Source: https://www.irs.gov/irb/2015-07_IRB
Timestamp: 2019-04-18 10:48:29+00:00

Document:
This revenue procedure supersedes Revenue Procedure 2012–11, 2012–7 I.R.B. 368, and sets forth procedures for issuing determination letters and rulings on the exempt status of qualified nonprofit health insurance issuers (QNHIIs) described in § 501(c)(29) of the Internal Revenue Code (Code).
These final regulations authorize the IRS to prescribe the procedures by which certain entities may apply to the IRS for recognition of exemption from Federal income tax. These regulations affect qualified nonprofit health insurance issuers, participating in the Consumer Operated and Oriented Plan program established by the Centers for Medicare and Medicaid Services, that seek exemption from federal income tax under the Internal Revenue Code.
This revenue procedure updates Rev. Proc. 2014–15, 2014–5 I.R.B. 456, and identifies circumstances under which the disclosure on a taxpayer's income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under section 6662(d) of the Internal Revenue Code (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns.
This document contains final regulations authorizing the IRS to prescribe the procedures by which certain entities may apply to the IRS for recognition of exemption from Federal income tax. These regulations affect qualified nonprofit health insurance issuers participating in the Consumer Operated and Oriented Plan program established by the Centers for Medicare and Medicaid Services that seek exemption from federal income tax under the Internal Revenue Code.
Effective date: These regulations are effective on January 29, 2015.
Applicability date: For date of applicability, see § 1.501(c)(29)–1(c).
Martin Schäffer, (202) 317-5800 (not a toll-free number).
Section 501(c)(29) of the Internal Revenue Code (Code) provides requirements for tax exemption under section 501(a) for qualified nonprofit health insurance issuers (QNHIIs). Section 501(c)(29) was added to the Code by section 1322(h)(1) of the Patient Protection and Affordable Care Act, Public Law 111–148 (March 23, 2010) (Affordable Care Act).
Section 1322 of the Affordable Care Act directs the Centers for Medicare and Medicaid Services (CMS) to establish the Consumer Operated and Oriented Plan (CO-OP) program. The purpose of the CO-OP program is to foster the creation of member-governed QNHIIs that will operate with a strong consumer focus and offer qualified health plans in the individual and small group markets. CMS provides loans and repayable grants (collectively, loans) to organizations applying to become QNHIIs to help cover start-up costs and meet any solvency requirements in States in which the organization is licensed to issue qualified health plans. For each loan, CMS issues a Notice of Award and Loan Agreement to the QNHII. The appropriate officer of the QNHII or of the QNHII’s board of directors must sign and return the loan agreement to CMS. On December 13, 2011, CMS issued final regulations implementing the CO-OP program at 76 FR 77392.
The CMS final regulations define a QNHII as an entity that, within specified time frames, satisfies or can reasonably be expected to satisfy the standards in section 1322(c) of the Affordable Care Act and in the CMS final regulations. The entity will constitute a QNHII until such time as CMS determines the entity does not satisfy or cannot reasonably be expected to satisfy these standards. Section 1322(c) of the Affordable Care Act imposes a number of requirements, including that a QNHII be organized as a nonprofit member corporation under State law and that substantially all its activities consist of the issuance of qualified health plans in the individual and small group markets in each State in which it is licensed to issue such plans.
Section 501(c)(29)(A) of the Code provides that a QNHII (within the meaning of section 1322(c) of the Affordable Care Act) which has received a loan or grant under the CO-OP program may be recognized as exempt from taxation under section 501(a), but only for periods for which the organization is in compliance with the requirements of section 1322 of the Affordable Care Act and any loan or grant agreement with the Secretary of Health and Human Services. Section 501(c)(29)(B) provides that a QNHII will not qualify for tax-exemption unless it meets four additional requirements. First, the QNHII must give notice to the Secretary of the Treasury, in such manner as the Secretary may by regulations prescribe, that it is applying for recognition of exemption as an organization described in section 501(c)(29). Second, no part of the QNHII’s net earnings may inure to the benefit of any private shareholder or individual, except to the extent permitted by section 1322(c)(4) of the Affordable Care Act (which requires that any profits be used to lower premiums, to improve benefits, or for other programs intended to improve the quality of health care delivered to the organization’s members). Third, no substantial part of the QNHII’s activities may consist of carrying on propaganda, or otherwise attempting, to influence legislation. Finally, the QNHII may not participate in or intervene in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office. As required by section 1322(b)(2)(C)(iii) of the Affordable Care Act, CMS must notify the IRS of any determination of a failure to comply with the CO-OP program standards, including any loan agreement, that may affect a QNHII’s tax-exempt status under section 501(c)(29) of the Code.
