55
9490, 2010-31 I.R.B.176
9491, 2010-32 I.R.B.186
9492, 2010-33 I.R.B.242
9493, 2010-35 I.R.B.273
9494, 2010-43 I.R.B.500
9495, 2010-43 I.R.B.477
9496, 2010-43 I.R.B.484
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin
2010–26, dated June 28, 2010.
2010–43 I.R.B.iiOctober 25, 2010

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2010–27 through 2010–43
Notices:
96-53
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2003-19
Revoked by
Notice 2010-53, 2010-31 I.R.B.182
2004-2
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2004-50
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2005-90
Supplemented by
Notice 2010-65, 2010-41 I.R.B.424
2006-69
Amplified by
Notice 2010-59, 2010-39 I.R.B.396
2008-51
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2008-52
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2009-47
Obsoleted by
Rev. Proc. 2010-28, 2010-34 I.R.B.270
2009-80
Corrected by
Ann. 2010-59, 2010-39 I.R.B.399
2009-90
Superseded by
Notice 2010-54, 2010-40 I.R.B.403
Proposed Regulations:
REG-115037-00
Withdrawn by
Ann. 2010-60, 2010-40 I.R.B.417
REG-146893-02
Withdrawn by
Ann. 2010-60, 2010-40 I.R.B.417
Revenue Procedures:
81-18
Obsoleted by
Rev. Proc. 2010-27, 2010-31 I.R.B.183
Revenue Procedures— Continued:
2007-44
Modified by
Notice 2010-48, 2010-27 I.R.B.9
2008-49
Superseded by
Rev. Proc. 2010-38, 2010-43 I.R.B.530
2009-18
Obsoleted in part by
Rev. Proc. 2010-25, 2010-27 I.R.B.16
2009-30
Superseded by
Rev. Proc. 2010-26, 2010-30 I.R.B.91
2009-35
Superseded by
Rev. Proc. 2010-33, 2010-38 I.R.B.347
2009-46
Superseded by
Rev. Proc. 2010-37, 2010-42 I.R.B.440
2009-47
Superseded by
Rev. Proc. 2010-39, 2010-42 I.R.B.459
2009-50
Modified by
Rev. Proc. 2010-35, 2010-42 I.R.B.438
2010-3
Modified by
Notice 2010-62, 2010-40 I.R.B.411
Revenue Rulings:
2003-102
Obsoleted by
Rev. Rul. 2010-23, 2010-39 I.R.B.388
Treasury Decisions:
9487
Corrected by
Ann. 2010-50, 2010-33 I.R.B.260
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin 2010–26, dated June 28, 2010.
October 25, 2010iii2010–43 I.R.B.

INDEX
Internal Revenue Bulletins 2010–27 through
2010–43
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parenthesis refers to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Disaster relief, qualified plans (Notice 48) 27,9
Excise taxes on prohibited tax shelter transactions and related
provisions (TD 9492) 33,242
Full funding limitations, weighted average interest rates, seg-
ment rates for:
July 2010 (Notice 52) 30,88
August 2010 (Notice 57) 34,267
September 2010 (Notice 61) 40,408
Nondiscrimination in favor of highly compensated individuals
under insured group health plans (Notice 63) 41,420
Proposed Regulations:
26 CFR 54.9815–2704, –2711, –2712, –2719A, added; re-
quirements for group healthplans and health insurance
issuers under the Patient Protection and Affordable Care
Act relating to preexisting condition exclusions, lifetime
and annual limits, rescissions, and patient protections
(REG–120399–99) 32,239
26 CFR 54.9815–2713, added; rules relating to coverage of
preventive health services (REG–120391–10) 35,310
26 CFR 54.9815–2719, added; rules relating to inter-
nal claims and appeals and external review processes
(REG–125592–10) 43,556
Qualified plans:
Alternative amortization schedules for single-employer plans
under PRA 2010 (Notice 55) 33,253
Special funding rules for multiemployer plans under PRA
2010 (Notice 56) 33,254
Rules relating to coverage of preventive health services (TD
9493) 35,273; (REG–120391–10) 35,310
Rules relating to internal claims and appeals and external review
processes (TD 9494) 43,500; (REG–125592–10) 43,556
EMPLOYEE PLANS—Cont.
