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

T.D. 9672, page 196.TD 9672 includes final Treasury regulations providing guidanceunder section 45R of the Internal Revenue Code, as added bythe Patient Protection and Affordable Care Act. Section 45Rgenerally provides a tax credit to certain small employers thatoffer health insurance coverage to their employees. The regu-lations affect small employers, both taxable and tax-exempt,that are or might be eligible for the tax credit.

EMPLOYEE PLANS

T.D. 9673, page 212.This document contains final regulations relating to the use oflongevity annuity contracts in tax-qualified defined contributionplans under section 401(a) of the Internal Revenue Code(Code), section 403(b) plans, individual retirement annuitiesand accounts (IRAs) under section 408, and eligible govern-mental plans under section 457(b). These regulations will pro-vide the public with guidance necessary to comply with therequired minimum distribution rules under section 401(a)(9)applicable to an IRA or a plan that holds a longevity annuitycontract. The regulations will affect individuals for whom alongevity annuity contract is purchased under these plans andIRAs (and their beneficiaries), sponsors and administrators ofthese plans, trustees and custodians of these plans and IRAs,and insurance companies that issue longevity annuity contractsunder these plans and IRAs.

EXEMPT ORGANIZATIONS

T.D. 9674, page 225.This document contains regulations that provide guidance toeligible organizations seeking recognition of tax-exempt statusunder section 501(c)(3). The regulations amend current regula-tions to allow the Commissioner to adopt a streamlined applica-tion process that eligible organizations may use to apply forrecognition of tax-exempt status under section 501(c)(3).

REG–110948–14, page 239.This document contains regulations that provide guidance toeligible organizations seeking recognition of tax-exempt statusunder section 501(c)(3). The regulations amend current regu-lations to allow the Commissioner to adopt a streamlinedapplication process that eligible organizations may use toapply for recognition of tax-exempt status under section501(c)(3). Comments requested by September 30, 2014.

Rev. Proc. 2014–40, page 229.This revenue procedure sets forth procedures for applying forand for issuing determination letters on the exempt statusunder section 501(c)(3) of the Internal Revenue Code usingForm 1023–EZ, Streamlined Application for Recognition ofExemption Under Section 501(c)(3) of the Internal RevenueCode. This revenue procedure is generally available for certainU.S. organizations with assets of $250,000 or less and annualgross receipts of $50,000 or less. This revenue procedureamplifies Rev. Proc. 2014–9, Rev. Proc. 2014–10, Rev. Proc.2014–4, Rev. Proc. 2014–5, and Rev. Proc. 2014–11; andsupplements Rev. Proc. 2014–8. This revenue procedure iseffective July 1, 2014.

Finding Lists begin on page ii.Index for July through July begins on page iv.

Bulletin No. 2014–30July 21, 2014

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-force the 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.

It is the policy of the Service to publish in the Bulletin allsubstantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of internalmanagement are not published; however, statements of inter-nal practices and procedures that affect the rights and dutiesof taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulings totaxpayers or technical advice to Service field offices, identify-ing details and information of a confidential nature are deletedto prevent unwarranted invasions of privacy and to comply withstatutory requirements.

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 cautioned

against 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, TaxConventions and Other Related Items, and Subpart B, Legisla-tion 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 Sec-retary (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 index forthe 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.

July 21, 2014 Bulletin No. 2014–30

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 45R.—Employeehealth insurance expensesof small employers26 CFR 1.45R-0 Tax credit to certain small employ-ers that provide insured health coverage to theiremployees.

TD 9672

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Tax Credit for EmployeeHealth Insurance Expensesof Small Employers

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations on the tax credit availableto certain small employers that offerhealth insurance coverage to their em-ployees. The credit is provided under sec-tion 45R of the Internal Revenue Code(Code), enacted by the Patient Protectionand Affordable Care Act. These regula-tions affect small employers, both taxableand tax-exempt that are or might be eligi-ble for the tax credit.

DATES: Effective Date: These regula-tions are effective on June 30, 2014.

Applicability Dates: For dates of appli-cability, see 1.45R–1(b), 1.45R–2(g),1.45R–3(j), 1.45R–4(g) and 1.45R–5(c).

FOR FURTHER INFORMATIONCONTACT: Stephanie Caden, (202) 317-6846 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 45R of the Code offers a taxcredit to certain small employers that pro-vide insured health coverage to their em-ployees. Section 45R was added to theCode by section 1421 of the Patient Pro-

tection and Affordable Care Act, enactedMarch 23, 2010, Public Law No. 111–148(as amended by section 10105(e) of thePatient Protection and Affordable CareAct, which was amended by the HealthCare and Education Reconciliation Act of2010, Public Law 111–152 (124 Stat.1029)) (collectively, the “Affordable CareAct”).

Section 45R(a) provides a health insur-ance credit that is available to certain el-igible small employers for any taxableyear in the credit period. Section 45R(d)provides that in order to be an eligiblesmall employer with respect to any tax-able year, an employer must have in effecta contribution arrangement that qualifiesunder section 45R(d)(4) and must have nomore than 25 full-time equivalent employ-ees (FTEs), and the average annual wagesof its FTEs must not exceed an amountequal to twice the dollar amount deter-mined under section 45R(d)(3)(B). Theamount determined under section45R(d)(3)(B) is $25,000 (a dollar amountwhich is adjusted for inflation for taxableyears beginning after December 31, 2013,and is $25,400 for taxable years beginningin 2014).

Section 45R(d)(4) provides that a con-tribution arrangement qualifies if it re-quires an eligible small employer to makea nonelective contribution on behalf ofeach employee who enrolls in a qualifiedhealth plan (QHP) offered to employeesby the employer through an Exchange inan amount equal to a uniform percentage(not less than 50 percent) of the premiumcost of the QHP (referred to in this pre-amble as the uniform percentage require-ment). For purposes of section 45R, anExchange refers to a Small BusinessHealth Options Program (SHOP) Ex-change, established pursuant to section1311 of the Affordable Care Act and de-fined in 45 CFR 155.20. For purposes ofthis preamble and the final regulations, acontribution arrangement that meets theserequirements is referred to as a “qualify-ing arrangement.”

Section 45R(b) provides that, subjectto the reductions described in section45R(c), the amount of the credit is equal

to 50 percent (35 percent in the case of atax-exempt eligible small employer) ofthe lesser of (1) the aggregate amount ofnonelective contributions the employermade on behalf of its employees duringthe taxable year under the qualifying ar-rangement for premiums for QHPs of-fered by the employer to its employeesthrough a SHOP Exchange, or (2) theaggregate amount of nonelective contribu-tions the employer would have made dur-ing the taxable year under the arrange-ment if each employee for which acontribution would be taken into accountunder clause (1) of this sentence had en-rolled in a QHP which had a premiumequal to the average premium (as deter-mined by the Secretary of Health and Hu-man Services) for the small group marketin the rating area in which the employeeenrolls for coverage.

Section 45R(c) phases out the creditbased upon the number of the employer’sFTEs in excess of 10 and the amount bywhich the average annual wages exceeds$25,000 (a dollar amount which is ad-justed for inflation for taxable years be-ginning after December 31, 2013, and is$25,400 for taxable years beginning in2014). Specifically, section 45R(c) pro-vides that the credit amount determinedunder section 45R(b) is reduced (but notbelow zero) by the sum of: (1) the creditamount determined under section 45R(b)multiplied by a fraction, the numerator ofwhich is the total number of FTEs of theemployer in excess of 10 and the denom-inator of which is 15, and (2) the creditamount determined under section 45R(b)multiplied by a fraction, the numerator ofwhich is the average annual wages of theemployer in excess of the dollar amount ineffect under section 45R(d)(3)(B) and thedenominator of which is that dollaramount. Section 45R(d)(3) provides thatthe average annual wages of an eligiblesmall employer for any taxable year is theamount determined by dividing the aggre-gate amount of wages that were paid bythe employer to employees during the tax-able year by the number of FTEs of theemployer and rounding that amount to thenext lowest multiple of $1,000.

July 21, 2014 Bulletin No. 2014–30196

Section 45R(e)(2) provides that fortaxable years beginning in or after 2014,the credit period means the two-consecutive-taxable year period beginningwith the first taxable year in which theemployer (or any predecessor) offers oneor more QHPs to its employees through aSHOP Exchange.

For taxable years beginning in 2010,2011, 2012, and 2013, section 45R(g) pro-vides that the credit is determined withoutregard to whether the taxable year is in acredit period, and no credit period istreated as beginning with a taxable yearbeginning before 2014. The maximumamount of the credit for those years is 35percent (25 percent in the case of a tax-exempt eligible small employer) of an el-igible small employer’s nonelective con-tributions for premiums paid for healthinsurance coverage (within the meaningof section 9832(b)(1)) of an employee.Section 45R(g)(3) provides that an em-ployer does not become ineligible for thetax credit for years beginning prior to2014 solely because it arranges for theoffering of insurance outside of a SHOPExchange.

In 2010, the Treasury Department andthe IRS published two notices addressingthe application of section 45R that taxpay-ers may rely upon for taxable years begin-ning before 2014: (1) Notice 2010–44(2010–22 IRB 717 (June 1, 2010)) (ad-dressing the eligibility requirements andhow to calculate and claim the credit, andproviding transition relief for taxableyears beginning in 2010 with respect toqualifying arrangements); and Notice2010–82 (2010–51 IRB 857 (December20, 2010)) (expanding guidance on theeligibility requirements, the uniform per-centage requirement, and the applicationof the average premium cap).

On August 26, 2013, the Treasury De-partment and the IRS released a notice ofproposed rulemaking (REG–113792–13,78 FR 52719) to provide guidance on theapplication of section 45R for years be-ginning on or after January 1, 2014. Thesection of the preamble to these proposedregulations entitled “Proposed Effective/Applicability Dates” provided that em-ployers may rely on the proposed regula-

tions for guidance for taxable yearsbeginning after 2013 and before 2015.Fourteen comments responded to the no-tice of proposed rulemaking; no publichearing was requested or held. After con-sideration of all of the comments, thesefinal regulations adopt the provisions ofthe proposed regulations with certainmodifications, the most significant ofwhich are highlighted in the Explanationand Summary of Comments below. Allcomments are available for public inspec-tion at www.regulations.gov or upon re-quest.

The Treasury Department and the IRSissued Notice 2014–6 (2014–2 IRB 279(January 6, 2014)), which provides transi-tion relief for certain small employers thatcannot offer a QHP through a SHOP Ex-change because the employer’s principalbusiness address is in a particular listedcounty in which a QHP will not be avail-able through a SHOP Exchange for the2014 calendar year.

Explanation and Summary ofComments

I. In general

The proposed regulations and these fi-nal regulations generally incorporate theprovisions of Notice 2010–44 and Notice2010–82 as modified to reflect the differ-ences between the statutory provisions ap-plicable to years beginning before 2014and those applicable to years beginningafter 2013. As in Notice 2010–44 andNotice 2010–82, the proposed and finalregulations use the term “qualifying ar-rangement” to describe an arrangementunder which an eligible small employerpays premiums for each employee en-rolled in health insurance coverage of-fered by the employer in an amount equalto a uniform percentage (not less than 50percent) of the premium cost of the cov-erage. Section 45R(d)(4) also requiresthat, for taxable years beginning in or after2014, the health insurance coverage de-scribed in a qualifying arrangement be aQHP offered by an employer to its em-ployees through a SHOP Exchange (sub-ject to certain transition guidance for2014). The final regulations generally re-

tain these provisions and definitions. Thefinal regulations also add definitions forthe term “tobacco surcharge,” which re-fers to the surcharge in addition to thepremium that may be charged in theSHOP Exchange that is attributable to to-bacco use, and for the term “wellness pro-gram,” which refers to a program underwhich discounts or rebates are offered foremployee participation in programs pro-moting health. These definitions incorpo-rate terms found in 45 CFR 147.102(a) ofthe final regulations for Health InsuranceMarket Rules, issued on February 27,2013 (78 FR 13406), and § 54.9802–1(f)of the final regulations on Incentives forNondiscriminatory Wellness Programs inGroup Health Plans, issued on June 3,2013 (78 FR 33157).

II. Eligibility for the Credit

Consistent with section 45R and theproposed regulations, these final regula-tions define an eligible small employer asan employer that has no more than 25FTEs for the taxable year, whose employ-ees have average annual wages of no morethan $50,000 per FTE (as adjusted forinflation for years after 2013), and that hasa qualifying arrangement in effect thatrequires the employer to pay a uniformpercentage (not less than 50 percent) ofthe premium cost of a QHP offered by theemployer to its employees through aSHOP Exchange.1 These regulations de-fine a tax-exempt eligible small employeras an eligible small employer that is de-scribed in section 501(c) and that is ex-empt from tax under section 501(a). Theseregulations also provide that all employerstreated as a single employer under section414(b), (c), (m), or (o) are treated as asingle employer for purposes of section45R.

Consistent with the proposed regula-tions, these final regulations further pro-vide that employees (determined underthe common law standard) who performservices for the employer during the tax-able year generally are taken into accountin determining FTEs and average annualwages. In determining FTEs, these regu-lations provide that FTEs are calculated

1Although the term, ”eligible small employer” is defined in section 45R(d)(1) to include employers with “no more than 25 FTEs,” the phase out of the credit amount under section 45R(c)operates in such a way that an employer with exactly 25 FTEs is not in fact eligible for the credit.

Bulletin No. 2014–30 July 21, 2014197

by computing the total hours of service forthe taxable year (using one of three allow-able methods) and dividing by 2,080. Ifthe result is not a whole number, the resultis rounded down to the next lowest wholenumber, except if the result is less thanone the employer rounds up to one FTE.One commenter requested that the FTEcalculation include only full-time employ-ees who work 40 hours a week and notpart-time employees. The final regulationsdo not adopt this suggestion because it isinconsistent with the statutory definitionof full-time equivalent employee set forthin section 45R(d)(2). These final regula-tions provide that leased employees, asdefined in section 414(n)(2), are countedin computing a service recipient’s FTEsand average annual wages. See section45R(e)(1)(B). These regulations also pro-vide that premiums paid on behalf of aformer employee may be treated as paidon behalf of an employee for purposes ofcalculating the credit provided that if sotreated, the former employee is alsotreated as an employee for purposes of theuniform percentage requirement. See§ 1.45R–1(a)(5)(vii).

Consistent with the proposed regula-tions, these final regulations provide thatan employee’s hours of service for a yearinclude hours for which the employee ispaid, or entitled to payment, for the per-formance of duties for the employer dur-ing the employer’s taxable year and pro-vide three methods for calculating thetotal number of hours of service for em-ployees for the taxable year. One com-menter requested that employees of edu-cational organizations be credited withhours of service during employmentbreaks because the use of a 12-monthmeasurement period for employees whoprovide services only during the activeportions of the academic year could inap-propriately result in these employees notbeing treated as full-time employees. Thefinal regulations do not adopt this sugges-tion because it is inconsistent with thestatutory framework of section 45R,which bases calculations on FTEs, notfull-time employees.

Wages, for purposes of the credit, aredefined in these final regulations (and theproposed regulations) as amounts treatedas wages under section 3121(a) for pur-poses of FICA, determined without con-

sidering the social security wage base lim-itation. To calculate average annual FTEwages, an employer must determine thetotal wages paid during the taxable year toall employees, divide the total wages paidby the number of FTEs, and if the result isnot a multiple of $1,000, round the resultto the next lowest multiple of $1,000. Onecommenter requested that the final regu-lations clarify whether bonuses are in-cluded in the average annual wage calcu-lation. The proposed and these finalregulations provide that the average an-nual wage limitation is determined usingthe definition of wages found in section3121(a), determined without regard to thesocial security wage base limitation undersection 3121(a)(1); therefore, bonuseswould be included to the extent treated aswages under section 3121(a) for purposesof FICA.