On February 7, 2012, temporary regulations (TD 9574) authorizing the IRS to prescribe the procedures by which certain entities may apply to the IRS for recognition of exemption from Federal income tax were published in the Federal Register (77 FR 6005). On the same date, and under the authority of the temporary regulations, the IRS issued Rev. Proc. 2012–11, 2012–7 IRB 368, providing instructions on how an organization should apply for recognition of exemption as an organization described in section 501(c)(29). The IRS intends to reissue Rev. Proc. 2012–11 (with a 2015 designation) under the authority of the final regulations.
A notice of proposed rulemaking (REG–135071–11) cross-referencing the temporary regulations was also published in the Federal Register on February 7, 2012 (77 FR 6027). No public hearing was requested or held. Two comments responding to the notice of proposed rulemaking were received and are available at www.regulations.gov (Docket Number IRS–2012–0007). After consideration of the two comments, the proposed regulations are adopted without revision, and the corresponding temporary regulations are removed.
Section 501(c)(29)(B)(i) of the Code provides that a QNHII which has received a loan through the CO-OP program established under the Affordable Care Act by the Centers for Medicare and Medicaid Services may be recognized as exempt from taxation under section 501(a) only if, among other things, the QNHII gives notice to the IRS, in such manner as the Secretary may by regulations prescribe, that it is applying for recognition as an organization described in section 501(c)(29). These final regulations provide that the Commissioner has the authority to prescribe the application procedures that a QNHII seeking such recognition must follow. These final regulations expressly authorize the Commissioner to recognize a QNHII as exempt effective as of a date prior to the date of its application, provided that the application is submitted in the manner and within the time prescribed by the Commissioner and that the QNHII’s prior purposes and activities were consistent with the requirements for exempt status under section 501(c)(29).
Neither of the comments received addressed the proposed rule authorizing the IRS to prescribe the procedures by which certain entities may apply for recognition of exemption from Federal income tax as organizations described in section 501(c)(29). One commenter suggested that the final rule clarify that the failure of a QNHII to meet the requirements of state insurance laws may be grounds for the denial or revocation of the entity’s tax-exempt status. In addition, the commenter suggested that the application for a section 501(c)(29) determination letter, as described in Rev. Proc. 2012–11, should include an affirmation by the entity seeking an exemption that it meets all applicable state requirements for a qualified health insurer, including solvency and licensing standards.
The final regulations do not incorporate these suggestions. Section 501(c)(29)(A) provides for recognition of a QNHII that has received a loan or grant under the CO-OP program for periods for which the organization is in compliance with the requirements of the Affordable Care Act and of any CO-OP program loan or grant. An entity that CMS has determined qualifies as a QNHII remains a QNHII until CMS determines that it does not satisfy or cannot reasonably be expected to satisfy the standards in section 1322(c) of the Affordable Care Act and the CMS final regulations. CMS must notify the IRS if a QNHII fails to comply with the CO-OP program standards, including any loan agreement. If CMS determines that an organization no longer qualifies as a QNHII, it will lose its tax-exempt status under section 501(c)(29) of the Code. Because the commenter’s suggestions relate to an organization’s qualification as a QNHII, rather than to the requirements for a QNHII to be recognized as tax-exempt, these suggestions were not adopted.
Another commenter recommended that the final rule make it clear that all state and federal laws and regulations that currently apply to 501(c) organizations – including those related to transparency, reporting, and the treatment of assets upon dissolution – apply also to organizations recognized under section 501(c)(29), noting particularly the requirement to file a Form 990, “Return of Organization Exempt From Income Tax,” and related documents on an annual basis. The commenter further recommended that the final rule specifically address aspects of the Affordable Care Act that are not within the jurisdiction of the Treasury Department.
