Bulletin No. 2010-22June 1, 2010

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Notice 2010–41, page 715.This notice provides that the Treasury Department and the IRSintend to issue regulations under section 7701(a)(4) of theCode that will classify certain domestic partnerships as foreign,solely for the purposes of identifying which U.S. shareholdersare required to include amounts in gross income under section951(a).

Notice 2010–44, page 717.Section 45R provides a federal income tax credit to certainsmall employers that make nonelective contributions towardstheir employees’ health insurance premiums under an arrange-ment that meets certain requirements. This notice providesguidance on the credit, including guidance for determining el-igibility for the credit, calculating the credit, and claiming thecredit.

EMPLOYEE PLANS

T.D. 9482, page 698.REG–114494–10, page 723.Temporary and proposed regulations under section 9815 ofthe Code provide guidance on the requirements imposed ongroup health plans and health insurance issuers under the Pa-tient Protection and Affordable Care Act to continue the depen-dent coverage of children to age 26.

EXEMPT ORGANIZATIONS

Announcement 2010–40, page 725.The IRS has revoked its determination that Action for Afford-able Housing of Englewood, CO; All Gods Creatures Shelter forAbused & Abandoned Animals of Tampa, FL; Carranor Hunt &Polo Club of Perrysburg, OH; Debt Monster Credit CounselingServices, Inc., of Rancho Santa Margarita, CA; Farm MutualInsurance of Baltic, SC; Germania Purchasing Group of Bren-ham, TX; Orchard Living View, Inc., of Sterling Heights, MI;Silver Ridge Park Golden Oldies of Toms River, NJ; WJ Con-sumer Credit of Texas of Kyle, TX; Eastland Praise and Worshipof Aiken, NC; The Second Chance Foundation, Inc., of Vine-yard Haven, MA; Currier Family Foundation of Salt Lake City,UT; Chipper Preschool & Kindergarten of Chicago, IL; Desi-lynn Multiple Sclerosis Foundation of Layton, UT; Hawaii Con-sumer Credit Counseling Services of Honolulu, HI; The Leonard& Beverly Graham Foundation for the Arts of Salt Lake City, UT;Panther’s House of Pride, Inc., of Decatur, GA; Seed AmericaFoundation of Cummings, GA; Carey C. Jones Memorial Park ofApex, NC; and the Capital Athletic Foundation of Silver Spring,MD, qualify as organizations described in sections 501(c)(3)and 170(c)(2) of the Code.

EXCISE TAX

T.D. 9482, page 698.REG–114494–10, page 723.Temporary and proposed regulations under section 9815 ofthe Code provide guidance on the requirements imposed ongroup health plans and health insurance issuers under the Pa-tient Protection and Affordable Care Act to continue the depen-dent coverage of children to age 26.

(Continued on the next page)

Actions Relating to Court Decisions is on the page following the Introduction.Finding Lists begin on page ii.Index for January through June begins on page v.

ADMINISTRATIVE

Notice 2010–43, page 716.The Department of Treasury and the Service invite public com-ments on recommendations for items that should be includedon the 2010–2011 Guidance Priority List. Taxpayers may sub-mit recommendations for guidance at any time during the year.Recommendations submitted by June 11, 2010, will be re-viewed for possible inclusion on the original 2010–2011 Guid-ance Priority List. Recommendations received after June 11,2010, will be reviewed for inclusion in the next periodic update.

Announcement 2010–39, page 724.This document contains a correction to final regulations(T.D. 9350, 2007–2 C.B. 614) that modify the rules relating tothe disclosure of reportable transactions under section 6011of the Code.

June 1, 2010 2010–22 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applying

the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents 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 ofthe 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 internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal 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 thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents 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.

2010–22 I.R.B. June 1, 2010

Actions Relating to Decisions of the Tax CourtIt is the policy of the Internal Rev-

enue Service to announce at an early datewhether it will follow the holdings in cer-tain cases. An Action on Decision is thedocument making such an announcement.An Action on Decision will be issued atthe discretion of the Service only on unap-pealed issues decided adverse to the gov-ernment. Generally, an Action on Decisionis issued where its guidance would be help-ful to Service personnel working with thesame or similar issues. Unlike a TreasuryRegulation or a Revenue Ruling, an Actionon Decision is not an affirmative statementof Service position. It is not intended toserve as public guidance and may not becited as precedent.

Actions on Decisions shall be reliedupon within the Service only as conclu-sions applying the law to the facts in theparticular case at the time the Action onDecision was issued. Caution should beexercised in extending the recommenda-tion of the Action on Decision to similarcases where the facts are different. More-over, the recommendation in the Action onDecision may be superseded by new legis-lation, regulations, rulings, cases, or Ac-tions on Decisions.

Prior to 1991, the Service publishedacquiescence or nonacquiescence only in

certain regular Tax Court opinions. TheService has expanded its acquiescenceprogram to include other civil tax caseswhere guidance is determined to be help-ful. Accordingly, the Service now mayacquiesce or nonacquiesce in the holdingsof memorandum Tax Court opinions, aswell as those of the United States DistrictCourts, Claims Court, and Circuit Courtsof Appeal. Regardless of the court decid-ing the case, the recommendation of anyAction on Decision will be published inthe Internal Revenue Bulletin.

The recommendation in every Actionon Decision will be summarized as ac-quiescence, acquiescence in result only,or nonacquiescence. Both “acquiescence”and “acquiescence in result only” meanthat the Service accepts the holding ofthe court in a case and that the Servicewill follow it in disposing of cases withthe same controlling facts. However, “ac-quiescence” indicates neither approvalnor disapproval of the reasons assignedby the court for its conclusions; whereas,“acquiescence in result only” indicatesdisagreement or concern with some or allof those reasons. “Nonacquiescence” sig-nifies that, although no further review wassought, the Service does not agree withthe holding of the court and, generally,

will not follow the decision in disposingof cases involving other taxpayers. Inreference to an opinion of a circuit courtof appeals, a “nonacquiescence” indicatesthat the Service will not follow the hold-ing on a nationwide basis. However, theService will recognize the precedentialimpact of the opinion on cases arisingwithin the venue of the deciding circuit.

The Actions on Decisions published inthe weekly Internal Revenue Bulletin areconsolidated semiannually and appear inthe first Bulletin for July and the Cumula-tive Bulletin for the first half of the year. Asemiannual consolidation also appears inthe first Bulletin for the following Januaryand in the Cumulative Bulletin for the lasthalf of the year.

The Commissioner nonacquiesces inthe following decision:

Tidewater Inc. and Subsidiaries andTidewater Foreign Sales Corporation

v. United States,1

565 F. 3d. 299 (5th Cir. 2009),aff’g No. 06-875, 2007 U.S. Dist.

LEXIS 77147(E.D. La. October 17, 2007)

1 Nonacquiesces to whether certain charters entered into between members of Taxpayer’s controlled group and unrelated customers are leases under I.R.C. section 7701(e).

June 1, 2010 2010–22 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 9815.—Eligibility ofChildren Until at LeastAge 2626 CFR 54.9815–2714T: Eligibility of children untilat least age 26 (temporary).

T.D. 9482

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Parts 54 and 602

DEPARTMENT OF LABOREmployee Benefits SecurityAdministration29 CFR Part 2590RIN 1210–AB41

DEPARTMENT OF HEALTHAND HUMAN SERVICESOffice of the SecretaryOCIIO–4150–IFC45 CFR Parts 144, 146, and147RIN 0991–AB66

Interim Final Rules for GroupHealth Plans and HealthInsurance Issuers Relatingto Dependent Coverage ofChildren to Age 26 underthe Patient Protection andAffordable Care Act

AGENCIES: Internal Revenue Service,Department of the Treasury; EmployeeBenefits Security Administration, De-partment of Labor; Office of ConsumerInformation and Insurance Oversight, De-partment of Health and Human Services.

ACTION: Interim final rules with requestfor comments.

SUMMARY: This document contains in-terim final regulations implementing therequirements for group health plans andhealth insurance issuers in the group andindividual markets under provisions of the

Patient Protection and Affordable Care Actregarding dependent coverage of childrenwho have not attained age 26.

DATES: Effective Date. These interim fi-nal regulations are effective on July 12,2010.

Comment date. Comments are due onor before August 11, 2010.

Applicability date. These interim fi-nal regulations generally apply to grouphealth plans and group health insurance is-suers for plan years beginning on or afterSeptember 23, 2010. These interim finalregulations generally apply to individualhealth insurance issuers for policy yearsbeginning on or after September 23, 2010.

ADDRESSES: Written comments may besubmitted to any of the addresses specifiedbelow. Any comment that is submitted toany Department will be shared with theother Departments. Please do not submitduplicates.

All comments will be made availableto the public. WARNING: Do not in-clude any personally identifiable informa-tion (such as name, address, or other con-tact information) or confidential businessinformation that you do not want publiclydisclosed. All comments are posted on theInternet exactly as received, and can beretrieved by most Internet search engines.No deletions, modifications, or redactionswill be made to the comments received, asthey are public records. Comments may besubmitted anonymously.

Department of Labor. Comments to theDepartment of Labor, identified by RIN1210–AB41, by one of the following meth-ods:

• Federal eRulemaking Portal:http://www.regulations.gov. Followthe instructions for submitting com-ments.

• Email: E-OHPSCA.EBSA@dol.gov.• Mail or Hand Delivery: Office of

Health Plan Standards and ComplianceAssistance, Employee Benefits Secu-rity Administration, Room N–5653,U.S. Department of Labor, 200 Con-stitution Avenue NW, Washington, DC20210, Attention: RIN 1210–AB41.

Comments received by the Depart-ment of Labor will be posted with-out change to www.regulations.gov andwww.dol.gov/ebsa, and available for pub-lic inspection at the Public DisclosureRoom, N–1513, Employee Benefits Se-curity Administration, 200 ConstitutionAvenue, NW, Washington, DC 20210.

Department of Health and Human Ser-vices. In commenting, please refer to filecode OCIIO–4150–IFC. Because of staffand resource limitations, we cannot acceptcomments by facsimile (FAX) transmis-sion.

You may submit comments in one offour ways (please choose only one of theways listed):

1. Electronically. You may submitelectronic comments on this regulation tohttp://www.regulations.gov. Follow theinstructions under the “More Search Op-tions” tab.

2. By regular mail. You may mailwritten comments to the following addressONLY:

Office of Consumer Information andInsurance Oversight

Department of Health and HumanServices,

Attention: OCIIO–4150–IFC,P.O. Box 8016,Baltimore, MD 21244–1850.

Please allow sufficient time for mailedcomments to be received before the closeof the comment period.

3. By express or overnight mail. Youmay send written comments to the follow-ing address ONLY:

Office of Consumer Information andInsurance Oversight,

Department of Health and HumanServices,

Attention: OCIIO–4150–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) yourwritten comments before the close of thecomment period to either of the followingaddresses:

2010–22 I.R.B. 698 June 1, 2010

a. For delivery in Washington, DC—

Office of Consumer Information andInsurance Oversight,

Department of Health and HumanServices,

Room 445-G, Hubert H. HumphreyBuilding,

200 Independence Avenue, SW,Washington, DC 20201

(Because access to the interior of theHubert H. Humphrey Building is not read-ily available to persons without Federalgovernment identification, commentersare encouraged to leave their comments inthe OCIIO drop slots located in the mainlobby of the building. A stamp-in clock isavailable for persons wishing to retain aproof of filing by stamping in and retain-ing an extra copy of the comments beingfiled.)

b. For delivery in Baltimore, MD—

Centers for Medicare & MedicaidServices,

Department of Health and HumanServices,

7500 Security Boulevard,Baltimore, MD 21244–1850

If you intend to deliver your commentsto 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 courierdelivery may be delayed and received afterthe comment period.

Submission of comments on paperworkrequirements. You may submit commentson this document’s paperwork require-ments by following the instructions at theend of the “Collection of Information Re-quirements” section in this document.

Inspection of Public Comments: Allcomments received before the close of thecomment period are available for view-ing by the public, including any person-ally identifiable or confidential businessinformation that is included in a comment.We post all comments received before theclose of the comment period on the fol-lowing website as soon as possible afterthey have been received: http://www.regu-

lations.gov. Follow the search instructionson that Web site to view public comments.

Comments received timely will alsobe available for public inspection asthey are received, generally beginningapproximately three weeks after publica-tion of a document, at the headquartersof the Centers for Medicare & Med-icaid Services, 7500 Security Boule-vard, Baltimore, Maryland 21244, Mon-day through Friday of each week from8:30 a.m. to 4 p.m. EST. To schedule anappointment to view public comments,phone 1–800–743–3951.

Internal Revenue Service. Commentsto the IRS, identified by REG–114494–10,by one of the following methods:

• Federal eRulemaking Portal:http://www.regulations.gov. Followthe instructions for submitting com-ments.

• Mail: CC:PA:LPD:PR(REG–114494–10), room 5205, Inter-nal Revenue Service, P.O. Box 7604,Ben Franklin Station, Washington, DC20044.

• Hand or courier delivery: Mondaythrough Friday between the hours of8 a.m. and 4 p.m. to: CC:PA:LPD:PR(REG–114494–10), Courier’s Desk,Internal Revenue Service, 1111Constitution Avenue, NW, WashingtonDC 20224.

All submissions to the IRS will be opento public inspection and copying in room1621, 1111 Constitution Avenue, NW,Washington, DC from 9 a.m. to 4 p.m.

FOR FURTHER INFORMATIONCONTACT: Amy Turner or Beth Baum,Employee Benefits Security Adminis-tration, Department of Labor, at (202)693–8335; Karen Levin, Internal RevenueService, Department of the Treasury, at(202) 622–6080; Jim Mayhew, Officeof Consumer Information and InsuranceOversight, Department of Health and Hu-man Services, at (410) 786–1565.

CUSTOMER SERVICEINFORMATION: Individuals inter-ested in obtaining information fromthe Department of Labor concerningemployment-based health coverage laws

may call the EBSA Toll-Free Hotlineat 1–866–444–EBSA (3272) or visitthe Department of Labor’s website(http://www.dol.gov/ebsa). In addi-tion, information from HHS on privatehealth insurance for consumers canbe found on the Centers for Medicare& Medicaid Services (CMS) website(http://www.cms.hhs.gov/HealthInsRe-formforConsume/01_Overview.asp).

SUPPLEMENTARY INFORMATION:

I. Background

The Patient Protection and AffordableCare Act (the Affordable Care Act), Pub-lic Law 111–148, was enacted on March23, 2010; the Health Care and EducationReconciliation Act (the ReconciliationAct), Public Law 111–152, was enactedon March 30, 2010. The Affordable CareAct and the Reconciliation Act reorganize,amend, and add to the provisions of part Aof title XXVII of the Public Health ServiceAct (PHS Act) relating to group healthplans and health insurance issuers in thegroup and individual markets. The term“group health plan” includes both insuredand self-insured group health plans.1 TheAffordable Care Act adds section 715 tothe Employee Retirement Income SecurityAct (ERISA) and section 9815 to the Inter-nal Revenue Code (the Code) to make theprovisions of part A of title XXVII of thePHS Act applicable under ERISA and theCode to group health plans, and health in-surance issuers providing health insurancecoverage in connection with group healthplans, as if those provisions of the PHSAct were included in ERISA and the Code.The PHS Act sections incorporated by thisreference are sections 2701 through 2728.PHS Act sections 2701 through 2719A aresubstantially new, though they incorporatesome provisions of prior law. PHS Actsections 2722 through 2728 are sections ofprior law renumbered with some, mostlyminor, changes. Section 1251 of the Af-fordable Care Act, as modified by section10103 of the Affordable Care Act andsection 2301 of the Reconciliation Act,specifies that certain plans or coverageexisting as of the date of enactment (i.e.,grandfathered health plans) are subject toonly certain provisions.

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 oftitle I of the Affordable Care Act. The term “health plan” does not include self-insured group health plans.

June 1, 2010 699 2010–22 I.R.B.

Subtitles A and C of title I of theAffordable Care Act amend the require-ments of title XXVII of the PHS Act(changes to which are incorporated intoERISA section 715). The preemption pro-visions of ERISA section 731 and PHSAct section 27242 (implemented in 29CFR 2590.731(a) and 45 CFR 146.143(a))apply so that the requirements of the Af-fordable Care Act are not to be “construedto supersede any provision of State lawwhich establishes, implements, or contin-ues in effect any standard or requirementsolely relating to health insurance issuersin connection with group or individualhealth insurance coverage except to theextent that such standard or requirementprevents the application of a requirement”of the Affordable Care Act. Accordingly,State laws that impose on health insuranceissuers stricter requirements than thoseimposed by the Affordable Care Act willnot be superseded by the Affordable CareAct.

The Departments of Health and Hu-man Services, Labor, and the Treasury(the Departments) expect to issue regula-tions implementing the revised PHS Actsections 2701 through 2719A in severalphases. The first publication in this serieswas a Request for Information relating tothe medical loss ratio provisions of PHSAct section 2718, published in the FederalRegister on April 14, 2010 (75 FR 19297).These interim final regulations are beingpublished to implement PHS Act section2714 (requiring dependent coverage ofchildren to age 26). PHS Act section 2714generally is effective for plan years (in theindividual market, policy years) beginningon or after September 23, 2010, which issix months after the March 23, 2010 dateof enactment of the Affordable Care Act.3

The implementation of other provisionsof PHS Act sections 2701 through 2719Aand section 1251 of the Affordable CareAct will be addressed in future regulations.

Because subtitles A and C of title I ofthe Affordable Care Act contain require-ments that are applicable to both the groupand individual health insurance markets, itwould be duplicative to insert the require-

ments into both the existing 45 CFR part146 (Requirements for the Group HealthInsurance Market) and 45 CFR part 148(Requirements for the Individual HealthInsurance Market). Accordingly, these in-terim final regulations create a new part147 in subchapter B of 45 CFR to imple-ment the provisions of the Affordable CareAct. The provisions of the Affordable CareAct, to the extent that they apply to grouphealth plans and group health insurancecoverage, are also implemented under newregulations added to 29 CFR part 2590 and26 CFR part 54.

II. Overview of the Regulations

A. PHS Act Section 2714, ContinuedEligibility of Children until Age 26(26 CFR 54.9815–2714, 29 CFR2590.715–2714, 45 CFR 147.120)

Section 2714 of the PHS Act, as addedby the Affordable Care Act (and amendedby the Reconciliation Act), and these in-terim final regulations provide that a planor issuer that makes available dependentcoverage4 of children must make suchcoverage available for children until at-tainment of 26 years of age. The statutealso requires the issuance of regulations to“define the dependents to which coverageshall be made available” under this rule.

Many group health plans that providedependent coverage limit the coverage tohealth coverage excludible from employ-ees’ gross income for income tax purposes.Thus, dependent coverage is limited to em-ployees’ spouses and employees’ childrenthat qualify as dependents for income taxpurposes. Consequently, these plans oftencondition dependent coverage, in additionto the age of the child, on student status,residency, and financial support or otherfactors indicating dependent status. How-ever, with the expansion of dependent cov-erage required by the Affordable Care Actto children until age 26, conditioning cov-erage on whether a child is a tax dependentor a student, or resides with or receivesfinancial support from the parent, is nolonger appropriate in light of the correla-tion between age and these factors. There-

fore, these interim final regulations do notallow plans or coverage to use these re-quirements to deny dependent coverage tochildren. Because the statute does not dis-tinguish between coverage for minor chil-dren and coverage for adult children underage 26, these factors also may not be usedto determine eligibility for dependent cov-erage for minor children.

Accordingly, these interim final regula-tions clarify that, with respect to childrenwho have not attained age 26, a plan orissuer may not define dependent for pur-poses of eligibility for dependent coverageof children other than in terms of the re-lationship between the child and the par-ticipant (in the individual market, the pri-mary subscriber). Examples of factors thatcannot be used for defining dependent forpurposes of eligibility (or continued eligi-bility) include financial dependency on theparticipant or primary subscriber (or anyother person), residency with the partici-pant or primary subscriber (or any otherperson), student status, employment, eli-gibility for other coverage, or any combi-nation of these. These interim final reg-ulations also provide that the terms of theplan or policy for dependent coverage can-not vary based on the age of a child, ex-cept for children age 26 or older. Exam-ples illustrate that surcharges for cover-age of children under age 26 are not al-lowed except where the surcharges applyregardless of the age of the child (up toage 26) and that, for children under age26, the plan cannot vary benefits based onthe age of the child. The Affordable CareAct, as originally enacted, required plansand issuers to make dependent coverageavailable only to a child “who is not mar-ried.” This language was struck by section2301(b) of the Reconciliation Act. Ac-cordingly, under these interim final regu-lations, plans and issuers may not limit de-pendent coverage based on whether a childis married. (However, a plan or issuer isnot required under these interim final reg-ulations to cover the spouse of an eligiblechild).

The statute and these interim final reg-ulations provide that nothing in PHS Act

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 theCode.

3 See section 1004 of the Affordable Care Act.

4 For purposes of these interim final regulations, dependent coverage means coverage of any individual under the terms of a group health plan, or group or individual health insurance coverage,because of the relationship to a participant (in the individual market, primary subscriber).

2010–22 I.R.B. 700 June 1, 2010

section 2714 requires a plan or issuer tomake available coverage for a child of achild receiving dependent coverage.

Under section 1004(d) of the Recon-ciliation Act and IRS Notice 2010–38(released to the public on April 27, 2010and scheduled to be published in 2010–20Internal Revenue Bulletin, May 17, 2010),employers may exclude from the em-ployee’s income the value of any em-ployer-provided health coverage for anemployee’s child for the entire taxableyear the child turns 26 if the coveragecontinues until the end of that taxableyear. This means that if a child turns 26 inMarch, but stays on the plan past Decem-ber 31st (the end of most people’s taxableyear), the health benefits up to December31st can be excluded for tax purposes.

