Article 4(5) of the Model 1 IGA and

Article 3(5) of the Model 2 IGA generally provide that, in order for an FFI resident in or organized under the laws of the partner jurisdiction to be compliant with the IGA and be treated as a participating FFI, deemed-compliant FFI, or exempt beneficial owner, as appropriate, all of the FFI’s related entities or branches must be FATCA-compliant. However, the Model 1 and Model 2 IGAs also provide that if a resident FFI has a related entity or branch that operates in a jurisdiction that prevents such entity or branch from complying with FATCA, or the FFI has a related entity or branch that is treated as a nonparticipating FFI solely due to the expira

tion of the transitional rule for limited FFIs and limited branches under the chapter 4 regulations, such FFI shall continue to be in compliance with the IGA and be treated as a participating FFI, deemedcompliant FFI, or exempt beneficial owner, as appropriate, if the conditions described in subparagraphs (a) through (c) of Article 4(5) of the Model 1 IGA or Article 3(5) of the Model 2 IGA are satisfied.

2. Exchange of 2014 Information under a Model 1 IGA

There are two versions of the Model 1 IGA. A Model 1A IGA provides for reciprocal information exchange between the United States and the partner jurisdiction. The obligation to exchange information generally begins after the IGA enters into force under Article 10(1) of the IGA and the competent authorities provide notification that each is satisfied that the other jurisdiction has in place the necessary safeguards to ensure that the information received will remain confidential and be used solely for tax purposes and the infrastructure necessary for an effective exchange relationship. See Articles 3(8) and 3(9) of the Model 1A IGA. A Model 1B IGA provides for information to be exchanged only by the partner jurisdiction. Under a Model 1B IGA, the obligation for a partner jurisdiction to exchange information with the United States begins when the IGA enters into force under Article 10(1) or Article 12(1) (as applicable) of the IGA.

Once an IGA has entered into force and any relevant notifications described above for the Model 1A IGA have been provided, Article 2 of both versions of the Model 1 IGA requires the partner jurisdiction to obtain and exchange specified information with respect to each U.S. reportable account. Under Article 3(5) of the Model 1 IGA, the partner jurisdiction is obligated to obtain and exchange information within nine months after the end of the calendar year to which the information relates. In the case of information required to be obtained and exchanged with respect to 2014 pursuant to a Model 1 IGA that is in force, the 2014 information should be exchanged by the partner jurisdiction by September 30, 2015.

III. EXTENSION OF DATES FOR WHEN WITHHOLDING BEGINS FOR PAYMENTS OF GROSS PROCEEDS AND PASSTHRU PAYMENTS

Many U.S. and foreign financial institutions, foreign governments, Treasury, the IRS, and other stakeholders have devoted resources to implementing FATCA withholding on withholdable payments, which (subject to certain exceptions) began on July 1, 2014, as well as for the first U.S. account reporting under FATCA, which was due for certain FFIs starting in March 2015. At the same time, 112 jurisdictions are now treated as if they have an IGA in effect, which allows for the information reporting goals of FATCA to be satisfied for FFIs covered by such IGAs. In order to continue to facilitate an orderly phase-in of FATCA withholding, Treasury and the IRS intend to amend the chapter 4 regulations under section 1473 to extend the start date of gross proceeds withholding by providing that the definition of the term withholdable payment means any payment of U.S. source FDAP income, and for sales or other dispositions occurring after December 31, 2018, any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends that are U.S. source FDAP income. Additionally, Treasury and the IRS intend to amend the regulations under section 1471 to extend the start date of withholding on foreign passthru payments to provide that a participating FFI is not required to withhold tax on a foreign passthru payment made to a recalcitrant account holder or a nonparticipating FFI before the later of January 1, 2019, or the date of publication in the Federal Register of final regulations defining the term foreign passthru payment.

IV. EXTENSION OF LIMITED BRANCH AND LIMITED FFI STATUSES

Currently, 112 jurisdictions are treated as if they have an IGA in effect, which highlights the overwhelming support of FATCA partner jurisdictions in implementing the information reporting goals of FATCA. FFIs and other stakeholders continue to express strong support for IGAs as a way to facilitate effective and

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efficient FATCA implementation while avoiding conflicts with local law.

While Treasury remains open to entering into IGA discussions based on the published models, there may be jurisdictions that have not been able or willing to agree to an IGA and that continue to impose legal restrictions that prevent FFIs resident or organized there, or branches located there, from complying with the terms of an FFI agreement. If an FFI that is not covered by an IGA has a branch located in, or an FFI affiliate subject to the laws of, a jurisdiction that prohibits compliance with the terms of an FFI agreement, that FFI will no longer be able to obtain or maintain status as a participating or deemed-compliant FFI once limited branch and limited FFI status expire.

