rp-04-22.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III

Administrative, Procedural, and Miscellaneous

Section 223: Health Savings Accounts

Rev. Proc. 2004-22

SECTION 1. PURPOSE

This revenue procedure provides transition relief from Revenue Ruling 2004-38
for determining an “eligible individual” under section 223 who may make contributions to
a Health Savings Account (HSA). The transition relief covers the months before
January 1, 2006, in the case of an individual who is covered by both a high deductible
health plan (HDHP) and by a separate plan or rider that provides prescription drug
benefits before the minimum annual deductible of the HDHP is satisfied.

SECTION 2. BACKGROUND

Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, Pub. L. No. 108-173, added section 223 to the Internal
Revenue Code to permit eligible individuals to establish HSAs for taxable years
beginning after December 31, 2003. Generally, an “eligible individual” is an individual
who is covered by an HDHP and no health plan that is not an HDHP. Revenue Ruling
2004-38, clarifies that an individual who is covered by a health plan that provides
prescription drug benefits before the minimum annual deductible of an HDHP has been
satisfied, is not an “eligible individual” under section 223(c)(1)(A) and may not make
contributions to an HSA. Because of the short period between the enactment of HSAs
and the effective date of section 223, many employers and health insurance providers
have been unable to modify the benefits provided under their existing health plans to
conform to the statutory requirements for an HDHP. Thus, it is appropriate to provide
transition relief to allow individuals to contribute to an HSA who would otherwise qualify
as eligible individuals but for coverage by a prescription drug benefit provided under a
separate plan or rider that is not an HDHP.

SECTION 3. APPLICATION

For months before January 1, 2006, an individual who would otherwise be an
“eligible individual” under section 223(c)(1)(A), but is covered by both an HDHP that
does not provide benefits for prescription drugs and by a separate health plan or rider
that provides prescription drug benefits before the minimum annual deductible of the
HDHP is satisfied (i.e., the separate prescription drug plan is not an HDHP), will
continue to be an “eligible individual” and may make contributions to an HSA based on
the annual deductible of the HDHP.

SECTION 4. EFFECT ON OTHER DOCUMENTS

The holding of Revenue Ruling 2004-38 is suspended in part and replaced by the
transition relief provided in this revenue procedure for months before January 1, 2006.

DRAFTING INFORMATION

The principal author of this notice is Shoshanna Tanner of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further
information regarding this notice, contact Ms. Tanner on (202) 622-6080 (not a toll-free
call).