Rules relating to preexisting condition exclusions, lifetime and
annual limits, rescissions, and patient protections (TD 9491)
32,186; (REG–120399–99) 32,239
Regulations:
26 CFR 1.6033–5, added; 1.6033–5T, removed; 53.4965–1
thru –9, added; 53.6071–1, revised; 53.6071–1T(g) &
(h), removed; 54.6011–1, revised; 54.6011–1T(c) & (d),
removed; 301.6011(g)–1, added; 301.6033–5, added;
301.6033–5T, removed; 602.101, amended; excise taxes
on prohibited tax shelter transactions and related disclo-
sure requirements, disclosure requirements with respect to
prohibited tax shelter transactions, requirement of return
and time for filing (TD 9492) 33,242
26 CFR 54.9801–2, –3, amended; 54.9815–2704T, –2711T,
–2712T, added; –2719AT, added; 602.101(b), amended;
requirements for group healthplans and health insurance
issuers under the Patient Protection and Affordable Care
Act relating to preexisting condition exclusions, lifetime
and annual limits, rescissions, and patient protections (TD
9491) 32,186
26 CFR 54.9815–1251T, added; rules relating to status as
grandfathered health plans for group health plans and health
insurance coverage (TD 9489) 29,55
26 CFR 54.9815–2713T, added; rules relating to coverage of
preventive health services (TD 9493) 35,273
26 CFR 54.9815–2719T, added; 602.101(b), amended; rules
relating to internal claims and appeals and external review
processes (TD 9494) 43,500
Revocation of Notice 2003–19 (Notice 53) 31,182
Rules relating to status as grandfathered health plans for group
health plans and health insurance coverage (TD 9489) 29,55;
(REG–118412–10) 29,85
EMPLOYMENT TAX
Controlled services transactions, section 482, withdrawal of
REG–146893–02 (Ann 60) 40,417
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Examination of returns and claims for refund, credit or abate-
ment, determination of correct tax liability (RP 27) 31,183
Intangible property, allocation of income and deductions, with-
drawal of REG–115037–00 (Ann 60) 40,417
Proposed Regulations:
26 CFR 1.1461–1, amended; 1.6302–1 thru –4, amended;
31.6302–0, –1, –1T, –2, –4, amended; 31.6302(c)–2A,
removed; 31.6302(c)–3, amended; 40.6302(c)–1 thru –3,
amended; 301.6302–1, amended; 301.6656–1, amended;
301.7502–2, removed; Electronic Funds Transfer (EFT) of
depository taxes (REG–153340–09) 42,469
Treatment of services under section 482, allocation of in-
come and deductions from intangibles, withdrawal of
REG–146893–02 and REG–115037–00 (Ann 60) 40,417
Revocation of Notice 2003–19 (Notice 53) 31,182
2010–43 I.R.B.ivOctober 25, 2010

ESTATE TAX
Revocation of Notice 2003–19 (Notice 53) 31,182
EXCISE TAX
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Examination of returns and claims for refund, credit or abate-
ment, determination of correct tax liability (RP 27) 31,183
Excise taxes on prohibited tax shelter transactions and related
provisions (TD 9492) 33,242
Guidance on section 5000B, indoor tanning services excise tax
(TD 9486) 27,3; (REG–112841–10) 27,41
Nondiscrimination in favor of highly compensated individuals
under insured group health plans (Notice 63) 41,420
Rules relating to coverage of preventive health services (TD
9493) 35,273; (REG–120391–10) 35,310
Rules relating to internal claims and appeals and external review
processes (TD 9494) 43,500; (REG–125592–10) 43,556
Rules relating to preexisting condition exclusions, lifetime and
annual limits, rescissions, and patient protections (TD 9491)
32,186; (REG–120399–99) 32,239
Proposed Regulations:
26 CFR 1.1461–1, amended; 1.6302–1 thru –4, amended;
31.6302–0, –1, –1T, –2, –4, amended; 31.6302(c)–2A,
removed; 31.6302(c)–3, amended; 40.6302(c)–1 thru –3,
amended; 301.6302–1, amended; 301.6656–1, amended;
301.7502–2, removed; Electronic Funds Transfer (EFT) of
depository taxes (REG–153340–09) 42,469
26 CFR 40.0–1, amended; 40.6302(c)–1, amended; 49.0–3,
added; 49.5000B–1, added; indoor tanning services excise
tax (REG–112841–10) 27,41
26 CFR 54.9815–1251T, added; rules relating to status as
grandfathered healthplans for group health plans and health
insurance coverage (REG-118412–10) 29,85
26 CFR 54.9815–2704, –2711, –2712, –2719A, added; re-
quirements for group healthplans and health insurance
issuers under the Patient Protection and Affordable Care
Act relating to preexisting condition exclusions, lifetime
and annual limits, rescissions, and patient protections
(REG–120399–99) 32,239
26 CFR 54.9815–2713, added; rules relating to coverage of
preventive health services (REG–120391–10) 35,310
26 CFR 54.9815–2719, added; rules relating to inter-
nal claims and appeals and external review processes
(REG–125592–10) 43,556
Regulations:
26 CFR 1.6033–5, added; 1.6033–5T, removed; 53.4965–1
thru –9, added 53.6071–1, revised; 53.6071–1T(g) &
(h), removed; 54.6011–1, revised; 54.6011–1T(c) & (d),
removed; 301.6011(g)–1, added; 301.6033–5, added;
301.6033–5T, removed; 602.101, amended; excise taxes
on prohibited tax shelter transactions and related disclo-
sure requirements, disclosure requirements with respect to
prohibited tax shelter transactions, requirement of return
and time for filing (TD 9492) 33,242
EXCISE TAX—Cont.