Application to grandfathered healthplans. Under the statute and these interimfinal regulations, the requirement to makeavailable dependent coverage for childrenwho have not attained age 26 generallyapplies to all group health plans and healthinsurance issuers offering group or indi-vidual health insurance coverage whetheror not the plan or health insurance cov-erage qualifies as a grandfathered healthplan5 under section 1251 of the AffordableCare Act, for plan years (in the individ-ual market, policy years) beginning on orafter September 23, 2010. However, inaccordance with section 2301(a) of theReconciliation Act, for plan years begin-ning before January 1, 2014, these interimfinal regulations provide that a grandfa-thered health plan that is a group healthplan that makes available dependent cov-erage of children may exclude an adultchild who has not attained age 26 fromcoverage only if the child is eligible to en-roll in an employer-sponsored health plan(as defined in section 5000A(f)(2) of theCode) other than a group health plan of aparent. In the case of an adult child whois eligible for coverage under the plans ofthe employers of both parents, neither planmay exclude the adult child from coveragebased on the fact that the adult child is

eligible to enroll in the plan of the otherparent’s employer.

Regulations relating to grandfatheredhealth plans under section 1251 of theAffordable Care Act are expected to bepublished in the very near future. The De-partments anticipate that the regulationswill make clear that changes to plan or pol-icy terms to comply with PHS Act section2714 and these interim final regulations,including voluntary compliance beforeplan years (in the individual market, pol-icy years) beginning on or after September23, 2010, will not cause a plan or healthinsurance coverage to lose grandfatheredhealth plan status for any purpose underthe Affordable Care Act, as amended.

Transitional Rule. Prior to the applica-bility date of PHS Act section 2714, a childwho was covered under a group health planor health insurance coverage as a depen-dent may have lost eligibility under theplan (or coverage) due to age prior to age26. Moreover, if, when a parent first be-came eligible for coverage, a child was un-der age 26 but older than the age at whichthe plan (or coverage) stopped coveringchildren, the child would not have becomeeligible for the plan (or coverage). Whenthe provisions of section 2714 become ap-plicable, a plan or issuer can no longer ex-clude coverage for the child prior to age 26irrespective of whether or when that childwas enrolled in the plan (or coverage).Also, a child of a primary subscriber withfamily coverage in the individual marketmay be entitled to an opportunity to enrollif the child previously lost coverage due toage while other family members retainedthe coverage.6

Accordingly, these interim final regula-tions provide transitional relief for a childwhose coverage ended, or who was deniedcoverage (or was not eligible for coverage)under a group health plan or health insur-ance coverage because, under the terms ofthe plan or coverage, the availability of de-pendent coverage of children ended beforethe attainment of age 26.

These interim final regulations require aplan or issuer to give such a child an oppor-

tunity to enroll that continues for at least30 days (including written notice of the op-portunity to enroll), regardless of whetherthe plan or coverage offers an open enroll-ment period and regardless of when anyopen enrollment period might otherwiseoccur. This enrollment opportunity (in-cluding the written notice) must be pro-vided not later than the first day of the firstplan year (in the individual market, pol-icy year) beginning on or after September23, 2010. Thus, many plans can use theirexisting annual enrollment periods (whichcommonly begin and end before the startof the plan year) to satisfy the enrollmentopportunity requirement. If the child is en-rolled, coverage must begin not later thanthe first day of the first plan year (in the in-dividual market, policy year) beginning onor after September 23, 2010, even if the re-quest for enrollment is made after the firstday of the plan year. In subsequent years,dependent coverage may be elected for aneligible child in connection with normalenrollment opportunities under the plan orcoverage.

Under these interim final regulations,the notice may be provided to an em-ployee on behalf of the employee’s child(in the individual market, to a primarysubscriber on behalf of the primary sub-scriber’s child). In addition, for a grouphealth plan or group health insurance cov-erage, the notice may be included withother enrollment materials that a plandistributes to employees, provided thestatement is prominent. For a group healthplan or group health insurance coverage,if a notice satisfying these requirements isprovided to an employee whose child isentitled to an enrollment opportunity, theobligation to provide the notice of enroll-ment opportunity with respect to that childis satisfied for both the plan and the issuer.

Any child enrolling in group health plancoverage pursuant to this enrollment rightmust be treated as a special enrollee, asprovided under the regulations interpret-ing the HIPAA portability provisions.7 Ac-cordingly, the child must be offered all thebenefit packages available to similarly sit-

5 Section 1251 of the Affordable Care Act, as modified by section 10103 of the Affordable Care Act and section 2301 of the Reconciliation Act, specifies that certain plans or coverage existingas of the March 23, 2010 date of enactment (i.e., grandfathered health plans) are subject to only certain provisions.

6 In the group market, section 9802(a) of the Code, section 702(a) of ERISA, and section 2705 of the PHS Act provide that a plan or issuer cannot impose any rule for eligibility for benefits(including any rule excluding coverage) based on a health factor, including a preexisting condition. These rules were added by HIPAA and generally became applicable for group healthplans for plan years beginning on or after July 1, 1997. Similar guidance regarding re-enrollment rights for individuals previously denied coverage due to a health factor was issued by theDepartments of the Treasury, Labor, and HHS on December 29, 1997, at 62 FR 67689 and on January 8, 2001 at 66 FR 1378, 1403, 1410, 1418.

7 HIPAA is the Health Insurance Portability and Accountability Act of 1996 (Public Law 104–191). Regulations regarding the treatment of HIPAA special enrollees are included at 26 CFR54.9801–6(d), 29 CFR 2590.701–6(d), and 45 CFR 146.117(d).

June 1, 2010 701 2010–22 I.R.B.

uated individuals who did not lose cover-age by reason of cessation of dependentstatus. The child also cannot be required topay more for coverage than similarly situ-ated individuals who did not lose coverageby reason of cessation of dependent status.

The Departments have been informedthat many health insurance issuers haveannounced that they will allow continuedcoverage of adult children before suchcoverage is required by the AffordableCare Act. A plan or issuer that allows con-tinued coverage of adult children beforebeing required to do so by the AffordableCare Act is not required to provide theenrollment opportunity with respect tochildren who do not lose coverage.

Examples in these interim final regu-lations illustrate the application of thesetransitional rules. One example illustratesthat, if a child qualifies for an enrollmentopportunity under this section and the par-ent is not enrolled but is otherwise eligiblefor enrollment, the plan must provide anopportunity to enroll the parent, in additionto the child. Similarly, another example il-lustrates that, if a plan has more than onebenefit package option, a child qualifiesfor enrollment under this section, and theparent is enrolled in one benefit packageoption, the plan must provide an opportu-nity to enroll the child in any benefit pack-age option for which the child is otherwiseeligible (thus allowing the parent to switchbenefit package options). Another exam-ple illustrates that a child who qualifies foran enrollment opportunity under this sec-tion and who is covered under a COBRAcontinuation provision must be given theopportunity to enroll as a dependent of anactive employee (i.e., other than as a CO-BRA-qualified beneficiary). In this situa-tion, if the child loses eligibility for cov-erage due to a qualifying event (includingaging out of coverage at age 26), the childhas another opportunity to elect COBRAcontinuation coverage. (If the qualifyingevent is aging out, the COBRA continua-tion coverage could last 36 months fromthe loss of eligibility that relates to turn-ing age 26.) The final example in thissection illustrates that an employee whojoined a plan prior to the applicability dateof PHS Act section 2714, and has a childwho never enrolled because the child wastoo old under the terms of the plan but hasnot yet turned 26, must be provided an op-portunity to enroll the child under this sec-

tion even though the child was not previ-ously covered under the plan. If the parentis no longer eligible for coverage under theplan (for example, if the parent has ceasedemployment with the plan sponsor) as ofthe first date on which the enrollment op-portunity would be required to be given,the plan would not be required to enroll thechild.

B. Conforming Changes under the PHSAct

1. References to the Public Health ServiceAct

Conforming changes to references tosections of title XXVII of the PHS Act aremade throughout parts 144 and 146 of title45 of the Code of Federal Regulations toreflect the renumbering of certain sectionsby the Affordable Care Act.

2. Definitions (45 CFR 144.103)

These interim final regulations define“policy year” as the 12-month period thatis designated in the policy documents ofindividual health insurance coverage. Ifthe policy document does not designate apolicy year (or no such document is avail-able), then the policy year is the deductibleor limit year used under the coverage. Ifdeductibles or other limits are not imposedon a yearly basis, the policy year is the cal-endar year. The Affordable Care Act usesthe term “plan year” in referring to the pe-riod of coverage in both the individual andgroup health insurance markets. The term“plan year”, however, is generally used inthe group health insurance market. Ac-cordingly, these interim final regulationssubstitute the term “policy year” for “planyear” in defining the period of coverage inthe individual health insurance market.

III. Interim Final Regulations andRequest for Comments

Section 9833 of the Code, section 734of ERISA, and section 2792 of the PHSAct authorize the Secretaries of the Trea-sury, Labor, and HHS (collectively, theSecretaries) to promulgate any interim fi-nal rules that they determine are appropri-ate to carry out the provisions of chapter100 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 section715 and Code section 9815.

In addition, under Section 553(b) ofthe Administrative Procedure Act (APA)(5 U.S.C. 551 et seq.) a general noticeof proposed rulemaking is not requiredwhen an agency, for good cause, findsthat notice and public comment thereon areimpracticable, unnecessary, or contrary tothe public interest. The provisions of theAPA that ordinarily require a notice of pro-posed rulemaking do not apply here be-cause of the specific authority granted bysection 9833 of the Code, section 734 ofERISA, and section 2792 of the PHS Act.However, even if the APA was applica-ble, the Secretaries have determined thatit would be impracticable and contrary tothe public interest to delay putting the pro-visions in these interim final regulations inplace until a full public notice and com-ment process is completed. The statutoryrequirement implemented in these interimfinal regulations was enacted on March 23,2010, and applies for plan years (in the in-dividual market, policy years) beginningon or after September 23, 2010. Having abinding rule in effect is critical to ensuringthat individuals entitled to the new protec-tions being implemented have these pro-tections uniformly applied.

Moreover, the provisions in these in-terim final regulations require lead time forimplementation. These interim final regu-lations require that an enrollment period beprovided no later than the first day the obli-gation to allow dependent children to en-roll until attainment of age 26 takes effect.Preparations presumably would have to bemade to put such an enrollment processin place. Group health plans and healthinsurance issuers also would have to takethe cost associated with this new obliga-tion into account in establishing their pre-miums, and in making other changes to thedesigns of plan or policy benefits, and anysuch premiums and changes would have toreceive necessary approvals in advance ofthe plan or policy year in question.

For the foregoing reasons, the De-partments have determined that it is es-sential to provide certainty about whatwill be required of group health plansand health insurance issuers under thestatutory requirements implemented inbinding regulations as far in advance of

2010–22 I.R.B. 702 June 1, 2010

September 23, 2010 as possible. Thismakes it impracticable to engage in fullnotice and comment rulemaking beforeputting regulations into effect, and in thepublic interest to do so through interimfinal regulations under which the publicwill have an opportunity for comment,but that opportunity will not delay puttingrules in effect (a delay that could possiblylast past September 23, 2010).

Issuance of proposed regulations wouldnot be sufficient because the proposed reg-ulations would not be binding, and differ-ent group health plans or health insuranceissuers could interpret the statutory lan-guage in different ways. Had the Depart-ments published a notice of proposed rule-making, provided for a 60-day commentperiod, and only then prepared final regu-lations, which would be subject to a 60-daydelay in effective date, it is unlikely thatit would have been possible to have finalregulations in effect before late Septem-ber, when these requirements could be ineffect for some plans or policies. It there-fore is in the public interest that these in-terim final regulations be in effect and ap-ply when the statutory protections beingimplemented apply.

IV. Economic Impact and PaperworkBurden

A. Summary—Department of Laborand Department of Health and HumanServices

As stated earlier in this preamble, theseinterim final regulations implement PHSAct section 2714, which requires plansor issuers that make dependent coverageavailable for children to continue to makesuch coverage available for an adult childuntil the attainment of age 26. The reg-ulation also provides an enrollment op-portunity to individuals who lost or werenot eligible for dependent coverage beforeage 26.8 This provision generally is effec-tive for plan years (in the individual mar-ket, policy years) beginning on or afterSeptember 23, 2010, which is six monthsafter the March 23, 2010 date of enactmentof the Affordable Care Act.

The Departments have crafted theseinterim final regulations to secure the pro-

tections intended by Congress in the mosteconomically efficient manner possible.The Departments have quantified costswhere possible and provided a qualitativediscussion of the economic benefits andsome of the transfers and costs that maystem from these interim final regulations.

B. Executive Order 12866—Departmentof Labor and Department of Health andHuman Services

Under Executive Order 12866 (58 FR51735), this regulatory action has been de-termined “significant” and therefore sub-ject to review by the Office of Manage-ment and Budget (OMB). Section 3(f) ofthe Executive Order defines a “significantregulatory action” as an action that is likelyto result in a rule (1) having an annual ef-fect on the economy of $100 million ormore in any one year, or adversely and ma-terially affecting a sector of the economy,productivity, competition, jobs, the envi-ronment, public health or safety, or State,local or tribal governments or communi-ties (also referred to as “economically sig-nificant”); (2) creating a serious inconsis-tency or otherwise interfering with an ac-tion taken or planned by another agency;(3) materially altering the budgetary im-pacts of entitlement grants, user fees, orloan programs or the rights and obligationsof recipients thereof; or (4) raising novellegal or policy issues arising out of legalmandates, the President’s priorities, or theprinciples set forth in the Executive Order.OMB has determined that this regulation iseconomically significant within the mean-ing of section 3(f)(1) of the Executive Or-der, because it is likely to have an annualeffect on the economy of $100 million inany one year. Accordingly, OMB has re-viewed these rules pursuant to the Exec-utive Order. The Departments provide anassessment of the potential costs, benefits,and transfers associated with the regula-tory provision below. The Departments in-vite comments on this assessment and itsconclusions.

1. Need for Regulatory Action

PHS Act section 2714, as added by theAffordable Care Act and amended by the

Reconciliation Act requires group healthplans and health insurance issuers offeringgroup or individual health insurance cov-erage that make dependent coverage avail-able for children to continue to make cov-erage available to such children until theattainment of age 26. With respect to achild receiving dependent coverage, cov-erage does not have to be extended to achild or children of the child or a spouse ofthe child. In addition, as provided by theReconciliation Act, grandfathered grouphealth plans are not required to offer de-pendent coverage to a child under 26 whois otherwise eligible for employer-spon-sored insurance other than a group healthplan of a parent for plan years beginningbefore January 1, 2014. PHS Act section2714 generally is effective for plan years(in the individual market, policy years) be-ginning on or after September 23, 2010.Thus, these interim final regulations arenecessary to amend the Departments’ ex-isting regulations to implement these statu-torily mandated changes.

2. Summary of Impacts

In this section, the Departments esti-mate the number of individuals affectedby these interim final regulations, and theimpact of the regulations on health insur-ance premiums in the group and individ-ual markets. Beginning with the popula-tion of individuals age 19–25, the numberof individuals potentially affected is esti-mated by applying several criteria includ-ing whether their parents have existing em-ployer-sponsored insurance (ESI) or an in-dividual market policy; and whether the in-dividuals are themselves uninsured, haveESI, individual market policies or otherforms of coverage. A range of assump-tions concerning the percentage of the po-tentially affected individuals that will ac-cept the offer of new dependent coverage— “take-up” rates— is then applied to esti-mate the number of newly covered individ-uals. The premium impact is calculated byusing an estimated incremental insurancecost per newly-covered individual as a per-cent of average family premiums.

8 The Affordable Care Act adds section 715 and Code section to make the provisions of part A of title XXVII of the PHS Act applicable to group health plans, and health insurance issuersproviding 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. The PHSAct sections incorporated by this reference are sections 2701 through 2728. Section 1251 of the Affordable Care Act provides rules for grandfathered health plans, and these rules are furtherclarified in section 10103 of the Affordable Care Act and section 2301 of the Reconciliation Act.

June 1, 2010 703 2010–22 I.R.B.

In accordance, with OMB CircularA–4,9 Table 1 below depicts an account-

ing statement showing the Departments’assessment of the benefits, costs, and

transfers associated with this regulatoryaction.

TABLE 1.—Accounting Table

BenefitsAnnualized Quantified: low estimate 0.19 million previously uninsured individuals gain coverage in 2011

mid-range estimate 0.65 million previously uninsured individuals gain coverage in 2011high estimate 1.64 million previously uninsured individuals gain coverage in 2011

Qualitative: Expanding coverage options of the 19–25 population should decrease the number uninsured, which in turn shoulddecrease the cost-shifting of uncompensated care onto those with insurance, increase the receipt of preventive health care andprovide more timely access to high quality care, resulting in a healthier population. Allowing extended dependent coverage willalso permit greater job mobility for this population as their insurance coverage will no longer be tied to their own jobs or studentstatus. Dependents aged 19–25 that have chronic or other serious health conditions would still be able to continue their currentcoverage through a parent’s plan. To the extent there is an increase in beneficial utilization of healthcare, health could improve.

Costs10

LowEstimate

Mid-range

Estimate

HighEstimate

YearDollar

DiscountRate

PeriodCovered11

Annualized Monetized ($millions/year) 11.2 11.2 11.2 2010 7% 2011–201310.4 10.4 10.4 2010 3% 2011–2013

A one-time notice of right to enroll must be sent to those affected.

Qualitative: To the extent additional coverage increases utilization of health care services, there will be additional costs incurredto achieve the health benefits.

Transfer12

Annualized Monetized ($millions/year) 3,459.3 5,250.2 6,893.9 2010 7% 2011–20133,482.5 5,274.5 6,895.4 2010 3% 2011–2013

Qualitative: If the rule causes family health insurance premiums to increase, there will be a transfer from individuals with familyhealth insurance coverage who do not have dependents aged 19–25 to those individuals with family health insurance coverage thathave dependents aged 19–25. To the extent that these higher premiums result in lower profits or higher prices for the employer’sproduct, then the higher premiums will result in a transfer either from stockholders or consumers.

3. Estimated Number of AffectedIndividuals

The Departments’ estimates in thissection are based on the 2004–2006 Med-ical Expenditure Panel Survey HouseholdComponent (MEPS-HC) which was pro-jected and calibrated to 2010 to be con-sistent with the National Health Accountsprojections. The Departments estimatethat in 2010, there are approximately 29.5

million individuals aged 19–25 (youngadults) in the United States. Of those indi-viduals, 9.3 million young adults (of whom3.1 million are uninsured) do not have aparent who has either ESI or non-groupinsurance, and thus they have no access todependent coverage. As shown in Table 2,among the remaining 20.2 million youngadults whose parents are covered either byESI or by non-group insurance:

• 3.44 million are currently uninsured,• 2.42 million are covered by their own

non-group insurance,• 5.55 million are covered by their own

ESI,• 5.73 million are already on their par-

ent’s or spouse’s ESI, and• 3.01 million have some other form

of coverage such as Medicaid orTRICARE.

9 Available at http://www.whitehouse.gov/omb/circulars/a004/a–4.pdf.

10 The cost estimates are annualize across the years 2011–2013, and reflects a single point estimate of the cost to send out a notice in the first year only.

11 The Departments limited the period covered by the RIA to 2011–2013, because it only has reliable data to make projections over this period due to the fact that in 2014, things will changedrastically when the subsidies and tax credits to offset premium increases and the exchanges are in effect.

12 The estimates in this table reflect the annualized discounted value in 2010 of the additional premium costs for family policies calculated as the product of the newly covered dependents ineach year from 2011–2013 (see below) and an incremental cost per newly-covered person in those years (see below).

2010–22 I.R.B. 704 June 1, 2010

Table 2.—Young Adults Aged 19–25 by Insurance Status

Uninsured Non-Group Own ESIESI as a

Dependent Other Total

Total U.S. Population

Aged 19–25 6.59 2.69 6.98 5.75 7.5 29.5

All Young Adults in U.S. with a Parent with a Policy by Young Adult Insurance Status

Parents have ESI 3.28 2.03 5.32 5.73 2.91 19.27

Parents have non-group 0.16 0.40 0.23 — 0.10 0.88

Subtotal A 3.44 2.42 5.55 5.73 3.01 20.15

*The bolded numbers are potentially affected by the regulation.

Source: MEPS 2004–2006 HC Surveys, controlled to 2010 consistent with the National Health Accounts. Note: Total numberof young adults, age 19–25 is 29.5 million; the 20.15 million in this Table are the subset whose parents have either ESI ornon-group coverage.

Initially, the subset of this group ofyoung adults that will be affected by theseinterim final regulations are those who areeither uninsured (3.44 million) or coveredby individual coverage (2.42 million).The statute does not require grandfatheredgroup health plans to offer coverage toyoung adults who currently have their ownESI or an offer of an ESI. For the purposesof this analysis, it is assumed that all plansbegin 2011 with grandfathered status.These impacts could change if plans losetheir Grandfathered status.

Of these 5.86 million young adults, asshown in Table 3, 3.49 million are also un-likely to switch to their parents’ coveragebecause:

• They are already allowed to enrollin extended dependent coverage foryoung adults through their State’s ex-isting laws, but have chosen not to

(2.61 million). Thirty-seven statesalready have requirements concern-ing dependent coverage in the groupmarket, although most of these are sub-stantially more restrictive than thosecontained in this regulation.13 Usinginformation about State laws obtainedfrom the Kaiser Family Foundation,14

a State by State profile of State re-quired coverage based on a person’sState of residence, age, student status,and living situation was developed.This profile was then overlaid onMEPS data to obtain an estimate ofthe number of individuals that wouldnewly become eligible for coveragedue to these interim final regulations.

• They have an offer of ESI and haveparents who are covered by ESI (0.48million). For the purposes of this reg-ulatory impact statement, the Depart-ments assume that the parents of these

young adults will be in grandfatheredgroup health plans, and thus that theseyoung adults will not be affected by theprovisions of these interim final regu-lations. To the extent that some of thecoverage in which these parents are en-rolled is not grandfathered, the effectof these interim final regulations willbe larger than the estimates providedhere.

• Finally, there are 0.40 million youngadults who have non-group coverageand whose parents have non-groupcoverage. Because the parents’non-group coverage is underwritten,there is not likely to be any financialbenefit to the family in moving theyoung adult onto the parents’ cover-age, and the Departments assume thatthese young adults will not be affectedby the regulation.