To provide FFIs and other stakeholders additional time to determine whether to continue operating in jurisdictions where limited branches or limited FFIs exist, Treasury and the IRS intend to amend the regulations under section 1471 to provide that the availability of limited branch and limited FFI statuses will terminate on January 1, 2017. A limited FFI or limited branch that becomes able to comply with the terms of the FFI agreement or becomes a participating FFI or deemedcompliant FFI pursuant to an applicable IGA should amend its registration to reflect its modified status. FFIs that continue to operate after December 31, 2016, in jurisdictions where they cannot comply with the terms of an FFI agreement due to local law will jeopardize the chapter 4 status of participating FFIs and registered deemed-compliant FFIs (other than FFIs covered by an IGA) in the group. Branches that continue to operate after December 31, 2016, in jurisdictions where they cannot comply with the terms of an FFI agreement due to local law will jeopardize the participating FFI status of the FFI of which the branch is part (as well as jeopardize any branches of the FFI that have participating FFI status under the FFI agreement), subject to the terms of an applicable IGA.

After December 31, 2015, all limited FFI and limited branch registrations will be placed in “registration incomplete” status on their online FATCA account. Limited FFIs and limited branches that seek to continue such status during the 2016 cal

endar year will be required to edit and resubmit their registrations after December 31, 2015, on the FATCA registration website.

V. EXTENSION OF TIME TO REGISTER SPONSORED ENTITIES AND EXTENSION OF RELIANCE ON SPONSORING ENTITY GIINS

As previewed in Notice 2013–69 (2013–46 I.R.B. 503), the IRS is developing a streamlined process for sponsoring entities to register their sponsored entities on the FATCA registration website. The IRS anticipates that this registration process will be available in the coming months and intends to update the FATCA registration user guide to include this process. In order to provide sufficient time for sponsored entity registration, Treasury and the IRS intend to amend the regulations under sections 1471 and 1472 to provide that sponsoring entities must register their sponsored registered deemedcompliant FFIs and sponsored direct reporting NFFEs by January 1, 2017. Beginning on such date, sponsoring entities must use the GIIN of the sponsored entity when reporting with respect to the sponsored entity on Form 8966 (FATCA Report) and must provide the GIIN to withholding agents making payments to the sponsored entity.

Sponsored investment entities and sponsored controlled foreign corporations covered by Annex II of a Model 1 IGA will maintain their deemed-compliant status as long as they are registered by the sponsoring entity on or before the later of December 31, 2016, and the date that is 90 days after a U.S. reportable account is first identified. Sponsored investment entities and sponsored controlled foreign corporations covered by Annex II of a Model 2 IGA will maintain their deemedcompliant status as long as they are registered by the sponsoring entity on or before December 31, 2016.

In addition, Treasury and the IRS intend to amend the regulations under section 1471 to provide that withholding agents can continue to rely on withholding certificates from sponsored registered deemed-compliant FFIs and sponsored direct reporting NFFEs that have only the sponsoring entity’s GIIN for payments made prior to January 1, 2017. For a pay

ment made on or after January 1, 2017, a withholding agent will be required to obtain the GIIN of a payee that is a sponsored registered deemed-compliant FFI or a sponsored direct reporting NFFE by obtaining either: (1) a withholding certificate from the payee that includes its GIIN, or (2) if the withholding agent already has on file a withholding certificate for the payee that includes the GIIN of the sponsoring entity, oral or written confirmation of the payee’s GIIN (such as by e-mail). If a withholding agent obtains oral or written confirmation of the payee’s GIIN, it will be required to retain a record of such information, which will become part of the withholding certificate. Whether the withholding agent receives the GIIN through a new withholding certificate, or by oral or written confirmation, the withholding agent will have 90 days from the date it obtains the GIIN to verify its accuracy against the published IRS FFI list. Because withholding agents will be required to obtain the GIIN of each sponsored entity for payments made after December 31, 2016, sponsoring entities should consider registering to obtain GIINs well in advance of January 1, 2017, in order to give withholding agents sufficient time to complete this requirement (and thereby avoid being withheld upon).

VI. TREATMENT OF COLLATERAL UNDER THE GRANDFATHERED OBLIGATION RULE

A. Modifications to Pro Rata Rule for Pooled Collateral

Treasury and the IRS have received comments stating that it would be burdensome for financial institutions to comply with the pro rata rule described in § 1.1471–2(b)(2)(i)(A)( 3 ) for collateral that secures both grandfathered obligations and obligations that are not grandfathered. Commenters have stated that they would prefer to treat any collateral that secures both grandfathered obligations and obligations that are not grandfathered as posted to secure only obligations that are not grandfathered, rather than applying the pro rata rule, and accordingly to withhold on all payments made with respect to the collateral.

Treasury and the IRS agree that, in order to ease administrative burdens when

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collateral secures both grandfathered obligations and obligations that are not grandfathered, the secured party should be permitted either to withhold on all collateral or to apply the pro rata approach with respect to such collateral. Therefore, Treasury and the IRS intend to amend § 1.1471–2(b)(2)(i)(A)( 3 ) to provide that the pro rata rule is not mandatory.