Based on section 45R(d)(5), the pro-posed regulations and these final regula-tions provide that employees who work ona seasonal basis for 120 or fewer daysduring the taxable year are not consideredemployees when determining FTEs andaverage annual wages, but premiums paidon behalf of seasonal workers may becounted in determining the amount of thecredit. One commenter requested clarifi-cation of whether all employees who ter-minate employment before working 120days are considered seasonal employeesfor purposes of the FTE calculation. Thefinal regulations, like the proposed regu-lations, provide that only workers whoperform labor or services on a seasonalbasis, including retail workers employedexclusively during holiday seasons, meetthe definition of a seasonal worker forpurposes of the credit. The final regula-tions further provide that employers mayapply a reasonable, good faith interpreta-tion of the term seasonal worker and areasonable good faith interpretation of 29CFR 500.20(s)(1) (including as applied byanalogy to workers and employment po-sitions not otherwise covered under 29CFR 500.20(s)(1)).

III. Calculating the Credit

Under section 45R and these final reg-ulations, for taxable years beginning in orafter 2014, the maximum credit for aneligible small employer other than a tax-

exempt eligible small employer is 50 per-cent of the eligible small employer’s pre-mium payments made on behalf of itsemployees under a qualifying arrange-ment for QHPs offered through a SHOPExchange. For a tax-exempt eligible smallemployer for those years, the maximumcredit is 35 percent.

As provided in the proposed regula-tions, for purposes of calculating thecredit under section 45R for taxable yearsbeginning after 2013, the final regulationsprovide that an employer’s premium pay-ments are limited by the average premiumin the small group market in the ratingarea in which the employee enrolls forcoverage through a SHOP Exchange. Thecredit will be reduced by the excess of thecredit calculated using the employer’spremium payments over the credit calcu-lated using the average premium. For ex-ample, if an employer pays 50 percent ofthe $7,000 premium for employee cover-age ($3,500), but the average premium foremployee coverage in the small groupmarket in the rating area in which theemployees enroll is $6,000, for purposesof calculating the credit the employer’spremium payments are limited to 50 per-cent of $6,000 ($3,000).

Under section 45R and the proposedregulations, the credit phases out for eli-gible small employers if the number ofFTEs exceeds 10, or if the average annualwages for FTEs exceed $25,000 (as ad-justed for inflation for taxable years be-ginning after 2013). For an employerwith both more than 10 FTEs and aver-age annual FTE wages exceeding$25,000, the credit is reduced based onthe sum of the two reductions. This mayreduce the credit to zero even for someemployers with fewer than 25 FTEs andaverage annual FTE wages of less thandouble the $25,000 dollar amount (asadjusted for inflation). These final regu-lations incorporate these statutoryphase-out provisions, and also retain theprovisions pertaining to state subsidiesand tax credit limitations.

With respect to the payroll tax limita-tion for tax-exempt employers, section45R and the proposed regulations definedthe term “payroll taxes” as (1) amountsrequired to be withheld under section

July 21, 2014 Bulletin No. 2014–30198

34022 and (2) the employee’s and em-ployer’s shares of Medicare tax requiredto be withheld and paid under sections3101(b) and 3111(b) on employees’wages for the year. For a tax-exempt eli-gible small employer, the amount of thecredit cannot exceed the amount of thepayroll taxes of the employer during thecalendar year in which the taxable yearbegins. The final regulations retain theseprovisions.

Consistent with the proposed regula-tions, these final regulations provide thatthe first year for which an eligible smallemployer files Form 8941, “Credit forSmall Employer Health Insurance Premi-ums,” claiming the credit, or files Form990–T, “Exempt Organization BusinessIncome Tax Return,” with an attachedForm 8941, is the first year of the two-consecutive-taxable year credit period.Even if the employer is eligible to claimthe credit for only part of the first year, thefiling of Form 8941 begins the first year ofthe two-consecutive-taxable year creditperiod, regardless of when the employerbegins offering QHPs through a SHOP. Acommenter noted that the two-year limiton the credit period might cause someemployers to discontinue contributing tocoverage once the credit expires after twoyears. However, the statutory languageimposes the limitation and the final regu-lations incorporate these provisions of theproposed regulations pertaining to thetwo-consecutive-taxable year credit pe-riod limitation.

In general, only premiums paid by theemployer for employees enrolled in aQHP offered through a SHOP Exchangeare counted when calculating the credit. Astand-alone dental health plan offeredthrough a SHOP Exchange will be con-sidered a QHP for purposes of the credit.See Patient Protection and AffordableCare Act; Establishment of Exchangesand Qualified Health Plans; ExchangeStandards for Employers, 77 Fed. Reg.18310, 18315 (March 27, 2012).

Consistent with the proposed regula-tions, these final regulations provide thatamounts made available by an employerunder, or contributed by an employer to,Health Reimbursement Arrangements

(HRAs), health flexible spending arrange-ments (FSAs), and health savings ac-counts (HSAs) are not taken into accountfor purposes of determining premium pay-ments by the employer when calculatingthe credit. One commenter requested thathousehold employers be allowed to claimthe credit through use of an HRA. Thefinal regulations do not adopt this modifi-cation. An employer’s premium paymentsare not taken into account for purposes ofthe section 45R credit unless they are paidfor health insurance coverage under aqualifying arrangement, which is an ar-rangement under which the employer payspremiums for each employee enrolled inhealth insurance coverage offered by theemployer in an amount equal to a uniformpercentage (not less than 50 percent) ofthe premium cost of the coverage. Fortaxable years beginning in or after 2014,generally an employer must make pre-mium payments on behalf of its employ-ees for QHPs offered by the employer toits employees through a SHOP. Becausean HRA is a self-insured plan, this type ofarrangement is not health insurance cov-erage for purposes of the credit and em-ployer contributions to this type of ar-rangement are not taken into account forpurposes of the credit for any year.

Also, consistent with the proposed reg-ulations, the final regulations provide thata minister who is a common law em-ployee is taken into account in an employ-er’s FTE calculation and the premiumspaid by the employer for health insurancefor the minister may be counted in calcu-lating the credit.

With respect to trusts, estates, regu-lated investment companies, real estate in-vestment trusts, and cooperative organiza-tions, section 45R(e)(5)(B) provides thatrules similar to the rules of section 52(c),(d), and (e) will apply. Because section45R(f) explicitly provides that a tax-exempt eligible small employer may beeligible for the credit, these regulations donot adopt a rule similar to section 52(c)but do provide that rules similar to therules of section 52(d) and (e) and theregulations thereunder apply in calculat-ing and apportioning the credit with re-spect to these entities.

If an eligible small employer’s planyear begins on a date other than the firstday of its taxable year, it may not bepractical or possible for the employer tooffer insurance to its employees through aSHOP Exchange at the beginning of itsfirst taxable year beginning in 2014. Theproposed regulations provided a transitionrule that applies if (1) as of August 26,2013, an eligible small employer offerscoverage in a plan year that begins on adate other than the first day of its taxableyear, (2) the employer offers coverageduring the period before the first day ofthe plan year beginning in 2014 thatwould have qualified the employer for thecredit under the rules otherwise applicableto the period before January 1, 2014, and(3) the employer begins offering coveragethrough a SHOP Exchange as of the firstday of its plan year that begins in 2014.Under the transition rule, the small em-ployer will be treated as offering coveragethrough a SHOP Exchange for its entire2014 taxable year for purposes of eligibil-ity for, and calculation of, a credit undersection 45R. Thus, for an employer thatmeets these requirements, the credit willbe calculated at the 50 percent rate (35percent rate for tax-exempt eligible smallemployers) for the entire 2014 taxableyear and the 2014 taxable year will be thestart of the two-consecutive-taxable yearcredit period. One commenter requestedthat this transition rule apply to all em-ployers that have plan years that do notmatch their taxable years, including thosethat changed plan years after August 26,2013, and that it should not be limited tothose employers having a plan year thatdoes not match the taxable year as ofAugust 26, 2013. However, the intent ofthe rule was to provide relief for employ-ers that had plan years that did not matchtheir taxable years when the proposed reg-ulations were issued and not to provide amechanism to change plan years to max-imize the credit without satisfying thestatutory requirements. Accordingly, thefinal regulations include without changethe transition rule set forth in the proposedregulations.

Several commenters requested thecredit be made available to eligible small

2Although section 45R(f)(3)(A)(i) cites to section 3401(a)(1) as imposing the obligation on employers to withhold income tax from employees, it is actually section 3402 that imposes thewithholding obligation. We have cited to section 3402 throughout this preamble and in the proposed and these final regulations.

Bulletin No. 2014–30 July 21, 2014199

employers if a SHOP Exchange is notavailable in the employer’s principal placeof business for the 2014 calendar year.Treasury and the IRS issued Notice2014–6 to address these concerns withrespect to eligible small employers with aprincipal business address in counties(listed in the Notice) in which no qualifiedhealth plans are available through a SHOPExchange for 2014.3 For purposes of thetransition rule provided in the final regu-lations for an eligible small employer witha group health plan year that begins on adate in 2014 other than the first day of theemployer’s taxable year, an employerwith a principal business address in one ofthe counties listed in Notice 2014–6 is notrequired to begin offering coveragethrough a SHOP Exchange as of the firstday of its plan year that begins in 2014 inorder to be treated as offering coveragethrough a SHOP Exchange for its entire2014 year. Instead, such an employer isrequired to continue offering health insur-ance coverage for the plan year that be-gins in 2014 that would have qualified fora tax credit under section 45R under therules applicable before 2014.

In accordance with Notice 2014–6,small employers described in the preced-ing paragraph may calculate the credit bytreating health insurance coverage pro-vided for the 2014 health plan year asqualifying for the section 45R credit, pro-vided that the coverage would have qual-ified for a credit under section 45R underthe rules applicable before 2014. Thistreatment applies with respect to thehealth plan year beginning in 2014, in-cluding any portion of that plan year thatcontinues into 2015. If the eligible smallemployer claims the section 45R credit forthe 2014 taxable year, the credit will becalculated at the 50 percent rate (35 per-cent rate for tax-exempt eligible small em-ployers) for the entire 2014 taxable year,and the 2014 taxable year will be the firstyear of the two-consecutive-taxable-yearcredit period. In addition, if the eligiblesmall employer claims the section 45Rcredit for the portion of the 2014 healthplan year that continues into 2015, the taxcredit will be calculated at the 50 percent

rate (35 percent rate for tax-exempt eligi-ble small employers) for the correspond-ing portion of the 2015 taxable year.

III. Application of Uniform PercentageRequirement

A. Uniform premiumSection 45R requires that to be eligible

for the credit, a small employer must gen-erally pay a uniform percentage (not lessthan 50 percent) of the premium for eachemployee enrolled in a QHP offered to itsemployees through a SHOP Exchange.The proposed regulations set forth re-quirements for applying this requirementin separate situations depending upon (1)whether the premium established for theQHP is based upon list billing or is basedupon composite billing, (2) whether theQHP offers only employee-only coverage,or other tiers of coverage, such as familycoverage, and (3) whether the employeroffers one QHP or more than one QHP.The final regulations incorporate the uni-form percentage requirement provisionsfrom the proposed regulations, but alsocontain additional rules for how to applythe uniform percentage requirement ifSHOP dependent coverage is offered (fora definition and discussion of SHOP de-pendent coverage, see section III.C of thispreamble). The uniform percentage ruleapplies only to the employees who areoffered coverage and does not require anyparticular employee or class of employeesto be offered coverage.

B. Composite billing and list billingThe final regulations adopt the defini-

tions of “composite billing” and “list bill-ing” as used in the prior notices and theproposed regulations. Composite billingmeans a system of billing under which ahealth insurer charges a uniform premiumfor each of the employer’s employees orcharges a single aggregate premium forthe group of covered employees that theemployer may then divide by the numberof covered employees to determine theuniform premium. In contrast, the term“list billing” is defined as a billing systemunder which a health insurer lists a sepa-rate premium for each employee based onthe age of the employee or other factors.

C. Employers offering one QHPFor an employer offering one QHP un-

der a composite billing system with onelevel of employee-only coverage, the pro-posed regulations provided that the uni-form percentage requirement is met if theeligible small employer pays the sameamount for each employee enrolled incoverage and that amount is equal to atleast 50 percent of the premium foremployee-only coverage. If an employeris offering one QHP under a compositebilling system with different tiers of cov-erage (for example, employee-only orfamily coverage) for which different pre-miums are charged, the uniform percent-age requirement is satisfied if the eligiblesmall employer either: (1) pays the sameamount for each employee enrolled in aparticular tier of coverage and that amountis equal to at least 50 percent of the pre-mium for that tier of coverage, or (2) paysan amount for each employee enrolled in atier of coverage other than employee-onlycoverage that is the same for all employ-ees and is no less than the amount that theemployer would have contributed towardemployee-only coverage for that em-ployee (and is equal to at least 50 percentof the premium for employee-only cover-age). The final regulations generally retainthese provisions.

For an employer offering one QHP un-der a list billing system that offers onlyemployee-only coverage, the uniform per-centage requirement is satisfied if the eli-gible small employer either (1) pays anamount equal to a uniform percentage (notless than 50 percent) of the premiumcharged for each employee, or (2) deter-mines an “employer-computed compositerate” and, if any employee contribution isrequired, each enrolled employee pays auniform amount toward the employee-only premium that is no more than 50percent of the employer-computed com-posite rate for employee-only coverage.The final regulations incorporate the def-inition of “employer-computed compositerate” from the proposed regulations as theaverage rate determined by adding thepremiums for that tier of coverage for allemployees eligible to participate in the

3The counties listed in Notice 2014–6 are: Washington - Adams, Asotin, Benton, Chelan, Clallam, Columbia, Douglas, Ferry, Franklin, Garfield, Grant, Grays Harbor, Island, Jefferson,King, Kitsap, Kittitas, Klickitat, Lewis, Lincoln, Mason, Okanogan, Pacific, Pend Oreille, Pierce, San Juan, Skagit, Skamania, Snohomish, Spokane, Stevens, Thurston, Wahkiakum, WallaWalla, Whatcom, Whitman, and Yakima counties; and Wisconsin - Green Lake, Lafayette, Marquette, Florence, and Menominee counties.

July 21, 2014 Bulletin No. 2014–30200

employer’s health insurance plan(whether or not the eligible employee en-rolls in coverage under the plan or in thattier of coverage under the plan) and divid-ing by the total number of such eligibleemployees.

For an employer offering one QHP un-der a list billing system with at least onetier of coverage with a higher premiumthan employee-only coverage, the em-ployer satisfies the requirement if it either(1) pays an amount for each employeecovered under each tier of coverage equalto or exceeding the amount that the em-ployer would have contributed for thatemployee for employee-only coverage,calculated either based upon the actualpremium that the insurer would havecharged for that employee-only coverageor the employer-computed composite ratefor employee-only coverage; or (2) meetsthe requirements applicable to employersoffering one QHP with only employee-only coverage and using list billing de-scribed in (1) but substituting theemployer-computed composite rate foreach tier of coverage for the employer-computed composite rate for employee-only coverage.