13 Restrictions include requirements for financial dependency, student status, and age limits.

14 As described in Kaiser Family Foundation, Definition of Dependency by Age, 2010, KFF State Health Facts, at http://www.statehealthfacts.org/comparetable.jsp?ind=601&cat=7.

June 1, 2010 705 2010–22 I.R.B.

TABLE 3.—“Uninsured” and “Non-group” Young Adults Unlikely to be Affected by Extending Dependent Coverage to Age 26

Uninsured Non-Group Coverage Total

1) Young adults potentially covered by parent ESIdue to state law

1.30 1.31 2.61

2) Young adults with an offer of ESI whose parentshave ESI

0.31 0.17 0.48

3) Young adults with non-group coverage whoseparents have non-group coverage

0.40 0.40

Subtotal B 1.61 1.88 3.49

As shown in Table 4, this leaves ap-proximately 2.37 million young adultswho might be affected by this provision,or approximately eight percent of the 29.5

million young adults in the age group.Among the approximately 2.37 millionyoung adults who are estimated to bepotentially affected by this provision, ap-

proximately 1.83 million are currentlyuninsured, and 0.55 million are currentlycovered by their own non-group coverage.

TABLE 4 .—Young Adults Potentially Affected by Extending Dependent Coverage to Age 26

Uninsured Non-Group Coverage Total

Parents have ESI 1.67 0.55 2.21

Parents have non-group 0.16 0.16

Total (Subtotal A-Subtotal B)* 1.83 0.55 2.37

Source: MEPS 2004–2006 HC Surveys, controlled to 2010 consistent with projections of the National Health Accounts.

*Subtotal A is in Table 2 and Subtotal B is in Table 3.

It is difficult to estimate precisely whatfraction of the 2.37 million young adultswho might potentially be affected by theprovision will actually enroll on their par-ents’ coverage. A study by Monheit andCantor of the early experience in Statesthat have extended coverage to dependentssuggests that few uninsured children inthese States shift to their parents’ policy.15

However, data and methodological diffi-culties inevitably lead to substantial uncer-tainty about the finding.

The Departments considered two otherpoints of reference to estimate take-uprates. One is the work that has analyzedtake-up rates among people made newlyeligible for public coverage by Medic-

aid expansions. These studies suggesttake-up rates in the range of 10–34 per-cent.16 However, the populations eligiblefor these expansions have different so-cio-demographic compositions than thoseeligible for the dependent coverage pro-visions covered under these interim finalregulations, and the decision to take-upMedicaid is clearly different than the deci-sion to cover a child on a parent’s privateinsurance policy. A second point of refer-ence are estimates from the Kaiser/HRETEmployer Health benefits Survey17 whichsuggest that, depending on the size of theworker contribution, between 77 percentand 90 percent of employees accept offersof family policies. Again, these estimates

would be based on a group that differsin characteristics from those eligible fornew dependent coverage. These concernsnotwithstanding, the analyses of Medicaidexpansions and employee take-up of em-ployer sponsored coverage provide usefulpoints of reference.

Recognizing the uncertainty in thearea, the Departments produced a rangeof assumptions concerning take-up rates.In developing the range of take-up rates,the Departments assume that these rateswill vary by the following factors: (1)the young adult’s current health coveragestatus (uninsured young adults are lesslikely to take advantage of the depen-dent coverage option than young adults

15 Monheit, A., J. Cantor, et al, “State Policies Expanding Dependent Coverage to Young Adults in Private Health Insurance Plans,” presented at the Academy Health State Health Researchand Policy Interest Group Meeting, Chicago IL, June 27, 2009.

16 Bansak, Cynthia and Steven Raphael. “The Effects of State Policy Design Features on Take-Up and Crowd-out Rates fro the State Children’s Health Insurance Program.” Journal of PolicyAnalysis and Management, Vol. 26, No. 1, 149–175. 2006. Find that for the time period 1998–2002 take-up rates for SCHIP were about 10 percent.

Currie, Janet and Jonathan Gruber. “Saving babies: The Efficacy and Cost of Recent Changes in Medicaid Eligibility of Pregnant Women.” The Journal of Political Economy, Vol. 104,No. 6, Dec. 1996, pp. 1263–1296. Find for Medicaid expansions during the 1979–1992 period the take-up rate for eligible pregnant women was 34 percent.

Cutler, David and Jonathan Gruber. “Does Public Insurance Crowd Out Private Insurance?” The Quarterly Journal of Economics, Vol. 111, No. 2, May 1996, pp. 391–430. Find that forthe Medicaid expansions from 1987–1992 the take-up rate for the uninsured is close to 30 percent, while for pregnant women it was seven percent.

Gruber, Jonathan and Kosali Simon. “Crowd-Out Ten years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?” NBER Working Paper 12858.January 2007. Find that for the Medicaid expansions during 1996–2002 the take-up rate was 7 percent across all children, but nearly one-third for uninsured children.

17 Found at http://www.kff.org/insurance/snapshot/chcm020707oth.cfm

2010–22 I.R.B. 706 June 1, 2010

already covered by non-group insurance,because young adults who have purchasednon-group insurance have shown a strongpreference for coverage, and can almostalways save money and get better cover-age by switching to their parents’ policy);(2) the young adult’s health status (youngadults in fair or poor health are more likelyto take advantage of the option than thosein excellent, very good or good health),and (3) the young adult’s living situation(those living with their parents are morelikely to take up the option than those notliving with their parents).

The almost fully covered or “high”take-up rate scenario assumes that re-

gardless of health or insurance status, 95percent of young adults living at homeand 85 percent of those not living at homewould move to dependent coverage. Forthe mid-range scenario, the Departmentsassume that relative to the high take-uprate scenario, 90 percent of the uninsuredwhose health status was fair or poor healthand 50 percent of those in good to ex-cellent health would move to dependentcoverage. In the low take-up rate scenario,the Departments adjusted the percentagesto 80 percent and 10 percent of the hightake-up rate scenario. In all three sce-narios, the same assumptions apply toindividuals with non-group policies whose

parents have ESI — 95 percent of thoseliving at home and 85 percent of those liv-ing elsewhere would move to dependentcoverage.

In the low take-up rate scenario, the as-sumptions lead to the result that approxi-mately 30 percent of eligibles will enroll independent coverage. In the mid-range sce-nario, they result in an approximate 50 per-cent take-up rate, and in the high take-upscenario, they result in an approximate 90percent take-up rate. The Departments areuncertain regarding which of these scenar-ios is most likely but are confident thatthey bracket the expected outcome.

Table 5.—Number of Individuals with New Dependent Coverage and Impact on Group Insurance Premiums, 2011–2013

Low Estimate Mid-range Estimate High Estimate

2011 2012 2013 2011 2012 2013 2011 2012 2013

Individuals withNew DependentCoverage(millions) 0.68 0.97 1.08 1.24 1.60 1.65 2.12 2.07 1.98

From Uninsured(millions) 0.19 0.29 0.33 0.65 0.94 0.91 1.64 1.42 1.21

IncrementalPremium CostPer IndividualCoverage $3,670 $3,800 $4,000 $3,380 $3,500 $3,690 $3,220 $3,340 $3,510

Impact onGroup InsurancePremiums (%) 0.5 0.7 0.7 0.7 1.0 1.0 1.2 1.2 1.1

These take-up rate assumptions are thenapplied to the number of potentially af-fected individuals displayed in Table 3.The resulting number of individuals withnew dependent coverage is summarized inTable 5. Under the mid-range take-up rateassumption, the Departments estimate thatin 2011, 1.24 million young adults willnewly be covered by their parents’ ESIor non group market policies, of whom0.65 million were previously uninsured,and 0.6 million were previously coveredby non-group coverage. The number of in-dividuals newly covered by their parents’plans would be 0.7 and 2.12 million underthe high and low take-up rate assumptionsrespectively, with 0.2 and 1.64 million ofthese individuals being previously unin-sured. Relative to the individuals covered

under the high take-up rate assumption,higher proportions of the low- and mid-range assumption groups are accounted forby people who previously had non-groupcoverage (72 percent and 48 percent re-spectively in contrast to 23 percent for thehigh take-up rate group). This differenceis a result of the Departments’ assumptionfor the low- and mid-range take-up ratesthat people with non-group coverage willbe more likely than healthy people whowere uninsured to take advantage of thedependent coverage option.

Under the mid-range take-up rate as-sumptions, the estimated number of youngadults covered by their parents’ plans in2012 increases somewhat over the 2011 es-timate to 1.6 million in total, of whom ap-proximately 0.9 million would have been

uninsured. The increase in the estimatefor 2012 results from the assumption thatas children reach the age that would havecaused them to be excluded from theirparents’ policy before the implementationof these interim final regulations, a largefraction of them now will remain on theirparents’ policy. Similarly, the estimatednumber of young adults enrolling in theirparents’ non-group policy increases fromjust under 75,000 in 2011 to approximately100,000 in 2012, and 120,000 in 2013.

4. Benefits

The benefits of these interim final regu-lations are expected to outweigh the coststo the regulated community. In the mid-range take-up rate assumption, the Depart-ments estimate that in 2011, 0.65 million

June 1, 2010 707 2010–22 I.R.B.

previously uninsured individuals will nowbe covered on their parents policies dueto these interim final regulations and 1.24million individuals total will now be cov-ered on their parent’s coverage. Expand-ing coverage options for the 19–25 pop-ulation should decrease the number unin-sured, which in turn should decrease thecost-shifting of uncompensated care ontothose with coverage, increase the receiptof preventive health care and provide moretimely access to high quality care, result-ing in a healthier population. In partic-ular, children with chronic conditions orother serious health issues will be able tocontinue coverage through a parent’s planuntil age 26. Allowing extended depen-dent coverage also will permit greater jobmobility for this population as their healthcoverage will no longer be tied to their ownjobs or student status.

5. Costs and Transfers Associated withthe Rule

Estimates for the incremental annualpremium costs for the newly coveredindividuals are developed based on ex-penditure data from MEPS and vary basedon the take-up rate assumptions. Theseincremental costs are lowest for the hightake-up rate assumption since the newlycovered group would contain a relativelyhigh percentage of individuals whosehealth status was good to excellent. Con-versely, the low take-up rate assumptionresults in the highest incremental costsbecause a higher percentage of the newlycovered individuals would be those whosehealth status was fair to poor. For those en-rolling in their parents’ ESI, the expectedannual premium cost under the mid-rangetake-up rate assumption would be $3,380in 2011, $3,500 in 2012 and $3,690 in2013. If these costs were distributedamong all family ESI plans, family pre-miums would be expected to rise by 0.7percent in 2011, 1.0 percent in 2012, and1.0 percent in 2013 due to these interimfinal regulations.18 The comparable incre-mental costs and premium effects for thelow and high take-up rate assumptions aresummarized in Table 5. To the extent thatthese increases are passed on to workersin the form of higher premiums for allworkers purchasing family policies or in

the form of lower wages for all workers,there will be a transfer from workers whodo not have newly covered dependentsto those who do. To the extent that thesehigher premiums result in lower profits orhigher prices for the employer’s product,the higher premiums will result in a trans-fer either from stockholders or consumers.

In addition, to the extent that these in-terim final regulations result in a decreasein the number of uninsured, the Depart-ments expect a reduction in uncompen-sated care, and a reduction in liability forthose who fund uncompensated care, in-cluding public programs (primarily Med-icaid and State and local general revenuesupport for public hospitals), as well as theportion of uncompensated care that is paidfor by the cost shift from private premiumpayers. Such effects would lead to lowerpremiums for the insured population, bothwith or without newly covered children.

For the small number of children(75,000 in 2011) enrolling in their par-ents’ non-group insurance policy underthe mid-range take-up assumption, theDepartments expect estimated annual pre-mium cost to be $2,360 in 2011, $2,400in 2012 and $2,480 in 2013. To a largeextent, premiums in the non-group mar-ket are individually underwritten, and theDepartments expect that most of the pre-mium cost will be borne by the parentswho are purchasing the policy to whichtheir child is added. If, instead, these costswere distributed over the entire individualmarket (as would be the case in a purecommunity-rated market), then individualpremiums would be expected to rise 0.7percent in 2011, 1.0 percent in 2012, and1.2 percent in 2013 due to these interimfinal regulations. However, the Depart-ments expect the actual increase acrossthe entire individual market, if any, willbe much smaller than these estimates, be-cause they expect that the costs largelywill be borne by the subscribers who aredirectly affected rather than distributedacross the entire individual market.

6. Enrollment Opportunity

These interim final regulations providean enrollment opportunity for childrenexcluded from coverage because of agebefore the effective date of the rule. The

Departments estimate that this informa-tion collection request will result in ap-proximately 105,000,000 notices beingdistributed with an hour burden of approx-imately 1,100,000 hours and cost burdenof approximately $2,010,500. For a dis-cussion of this enrollment opportunity, seethe Paperwork Reduction Act section laterin this preamble.

7. Regulatory Alternatives

Section 6(a)(3)(C)(iii) of Executive Or-der 12866 requires an economically sig-nificant regulation to include an assess-ment of the costs and benefits of poten-tially effective and reasonable alternativesto the planned regulation, and an expla-nation of why the planned regulatory ac-tion is preferable to the potential alterna-tives. The Departments carefully consid-ered limiting the flexibility of plans andpolicies to define who is a child. How-ever, the Departments concluded, as theyhave in other regulatory contexts, that plansponsors and issuers should be free to de-termine whether to cover children or whichchildren should be covered by their plansand policies (although they must complywith other applicable Federal or State lawmandating coverage, such as ERISA sec-tion 609). Therefore, these interim fi-nal regulations have not limited a plan’sor policy’s flexibility to define who is achild for purposes of the determination ofchildren to whom coverage must be madeavailable.

C. Regulatory FlexibilityAct—Department of Labor andDepartment of Health and HumanServices

The Regulatory Flexibility Act(5 U.S.C. 601 et seq.) (RFA) imposescertain requirements with respect toFederal rules that are subject to the noticeand comment requirements of section553(b) of the APA (5 U.S.C. 551 et seq.)and that are likely to have a significanteconomic impact on a substantial numberof small entities. Under Section 553(b)of the APA, a general notice of proposedrulemaking is not required when anagency, for good cause, finds thatnotice and public comment thereon are

18 For purposes of this regulatory impact analysis, the Departments assume that there would be no effect on premiums for employee-only policies.

2010–22 I.R.B. 708 June 1, 2010

impracticable, unnecessary, or contraryto the public interest. These interim finalregulations are exempt from APA, becausethe Departments made a good causefinding that a general notice of proposedrulemaking is not necessary earlier in thispreamble. Therefore, the RFA does notapply and the Departments are not requiredto either certify that the regulations wouldnot have a significant economic impact ona substantial number of small entities orconduct a regulatory flexibility analysis.

Nevertheless, the Departments care-fully considered the likely impact of theregulations on small entities in connectionwith their assessment under ExecutiveOrder 12866. Consistent with the policyof the RFA, the Departments encouragethe public to submit comments that sug-gest alternative rules that accomplish thestated purpose of PHS Act section 2714and minimize the impact on small entities.

D. Special Analyses-Department of theTreasury

Notwithstanding the determinations ofthe Department of Labor and Departmentof Health and Human Services, for pur-poses of the Department of the Treasury, ithas been determined that this Treasury de-cision is not a significant regulatory actionfor purposes of Executive Order 12866.Therefore, a regulatory assessment is notrequired. It has also been determined thatsection 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 theRFA, refer to the Special Analyses sectionin the preamble to the cross-referencingnotice of proposed rulemaking publishedelsewhere in this issue of the Bulletin. Pur-suant to section 7805(f) of the Code, thesetemporary regulations have been submit-ted to the Chief Counsel for Advocacyof the Small Business Administration forcomment on their impact on small busi-nesses.

E. Paperwork Reduction Act

1. Department of Labor and Departmentof Treasury: Affordable Care Act

Enrollment Opportunity Notice Relatingto Extended Dependent Coverage

As part of their continuing efforts toreduce paperwork and respondent burden,the Departments conduct a preclearanceconsultation program to provide the gen-eral public and federal agencies with anopportunity to comment on proposedand continuing collections of informationin accordance with the Paperwork Re-duction Act of 1995 (PRA) (44 U.S.C.3506(c)(2)(A)). This helps to ensure thatrequested data can be provided in the de-sired format, reporting burden (time andfinancial resources) is minimized, collec-tion instruments are clearly understood,and the impact of collection requirementson respondents can be properly assessed.

As discussed earlier in this preamble,prior to the applicability date of PHS Actsection 2714, a child who was covered un-der a group health plan (or group healthinsurance coverage) may have lost eligi-bility for coverage under the plan due toage before age 26. Moreover, if a childwas under age 26 when a parent first be-came eligible for coverage, but older thanthe age at which the plan stopped coveringchildren, the child would not have becomeeligible for coverage. When the provisionsof PHS Act section 2714 become applica-ble to the plan (or coverage), the plan orcoverage can no longer exclude coveragefor the individual until age 26.

Accordingly, these interim final regu-lations require plans to provide a noticeof an enrollment opportunity to individu-als whose coverage ended, or who weredenied coverage (or was not eligible forcoverage) under a group health plan orhealth insurance coverage because, underthe terms of the plan or coverage, the avail-ability of dependent coverage of childrenended before the attainment of age 26. Theenrollment opportunity must continue forat least 30 days, regardless of whether theplan or coverage offers an open enrollmentperiod and regardless of when any openenrollment period might otherwise occur.This enrollment opportunity must be pre-sented not later than the first day of the firstplan year (in the individual market, pol-icy year) beginning on or after September23, 2010 (which is the applicability date

of PHS Act section 2714). Coverage mustbegin not later than the first day of the firstplan year (in the individual market, policyyear) beginning on or after September 23,2010.19

The Affordable Care Act dependentcoverage enrollment opportunity notice isan information collection request (ICR)subject to the PRA. Currently, the De-partments are soliciting public commentsfor 60 days concerning these disclosures.The Departments have submitted a copyof these interim final regulations to OMBin accordance with 44 U.S.C. 3507(d) forreview of the information collections. TheDepartments and OMB are particularlyinterested in comments that:

• Evaluate whether the collection of in-formation is necessary for the properperformance of the functions of theagency, including whether the infor-mation will have practical utility;

• Evaluate the accuracy of the agency’sestimate of the burden of the collectionof information, including the validityof the methodology and assumptionsused;

• Enhance the quality, utility, and clarityof the information to be collected; and

• Minimize the burden of the collectionof information on those who are to re-spond, including through the use ofappropriate automated, electronic, me-chanical, or other technological collec-tion techniques or other forms of in-formation technology, for example, bypermitting electronic submission of re-sponses.

Comments should be sent to the Officeof Information and Regulatory Affairs,Attention: Desk Officer for the EmployeeBenefits Security Administration eitherby fax to (202) 395–7285 or by email tooira_submission@omb.eop.gov. A copyof the ICR may be obtained by contact-ing the PRA addressee: G. ChristopherCosby, Office of Policy and Research,U.S. Department of Labor, EmployeeBenefits Security Administration, 200Constitution Avenue, NW, Room N–5718,Washington, DC 20210. Telephone:(202) 693–8410; Fax: (202) 219–4745.These are not toll-free numbers. E-mail:

19 Any individual enrolling in coverage pursuant to this enrollment right must be treated as a special enrollee, as provided under HIPAA portability rules. Accordingly, the individual must beoffered all the benefit packages available to similarly situated individuals who did not lose coverage by reason of cessation of dependent status. The individual also cannot be required to paymore for coverage than similarly situated individuals who did not lose coverage by reason of cessation of dependent status.

June 1, 2010 709 2010–22 I.R.B.

ebsa.opr@dol.gov. ICRs submitted toOMB also are available at reginfo.gov(http://www.reginfo.gov/public/do/PRA-Main).

The Departments assume that2,800,000 ERISA covered plans willsend the enrollment opportunity noticeto all 79,573,000 employees eligible forgroup health insurance coverage. TheDepartments estimate that preparing theenrollment notice will require 30 minutesof legal professional time at a labor rate of$119 per hour20 and one minute of clericaltime at $26 per hour per paper notice todistribute the notices.21 This results in anhour burden of nearly 822,000 hours andan associated equivalent cost of nearly$21,513,000.

The Departments estimate that the costburden associated with distributing theapproximately 79,573,000 notices willbe approximately $2,467,000 based onone minute of clerical time, and $.05 perpage for material and printing costs. TheDepartments assumed that 38 percent ofthe notices would be sent electronically.22

In addition, plans can send these noticeswith other plan documents, such as openenrollment materials. Therefore, the De-partments have not included postage costsin this estimate. The Departments notethat persons are not required to respondto, and generally are not subject to anypenalty for failing to comply with, an ICRunless the ICR has a valid OMB controlnumber.23

These paperwork burden estimates aresummarized as follows:

Type of Review: New collection.Agencies: Employee Benefits Security

Administration, Department of Labor; In-ternal Revenue Service, U.S. Departmentof the Treasury.

Title: Affordable Care Act EnrollmentOpportunity Notice Relating to ExtendedDependent Coverage.

OMB Number: 1210–0139;1545–2172.

Affected Public: Business or other for-profit; not-for-profit institutions.

Total Respondents:2,800,000.Total Responses:79,573,000.Frequency of Response: One-time.Estimated Total Annual Burden Hours:

411,000 hours (Employee Benefits Secu-rity Administration); 411,000 hours (Inter-nal Revenue Service).

Estimated Total Annual Burden Cost:$1,233,500 (Employee Benefits Secu-rity Administration); $1,233,500 (InternalRevenue Service).

2. Department of Health and HumanServices: Affordable Care Act EnrollmentOpportunity Notice Relating to ExtendedDependent Coverage

We are soliciting public comment onthe following sections of this documentthat contain information collection re-quirements (ICR) regarding the AffordableCare Act — ICR Relating to EnrollmentOpportunity Notice — Dependent Cover-age. As discussed earlier in this preamble,the Affordable Care Act and these interimfinal regulations require issuers in the in-dividual market and group health planssponsored by State and local governmentsto notify participants regarding an enroll-ment opportunity related to the extensionof dependent coverage. Prior to the ap-plicability date of PHS Act section 2714,a child who was covered under a grouphealth plan (or group health insurancecoverage) as a dependent may have losteligibility for coverage under the plan dueto age before age 26. Moreover, if, when aparent first became eligible for coverage,

a child was under age 26 but older thanthe age at which the plan stopped coveringchildren, the child would not have becomeeligible for coverage. When the provi-sions of PHS Act section 2714 becomeapplicable to the plan (or coverage), theplan or coverage can no longer excludecoverage for the individual until age 26.