26 CFR 40.0–1, amended; 40.0–1T, added; 40.6302(c)–1,
amended; 40.6302(c)–1T, added; 49.0–3T, added;
49.5000B–1T, added; 602.101, amended; indoor tanning
services excise taxe (TD 9486) 27,3
26 CFR 54.9801–2, –3, amended; 54.9815–2704T, –2711T,
–2712T, –2719AT, added; 602.101(b) amended; require-
ments for group health plans and health insurance issuers
under the Patient Protection andAffordable Care Act relat-
ing to preexisting condition exclusions, lifetime and annual
limits, rescissions, and patient protections (TD 9491) 32,
186
26 CFR 54.9815–1251T, added; rules relating to status as
grandfathered health plans for group health plans and health
insurance coverage (TD 9489) 29,55
26 CFR 54.9815–2713T, added; rules relating to coverage of
preventive health services (TD 9493) 35,273
26 CFR 54.9815–2719T, added; 602.101(b), amended; rules
relating to internal claims and appeals and external review
processes (TD 9494) 43,500
Revocation of Notice 2003–19 (Notice 53) 31,182
Rules relating to status as grandfathered health plans for group
health plans and health insurance coverage (TD 9489) 29,55;
(REG-118412–10) 29,85
EXEMPT ORGANIZATIONS
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Excise taxes on prohibited tax shelter transactions and related
provisions (TD 9492) 33,242
Proposed Regulations:
26 CFR 1.1461–1, amended; 1.6302–1 thru –4, amended;
31.6302–0, –1, –1T, –2, –4, amended; 31.6302(c)–2A,
removed; 31.6302(c)–3, amended; 40.6302(c)–1 thru –3,
amended; 301.6302–1, amended; 301.6656–1, amended;
301.7502–2, removed; Electronic Funds Transfer (EFT) of
depository taxes (REG–153340–09) 42,469
Regulations:
26 CFR 1.6033–5, added; 1.6033–5T, removed; 53.4965–1
thru –9, added 53.6071–1, revised; 53.6071–1T(g) &
(h), removed; 54.6011–1, revised; 54.6011–1T(c) & (d),
removed; 301.6011(g)–1, added; 301.6033–5, added;
301.6033–5T, removed; 602.101, amended; excise taxes
on prohibited tax shelter transactions and related disclo-
sure requirements, disclosure requirements with respect to
prohibited tax shelter transactions, requirement of return
and time for filing (TD 9492) 33,242
Revocation of Notice 2003-19 (Notice 53) 31,182
Revocations (Ann 44) 28,54; (Ann 45) 29,87;(Ann47)30,
173; (Ann 49) 34,272; (Ann 55) 37,346; (Ann 57) 38,386
correction to Ann 47 (Ann 59) 39,399; correction to Ann 59
(Ann 77) 41,433; (Ann 79) 42,475
October 25, 2010v2010–43 I.R.B.