The final regulations do not incorporate these suggestions. With respect to the Code, different requirements apply to different types of organizations described in section 501(c). Section 501(c)(29)(B) sets forth the conditions that a QNHII must satisfy for exemption from Federal income tax. Section 6033 and the regulations thereunder generally requires all organizations exempt from taxation under section 501(a), including QNHIIs exempt under section 501(c)(29), to file Form 990, unless an organization qualifies for an exception from the filing requirement. With respect to section 1322 of Affordable Care Act, CMS issued final regulations in December 2011 implementing the CO-OP program and providing the basic standards that an organization must meet to be a QNHII and participate in the program. Those requirements are outside the jurisdiction of the Treasury Department. For these reasons no additional regulatory guidance is needed.
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It has been determined, also, that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply, and because no collection of information is imposed on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant to section 7805(f) of the Code, the NPRM preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
The principal author of these regulations is Martin Schäffer of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), although other persons in the IRS and the Treasury Department participated in their development.
§ 1.501(c)(29)–1 CO-OP Health Insurance Issuers.
(a) Organizations must notify the Commissioner that they are applying for recognition of section 501(c)(29) status. An organization will not be treated as described in section 501(c)(29) unless the organization has given notice to the Commissioner that it is applying for recognition as an organization described in section 501(c)(29) in the manner prescribed by the Commissioner in published guidance.
(b) Effective date of recognition of section 501(c)(29) status. An organization may be recognized as an organization described in section 501(c)(29) as of a date prior to the date of the notice required by paragraph (a) of this section if the notice is given in the manner and within the time prescribed by the Commissioner and the organization’s purposes and activities prior to giving such notice were consistent with the requirements for exempt status under section 501(c)(29). However, an organization may not be recognized as an organization described in section 501(c)(29) before the later of its formation or March 23, 2010.
(c) Effective/applicability date. Paragraphs (a) and (b) of this section are applicable beginning February 7, 2012.
Par. 3. Section 1.501(c)(29)–1T is removed.
Mark J. Mazur Assistant Secretary of the Treasury.
This revenue procedure updates Rev. Proc. 2014–15, 2014–5 I.R.B. 456, and identifies circumstances under which the disclosure on a taxpayer’s income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under section 6662(d) of the Internal Revenue Code (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns. This revenue procedure does not apply with respect to any other penalty provisions (including but not limited to the disregard provisions of the section 6662(b)(1) accuracy-related penalty, the section 6662(b)(6) accuracy-related penalty and the section 6662(i) increased accuracy-related penalty in the case of nondisclosed noneconomic substance transactions, and the section 6662(j) increased accuracy-related penalty in the case of undisclosed foreign financial asset understatements). If this revenue procedure does not include an item, disclosure is adequate with respect to that item only if made on a properly completed Form 8275 or 8275–R, as appropriate, attached to the return for the year or to a qualified amended return. See Treas. Reg. § 1.6664–2(c) for information about qualified amended returns.
This revenue procedure applies to any income-tax return filed on 2014 tax forms for a taxable year beginning in 2014, and to any income-tax return filed in 2015 on 2014 tax forms for short taxable years beginning in 2015.
Editorial changes have been made throughout this revenue procedure. No substantive changes have been made. For instance, Section 1 of the revenue procedure was revised to include a non-exclusive list of examples of provisions to which this revenue procedure does not apply. This language was included in the revenue procedure in prior years, but was removed last year to make the section more concise. Because of questions regarding this change, the language is being reinserted into this year’s revenue procedure. Reinsertion of this language is editorial only and is intended to increase clarity.
.01 If section 6662 applies to any portion of an underpayment of tax required to be shown on a return, an amount equal to 20 percent of the portion of the underpayment is added to the tax. The penalty rate increases to 40 percent in the case of gross valuation misstatements under section 6662(h), nondisclosed noneconomic substance transactions under section 6662(i), or undisclosed foreign financial asset understatements under section 6662(j). Section 6662(b)(2) applies to the portion of an underpayment of tax that is attributable to a substantial understatement of income tax.