In addition to incorporating the rulesstated in the proposed regulations, the fi-nal regulations clarify the rules for satis-fying the uniform percentage requirementin circumstances in which employers electto offer SHOP dependent coverage to em-ployees through the SHOP Exchange.SHOP dependent coverage is coverage of-fered separately to any individual who isor may become eligible for coverage un-der the terms of a group health plan of-fered through SHOP because of a relation-ship to a participant-employee (includingan employee’s domestic partner or similarrelation, such as a person with whom theemployee has entered into a civil union),whether or not a dependent of theparticipant-employee under section 152 ofthe Code. SHOP dependent coverage isdifferent than family coverage in that itprovides coverage only to the employee’sdependents based on allowable rating fac-tors, and does not include the participant-employee. As coverage purchased that

does not include the employee, SHOP de-pendent coverage is not taken into accountfor purposes of applying the uniformityrequirement. Accordingly, regardless ofwhether composite or list billing is used, ifan employer opts to provide SHOP depen-dent coverage to employees in addition toemployee-only coverage, the final regula-tions provide that the employer does notfail to satisfy the uniform percentage re-quirement by contributing a differentamount toward that SHOP dependent cov-erage than to either employee-only cover-age or family coverage, even if that con-tribution is zero, or that contribution isdifferent for dependents of different em-ployees or groups of employees.4 How-ever, premiums paid for SHOP dependentcoverage may be counted in determiningthe amount of the credit.

The final regulations provide examplesof how the uniform percentage require-ment is applied in these situations.

D. Employers offering more than oneplan

The final regulations generally adoptthe rule set forth in the proposed regula-tions that if an employer offers more thanone QHP through a SHOP Exchange, theuniform percentage requirement may besatisfied in one of two ways. The first is ona plan-by-plan basis, meaning that the em-ployer’s premium payments for each planindividually satisfy the uniform percent-age requirement stated above. Theamounts or percentages of premiums paidtoward each QHP do not have to be thesame, but they must each satisfy the uni-form percentage requirement if each QHPis tested separately. The other permissiblemethod to satisfy the uniform percentagerequirement is through the reference planmethod. Under the reference plan method,the employer designates one of its QHPsas a reference plan. Then the employerdetermines a level of employer contribu-tions for each employee such that, if alleligible employees enrolled in the refer-ence plan, the contributions would satisfythe uniform percentage requirement as ap-plied to that reference plan and the em-ployer allows each employee to apply theamount of employer contribution deter-

mined necessary to meet the uniform per-centage requirement toward the referenceplan or toward coverage under any otheravailable QHP.

E. Tobacco surcharges and wellnessprograms

Tobacco usage is an allowable ratingfactor in the SHOP Exchange that mayaffect employee premiums. In addition,wellness programs resulting in a premiumsubsidy are becoming more common. Theproposed regulations did not address theimpact of a tobacco surcharge or wellnessprogram on the uniform percentage re-quirement. The final regulations providethat a tobacco surcharge applicable tocoverage acquired on a SHOP Exchangeand amounts paid by the employer tocover the surcharge are not included inpremiums for purposes of calculating theuniform percentage requirement, nor arepayments of the surcharge treated as pre-mium payments for purposes of the credit.The final regulations also provide that theuniform percentage requirement is appliedwithout regard to employee payment ofthe tobacco surcharges in cases in whichall or part of the employee tobacco sur-charges are not paid by the employer.

The final regulations also address well-ness programs implemented by the em-ployer that affect the required employeecontribution (and accordingly the em-ployer contribution). For this purpose, awellness program refers to a wellness pro-gram as defined for purposes of the regu-lations under the Health Insurance Porta-bility and Accountability Act. See§ 54.9802–1(f). Specifically the final reg-ulations provide that, for purposes ofmeeting the uniform percentage require-ment, any additional amount of the em-ployer contribution attributable to an em-ployee’s participation in a wellnessprogram over the employer contributionwith respect to an employee that does notparticipate in the wellness program is nottaken into account in calculating the uni-form percentage requirement, whether thedifference is due to a discount for partic-ipation or a surcharge for nonparticipa-tion. The employer contributions for em-ployees that do not participate in the

4Section 2716 of the Public Health Service Act, which is incorporated into the Code by section 9815 of the Code, applies nondiscrimination rules similar to section 105(h) to insured grouphealth plans. Treasury and the IRS continue to develop the nondiscrimination rules under section 2716, and compliance with section 2716 will not be required until after regulations or otheradministrative guidance of general applicability has been issued. See Notice 2011–1 (2011–2 IRB). The uniformity rules differ from the provisions of section 2716 so that compliance withthe uniformity rules may not necessarily mean that the arrangement also complies with the requirements of section 2716.

Bulletin No. 2014–30 July 21, 2014201

wellness program must be at least 50 per-cent of the premium (including any pre-mium surcharge for nonparticipation).However, for purposes of computing thecredit, the employer contributions aretaken into account, including those contri-butions attributable to an employee’s par-ticipation in a wellness program.

F. Employers complying with State lawThe Treasury Department and the IRS

understand that at least one State requiresemployers to contribute a certain percent-age (for example, 50 percent) to an em-ployee’s premium cost, but also requiresthat the employee’s contribution not ex-ceed a certain percentage of monthlygross earnings; as a result, in some in-stances, the employer’s required contribu-tion for a particular employee might ex-ceed 50 percent of the premium. Tosatisfy the uniform percentage require-ment under section 45R, the employergenerally would be required to increasethe employer contribution to all of its em-ployees’ premiums to match the increasefor that one employee, which may be dif-ficult, especially if the percentage increaseis substantial. An employer will be treatedas meeting the uniform percentage re-quirement if the failure to satisfy the uni-form percentage requirement is attribut-able to additional employer contributionsmade to certain employees solely to com-ply with an applicable State or local law.

IV. Claiming the Credit

The proposed regulations prescribedrules for claiming the credit on the Form8941, Credit for Small Employer HealthInsurance Premiums, for reflecting thecredit in estimated tax payments, and foroffsetting an eligible small employer’sAMT liability for the year. The proposedregulations also stated that no deduction isallowed under section 162 for that portionof the premiums paid equal to the amountof the credit claimed under section 45R.See section 280C(h). The final regulationsretain these rules and provisions.

Effective/Applicability Dates

Section 1421(f), as amended by§ 10105 of the Affordable Care Act, pro-vides that section 45R applies to taxableyears beginning after December 31, 2009;however, Notice 2014–6 provides transi-

tion relief for certain small employers thatcannot offer a QHP through a SHOP Ex-change for 2014.

These final regulations are effective onJune 30, 2014. These final regulations areapplicable for taxable years beginning af-ter 2013. Alternatively, employers mayrely on the provisions of the proposedregulations for taxable years beginning af-ter 2013, and before 2015. For transitionrules related to certain plan years begin-ning in 2014, see § 1.45R–3(i).

Availability of IRS Documents

IRS notices cited in this preamble aremade available by the Superintendent ofDocuments, U.S. Government PrintingOffice, Washington, DC 20402.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866, as supplemented by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. It has also beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regula-tions, and because the regulations do notimpose a collection of information onsmall entities, the Regulatory FlexibilityAct (5 U.S.C. Chapter 6) does not apply.

It is hereby certified that this regulationwill not have a significant economic im-pact on a substantial number of small en-tities. Accordingly, a regulatory flexibilityanalysis is not required. While the numberof small entities affected is substantial, theeconomic impact on the affected smallentities is not significant. The informationrequired to determine a small employer’seligibility for, and amount of, an applica-ble credit, generally consisting of the an-nual hours worked by its employees, theannual wages paid to its employees, thecost of the employees’ premiums for qual-ified health plans and the employer’s con-tribution towards those premiums, is in-formation that the small employergenerally will retain for business purposesand that will be readily available to accu-mulate for purposes of completing thenecessary form for claiming the credit. Inaddition, this credit is available to anyeligible small employer only twice (be-

cause the credit can be claimed by a smallemployer only for two consecutive tax-able years beginning after 2013, begin-ning with the taxable year for which thesmall employer first claims the credit).Accordingly, no small employer will cal-culate the credit amount or complete theprocess for claiming the credit under thisregulation more than twice.

Pursuant to section 7805(f) of theCode, the proposed regulations precedingthese regulations were submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comments onits impact on small business. No com-ments were received.

Drafting Information

The principal author of these regula-tions is Stephanie Caden, Office of theDivision Counsel/Associate Chief Coun-sel (Tax Exempt and Government Enti-ties). However, other personnel from theIRS and the Treasury Department partic-ipated in their development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as follows:

PART I–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 1.45R–0 is added to

read as follows:

§ 1.45R–0 Table of contents

This section lists the table of contentsfor §§ 1.45R–1 through 1.45R–5.

§ 1.45R–1 Definitions

(a) Definitions.(1) Average premium.(2) Composite billing.(3) Credit period.(4) Eligible small employer.(5) Employee.(6) Employer-computed composite

rate.(7) Exchange.(8) Family member.

July 21, 2014 Bulletin No. 2014–30202

(9) Full-time equivalent employee(FTE).

(10) List billing.(11) Net premium payments.(12) Nonelective contribution.(13) Payroll taxes.(14) Qualified health plan QHP.(15) Qualifying arrangement.(16) Seasonal worker.(17) SHOP dependent coverage.(18) Small Business Health Options

Program (SHOP).(19) State.(20) Tax-exempt eligible small em-

ployer.(21) Tier.(22) Tobacco surcharge.(23) United States.(24) Wages.(25) Wellness program.(b) Effective/applicability date.

§ 1.45R–2 Eligibility for the credit.

(a) Eligible small employer.(b) Application of section 414 em-

ployer aggregation rules.(c) Employees taken into account.(d) Determining the hours of service

performed by employees.(1) In general.(2) Permissible methods.(3) Examples.(e) FTE calculation.(1) In general.(2) Example.(f) Determining the employer’s aver-

age annual wages.(1) In general.(2) Example.(g) Effective/applicability date.

§ 1.45R–3 Calculating the credit.

(a) In general.(b) Average premium limitation.(1) In general.(2) Examples.(c) Credit phaseout.(1) In general.(2) $25,000 dollar amount adjusted for

inflation.(3) Examples(d) State credits and subsidies for

health insurance.(1) Payments to employer.(2) Payments to issuer.

(3) Credits may not exceed net pre-mium payment.

(4) Examples.(e) Payroll tax limitation for tax-

exempt eligible small employers.(1) In general.(2) Example.(f) Two-consecutive-taxable year

credit period limitation.(g) Premium payments by the em-

ployer for a taxable year.(1) In general.(2) Excluded amounts.(h) Rules applicable to trusts, estates,

regulated investment companies, real es-tate investment trusts and cooperative or-ganizations.

(i) Transition rule for 2014.(1) In general.(2) Example.(j) Effective/applicability date.

§ 1.45R–4 Uniform percentage ofpremium paid.

(a) In general.(b) Employers offering one QHP.(1) Employers offering one QHP, self-

only coverage, composite billing.(2) Employers offering one QHP, other

tiers of coverage, composite billing.(3) Employers offering one QHP, self-

only coverage, list billing.(4) Employers offering one QHP, other

tiers of coverage, list billing.(5) Employers offering SHOP depen-

dent coverage.(c) Employers offering more than one

QHP.(1) QHP-by-QHP method.(2) Reference QHP method.(d) Tobacco surcharges and wellness

program discounts.(i) Tobacco surcharges.(ii) Wellness programs.(e) Special rules regarding employer

compliance with applicable State and lo-cal law.

(f) Examples.(g) Effective/applicability date.

§ 1.45R–5 Claiming the credit.

(a) Claiming the credit.(b) Estimated tax payments and alter-

native minimum tax (AMT) liability.(c) Reduction of section 162 deduction.

(d) Effective/applicability date.Par. 2. Sections 1.45R–1, 1.45R–2,

1.45R–3, 1.45R–4 and 1.45R–5 are addedto read as follows:

§ 1.45R–1 Definitions.

(a) Definitions. The definitions in thissection apply to this section and§§ 1.45R–2, 1.45R–3, 1.45R–4, and1.45R–5.

(1) Average premium. The term aver-age premium means an average premiumfor the small group market in the ratingarea in which the employee enrolls forcoverage. The average premium for thesmall group market in a rating area isdetermined by the Secretary of Health andHuman Services.

(2) Composite billing. The term com-posite billing means a system of billingunder which a health insurer charges auniform premium for each of the employ-er’s employees or charges a single aggre-gate premium for the group of coveredemployees that the employer then dividesby the number of covered employees todetermine the uniform premium.

(3) Credit period—(i) In general. Theterm credit period means, with respect toany eligible small employer (or any pre-decessor employer), the two-consecutive-taxable-year period beginning with thefirst taxable year beginning after 2013, forwhich the eligible small employer files anincome tax return with an attached Form8941, “Credit for Small Employer HealthInsurance Premiums” (or files a Form990–T, “Exempt Organization BusinessIncome Tax Return,” with an attachedForm 8941 in the case of a tax-exempteligible employer). For a transition rulefor 2014, see § 1.45R–3(i).

(ii) Examples. The following examplesillustrate the provisions of paragraph(a)(3)(i) of this section:

Example 1. (i) Facts. In 2014, an eligible smallemployer (Employer) that uses a calendar year as itstaxable year begins to offer insurance through aSHOP Exchange. Employer has 4 employees andotherwise qualifies for the credit, but none of theemployees enroll in the coverage offered by Em-ployer through the SHOP Exchange. In mid-2015,the 4 employees enroll for coverage through theSHOP Exchange but Employer does not file Form8941 or claim the credit. In 2016, Employer has 20employees and all are enrolled in coverage offeredthrough the SHOP Exchange. Employer files Form

Bulletin No. 2014–30 July 21, 2014203

8941 with Employer’s 2016 tax return to claim thecredit.

(ii) Conclusion. Employer’s taxable year 2016 isthe first year of the credit period. Accordingly, Em-ployer’s two-year credit period is 2016 and 2017.

Example 2. (i) Facts. Same facts as Example 1,but Employer files Form 8941 with Employer’s 2015tax return.

(ii) Conclusion. Employer’s taxable year 2015 isthe first year of the credit period. Accordingly, Em-ployer’s two-year credit period is 2015 and 2016(and does not include 2017). Employer is entitled toa credit based on a partial year of SHOP Exchangecoverage for Employer’s taxable year 2015.

(4) Eligible small employer. (i) Theterm eligible small employer means anemployer that meets the requirements setforth in § 1.45R–2.

(ii) For the definition of tax-exempteligible small employer, see paragraph(a)(20) of this section.

(iii) A farmers’ cooperative describedunder section 521 that is subject to taxpursuant to section 1381, and otherwisemeets the requirements of this paragraph(a)(4) and § 1.45R–2, is an eligible smallemployer.

(5) Employee—(i) In general. Exceptas otherwise specifically provided in thisparagraph (a)(5), the term employeemeans an individual who is an employeeof the eligible small employer under thecommon law standard. See § 31.3121(d)–1(c).

(ii) Leased employees. For purposes ofthis paragraph (a)(5), the term employeealso includes a leased employee (as de-fined in section 414(n)).

(iii) Certain individuals excluded. Theterm employee does not include indepen-dent contractors (including sole propri-etors), partners in a partnership, share-holders owning more than two percent ofan S corporation, and any owners of morethan five percent of other businesses. Theterm employee also does not include fam-ily members of these owners and partners,including the employee-spouse of a share-holder owning more than two percent ofthe stock of an S corporation, theemployee-spouse of an owner of morethan five percent of a business, theemployee-spouse of a partner owningmore than a five percent interest in a part-nership, and the employee-spouse of asole proprietor, or any other member ofthe household of these owners and part-ners who qualifies as a dependent undersection 152(d)(2)(H).

(iv) Seasonal workers. The term em-ployee does not include seasonal workersunless the seasonal worker provides ser-vices to the employer on more than 120days during the taxable year.