Accordingly, these interim final regula-tions require issuers in the individual insur-ance market and group health plans spon-sored by State and local governments toprovide a notice of an enrollment opportu-nity to individuals whose coverage ended,or who was denied coverage (or was noteligible for coverage) under a group healthplan or group health insurance coveragebecause, under the terms of the plan or cov-erage, the availability of dependent cov-erage of children ended before the attain-ment of age 26. The enrollment opportu-nity must continue for at least 30 days, re-gardless of whether the plan or coverageoffers an open enrollment period and re-gardless of when any open enrollment pe-riod might otherwise occur. This enroll-ment opportunity must be presented notlater than the first day of the first plan year(in the individual market, policy year) be-ginning on or after September 23, 2010(which is the applicability date of PHS Actsection 2714). Coverage must begin notlater than the first day of the first plan year(in the individual market, policy year) be-ginning on or after September 23, 2010.24

The Department estimates that 126,000State and local governmental plans wouldhave to send 19,627,000 notices to eligibleemployees and 490 insurers in the indi-vidual market would have to send approx-imately 5,444,000 notices to individualswith policies covering dependents.25 Forpurposes of this estimate, the Departmentassumes that it will take a legal profes-

20 Hourly wage estimates are based on data from the Bureau of Labor Statistics Occupational Employment Survey (May 2008) and the Bureau of Labor Statistics Employment Cost Index (June2009). All hourly wage rates include wages and benefits. Clerical wage and benefits estimates are based on metropolitan wage rates for executive secretaries and administrative assistants.Legal professional wage and benefits estimates are based on metropolitan wage rates for lawyers.

21 While plans could prepare their own notice, the Departments assume that the notices will be prepared by service providers. The Departments have previously estimated that there are630 health insurers (460 providing coverage in the group market, and 490 providing coverage in the individual market.). These estimates are from NAIC 2007 financial statements dataand the California Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx. Because the hour and cost burden is shared between the Departments ofLabor/Treasury and the Department of Health and Human Services, the burden to prepare the notices is calculated using half the number of insurers (315).

22 For purposes of this burden estimate, the Departments assume that 38 percent of the disclosures will be provided through electronic means in accordance with the Department of Labor’sstandards for electronic communication of required information provided under 29 CFR 2520.104b–1(c).

23 5 CFR 1320.1 through 1320.18.

24 Any individual enrolling in coverage pursuant to this enrollment right must be treated as a special enrollee, as provided under HIPAA portability rules. Accordingly, the individual must beoffered all the benefit packages available to similarly situated individuals who did not lose coverage by reason of cessation of dependent status. The individual also cannot be required to paymore for coverage than similarly situated individuals who did not lose coverage by reason of cessation of dependent status.

25 The number of individual insurance notices was based on the number of individual policy holders with dependents on that policy according to the 2009 March Current Population Survey(CPS).

2010–22 I.R.B. 710 June 1, 2010

sional, on average, 30 minutes to preparethe notice at a labor rate of $119 per hour26,and one minute, on average, of a clericalprofessional’s time at $26 per hour to copyand mail the notice.27 While plans couldprepare their own notice, the Departmentassumes that the notices will be preparedby service providers. The Department haspreviously estimated that there are 630health insurers28 (460 providing coveragein the group market, and 490 providingcoverage in the individual market.). Be-cause the hour and cost burden is sharedamong the Departments of Labor/Treasuryand the Department of Health and HumanServices, the burden to prepare the noticesis calculated using half the number ofinsurers (315). The Department assumesthat 38 percent of the notices would be sentelectronically.29 Notices that are sent elec-tronically do not require any of the clericalworker’s time to mail the notice. Thisresults in an hour burden of approximately259,000 hours and an associated equiva-lent cost of about $6,791,000 to prepareand distribute 25,071,000 notices. TheDepartment estimates that the cost burdenassociated with distributing the noticeswill be approximately $777,000.30 TheDepartment assumes that 38 percent ofthe notices would be sent electronically.31

In addition, plans and issuers can sendthese notices with other plan documents(for example, during open enrollment forthe government plans, or other commu-nication at reenrollment in the individualmarket). Therefore, the Department didnot include postage costs in this estimate.The Department notes that persons are notrequired to respond to, and generally arenot subject to any penalty for failing tocomply with, an ICR unless the ICR has avalid OMB control number.32

These paperwork burden estimates aresummarized as follows:

Type of Review: New collection.Agency: Department of Health and Hu-

man Services.

Title: Notice of Special Enrollment Op-portunity under the Affordable Care ActRelating to Dependent Coverage.

OMB Number: 0938–1089.Affected Public: Business; State, Local,

or Tribal Governments.Respondents: 126,000.Responses: 25,071,000.Frequency of Response: One-time.Estimated Total Annual Burden Hours:

259,000 hours.Estimated Total Annual Burden Cost:

$777,000.If you comment on this information col-

lection and recordkeeping 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 Officeof Information and Regulatory Affairs, Of-fice of Management and Budget,

Attention: CMS Desk Officer,4140–IFC

Fax: (202) 395–6974; orEmail: OIRA_submis-

sion@omb.eop.gov

F. Congressional Review Act

These interim final regulations aresubject to the Congressional Review Actprovisions of the Small Business Regula-tory Enforcement Fairness Act of 1996 (5U.S.C. 801 et seq.) and have been trans-mitted to Congress and the ComptrollerGeneral for review.

G. Unfunded Mandates Reform Act

The Unfunded Mandates Reform Act of1995 (Public Law 104–4) requires agen-cies to prepare several analytic statementsbefore proposing any rules that may re-sult in annual expenditures of $100 mil-lion (as adjusted for inflation) by State, lo-cal and tribal governments or the privatesector. These interim final regulations arenot subject to the Unfunded Mandates Re-form Act, because they are being issuedas an interim final regulation. However,

consistent with the policy embodied in theUnfunded Mandates Reform Act, these in-terim final regulations have been designedto be the least burdensome alternative forState, local and tribal governments, and theprivate sector, while achieving the objec-tives of the Affordable Care Act.

H. Federalism Statement—Departmentof Labor and Department of Health andHuman Services

Executive Order 13132 outlines fun-damental principles of federalism, andrequires the adherence to specific criteriaby Federal agencies in the process of theirformulation and implementation of poli-cies that have ’’substantial direct effects’’on the States, the relationship between thenational government and States, or on thedistribution of power and responsibilitiesamong the various levels of government.Federal agencies promulgating regulationsthat have these federalism implicationsmust consult with State and local officials,and describe the extent of their consulta-tion and the nature of the concerns of Stateand local officials in the preamble to theregulation.

In the Departments’ view, these interimfinal regulations have federalism impli-cations, because they have direct effectson the States, the relationship betweenthe national government and States, or onthe distribution of power and responsibili-ties among various levels of government.However, in the Departments’ view, thefederalism implications of these interim fi-nal regulations are substantially mitigatedbecause, with respect to health insuranceissuers, the Departments expect that themajority of States will enact laws or takeother appropriate action resulting in theirmeeting or exceeding the Federal stan-dard.

In general, through section 514, ERISAsupersedes State laws to the extent thatthey relate to any covered employee ben-efit plan, and preserves State laws thatregulate insurance, banking, or securities.While ERISA prohibits States from regu-

26 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 EmploymentCost Index June 2009, Bureau of Labor Statistics).

27 These estimates are from NAIC 2007 financial statements data and the California Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx.

28 For purposes of this burden estimate, the Department assumes that 38 percent of the disclosures will be provided through electronic means.

29 This estimate is based on an average document size of one page and $.05 cents per page for material and printing costs.

30 For purposes of this burden estimate, the Department assumes that 38 percent of the disclosures will be provided through electronic means.

31 5 CFR 1320.1 through 1320.18.

June 1, 2010 711 2010–22 I.R.B.

lating a plan as an insurance or investmentcompany or bank, the preemption pro-visions of ERISA section 731 and PHSAct section 2724 (implemented in 29CFR 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 anyprovision of State law which establishes,implements, or continues in effect anystandard or requirement solely relatingto health insurance issuers in connectionwith group health insurance coverage ex-cept to the extent that such standard orrequirement prevents the application of arequirement’’ of a federal standard. Theconference report accompanying HIPAAindicates that this is intended to be the’’narrowest’’ preemption of State laws.(See House Conf. Rep. No. 104–736, at205, reprinted in 1996 U.S. Code Cong. &Admin. News 2018.) States may continueto apply State law requirements except tothe extent that such requirements preventthe application of the Affordable CareAct requirements that are the subject ofthis rulemaking. State insurance lawsthat are more stringent than the Federalrequirements are unlikely to ’’prevent theapplication of’’ the Affordable Care Act,and be preempted. Accordingly, Stateshave significant latitude to impose require-ments on health insurance issuers that aremore restrictive than the Federal law.

In compliance with the requirement ofExecutive Order 13132 that agencies ex-amine closely any policies that may havefederalism implications or limit the policy

making discretion of the States, the De-partments have engaged in efforts to con-sult with and work cooperatively with af-fected State and local officials, includingattending conferences of the National As-sociation of Insurance Commissioners andconsulting with State insurance officials onan individual basis. It is expected that theDepartments will act in a similar fashion inenforcing the Affordable Care Act require-ments. Throughout the process of devel-oping these interim final regulations, to theextent feasible within the specific preemp-tion provisions of HIPAA as it applies tothe Affordable Care Act, the Departmentshave attempted to balance the States’ in-terests in regulating health insurance is-suers, and Congress’ intent to provide uni-form minimum protections to consumersin every State. By doing so, it is the De-partments’ view that they have compliedwith the requirements of Executive Order13132.

Pursuant to the requirements set forthin section 8(a) of Executive Order 13132,and by the signatures affixed to these reg-ulations, the Departments certify that theEmployee Benefits Security Administra-tion and the Office of Consumer Informa-tion and Insurance Oversight have com-plied with the requirements of ExecutiveOrder 13132 for the attached regulation ina meaningful and timely manner.

V. Statutory Authority

The Department of the Treasury tem-porary regulations are adopted pursuant to

the authority contained in sections 7805and 9833 of the Code.

The Department of Labor interim finalregulations are adopted pursuant to theauthority 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, 124Stat. 1029; Secretary of Labor’s Order6–2009, 74 FR 21524 (May 7, 2009).

The Department of Health and Hu-man Services interim final regulations areadopted pursuant to the authority con-tained in sections 2701 through 2763,2791, and 2792 of the PHS Act (42 USC300gg through 300gg–63, 300gg–91, and300gg–92), as amended.

* * * * *Health care, Health insurance, Report-

ing and recordkeeping requirements, andState regulation of health insurance.

Steven T. Miller,Deputy Commissioner for

Services and Enforcement,Internal Revenue Service.

Approved May 7, 2010.

Michael F. Mundaca,Acting Secretary

of the Treasury (Tax Policy).

Signed this 6th day of May, 2010.

Phyllis C. BorziAssistant SecretaryEmployee Benefits Security AdministrationDepartment of Labor

Approved: May 4, 2010

Jay Angoff,Director,Office of Consumer Information and Insurance Oversight.

Approved: May 7, 2010

Kathleen Sebelius,Secretary.

2010–22 I.R.B. 712 June 1, 2010

Internal Revenue Service

26 CFR Chapter 1

Accordingly, 26 CFR Parts 54 and 602are amended as follows:

PART 54—PENSION EXCISE TAXES

Paragraph 1. The authority citation forpart 54 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *Par. 2. Section 54.9815–2714T is

added to read as follows:

§54.9815–2714T Eligibility of childrenuntil at least age 26 (temporary).

(a) In general—(1) A group healthplan, or a health insurance issuer offer-ing group health insurance coverage, thatmakes available dependent coverage ofchildren must make such coverage avail-able for children until attainment of 26years of age.

(2) The rule of this paragraph (a) is il-lustrated by the following example:

Example. (i) Facts. For the plan yearbeginning January 1, 2011, a group healthplan provides health coverage for employ-ees, employees’ spouses, and employees’children until the child turns 26. On thebirthday of a child of an employee, July 17,2011, the child turns 26. The last day theplan covers the child is July 16, 2011.

(ii) Conclusion. In this Example, theplan satisfies the requirement of this para-graph (a) with respect to the child.

(b) Restrictions on plan definition of de-pendent. With respect to a child who hasnot attained age 26, a plan or issuer maynot define dependent for purposes of eligi-bility for dependent coverage of childrenother than in terms of a relationship be-tween a child and the participant. Thus, forexample, a plan or issuer may not deny orrestrict coverage for a child who has not at-tained age 26 based on the presence or ab-sence of the child’s financial dependency(upon the participant or any other person),residency with the participant or with anyother person, student status, employment,or any combination of those factors. In ad-dition, a plan or issuer may not deny or re-strict coverage of a child based on eligi-bility for other coverage, except that para-graph (g) of this section provides a specialrule for plan years beginning before Jan-uary 1, 2014 for grandfathered health plans

that are group health plans. (Other require-ments of Federal or State law, includingsection 609 of ERISA or section 1908 ofthe Social Security Act, may mandate cov-erage of certain children.)

(c) Coverage of grandchildren not re-quired. Nothing in this section requires aplan or issuer to make coverage availablefor the child of a child receiving dependentcoverage.

(d) Uniformity irrespective of age. Theterms of the plan or health insurance cover-age providing dependent coverage of chil-dren cannot vary based on age (except forchildren who are age 26 or older).

(e) Examples. The rules of paragraph(d) of this section are illustrated by thefollowing examples:

Example 1. (i) Facts. A group health plan offers achoice of self-only or family health coverage. Depen-dent coverage is provided under family health cover-age for children of participants who have not attainedage 26. The plan imposes an additional premium sur-charge for children who are older than age 18.

(ii) Conclusion. In this Example 1, the plan vio-lates the requirement of paragraph (d) of this sectionbecause the plan varies the terms for dependent cov-erage of children based on age.

Example 2. (i) Facts. A group health plan offers achoice among the following tiers of health coverage:self-only, self-plus-one, self-plus-two, and self-plus-three-or-more. The cost of coverage increases basedon the number of covered individuals. The plan pro-vides dependent coverage of children who have notattained age 26.

(ii) Conclusion. In this Example 2, the plan doesnot violate the requirement of paragraph (d) of thissection that the terms of dependent coverage for chil-dren not vary based on age. Although the cost of cov-erage increases for tiers with more covered individu-als, the increase applies without regard to the age ofany child.

Example 3. (i) Facts. A group health plan offerstwo benefit packages — an HMO option and an in-demnity option. Dependent coverage is provided forchildren of participants who have not attained age 26.The plan limits children who are older than age 18 tothe HMO option.

(ii) Conclusion. In this Example 3, the plan vio-lates the requirement of paragraph (d) of this sectionbecause the plan, by limiting children who are olderthan age 18 to the HMO option, varies the terms fordependent coverage of children based on age.

(f) Transitional rules for individualswhose coverage ended by reason of reach-ing a dependent eligibility threshold—(1)In general. The relief provided in the tran-sitional rules of this paragraph (f) applieswith respect to any child—

(i) Whose coverage ended, or who wasdenied coverage (or was not eligible forcoverage) under a group health plan orgroup health insurance coverage because,

under the terms of the plan or coverage, theavailability of dependent coverage of chil-dren ended before the attainment of age 26(which, under this section, is no longer per-missible); and

(ii) Who becomes eligible (or is re-quired to become eligible) for coverageunder a group health plan or group healthinsurance coverage on the first day ofthe first plan year beginning on or afterSeptember 23, 2010 by reason of the ap-plication of this section.

(2) Opportunity to enroll required. (i) Ifa group health plan, or group health insur-ance coverage, in which a child describedin paragraph (f)(1) of this section is eli-gible to enroll (or is required to becomeeligible to enroll) is the plan or coveragein which the child’s coverage ended (ordid not begin) for the reasons described inparagraph (f)(1)(i) of this section, and ifthe plan, or the issuer of such coverage,is subject to the requirements of this sec-tion, the plan and the issuer are requiredto give the child an opportunity to enrollthat continues for at least 30 days (includ-ing written notice of the opportunity to en-roll). This opportunity (including the writ-ten notice) must be provided beginning notlater than the first day of the first plan yearbeginning on or after September 23, 2010.

(ii) The written notice must include astatement that children whose coverageended, or who were denied coverage (orwere not eligible for coverage), becausethe availability of dependent coverage ofchildren ended before attainment of age26 are eligible to enroll in the plan orcoverage. The notice may be provided toan employee on behalf of the employee’schild. In addition, the notice may be in-cluded with other enrollment materials thata plan distributes to employees, providedthe statement is prominent. If a noticesatisfying the requirements of this para-graph (f)(2) is provided to an employeewhose child is entitled to an enrollmentopportunity under this paragraph (f), theobligation to provide the notice of enroll-ment opportunity under this paragraph(f)(2) with respect to that child is satisfiedfor both the plan and the issuer.

(3) Effective date of coverage. In thecase of an individual who enrolls underparagraph (f)(2) of this section, coveragemust take effect not later than the first dayof the first plan year beginning on or afterSeptember 23, 2010.

June 1, 2010 713 2010–22 I.R.B.

(4) Treatment of enrollees in a grouphealth plan. Any child enrolling in a grouphealth plan pursuant to paragraph (f)(2) ofthis section must be treated as if the childwere a special enrollee, as provided un-der the rules of §54.9801–6(d). Accord-ingly, the child (and, if the child would notbe a participant once enrolled in the plan,the participant through whom the child isotherwise eligible for coverage under theplan) must be offered all the benefit pack-ages available to similarly situated indi-viduals who did not lose coverage by rea-son of cessation of dependent status. Forthis purpose, any difference in benefitsor cost-sharing requirements constitutes adifferent benefit package. The child alsocannot be required to pay more for cover-age than similarly situated individuals whodid not lose coverage by reason of cessa-tion of dependent status.

(5) Examples. The rules of this para-graph (f) are illustrated by the followingexamples:

Example 1. (i) Facts. Employer Y maintains agroup health plan with a calendar year plan year. Theplan has a single benefit package. For the 2010 planyear, the plan allows children of employees to be cov-ered under the plan until age 19, or until age 23 forchildren who are full-time students. Individual B,an employee of Y, and Individual C, B’s child and afull-time student, were enrolled in Y’s group healthplan at the beginning of the 2010 plan year. On June10, 2010, C turns 23 years old and loses dependentcoverage under Y’s plan. On or before January 1,2011, Y’s group health plan gives B written noticethat individuals who lost coverage by reason of ceas-ing to be a dependent before attainment of age 26 areeligible to enroll in the plan, and that individuals mayrequest enrollment for such children through Febru-ary 14, 2011 with enrollment effective retroactivelyto January 1, 2011.

(ii) Conclusion. In this Example 1, the plan hascomplied with the requirements of this paragraph (f)by providing an enrollment opportunity to C that lastsat least 30 days.

Example 2. (i) Facts. Employer Z maintains agroup health plan with a plan year beginning October1 and ending September 30. Prior to October 1, 2010,the group health plan allows children of employees tobe covered under the plan until age 22. Individual D,an employee of Z, and Individual E, D’s child, areenrolled in family coverage under Z’s group healthplan for the plan year beginning on October 1, 2008.On May 1, 2009, E turns 22 years old and ceases tobe eligible as a dependent under Z’s plan and losescoverage. D drops coverage but remains an employeeof Z.

(ii) Conclusion. In this Example 2, not later thanOctober 1, 2010, the plan must provide D and E anopportunity to enroll (including written notice of anopportunity to enroll) that continues for at least 30days, with enrollment effective not later than October1, 2010.

Example 3. (i) Facts. Same facts as Example2, except that D did not drop coverage. Instead, Dswitched to a lower-cost benefit package option.

(ii) Conclusion. In this Example 3, not later thanOctober 1, 2010, the plan must provide D and E anopportunity to enroll in any benefit package availableto similarly situated individuals who enroll when firsteligible.

Example 4. (i) Facts. Same facts as Example 2,except that E elected COBRA continuation coverage.

(ii) Conclusion. In this Example 4, not later thanOctober 1, 2010, the plan must provide D and E an op-portunity to enroll other than as a COBRA qualifiedbeneficiary (and must provide, by that date, writtennotice of the opportunity to enroll) that continues forat least 30 days, with enrollment effective not laterthan October 1, 2010.

Example 5. (i) Facts. Employer X maintainsa group health plan with a calendar year plan year.Prior to 2011, the plan allows children of employeesto be covered under the plan until the child attains age22. During the 2009 plan year, an individual with a22-year old child joins the plan; the child is deniedcoverage because the child is 22.

(ii) Conclusion. In this Example 5, notwithstand-ing that the child was not previously covered underthe plan, the plan must provide the child, not laterthan January 1, 2011, an opportunity to enroll (in-cluding written notice to the employee of an oppor-tunity to enroll the child) that continues for at least30 days, with enrollment effective not later than Jan-uary 1, 2011.

(g) Special rule for grandfatheredgroup health plans—(1) For plan yearsbeginning before January 1, 2014, a grouphealth plan that qualifies as a grandfa-thered health plan under section 1251 ofthe Patient Protection and Affordable CareAct and that makes available dependentcoverage of children may exclude an adultchild who has not attained age 26 fromcoverage only if the adult child is eligibleto enroll in an eligible employer-spon-sored health plan (as defined in section5000A(f)(2)) other than a group healthplan of a parent.

(2) For plan years beginning on or afterJanuary 1, 2014, a group health plan thatqualifies as a grandfathered health plan un-der section 1251 of the Patient Protectionand Affordable Care Act must comply withthe requirements of paragraphs (a) through(f) of this section.

(h) Applicability date. The provisionsof this section apply for plan years begin-ning on or after September 23, 2010.

(i) Expiration date. This section expireson or before May 13, 2013.