.02 There is a substantial understatement of income tax if the amount of the understatement exceeds the greater of 10 percent of the amount of tax required to be shown on the return for the taxable year or $5,000. Section 6662(d)(1). Section 6662(d)(1)(B) provides a special rule for corporations. A corporation (other than an S corporation or a personal holding company) has a substantial understatement of income tax if the amount of the understatement exceeds the lesser of (i) 10 percent of the tax required to be shown on the return for a taxable year (or, if greater, $10,000) or (ii) $10,000,000. An understatement is the excess of the amount of tax required to be shown on the return for the taxable year over the amount of the tax that is shown on the return reduced by any rebate. Section 6662(d)(2).
.03 In the case of an item not attributable to a tax shelter, if the taxpayer has a reasonable basis for the tax treatment of the item, the amount of the understatement is reduced by the portion of the understatement attributable to the item with respect to which the relevant facts affecting the item’s tax treatment are adequately disclosed in the return or in a statement attached to the return. Section 6662(d)(2)(B)(ii).
.04 Section 6694(a) imposes a penalty on a tax return preparer who prepares a return or claim for refund reflecting an understatement of liability due to an “unreasonable position” if the tax return preparer knew (or reasonably should have known) of the position. A position (other than a position with respect to a tax shelter or a reportable transaction to which section 6662A applies) is generally treated as unreasonable unless (i) there is or was substantial authority for the position, or (ii) the position was properly disclosed in accordance with section 6662(d)(2)(B)(ii)(I) and had a reasonable basis. If the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is treated as unreasonable unless it is reasonable to believe that the position would more likely than not be sustained on the merits. See Notice 2009–5, 2009–3 I.R.B. 309 (January 21, 2009) for interim penalty compliance rules for tax shelter transactions.
.06 Fiscal and short tax year returns. (a) In general. This revenue procedure may apply to a return for a fiscal tax year that begins in 2014 and ends in 2015. This revenue procedure may also apply to a short year return for a period beginning in 2015 if the return is to be filed before the 2015 forms are available. (Note that individuals are generally not put in this position, as the only situation in which a short year arises is when filing a decedent’s final return for a fractional part of a year, which is due the fifteenth day of the fourth month following the close of the 12-month period that began with the first day of such fractional part of the year (after the 2015 form is available). See Treas. Reg. § 1.6072–1(b). In the case of fiscal year and short year returns, the taxpayer must take into account any tax law changes that are effective for tax years beginning after December 31, 2014, even though these changes are not reflected on the form.
.07 Tax law changes effective after December 31, 2014. This document does not take into account the effect of tax law changes effective for tax years beginning after December 31, 2014. If a line referenced in this revenue procedure is affected by such a change and requires additional reporting, a taxpayer may have to file Form 8275, Disclosure Statement, or Form 8275–R, Regulation Disclosure Statement, until the Service prescribes criteria for complying with the requirement.
.08 A complete and accurate disclosure of a tax position on the appropriate year’s Schedule UTP, Uncertain Tax Position Statement, will be treated as if the corporation filed a Form 8275 or Form 8275–R regarding the tax position. The filing of a Form 8275 or Form 8275–R, however, will not be treated as if the corporation filed a Schedule UTP.
(1) Additional disclosure of facts relevant to, or positions taken with respect to, issues involving any of the items set forth below is unnecessary for purposes of reducing any understatement of income tax under section 6662(d) (except as otherwise provided in section 4.02(3) concerning Schedules M–1 and M–3), provided that the forms and attachments are completed in a clear manner and in accordance with their instructions.
(3) The disclosure of an amount as provided in section 4.02 below is not adequate when the understatement arises from a transaction between related parties. If an entry may present a legal issue or controversy because of a related-party transaction, then that transaction and the relationship must be disclosed on a Form 8275 or Form 8275–R.