B. Substitute Payments Made with Respect to a Grandfathered Obligation

The chapter 4 regulations treat obligations that are outstanding on July 1, 2014, as grandfathered obligations. If, after July 1, 2014, a payee pledges a grandfathered obligation as collateral, and the secured party acts as an intermediary for payments made under the grandfathered obligation that is posted as collateral, then payments made by the secured party to the payee with respect to such collateral remain covered by the grandfathered obligation rule and are not treated as withholdable payments. Commenters have noted, however, that the definition of a grandfathered obligation does not include an obligation that is created as a result of the posting of collateral that is itself a grandfathered obligation. As a result, to the extent that a secured party is treated as the beneficial owner of collateral that is a grandfathered obligation, payments made by the secured party would not be payments made under a grandfathered obligation, but would instead be substitute payments made under a newly created obligation that is not covered by the grandfathered obligation rule. Commenters have noted that without a rule to cover these substitute payments, it would be difficult to determine the proper treatment of collateral that is itself a grandfathered obligation, as collateral is frequently rehypothecated and the secured party cannot readily determine which collateral was rehypothecated (giving rise to substitute payments to the payee) and which collateral has been retained.

In balancing the benefits and burdens of the information reporting and withholding rules under FATCA, Treasury and the IRS agree that a substitute payment made with respect to a grandfathered obligation that has been posted as collateral should also be treated as a payment made under a grandfathered obligation, and therefore not subject to withholding under section

1471 or section 1472. Therefore, Treasury and the IRS intend to amend the definition of grandfathered obligation in § 1.1471– 2(b)(2)(i)(A) to include any obligation that gives rise to substitute payments and that is created as a result of the payee posting collateral that is otherwise treated as a grandfathered obligation under § 1.1471–2(b)(2)(i)(A)( 1 ).

VII. TIMING OF EXCHANGE OF 2014 INFORMATION UNDER A MODEL 1 IGA

A. Model 1 IGAs for which the Obligation to Exchange Has Not Taken Effect

Many partner jurisdictions that have signed IGAs or reached an agreement in substance on the text of an IGA continue to work through their internal procedures to bring the IGA into force. Pursuant to its authority under section 1471(b)(2)(B), and consistent with Announcement 2014– 38, for Model 1 IGAs that have not yet entered into force on September 30, 2015, Treasury intends to continue to treat FFIs covered by the IGA as complying with, and not subject to withholding under, FATCA so long as the partner jurisdiction continues to demonstrate firm resolve to bring the IGA into force and any information that would have been reportable under the IGA on September 30, 2015, is exchanged by September 30, 2016, together with any information that is reportable under the IGA on September 30, 2016. This policy is consistent with memoranda of understanding (MOUs) that the United States has entered into with certain partner jurisdictions and letters that Treasury has sent to certain other partner jurisdictions. This notice clarifies that this policy applies to all partner jurisdictions that have signed or agreed in substance to a Model 1 IGA, even if such a jurisdiction has not entered into the MOU or received the letter described above. This notice does not affect the timing of when FFIs should report information to a partner jurisdiction, which remains governed by local law.

B. Model 1 IGAs for which the Obligation to Exchange Is in Effect

For Model 1B IGA jurisdictions that have an IGA in force pursuant to Article 10(1) or Article 12(1) (as applicable) of the IGA, and for Model 1A IGA jurisdictions for which the obligation to exchange information has taken effect pursuant to Articles 3(9) and 10(1) of the IGA, Article 3(5) of the IGA requires the partner jurisdiction to exchange information on U.S. reportable accounts with respect to 2014 by September 30, 2015.

Treasury and the IRS understand that partner jurisdictions are continuing to develop and implement the systems needed for automatic information exchange and may not have those systems in place by September 30, 2015. In addition, several partner jurisdictions are in the process of enacting legislation to implement their IGAs, without which they are not able to exchange information with the United States.

Notice 2014–33 (2014–21 I.R.B. 1033) states that calendar years 2014 and 2015 are regarded as a transition period for purposes of IRS enforcement and administration of the due diligence, reporting, and withholding provisions under chapter 4. Consistent with treating 2014 and 2015 as a transition period, Treasury and the IRS will treat FFIs covered by an IGA as complying with, and not subject to withholding under, FATCA even if the relevant partner jurisdiction has not exchanged 2014 information by September 30, 2015, as long as the partner jurisdiction notifies the U.S. competent authority before September 30, 2015, of the delay and provides assurance that the jurisdiction is making good faith efforts to exchange the information as soon as possible. This notice does not affect the timing of when FFIs should report information to a partner jurisdiction, which remains governed by local law.

VIII. TAXPAYER RELIANCE

Prior to the issuance of the amendments described in sections III, IV, V, and VI of this notice, taxpayers may rely on the provisions of this notice.

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IX. DRAFTING INFORMATION

The principal author of this notice is Kamela Nelan of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Ms. Nelan at (202) 317-6942 (not a tollfree number).