PART 602—OMB CONTROLNUMBERS UNDER THE PAPERWORKREDUCTION ACT

Par. 3. The authority citation for part602 continues to read as follows:

Authority: 26 U.S.C. 7805.Par. 4. In §602.101, paragraph (b) is

amended by adding the following entry innumerical order to the table:

§602.101 OMB Control numbers.

* * * * *(b) * * *

CFR part or section whereIdentified and described

Current OMBcontrol No.

* * * * *54.9815–2714T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–2172* * * * *

(Filed by the Office of the Federal Register on May 10, 2010,4:15 p.m., and published in the issue of the Federal Registerfor May 13, 2010, 75 F.R. 27121)

2010–22 I.R.B. 714 June 1, 2010

Part III. Administrative, Procedural, and MiscellaneousDefinition of ForeignPartnership — Sections7701(a) and 7805

Notice 2010–41

SECTION 1. OVERVIEW

The Treasury Department and InternalRevenue Service (IRS) intend to issue reg-ulations that will classify certain domes-tic partnerships as foreign for purposes ofidentifying the United States shareholders(as defined in § 951(b) of the Internal Rev-enue Code (Code)) of a controlled foreigncorporation (as defined in § 957(a)) thatare required to include in gross income theamounts specified under § 951(a) of suchcontrolled foreign corporation. The regu-lations to be issued pursuant to this noticeshall apply to taxable years of a domes-tic partnership ending on or after May 14,2010.

SECTION 2. TRANSACTION ATISSUE

On December 29, 2008, the Trea-sury Department and the IRS issuedNotice 2009–7, 2009–3 I.R.B. 312, iden-tifying the following transaction (andsubstantially similar transactions) as atransaction of interest for purposes of§ 1.6011–4(b)(6) and §§ 6111 and 6112of the Code. A United States taxpayer(Taxpayer) wholly owns two controlledforeign corporations (CFC1 and CFC2),each of which owns 50 percent of anothercontrolled foreign corporation (CFC3)through a domestic partnership. CFC3 hasamounts described in § 951(a)(1). Tax-payer takes the position that it does nothave an income inclusion under § 951(a)with respect to CFC3 because the domes-tic partnership is the first United Statesperson in the chain of ownership of CFC3.As stated in Notice 2009–7, the TreasuryDepartment and IRS believe that Tax-payer’s position is contrary to the purposeand intent of § 951 of the Code.

SECTION 3. BACKGROUND

Section 951(a) provides that if a foreigncorporation is a CFC for an uninterrupted

period of 30 days or more during any tax-able year, then each United States share-holder (as defined in § 951(b)) of suchcorporation that owns, within the mean-ing of § 958(a), stock in the corporationon the last day in such year on which itis a CFC must include in gross income itspro rata share of the corporation’s subpartF income (as defined in § 952) as wellas any amount determined under § 956with respect to such shareholder. See also§ 951(a)(1)(A)(ii) and (iii) for other re-quired inclusions.

Section 951(b) defines a United Statesshareholder, with respect to any foreigncorporation, as a United States person (asdefined in § 957(c)) that owns (within themeaning of § 958(a)) or is considered asowning under § 958(b), 10 percent or moreof the total combined voting power of allclasses of stock entitled to vote of the for-eign corporation.

With certain modifications, § 957(c) de-fines a United States person by referenceto § 7701(a)(30). Section 7701(a)(30)(B)defines a United States person to include adomestic partnership. Section 7701(a)(5)defines the term foreign when applied to acorporation or partnership as a corporationor partnership that is not domestic. Sec-tion 7701(a)(4) provides that the term do-mestic when applied to a corporation orpartnership means created or organized inthe United States or under the law of theUnited States or of any State unless, in thecase of a partnership, the Secretary pro-vides otherwise by regulations. However,§ 7701(a) provides that any general defini-tion included therein does not apply wheresuch definition is manifestly incompatiblewith the intent of the relevant Code provi-sion.

SECTION 4. REGULATIONSCONCERNING THE DEFINITION OFA FOREIGN PARTNERSHIP UNDERSECTION 7701

If the general definition of aUnited States person provided by§ 7701(a)(30)(B) (which incorporates thegeneral definition of a domestic partner-ship under § 7701(a)(4)) applies to thefacts described above in Section 2 (and inNotice 2009–7), the domestic partnershipis the United States shareholder required

to include in gross income the amountsdetermined under § 951(a) with respectto CFC3. However, the domestic partner-ship’s gross income inclusion may havelittle or no tax consequences, depending onthe treatment of each partner’s (CFC1 andCFC2) distributive share of such income.As stated in Notice 2009–7, the TreasuryDepartment and the IRS believe that theTaxpayer’s position in the transaction de-scribed therein is contrary to the purposeand intent of § 951. Therefore, consistentwith § 7701(a), the Treasury Departmentand the IRS have determined that the gen-eral definition of a domestic partnershipunder § 7701(a)(4), in the case of certainpartnerships owned wholly or partly byforeign corporations, is manifestly incom-patible with the intent of § 951.

SECTION 4.01. DOMESTICPARTNERSHIP TREATED ASFOREIGN FOR CERTAIN PURPOSES

The Treasury Department and the IRSintend to issue regulations that, undercertain circumstances, will classify anotherwise domestic partnership as for-eign solely for purposes of identifyingthe United States shareholders of a CFCrequired to include in gross income theamounts determined under § 951(a) withrespect to such CFC. Specifically, the reg-ulations to be issued shall treat a domesticpartnership as foreign for this purpose ifthe following conditions are satisfied:

1. The partnership is a United Statesshareholder of a foreign corporationthat is a CFC (within the meaning of§ 957(a) or 953(c)); and

2. If the partnership were treated as for-eign,a. That foreign corporation would

continue to be a CFC; andb. At least one United States share-

holder of the CFC,i. Would be treated under

§ 958(a) as indirectly own-ing stock of the CFC ownedby the partnership that is in-directly owned by a foreigncorporation; and

ii. Would be required to includean amount in gross income

June 1, 2010 715 2010–22 I.R.B.

under § 951(a) with respectto the CFC.

The regulations to be issued will pro-vide similar results in the case of tiered-partnership structures.

SECTION 4.02. SCOPE OFTREATMENT AS A FOREIGNPARTNERSHIP

The regulations to be issued shall clas-sify a domestic partnership described in§ 4.01 of this notice as foreign solely forpurposes of identifying the United Statesshareholders of a CFC required to includein gross income the amounts determinedunder § 951(a) with respect to such CFC.Therefore, a domestic partnership to whichthe regulations to be issued apply shallcontinue to be classified as domestic for allother purposes of the Code. For example,the regulations to be issued shall not oth-erwise affect the classification of the part-nership as domestic for purposes of deter-mining the source of income and expenses,the definition of “United States property”under § 956(c)(1)(C), and the applicationof § 1248(a). Similarly, the partnership re-mains a domestic partnership for purposesof determining its information reportingobligations, including the filing of a Form1065, U.S. Return of Partnership Income,and Form 5471, Information Return of U.S.Persons With Respect To Certain ForeignCorporations.

The following demonstrates the ap-plication of the regulations described inthis Notice to the facts described abovein Section 2. Under the regulations tobe issued, the domestic partnership de-scribed in Notice 2009–7 and in Section 2above would be treated as foreign becausethe partnership would be a United Statesshareholder of a foreign corporation thatis a CFC (CFC3) if the regulations to beissued did not apply; and if the domesticpartnership were treated as foreign, (1)CFC3 would continue to be a CFC, and (2)under § 958(a) Taxpayer (a United Statesshareholder of CFC3) would be treatedas indirectly owning the stock of CFC3owned by the partnership that is indirectlyowned by CFC1 and CFC2, and wouldbe required to include in gross income theamounts determined under § 951(a) withrespect to CFC3. The result would be thesame if the Taxpayer were a partner inthe partnership (in addition to CFC1 and

CFC2), or also owned directly stock ofCFC3.

SECTION 5. EFFECT ON OTHERDOCUMENTS

Notice 2009–7 shall continue to apply,as appropriate.

SECTION 6. EFFECTIVE DATE

The regulations to be issued as de-scribed in this notice shall apply to taxableyears of a domestic partnership ending onor after May 14, 2010. No inference isintended as to the treatment of a domesticpartnership for any taxable year endingbefore May 14, 2010. As stated in No-tice 2009–7, the IRS may challenge thepositions taken by taxpayers with respectto such transactions, including under theprovisions of subpart F and subchapter Kof the Code, or under judicial doctrinesincluding the sham transaction, substanceover form, and economic substance doc-trines.

SECTION 7. DRAFTINGINFORMATION

For further information regarding thisnotice, contact Susan E. Massey at (202)622–3840 (not a toll-free call).

Public Comment Invitedon Recommendations for2010–2011 Guidance PriorityList

Notice 2010–43

The Department of Treasury and Inter-nal Revenue Service invite public com-ment on recommendations for items thatshould be included on the 2010–2011Guidance Priority List.

The Treasury Department’s Office ofTax Policy and the Service use the Guid-ance Priority List each year to identifyand prioritize the tax issues that shouldbe addressed through regulations, revenuerulings, revenue procedures, notices, andother published administrative guidance.The 2010–2011 Guidance Priority List willestablish the guidance that the TreasuryDepartment and the Service intend to issuefrom July 1, 2010, through June 30, 2011.The Treasury Department and the Service

recognize the importance of public inputto formulate a Guidance Priority List thatfocuses resources on guidance items thatare most important to taxpayers and taxadministration. Published guidance playsan important role in increasing voluntarycompliance by helping to clarify ambigu-ous areas of the tax law.

As is the case whenever significant leg-islation is enacted, the Treasury Depart-ment and the Service have continued todedicate substantial resources during thecurrent plan year to published guidanceprojects necessary to implement the pro-visions of the multitude of Tax Acts thathave been enacted over the past severalyears including, but not limited to, the Pen-sion Protection Act of 2006, Pub. L. No.109–280, 120 Stat. 780, which was en-acted on August 17, 2006; the EmergencyEconomic Stabilization Act of 2008, En-ergy Improvement and Extension Act of2008, and Tax Extenders and AlternativeMinimum Tax Relief Act of 2008, Pub. L.No. 110–343, 122 Stat. 3765, which wereenacted on October 3, 2008; the Ameri-can Recovery and Reinvestment Tax Actof 2009, Pub. L. No. 111–5, 123 Stat.115, which was enacted on February 17,2009; the Hiring Incentives to Restore Em-ployment Act, Pub. L. No. 111–147, 124Stat. 71, which was enacted on March 18,2010; the Patient Protection and Afford-able Care Act, Pub. L. No. 111–148, 124Stat. 119, which was enacted on March 23,2010; and the Health Care and EducationReconciliation Act, Pub. L. 111–152, 124Stat. 1029, which was enacted on March30, 2010. The Treasury Department andthe Service will continue to evaluate thepriority of each guidance project in lightof the above-mentioned tax legislation andother developments occurring during the2010–2011 plan year.

In reviewing recommendations andselecting projects for inclusion on the2010–2011 Guidance Priority List, theTreasury Department and the Service willconsider the following:

1. Whether the recommended guid-ance resolves significant issues relevant tomany taxpayers;

2. Whether the recommended guidancepromotes sound tax administration;

3. Whether the recommended guidancecan be drafted in a manner that will enabletaxpayers to easily understand and applythe guidance;

2010–22 I.R.B. 716 June 1, 2010

4. Whether the Service can administerthe recommended guidance on a uniformbasis; and

5. Whether the recommended guidancereduces controversy and lessens the bur-den on taxpayers or the Service.

Taxpayers may submit recommenda-tions for guidance at any time during theyear. Please submit recommendations byJune 11, 2010, for possible inclusion onthe original 2010–2011 Guidance PriorityList. The Treasury Department and theService may update the 2010–2011 Guid-ance Priority List periodically to reflectadditional guidance that the Treasury De-partment and the Service intend to publishduring the plan year. The periodic updatesallow the Treasury Department and theService to respond to the need for addi-tional guidance that may arise during theplan year. Recommendations for guidancereceived after June 11, 2010, will be re-viewed for inclusion in the next periodicupdate.

Taxpayers are not required to submitrecommendations for guidance in any par-ticular format. Taxpayers should, how-ever, briefly describe the recommendedguidance and explain the need for the guid-ance. In addition, taxpayers may includean analysis of how the issue should be re-solved. It would be helpful if taxpayerssuggesting more than one guidance projectprioritize the projects by order of impor-tance. If a large number of projects are be-ing suggested, it also would be helpful ifthe projects were grouped in terms of high,medium or low priority.

Taxpayers should send written com-ments to:

Internal Revenue ServiceAttn: CC:PA:LPD:PR

(Notice 2010–43)Room 5203P.O. Box 7604Ben Franklin StationWashington, D.C. 20044

or hand deliver comments Mondaythrough Friday between the hours of8 a.m. and 4 p.m. to:

Courier’s DeskInternal Revenue ServiceAttn: CC:PA:LPD:PR

(Notice 2010–43)1111 Constitution Avenue, N.W.Washington, D.C. 20224

Alternatively, taxpayers may sub-mit comments electronically viae-mail to the following address:Notice.Comments@irscounsel.treas.gov.Taxpayers should include “Notice2010–43” in the subject line. Allcomments submitted by the public willbe available for public inspection andcopying in their entirety.

For further information regarding thisnotice, contact Henry Schneiderman ofthe Office of Associate Chief Counsel(Procedure and Administration) at (202)622–3400 (not a toll-free call).

Tax Credit for EmployeeHealth Insurance Expenses ofSmall Employers

Notice 2010–44

I. PURPOSE AND BACKGROUND

Section 45R of the Internal RevenueCode (Code) offers a tax credit to certainsmall employers that provide health in-surance coverage to their employees. Itis effective for taxable years beginning in2010. Both taxable employers and em-ployers that are organizations described insection 501(c) that are exempt from taxunder section 501(a) (tax-exempt employ-ers) may be eligible for the section 45Rcredit. Employers that satisfy the require-ments for the credit are referred to in thisnotice as “eligible small employers.”

Section 45R was added to the Codeby section 1421 of the Patient Protectionand Affordable Care Act (Affordable CareAct), enacted March 23, 2010, Pub. L. No.111–148. This notice provides guidanceon section 45R as in effect for taxable yearsbeginning before January 1, 2014, and alsoincludes transition relief for taxable yearsbeginning in 2010 with respect to the re-quirements for a qualifying arrangementunder section 45R.

II. EMPLOYERS ELIGIBLE FOR THECREDIT

A. Overview of Requirements forEligibility

In order to be an eligible small em-ployer, (1) the employer must have fewerthan 25 full-time equivalent employees(FTEs) for the taxable year; (2) the av-erage annual wages of its employees forthe year must be less than $50,000 perFTE; and (3) the employer must maintaina “qualifying arrangement.”1 A qualify-ing arrangement is an arrangement underwhich the employer pays premiums foreach employee enrolled in health insur-ance coverage offered by the employer inan amount equal to a uniform percentage(not less than 50 percent) of the premiumcost of the coverage (but see section V ofthis notice for transition relief for taxableyears beginning in 2010 with respect tothe requirements for a qualifying arrange-ment). An employer that is an agency orinstrumentality of the federal government,or of a State, local or Indian tribal govern-ment, is not an eligible small employer forpurposes of section 45R unless it is an or-ganization described in section 501(c) thatis exempt from tax under section 501(a).

The following steps must be followed todetermine whether an employer is eligiblefor a credit under section 45R:

1. Determine the employees who aretaken into account for purposes of thecredit.

2. Determine the number of hours ofservice performed by those employees.

3. Calculate the number of the em-ployer’s FTEs.

4. Determine the average annual wagespaid per FTE.

5. Determine the premiums paid by theemployer that are taken into account forpurposes of the credit. Specifically, thepremiums must be paid by an employerunder a qualifying arrangement and mustbe paid for health insurance that meets therequirements of section 45R.

The remainder of this section II ex-plains the steps involved in determiningwhether an employer is eligible for thecredit. Section III of this notice explainshow to calculate the credit, and section IV

1 Although the term “eligible small employer” is defined in section 45R(d)(1) to include employers with “no more than” 25 FTEs and average annual wages that “do not exceed” $50,000, thephaseout of the credit amount under section 45R(c) operates in such a way that an employer with exactly 25 FTEs or with average annual wages exactly equal to $50,000 is not in fact eligiblefor the credit.

June 1, 2010 717 2010–22 I.R.B.

explains how to claim the credit. Finally,section V provides transition relief for tax-able years beginning in 2010 with respectto certain requirements for qualifying ar-rangements.

B. Determining the Employees Taken intoAccount

In general, employees who perform ser-vices for the employer during the taxableyear are taken into account in determin-ing the employer’s FTEs, average wages,and premiums paid, with certain individu-als excluded and with employees of certainrelated employers included. This sectiondescribes these rules.

Partners in a business and certain own-ers are not taken into account as employeesfor purposes of section 45R. Specifically,sole proprietors, partners in a partnership,shareholders owning more than two per-cent of an S corporation, and any ownersof more than five percent of other busi-nesses are not taken into account as em-ployees for purposes of the credit. Fam-ily members of these owners and partnersare also not taken into account as employ-ees. For purposes of section 45R, a fam-ily member is defined as a child (or de-scendant of a child); a sibling or step-sib-ling; a parent (or ancestor of a parent); astep-parent; a niece or nephew; an aunt oruncle; or a son-in-law, daughter-in-law, fa-ther-in-law, mother-in-law, brother-in-lawor sister-in-law. Finally, any other memberof the household of these owners and part-ners who qualifies as a dependent undersection 152(d)(2)(H) is not taken into ac-count as an employee for purposes of sec-tion 45R.

Accordingly, the wages and hours ofthese business owners and partners, and oftheir family members and dependent mem-bers of their household, are disregardedin determining FTEs and average annualwages, and the premiums paid on their be-half are not counted in determining theamount of the section 45R credit.

Seasonal workers are disregarded indetermining FTEs and average annualwages unless the seasonal worker worksfor the employer on more than 120 daysduring the taxable year, although premi-ums paid on their behalf may be countedin determining the amount of the section45R credit.

All employers treated as a single em-ployer under section 414(b), (c), (m) or (o)are treated as a single employer for pur-poses of section 45R. Thus, all employ-ees of a controlled group under section414(b) or (c), or an affiliated service groupunder section 414(m) (except employeesnot taken into account as described above),and all wages paid to, and premiums paidfor, employees by the members of the con-trolled group or affiliated service group(except employees not taken into accountas described above), are taken into accountin determining whether any member of thecontrolled group or affiliated service groupis an eligible small employer.

C. Determining the Number of Hours ofService Worked by Employees for theTaxable Year

An employee’s hours of service for ayear include the following: (1) each hourfor which an employee is paid, or enti-tled to payment, for the performance of du-ties for the employer during the employer’staxable year; and (2) each hour for whichan employee is paid, or entitled to pay-ment, by the employer on account of a pe-riod of time during which no duties areperformed due to vacation, holiday, ill-ness, incapacity (including disability), lay-off, jury duty, military duty or leave of ab-sence (except that no more than 160 hoursof service are required to be counted foran employee on account of any single con-tinuous period during which the employeeperforms no duties).

In calculating the total number of hoursof service which must be taken into ac-count for an employee for the year, the em-ployer may use any of the following meth-ods: (1) determine actual hours of servicefrom records of hours worked and hoursfor which payment is made or due (pay-ment is made or due for vacation, holi-day, illness, incapacity, etc., as describedabove); (2) use a days-worked equivalencywhereby the employee is credited with 8hours of service for each day for which theemployee would be required to be creditedwith at least one hour of service under rule(1) or (2) in the preceding paragraph; or (3)use a weeks-worked equivalency wherebythe employee is credited with 40 hours ofservice for each week for which the em-ployee would be required to be credited

with at least one hour of service under rule(1) or (2) in the preceding paragraph.

Examples. In all of the examples inthis notice, none of the employees is anowner, partner in a business or otherwiseexcluded from being taken into accountunder section 45R.

Example 1 — Counting hours of service by hoursactually worked or for which payment is made or due.(i) For the 2010 taxable year, an employer’s payrollrecords indicate that Employee A worked 2,000 hoursand was paid for an additional 80 hours on account ofvacation, holiday and illness. The employer countshours actually worked.

(ii) Under this method of counting hours, Em-ployee A must be credited with 2,080 hours of service(2,000 hours worked and 80 hours for which paymentwas made or due).

Example 2 — Counting hours of service underweeks-worked equivalency. (i) For the 2010 taxableyear, Employee B worked 49 weeks, took 2 weeks ofvacation with pay, and took 1 week of leave withoutpay. The employer uses the weeks-worked equiva-lency.

(ii) Under this method of counting hours, Em-ployee B must be credited with 2,040 hours of service(51 weeks multiplied by 40 hours per week).

D. Determining the Number of anEmployer’s FTEs

The number of an employer’s FTEs isdetermined by dividing (1) the total hoursof service, determined in accordance withsection II.C of this notice, credited duringthe year to employees taken into accountunder section II.B of this notice (but notmore than 2,080 hours for any employee)by (2) 2,080. The result, if not a wholenumber, is then rounded to the next lowestwhole number. In some circumstances,an employer with 25 or more employeesmay qualify for the credit if some of itsemployees work part-time. For example,an employer with 46 half-time employees(meaning they are paid wages for 1,040hours) has 23 FTEs and, therefore, mayqualify for the credit.

Example 3 — Determining the number of FTEs.(i) For the 2010 taxable year, an employer pays 5employees wages for 2,080 hours each, 3 employeeswages for 1,040 hours each, and 1 employee wagesfor 2,300 hours. The employer does not use an equiv-alency method to determine hours of service for anyof these employees.

(ii) The employer’s FTEs would be calculated asfollows:

(1) Total hours of service not exceeding 2,080 peremployee is the sum of:

a. 10,400 hours of service for the 5 employeespaid for 2,080 hours each (5 x 2,080)

b. 3,120 hours of service for the 3 employees paidfor 1,040 hours each (3 x 1,040), and

2010–22 I.R.B. 718 June 1, 2010

c. 2,080 hours of service for the 1 employee paidfor 2,300 hours (lesser of 2,300 and 2,080).

d. The sum of a, b and c equals 15,600 hours ofservice.