(v) Ministers. Whether a minister is anemployee is determined under the com-mon law standard for determining workerstatus. If, under the common law standard,a minister is not an employee, the ministeris not an employee for purposes of thisparagraph (a)(5) and is not taken into ac-count in determining an employer’s FTEs,and premiums paid for the minister’shealth insurance coverage are not takeninto account in computing the credit. If,under the common law standard, a minis-ter is an employee, the minister is an em-ployee for purposes of this paragraph(a)(5), and is taken into account in deter-mining an employer’s FTEs, and premi-ums paid by the employer for the minis-ter’s health insurance coverage can betaken into account in computing thecredit. Because the performance of ser-vices by a minister in the exercise of his orher ministry is not treated as employmentfor purposes of the Federal InsuranceContributions Act (FICA), compensationpaid to the minister is not wages as de-fined under section 3121(a), and is notcounted as wages for purposes of comput-ing an employer’s average annual wages.

(vi) Former employees. Premiums paidon behalf of a former employee with nohours of service may be treated as paid onbehalf of an employee for purposes ofcalculating the credit (see § 1.45R–3) pro-vided that, if so treated, the former em-ployee is also treated as an employee forpurposes of the uniform percentage re-quirement (see § 1.45R–4). For the treat-ment of terminated employees for pur-poses of determining employer eligibilityfor the credit, see § 1.45R–2(c).

(6) Employer-computed compositerate. The term employer-computed com-posite rate refers to a rate for a tier ofcoverage (such as employee-only, depen-dent or family) of a QHP that is the aver-age rate determined by adding the premi-ums for that tier of coverage for allemployees eligible to participate in theQHP (whether or not they actually receivecoverage under the plan or under that tierof coverage) and dividing by the totalnumber of such eligible employees. The

employer-computed composite rate maybe used in list billing to convert individualpremiums for a tier of coverage into anemployer-computed composite rate forthat tier of coverage. See § 1.45R–4(b)(3).

(7) Exchange. The term Exchangemeans an exchange as defined in 45 CFR155.20.

(8) Family member. The term familymember is defined with respect to a tax-payer as a child (or descendant of a child);a sibling or step-sibling; a parent (or an-cestor of a parent); a step-parent; a nieceor nephew; an aunt or uncle; or a son-in-law, daughter-in-law, father-in-law,mother-in-law, brother-in-law or sister-in-law. A spouse of any of these familymembers is also considered a familymember.

(9) Full-time equivalent employee(FTE). The number of full-time equivalentemployees (FTEs) is determined by divid-ing the total number of hours of servicefor which wages were paid by the em-ployer to employees during the taxableyear by 2,080. See § 1.45R–2(d) and (e)for permissible methods of calculatinghours of service and the method for cal-culating the number of an employer’sFTEs.

(10) List billing. The term list billingrefers to a system of billing under which ahealth insurer lists a separate premium foreach employee based on the age of theemployee or other factors.

(11) Net premium payments. The termnet premium payments means, in the caseof an employer receiving a State tax creditor State subsidy for providing health in-surance to its employees, the excess of theemployer’s actual premium paymentsover the State tax credit or State subsidyreceived by the employer. In the case of aState payment directly to an insurancecompany (or another entity licensed underState law to engage in the business ofinsurance), the employer’s net premiumpayments are the employer’s actual pre-mium payments. If a State-administeredprogram (such as Medicaid or anotherprogram that makes payments directly to ahealth care provider or insurance com-pany on behalf of individuals and theirfamilies who meet certain eligibilityguidelines) makes payments that are notcontingent on the maintenance of an

July 21, 2014 Bulletin No. 2014–30204

employer-provided group health plan,those payments are not taken into accountin determining the employer’s net pre-mium payments.

(12) Nonelective contribution. Theterm nonelective contribution means anemployer contribution other than a contri-bution pursuant to a salary reduction ar-rangement under section 125.

(13) Payroll taxes. For purposes of sec-tion 45R, the term payroll taxes meansamounts required to be withheld as taxfrom the employees of a tax-exempt eli-gible small employer under section 3402,amounts required to be withheld fromsuch employees under section 3101(b),and amounts of tax imposed on the tax-exempt eligible small employer under sec-tion 3111(b).

(14) Qualified health plan or QHP.The term qualified health plan or the termQHP means a qualified health plan asdefined in Affordable Care Act section1301(a) (see 42 U.S.C. 18021(a)), butdoes not include a catastrophic plan de-scribed in Affordable Care Act section1302(e) (see 42 U.S.C. 18022(e)).

(15) Qualifying arrangement. The termqualifying arrangement means an ar-rangement that requires an eligible smallemployer to make a nonelective contribu-tion on behalf of each employee who en-rolls in a QHP offered to employees bythe employer through a SHOP Exchangein an amount equal to a uniform percent-age (not less than 50 percent) of the pre-mium cost of the QHP.

(16) Seasonal worker. The term sea-sonal worker means a worker who per-forms labor or services on a seasonal basisas defined by the Secretary of Labor, in-cluding (but not limited to) workers cov-ered by 29 CFR 500.20(s)(1), and retailworkers employed exclusively during hol-iday seasons. Employers may apply a rea-sonable, good faith interpretation of theterm seasonal worker and a reasonablegood faith interpretation of 29 CFR500.20(s)(1) (including as applied byanalogy to workers and employment po-sitions not otherwise covered under 29CFR 500.20(s)(1)).

(17) SHOP dependent coverage. Theterm SHOP dependent coverage refers tocoverage offered through SHOP sepa-rately to any individual who is or maybecome eligible for coverage under the

terms of a group health plan offeredthrough SHOP because of a relationshipto a participant-employee, whether or nota dependent of the participant-employeeunder section 152 of the Internal RevenueCode. The term SHOP dependent cover-age does not include coverage such asfamily coverage, which includes coverageof the participant-employee.

(18) Small Business Health OptionsProgram (SHOP). The term Small Busi-ness Health Options Program (SHOP)means an Exchange established pursuantto section 1311 of the Affordable CareAct and defined in 45 CFR 155.20.

(19) State. The term State means aState as defined in section 7701(a)(10),including the District of Columbia.

(20) Tax-exempt eligible small em-ployer. The term tax-exempt eligible smallemployer means an eligible small em-ployer that is exempt from federal incometax under section 501(a) as an organiza-tion described in section 501(c).

(21) Tier. The term tier refers to acategory of coverage under a benefitspackage that varies only by the number ofindividuals covered. For example,employee-only coverage, dependent cov-erage, and family coverage would consti-tute three separate tiers of coverage.

(22) Tobacco surcharge. The term to-bacco surcharge means any allowable dif-ferential that is charged for insurance inthe SHOP Exchange that is attributable totobacco use as the term tobacco use isdefined in 45 CFR 147.102(a)(1)(iv).

(23) United States. The term UnitedStates means United States as defined insection 7701(a)(9).

(24) Wages. The term wages for pur-poses of section 45R means wages as de-fined under section 3121(a) for purposesof the Federal Insurance ContributionsAct (FICA), determined without regard tothe social security wage base limitationunder section 3121(a)(1).

(25) Wellness program. The term well-ness program for purposes of section 45Rmeans a program of health promotion ordisease prevention subject to the require-ments of § 54.9802–1(f).

(b) Effective/applicability date. Thissection is applicable for periods after2013. For rules relating to certain planyears beginning in 2014, see § 1.45R–3(i).

§ 1.45R–2 Eligibility for the credit.

(a) Eligible small employer. To be eli-gible for the credit under section 45R, anemployer must be an eligible small em-ployer. In order to be an eligible smallemployer, with respect to any taxableyear, an employer must have no more than25 full-time equivalent employees(FTEs), must have in effect a qualifyingarrangement, and the average annualwages of the employer’s FTEs must notexceed an amount equal to twice the dol-lar amount in effect under § 1.45R–3(c)(2). For purposes of eligibility for thecredit for taxable years beginning in orafter 2014, a qualifying arrangement is anarrangement that requires an employer tomake a nonelective contribution on behalfof each employee who enrolls in a quali-fied health plan (QHP) offered to employ-ees through a small business health op-tions program (SHOP) Exchange in anamount equal to a uniform percentage (notless than 50 percent) of the premium costof the QHP. Notwithstanding the forego-ing, an employer that is an agency orinstrumentality of the federal government,or of a State, local or Indian tribal gov-ernment, is not an eligible small employerif it is not an organization described insection 501(c) that is exempt from taxunder section 501(a). An employer doesnot fail to be an eligible small employermerely because its employees are not per-forming services in a trade or business ofthe employer. An employer located out-side the United States (including an em-ployer located in a U.S. territory) musthave income effectively connected withthe conduct of a trade or business in theUnited States, and otherwise meet the re-quirements of this section, to be an eligi-ble small employer. For eligibility stan-dards for SHOP related to foreignemployers, see 45 CFR 155.710. Para-graphs (b) through (f) of this section pro-vide the rules for determining whether therequirements to be an eligible small em-ployer are met, including rules related toidentifying and counting the number ofthe employer’s FTEs, counting the em-ployees’ hours of service, and determiningthe employer’s average annual FTE wagesfor the taxable year. For rules on deter-mining whether the uniform percentagerequirement is met, see § 1.45R–4.

Bulletin No. 2014–30 July 21, 2014205

(b) Application of section 414 em-ployer aggregation rules. All employerstreated as a single employer under section414(b), (c), (m) or (o) are treated as asingle employer for purposes of this sec-tion. Thus, all employees of a controlledgroup under section 414(b), (c) or (o), oran affiliated service group under section414(m), are taken into account in deter-mining whether any member of the con-trolled group or affiliated service group isan eligible small employer. Similarly, allwages paid to, and premiums paid for,employees by the members of the con-trolled group or affiliated service groupare taken into account when determiningthe amount of the credit for a grouptreated as a single employer under theserules.

(c) Employees taken into account. Tobe eligible for the credit, an employermust have employees as defined in§ 1.45R–1(a)(5) during the taxable year.All such employees of the eligible smallemployer are taken into account for pur-poses of determining the employer’s FTEsand average annual FTE wages. Employ-ees include employees who terminate em-ployment during the year for which thecredit is being claimed, employees cov-ered under a collective bargaining agree-ment, and employees who do not enroll ina QHP offered by the employer through aSHOP Exchange.

(d) Determining the hours of serviceperformed by employees—(1) In general.An employee’s hours of service for a yearinclude each hour for which an employeeis paid, or entitled to payment, for theperformance of duties for the employerduring the employer’s taxable year. It alsoincludes each hour for which an employeeis paid, or entitled to payment, by theemployer on account of a period of timeduring which no duties are performed dueto vacation, holiday, illness, incapacity(including disability), layoff, jury duty,military duty or leave of absence (exceptthat no more than 160 hours of service arerequired to be counted for an employee onaccount of any single continuous periodduring which the employee performs noduties).

(2) Permissible methods. In calculatingthe total number of hours of service thatmust be taken into account for an em-ployee during the taxable year, eligible

small employers need not use the samemethod for all employees, and may applydifferent methods for different classifica-tions of employees if the classificationsare reasonable and consistently applied.Eligible small employers may change themethod for calculating employees’ hoursof service for each taxable year. An eligi-ble small employer may use any of thefollowing three methods.

(i) Actual hours worked. An employermay use the actual hours of service pro-vided by employees including hoursworked and any other hours for whichpayment is made or due (as described inparagraph (d)(1) of this section).

(ii) Days-worked equivalency. An em-ployer may use a days-worked equiva-lency whereby the employee is creditedwith 8 hours of service for each day forwhich the employee would be required tobe credited with at least one hour of ser-vice under paragraph (d)(1) of this sec-tion.

(iii) Weeks-worked equivalency. Anemployer may use a weeks-worked equiv-alency whereby the employee is creditedwith 40 hours of service for each week forwhich the employee would be required tobe credited with at least one hour of ser-vice under paragraph (d)(1) of this sec-tion.

(3) Examples. The following examplesillustrate the rules of paragraph (d) of thissection:

Example 1. Counting hours of service by hoursactually worked or for which payment is made ordue. (i) Facts. An eligible small employer (Em-ployer) has payroll records that indicate that Em-ployee A worked 2,000 hours and that Employerpaid Employee A for an additional 80 hours onaccount of vacation, holiday and illness. Employeruses the actual hours worked method described inparagraph (d)(2)(i) of this section.

(ii) Conclusion. Under this method of countinghours, Employee A must be credited with 2,080hours of service (2,000 hours worked and 80 hoursfor which payment was made or due).

Example 2. Counting hours of service underdays-worked equivalency. (i) Facts. Employee Bworked from 8:00am to 12:00pm every day for 200days. Employer uses the days-worked equivalencymethod described in paragraph (d)(2)(ii) of this sec-tion.

(ii) Conclusion. Under this method of countinghours, Employee B must be credited with 1,600hours of service (8 hours for each day Employee Bwould otherwise be credited with at least 1 hour ofservice x 200 days).

Example 3. Counting hours of service underweeks-worked equivalency. (i) Facts. Employee C

worked 49 weeks, took 2 weeks of vacation withpay, and took 1 week of leave without pay. Em-ployer uses the weeks-worked equivalency methoddescribed in paragraph (d)(2)(iii) of this section.

(ii) Conclusion. Under this method of countinghours, Employee C must be credited with 2,040hours of service (40 hours for each week duringwhich Employee C would otherwise be credited withat least 1 hour of service x 51 weeks).

Example 4. Excluded employees. (i) Facts. Em-ployee D worked 3 consecutive weeks at 32 hoursper week during the holiday season. Employee D didnot work during the remainder of the year. EmployeeE worked limited hours after school from time totime through the year for a total of 350 hours. Em-ployee E does not work through the summer. Em-ployer uses the actual hours worked method de-scribed in paragraph (d)(2)(i) of this section.

(ii) Conclusion. Employee D is a seasonal em-ployee who worked for 120 days or less for Em-ployer during the year. Employee D’s hours are notcounted when determining the hours of service ofEmployer’s employees. Employee E works through-out most of the year and is not a seasonal employee.Employer counts Employee E’s 350 hours of serviceduring the year.

(e) FTE Calculation—(1) In general.The number of an employer’s FTEs isdetermined by dividing the total hours ofservice, determined in accordance withparagraph (d) of this section, credited dur-ing the year to employees taken into ac-count under paragraph (c) of this section(but not more than 2,080 hours for anyemployee) by 2,080. The result, if not awhole number, is then rounded to the nextlowest whole number. If, however, afterdividing the total hours of service by2,080, the resulting number is less thanone, the employer rounds up to one FTE.

(2) Example. The following exampleillustrates the provisions of paragraph (e)of this section:

Example. Determining the number of FTEs. (i)Facts. A sole proprietor pays 5 employees wages for2,080 hours each, pays 3 employees wages for 1,040hours each, and pays 1 employee wages for 2,300hours. One of the employees working 2,080 hours isthe sole proprietor’s nephew. The sole proprietor’sFTEs would be calculated as follows: 8,320 hours ofservice for the 4 employees paid for 2,080 hourseach (4 x 2,080); the sole proprietor’s nephew isexcluded from the FTE calculation; 3,120 hours ofservice for the 3 employees paid for 1,040 hourseach (3 x 1,040); and 2,080 hours of service for the1 employee paid for 2,300 hours (lesser of 2,300 and2,080). The sum of the included hours of serviceequals 13,520 hours of service.

(ii) Conclusion. The sole proprietor’s FTEs equal6 (13,520 divided by 2,080 � 6.5, rounded to thenext lowest whole number).

(f) Determining the employer’s aver-age annual FTE wages—(1) In general.All wages paid to employees (including

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overtime pay) are taken into account incomputing an eligible small employer’saverage annual FTE wages. The averageannual wages paid by an employer for ataxable year is determined by dividing thetotal wages paid by the eligible small em-ployer during the employer’s taxable yearto employees taken into account underparagraph (c) of this section by the num-ber of the employer’s FTEs for the year.The result is then rounded down to thenearest $1,000 (if not otherwise a multipleof $1,000). For purposes of determiningthe employer’s average annual wages forthe taxable year, only wages that are paidfor hours of service determined underparagraph (d) of this section are taken intoaccount.