(4) When the amount of an item is shown on a line that does not have a preprinted description identifying that item (such as on an unnamed line under an “Other Expense” category), the taxpayer must clearly identify the item by including the description on that line. For example, to disclose a bad debt for a sole proprietorship, the words “bad debt” must be written or typed on the line of Schedule C that shows the amount of the bad debt. Also, for Schedule M–3 (Form 1120), Part II, line 25, Other income (loss) items with differences, or Part III, line 37, Other expense/deduction items with differences, the entry must provide descriptive language; for example, "Cost of non-compete agreement deductible not capitalizable.” If space limitations on a form do not allow for an adequate description, the description must be continued on an attachment.
(5) Although a taxpayer may literally meet the disclosure requirements of this revenue procedure, the disclosure will have no effect for purposes of the section 6662 accuracy-related penalty if the item or position on the return: (1) does not have a reasonable basis as defined in Treas. Reg. § 1.6662–3(b)(3); (2) is attributable to a tax shelter item as defined in section 6662(d)(2); or (3) is not properly substantiated or the taxpayer failed to keep adequate books and records with respect to the item or position.
(d) Contributions: Complete lines 16 through 19, supplying all required information. Enter the amount of the contribution reduced by the value of any substantial benefit (goods or services) provided by the donee organization in consideration, in whole or in part, for the contribution. Entering the contribution’s value, unreduced by the value of the benefit received, will not constitute adequate disclosure. If a contribution of $250 or more is made, this section will not apply unless a contemporaneous written acknowledgment, as required by section 170(f)(8), is obtained from the donee organization. If a contribution of cash of less than $250 is made, this section will not apply unless a bank record or written communication from the donee organization, as required by section 170(f)(17), is obtained. If a contribution of property other than cash is made and the amount claimed as a deduction exceeds $500, attach a properly completed Form 8283, Noncash Charitable Contributions, to the return. In addition to the Form 8283, if a contribution of a qualified motor vehicle, boat, or airplane has a value of more than $500, this section will not apply unless a contemporaneous written acknowledgment, as required by section 170(f)(12), is obtained from the donee organization and attached to the return. An acknowledgment under section 170(f)(8) is not required if an acknowledgment under section 170(f)(12) is required.
(d) Reasonableness of Officers’ Compensation: Form 1125–E, Compensation of Officers, must be completed when required by its instructions. The time devoted to business must be expressed as a percentage as opposed to “part” or “as needed.” This section does not apply to “golden parachute” payments, as defined under section 280G. This section will not apply to the extent that remuneration paid or incurred exceeds the employee-remuneration deduction limitations under section 162(m), if applicable.
(e) Repair Expenses: The amount claimed must be stated. This section does not apply, however, to any amount properly characterized as capital expenditures or personal expenses.
For Schedule M–1 and all Schedules M–3, including those listed in (a)-(f) below, the information provided must reasonably apprise the Service of the potential controversy concerning the tax treatment of the item. If the information provided does not so apprise the Service, a Form 8275 or Form 8275–R must be used to adequately disclose the item (see Part II of the instructions for those forms).
Note: An item reported on a line with a pre-printed description, shown on an attached schedule or “itemized” on Schedule M–1, may represent the aggregate amount of several transactions producing that item (i.e., a group of similar items, such as amounts paid or incurred for supplies by a taxpayer engaged in business). In some instances, a potentially controversial item may involve a portion of the aggregate amount disclosed on the schedule. The Service will not be reasonably apprised of a potential controversy by the aggregate amount disclosed. In these instances, the taxpayer must use Form 8275 or Form 8275–R regarding that portion of the item.
Combining unlike items, whether on Schedule M–1 or Schedule M–3 (or on an attachment when directed by the instructions), will not constitute an adequate disclosure.
Additionally, for taxpayers that file the Schedule M–3 (Form 1120), Schedule B, Additional Information for Schedule M–3 Filers, must also be completed. For taxpayers that file the Schedule M–3 (Form 1065), Schedule C, Additional Information for Schedule M–3 Filers, must also be completed. When required, these Schedules are necessary to constitute adequate disclosure.
(a) Form 1065. Schedule M–3 (Form 1065), Net Income (Loss) Reconciliation for Certain Partnerships: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).