(2) FTEs equal 7 (15,600 divided by 2,080 = 7.5,rounded to the next lowest whole number).

Example 4 — Determining the number of FTEs:(i) For the 2010 taxable year, an employer has 26FTEs with average annual wages of $23,000 per FTE.Only 20 of the employer’s employees are enrolled inthe employer’s health insurance plan.

(ii) The hours of service and wages of all em-ployees are taken into consideration in determiningwhether the employer is an eligible small employerfor purposes of the credit. Because the employer doesnot have fewer than 25 FTEs for the taxable year, theemployer is not an eligible small employer for pur-poses of the credit.

E. Determining the Employer’s AverageAnnual Wages for the Taxable Year

The average annual wages paid by anemployer for a taxable year is determinedby dividing (1) the total wages paid bythe employer during the employer’s tax-able year to employees taken into accountunder section II.B of this notice by (2) thenumber of the employer’s FTEs for theyear. The result is then rounded down tothe nearest $1,000 (if not otherwise a mul-tiple of $1,000). For purposes of determin-ing the employer’s average annual wagesfor the taxable year, only wages that arepaid for hours of service determined un-der section II.C of this notice are taken intoaccount. Wages for this purpose meanswages as defined under section 3121(a) forpurposes of the Federal Insurance Contri-butions Act (FICA), determined withoutregard to the wage base limitation undersection 3121(a)(1).

Example 5 — Determining the amount of averageannual wages. (i) For the 2010 taxable year, an em-ployer pays $224,000 in wages and has 10 FTEs.

(ii) The employer’s average annual wages is:$22,000 ($224,000 divided by 10 = $22,400, roundeddown to the nearest $1,000).

F. Premium Payments by the Employerfor the Taxable Year

Only premiums paid by the employerfor health insurance coverage are countedin calculating the credit. If an employerpays only a portion of the premiums forthe coverage provided to employees (withemployees paying the rest), only the por-

tion paid by the employer is taken into ac-count. For example, if an employer pays80 percent of the premiums for employees’coverage (with employees paying the other20 percent), the 80 percent paid by the em-ployer is taken into account in calculatingthe credit. For purposes of this credit, anypremium paid pursuant to a salary reduc-tion arrangement under a section 125 cafe-teria plan is not treated as paid by the em-ployer. In calculating the credit for a tax-able year beginning in 2010, an employermay count all premiums paid by the em-ployer in the 2010 tax year, including pre-miums that were paid in the 2010 tax yearbefore the Affordable Care Act was en-acted.

G. Premiums for Health InsuranceCoverage under a Qualifying Arrangement

An employer’s premium payments arenot taken into account for purposes of thesection 45R credit unless they are paid forhealth insurance coverage under a qualify-ing arrangement. As noted in section II.Aof this notice, a qualifying arrangement isan arrangement under which the employerpays premiums for each employee enrolledin health insurance coverage offered by theemployer in an amount equal to a uniformpercentage (not less than 50 percent) of thepremium cost of the coverage (but see sec-tion V of this notice for transition relief fortaxable years beginning in 2010 with re-spect to certain requirements for a qualify-ing arrangement).

For years prior to 2014, health insur-ance coverage for purposes of the creditmeans benefits consisting of medical care(provided directly, through insurance orreimbursement, or otherwise) under anyhospital or medical service policy or cer-tificate, hospital or medical service plancontract, or health maintenance organiza-tion contract offered by a health insuranceissuer. See section 9832(b)(1). Healthinsurance coverage for purposes of the sec-tion 45R credit also includes the followingplans described in section 9832(c)(2), (3)and (4): limited scope dental or vision;long-term care, nursing home care, homehealth care, community-based care, orany combination thereof; coverage only

for a specified disease or illness; hospitalindemnity or other fixed indemnity insur-ance; and Medicare supplemental healthinsurance; certain other supplemental cov-erage, and similar supplemental coverageprovided to coverage under a group healthplan. Health insurance coverage doesnot include the benefits listed in section9832(c)(1).2 If an eligible small employeroffers any of the plans described in sec-tion 9832(b)(1) or 9832(c)(2), (3) or (4),the premiums paid by the employer forthat plan can be counted in calculating thecredit if the premiums are paid under aqualifying arrangement.

Different types of health insuranceplans are not aggregated for purposesof meeting the qualifying arrangementrequirement. So, for example, if an em-ployer offers a major medical insuranceplan and a stand-alone vision plan, theemployer must separately satisfy the re-quirements for a qualifying arrangementwith respect to each type of coverage.

The amount of an employer’s premiumpayments that are taken into account incalculating the credit is limited to thepremium payments the employer wouldhave made under the same arrangement ifthe average premium for the small groupmarket in the State (or an area withinthe State) in which the employer offerscoverage were substituted for the actualpremium. For example, if an eligible smallemployer pays 80 percent of the premiumsfor coverage provided to employees (andemployees pay the other 20 percent), thepremiums taken into account for purposesof the credit are the lesser of 80 percentof the total actual premiums paid or 80percent of the premiums that would havebeen paid for the coverage if the averagepremium for the small group market in theState (or an area within the State) weresubstituted for the actual premium. SeeRev. Rul. 2010–13, 2010–21 I.R.B. 691,for the average premium for the smallgroup market in a State for the 2010 tax-able year.

The average premium for the smallgroup market in the State does not applyseparately to each type of coverage de-scribed in section 9832(b)(1), (c)(2), (c)(3)and (c)(4), but rather provides an overall

2 Section 9832(c)(1) includes the following benefits: (A) coverage only for accident, or disability income insurance, or any combination thereof; (B) coverage issued as a supplement toliability insurance; (C) liability insurance, including general liability insurance and automobile liability insurance; (D) worker’s compensation or similar insurance; (E) automobile medicalpayment insurance; (F) credit-only insurance; (G) coverage for on-site medical clinics; and (H) other similar insurance coverage, specified in regulations, under which benefits for medicalcare are secondary or incidental to other insurance benefits.

June 1, 2010 719 2010–22 I.R.B.

cap for all health insurance coverage pro-vided by an eligible small employer.

Example 6 — Determining amount of premiumpayments for purposes of the credit. (i) For the 2010taxable year, an eligible small employer offers ahealth insurance plan with single and family cov-erage. Employer has 9 FTEs with average annualwages of $23,000 per FTE. Four employees are en-rolled in single coverage and 5 are enrolled in familycoverage.

(ii) The employer pays 50% of the premiums forall employees enrolled in single coverage and 50%of the premiums for all employees enrolled in fam-ily coverage (and the employee is responsible for theremainder in each case). The premiums are $4,000 ayear for single coverage and $10,000 a year for familycoverage. The average premium for the small groupmarket in employer’s State is $5,000 for single cov-erage and $12,000 for family coverage.

(iii) The employer’s premium payments for eachFTE ($2,000 for single coverage and $5,000 for fam-ily coverage) do not exceed 50% of the average pre-mium for the small group market in employer’s State($2,500 for single coverage and $6,000 for familycoverage).

(iv) Thus, the amount of premiums paid by theemployer for purposes of computing the credit equals$33,000 ((4 x $2,000) plus (5 x $5,000)).

Example 7 — Premium payments exceeding aver-age premium for small group market. (i) Same factsas Example 6, except that the premiums are $6,000for single coverage and $14,000 for family coverage.

(ii) The employer’s premium payments for eachemployee ($3,000 for single coverage and $7,000for family coverage) exceed 50% of the average pre-mium for the small group market in the employer’sState ($2,500 for single coverage and $6,000 forfamily coverage).

(iii) Thus, the amount of premiums paid by theemployer for purposes of computing the credit equals$40,000 ((4 x $2,500) plus (5 x $6,000)).

Example 8 — Offering health insurance plan anddental plan. (i) For the 2010 taxable year, an eligi-ble small employer offers a major medical plan and adental plan. The employer pays 50% of the premiumcost for single coverage for all employees enrolled inthe major medical plan and 50% of the premium costfor single coverage for all employees enrolled in thedental plan.

(ii) For purposes of calculating the credit, the em-ployer can take into consideration the premiums paidby the employer for both the major medical plan andthe dental plan, but only up to 50% of the amount ofthe average premium for single coverage for the smallgroup market in the employer’s State.

Example 9 — Meeting qualifying arrangement re-quirement. (i) Same facts as Example 8, except thatthe employer pays 40% of the premium cost for sin-gle coverage for all employees enrolled in the dentalplan.

(ii) For purposes of calculating the credit, the em-ployer can take into consideration only the premiumspaid by the employer for the major medical plan, andonly up to 50% of the amount of the average premiumfor single coverage for the small group market in theemployer’s State. The employer cannot take into con-sideration premiums paid for the dental plan.

III. CALCULATING THE CREDIT

A. In General

The following steps are followed to cal-culate the section 45R credit:

1. Calculate the maximum amount ofthe credit (section III.B);

2. Reduce the maximum credit in step 1in accordance with the phaseout rule (sec-tion III.C), if necessary; and

3. For employers receiving a Statecredit or subsidy for health insurance, de-termine the employer’s actual premiumpayment (section III.D).

B. Maximum Credit

For taxable years beginning in 2010through 2013, the maximum credit is 35percent of a taxable eligible small em-ployer’s premium payments taken into ac-count for purposes of the credit. For a tax-exempt eligible small employer for thoseyears, the maximum credit is 25 percent ofthe employer’s premium payments takeninto account for purposes of the credit.However, for a tax-exempt employer, theamount of the credit cannot exceed the to-tal amount of income tax under section3402 and Medicare (i.e., Hospital Insur-ance) tax under section 3101(b) that theemployer is required to withhold from em-ployees’ wages for the year and the em-ployer share of Medicare tax under section3111(b) on employees’ wages for the year.

C. Credit Phaseout

The credit phases out gradually (but notbelow zero) for eligible small employersif the number of FTEs exceeds 10 or ifthe average annual wages exceed $25,000.If the number of FTEs exceeds 10, thereduction is determined by multiplyingthe otherwise applicable credit amountby a fraction, the numerator of which isthe number of FTEs in excess of 10 andthe denominator of which is 15. If av-erage annual wages exceed $25,000, thereduction is determined by multiplyingthe otherwise applicable credit amount bya fraction, the numerator of which is theamount by which average annual wagesexceed $25,000 and the denominator ofwhich is $25,000. In both cases, the resultof the calculation is subtracted from theotherwise applicable credit to determine

the credit to which the employer is en-titled. For an employer with both morethan 10 FTEs and average annual wagesexceeding $25,000, the total reduction isthe sum of the two reductions. This mayreduce the credit to zero for some employ-ers with fewer than 25 FTEs and averageannual wages of less than $50,000.

Example 10 — Calculating the maximum creditfor a taxable eligible small employer. (i) For the 2010taxable year, a taxable eligible small employer has9 FTEs with average annual wages of $23,000 perFTE. The employer pays $72,000 in health insurancepremiums for those employees (which does not ex-ceed the average premium for the small group mar-ket in the employer’s State) and otherwise meets therequirements for the credit.

(ii) The credit for 2010 equals $25,200 (35% x$72,000).

Example 11 — Calculating the maximum creditfor a tax-exempt eligible small employer. (i) Forthe 2010 taxable year, a tax-exempt eligible smallemployer has 10 FTEs with average annual wagesof $21,000 per FTE. The employer pays $80,000 inhealth insurance premiums for its employees (whichdoes not exceed the average premium for the smallgroup market in the employer’s State) and otherwisemeets the requirements for the credit. The totalamount of the employer’s income tax and Medicaretax withholding plus the employer’s share of theMedicare tax equals $30,000 in 2010.

(ii) The credit is calculated as follows:(1) Initial amount of credit determined before any

reduction: (25% x $80,000) = $20,000(2) Employer’s withholding and Medicare taxes:

$30,000(3) Total 2010 tax credit equals $20,000 (the

lesser of $20,000 and $30,000).Example 12 — Calculating the credit phase-out

if the number of FTEs exceeds 10 or average annualwages exceed $25,000. (i) For the 2010 taxable year,a taxable eligible small employer has 12 FTEs and av-erage annual wages of $30,000. The employer pays$96,000 in health insurance premiums for its employ-ees (which does not exceed the average premium forthe small group market in the employer’s State) andotherwise meets the requirements for the credit.

(ii) The credit is calculated as follows:(1) Initial amount of credit determined before any

reduction: (35% x $96,000) = $33,600(2) Credit reduction for FTEs in excess of 10:

($33,600 x 2/15) = $4,480(3) Credit reduction for average annual wages in

excess of $25,000: ($33,600 x $5,000/$25,000) =$6,720

(4) Total credit reduction: ($4,480 + $6,720) =$11,200

(5) Total 2010 tax credit equals $22,400 ($33,600- $11,200).

D. State Credits and State Subsidies forHealth Insurance

Some States offer tax credits to cer-tain small employers that provide healthinsurance to their employees. Some ofthese are refundable credits and others are

2010–22 I.R.B. 720 June 1, 2010

nonrefundable credits. In addition, someStates offer premium subsidy programs forcertain small employers under which theState makes a payment equal to a portionof the employees’ health insurance premi-ums under the employer-provided healthinsurance plan. Generally, the State paysthis premium subsidy either directly to theemployer or to the employer’s insurancecompany (or another entity licensed un-der State law to engage in the businessof insurance). If the employer is enti-tled to a State tax credit (whether refund-able or nonrefundable) or a premium sub-sidy that is paid directly to the employer,the premium payment made by the em-ployer is not reduced by the credit or sub-sidy for purposes of determining whetherthe employer has satisfied the “qualify-ing arrangement” requirement to pay anamount equal to a uniform percentage (notless than 50 percent) of the premium cost.Also, except as described below in thissection III.D, the maximum amount of thesection 45R credit is not reduced by reasonof a State tax credit (whether refundable ornonrefundable) or by reason of paymentsby a State directly to an employer.

Generally, if a State makes paymentsdirectly to an insurance company (or an-other entity licensed under State law to en-gage in the business of insurance) to pay aportion of the premium for coverage of anemployee under employer-provided healthinsurance (State direct payments), theState is treated as making these paymentson behalf of the employer for purposesof determining whether the employer hassatisfied the “qualifying arrangement”requirement to pay an amount equal toa uniform percentage (not less than 50percent) of the premium cost of coverage.Also, except as described below in thissection III.D, these premium payments bythe State are treated as an employer con-tribution under section 45R for purposesof calculating the credit.

Although State tax credits and pay-ments to an employer generally do notreduce an employer’s otherwise applica-ble credit under section 45R, and althoughState direct payments are generally treatedas paid on behalf of an employer, in noevent may the amount of the section 45Rcredit exceed the amount of the employer’snet premium payments. In the case of aState tax credit for an employer or a Statesubsidy paid directly to an employer, the

employer’s net premium payments are cal-culated by subtracting the State tax creditor subsidy from the employer’s actualpremium payments. In the case of a Statepayment directly to an insurance company(or another entity licensed under State lawto engage in the business of insurance),the employer’s net premium payments arethe employer’s actual premium payments.

If a State-administered program (suchas Medicaid or another program thatmakes payments directly to a health careprovider or insurance company on be-half of individuals and their families whomeet certain eligibility guidelines) makespayments that are not contingent on themaintenance of an employer-providedgroup health plan, those payments arenot taken into account in determining thecredit under section 45R.

Example 13 — State premium subsidy paid di-rectly to employer. (i) Employer’s State provides ahealth insurance premium subsidy of up to 40% ofthe health insurance premiums for each eligible em-ployee. The State pays the subsidy directly to the em-ployer.

(ii) Employer has one employee, Employee D.Employee D’s health insurance premiums are $100per month and are paid as follows: $80 by the em-ployer and $20 by Employee D through salary reduc-tions to a cafeteria plan. The State pays Employer $40per month as a subsidy for Employer’s payment ofinsurance premiums on behalf of Employee D. Em-ployer is otherwise an eligible small employer thatmeets the requirements for the section 45R credit.

(iii) For purposes of the requirements for a qual-ifying arrangement, and for purposes of calculatingthe amount of the section 45R credit, the amount ofpremiums paid by the employer is $80 per month (thepremium payment by the Employer without regard tothe subsidy from the State).

Example 14 — State premium subsidy paiddirectly to employer’s insurance company. (i) Em-ployer’s State provides a health insurance premiumsubsidy of up to 50% for each eligible employee. TheState pays the premium directly to the employer’shealth insurance provider.

(ii) Employer has one employee, Employee E.Employee E is enrolled in single coverage under Em-ployer’s health insurance plan.

(iii) Employee E’s health insurance premiums are$100 per month and are paid as follows: $30 by theemployer; $50 by the State and $20 by the employee.The State pays the $50 per month directly to the in-surance company and the insurance company billsthe employer for the employer and employee’s share,which equal $50 per month. Employer is otherwisean eligible small employer that meets the require-ments for the section 45R credit.

(iv) For purposes of the requirements for a qual-ifying arrangement, and for purposes of calculatingthe amount of the section 45R credit, the amount ofpremiums paid by the employer is $80 per month (thesum of the employer’s payment and the State’s pay-ment).

Example 15 — Credit limited by employer’s netpremium payment. (i) Employer’s State provides ahealth insurance premium subsidy of up to 50% foreach eligible employee. The State pays the premiumdirectly to the employer’s health insurance provider.Employer has one employee, Employee F. EmployeeF is enrolled in single coverage under Employer’shealth insurance plan. Employee F’s health insurancepremiums are $100 per month and are paid as follows:$20 by the employer; $50 by the State and $30 by theemployee. The State pays the $50 per month directlyto the insurance company and the insurance companybills the employer for the employer’s and employee’sshares, which total $50 per month. Employer is oth-erwise an eligible small employer that meets the re-quirements for the section 45R credit.

(ii) The amount of premiums paid by the em-ployer for purposes of determining whether the em-ployer meets the qualifying arrangement requirement(the sum of the employer’s payment and the State’spayment) is $70 per month, which is more than 50%of the $100 monthly premium payment. The amountof the premium for calculating the maximum section45R credit is also $70 per month. The maximumcredit is $24.50 ($70 x 35%).

(iii) The employer’s net premium payment is $20(the amount actually paid by the employer excludingthe State subsidy). After applying the limit for theemployer’s net premium payment , the section 45Rcredit is $20 per month, (the lesser of $24.50 or $20).

IV. CLAIMING THE CREDIT ANDEFFECT ON ESTIMATED TAX,ALTERNATIVE MINIMUM TAX ANDDEDUCTIONS

The section 45R credit is claimed on aneligible small employer’s annual incometax return and offsets an employer’s ac-tual tax liability for the year. For a tax-exempt eligible small employer, the IRSwill provide further information on how toclaim the credit. For an eligible small em-ployer that is not a tax-exempt employer,the credit is a general business credit and,thus, any unused credit amount can be car-ried back one year and carried forward 20years (however, because an unused creditamount cannot be carried back to a year be-fore the effective date of the credit, any un-used credit amounts for taxable years be-ginning in 2010 can only be carried for-ward). For a tax-exempt eligible small em-ployer, the credit is a refundable credit,so that even if the employer has no tax-able income, the employer may receive arefund (so long as it does not exceed thetax-exempt eligible small employer’s totalincome tax withholding and Medicare taxliability for the year).

The credit can be reflected in determin-ing estimated tax payments for the yearin which the credit applies in accordance

June 1, 2010 721 2010–22 I.R.B.

with regular estimated tax rules. The creditcan also be used to offset an employer’salternative minimum tax (AMT) liabilityfor the year, subject to certain limitationsbased on the amount of an employer’s reg-ular tax liability, AMT liability and otherallowable credits. See section 38(c)(1), asmodified by section 38(c)(4)(B)(vi). How-ever, because the credit applies against in-come tax, an employer may not reduce em-ployment tax (i.e., withheld income tax,social security tax under sections 3101(a)and 3111(a), and Medicare tax) depositsand payments during the year in anticipa-tion of the credit. Finally, no deductionis allowed for the employer under section162 for that portion of the health insurancepremiums which is equal to the amount ofthe section 45R credit.

V. TRANSITION RELIEF FORTAXABLE YEARS BEGINNING IN2010

Because the section 45R credit appliesto taxable years beginning in 2010 (includ-ing the period in 2010 before enactment ofthe Affordable Care Act), an employer thatsatisfies the requirements for the transitionrelief in this section V will be deemed tosatisfy the requirement for a qualifying ar-rangement that the employer pay a uni-form percentage (not less than 50 percent)of the premium cost of the health insur-ance coverage (uniformity requirement).Specifically, for taxable years beginningin 2010, an employer that pays an amountequal to at least 50 percent of the pre-mium for single (employee-only) coveragefor each employee enrolled in coverage of-fered to employees by the employer will bedeemed to satisfy the uniformity require-ment for a qualifying arrangement, even ifthe employer does not pay the same per-centage of the premium for each such em-

ployee. Thus, an employer will be deemedto satisfy the uniformity requirement for aqualifying arrangement if it pays at least 50percent of the premium for single coveragefor each employee receiving single cover-age, and, if the employer offers coveragethat is more expensive than single cover-age (such as family or self-plus-one cov-erage), if it pays an amount for each em-ployee receiving that more expensive cov-erage that is no less than 50 percent of thepremium for single coverage for that em-ployee (even if it is less than 50 percent ofthe premium for the more expensive cov-erage the employee is actually receiving).

Example 16 — Transition relief rule for a quali-fying arrangement. (i) For the 2010 taxable year, aneligible small employer has 9 FTEs with average an-nual wages of $23,000 per FTE. Six employees areenrolled in single coverage and 3 employees are en-rolled in family coverage.

(ii) The premiums are $8,000 for single coveragefor the year and $14,000 for family coverage for theyear (which do not exceed the average premiums forthe small group market in the employer’s State). Theemployer pays 50% of the premium for single cov-erage for each employee enrolled in single or fam-ily coverage (50% x $8,000 = $4,000 for each em-ployee).

(iii) Thus, the employer pays $4,000 of the pre-mium for each of the 6 employees enrolled in singlecoverage and $4,000 of the premium for each of the3 employees enrolled in family coverage.

(iv) The employer is deemed to satisfy the unifor-mity requirement for a qualifying arrangement underthe transition relief rule.