(2) Example. The following exampleillustrates the provision of paragraphs (e)and (f) of this section:

Example. (i) Facts. An employer has 26 FTEswith average annual wages of $23,000. Only 22 ofthe employer’s employees enroll for coverage of-fered by the employer through a SHOP Exchange.

(ii) Conclusion. The hours of service and wagesof all employees are taken into consideration indetermining whether the employer is an eligiblesmall employer for purposes of the credit. Becausethe employer does not have fewer than 25 FTEs forthe taxable year, the employer is not an eligible smallemployer for purposes of this section, even if fewerthan 25 employees (or FTEs) enroll for coveragethrough the SHOP Exchange.

(g) Effective/applicability date. Thissection is applicable for periods after2013. For transition rules relating to cer-tain plan years beginning in 2014, see§ 1.45R–3(i).

§ 1.45R–3 Calculating the credit.

(a) In general. The tax credit availableto an eligible small employer equals 50percent of the eligible small employer’spremium payments made on behalf of itsemployees under a qualifying arrange-ment, or in the case of a tax-exempt eli-gible small employer, 35 percent of theemployer’s premium payments made onbehalf of its employees under a qualifyingarrangement. The employer’s tax credit issubject to the following adjustments andlimitations:

(1) The average premium limitation forthe small group market in the rating areain which the employee enrolls for cover-age, described in paragraph (b) of thissection;

(2) The credit phaseout described inparagraph (c) of this section;

(3) The net premium payment limita-tion in the case of State credits or subsi-dies described in paragraph (d) of thissection;

(4) The payroll tax limitation for a tax-exempt eligible small employer describedin paragraph (e) of this section;

(5) The two-consecutive-taxable year-credit period limitation, described in para-graph (f) of this section;

(6) The rules with respect to the pre-mium payments taken into account, de-scribed in paragraph (g) of this section;

(7) The rules with respect to creditsapplicable to trusts, estates, regulated in-vestment companies, real estate invest-ment trusts and cooperatives described inparagraph (h) of this section; and

(8) The transition relief for 2014 de-scribed in paragraph (i) of this section.

(b) Average premium limitation—(1)In general. The amount of an eligiblesmall employer’s premium payments thatis taken into account in calculating thecredit is limited to the premium paymentsthe employer would have made under thesame arrangement if the average premiumfor the small group market in the ratingarea in which the employee enrolls forcoverage were substituted for the actualpremium.

(2) Examples. The following examplesillustrate the provisions of paragraph(b)(1) of this section:

Example 1. Comparing premium payments toaverage premium for small group market. (i) Facts.An eligible small employer (Employer) offers ahealth insurance plan with employee-only and SHOPdependent coverage through a small business optionsprogram (SHOP) Exchange. Employer has 9 full-time equivalent employees (FTEs) with average an-nual wages of $23,000 per FTE. All 9 employees areemployees as defined under § 1.45R–1(a)(5). Sixemployees are enrolled in employee-only coverageand 5 of these 6 employees have also enrolled eitherone child or one spouse in SHOP dependent cover-age. Employer pays 50% of the premiums for allemployees enrolled in employee-only coverage and50% of the premiums for all employees who enrolledfamily members in SHOP dependent coverage (andthe employee is responsible for the remainder ineach case). The premiums are $4,000 a year foremployee-only coverage and $3,000 a year for eachindividual enrolled in SHOP dependent coverage.The average premium for the small group market inEmployer’s rating area is $5,000 for employee-onlycoverage and $4,000 for each individual enrolled inSHOP dependent coverage. Employer’s premiumpayments for each FTE ($2,000 for employee-only

coverage and $1,500 for SHOP dependent coverage)do not exceed 50 percent of the average premium forthe small group market in Employer’s rating area($2,500 for employee-only coverage and $2,000 foreach individual enrolled in SHOP dependent cover-age).

(ii) Conclusion. The amount of premiums paidby Employer for purposes of computing the creditequals $19,500 ((6 x $2,000) plus (5 x $1,500)).

Example 2. Premium payments exceeding aver-age premium for small group market. (i) Facts.Same facts as Example 1, except that the premiumsare $6,000 for employee-only coverage and $5,000for each dependent enrolled in coverage. Employer’spremium payments for each employee ($3,000 foremployee-only coverage and $2,500 for SHOP de-pendent coverage) exceed 50% of the average pre-mium for the small group market in Employer’srating area ($2,500 for self-only coverage and$2,000 for family coverage).

(ii) Conclusion. The amount of premiums paidby Employer for purposes of computing the creditequals $25,000 ((6 x $2,500) plus (5 x $2,000)).

(c) Credit phaseout—(1) In general.The tax credit is subject to a reduction(but not reduced below zero) if the em-ployer’s FTEs exceed 10 or average an-nual FTE wages exceed $25,000. If thenumber of FTEs exceeds 10, the reductionis determined by multiplying the other-wise applicable credit amount by a frac-tion, the numerator of which is the numberof FTEs in excess of 10 and the denomi-nator of which is 15. If average annualFTE wages exceed $25,000, the reductionis determined by multiplying the other-wise applicable credit amount by a frac-tion, the numerator of which is the amountby which average annual FTE wages ex-ceed $25,000 and the denominator ofwhich is $25,000. In both cases, the resultof the calculation is subtracted from theotherwise applicable credit to determinethe credit to which the employer is enti-tled. For an employer with both more than10 FTEs and average annual FTE wagesexceeding $25,000, the total reduction isthe sum of the two reductions.

(2) $25,000 dollar amount adjusted forinflation. For taxable years beginning in acalendar year after 2013, each reference to“$25,000” in paragraph (c)(1) of this sec-tion is replaced with a dollar amount equalto $25,000 multiplied by the cost-of-living adjustment under section 1(f)(3) forthe calendar year, determined by substi-tuting “calendar year 2012” for “calendaryear 1992” in section 1(f)(3)(B).

(3) Examples. The following examplesillustrate the provisions of paragraph (c)this section. For purposes of these exam-

Bulletin No. 2014–30 July 21, 2014207

ples, no employer is a tax-exempt organi-zation and no other adjustments or limita-tions on the credit apply other than thoseadjustments and limitations explicitly setforth in the example.

Example 1. Calculating the maximum credit foran eligible small employer without an applicablecredit phaseout. (i) Facts. An eligible small em-ployer (Employer) has 9 FTEs with average annualwages of $23,000. Employer pays $72,000 in healthinsurance premiums for those employees (whichdoes not exceed the total average premium for thesmall group market in the rating area), and otherwisemeets the requirements for the credit.

(ii) Conclusion. Employer’s credit equals$36,000 (50% x $72,000).

Example 2. Calculating the credit phaseout if thenumber of FTEs exceeds 10 or average annualwages exceed $25,000, as adjusted for inflation. (i)Facts. An eligible small employer (Employer) has 12FTEs and average annual FTE wages of $30,000 ina year when the amount in paragraph (c)(1) of thissection, as adjusted for inflation, is $25,000. Em-ployer pays $96,000 in health insurance premiumsfor its employees (which does not exceed the aver-age premium for the small group market in the ratingarea) and otherwise meets the requirements for thecredit.

(ii) Conclusion. The initial amount of the creditis determined before any reduction (50% x $96,000)� $48,000. The credit reduction for FTEs in excessof 10 is $6,400 ($48,000 x 2/15). The credit reduc-tion for average annual FTE wages in excess of$25,000 is $9,600 ($48,000 x $5,000/$25,000), re-sulting in a total credit reduction of $16,000 ($6,400� $9,600). Employer’s total tax credit equals$32,000 ($48,000 - $16,000).

(d) State credits and subsidies forhealth insurance—(1) Payments to em-ployer. If the employer is entitled to aState tax credit or a premium subsidy thatis paid directly to the employer, the pre-mium payment made by the employer isnot reduced by the credit or subsidy forpurposes of determining whether the em-ployer has satisfied the requirement to payan amount equal to a uniform percentage(not less than 50 percent) of the premiumcost. Also, except as described in para-graph (d)(3) of this section, the maximumamount of the credit is not reduced byreason of a State tax credit or subsidy orby reason of payments by a State directlyto an employer.

(2) Payments to issuer. If a State makespayments directly to an insurance com-pany (or another entity licensed underState law to engage in the business ofinsurance) to pay a portion of the pre-mium for coverage of an employee en-rolled for coverage through a SHOP Ex-change, the State is treated as making

these payments on behalf of the employerfor purposes of determining whether theemployer has satisfied the requirement topay an amount equal to a uniform percent-age (not less than 50 percent) of the pre-mium cost of coverage. Also, except asdescribed below in paragraph (d)(3) ofthis section, these premium payments bythe State are treated as an employer con-tribution under this section for purposes ofcalculating the credit.

(3) Credits may not exceed net pre-mium payment. Regardless of the applica-tion of paragraphs (d)(1) and (d)(2) of thissection, in no event may the amount of thecredit exceed the amount of the employ-er’s net premium payments as defined in§ 1.45R–1(a)(11).

(4) Examples. The following examplesillustrate the provisions of paragraphs(d)(1) through (d)(3) of this section. Forpurposes of these examples, each em-ployer is an eligible small employer that isnot a tax-exempt organization and the el-igible small employer’s taxable year andplan year begin during or after 2014. Noother adjustments or limitations on thecredit apply other than those adjustmentsand limitations explicitly set forth in theexample.

Example 1. State premium subsidy paid directlyto employer. (i) Facts. The State in which an eligiblesmall employer (Employer) operates 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 Em-ployer. Employer has one employee, Employee D.Employee D’s health insurance premiums are $100per month and are paid as follows: $80 by Employerand $20 by Employee D through salary reductions toa cafeteria plan. The State pays Employer $40 permonth as a subsidy for Employer’s payment of in-surance premiums on behalf of Employee D. Em-ployer is otherwise an eligible small employer thatmeets the requirements for the credit.

(ii) Conclusion. For purposes of calculating thecredit, the amount of premiums paid by the employeris $80 per month (the premium payment by theEmployer without regard to the subsidy from theState). The maximum credit is $40 ($80 x 50%).

Example 2. State premium subsidy paid directlyto insurance company. (i) Facts. The State in whichEmployer operates provides a health insurance pre-mium subsidy of up to 30% for each eligible em-ployee. Employer has one employee, Employee E.Employee E is enrolled in employee-only coveragethrough a qualified health plan (QHP) offered byEmployer through a SHOP Exchange. Employee E’shealth insurance premiums are $100 per month andare paid as follows: $50 by Employer; $30 by theState and $20 by the employee. The State pays the$30 per month directly to the insurance company and

the insurance company bills Employer for the em-ployer and employee’s share, which equal $70 permonth. Employer is otherwise an eligible small em-ployer that meets the requirements for the credit.

(ii) Conclusion. For purposes of calculating theamount of the credit, the amount of premiums paidby Employer is $80 per month (the sum of Employ-er’s payment and the State’s payment). The maxi-mum credit is $40 ($80 x 50%).

Example 3. Credit limited by employer’s net pre-mium payment. (i) Facts. The State in which Em-ployer operates provides a health insurance premiumsubsidy of up to 50% for each eligible employee.Employer has one employee, Employee F. EmployeeF is enrolled in employee-only coverage under theQHP offered to Employee F by Employer through aSHOP Exchange. Employee F’s health insurancepremiums are $100 per month and are paid as fol-lows: $20 by Employer; $50 by the State and $30 byEmployee F. The State pays the $50 per monthdirectly to the insurance company and the insurancecompany bills Employer for the employer’s and em-ployee’s shares, which total $50 per month. Theamount of premiums paid by Employer (the sum ofEmployer’s payment and the State’s payment) is $70per month, which is more than 50% of the $100monthly premium payment. The amount of the pre-mium for calculating the credit is also $70 per month.

(ii) Conclusion. The maximum credit withoutadjustments or limitations is $35 ($70 x 50%). Em-ployer’s net premium payment is $20 (the amountactually paid by Employer excluding the State sub-sidy). Because the credit may not exceed Employer’snet premium payment, the credit is $20 (the lesser of$35 or $20).

(e) Payroll tax limitation for tax-exempt eligible small employers—(1) Ingeneral. For a tax-exempt eligible em-ployer, the amount of the credit claimedcannot exceed the total amount of payrolltaxes (as defined in § 1.45R–1(a)(13)) ofthe employer during the calendar year inwhich the taxable year begins.

(2) Example. The following exampleillustrates the provisions of paragraph(e)(1) of this section. For purposes of thisexample, the eligible small employer’staxable year and plan year begin during orafter 2014. No other adjustments or limi-tations on the credit apply other than thoseadjustments and limitations explicitly setforth in the example.

Example. Calculating the maximum credit for atax-exempt eligible small employer. (i) Facts. Em-ployer is a tax-exempt eligible small employer thathas 10 FTEs with average annual wages of $21,000.Employer pays $80,000 in health insurance premi-ums for its employees (which does not exceed theaverage premium for the small group market in therating area) and otherwise meets the requirementsfor the credit. The total amount of Employer’s pay-roll taxes equals $30,000.

(ii) Conclusion. The initial amount of the creditis determined before any reduction: (35% x $80,000)� $28,000, and Employer’s payroll taxes are

July 21, 2014 Bulletin No. 2014–30208

$30,000. The total tax credit equals $28,000 (thelesser of $28,000 and $30,000).

(f) Two-consecutive-taxable-year creditperiod limitation. The credit is available toan eligible small employer, including a tax-exempt eligible small employer, only duringthat employer’s credit period. For a transi-tion rule for 2014, see paragraph (i) of thissection. To prevent the avoidance of thetwo-year limit on the credit period throughthe use of successor entities, a successorentity and a predecessor entity are treated asthe same employer. For this purpose, therules for identifying successor entities under§ 31.3121(a)(1)–1(b) apply. Accordingly,for example, if an eligible small employerclaims the credit for the 2014 and 2015taxable years, that eligible small employer’scredit period will have expired so that anysuccessor employer to that eligible smallemployer will not be able to claim the creditfor any subsequent taxable years.

(g) Premium payments by the employerfor a taxable year—(1) In general. Onlypremiums paid by an eligible small em-ployer or tax-exempt eligible small em-ployer on behalf of each employee en-rolled in a QHP or payments paid to theissuer in accordance with paragraph (d)(2)of this section are counted in calculatingthe credit. If an eligible small 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 intoaccount. Premiums paid on behalf of sea-sonal workers may be counted in deter-mining the amount of the credit (eventhough seasonal worker wages and hoursof service are not included in the FTEcalculation and average annual FTE wagecalculation unless the seasonal workerworks for the employer on more than 120days during the taxable year). Subject tothe average premium limitation, premi-ums paid on behalf of an employee withrespect to any individuals who are or maybecome eligible for coverage under theterms of the plan because of a relationshipto the employee (including through familycoverage or SHOP dependent coverage)may also be taken into account in deter-mining the amount of the credit. (How-ever, premiums paid for SHOP dependentcoverage are not taken into account indetermining whether the uniform percent-

age requirement is met, see § 1.45R–4(b)(5).)

(2) Excluded amounts—(i) Salary re-duction amounts. Any premium paid pur-suant to a salary reduction arrangementunder a section 125 cafeteria plan is nottreated as paid by the employer for pur-poses of section 45R and these regula-tions. For this purpose, premiums paidwith employer-provided flex credits thatemployees may elect to receive as cash orother taxable benefits are treated as paidpursuant to a salary reduction arrange-ment under a section 125 cafeteria plan.