Per Capita Distributions of Funds Held in Trust by the Secretary of the Interior

Notice 2015–67

PURPOSE

In Notice 2014–17, 2014–13 I.R.B. 881, the Internal Revenue Service and the Treasury Department issued interim guidance concerning the federal income tax treatment of per capita distributions made to members of Indian tribes from funds held in trust by the Secretary of the Interior. This notice supersedes Notice 2014–17 and provides final guidance.

BACKGROUND

The Department of the Interior (DOI), primarily through the Office of the Special Trustee for American Indians (OST), is responsible for holding in trust certain funds received on behalf of individual Indians and federally recognized Indian tribes.

Current DOI regulations under 25 C.F.R. §§ 115.700–703 provide that certain funds may be accepted by the Secretary of the Interior on behalf of federally recognized Indian tribes and certain individual Indians who have an interest in trust lands, trust resources, or trust assets. Funds accepted on behalf of Indian tribes are deposited into tribal “Trust Accounts” as defined at 25 C.F.R. § 115.002 (Trust Accounts). The OST has the responsibility to manage the funds and make them available to the tribe upon request.

Funds held in tribal Trust Accounts by the DOI may be distributed per capita to members of the tribes. Prior to the enactment of the Per Capita Act, Pub. L. No. 98–64, 97 Stat. 365, 25 U.S.C. §§ 117a– 117c, in 1983, the DOI had the sole authority for making per capita distributions out of tribal Trust Accounts. However, the Per Capita Act provided Indian tribes au

thority to make per capita distributions directly to members of the tribe out of the tribe’s tribal Trust Account. 25 U.S.C. § 117a.

APPLICABLE PROVISIONS OF LAW

Section 61(a) of the Internal Revenue Code, 26 U.S.C. § 61, states that, except as otherwise provided by law, gross income means all income from whatever source derived, including but not limited to compensation, gross income derived from business, and dividends. Under 26 U.S.C. § 61, Congress intends to tax all gains and undeniable accessions to wealth, clearly realized, over which taxpayers have complete dominion. Commis- sioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), 1955–1 C.B. 207. Indians are U.S. citizens subject to the requirement to pay income taxes. Squire v. Capoeman, 351 U.S. 1 (1956), 1956–1 C.B. 605. There is no provision in the Internal Revenue Code that exempts an individual from the payment of federal income tax solely because he or she is an Indian. Therefore, exemption of individual Indians from the payment of tax must derive plainly from treaties or agreements with the Indian tribes concerned or an act of Congress. See Rev. Rul. 67–284, 1967–2 C.B. 55. The Per Capita Act (25 U.S.C. §§ 117a– 117c) provides authority to Indian tribes to make per capita distributions to members of the tribe out of funds held in a tribal Trust Account. Under 25 U.S.C. § 117a, funds subject to that section may be distributed by either the Secretary of the Interior or the tribe at the request of the governing body of the tribe and subject to the approval of the Secretary of the Interior. In practice, proceeds from trust assets or trust resources (both defined at 25 C.F.R. § 115.002) are deposited into a tribal Trust Account for a tribe and that tribe can subsequently make a per capita distribution using funds from that tribal Trust Account.

The Indian Tribal Judgment Funds Use or Distribution Act, Pub. L. No. 93–134, 87 Stat. 466, 25 U.S.C. §§ 1401–1408, concerns the distribution of certain judgment funds to Indian tribes. Under 25 U.S.C. § 117b(a), per capita distributions made pursuant to 25 U.S.C. § 117a are subject to the provisions of 25 U.S.C. § 1407. Pursuant to

25 U.S.C. § 1407, none of the funds that are distributed per capita or held in trust pursuant to a plan approved under 25 U.S.C. § 1401 et. seq, including all interest and investment income accrued on the funds while held in trust, are subject to federal income taxes. See also H.R. Rep. No. 98– 230 at 3 (1983), which provides that per capita distributions of tribal trust revenue “shall be subject to the provisions of [25 U.S.C. § 1407] with respect to tax exemptions.” However, per capita distributions to tribal members of “net revenues” from Indian gaming activity that are subject to the Indian Gaming Regulatory Act (net gaming revenues) are subject to federal income taxation and are subject to the information reporting and withholding requirements of 26 U.S.C. §§ 6041 and 3402(r). See 25 U.S.C. §§ 2701–2721 and 25 C.F.R. Part 290. Under the Indian Gaming Regulatory Act, net gaming revenues means “gross revenues of an Indian gaming activity less amounts paid out as, or paid for, prizes and total operating expenses, excluding management fees.” 25 U.S.C. § 2703(9).

Under 25 C.F.R. § 115.703, the Secretary of the Interior accepts and deposits into tribal Trust Accounts only funds from sources listed in the table in 25 C.F.R. § 115.702. The 25 C.F.R. § 115.702 table provides that the Secretary of the Interior will accept, among other payments, payments resulting from money directly derived from title conveyance or use of trust lands, payments resulting from penalties for trespass on trust lands, and payments resulting from a final order from a court of competent jurisdiction for a cause of action related to trust assets. The Secretary of the Interior also accepts deposits of funds derived directly from trust lands, restricted fee lands, or trust resources. See 25 C.F.R. § 115.702 for a full list of funds that the Secretary of the Interior accepts and deposits into tribal Trust Accounts.