Example 17 — Arrangement that does not satisfyrequirement for transition relief. (i) Same facts as Ex-ample 16, except that the employer pays 50% of thepremium for employees enrolled in single coverage($4,000 for each of those 6 employees) but pays noneof the premium for employees enrolled in family cov-erage.

(ii) The employer does not satisfy the uniformityrequirement for a qualifying arrangement.

VI. EFFECTIVE DATE

Section 45R is effective for taxableyears beginning after December 31, 2009.

REQUEST FOR COMMENTS

The IRS and Treasury intend to issuefuture guidance that will address addi-tional issues under section 45R, includingthe application of the uniformity require-ment and the 50-percent requirement fortaxable years beginning after 2010. Com-ments are requested on issues that shouldbe addressed in that future guidance.

Comments should be submitted on orbefore September 1, 2010, and shouldinclude a reference to Notice 2010–44.Send submissions to CC:PA:LPD:PR(Notice 2010–44), Room 5203, Inter-nal Revenue Service, P.O. Box 7604,Ben Franklin Station, Washington, DC20044. Submissions may be hand de-livered Monday through Friday be-tween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (Notice 2010–44),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington, DC 20044, or sent electron-ically, via the following e-mail address:Notice.comments@irscounsel.treas.gov.Please include “Notice 2010–44” inthe subject line of any electroniccommunication. All material submittedwill be available for public inspection andcopying.

DRAFTING INFORMATION

The principal author of this notice isMireille Khoury of the Office of DivisionCounsel/Associate Chief Counsel (Tax Ex-empt and Government Entities). For fur-ther information regarding this notice, con-tact Ms. Khoury at (202) 622–6080 (not atoll-free call).

2010–22 I.R.B. 722 June 1, 2010

Part IV. Items of General InterestNotice of ProposedRulemaking byCross-Reference toTemporary Regulations

Group Health Plans and HealthInsurance Issuers ProvidingDependent Coverage ofChildren to Age 26 underthe Patient Protection andAffordable Care Act

REG–114494–10

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemakingby cross-reference to temporary regula-tions.

SUMMARY: Elsewhere in this issue of theBulletin, the IRS is issuing temporary reg-ulations (T.D. 9482) under the provisionsof the Patient Protection and AffordableCare Act (the Affordable Care Act) deal-ing with coverage of dependent children toage 26. The IRS is issuing the temporaryregulations at the same time that the Em-ployee Benefits Security Administrationof the U.S. Department of Labor and theOffice of Consumer Information and In-surance Oversight of the U.S. Departmentof Health and Human Services are issu-ing substantially similar interim final reg-ulations with respect to group health plansand health insurance coverage offered inconnection with a group health plan underthe Employee Retirement Income SecurityAct of 1974 and the Public Health Ser-vice Act. The temporary regulations pro-vide guidance to employers, group healthplans, and health insurance issuers provid-ing group health insurance coverage. Thetext of those temporary regulations alsoserves as the text of these proposed regu-lations.

DATES: Written or electronic commentsand requests for a public hearing must bereceived by August, 11. 2010.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–114494–10),

room 5205, Internal Revenue Service,P.O. Box 7604, Ben Franklin Sta-tion, Washington, DC 20044. Sub-missions may be hand-delivered to:CC:PA:LPD:PR (REG–114494–10),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington DC 20224. Alternatively,taxpayers may submit comments elec-tronically via the Federal eRulemakingPortal at http://www.regulations.gov (IRSREG–114494–10).

FOR FURTHER INFORMATIONCONTACT: Concerning the regula-tions, Karen Levin at 202–622–6080;concerning submissions of comments,Richard.A.Hurst@irscounsel.treas.gov,202–622–7180 (not toll-free numbers) .

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information containedin this notice of proposed rulemaking hasbeen submitted to the Office of Manage-ment and Budget for review in accordancewith the Paperwork Reduction Act of 1995(44 U.S.C. 3507(d)). Comments on thecollection of information should be sent tothe Office of Management and Budget,Attn: Desk Officer for the Departmentof the Treasury, Office of Informationand Regulatory Affairs, Washington, DC20503, with copies to the Internal Rev-enue Service, Attn: IRS Reports Clear-ance Officer, SE:W:CAR:MP:T:T:SP,Washington, DC 20224. Comments onthe collection of information should bereceived by July 12, 2010. Comments arespecifically requested concerning:

• Whether the proposed collection ofinformation is necessary for the properperformance of the functions of theInternal Revenue Service, includingwhether the information will havepractical utility;

• The accuracy of the estimated burdensassociated with the proposed collec-tion of information (see the preambleto the temporary regulations publishedelsewhere in this issue of the Bulletin);

• How to enhance the quality, utility, andclarity of the information to be col-lected;

• How to minimize the burden of com-plying with the proposed collection ofinformation, including the applicationof automated collection techniques orother forms of information technology;and

• Estimates of capital or start-up costsand costs of operation, maintenance,and purchase of services to provide in-formation.

The collection of information is in§54.9815–2714T(f) (see the temporaryregulations published elsewhere in thisissue of the Bulletin). The temporary reg-ulations require that group health plansand group health insurance coverage offeran enrollment opportunity (including writ-ten notice of the enrollment opportunity)to certain individuals who did not obtaincoverage under a group health plan orgroup health insurance coverage prior tothe effective date of amendments made bythe Affordable Care Act to section 2714 ofthe Public Health Service Act (which is in-corporated by reference into section 9815of the Code). The individuals to whomthe enrollment opportunity must be givenare those who were not eligible for depen-dent coverage of a child below the age of26 but, after the effective date of section2714 of the Public Health Service Act, areentitled to be eligible for coverage undera group health plan or group health insur-ance coverage. The likely respondents arebusiness or other for-profit institutions,and nonprofit institutions. Responses tothis collection of information are manda-tory.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid control number assigned by the Of-fice of Management and Budget.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

Background

The temporary regulations publishedelsewhere in this issue of the Bulletin add

June 1, 2010 723 2010–22 I.R.B.

§54.9815–2714T to the Miscellaneous Ex-cise Tax Regulations. The proposed andtemporary regulations are being publishedas part of a joint rulemaking with the De-partment of Labor and the Departmentof Health and Human Services (the jointrulemaking). The text of those temporaryregulations also serves as the text of theseproposed regulations. The preamble to thetemporary regulations explains the tempo-rary regulations.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866. Therefore, a regulatory as-sessment is not required. It has also beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to this proposed reg-ulation. It is hereby certified that the col-lection of information contained in this no-tice of proposed rulemaking will not have asignificant impact on a substantial numberof small entities. Accordingly, a regulatoryflexibility analysis is not required. Thetemporary regulations require both grouphealth insurance issuers and group healthplans to provide a notice of opportunity toenroll to certain individuals who, prior tothe effective date of the amendments madeto section 2714 of the Public Health Ser-vice Act, were not eligible to enroll for de-pendent coverage of children but who areeligible after those amendments take ef-fect. Under the temporary regulations, if ahealth insurance issuer satisfies this noticeobligation, it is satisfied not just for the is-suer but also for the group health plan. Forgroup health plans maintained by small en-tities, it is anticipated that the health insur-ance issuer will satisfy this notice obliga-tion for both the plan and the issuer in al-most all cases. For this reason, the infor-mation collection requirement will not im-pose a significant impact on a substantialnumber of small entities. For further infor-mation and for analyses relating to the jointrulemaking, see the preamble to the jointrulemaking. Pursuant to section 7805(f) ofthe Internal Revenue Code, this regulationhas been submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on its impact onsmall business.

Comments and Requests for a PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments(a signed original and eight (8) copies)or electronic comments that are submittedtimely to the IRS. Comments are specifi-cally requested on the clarity of the pro-posed regulations and how they may bemade easier to understand. All commentswill be available for public inspection andcopying. A public hearing may be sched-uled if requested in writing by a personthat timely submits written comments. Ifa public hearing is scheduled, notice of thedate, time, and place for the hearing willbe published in the Federal Register.

Drafting Information

The principal author of these pro-posed regulations is Karen Levin, Officeof the Division Counsel/Associate ChiefCounsel (Tax Exempt and GovernmentEntities), IRS. The proposed regulations,as well as the temporary regulations,have been developed in coordination withpersonnel from the U.S. Department ofLabor and the U.S. Department of Healthand Human Services.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 54 is pro-posed to be amended as follows:

PART 54—PENSION EXCISE TAXES

Paragraph 1. The authority citation forpart 54 is amended by adding an entry innumerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 54.9815–2714 also issued un-

der 26 U.S.C. 9833. * * *Par. 2. Section 54.9815–2714 is added

to read as follows:

§54.9815–2714 Eligibility of childrenuntil at least age 26.

[The text of proposed §54.9815–2714 isthe same as the text of §54.9815–2714Tpublished elsewhere in this issue of theBulletin].

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on May 10, 2010,4:15 p.m., and published in the issue of the Federal Registerfor May 13, 2010, 75 F.R. 27141)

AJCA Modifications to theSection 6011 Regulations;Correction

Announcement 2010–39

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Correcting amendment.

SUMMARY: This document contains acorrection to final regulations (T.D. 9350,2007–2 C.B. 614) which were published inthe Federal Register on Friday, August 3,2007 (72 FR 43146) that modify the rulesrelating to the disclosure of reportabletransactions under section 6011.

DATES: This correction is effective onMay 11, 2010, and is applicable on August3, 2007.

FOR FURTHER INFORMATIONCONTACT: Charles D. Wien orMichael H. Beker, (202) 622–3070 (not atoll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations (T.D. 9350) thatare the subject of this document are undersection 6011 of the Internal Revenue Code.

Need for Correction

As published, the final regulations(T.D. 9350) contain an error that mayprove to be misleading and is in need ofclarification.

* * * * *

Correction of Publication

Accordingly, 26 CFR part 1 is cor-rected by making the following correctingamendment:

2010–22 I.R.B. 724 June 1, 2010

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.6011–4 is amended

by revising the fifth sentence of paragraph(e)(1) to read as follows:§1.6011–4 Requirement of statementdisclosing participation in certaintransactions by taxpayers.

* * * * *(e) * * *(1) * * * In the case of a taxpayer that is

a partnership, an S corporation, or a trust,the disclosure statement for a reportabletransaction must be attached to the part-nership, S corporation, or trust’s tax returnfor each taxable year in which the part-nership, S corporation, or trust participatesin the transaction under the rules of para-graph (c)(3)(i) of this section. * * *

LaNita Van Dyke,Chief, Publications and

Regulations Branch,Legal Processing Division,

Associate Chief Counsel,(Procedure and Administration).

(Filed by the Office of the Federal Register on May 10, 2010,8:45 a.m., and published in the issue of the Federal Registerfor May 11, 2010, 75 F.R. 26061)

Deletions From CumulativeList of OrganizationsContributions to Whichare Deductible Under Section170 of the Code

Announcement 2010–40

The Internal Revenue Service has re-voked its determination that the organi-

zations listed below qualify as organiza-tions described in sections 501(c)(3) and170(c)(2) of the Internal Revenue Code of1986.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is notprecluded from disallowing a deductionfor any contributions made after an or-ganization ceases to qualify under section170(c)(2) if the organization has not timelyfiled a suit for declaratory judgment undersection 7428 and if the contributor (1) hadknowledge of the revocation of the rulingor determination letter, (2) was aware thatsuch revocation was imminent, or (3) wasin part responsible for or was aware of theactivities or omissions of the organizationthat brought about this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-tributions from individuals and organiza-tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin on June 1, 2010 andwould end on the date the court first deter-mines that the organization is not describedin section 170(c)(2) asmore particularly setforth in section 7428(c)(1). For individualcontributors, the maximum deduction pro-tected is $1,000, with a husband and wifetreated as one contributor. This benefit isnot extended to any individual, in wholeor in part, for the acts or omissions of theorganization that were the basis for revo-cation.

Action for Affordable HousingEnglewood, CO

All Gods Creatures Shelter for Abused &Abandoned AnimalsTampa, FL

Carranor Hunt & Polo ClubPerrysburg, OH

Debt Monster Credit Counseling Services,Inc.Rancho Santa Margarita, CA

Farm Mutual InsuranceBaltic, SC

Germania Purchasing GroupBrenham, TX

Orchard Living View, Inc.,Sterling Heights, MI

Silver Ridge Park Golden OldiesToms River, NJ

WJ Consumer Credit of TexasKyle, TX

Eastland Praise and WorshipAiken, NC

The Second Chance Foundation, Inc.Vineyard Haven, MA

Currier Family FoundationSalt Lake City, UT

Chipper Preschool & KindergartenChicago, IL

Desilynn Multiple Sclerosis FoundationLayton, UT

Hawaii Consumer Credit CounselingHonolulu, HI

The Leonard & Beverly GrahamFoundation for the ArtsSalt Lake City, UT

Panther’s House of Pride, Inc.,Decatur, GA

Seed America FoundationCummings, GA

Carey C. Jones Memorial ParkApex, NC

Capital Athletic FoundationSilver Spring, MD

June 1, 2010 725 2010–22 I.R.B.

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe 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 the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.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—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

2010–22 I.R.B. i June 1, 2010

Numerical Finding List1

Bulletins 2010–1 through 2010–22

Announcements:

2010-1, 2010-4 I.R.B. 333

2010-2, 2010-2 I.R.B. 271

2010-3, 2010-4 I.R.B. 333

2010-4, 2010-5 I.R.B. 384

2010-5, 2010-6 I.R.B. 402

2010-6, 2010-6 I.R.B. 402

2010-7, 2010-6 I.R.B. 403

2010-8, 2010-7 I.R.B. 408

2010-9, 2010-7 I.R.B. 408

2010-10, 2010-7 I.R.B. 410

2010-11, 2010-10 I.R.B. 438

2010-12, 2010-7 I.R.B. 410

2010-13, 2010-8 I.R.B. 426

2010-14, 2010-11 I.R.B. 449

2010-15, 2010-10 I.R.B. 438

2010-16, 2010-11 I.R.B. 450

2010-17, 2010-13 I.R.B. 515

2010-18, 2010-12 I.R.B. 460

2010-19, 2010-14 I.R.B. 529

2010-20, 2010-15 I.R.B. 551

2010-21, 2010-15 I.R.B. 551

2010-22, 2010-16 I.R.B. 602

2010-23, 2010-16 I.R.B. 602

2010-24, 2010-15 I.R.B. 587

2010-25, 2010-15 I.R.B. 588

2010-26, 2010-16 I.R.B. 604

2010-27, 2010-18 I.R.B. 657

2010-28, 2010-17 I.R.B. 616

2010-29, 2010-17 I.R.B. 616

2010-30, 2010-19 I.R.B. 668

2010-31, 2010-19 I.R.B. 681

2010-32, 2010-19 I.R.B. 681

2010-33, 2010-18 I.R.B. 658

2010-34, 2010-20 I.R.B. 685

2010-35, 2010-20 I.R.B. 685

2010-36, 2010-21 I.R.B. 696

2010-37, 2010-20 I.R.B. 685

2010-38, 2010-21 I.R.B. 696

2010-39, 2010-22 I.R.B. 724

2010-40, 2010-22 I.R.B. 725

Notices:

2010-1, 2010-2 I.R.B. 251

2010-2, 2010-2 I.R.B. 251

2010-3, 2010-2 I.R.B. 253

2010-4, 2010-2 I.R.B. 253

2010-5, 2010-2 I.R.B. 256

2010-6, 2010-3 I.R.B. 275

2010-7, 2010-3 I.R.B. 296

2010-8, 2010-3 I.R.B. 297

2010-9, 2010-3 I.R.B. 298

Notices— Continued:

2010-10, 2010-3 I.R.B. 299

2010-11, 2010-4 I.R.B. 326

2010-12, 2010-4 I.R.B. 326

2010-13, 2010-4 I.R.B. 327

2010-14, 2010-5 I.R.B. 344

2010-15, 2010-6 I.R.B. 390

2010-16, 2010-6 I.R.B. 396

2010-17, 2010-14 I.R.B. 519

2010-18, 2010-14 I.R.B. 525

2010-19, 2010-7 I.R.B. 404

2010-20, 2010-8 I.R.B. 422

2010-21, 2010-12 I.R.B. 451

2010-22, 2010-10 I.R.B. 435

2010-23, 2010-11 I.R.B. 441

2010-24, 2010-12 I.R.B. 452

2010-25, 2010-14 I.R.B. 527

2010-26, 2010-14 I.R.B. 527

2010-27, 2010-15 I.R.B. 531

2010-28, 2010-15 I.R.B. 541

2010-29, 2010-15 I.R.B. 547

2010-30, 2010-18 I.R.B. 650

2010-31, 2010-16 I.R.B. 594

2010-32, 2010-16 I.R.B. 594

2010-33, 2010-17 I.R.B. 609

2010-34, 2010-17 I.R.B. 612

2010-35, 2010-19 I.R.B. 660

2010-36, 2010-17 I.R.B. 612

2010-37, 2010-18 I.R.B. 654

2010-38, 2010-20 I.R.B. 682

2010-40, 2010-21 I.R.B. 693

2010-41, 2010-22 I.R.B. 715

2010-43, 2010-22 I.R.B. 716

2010-44, 2010-22 I.R.B. 717

Proposed Regulations:

REG-132232-08, 2010-6 I.R.B. 401

REG-134235-08, 2010-16 I.R.B. 596

REG-137036-08, 2010-6 I.R.B. 398

REG-101896-09, 2010-5 I.R.B. 347

REG-117501-09, 2010-11 I.R.B. 442

REG-131028-09, 2010-4 I.R.B. 332

REG-148681-09, 2010-11 I.R.B. 443

REG-114494-10, 2010-22 I.R.B. 723

Revenue Procedures:

2010-1, 2010-1 I.R.B. 1

2010-2, 2010-1 I.R.B. 90

2010-3, 2010-1 I.R.B. 110

2010-4, 2010-1 I.R.B. 122

2010-5, 2010-1 I.R.B. 165

2010-6, 2010-1 I.R.B. 193

2010-7, 2010-1 I.R.B. 231

2010-8, 2010-1 I.R.B. 234

2010-9, 2010-2 I.R.B. 258

2010-10, 2010-3 I.R.B. 300

Revenue Procedures— Continued:

2010-11, 2010-2 I.R.B. 269

2010-12, 2010-3 I.R.B. 302

2010-13, 2010-4 I.R.B. 329

2010-14, 2010-12 I.R.B. 456

2010-15, 2010-7 I.R.B. 404

2010-16, 2010-19 I.R.B. 664

2010-17, 2010-8 I.R.B. 425

2010-18, 2010-9 I.R.B. 427

2010-19, 2010-13 I.R.B. 469

2010-20, 2010-14 I.R.B. 528

2010-21, 2010-13 I.R.B. 473

Revenue Rulings:

2010-1, 2010-2 I.R.B. 248

2010-2, 2010-3 I.R.B. 272

2010-3, 2010-3 I.R.B. 272

2010-4, 2010-4 I.R.B. 309

2010-5, 2010-4 I.R.B. 312

2010-6, 2010-6 I.R.B. 387

2010-7, 2010-8 I.R.B. 417

2010-8, 2010-10 I.R.B. 432

2010-9, 2010-13 I.R.B. 461

2010-10, 2010-13 I.R.B. 461

2010-11, 2010-14 I.R.B. 516

2010-12, 2010-18 I.R.B. 617

2010-13, 2010-21 I.R.B. 691

Tax Conventions:

2010-2, 2010-2 I.R.B. 271

2010-26, 2010-16 I.R.B. 604

2010-27, 2010-18 I.R.B. 657

Treasury Decisions:

9474, 2010-4 I.R.B. 322

9475, 2010-4 I.R.B. 304

9476, 2010-5 I.R.B. 336

9477, 2010-6 I.R.B. 385

9478, 2010-4 I.R.B. 315

9479, 2010-18 I.R.B. 618

9480, 2010-11 I.R.B. 439

9481, 2010-17 I.R.B. 605

9482, 2010-22 I.R.B. 698

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin2009–52, dated December 28, 2009.