(ii) HSAs, HRAs, and FSAs. Employercontributions to, or amounts made avail-able under, health savings accounts, reim-bursement arrangements, and health flex-ible spending arrangements are not takeninto account in determining the premiumpayments by the employer for a taxableyear.

(h) Rules applicable to trusts, estates,regulated investment companies, real es-tate investment trusts and cooperative or-ganizations. Rules similar to the rules ofsection 52(d) and (e) and the regulationsthereunder apply in calculating and appor-tioning the credit with respect to a trust,estate, a regulated investment company orreal estate investment trusts or coopera-tive organization.

(i) Transition rule for 2014—(1) Ingeneral. This paragraph (i) applies if as ofAugust 26, 2013, an eligible small em-ployer offers coverage for a health planyear that begins on a date other than thefirst day of its taxable year. In such a case,if the eligible small employer has a healthplan year beginning after January 1, 2014but before January 1, 2015 (2014 healthplan year) that begins after the start of itsfirst taxable year beginning on or afterJanuary 1, 2014 (2014 taxable year), andthe employer offers one or more QHPs toits employees through a SHOP Exchangeas of the first day of its 2014 health planyear, then the eligible small employer istreated as offering coverage through aSHOP Exchange for its entire 2014 tax-able year for purposes of section 45R ifthe health care coverage provided fromthe first day of the 2014 taxable yearthrough the day immediately precedingthe first day of the 2014 health plan yearwould have qualified for a credit undersection 45R using the rules applicable to

taxable years beginning before January 1,2014. If the eligible small employerclaims the section 45R credit in the 2014taxable year, the 2014 taxable year beginsthe first year of the credit period.

(2) Example. The following exampleillustrates the rule of this paragraph (i) ofthis section. For purposes of this example,it is assumed that the eligible small em-ployer is not a tax-exempt organizationand that no other adjustments or limita-tions on the credit apply other than thoseadjustments and limitations explicitly setforth in the example.

Example. (i) Facts. An eligible small employer(Employer) has a 2014 taxable year that begins Jan-uary 1, 2014 and ends on December 31, 2014. As ofAugust 26, 2013, Employer had a 2014 health planyear that begins July 1, 2014 and ends June 30, 2015.Employer offers a QHP through a SHOP Exchangethe coverage under which begins July 1, 2014. Em-ployer also provides other coverage from January1, 2014 through June 30, 2014 that would havequalified for a credit under section 45R based onthe rules applicable to taxable years beginningbefore 2014.

(ii) Conclusion. Employer may claim the creditat the 50% rate under section 45R for the entire 2014taxable year using the rules under this paragraph (i)of this section. Accordingly, in calculating the credit,Employer may count premiums paid for the cover-age from January 1, 2014 through June 30, 2014, aswell as premiums paid for the coverage from July 1,2014 through December 31, 2014. If Employerclaims the credit for the 2014 taxable year, thattaxable year is the first year of the credit period.

(j) Effective/applicability date. Thissection is applicable for periods after2013. For transition rules relating to cer-tain plan years beginning in 2014, seeparagraph (i) of this section.

§ 1.45R–4 Uniform percentage of pre-mium paid.

(a) In general. An eligible small em-ployer must pay a uniform percentage (notless than 50 percent) of the premium foreach employee enrolled in a qualifiedhealth plan (QHP) offered to employeesby the employer through a small businesshealth options program (SHOP) Ex-change.

(b) Employers offering one QHP. Anemployer that offers a single QHP througha SHOP Exchange must satisfy the re-quirements of this paragraph (b).

(1) Employers offering one QHP,employee-only coverage, composite bill-ing. For an eligible small employer offer-ing employee-only coverage and usingcomposite billing, the employer satisfiesthe requirements of this paragraph if it

Bulletin No. 2014–30 July 21, 2014209

pays the same amount toward the pre-mium for each employee receivingemployee-only coverage under the QHP,and that amount is equal to at least 50percent of the premium for employee-onlycoverage.

(2) Employers offering one QHP, othertiers of coverage, composite billing. Foran eligible small employer offering oneQHP providing at least one tier of cover-age with a higher premium thanemployee-only coverage and using com-posite billing, the employer satisfies therequirements of this paragraph (b)(2) if iteither—

(i) Pays an amount for each employeeenrolled in that more expensive tier ofcoverage that is the same for all employ-ees and that is no less than the amount thatthe employer would have contributed to-ward employee-only coverage for thatemployee, or

(ii) Meets the requirements of para-graph (b)(1) of this section for each tier ofcoverage that if offers.

(3) Employers offering one QHP,employee-only coverage, list billing. Foran eligible small employer offering oneQHP providing only employee-only cov-erage and using list billing, the employersatisfies the requirements of this para-graph (b)(3) if either—

(i) The employer pays toward the pre-mium an amount equal to a uniform per-centage (not less than 50 percent) of thepremium charged for each employee, or

(ii) The employer converts the individ-ual premiums for employee-only coverageinto an employer-computed compositerate for self-only coverage, and, if an em-ployee contribution is required, each em-ployee who receives coverage under theQHP pays a uniform amount toward theemployee-only premium that is no morethan 50 percent of the employer-computedcomposite rate for employee-only cover-age.

(4) Employers offering one QHP, othertiers of coverage, list billing. For an eli-gible small employer offering one QHPproviding at least one tier of coveragewith a higher premium than employee-only coverage and using list billing, theemployer satisfies the requirements of thisparagraph (b)(4) if it either—

(i) Pays toward the premium for eachemployee covered under each tier of cov-

erage an amount equal to or exceeding theamount that the employer would havecontributed with respect to that employeefor employee-only coverage, calculatedeither based upon the actual premium thatwould have been charged by the insurerfor that employee for employee-only cov-erage or based upon the employer-computed composite rate for employee-only coverage, or

(ii) Meets the requirements of para-graph (b)(3) of this section for each tier ofcoverage that it offers substituting theemployer-computed composite rate foreach tier of coverage for the employer-computed composite rate for employee-only coverage.

(5) Employers offering SHOP depen-dent coverage. If SHOP dependent cover-age is offered through the SHOP Ex-change, the employer does not fail tosatisfy the uniform percentage require-ment by contributing a different amounttoward that SHOP dependent coverage,even if that contribution is zero. For treat-ment of premiums paid on behalf of anemployee’s dependents, see § 1.45R–3(g)(1).

(c) Employers offering more than oneQHP. If an eligible small employer offersmore than one QHP, the employer mustsatisfy the requirements of this paragraph(c). The employer may satisfy the require-ments of this paragraph (c) in either of thefollowing two ways:

(1) QHP-by-QHP method. The em-ployer makes payments toward the pre-mium with respect to each QHP for whichthe employer is claiming the credit thatsatisfy the uniform percentage require-ment under paragraph (b) of this sectionon a QHP-by-QHP basis (so that theamounts or percentages of premium paidby the employer for each QHP need not beidentical, but the payments with respect toeach QHP must satisfy paragraph (b) ofthis section); or

(2) Reference QHP method. The em-ployer designates a reference QHP andmakes employer contributions in accor-dance with the following requirements—

(i) The employer determines a level ofemployer contributions for each employeesuch that, if all eligible employees en-rolled in the reference QHP, the contribu-tions would satisfy the uniform percent-

age requirement under paragraph (b) ofthis section, and

(ii) The employer allows each em-ployee to apply an amount of employercontribution determined necessary to meetthe uniform percentage requirement underparagraph (b) of this section either towardthe reference QHP or toward the cost ofcoverage under any of the other availableQHPs.

(d) Tobacco surcharges and wellness pro-gram discounts—(i) Tobacco surcharges. Thetobacco surcharge and amounts paid by theemployer to cover the surcharge are notincluded in premiums for purposes of cal-culating the uniform percentage require-ment, nor are payments of the surchargetreated as premium payments for pur-poses of calculating the credit. The uni-form percentage requirement is also ap-plied without regard to employeepayment of the tobacco surcharges incases in which all or part of the em-ployee tobacco surcharges are not paidby the employer.

(ii) Wellness programs. If a plan of anemployer provides a wellness program,for purposes of meeting the uniform per-centage requirement any additionalamount of the employer contribution at-tributable to an employee’s participationin the wellness program over the em-ployer contribution with respect to an em-ployee that does not participate in thewellness program is not taken into ac-count in calculating the uniform percent-age requirement, whether the difference isdue to a discount for participation or asurcharge for nonparticipation. The em-ployer contribution for employees that donot participate in the wellness programmust be at least 50 percent of the premium(including any premium surcharge fornonparticipation). However, for purposesof computing the credit, the employercontributions are taken into account, in-cluding those contributions attributable toan employee’s participation in a wellnessprogram.

(e) Special rules regarding employercompliance with applicable State or locallaw. An employer will be treated as satis-fying the uniform percentage requirementif the failure to otherwise satisfy the uni-form percentage requirement is attribut-able solely to additional employer contri-butions made to certain employees to

July 21, 2014 Bulletin No. 2014–30210

comply with an applicable State or locallaw.

(f) Examples. The following examplesillustrate the provisions of paragraphs (a)through (e) of this section:

Example 1. (i) Facts. An eligible small employer(Employer) offers a QHP on a SHOP Exchange, PlanA, which uses composite billing. The premiums forPlan A are $5,000 per year for employee-only cov-erage, and $10,000 for family coverage. Employeescan elect employee-only or family coverage underPlan A. Employer pays $3,000 (60% of the pre-mium) toward employee-only coverage under PlanA and $6,000 (60% of the premium) toward familycoverage under Plan A.

(ii) Conclusion. Employer’s contributions of60% of the premium for each tier of coverage satisfythe uniform percentage requirement.

Example 2. (i) Facts. Same facts as Example 1,except that Employer pays $3,000 (60% of the pre-mium) for each employee electing employee-onlycoverage under Plan A and pays $3,000 (30% of thepremium) for each employee electing family cover-age under Plan A.

(ii) Conclusion. Employer’s contributions of60% of the premium toward employee-only cover-age and the same dollar amount toward the premiumfor family coverage satisfy the uniform percentagerequirement, even though the percentage is not thesame.

Example 3. (i) Facts. Employer offers two QHPs,Plan A and Plan B, both of which use compositebilling. The premiums for Plan A are $5,000 per yearfor employee-only coverage and $10,000 for familycoverage. The premiums for Plan B are $7,000 peryear for employee-only coverage and $13,000 forfamily coverage. Employees can elect employee-only or family coverage under either Plan A or PlanB. Employer pays $3,000 (60% of the premium) foreach employee electing employee-only coverage un-der Plan A, $3,000 (30% of the premium) for eachemployee electing family coverage under Plan A,$3,500 (50% of the premium) for each employeeelecting employee-only coverage under Plan B, and$3,500 (27% of the premium) for each employeeelecting family coverage under Plan B.

(ii) Conclusion. Employer’s contributions of60% (or $3,000) of the premiums for employee-onlycoverage and the same dollar amounts toward thepremium for family coverage under Plan A, and of50% (or $3,500) of the premium for employee-onlyof coverage and the same dollar amount toward thepremium for family coverage under Plan B, satisfythe uniform percentage requirement on a QHP-by-QHP basis; therefore the employer’s contributions toboth plans satisfy the uniform percentage require-ment.

Example 4. (i) Facts. Same facts as Example 3,except that Employer designates Plan A as the ref-erence QHP. Employer pays $2,500 (50% of thepremium) for each employee electing employee-onlycoverage under Plan A and pays $2,500 of the pre-mium for each employee electing family coverageunder Plan A or either employee-only or familycoverage under Plan B.

(ii) Conclusion. Employer’s contribution of 50%(or $2,500) toward the premium of each employee

enrolled under Plan A or Plan B satisfies the uniformpercentage requirement.

Example 5. (i) Facts. Employer receives a listbilling premium quote with respect to Plan X, a QHPoffered by Employer on a SHOP Exchange forhealth insurance coverage for each of Employer’sfour employees. For Employee L, age 20, theemployee-only premium is $3,000 per year, and thefamily premium is $8,000. For Employees M, N andO, each age 40, the employee-only premium is$5,000 per year and the family premium is $10,000.The total employee-only premium for the four em-ployees is $18,000 ($3,000 � (3 x 5,000)). Employercalculates an employer-computed compositeemployee-only rate of $4,500 ($18,000 / 4). Em-ployer offers to make contributions such that eachemployee would need to pay $2,000 of the premiumfor employee-only coverage. Under this arrange-ment, Employer would contribute $1,000 towardemployee-only coverage for L and $3,000 towardemployee-only coverage for M, N, and O. In theevent an employee elects family coverage, Employerwould make the same contribution ($1,000 for L or$3,000 for M, N, or O) toward the family premium.

(ii) Conclusion. Employer satisfies the uniformpercentage requirement because it offers and makescontributions based on an employer-calculated com-posite employee-only rate such that, to receiveemployee-only coverage, each employee must pay auniform amount which is not more than 50% of thecomposite rate, and it allows employees to use thesame employer contributions toward family coverage.

Example 6. (i) Facts. Same facts as Example 5,except that Employer calculates an employer-computed composite family rate of $9,500 (($8,000� 3 x 10,000) / 4) and requires each employee to pay$4,000 of the premium for family coverage.

(ii) Conclusion. Employer satisfies the uniformpercentage requirement because it offers and makescontributions based on a calculated employee-onlyand family rate such that, to receive either employee-only or family coverage, each employee must pay auniform amount which is not more than 50% of thecomposite rate for coverage of that tier.

Example 7. (i) Facts. Same facts as Example 5,except that Employer also receives a list billingpremium quote from Plan Y with respect to a secondQHP offered by Employer on a SHOP Exchange foreach of Employer’s 4 employees. Plan Y’s quote forEmployee L, age 20, is $4,000 per year foremployee-only coverage or $12,000 per year forfamily coverage. For Employees M, N and O, eachage 40, the premium is $7,000 per year foremployee-only coverage or $15,000 per year forfamily coverage. The total employee-only premiumunder Plan Y is $25,000 ($4,000 � (3 x 7,000)). Theemployer-computed composite employee-only rateis $6,250 ($25,000 / 4). Employer designates Plan Xas the reference plan. Employer offers to make con-tributions based on the employer-calculated compos-ite premium for the reference QHP (Plan X) suchthat each employee has to contribute $2,000 to re-ceive employee-only coverage through Plan X. Un-der this arrangement, Employer would contribute$1,000 toward employee-only coverage for L and$3,000 toward employee-only coverage for M, N,and O. In the event an employee elects family cov-erage through Plan X or either employee-only or

family coverage through Plan Y, Employer wouldmake the same contributions ($1,000 for L or $3,000for M, N, or O) toward that coverage.

(ii) Conclusion. Employer satisfies the uniformpercentage requirement because it offers and makescontributions based on the employer-calculated com-posite employee-only premium for the Plan X refer-ence QHP such that, in order to receive employee-only coverage, each employee must pay a uniformamount which is not more than 50% of theemployee-only composite premium of the referenceQHP; it allows employees to use the same employercontributions toward family coverage in the refer-ence QHP or coverage through another QHPs.

Example 8. (i) Facts. Employer offers employee-only and SHOP dependent coverage through a QHPto its three employees using list billing. All threeemployees enroll in the employee-only coverage,and one employee elects to enroll two dependents inSHOP dependent coverage. Employer contributes100% of the employee-only premium costs, but onlycontributes 25% of the premium costs toward SHOPdependent coverage.

(ii) Conclusion. Employer’s contribution of100% toward the premium costs of employee-onlycoverage satisfies the uniform percentage require-ment, even though Employer is only contributing25% toward SHOP dependent coverage.