(b) Form 1120. (i) Schedule M–1, Reconciliation of Income (Loss) per Books With Income per Return.
(ii) Schedule M–3 (Form 1120), Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items) and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items); and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).
(c) Form 1120–L. Schedule M–3 (Form 1120–L), Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total Assets of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).
(d) Form 1120–PC. Schedule M–3 (Form 1120–PC), Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).
(e) Form 1120–S. Schedule M–3 (Form 1120–S), Net Income (Loss) Reconciliation for S Corporations With Total Assets of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).
(f) Form 1120–F. Schedule M–3 (Form 1120–F), Net Income (Loss) Reconciliation for Foreign Corporations With Total Assets of $10 Million or More: Column (b), Temporary Difference, Column (c), Permanent Difference, and Column (d), Other Permanent Differences for Allocations to Non-ECI and ECI, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items).
(b) Employee Business Expenses: Complete Form 2106, Employee Business Expenses, or Form 2106–EZ, Unreimbursed Employee Business Expenses, and attach to the return. This section does not apply to club dues or to travel expenses for any non-employee accompanying the taxpayer on the trip.
This revenue procedure applies to any income-tax return filed on a 2014 tax form for a taxable year beginning in 2014 and to any income-tax return filed on a 2014 tax form in 2015 for a short taxable year beginning in 2015.
The principal author of this revenue procedure is Larry Pounders of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this revenue procedure, contact Branch 1 of Procedure and Administration at (202) 317-6845 (not a toll free number).
Section 501(c)(29) of the Code provides requirements for tax-exemption under § 501(a) for QNHIIs. Section 501(c)(29) was added to the Code by § 1322(h)(1) of the Patient Protection and Affordable Care Act, Public Law 111–148 (March 23, 2010) (Affordable Care Act).
Section 1322 of the Affordable Care Act directs the Centers for Medicare and Medicaid Services (CMS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). The purpose of the CO-OP program is to foster the creation of member-governed QNHIIs that will operate with a strong consumer focus and offer qualified health plans in the individual and small group markets. CMS will provide loans and repayable grants (collectively loans) to organizations applying to become QNHIIs to help cover start-up costs and meet any solvency requirements in States in which the organizations are licensed to issue qualified health plans. A Funding Opportunity Announcement for the CO-OP program (CFDA Number 93.545), published by CMS on July 28, 2011 (and amended on September 16, 2011), provides that for each loan, the appropriate CMS official will issue a Notice of Award and Loan Agreement to the QNHII. In addition, the Chief Executive Officer of the QNHII, or an officer of the QNHII’s Board of Directors, must sign and return the Loan Agreement to CMS. On December 13, 2011, CMS issued final regulations implementing the CO-OP program at 76 FR 77392.
The CMS final regulations define a QNHII as an entity that, within specified time frames, satisfies or can reasonably be expected to satisfy the standards in § 1322(c) of the Affordable Care Act and in the CMS final regulations. The entity will constitute a QNHII until such time as CMS determines that the entity does not satisfy or cannot reasonably be expected to satisfy these standards.
Section 501(c)(29)(A) provides that a QNHII (within the meaning of § 1322(c) of the Affordable Care Act) which has received a loan or grant under the CO-OP program may be recognized as exempt from taxation under § 501(a), but only for periods for which the organization is in compliance with the requirements of § 1322 of the Affordable Care Act and of any loan agreement with the Secretary of Health and Human Services. Section 501(c)(29)(B) provides that a QNHII will not qualify for tax-exemption unless it meets four additional requirements, the first of which is that the organization must give notice to the Secretary of the Treasury, in such manner as the Secretary may by regulations prescribe, that it is applying for recognition of exemption as an organization described in § 501(c)(29).