FEDERAL INCOME TAX TREATMENT OF PER CAPITA DISTRIBUTIONS OF TRIBAL TRUST ACCOUNT FUNDS

a. General Rule

Under 25 U.S.C. § 117b(a) and 25 U.S.C. § 1407, per capita distributions made from funds the Secretary of the Interior holds in a tribal Trust Account are

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generally excluded from the gross income of the members of the tribe receiving the per capita distributions. For example, if proceeds from timber sales, an agricultural lease, or a grazing permit are deposited into a tribe’s tribal Trust Account and that tribe subsequently makes a per capita distribution using funds from the tribal Trust Account, the per capita distributions are excluded from the tribal members’ gross income.

b. Exception

Distributions to tribal members from a tribal Trust Account constitute gross income under 26 U.S.C. § 61 to the members of the tribe receiving the distributions if a tribal Trust Account is used to mischaracterize what would otherwise be taxable income as nontaxable per capita distributions. For example, distributions from a tribal Trust Account constitute gross income under 26 U.S.C. § 61 if, based on the facts and circumstances, the distributions are mischaracterized compensation to tribal members for their services, mischaracterized distributions of business profits, or mischaracterized gaming revenues.

The following examples illustrate situations in which distributions from a tribal Trust Account are not treated as nontaxable per capita distributions and are included in gross income under 26 U.S.C. § 61.

Example 1 - Mischaracterized Compensation

B is a housing authority established by Tribe C, a federally recognized Indian tribe. The Director and the Assistant Director of B are both members of Tribe C. During each of the 2011, 2012, and 2013 taxable years, the Director and the Assistant Director are each paid bonuses in the amount of $15x. In the 2014 taxable year, members of Tribe C’s Tribal Council authorize per capita distributions out of the tribe’s tribal Trust Account in the amount of $1x to every member of the tribe and an additional $2x in per capita distributions to every elder in the tribe. In addition, the members of Tribe C’s Tribal Council authorize distributions out of the tribal Trust Account to the Director and Assistant Director in the amount of $15x each, instead of paying bonuses to the Director and the Assistant Director. The distributions of $15x to the Director and the Assistant Director are mischaracterized compensation and, therefore, are included in their gross income under 26 U.S.C. § 61.

Example 2 - Mischaracterized Distributions of Business Profits

Tribe D is a federally recognized Indian tribe. A group of Tribe D members own Corporation E, an information technology company that provides call center services. Corporation E’s headquarters is located on land held in trust by the Secretary of the Interior for the benefit of Tribe D. Tribe D charges Corporation E rent at fair market value for its headquarters. However, the lease agreement with Tribe D includes a provision whereby Corporation E also deposits an amount approximating its net revenues into Tribe D’s tribal Trust Account, characterizing the revenue as additional rent. Subsequently, members of Tribe D’s Tribal Council authorize per capita distributions out of the tribal Trust Account in an aggregate amount equal to the purported “additional rent” to the group of Tribe D members who own Corporation E. The distributions of the mischaracterized business profits from the tribal Trust Account constitute gross income under 26 U.S.C. § 61 to the members receiving the distributions.

Example 3 - Mischaracterized Gaming Revenues

Tribe F is a federally recognized Indian tribe. Tribe F owns all of Corporation G, which owns and operates a casino located on land held in trust by the Secretary of the Interior for the benefit of Tribe F. All of Corporation G’s gaming revenues are subject to the Indian Gaming Regulatory Act. After paying out all prizes and all administrative expenses (excluding management fees), Corporation G distributes 50% of its net gaming revenues to Tribe F. Also, under a lease agreement with Tribe F, Corporation G deposits the remaining 50% of its net gaming revenues into Tribe F’s tribal Trust Account, characterizing the deposits as rent for use of the land for the casino. Subsequently, members of Tribe F’s Tribal Council authorize per capita distributions to every member of the tribe out of the net gaming revenues that are held in the tribal Trust Account. The distributions out of the tribal Trust Account are mischaracterized gaming revenues. Because per capita distributions of net gaming revenues are subject to federal income taxation, the distributions constitute gross income under 26 U.S.C. § 61 to the members of the tribe receiving the distributions.

LIMITATION

This notice applies only to per capita distributions made by the Secretary of the Interior or an Indian tribe out of a tribal Trust Account. This notice does not affect the federal income taxation of distributions made from individual Indian trust accounts, from which per capita distributions cannot be made. This notice also does not affect the federal income taxation of and withholding from distributions made pursuant to a Revenue Allocation Plan under the Indian Gaming Regulatory Act, Pub. L. No. 100–497, 102 Stat. 2475, 25 U.S.C. §§ 2701–2721.

EFFECT ON OTHER DOCUMENTS

Notice 2014–17 is superseded.