Example 9. (i) Facts. Employer has five employ-ees. Employer is located in a State that requiresemployers to pay 50% of employees’ premium costs,but also requires that an employee’s contribution notexceed a certain percentage of the employee’smonthly gross earnings from that employer. Em-ployer offers to pay 50% of the premium costs for allits employees, and to comply with the State law,Employer contributes more than 50% of the pre-mium costs for two of its employees.

(ii) Conclusion. Employer satisfies the uniformpercentage requirement because its failure to other-wise satisfy the uniform percentage requirement isattributable solely to compliance with the applicableState or local law.

Example 10. (i) Facts. Employer has three em-ployees who all enroll in employee-only coverage.Employer is located in a State that has a tobaccosurcharge on the premiums of employees who usetobacco. One of Employer’s employees smokes. Em-ployer contributes 50% of the employee-only pre-mium costs, but does not cover any of the tobaccosurcharge for the employee who smokes.

(ii) Conclusion. Employer’s contribution of 50%toward the premium costs of employee-only cover-age satisfies the uniform percentage requirement.Tobacco surcharges are not factored into premiumswhen calculating the uniform percentage require-ment.

Example 11. (i) Facts. Employer has five em-ployees who all enroll in employee-only coverage.Employer offers a wellness program that reduces theemployee share of the premium for employees whoparticipate in the wellness program. Employer con-tributes 50% of the premium costs of employee-onlycoverage for employees who do not participate in thewellness program and 55% of the premium costs ofemployee-only coverage for employees who partic-ipate in the wellness program. Three of the fiveemployees participate in the wellness program.

Bulletin No. 2014–30 July 21, 2014211

(ii) Conclusion. Employer’s contribution of 50%toward the premium costs of employee-only cover-age for the two employees who do not participate inthe wellness program and 55% toward the premiumcosts of employee-only coverage for three employ-ees who participate in the wellness program satisfiesthe uniform percentage requirement because the ad-ditional 5% contribution due to the employees’ par-ticipation in the wellness program is not taken intoaccount. However, the additional 5% contributionsare taken into account for purposes of calculating thecredit.

(g) Effective/applicability date. Thissection is applicable for periods after2013. For transition rules relating to cer-tain plan years starting in 2014, see§ 1.45R–3(i).

§ 1.45R–5 Claiming the credit.

(a) Claiming the credit. The credit is ageneral business credit. It is claimed on aneligible small employer’s annual incometax return and offsets an employer’s actualtax liability for the year. The credit isclaimed by attaching Form 8941, “Creditfor Small Employer Health Insurance Pre-miums,” to the eligible small employer’sincome tax return or, in the case of atax-exempt eligible small employer, byattaching Form 8941 to the employer’sForm 990–T, “Exempt OrganizationBusiness Income Tax Return.” To claimthe credit, a tax-exempt eligible small em-ployer must file a form 990–T with anattached Form 8941, even if a Form990–T would not otherwise be required tobe filed.

(b) Estimated tax payments and alter-native minimum tax (AMT) liability. Aneligible small employer may reflect thecredit in determining estimated tax pay-ments for the year in which the creditapplies in accordance with the estimatedtax rules as set forth in sections 6654 and6655 and the applicable regulations. Aneligible small employer may also use thecredit to offset the employer’s alternativeminimum tax (AMT) liability for the year,if any, subject to certain limitations basedon the amount of the employer’s regulartax liability, AMT liability and other al-lowable credits. See section 38(c)(1), asmodified by section 38(c)(4)(B)(vi). How-ever, an eligible small employer, includ-ing a tax-exempt eligible small employer,may not reduce its deposits and payments

of employment tax (that is, income taxrequired to be withheld under section3402, social security and Medicare taxunder sections 3101 and 3111, and federalunemployment tax under section 3301) dur-ing the year in anticipation of the credit.

(c) Reduction of section 162 deduction.No deduction under section 162 is al-lowed for the eligible small employer forthat portion of the health insurance premi-ums that is equal to the amount of thecredit under § 1.45R–2.

(d) Effective/applicability date. Thissection is applicable for periods after2013. For rules relating to certain planyears beginning in 2014, see § 1.45R–3(i).

John DalrympleDeputy Commissioner

for Services and Enforcement.

Approved June 24, 2014,

Mark J. MazurAssistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on, June 26,2014, 4:15 p.m., and published in the issue of the FederalRegister for June 30, 2014, 79 F.R. 36640)

Section 401.—QualifiedPension, Profit-Sharing,and Stock Bonus Plans26 CFR 1.401(a)(9): Required minimum distribu-tions for defined benefit plans and annuity contracts.

TD 9673

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Parts 1 and 602

Longevity Annuity Contracts

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations relating to the use of lon-

gevity annuity contracts in tax-qualifieddefined contribution plans under section401(a) of the Internal Revenue Code(Code), section 403(b) plans, individualretirement annuities and accounts(IRAs) under section 408, and eligiblegovernmental plans under section457(b). These regulations will providethe public with guidance necessary tocomply with the required minimum dis-tribution rules under section 401(a)(9)applicable to an IRA or a plan that holdsa longevity annuity contract. The regu-lations will affect individuals for whoma longevity annuity contract is pur-chased under these plans and IRAs (andtheir beneficiaries), sponsors and admin-istrators of these plans, trustees and cus-todians of these plans and IRAs, andinsurance companies that issue longev-ity annuity contracts under these plansand IRAs.

DATES: Effective date: These regulationsare effective on July 2, 2014.

Applicability date: These regulationsapply to contracts purchased on or afterJuly 2, 2014.

FOR FURTHER INFORMATIONCONTACT: Jamie Dvoretzky at (202)317-6799 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in these regulations has been re-viewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of1995 (44 U.S.C. 3507(d)) under controlnumber 1545–2234. The collection of in-formation in these final regulations is inA–17(a)(6) of § 1.401(a)(9)–6 (disclosurethat a contract is intended to be a qualifyinglongevity annuity contract (QLAC), definedin A–17 of that section) and § 1.6047–2 (anannual statement must be provided toQLAC owners and their surviving spousescontaining information required to be fur-nished to the IRS). The information inA–17(a)(6) of § 1.401(a)(9)–6 is required inorder to notify employees1 and beneficia-ries, plan sponsors, and the IRS that theregulations apply to a contract. The infor-

1An “employee” includes the owner of an IRA, where applicable.

July 21, 2014 Bulletin No. 2014–30212

mation in the annual statement in § 1.6047–2(c) is required in order to apply the dollarand percentage limitations in A–17(b) of§ 1.401(a)(9)–6 and A–12(b) of § 1.408–8and to comply with other requirements ofthe required minimum distribution rules.

Estimated total average annual record-keeping burden: 28,529 hours.

Estimated average annual burden perresponse: 8 minutes.

Estimated number of responses:213,966.

Estimated number of recordkeepers:150.

An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less the collection of information displaysa valid control number assigned by theOffice of Management and Budget.

Books or records relating to a collec-tion of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by section 6103.

Background

This document contains amendments tothe Income Tax Regulations (26 CFR part1) under sections 401(a)(9), 403(b)(10),408(a)(6), 408(b)(3), 408A(c)(5), and6047(d) of the Code.

Section 401(a)(9) prescribes requiredminimum distribution rules for a qualifiedtrust under section 401(a). In general, un-der these rules, distribution of each em-ployee’s entire interest must begin by therequired beginning date. The required be-ginning date generally is April 1 of thecalendar year following the later of (1) thecalendar year in which the employee at-tains age 70½ or (2) the calendar year inwhich the employee retires. However, theability to delay distribution until the cal-endar year in which an employee retiresdoes not apply in the case of a 5-percentowner or an IRA owner.

If the entire interest of the employee isnot distributed by the required beginningdate, section 401(a)(9)(A) provides thatthe entire interest of the employee must bedistributed, beginning not later than therequired beginning date, in accordancewith regulations, over the life of the em-ployee or lives of the employee and a

designated beneficiary (or over a periodnot extending beyond the life expectancyof the employee or the life expectancy ofthe employee and a designated benefi-ciary). Section 401(a)(9)(B) prescribes re-quired minimum distribution rules that ap-ply after the death of the employee.Section 401(a)(9)(G) provides that anydistribution required to satisfy the inci-dental death benefit requirement of sec-tion 401(a) is treated as a required mini-mum distribution.

Section 403(b) plans, IRAs describedin section 408, and eligible deferred com-pensation plans under section 457(b) alsoare subject to the required minimum dis-tribution rules of section 401(a)(9) pursu-ant to sections 403(b)(10), 408(a)(6) and(b)(3), and 457(d)(2), respectively, and tothe regulations under those sections. How-ever, pursuant to section 408A(c)(5), theminimum distribution and minimum dis-tribution incidental benefit (MDIB) re-quirements do not apply to Roth IRAsduring the life of the employee.

Section 6047(d) states that the Secre-tary shall by forms or regulations requirethe employer maintaining, or the plan ad-ministrator of, a plan from which desig-nated distributions (as defined in section3405(e)(1)) may be made, and any personissuing any contract under which desig-nated distributions may be made, to makereturns and reports regarding the plan orcontract to the Secretary, to the partici-pants and beneficiaries of the plan or con-tract, and to such other persons as theSecretary may by regulations prescribe.This section also provides that the Secre-tary may, by forms or regulations, pre-scribe the manner and time for filing thesereports.

Section 1.401(a)(9)–6 of the IncomeTax Regulations sets forth the minimumdistribution rules that apply to a definedbenefit plan and to annuity contracts undera defined contribution plan. Under A–12of § 1.401(a)(9)–6, if an annuity contractheld under a defined contribution plan hasnot yet been annuitized, the interest of anemployee or beneficiary under that con-tract is treated as an individual account forpurposes of section 401(a)(9). Thus, thevalue of that contract is included in theaccount balance used to determine re-quired minimum distributions from theemployee’s individual account.

If an annuity contract has been annui-tized, the periodic annuity payments mustbe nonincreasing, subject to certain excep-tions that are set forth in A–14 of§ 1.401(a)(9)–6. In addition, annuity pay-ments must satisfy the MDIB requirementof section 401(a)(9)(G). Under A–2(b) of§ 1.401(a)(9)–6, if an employee’s solebeneficiary, as of the annuity starting date,is his or her spouse and the distributionssatisfy section 401(a)(9) without regard tothe MDIB requirement, the distributionsto the employee are deemed to satisfy theMDIB requirement. However, if distribu-tions are in the form of a joint and survi-vor annuity for an employee and a non-spouse beneficiary, the MDIB requirementis not satisfied unless the periodic annuitypayment payable to the survivor does notexceed an applicable percentage of theamount that is payable to the employee,with the applicable percentage determinedusing the table in A–2(c) of § 1.401(a)(9)–6.

The regulations under sections403(b)(10), 408(a)(6), 408(b)(3), 408A(c)(5),and 457(d)(2) prescribe how the requiredminimum distribution rules apply to othertypes of retirement plans and accounts.Section 1.403(b)–6(e)(2) provides, withcertain exceptions, that the section401(a)(9) required minimum distributionrules are applied to section 403(b) con-tracts in accordance with the provisions in§ 1.408–8. As provided in A–1 of§ 1.408–8, with certain modifications, anIRA is subject to the rules of§§ 1.401(a)(9)–1 through 1.401(a)(9)–9.One such modification is set forth in A–9of § 1.408–8, which prescribes a ruleunder which an IRA generally does notfail to satisfy section 401(a)(9) merelybecause the required minimum distribu-tion with respect to the IRA is distributedinstead from another IRA.

On February 2, 2010, the Departmentof Labor, the IRS, and the Department ofthe Treasury issued a Request for Infor-mation Regarding Lifetime Income Op-tions for Participants and Beneficiaries inRetirement Plans in the Federal Register(75 FR 5253). That Request for Informa-tion included questions relating to how therequired minimum distribution rules af-fect defined contribution plan sponsors’and participants’ interest in the offeringand use of lifetime income products. Inparticular, the Request for Information

Bulletin No. 2014–30 July 21, 2014213

asked whether there were changes to therules that could or should be considered toencourage arrangements under which par-ticipants can purchase deferred annuitiesthat begin at an advanced age (sometimesreferred to as longevity annuities or lon-gevity insurance). A number of comment-ers identified the required minimum dis-tribution rules as an impediment to theutilization of these types of annuities. TheTreasury Department and the IRS con-cluded that there are substantial advan-tages to modifying the minimum distribu-tion rules in order to facilitate aparticipant’s purchase of a deferred annu-ity that is scheduled to commence at anadvanced age, such as 80 or 85.

On February 3, 2012, proposed amend-ments to the regulations (REG–115809–11) under sections 401(a)(9), 403(b)(10),408(a)(6), 408(b)(3), 408A(c)(5), and6047(d) of the Code were published in theFederal Register (77 FR 5443). Theamendments to the regulations relating tothe required minimum distribution ruleswere proposed in order to facilitate thepurchase of deferred annuities that beginat an advanced age.

A public hearing was held on June 1,2012. Written comments responding tothe notice of proposed rulemaking werealso received. After consideration of allthe comments, the proposed regulationsare adopted, as amended by this TreasuryDecision. The most significant revisionsare discussed in the Summary of Com-ments and Explanation of Revisions.

Summary of Comments andExplanation of Revisions

These final regulations modify the re-quired minimum distribution rules in or-der to facilitate the purchase of deferredannuities that begin at an advanced age.These regulations apply to contracts thatsatisfy certain requirements, including therequirement that distributions commencenot later than age 85. Prior to annuitiza-tion, the value of these contracts, referredto as “qualifying longevity annuity con-tracts” (QLACs), is excluded from theaccount balance used to determine re-quired minimum distributions.

I. Definition of QLAC

A. Limitations on premiumsThe proposed regulations provided that

in order to constitute a QLAC, the amountof the premiums paid for the contract un-der the plan on a given date could notexceed the lesser of $100,000 or 25 per-cent of the employee’s account balance onthe date of payment. If, on or before thedate of a premium payment, an employeehad paid premiums for the same contractor for any other contract that was intendedto be a QLAC and that was purchased forthe employee under the plan or under anyother retirement plan, annuity, or account,the dollar limit would be reduced by theamount of those other premium payments.Similarly, if, on or before the date of apremium payment, an employee had paidpremiums for the same contract or for anyother contract that was intended to be aQLAC and that was purchased for theemployee under the plan, the amount ofthose other premium payments will betaken into account in determining compli-ance with the percentage limit.

A number of commenters requestedthat the $100,000 limit or the 25-percentlimit (or both) be increased to allow indi-viduals to obtain more longevity risk pro-tection. Other commenters supported re-tention of the limits at their proposedlevels.

The Treasury Department and the IRScontinue to believe that a dollar limit anda percentage limit are necessary in orderto constrain undue deferral of distributionof an employee’s interest. Moreover, asnoted in the preamble to the proposedregulations, a premium of $100,000 couldpurchase an annuity that provides signifi-cant income beginning at age 85. For ex-ample, if at age 70 an employee used$100,000 of his or her account balance topurchase an annuity that will commenceat age 85, the annuity could provide anannual income that is estimated to rangebetween $26,000 and $42,000 (dependingon the actuarial assumptions used by theissuer and the form of the annuity electedby the employee).2 In addition, providingspecial treatment to QLACs purchasedwith no more than 25 percent of the ac-

count balance is consistent with section401(a)(9)(A) because, for a typical em-ployee who will need to draw down theentire account balance during the periodprior to commencement of the annuity, theoverall pattern of payments from the ac-count balance and the QLAC would notprovide more deferral than would other-wise normally be available for lifetimepayments under the section 401(a)(9)(A)rules.