INCOME TAX
Bonds:
Bonds, application by cooperative electrical companies to is-
sue clean renewable energy bonds (Ann 54) 38,386
Qualified zone academy bonds (TD 9495) 43,477
Controlled services transactions, section 482, withdrawal of
REG–146893–02 (Ann 60) 40,417
Corporations, section 382 treatment of prepaid income under
built-in gain provisions of section 382(h) (TD 9487) 28,48;
corrections (Ann 50) 33,260
Credits:
Adoption credit, foreign adoptions (RP 31) 40,413
Inflation adjustments for adoption credit (RP 35) 42,438
Refundable adoption credit (Notice 66) 42,437
Section 45 production tax credit for refined coal (Notice 54)
40,403
Declaratory judgment suits (Ann 46) 29,87;(Ann61thru74)
40,417
Disciplinary actions involving attorneys, certified public accoun-
tants, enrolled agents, and enrolled actuaries (Ann 43) 27,42;
(Ann 51) 33,261; (Ann 53) 36,323; (Ann 78) 41,433
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Examination of returns and claims for refund, credit or abate-
ment, determination of correct tax liability (RP 27) 31,183
Extended carryback of losses to or from a consolidated group
(TD 9490) 31,176; REG–151605–09 31,184
Filing Information Returns Electronically (FIRE) System, publi-
cations updates (Ann 87) 43,557
Forms:
1042–S, Foreign Persons’s U.S. Source Income Subject to
Withholding, specifications for filing electronically (RP 33)
38,347
1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G, re-
quirements for filing electronically, 2010 revision (RP 26)
30,91
8027, Employer’s Annual Information Return of Tip Income
and Allocated Tips, specifications for filing electronically
(RP 37) 42,440
8596, Information Return for Federal Contracts, specifica-
tions for filing electronically (RP 38) 43,530
Guidance and request for comments regarding implementation
of new chapter 4 of the Code (Notice 60) 37,329
Information reporting:
For payments made in settlement of payment card and third
party network transactions (TD 9496) 43,484
Requirements for brokers for sales and transfers of securities
(Notice 67) 43,529
Under the amendments to section 6041 for gross proceeds
paid and for payments to corporations (Notice 51) 29,83
Insurance companies:
Effectively connected income, insurance (RP 29) 35,309
Safe harbor under sections 7702 and 7702A for contracts with
a maturity date of 100, life insurance (RP 28) 34,270
Intangible property, allocation of income and deductions, with-
drawal of REG–115037–00 (Ann 60) 40,417
INCOME TAX—Cont.
Interim guidance under the codification of the economic sub-
stance doctrine and related provisions in the Health Care and
Education Reconciliation Act of 2010 (Notice 62) 40,411
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
July 2010 (RR 18) 27,1
August 2010 (RR 19) 31,174
September 2010 (RR 20) 36,312
October 2010 (RR 24) 40,400
Underpayment and overpayments, quarter beginning:
October 1, 2010 (RR 21) 39,388
Interest and penalty suspension provisions under section 6404(g)
of the Internal Revenue Code (TD 9488) 28,51
Involuntary conversions, livestock sold on account of drought,
extension of replacement period, list of affected counties (No-
tice 64) 41,421
Losses, imported drywall (RP 36) 42,439
Net operating losses (Notice 58) 37,326
Nonshareholder contributionto capital, ARRA treatment (RP 34)
41,426
Over-the-counter drugs:
Amounts received under accident and health plans ((RR 23)
39,388
Revised definition of medical expense under section 106(f)
(Notice 59) 39,396
Per diem allowances, 2010–2011 (RP 39) 42,459
Proposed Regulations:
26 CFR 1.1461–1, amended; 1.6302–1 thru –4, amended;
31.6302–0, –1, –1T, –2, –4, amended; 31.6302(c)–2A,
removed; 31.6302(c)–3, amended; 40.6302(c)–1 thru –3,
amended; 301.6302–1, amended; 301.6656–1, amended;
301.7502–2, removed; Electronic Funds Transfer (EFT) of
depository taxes (REG–153340–09) 42,469
26 CFR 1.1502–21, revised; extended carryback of losses to
or from a consolidated group (REG–151605–09) 31,184
26 CFR 300.0 thru 300.8, amended; 300.9, added; user fees
relating to enrollment and preparer tax identification num-
ber (REG–139343–08) 33,256
26 CFR 1.6012–2, amended; requirement of a statement dis-
closing uncertain tax positions (REG–119046–10) 40,415
Treatment of services under section 482, allocation of in-
come and deductions from intangibles, withdrawal of
REG–146893–09 and REG–115037–00 (Ann 60) 40,417
Publications:
1187, Specifications for Filing Forms 1042–S, Foreign Per-
son’s U.S. Source Source Income Subject to Withholding,
Electronically, revised (RP 33) 38,347
1516, Specifications for Filing Form 8596, Information Re-
turn for Federal Contracts,Electronically (RP 38) 43,530
1220, Specifications for Filing Forms 1097, 1098, 1099, 3921,
3922, 5498, 8935, and W-2G Electronically, 2010 revision
(RP 26) 30,91; changes (Ann 82) 42,476
1239, Specifications for Filing Form 8027, Employer’s An-
nual Information Return of TipIncome and Allocated Tips,
Electronically, revised (RP 37) 42,440
2010–43 I.R.B.viOctober 25, 2010

INCOME TAX—Cont.
