Section 3. REQUEST FOR COMMENTS

Treasury and the Service anticipate proposing regulations under §§ 4375 and 4376. To inform the development of the proposed regulations, Treasury and the Service request comments on the following topics:

Average Number of Lives Covered Under the Policy Under § 4375

.01 The fee imposed by § 4375(a) on specified health insurance policies is based on the “average number of lives covered under the policy.” Treasury and the Service invite comments on reasonable methods an issuer may use to determine the av

.07 Under § 4376(b)(1), the fee must be paid by the plan sponsor. Section 4376(b)(2) defines “plan sponsor” as the employer in the case of a plan established or maintained by a single employer or the employee organization in the case of a plan established or maintained by an employee organization. Section 4376(b)(2) provides that, in the case of (1) a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, (2) a multiple employer welfare arrangement, or (3) a voluntary employees’ beneficiary association described in § 501(c)(9), the “plan sponsor” is the association, committee, joint board of trustees, or other similar group of representatives of the parties that establish or maintain the plan, and, in the case of a plan established or maintained by a cooperative or association described in § 4376(c)(2)(F), the “plan sponsor” is the cooperative or association.

.08 Section 4376(c) defines “applicable self-insured health plan” as any plan for providing accident or health coverage if any portion of the coverage is provided other than through an insurance policy, and the plan is established or maintained (1) by one or more employers for the benefit of their employees or former employees, (2) by one or more employee organizations for the benefit of their members or former members, (3) jointly by one or more employers and one or more employee organizations for the benefit of employees or former employees, (4) by a voluntary employees’ beneficiary association described in § 501(c)(9), (5) by any organization described in § 501(c)(6), or (6) in the case of a plan not previously described, by a multiple employer welfare arrangement (as defined in § 3(40) of the Employee Retirement Income Security Act of 1974 (ERISA)), a rural electric cooperative (as defined in § 3(40)(B)(iv) of ERISA), or a rural telephone cooperative association (as defined in § 3(40)(B)(v) of ERISA).

.09 Section 4376(d) provides that, for any plan year ending in any fiscal year beginning after September 30, 2014, the dollar amount in effect under § 4376(a) is equal to the sum of (1) that dollar amount for plan years ending in the previous fiscal year, plus (2) an amount equal to (A) that dollar amount for plan years ending in the previous fiscal year, multiplied by (B) the percentage increase in the projected per

capita amount of National Health Expenditures, as most recently published by the Secretary before the beginning of the fiscal year. For purposes of § 4376, the term “fiscal year” means the Federal government’s fiscal year, which, as noted, runs from October 1 to September 30. As noted, because Treasury does not publish National Health Expenditures, Treasury and the Service intend that the proposed regulations will refer to the National Health Expenditures published by the Department of Health and Human Services.

Definitions and Special Rules Under § 4377 for the Fees Imposed Under §§ 4375 and 4376

.10 Section 4377(a)(1) defines “accident and health coverage” for purposes of §§ 4375 and 4376 as any coverage that, if provided by an insurance policy, would cause the policy to be a specified health insurance policy (as defined in § 4375(c)).

.11 Section 4377(a)(2) defines “insurance policy” as any policy or other instrument whereby a contract of insurance is issued, renewed, or extended.

.12 Section 4377(a)(3) defines “United States” to include any possession of the United States. Section 4377(d) provides that no amount collected under §§ 4375–4377 is to be covered over to any possession of the United States.

.13 Governmental entities that are issuers of specified health insurance policies or plan sponsors of applicable self-insured plans are generally subject to the fees imposed under §§ 4375 and 4376. However, § 4377(b) provides that no such fee will be imposed on any covered life under an “exempt governmental program.” Section 4377(b) defines “exempt governmental program” as (A) any insurance program established under title XVIII of the Social Security Act (42 U.S.C. 1395 et seq .) (Medicare), (B) the medical assistance program established by title XIX of the Social Security Act (42 U.S.C. 1396 et seq .) (Medicaid) or title XXI of the Social Security Act (42 U.S.C. 1397aa et seq .) (Children’s Health Insurance Program), (C) any program established by Federal law for providing medical care (other than through insurance policies) to individuals (or their spouses and dependents) by reason of the individuals being members of the Armed Forces of the United States or

2011–25 I.R.B. 880 June 20, 2011

treated as applicable self-insured health plans under § 4376.

Average Number of Lives Covered Per Applicable Self-Insured Health Plan Under § 4376

.05 The fee imposed by § 4376(a) on applicable self-insured health plans is based on the “average number of lives covered under the plan.” Treasury and the Service invite comments on how future guidance could reduce administrative burden by providing for reasonable methods to determine the average number of lives covered under an applicable self-insured plan; on whether guidance should provide a safe harbor that would permit sponsors of applicable self-insured health plans to compute the average number of lives covered using a formula based on the number of participants and one or more additional factors that account for the number of dependents without requiring that actual dependents covered under the plan be counted; and on formulas and factors that could be used to determine the number of dependents for applicable self-insured health plans.

