SECTION 1. PURPOSE

.01 This notice alerts taxpayers to an amendment made to § 833 of the Internal Revenue Code (Code) by the Patient Protection and Affordable Care Act (H.R. 3590, P.L. 111–148) (the “Affordable Care Act”). Section 833 provides special rules for certain Blue Cross and Blue Shield organizations, and certain other organizations. Effective for taxable years beginning after December 31, 2009, the amendment adds new § 833(c)(5), which limits the application of § 833 to otherwise-qualifying taxpayers with a medical loss ratio that is not less than 85 percent.

.02 This notice also provides interim guidance to taxpayers on the interpretation and application of § 833(c)(5). The Affordable Care Act was enacted on March 23, 2010, adding § 833(c)(5) with retroactive effect for taxable years beginning after December 31, 2009. The Treasury Department and the Internal Revenue Service (Service) are engaged in developing detailed guidance for this provision. That guidance must also take into account other closely related guidance that the Department of Health and Human Services (HHS) has just published. To allow affected taxpayers to comply with the mid-year change in law while

detailed guidance is under development, the Treasury Department and the Service are providing interim guidance on the operation of § 833(c)(5) for the first taxable year beginning after December 1, 2009.