DRAFTING INFORMATION

The principal author of this notice is Dave Rifkin of the Office of Associate Chief Counsel (Tax Exempt and Government Entities). For further information, please contact Mr. Rifkin at (202) 3175800 (not a toll-free number).

Information Reporting on Minimum Essential Coverage

Notice 2015–68

PURPOSE

This notice advises taxpayers that the Treasury Department and the Internal Revenue Service intend to propose regulations under § 6055 of the Internal Revenue Code (1) providing that health insurance issuers must report coverage in catastrophic health insurance plans described in § 1302(e) of the Affordable Care Act enrolled in through an Affordable Insurance Exchange (Exchange, also known as a Health Insurance Marketplace), (2) allowing electronic delivery of statements reporting coverage under expatriate health plans unless the recipient explicitly refuses consent or requests a paper statement, (3) allowing filers reporting on insured group health plans to use a truncated taxpayer identification number (TTIN) to identify the employer on the statement furnished to a taxpayer, and (4) specifying when a provider of minimum essential coverage is not required to report coverage of an individual who has other minimum essential coverage. This notice also invites comments on issues relating to solicitation of taxpayer identification numbers (TINs) of covered individuals; advises that the governments of United States possessions or territories, namely American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands, are not required to report coverage under Medicaid and the Children’s Health Insurance Program (CHIP); and provides that the state government agency sponsoring

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Act of 2014, Division M of the Consolidated and Further Continuing Appropriations Act, 2015, Public Law 113–235 (EHCCA), a recipient of the Form 1095–B reporting minimum essential coverage under an expatriate health plan (defined in EHCCA § 3(d)(2)) is deemed to consent to delivery in electronic format unless the recipient explicitly refuses consent.

Supplemental coverage

To ensure that the IRS receives a report for every individual with minimum essential coverage, every provider of minimum essential coverage generally must report information for every covered individual. However, § 1.6055–1(d)(2) provides that reporting is not required for minimum essential coverage that supplements or provides benefits in addition to other minimum essential coverage if (1) the primary and supplemental coverage have the same plan sponsor, or (2) the coverage supplements government-sponsored coverage such as Medicare.

TIN solicitation and penalties

Information reporting under § 6055 is subject to the penalty provisions of §§ 6721 and 6722 for failure to file a correct information return or to furnish a correct statement. See § 1.6055–1(h). Penalties may be waived under § 6724(a) if the failure is due to reasonable cause and not willful neglect; that is, if a reporting entity demonstrates that it acted in a responsible manner and that the failure is due to significant mitigating factors or events beyond the reporting entity’s control. See § 301.6724–1(a)(1). Under § 301.6724–1(e), a reporting entity acts in a responsible manner in soliciting a TIN if the reporting entity makes (1) an initial solicitation when an account is opened or a relationship is established, (2) a first annual solicitation by December 31 of the year the account is opened (or January 31 if the account is opened in December), and (3) a second annual solicitation by December 31 of the following year.

Basic Health Program

Section 1331 of the Affordable Care Act allows states to establish a Basic Health Program, which provides an addi

coverage under the Basic Health Program is required to report Basic Health Program coverage.

BACKGROUND

Requirement to have minimum essential coverage

Under § 5000A, nonexempt individuals have the choice of maintaining minimum essential coverage or making an individual shared responsibility payment with their income tax returns. Minimum essential coverage is defined in § 5000A(f) and includes health insurance coverage offered in the individual market (such as a qualified health plan offered through an Exchange), an employersponsored plan, and governmentsponsored programs such as Medicare, Medicaid, CHIP, and TRICARE. The Secretary of Health and Human Services, in coordination with the Secretary of the Treasury, may designate health benefits coverage not specified in § 5000A as minimum essential coverage. Under § 5000A(f)(4), bona fide residents (within the meaning of § 937(a) and accompanying regulations) of U.S. possessions or territories are treated as having minimum essential coverage.

Information reporting of minimum essential coverage

Section 6055 requires all persons providing minimum essential coverage to file annual information returns with the IRS reporting information about the coverage and about each covered individual, including each covered individual’s TIN and months of coverage, and to furnish a statement to the taxpayer. This reporting allows taxpayers to establish and the IRS to verify that individuals have minimum essential coverage.

Under § 1.6055–1(c)(1)(i), (c)(3)(ii), and (d)(1) of the Income Tax Regulations, health insurance issuers or carriers must report on most insured minimum essential coverage. However, under § 36B(f)(3) and § 1.36B–5, Exchanges must report information on coverage in individual market qualified health plans enrolled in through an Exchange, including each covered individual’s SSN and months of coverage, and must furnish a statement to a taxpayer. Because Exchange reporting un

der § 36B(f)(3) includes the information reported and furnished under § 6055, regulations provide that health insurance issuers are not required to report on coverage in individual market qualified health plans enrolled in through an Exchange. See § 1.6055–1(d).

If a group health plan is self-insured, the plan sponsor (generally the employer) must report the coverage for all covered individuals. See § 1.6055–1(c)(1)(ii) and (c)(2).