Administration of the Fees

.06 Under § 4377(c), the fees imposed by §§ 4375 and 4376 are treated as taxes for purposes of subtitle F of the Code (§§ 6001–7874). Thus, references in subtitle F to “taxes imposed by this title,” “internal revenue tax,” and similar references are also references to the fees imposed by §§ 4375 and 4376. For example, the fees imposed by §§ 4375 and 4376 are assessed (§ 6201), collected (§ 6301), enforced (§ 7602), and subject to confidentiality rules (§ 6103), in the same manner as taxes imposed by other sections of the Code.

.07 The deficiency procedures of §§ 6211–6216 apply only to income, estate, and gift taxes imposed by subtitles A and B and excise taxes imposed by chapters 41, 42, 43, and 44. The fees imposed by §§ 4375 and 4376 are imposed by chapter 34 and, therefore, the deficiency procedures of §§ 6211–6216 do not apply to those fees.

.08 Future proposed regulations could require each issuer and plan sponsor to report and pay the §§ 4375 and 4376 fees annually as opposed to quarterly. Proposed

erage number of lives covered under the policy for purposes of § 4375. Under any such method other than the safe harbor described below, it is contemplated that issuers that are required to file the NAIC Supplemental Health Care Exhibit would be expected to be able to account for any differences between the numbers computed under the alternative method and the data reported on the Exhibit.

.02 Treasury and the Service also invite comments on whether guidance should provide a safe harbor for issuers that are required to report the number of lives covered on the NAIC Supplemental Health Care Exhibit. For example, a safe harbor might provide that the Service will not challenge an issuer’s calculation of the fee based on the number of lives reported on the most recently filed Exhibit, or based on the average of the number of lives reported on the most recently filed Exhibit and the Exhibit filed one year before the most recently filed Exhibit. Comments are requested on the scope and operation of a safe harbor rule, including comments on the circumstances, if any, under which amounts so determined may be too unrepresentative to form a sufficiently reliable basis for calculating the fee.

Applicable Self-Insured Health Plan Under § 4376

.03 Under § 4376(c), an applicable self-insured health plan is a plan that provides “accident and health coverage” any portion of which is provided other than through an insurance policy and that meets certain other conditions. Section 4377(a)(1) defines “accident and health coverage” as any coverage that, if provided by an insurance policy, would cause the policy to be a specified health insurance policy (as defined in § 4375(c)). Section 4375(c)(2) provides that a specified health insurance policy does not include any insurance if substantially all of its coverage is of excepted benefits described in § 9832(c). Benefits provided under a health flexible spending arrangement (health FSA), as described in § 106(c)(2), are excepted benefits for purposes of § 9832(c) if:

1. Other group health plan coverage, not limited to excepted benefits, is made available to the eligible class of participants; and

2. The arrangement is structured so that the maximum benefit payable to any eligible participant cannot exceed two times the participant’s salary reduction election (or, if greater, $500 plus the amount of the salary reduction election).

See § 54.9831–1(c)(3)(v) of the regulations relating to group health plans. Because coverage under a health FSA that satisfies these requirements is treated as excepted benefits for purposes of § 9832(c), such coverage would not, if provided by an insurance policy, cause the policy to be a “specified insurance policy,” as defined in § 4375(c). Accordingly, the coverage under a health FSA that satisfies these requirements is not “accident and health coverage” within the meaning of § 4377(a)(1), and such a health FSA is not an “applicable self-insured health plan” within the meaning of § 4376(c).

With respect to health FSAs that do not satisfy the requirements to be treated as an excepted benefit, comments are invited on the variations that exist and which types would be excluded from the definition of an applicable self-insured health plan under § 4376 because they provide a type of coverage that, if provided by an insurance policy, would not be treated as a specified health insurance policy (as defined in § 4375(c)).

.04 Treasury and the Service invite comments on the type or types of health reimbursement arrangements (HRAs), as described in Notice 2002–45, 2002–2 C.B. 93, that would be excluded from the definition of applicable self-insured health plan under § 4376 because they provide a type of coverage that, if provided by an insurance policy, would not cause the policy to be treated as a specified health insurance policy (as defined in § 4375(c)). If so, what would be the basis for reaching such a conclusion? For example, to what extent does a limitation on annual contributions, or the availability of other employer-sponsored health coverage affect the determination as to whether an HRA provides coverage that, if provided by an insurance policy, would not cause the policy to be treated as a specified health insurance policy? Comments are also invited on whether there are types of HRAs that should be

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(j) to the Internal Revenue Code (“Code”), both of which became effective for taxable years beginning after 2006. Section 6033(i) requires tax-exempt organizations excepted from filing annual information returns because they normally have annual gross receipts of not more than $25,000 (increased to normally not more than $50,000 for taxable years beginning on or after January 1, 2010) to annually file a Form 990–N e-Postcard. Section 6033(j) automatically revokes the tax-exempt status of any organization that fails to file a required annual return or Form 990–N e-Postcard for three consecutive years.