June 1, 2010 ii 2010–22 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2010–1 through 2010–22

Announcements:

2009-23

Corrected by

Ann. 2010-29, 2010-17 I.R.B. 616

2009-51

Supplemented and superseded by

Ann. 2010-16, 2010-11 I.R.B. 450

2010-4

Corrected by

Ann. 2010-10, 2010-7 I.R.B. 410

2010-22

Corrected by

Ann. 2010-34, 2010-20 I.R.B. 685

Notices:

2005-88

Superseded by

Notice 2010-13, 2010-4 I.R.B. 327

2006-87

Superseded by

Notice 2010-27, 2010-15 I.R.B. 531

2007-25

Superseded by

Notice 2010-27, 2010-15 I.R.B. 531

2007-77

Superseded by

Notice 2010-27, 2010-15 I.R.B. 531

2008-14

Modified and superseded by

Notice 2010-33, 2010-17 I.R.B. 609

2008-41

Modified by

Notice 2010-7, 2010-3 I.R.B. 296

2008-55

Modified by

Notice 2010-3, 2010-2 I.R.B. 253

2008-88

Modified by

Notice 2010-7, 2010-3 I.R.B. 296

2008-107

Superseded by

Notice 2010-27, 2010-15 I.R.B. 531

2008-113

Modified by

Notice 2010-6, 2010-3 I.R.B. 275

Notices— Continued:

2008-115

Modified by

Notice 2010-6, 2010-3 I.R.B. 275

2008-116

Modified and superseded by

Notice 2010-32, 2010-16 I.R.B. 594

2009-11

Amplified by

Notice 2010-9, 2010-3 I.R.B. 298

2009-13

Obsoleted by

T.D. 9478, 2010-4 I.R.B. 315REG-131028-09, 2010-4 I.R.B. 332

2009-35

Supplemented by

Notice 2010-17, 2010-14 I.R.B. 519

2009-38

Amplified and superseded by

Notice 2010-2, 2010-2 I.R.B. 251

2009-62

Modified and supplemented by

Notice 2010-23, 2010-11 I.R.B. 441

Proposed Regulations:

REG-127270-06

Hearing scheduled by

Ann. 2010-6, 2010-6 I.R.B. 402

REG-134235-08

Hearing scheduled by

Ann. 2010-33, 2010-18 I.R.B. 658

Revenue Procedures:

80-59

Modified and superseded by

Rev. Proc. 2010-11, 2010-2 I.R.B. 269

87-35

Obsoleted by

Rev. Proc. 2010-3, 2010-1 I.R.B. 110

2001-18

Superseded by

Rev. Proc. 2010-16, 2010-19 I.R.B. 664

2008-14

Updated by

Rev. Proc. 2010-15, 2010-7 I.R.B. 404

2009-1

Superseded by

Rev. Proc. 2010-1, 2010-1 I.R.B. 1

2009-2

Superseded by

Rev. Proc. 2010-2, 2010-1 I.R.B. 90

Revenue Procedures— Continued:

2009-3

Superseded by

Rev. Proc. 2010-3, 2010-1 I.R.B. 110

2009-4

Superseded by

Rev. Proc. 2010-4, 2010-1 I.R.B. 122

2009-5

Superseded by

Rev. Proc. 2010-5, 2010-1 I.R.B. 165

2009-6

Superseded by

Rev. Proc. 2010-6, 2010-1 I.R.B. 193

2009-7

Superseded by

Rev. Proc. 2010-7, 2010-1 I.R.B. 231

2009-8

Superseded by

Rev. Proc. 2010-8, 2010-1 I.R.B. 234

2009-9

Superseded by

Rev. Proc. 2010-9, 2010-2 I.R.B. 258

2009-15

Amplified and superseded by

Rev. Proc. 2010-12, 2010-3 I.R.B. 302

2009-17

Superseded by

Rev. Proc. 2010-21, 2010-13 I.R.B. 473

2009-25

Superseded by

Rev. Proc. 2010-3, 2010-1 I.R.B. 110

2009-55

Corrected by

Ann. 2010-11, 2010-10 I.R.B. 438

2010-1

Corrected by

Ann. 2010-5, 2010-6 I.R.B. 402

Revenue Rulings:

67-436

Obsoleted by

REG-101896-09, 2010-5 I.R.B. 347

92-19

Supplemented in part by

Rev. Rul. 2010-7, 2010-8 I.R.B. 417

2008-52

Supplemented and superseded by

Rev. Rul. 2010-2, 2010-3 I.R.B. 272

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin 2009–52, dated December 28,2009.

2010–22 I.R.B. iii June 1, 2010

Treasury Decisions:

9350

Corrected by

Ann. 2010-38, 2010-21 I.R.B. 696Ann. 2010-39, 2010-22 I.R.B. 724

9424

Corrected by

Ann. 2010-18, 2010-12 I.R.B. 460

9443

Corrected by

Ann. 2010-8, 2010-7 I.R.B. 408

9458

Corrected by

Ann. 2010-7, 2010-6 I.R.B. 403

June 1, 2010 iv 2010–22 I.R.B.

INDEXInternal Revenue Bulletins 2010–1 through2010–22

The abbreviation and number in parenthesis following the index entryrefer to the specific item; numbers in roman and italic type followingthe parenthesis refers to the Internal Revenue Bulletin in which the itemmay be found and the page number on which it appears.

Key to Abbreviations:Ann AnnouncementCD Court DecisionDO Delegation OrderEO Executive OrderPL Public LawPTE Prohibited Transaction ExemptionRP Revenue ProcedureRR Revenue RulingSPR Statement of Procedural RulesTC Tax ConventionTD Treasury DecisionTDO Treasury Department Order

EMPLOYEE PLANSCorrection of certain failures of nonqualified deferred compen-

sation plans to comply with the plan document requirementsof section 409A (Notice 6) 3, 275

Defined benefit plans, determination letters (Ann 20) 15, 551Dependent coverage of children under group health plans to age

26 (TD 9482) 22, 698; (REG–114494–10) 22, 723Determination letters, issuing procedures (RP 6) 1, 193FBAR administrative relief for signature authority and certain

commingled funds (Notice 23) 11, 441FBAR filing requirements (Ann 16) 11, 450Full funding limitations, weighted average interest rates, seg-

ment rates for:January 2010 (Notice 14) 5, 344February 2010 (Notice 20) 8, 422March 2010 (Notice 24) 12, 452April 2010 (Notice 36) 17, 612May 2010 (Notice 40) 21, 693

Health care benefits with respect to children under age 27, taxtreatment (Notice 38) 20, 682

Letter rulings:And determination letters, areas which will not be issued

from:Associates Chief Counsel and Division Counsel (TE/GE)

(RP 3) 1, 110Associate Chief Counsel (International) (RP 7) 1, 231

And general information letters, procedures (RP 4) 1, 122User fees, request for letter rulings (RP 8) 1, 234

Parity in mental health and substance use disorder benefits undergroup health plans (TD 9479) 18, 618

EMPLOYEE PLANS—Cont.Proposed regulations:

26 CFR 54.9815–2714, added; dependent coverage of chil-dren under group health plans to age 26 (REG–114494–10)22, 723

Regulations:26 CFR 54.9812–1T, revised; 602.101, amended; interim

final rules under the Paul Wellstone and Pete DomeniciMental Health Parity and Addiction Equity Act of 2008(MHPAEA) (TD 9479) 18, 618

26 CFR 54.9815–2714T, added; 602.101, amended; depen-dent coverage of children under group health plans to age26 (TD 9482) 22, 698

Technical advice to IRS employees (RP 5) 1, 165Qualified plans:

Changes in funding method (Ann 3) 4, 333Military services, HEART Act (Notice 15) 6, 390

EMPLOYMENT TAXDefinition of last known address (RP 16) 19, 664Designation of section 3504 agent for FUTA tax purposes

(REG–137036–08) 6, 398Frivolous tax return positions (Notice 33) 17, 609Furnishing identifying number of tax return preparer

(REG–134235–08) 16, 596Health care benefits with respect to children under age 27, tax

treatment (Notice 38) 20, 682Letter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1; correction (Ann 5) 6, 402

Proposed regulations:26 CFR 1.6109–2, amended; furnishing identifying number

of tax return preparer (REG–134235–08) 16, 59626 CFR 31.3504, revised; section 3504 agent employment tax

liability (REG–137036–08) 6, 398Technical Advice Memoranda (TAMs) (RP 2) 1, 90

ESTATE TAXDefinition of last known address (RP 16) 19, 664FBAR administrative relief for signature authority and certain

commingled funds (Notice 23) 11, 441FBAR filing requirements (Ann 16) 11, 450Frivolous tax return positions (Notice 33) 17, 609Furnishing identifying number of tax return preparer

(REG–134235–08) 16, 596Letter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1; correction (Ann 5) 6, 402

Proposed regulations:26 CFR 1.6109–2, amended; furnishing identifying number

of tax return preparer (REG–134235–08) 16, 596Technical Advice Memoranda (TAMs) (RP 2) 1, 90

2010–22 I.R.B. v June 1, 2010

EXCISE TAXDependent coverage of children under group health plans to age

26 (TD 9482) 22, 698; (REG–114494–10) 22, 723FBAR administrative relief for signature authority and certain

commingled funds (Notice 23) 11, 441Frivolous tax return positions (Notice 33) 17, 609Furnishing identifying number of tax return preparer

(REG–134235–08) 16, 596Letter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1; correction (Ann 5) 6, 402

Parity in mental health and substance use disorder benefits undergroup health plans (TD 9479) 18, 618

Proposed regulations:26 CFR 1.6109–2, amended; furnishing identifying number

of tax return preparer (REG–134235–08) 16, 59626 CFR 54.9815–2714, added; dependent coverage of chil-

dren under group health plans to age 26 (REG–114494–10)22, 723

Technical Advice Memoranda (TAMs) (RP 2) 1, 90Regulations:

26 CFR 54.9812–1T, revised; 602.101, amended; interimfinal rules under the Paul Wellstone and Pete DomeniciMental Health Parity and Addiction Equity Act of 2008(MHPAEA) (TD 9479) 18, 618

26 CFR 54.9815–2714T, added; 602.101, amended; depen-dent coverage of children under group health plans to age26 (TD 9482) 22, 698

EXEMPT ORGANIZATIONSDefinition of last known address (RP 16) 19, 664FBAR administrative relief for signature authority and certain

commingled funds (Notice 23) 11, 441FBAR filing requirements (Ann 16) 11, 450Frivolous tax return positions (Notice 33) 17, 609Letters rulings:

And determination letters:Areas which will not be issued from Associates Chief

Counsel and Division Counsel (TE/GE) (RP 3) 1, 110Exemption application determination letter rulings under sec-

tions 501 and 521 (RP 9) 2, 258And general information letters, procedures (RP 4) 1, 122User fees, request for letter rulings (RP 8) 1, 234

List of organizations classified as private foundations (Ann 23)16, 602; (Ann 29) 17, 616; (Ann 31) 19, 681; (Ann 36) 21, 696

Procedures for charitable trusts to obtain Type III supporting or-ganization classification rulings and refunds of section 4940taxes for 2008 (Ann 19) 14, 529

Revocations (Ann 1) 4, 333; (Ann 4) 5, 384; correction (Ann 10)7, 410; (Ann 13) 8, 426; (Ann 15) 10, 438; (Ann 24) 15, 587;(Ann 28) 17, 616; (Ann 35) 20, 685; (Ann 40) 22, 725

Technical advice to IRS employees (RP 5) 1, 165

GIFT TAXDefinition of last known address (RP 16) 19, 664FBAR administrative relief for signature authority and certain

commingled funds (Notice 23) 11, 441FBAR filing requirements (Ann 16) 11, 450Frivolous tax return positions (Notice 33) 17, 609Furnishing identifying number of tax return preparer

(REG–134235–08) 16, 596Letter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1; correction (Ann 5) 6, 402

Proposed regulations:26 CFR 1.6109–2, amended; furnishing identifying number

of tax return preparer (REG–134235–08) 16, 596Technical Advice Memoranda (TAMs) (RP 2) 1, 90Treatment of transfers made in trust during 2010 (Notice 19) 7,

404

INCOME TAXAmerican Jobs Creation Act (AJCA) modification to the Section

6011 regulations, correction (Ann 38) 21, 696; additional cor-rection (Ann 39) 22, 724

Accounting methods, December 2009 revision of Form 3115(Ann 32) 19, 681

Advance Pricing Agreement (APA) program, 2009 (Ann 21) 15,551

Apportionment of tax items among the members of a controlledgroup of corporations (TD 9476) 5, 336

Arbitrage treatment of certain perpetual funds (Notice 5) 2, 256Basis reporting by securities brokers and basis determination for

stock (REG–101896–09) 5, 347Bonds:

Allocation of qualified school construction bonds (QSCBs),national limitation for 2010 (Notice 17) 14, 519

Midwestern Disaster Area Bonds, Hurricane Ike Bonds, GulfOpportunity Zone Bonds (Notice 10) 3, 299

Qualified zone academy bond limitation for year 2010 (Notice22) 10, 435

Reissuance of tax-exempt bonds (Notice 7) 3, 296Consumer Price Index (CPI) adjustments, certain loans under

section 1274A for 2010 (RR 2) 3, 272Corporations:

Nonshareholder contribution to capital, Smart Grid Invest-ment Grant (RP 20) 14, 528

Reorganizations, distribution under sections 368(a)(1)(D) and354(b)(1)(B) (TD 9475) 4, 304

Credits:Section 45R:

Average premium for the small group market (RR 13) 21,691

Tax credit for employee health insurance expenses of smallemployers (Notice 44) 22, 717

Low-income housing tax credit:2010 population figures used for calculation (Notice 21)

12, 451

June 1, 2010 vi 2010–22 I.R.B.

INCOME TAX—Cont.American Recovery and Reinvestment Tax Act of 2009

clarifications (Notice 18) 14, 525Nonconventional source fuel credit, inflation adjustment fac-

tor and phase-out amount for CY 2009 (Notice 31) 16, 594Renewable electricity, refined coal, and Indian coal produc-

tion credit, 2010 inflation adjustment (Notice 37) 18, 654Specified tax credit bonds (Notice 35) 19, 660Stripping transactions for qualified tax credit bonds (Notice

28) 15, 541Damages received on account of personal physical injuries or

physical sickness, hearing on REG–127270–06 (Ann 6) 6, 402Deemed dispositions by individuals emigrating from Canada (RP

19) 13, 469Definition of last known address (RP 16) 19, 664Definition of foreign partnership, sections 7701(a)(4),

7701(a)(5), and 7805 (Notice 41) 22, 715Depreciation, 2010 limitations on depreciation deductions for

passenger automobiles (RP 18) 9, 427Disciplinary actions involving attorneys, certified public accoun-

tants, enrolled agents, and enrolled actuaries (Ann 12) 7, 410;(Ann 25) 15, 588; (Ann 37) 20, 685

Disclosure of activity grouping under Code section 469 (RP 13)4, 329

Disclosure or use of information by return preparers:Amendments to section 7216 regulations (TD 9478) 4, 315;

(REG–131028–09) 4, 332In communicating with taxpayers (RR 4) 4, 309In connection with professional liability insurance (RR 5) 4,

312Draft schedule and instructions for uncertain tax positions pro-

posal (Ann 30) 19, 668Electronic filing, waiver request procedures (Notice 13) 4, 327Employer-provided vehicles, cents-per-mile rule, maximum

2010 values for vehicle (RP 10) 3, 300Expenses, housing cost amounts eligible for exclusion or deduc-

tion, 2010 (Notice 27) 15, 531Extension of interim guidance on section 67 limitation on estates

or trusts (Notice 32) 16, 594Extension of timeframe for disclosures to persons designated in a

written request or consent pursuant to section 6103(c) (Notice8) 3, 297

Extension of time to submit comments on Announcement2010–9 regarding reporting uncertain tax positions, draftschedule, and implementation date (Ann 17) 13, 515

FATCA, implementation and request for comments (Ann 22) 16,602; correction (Ann 34) 20, 685

FBAR administrative relief for signature authority and certaincommingled funds (Notice 23) 11, 441

FBAR filing requirements (Ann 16) 11, 450Foreign earned income exclusion (RP 17) 8, 425Frivolous tax return positions (Notice 33) 17, 609Furnishing identifying number of tax return preparer

(REG–134235–08) 16, 596Guidance priority list, recommendations for 2010–2011 (Notice

43) 22, 716

INCOME TAX—Cont.Health care benefits with respect to children under age 27, tax

treatment (Notice 38) 20, 682Information reporting, deadline to furnish payee statements (No-

tice 9) 3, 298Insurance companies:

Interest rate tables (RR 7) 8, 417Life insurance reserves, actuarial guideline XLIII, AG 43,

CARVM (Notice 29) 15, 547Loss payment patterns and discount factors for the 2009 acci-

dent year, correction to RP 2009–55 (Ann 11) 10, 438Interest:

Certain applicable high yield discount obligations issued in2010 (Notice 11) 4, 326

Investment:Federal short-term, mid-term, and long-term rates for:

January 2010 (RR 1) 2, 248February 2010 (RR 6) 6, 387March 2010 (RR 8) 10, 432April 2010 (RR 11) 14, 516May 2010 (RR 12) 18, 617

Rates:Underpayments and overpayments, quarter beginning:

April 1, 2010 (RR 9) 13, 461Investment in U.S. property, extension of regulations (Notice 12)

4, 326Letter rulings:

And determination letters, areas which will not be issuedfrom:Associate Chief Counsel and Division Counsel (TE/GE)

(RP 3) 1, 110Associates Chief Counsel (International) (RP 7) 1, 231

And information letters issued by Associate Offices, determi-nation letters issued by Operating Divisions (RP 1) 1, 1;correction (Ann 5) 6, 402

Like-kind exchanges (RP 14) 12, 456Military Spouses Residency Relief Act (MSRRA), transitional

guidance for taxpayers claiming relief (Notice 30) 18, 650Modification to consolidated return regulation (TD 9458) per-

mitting an election to treat a liquidation of a target, followedby a recontribution to a new target, as a cross-chain reorgani-zation (Ann 7) 6, 403

Penalties, substantial understatement, preparer penalty (RP 15)7, 404

Personal exemption, additional for Hurricane Katrina displacedindividual (TD 9474) 4, 322

PFIC shareholder reporting under new section 1298(f) for taxyears beginning before March 18, 2010 (Notice 34) 17, 612

Postponement of certain tax-related deadlines by reason of a fed-erally declared disaster or terroristic or military action, correc-tion to TD 9443 (Ann 8) 7, 408

Private foundations, organizations now classified as (Ann 23) 16,602; (Ann 29) 17, 616; (Ann 31) 19, 681; (Ann 36) 21, 696

Proposed Regulations:26 CFR 1.304–4 revised; use of controlled corporations to

avoid the application of section 304 (REG–132232–08) 6,401

2010–22 I.R.B. vii June 1, 2010

INCOME TAX—Cont.26 CFR 1.408–7, amended; 1.1012–1, amended; 1.6039–2,

amended; 1.6042–4, amended; 1.6044–5, amended;1.6045–1 thru –5, amended; 1.6045A–1, added;1.6045B–1, added; 1.6049–6, amended; 31.3406(b)(3)–2,amended; 31.6051–4, amended; 301.6721–1, amended;301.6722–1, amended; basis reporting by securities bro-kers and basis determination for stock (REG–101896–09)5, 347

26 CFR 1.6109–2, amended; furnishing identifying numberof tax return preparer (REG–134235–08) 16, 596

26 CFR 1.6654–2, amended; reduced 2009 estimated incometax payments for individuals with small business income(REG–117501–09) 11, 442

26 CFR 301.7216–2, amended; amendments to section 7216regulations-disclosure or use of information by preparers ofreturns (REG–131028–09) 4, 332

Publications:1167, General Rules and Specifications for Substitute Forms

and Schedules (RP 21) 13, 473Qualified disasters:

Chile earthquake occurring in February 2010 (Notice 26) 14,527

Haiti earthquake occurring in January 2010 (Notice 16) 6, 396Reduced 2009 estimated income tax payments for indi-

viduals with small business income (TD 9480) 11, 439;(REG–117501–09) 11, 442

Regulations:26 CFR 1.162–24, added; 301.9100–4T; amended; 602.101,

amended; travel expenses of state legislators (TD 9481) 17,605

26 CFR 1.304–4, added; 1.304–4T, revised; use of controlledcorporations to avoid the application of section 304 (TD9477) 6, 385

26 CFR 1.358–2, amended; 1.368–2, amended; 1.368–2T,removed; 1.1502–13, amended; corporate reorganizations,distribution under sections 368(a)(1)(D) and 354(b)(1)(B)(TD 9475) 4, 304

26 CFR 1.924(a), amended; 1.1502–43, amended;1.1502–43T, removed; 1.1502–47, amended; 1.1502–47T,removed; 1.561–0 thru –3, added;1.1561–0T thru –3T,removed; apportionment of tax items among the membersof a controlled groups of corporation (TD 9476) 5, 336

26 CFR 1.1502–13T, amended; modification to consolidatedreturn regulation permitting an election to treat a liquidationof a target, followed by a recontribution to a new target, asa cross-chain reorganization; correction to TD 9458 (Ann7) 6, 403

26 CFR 1.6011–4, revised; correction to TD 9350 (Ann 39)22, 724

26 CFR 1.6654–2, amended; 1.6654–2T, added; reduced 2009estimated income tax payments for individuals with smallbusiness income (TD 9480) 11, 439

26 CFR 1.9300–1, added; 1.9300–1T, removed; reduction intaxable income for housing Hurricane Katrina displaced in-dividuals (TD 9474) 4, 322

INCOME TAX—Cont.26 CFR 301.7216–0, –2, amended; 301.7216–0T, –2T, added;

amendments to section 7216 regulations-disclosure or useof information by preparers of returns (TD 9478) 4, 315

Requirements, trustee of a blind trust (RP 11) 2, 269Revocations, exempt organizations (Ann 1) 4, 333; (Ann 4) 5,

384; correction (Ann 10) 7, 410; (Ann 13) 8, 426; (Ann 15)10, 438; (Ann 24) 15, 587; (Ann 28) 17, 616; (Ann 35) 20,685; (Ann 40) 22, 725

Section 305 distributions of stock (RP 12) 3, 302Section 338 election, qualified foreign contract (Notice 1) 2, 251Section 368 reorganizations, continuity of interest (Notice 25)

14, 527Section 382 limitation, ownership changes, pre-change losses

(Notice 2) 2, 251Section 385, auction rate preferred stock (Notice 3) 2, 253Section 1256(g)(7)(C) qualified board or exchange (RR 3) 3, 272Standard Industry Fare Level (SIFL) formula (RR 10) 13, 461State legislators, section 162(h) election to deduct deemed living

expenses (TD 9481) 17, 605Substitute forms and schedules, general rules and specifications

(RP 21) 13, 473Technical Advice Memoranda (TAMs) (RP 2) 1, 90Tax conventions:

U.S.-Belgium Tax Convention, agreement on pension plansunder Article 17 (Ann 27) 18, 657

U.S.-Canada Tax Convention, Article XIII(7) election (RP19) 13, 469

U.S.-Germany agreement with respect to consular employees(Ann 2) 2, 271

U.S.-Netherlands agreement with respect to the elimination ofthe Dutch “qualification” certification (Ann 26) 16, 604

Transfers of stock or securities to foreign corporations under sec-tion 304 (TD 9477) 6, 385; (REG–132232–08) 6, 401

Uncertain tax positions, policy of restraint (Ann 9) 7, 408Unified rule for loss on subsidiary stock (Ann 18) 12, 460Widely held fixed investment trusts (WHIFT) transition guid-

ance (Notice 4) 2, 253

SELF-EMPLOYMENT TAXFrivolous tax return positions (Notice 33) 17, 609Furnishing identifying number of tax return preparer

(REG–134235–08) 16, 596Letter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1; correction (Ann 5) 6, 402

Proposed regulations:26 CFR 1.6109–2, amended; furnishing identifying number

of tax return preparer (REG–134235–08) 16, 596Technical Advice Memoranda (TAMs) (RP 2) 1, 90

June 1, 2010 viii 2010–22 I.R.B.

2010–22 I.R.B. June 1, 2010

June 1, 2010 2010–22 I.R.B.

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