Section 1.6055–1(c)(1)(iii) requires that the executive department or agency of a government unit that provides coverage under a government-sponsored program must file the information return under § 6055. Section 1.6055–1(c)(3)(i) provides that the state agency that administers the Medicaid program under Title XIX of the Social Security Act or the CHIP program under Title XXI of the Social Security Act, must report the coverage under § 6055.

Employer’s EIN

Section 6055(b) and § 1.6055–1(e) require that health insurance issuers and carriers reporting coverage under insured group health plans report information about the employer sponsoring the plan, including the employer’s EIN, to the IRS. Section 6055(c) and § 1.6055–1(g) require that health insurance issuers and carriers reporting information to the IRS furnish a statement to a taxpayer providing information about the filer and the covered individuals. Section 301.6109–4(a)(1) of the Procedure and Administration Regulations provides that the TIN of a person other than the filer, including an EIN, may be truncated on statements furnished to taxpayers, unless otherwise prohibited by statute or regulations. Section 1.6055– 1(g)(3) allows filers to truncate the TINs of individuals identified on the statement, but does not address the use of a TTIN for the employer.

Expatriate health plans

Section 1.6055–2 allows filers of information returns under § 6055 to furnish a statement to an individual in electronic format only if the individual affirmatively consents. However, under § 3(b)(2) of the Expatriate Health Coverage Clarification

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tional option to provide health coverage to certain individuals not eligible for Medicaid. See 42 CFR Part 600. The Basic Health Program is designated as minimum essential coverage under 42 CFR 600.5.

GUIDANCE

1. Anticipated regulations

a. Coverage in catastrophic health plans

Section 1302(e) of the Affordable Care Act provides for catastrophic health plans. These plans are minimum essential coverage and qualified health plans, may be offered only in the individual market, and may be enrolled in through an Exchange, but taxpayers may not claim the premium tax credit for this coverage. See § 36B(c)(3)(A).

For purposes of reporting by Exchanges under § 36B(f)(3) on coverage in a qualified health plan, the term qualified health plan has the same meaning as in § 1301(a) of the Affordable Care Act except that it does not include a catastrophic plan described in § 1302(e) of the Affordable Care Act. Section 1.36B–1(c). Accordingly, Exchanges do not report on catastrophic coverage. Section 1.36B– 1(c), –5(a). The § 6055 regulations, however, provide that health insurance issuers need not report on coverage in a qualified health plan in the individual market enrolled in through an Exchange, because that information is generally reported by Exchanges under § 36B(f)(3). As a result, at present neither the Exchanges nor health insurance issuers have the responsibility for reporting minimum essential coverage under a catastrophic plan.

To ensure that there is reporting of catastrophic health plans enrolled in through an Exchange, the Treasury Department and the IRS intend to propose regulations under § 6055 requiring issuers of these plans to report the coverage on Form 1095–B. The Treasury Department and the IRS anticipate that the regulations will apply to coverage in 2016 and to returns and statements filed and furnished in 2017. Health insurance issuers may report on 2015 catastrophic coverage (on returns and statements filed and furnished in 2016) and are encouraged to do so. An issuer that reports on 2015 catastrophic

coverage will not be subject to penalties for these returns.

b. Employer’s EIN

The Treasury Department and the IRS anticipate publishing regulations under § 6055 to clarify that health insurance issuers and carriers reporting on insured group health plans may use the TTIN of the employer sponsoring the plan on the statement furnished to the taxpayer.

c. Statements to individuals covered by expatriate healthplans

Proposed § 6055 regulations also will provide that statements reporting coverage under an expatriate healthplan may be furnished in electronic format unless the recipient affirmatively refuses consent or requests a paper statement. Reporting entities may apply these rules for coverage under expatriate health plans that are issued or renewed on or after July 1, 2015, and may rely on Notice 2015–43, 2015–29 I.R.B. 73, which addresses the definition of “expatriate health plans” and provides transition relief.

d. Supplemental coverage

The supplemental coverage rule in § 1.6055–1(d)(2) is intended to eliminate duplicate reporting of an individual’s minimum essential coverage under circumstances when there is reasonable certainty that the provider of the “primary” coverage will report. This rule has proven to be confusing. Accordingly, the Treasury Department and the IRS anticipate proposing regulations that would replace this rule with rules providing that (1) if an individual is covered by multiple minimum essential coverage plans or programs provided by the same provider, reporting is required for only one of them; and (2) reporting generally is not required for an individual’s minimum essential coverage for which an individual is eligible only if the individual is covered by other minimum essential coverage for which § 6055 reporting is required.

These rules would apply month by month and individual by individual. Thus, under the first rule (that is, the rule for reporting multiple minimum essential

coverage plans or programs of the same provider), if for a month an individual is enrolled in a self-insured group health plan and also has a self-insured health reimbursement arrangement (HRA) from the same employer, the provider (the employer) is required to report only one type of coverage for that individual. If an employee is covered under both arrangements for some months of the year but retires or otherwise drops coverage under the non-HRA group health plan and is covered only under the HRA, the employer must report coverage under the HRA for the months after the employee retires or drops the non-HRA coverage. The employer must report the coverage in an arrangement of any individual who is covered by only one arrangement.