In order to obtain reinstatement of its tax-exempt status, an organization that has had its tax-exempt status automatically revoked under section 6033(j) must apply for reinstatement with the IRS, even if it was not originally required to submit such an application. I.R.C. § 6033(j)(2). If an organization applying for reinstatement of tax-exempt status can show reasonable cause for its consecutive filing failures, the organization’s tax-exempt status may, in the discretion of the Secretary, be reinstated retroactive to the date of the automatic revocation. I.R.C. § 6033(j)(3).

ELIGIBILITY FOR TRANSITIONAL RELIEF

The IRS recognizes that many small organizations that have lost their tax-exempt status because they failed to file a Form 990–N e-Postcard for their 2007, 2008, and 2009 taxable years were never required to file an annual return or notice prior to their 2007 taxable year. The IRS also recognizes that many small organizations are operated by volunteers and may face unique challenges in meeting federal tax obligations. Accordingly, the IRS will treat a small organization (one that normally has annual gross receipts of not more than $50,000 in its most recently completed taxable year) as having established reasonable cause for failing to file a Form 990–N e-Postcard or an annual return for its taxable years beginning in 2007, 2008, and 2009 if it meets each of the following criteria:

file annual information returns (such as Form 990, Return of Organiza- tion Exempt from Income Tax or Form

regulations might also require the reporting and payment to occur on the same calendar date regardless of the “policy year” or “plan year” of any individual issuer or plan sponsor. Comments are invited on this approach and possible alternatives.

Other Issues That Should be Addressed in Guidance

.09 In addition to comments on the topics described above, comments are invited on the following specific issues:

1. What transition rules, if any, would be appropriate for the first “policy year” or first “plan year” ending after September 30, 2012? For example, would any of the information necessary to determine the average number of lives covered be unavailable for the first year for which the fee is in effect?
2. Is guidance needed concerning the definition of “policy year” or “plan year” for purposes of §§ 4375 and 4376? If so, how should these terms be defined?
3. Are there circumstances under which an issuer or plan sponsor might not know whether a covered individual resides in the United States? If so, how should those circumstances be addressed? Is guidance needed on the application of §§ 4375 and 4376 to plans that cover expatriates?
4. Should future guidance permit all employers treated as a single employer under § 414 to be treated as a single employer for purposes of § 4376(b)? If so, under what conditions?
5. In the case of the fee imposed on selfinsured health plans, what guidance is needed concerning the ability of a third-party administrator to act on behalf of a plan sponsor in complying with the § 4376 fee requirements?

.10 Comments will be considered if submitted in writing by September 6, 2011. All comments will be available for public inspection and copying. Comments may be submitted in one of three ways:

1. By mail to CC:PA:LPD:PR (Notice 2011–35), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC

3. Electronically to Notice.Com- ments@irscounsel.treas.gov. Please include “Notice 2011–35” in the subject line of any electronic communications.

4. By hand-delivery Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2011–35), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., NW, Washington, DC 20224.

DRAFTING INFORMATION

The principal author of this notice is Rebecca L. Baxter of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this notice, contact Ms. Baxter at (202) 622–7117 (not a toll-free call).

Transitional Relief Under Internal Revenue Code § 6033(j) for Small Organizations

Notice 2011–43

This notice provides transitional relief for certain small organizations that have lost their tax-exempt status because they failed to file a required annual electronic notice (Form 990–N e-Postcard) for taxable years beginning in 2007, 2008 and 2009. A small organization — that is, one that normally has annual gross receipts of not more than $50,000 in its most recently completed taxable year - that qualifies for the transitional relief under this notice and applies for reinstatement of tax-exempt status by December 31, 2012, will be treated by the Internal Revenue Service (“IRS”) as having established reasonable cause for its filing failures and its tax-exempt status will be reinstated retroactive to the date it was automatically revoked.

Organizations not described in this notice should consult Notice 2011–44, in this Bulletin, for guidance on how to apply for reinstatement of tax-exempt status and request retroactive reinstatement.

BACKGROUND

The Pension Protection Act of 2006, Pub. L. No. 109–280, 120 Stat. 780, § 1223 (2006), added sections 6033(i) and

2011–25 I.R.B. 882 June 20, 2011

DRAFTING INFORMATION

The principal authors of this notice are Monice Rosenbaum and Preston Quesenberry of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities) and Matthew Giuliano of the Tax Exempt and Government Entities Division of the IRS. However, other personnel from the IRS and Treasury Department participated in developing this notice. For further information regarding this notice, contact Ms. Rosenbaum at (202) 622–6070, Mr. Quesenberry at (202) 622–1124, or Mr. Giuliano at (202) 283–8917 (not toll-free numbers).

Application for Reinstatement and Retroactive Reinstatement for Reasonable Cause Under Internal Revenue Code § 6033(j)

Notice 2011–44