On February 7, 2012, the Treasury Department and the IRS issued temporary regulations at 77 FR 6005 authorizing the IRS to prescribe the procedures by which QNHIIs may apply to the IRS for recognition of exemption from Federal income tax. The temporary regulations also authorized the IRS to recognize a QNHII as exempt effective as of the later of the date of the QNHII’s formation or March 23, 2010 (the date of enactment of the Affordable Care Act), provided that the application was submitted in the manner and within the time prescribed by the IRS and the QNHII’s prior purposes and activities were consistent with the requirements for exempt status under § 501(c)(29). On the same date, the Treasury Department and the IRS issued Revenue Procedure 2012–11 under the authority of the temporary regulations, setting forth procedures for issuing determination letters and rulings on the exempt status of QNHIIs described in § 501(c)(29). Final regulations were issued on January 29, 2015, at 80 FR 4791 that adopted the rules contained in the temporary regulations without change. This revenue procedure is issued under the authority of the final regulations to replace Rev. Proc. 2012–11.
QNHIIs seeking recognition of exemption under § 501(c)(29) should follow this revenue procedure and, to the extent not inconsistent with this revenue procedure, Rev. Proc. 2015–9, 2015–2 I.R.B. 249, or its successor revenue procedure. User fees for requests for a determination letter or ruling are set forth in Rev. Proc. 2015–8, 2015–1 I.R.B. 235, or its successor revenue procedure.
For any questions concerning the preparation or submission of a letter application, call the Customer Service number 1-877-829-5500.
.02 Requirements for a substantially completed letter application.
A QNHII seeking recognition of exemption under § 501(c)(29) must comply with the requirements for a substantially completed letter application set forth in this section rather than the requirements set forth in § 3.08 of Rev. Proc.2015–9, 2015–2 I.R.B. 249, or its successor revenue procedure.
(1) the QNHII’s Employer Identification Number (EIN).
(2) a statement of receipts and expenditures and a balance sheet for the current year and the three preceding years (or the years the QNHII was in existence, if less than four years). If the QNHII has not yet commenced operations, or has not completed one accounting period, a substantially completed application generally must include a proposed budget for two full accounting periods and a current statement of assets and liabilities.
(3) a detailed narrative statement of the QNHII’s past and proposed activities and a narrative description of the QNHII’s actual and anticipated receipts and contemplated expenditures.
(4) a copy of the QNHII’s organizing or enabling document that has been filed with and certified by an appropriate official of a State authority (e.g., stamped “Filed” and dated by the Secretary of State). Alternatively, if the QNHII is not required to file its organizing or enabling documents with a State authority, the organization may submit a copy of the organizing or enabling document that meets the requirements of a “conformed copy” as outlined in Rev. Proc. 68–14, 1968–1 C.B. 768.
(5) a current copy of the QNHII’s by-laws, if applicable, or any similar governing documents.
(6) a copy of both the Notice of Award issued by CMS and the fully executed Loan Agreement with CMS.
It does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office, nor has it so participated or intervened since the later of the date of formation or March 23, 2010.
(9) the correct user fee and Form 8718.
The QNHII submits a substantially completed letter application within 15 months of the date of its fully executed Loan Agreement with CMS.
If the Service requires the QNHII to alter its activities or make substantive amendments to its enabling instrument, exemption will be recognized effective as of the date specified in the determination letter or ruling. If the Service requires the QNHII to make a nonsubstantive amendment, exemption will ordinarily be recognized as of the later of the date of the QNHII’s formation or March 23, 2010.
If a QNHII does not submit a substantially completed letter application within 15 months of the date of its fully executed Loan Agreement with CMS, it may not qualify for exempt status before the postmark date of the letter application.
Rev. Proc. 2012–11, 2012–7 I.R.B. 368, is superseded. Sections 2.02(2) and 11.01 of Rev. Proc. 2015–9 are modified with respect to letter applications for recognition of exemption as an organization described in § 501(c)(29).
This revenue procedure is effective February 2, 2015.
The collection of information for a letter application under § 4.01 of this revenue procedure has been approved under OMB control number 1545-2080. See Rev. Proc. 2015–9, 2015–2 I.R.B. 249, § 15.
The principal author of this Revenue Procedure is Mike Repass of the Office of the Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this revenue procedure, contact Mr. Repass at 202-317-4086 (not a toll-free number).
If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on February 17, 2015 and would end on the date the court first determines the organization is not described in section 170(c)(2) as more particularly set for in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

References: § 501
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