Under the second rule (that is, the rule for reporting minimum essential coverage for which an individual is eligible only if the individual is covered by other minimum essential coverage), reporting would not be required for Medicare or TRICARE supplements and Medicaid coverage providing benefits only to an individual enrolled in other coverage for which reporting is required, such as employer coverage or a qualified health plan. Reporting also would not be required under the second rule for an HRA that is available only to employees and other individuals who enroll in an employer’s insured group health plan for months that the individual is enrolled in the insured group health plan. It is anticipated that, for employer coverage, this rule will apply only if the two types of coverage are eligible employer-sponsored coverage of the same employer. For example, if an employee is enrolled in both his employer’s HRA and insured group health plan, the employer is not required to report the employee’s coverage under the HRA. However, if an employee is enrolled in an employer’s HRA and in a spouse’s non-HRA group health plan, the employee’s employer would be required to report for the HRA, and the employee’s spouse’s employer (or the health insurance issuer or carrier, if the plan is insured) would be required to report for the non-HRA group health plan coverage.

Bulletin No. 2015–41 549 October 13, 2015

2. Other guidance

a. Relief from penalties for reasonable cause

A reporting entity that fails to comply with the filing and statement furnishing requirements of § 6055 may be subject to penalties for failure to file a correct information return (§ 6721) or to furnish a correct payee statement (§ 6722). The preamble to the § 6055 regulations (T.D. 9660, 79 FR 13220) provides short-term relief from reporting penalties for 2015 coverage. Specifically, the IRS will not impose penalties under §§ 6721 and 6722 on reporting entities that can show that they have made good faith efforts to comply with the information reporting requirements. This relief applies to incorrect or incomplete information, including TINs or dates of birth, reported on a return or statement.

The preamble to the § 6055 regulations also notes the general rule that, under § 6724 and the related regulations, the §§ 6721 and 6722 penalties may be waived if a failure is due to reasonable cause, that is, the reporting entity demonstrates that it acted in a responsible manner and the failure is due to significant mitigating factors or events beyond the reporting entity’s control. Section 301.6724–1(e) provides specific procedures for soliciting TINs which, if followed, establish that a reporting entity that does not report a TIN has acted in a responsible manner.

Nonetheless, reporting entities have expressed concerns that § 6055 reporting has significant differences from other information reporting provisions that are not adequately addressed by the regulations under § 6724 for establishing reasonable cause. For example, reporting entities asserted that the requirements for TIN solicitation under § 301.6724–1(e) are not practical in the context of § 6055 reporting.

The Treasury Department and the IRS request comments on the application of the reasonable good cause rules under § 6724 to § 6055 reporting, and in particular the rules under § 301.6724–1(e) relating to TIN solicitation and reporting. Pending the issuance of additional guidance, reporting entities will not be subject to penalties for failure to report a TIN if

they comply with the requirements of § 301.6724–1(e) with the following modifications: (1) the initial solicitation is made at an individual’s first enrollment or, if already enrolled on September 17, 2015, the next open season, (2) the second solicitation is made at a reasonable time thereafter, and (3) the third solicitation is made by December 31 of the year following the initial solicitation. Additionally, a reporting entity is not required to solicit a TIN from an individual whose coverage is terminated.

b. Bona fide residents of U.S. possessions or territories

The governments of American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands provide Medicaid and CHIP coverage to their eligible residents. Because bona fide residents of U.S. possessions or territories are treated as having minimum essential coverage under § 5000A(f)(4), reporting of Medicaid and CHIP coverage for these taxpayers is not needed for administration of the individual shared responsibility requirement. Therefore, Medicaid and CHIP agencies in U.S. possessions or territories are not required to report that coverage under § 6055.

c. Basic Health Program

Section 5000A(f) does not identify the Basic Health Program as a governmentsponsored program, but it closely resembles government-sponsored coverage such as Medicaid and CHIP. Accordingly, like Medicaid and CHIP, the state agency that administers the Basic Health Program is the entity that must report that coverage under § 6055.

REQUEST FOR COMMENTS

Comments may be submitted in writing on or before November 16, 2015. Comments should be submitted to Internal Revenue Service, CC:PA:LPD:PR (Notice 2015–68), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044, or electronically to Notice.Comments@irscounsel.treas.gov . Please include “Notice 2015–68” in the subject line of any electronic communica

tions. Alternatively, comments may be hand delivered between the hours of 8:00 a.m. and 4:00 p.m. Monday to Friday to CC:PA:LPD:PR (Notice 2015–68), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, D.C. All comments will be available for public inspection and copying.

FURTHER INFORMATION

For further information on this notice, contact Andrew Braden at (202) 317-7006 (not a toll-free number).

Extension of Replacement Period for Livestock Sold on Account of Drought

Notice 2015–69