Qualified mortgage bonds (QMBs) and mortgage credit certifi-
cate (MCCs), average area housing purchase price for 2010
(RP 25) 27,16
Qualifying advanced coal project program, qualifying gasifica-
tion project program (Ann 56) 39,398
Regulations:
26 CFR 1.382–1, amended; 1.382–1T, added; 1.382–7, added;
1.382–7T, removed; built-in gains and losses under section
382(h) (TD 9487) 28,48; 1.382–2T, amended, correction
(Ann 50) 33,260
26 CFR 1.1397E–1, amended; 1.1397E–1T, removed;
602.101, amended; qualified zone academy bonds (TD
9495) 43,477
26 CFR 1.1502–21, amended; 1.1502–2T, revised; 602.101,
revised; extended carryback of losses to or from a consoli-
dated group (TD 9490) 31,176
26 CFR 1.6041–1, amended; 1.6041A–1, amended;
1.6050W–1, –2, added; 31.3406–0, amended; 31.3406(a),
amended; 31.3406(b)(3)–5, added; 31.6051–4 amended;
301.6721–1, amended; 301.6722–1, amended; information
reporting for payments made in settlement of payment card
and third party network transactions (TD 9496) 43,484
26 CFR 301.6404–0, –4, added; 301.6404–4T, removed;
interest and penalty suspension provisions under section
6404(g) of the Internal Revenue Code (TD 9488) 28,51
Releases of liens on mortgage loans held by REMICs (RP 30)
36,316
Reporting of uncertain tax positions (Ann 75) 41,428
Requests for documents provided to independent auditors, policy
of restraint and uncertain tax positions (Ann 76) 41,432
Requirement of a statement disclosing uncertain tax positions
(REG–119046–10) 40,415
Revocations, exempt organizations (Ann 44) 28,54;(Ann45)
29,87; (Ann 47) 30,173;(Ann49)34,272;(Ann55)37,
346;(Ann57)38,386; correction to Ann 47 (Ann 59) 39,399;
correction to Ann 59 (Ann 77) 41,433; (Ann 79) 42,475
Revocation of Notice 2003-19 (Notice 53) 31,182
Section 301.9100 relief for certain foreign eligible entities (RP
32) 36,320
Section 382 limitation:
Fluctuation in value, ownership changes (Notice 50) 27,12
Ownership changes, small shareholders (Notice 49) 27,10
Section 901(1) application to certain back-to-back licensing ar-
rangements and certain retail distribution arrangements (No-
tice 65) 41,424
Standard Industry Fare Level (SIFL) formula (RR 22) 39,388
Tax Convention:
U.S. –Belgium, agreement with respect to fellowship pay-
ments made to researchers (Ann 52) 36,315
U.S. –Greenland reciprocal exemption agreement (Ann 48)
32,234
User fees relating to enrollment and preparer tax identification
numbers (REG–139343–08) 33,256
SELF-EMPLOYMENT TAX
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Proposed Regulations:
26 CFR 1.1461–1, amended; 1.6302–1 thru –4, amended;
31.6302–0, –1, –1T, –2, –4, amended; 31.6302(c)–2A,
removed; 31.6302(c)–3, amended; 40.6302(c)–1 thru –3,
amended; 301.6302–1, amended; 301.6656–1, amended;
301.7502–2, removed; Electronic Funds Transfer (EFT) of
depository taxes (REG–153340–09) 42,469
October 25, 2010vii2010–43 I.R.B.

INTERNAL REVENUE BULLETIN
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