After consideration of all of the com-ments, the Treasury Department and theIRS have concluded that the dollar limiton premiums under the proposed regula-tions can be increased to $125,000 with-out leading to an unacceptable level ofdeferral of distribution. Accordingly, thefinal regulations increase the $100,000premium limit to $125,000. The final reg-ulations continue to provide that no morethan 25 percent of the account balancemay be used to pay premiums.

To simplify the application of the per-centage limit, the final regulations clarifythat the limit is applied with respect to anemployee’s account balance under a qual-ified plan as of the last valuation datepreceding the date of a premium payment,increased for contributions allocated tothe account (and decreased for distribu-tions made from the account) after thevaluation date but before the date the pre-mium is paid. In addition, the final regu-lations clarify that although the value of aQLAC is excluded from the account bal-ance used to determine required minimumdistributions, the value of a QLAC is in-cluded in the account balance for purposesof applying the 25-percent limit.

The proposed regulations provided thatif a premium for a contract causes the totalpremiums to exceed either the dollar orpercentage limitation, the contract wouldfail to be a QLAC beginning on the dateon which the excess premium was paid. Anumber of commenters requested that thisrule be modified, stating that disqualifyingan entire contract would be a harsh result,particularly in the case of an inadvertenterror. They suggested that the regulationsinstead provide that if a premium for alongevity annuity contract exceeds thedollar or percentage limits, the QLAC will

2These illustrations assume a three-percent interest rate, no pre-annuity-starting-date death benefit, use of the Annuity 2000 Mortality Table for males and females, no indexation of theannuity stream for inflation, and no load for expenses. (If the annuity were provided under an employer plan, unisex mortality assumptions would be required.)

July 21, 2014 Bulletin No. 2014–30214

be disqualified (and hence included in theaccount balance used to calculate requiredminimum distributions) only to the extentof the excess premiums. Others suggestedthat there be a correction program thatwould allow employees to correct excesspremiums.

In response to these comments, the fi-nal regulations provide that if an annuitycontract fails to be a QLAC solely be-cause premiums for the contract exceedthe premium limits, then the contract willnot fail to be a QLAC if the excess pre-mium is returned to the non-QLAC por-tion of the employee’s account by the endof the calendar year following the calen-dar year in which the excess premium waspaid. The excess premium may be re-turned to the non-QLAC portion of theemployee’s account either in cash or inthe form of an annuity contract that is notintended to be a QLAC. If the excesspremium (including the fair market valueof an annuity contract that is not intendedto be a QLAC, if applicable) is returned tothe non-QLAC portion of the employee’saccount after the last valuation date for thecalendar year in which the excess pre-mium was originally paid, then the em-ployee’s account balance as of that valu-ation date must be increased to reflect theexcess premium. Any such return of ex-cess premium will not be treated as aviolation of the rule that a QLAC must notprovide a commutation benefit.

In response to other comments, the fi-nal regulations clarify that if a contract atany time fails to be a QLAC for reasonsother than exceeding the premium limita-tions, the contract will not be treated as aQLAC, or a contract that is intended to bea QLAC, beginning on the date of the firstpremium payment for that contract.

The proposed regulations provided thatfor calendar years beginning on or afterthe calendar year in which the regulationsare effective, the dollar limitation wouldbe adjusted at the same time and in thesame manner as under section 415(d), ex-cept that (1) the base period would be thecalendar year quarter beginning sixmonths before the effective date of theregulations, and (2) any increase that isnot a multiple of $25,000 would berounded to the next lowest multiple of$25,000. In response to comments re-questing that the dollar limit be adjusted

in smaller increments than $25,000, thefinal regulations provide that any increasethat is not a multiple of $10,000 will berounded to the next lowest multiple of$10,000.

B. Maximum age at commencementLike the proposed regulations, the final

regulations provide that in order to con-stitute a QLAC, the contract must providethat distributions under the contract com-mence not later than a specified annuitystarting date set forth in the contract. Un-der the final regulations, the specified an-nuity starting date must be no later thanthe first day of the month next followingthe employee’s attainment of age 85. AQLAC could allow an employee to electan earlier annuity starting date than thespecified annuity starting date, but is notrequired to provide an option to com-mence distributions before the specifiedannuity starting date.

The final regulations continue to pro-vide that the maximum age may be ad-justed to reflect changes in mortality. TheTreasury Department and the IRS antici-pate that such changes will not occur morefrequently than the adjustment of the$125,000 limit described in subheadingI.A. “Limitations on premiums.” The ad-justed age (if any) and the adjustment tothe $125,000 limit will be prescribed bythe Commissioner in revenue rulings, no-tices, or other guidance published in theInternal Revenue Bulletin.

C. Benefits payable after death of theemployee

The proposed regulations would haveprovided that under a QLAC the only ben-efit permitted to be paid after the employ-ee’s death is a life annuity, payable to adesignated beneficiary, that meets certainrequirements. Thus, for example, a con-tract that provides a distribution form witha period certain or a return of premiums inthe case of an employee’s death would notbe a QLAC.

A number of commenters requestedthat QLACs be permitted to include areturn of premium (ROP) feature thatguarantees that if the annuitant dies beforereceiving payments at least equal to thetotal premiums paid under the contract,then an additional payment is made toensure that the total payments received areat least equal to the total premiums paidunder the contract. They noted that an

ROP feature would make QLACs moreattractive by addressing the concerns ofthose who would be unwilling to take therisk that payments under the contract willnot be at least equal to the premiums.Several commenters stated that althoughthe cost of providing an ROP feature re-sults in lower annuity payments, the effectwould be relatively small and employeeswould still be more likely to choose anannuity with this feature than without it.

In response to these comments, the fi-nal regulations provide that a QLAC mayoffer an ROP feature that is payable be-fore and after the employee’s annuitystarting date. Accordingly, a QLAC mayprovide for a single-sum death benefitpaid to a beneficiary in an amount equal tothe excess of the premium payments madewith respect to the QLAC over the pay-ments made to the employee under theQLAC. If a QLAC is providing a lifeannuity to a surviving spouse (or will pro-vide a life annuity to a surviving spouse),it may also provide a similar ROP benefitafter the death of both the employee andthe spouse.

The final regulations provide that anROP payment must be paid no later thanthe end of the calendar year following thecalendar year in which the employee dies,or in which the surviving spouse dies,whichever is applicable. If the employee’sdeath is after the required beginning date,then the ROP payment is treated as arequired minimum distribution for theyear in which it is paid and is not eligiblefor rollover. If the surviving spouse’sdeath is after the required beginning datefor the surviving spouse, then the ROPpayment similarly is treated as a requiredminimum distribution for the year inwhich it is paid and is not eligible forrollover.

As under the proposed regulations, thefinal regulations provide that if the solebeneficiary of an employee under the con-tract is the employee’s surviving spouse,the only benefit permitted to be paid afterthe employee’s death (other than an ROP)is a life annuity payable to the survivingspouse that does not exceed 100 percentof the annuity payment payable to theemployee. The final regulations also in-clude a special exception that would allowa plan to comply with any applicable re-quirement to provide a qualified preretire-

Bulletin No. 2014–30 July 21, 2014215

ment survivor annuity.3 If the survivingspouse is one of multiple designated ben-eficiaries, the special rules for a survivingspouse are permitted to be applied as ifthere were separate contracts for each ofthe separate beneficiaries, but only if cer-tain conditions are satisfied, including aseparate account requirement.4

If the employee’s surviving spouse isnot the sole beneficiary under the contract,the only benefit permitted to be paid afterthe employee’s death (other than an ROP)is a life annuity payable to a designatedbeneficiary. In order to satisfy the MDIBrequirements of section 401(a)(9)(G), thelife annuity is not permitted to exceed anapplicable percentage of the annuity pay-ment payable to the employee. The appli-cable percentage is determined under oneof two alternative tables, and the determi-nation of which table applies depends onthe different types of death benefits thatare payable to the designated beneficiary.However, if the contract provides for anROP, the applicable percentage is zero.

Under the first alternative table, theapplicable percentage is the percentagedescribed in the existing table in A–2(c)of § 1.401(a)(9)–6. This table is availableonly if, under the contract, no death ben-efits are payable to such a beneficiary ifthe employee dies before the specified an-nuity starting date. Furthermore, in orderto address the possibility that an employeewith a shortened life expectancy couldaccelerate the annuity starting date in or-der to circumvent this rule, this table isavailable only if, under the contract, nobenefits are payable in any case in whichthe employee selects an annuity startingdate that is earlier than the specified an-nuity starting date under the contract anddies less than 90 days after making thatelection, even if the employee’s death oc-curs after his or her selected annuity start-ing date.

Under the second alternative table, theapplicable percentage is the percentagedescribed in a new table set forth in thefinal regulations. The table is available foruse when the contract provides a pre-

annuity-starting-date death benefit to thenon-spouse designated beneficiary. Thetable takes into account that a significantportion of the premium is used to providedeath benefits to a designated beneficiaryif death occurs during the deferral periodbetween age 70½ and age 85. In order tolimit the portion of the premium that isused to provide death benefits to a desig-nated beneficiary, the proposed regula-tions provided that use of the table islimited to contracts under which any non-spouse designated beneficiary must be ir-revocably selected as of the required be-ginning date. In response to comments,the final regulations modify this rule toallow the non-spouse beneficiary to beselected at a later date in certain circum-stances, and to clarify that there is noviolation of the irrevocability requirementthat applies with respect to a non-spousebeneficiary if an employee substitutes hisor her spouse as the beneficiary.

D. Other QLAC requirementsUnder the proposed regulations, a

QLAC would not include a variable con-tract under section 817 (variable annuity),an equity-indexed contract, or a similarcontract. A number of commenters re-quested that variable annuities and annu-ities that base returns on an equity indexbe included in the definition of a QLAC.One commenter noted that a narrow def-inition may limit the demand for QLACs.Others noted that annuities that providefor equity exposure are better able to ad-dress the long-term risk of inflation thanfixed annuities. The Treasury Departmentand the IRS believe that because the pur-pose of a QLAC is to provide an em-ployee with a predictable stream of life-time income a contract should be eligiblefor QLAC treatment only if the incomeunder the contract is primarily derivedfrom contractual guarantees. Becausevariable annuities and indexed contracts5

provide a substantially unpredictable levelof income to the employee, these contractsare inconsistent with the purpose of thisregulation. This is true even if there is aminimum guaranteed income under those

contracts. In addition, having a limited setof easy-to-understand QLAC optionsavailable for purchase enhances the abilityof employees to compare the products ofmultiple providers. Moreover, exposure toequity-based returns is available throughcontrol over the remaining portion of theaccount balance. Therefore, the final reg-ulations provide that a QLAC does notinclude a variable contract under section817, an indexed contract, or a similar con-tract. However, the final regulations alsoprovide that the Commissioner may pro-vide an exception to this rule in revenuerulings, notices, or other guidance pub-lished in the Internal Revenue Bulletin.

In response to comments, the final reg-ulations clarify that a participating annuitycontract is not treated as a contract that issimilar to a variable contract or an in-dexed contract merely because it providesfor the payment of dividends described inA–14(c)(3) of § 1.401(a)(9)–6. Similarly,a contract that provides for a cost-of-living adjustment described in A–14(b) of§ 1.401(a)(9)–6 is not treated as a contractthat is similar to a contract that is a vari-able contract or an indexed contract.

The proposed regulations also pro-vided that in order to be a QLAC, a con-tract is not permitted to make availableany commutation benefit, cash surrendervalue, or other similar feature. Althoughsome commenters requested flexibility tooffer contracts with these types of fea-tures, the final regulations retain this rulebecause the availability of such a featurewould significantly reduce the benefit ofmortality pooling under the contracts.

The proposed regulations provided thata contract is not a QLAC unless it states,when issued, that it is intended to be aQLAC. This rule would ensure that theissuer, employee, plan sponsor, and IRSknow that the rules applicable to QLACsapply to a contract. Numerous comment-ers objected to this requirement, primarilybecause any changes to a contract formwould require issuers to resubmit thatform (even if it already satisfies the otherQLAC requirements) to state insurance

3A qualified preretirement survivor annuity is defined in section 417(c)(2) as an annuity for the life of the surviving spouse, the actuarial equivalent of which is not less than 50 percent ofthe portion of the account balance of the participant (as of the date of death) to which the participant had a nonforfeitable right (within the meaning of section 411(a) of the Code). Section205(e)(2) of the Employee Retirement Income Security Act of 1974, Public Law 93–406, as amended (ERISA), includes a parallel definition. See Rev. Rul. 2012–3, 2012–8 IRB 383 (2012)for rules relating to qualified preretirement survivor annuities.

4See A–2(a) and A–3 of § 1.401(a)(9)–8.

5Commenters indicated that an indexed contract and an equity-indexed contract are alternative names for the same type of annuity.

July 21, 2014 Bulletin No. 2014–30216

regulators for approval. Some comment-ers suggested that in order to alleviate theburden, issuers should be allowed to sat-isfy this requirement by including a state-ment in an insurance certificate or riderrather than in the contract itself. Severalcommenters suggested that the require-ment to include this statement in the con-tract should be removed altogether be-cause it duplicates the proposed disclosurerequirement.

As under the proposed regulations, thefinal regulations provide that when thecontract is issued an employee must benotified that the contract is intended to bea QLAC. However, in response to com-ments, the final regulations provide thatthis requirement will be satisfied if thislanguage is included in the contract, or ina rider or endorsement with respect to thecontract. The final regulations also pro-vide that this requirement will be satisfiedif a certificate is issued under a groupannuity contract and the certificate, whenissued, states that the employee’s interestunder the group annuity contract is in-tended to be a QLAC. In addition, thefinal regulations include a transition ruleunder which an annuity contract issuedbefore January 1, 2016, will not fail to bea QLAC merely because the contract doesnot satisfy this requirement, provided thatwhen the contract is issued the employeeis notified that the contract (or a certificateunder a group annuity contract) is in-tended to be a QLAC, and the contract isamended (or a rider, endorsement, oramendment to the certificate is issued) nolater than December 31, 2016 to state thatthe contract is intended to be a QLAC.

The final regulations continue to pro-vide that distributions under a QLACmust satisfy the generally applicable sec-tion 401(a)(9) requirements relating to an-nuities set forth in § 1.401(a)(9)–6, otherthan the requirement that annuity pay-ments commence on or before the em-ployee’s required beginning date. Thus,for example, the limitation on increasingpayments described in A–1(a) of§ 1.401(a)(9)–6 applies to the contract.

II. IRAs

The final regulations retain the pre-mium limitations for IRAs provided underthe proposed regulations. The final regu-lations provide that, in order to constitutea QLAC, the amount of the premiumspaid for the contract under an IRA on agiven date may not exceed $125,000. If,on or before the date of a premium pay-ment, an IRA owner has paid premiumsfor the same contract or for any othercontract that is intended to be a QLACunder the IRA or under any other IRA,plan, or annuity, the $125,000 limit isreduced by the amount of those other pre-mium payments.

The final regulations also provide that,in order to constitute a QLAC the amountof the premiums paid for the contract un-der an IRA on a given date generally maynot exceed 25 percent of the individual’sIRA account balance. Consistent with therule under which a required minimum dis-tribution from an IRA could be satisfiedby a distribution from another IRA (ap-plied separately to traditional IRAs andRoth IRAs), the final regulations allow aQLAC that could be purchased under anIRA within these limitations to be pur-chased instead under another IRA. Specif-ically, the amount of the premiums paidfor the contract under an IRA may notexceed an amount equal to 25 percent ofthe sum of the account balances (as ofDecember 31 of the calendar year beforethe calendar year in which a premium ispaid) of the IRAs (other than Roth IRAs)that an individual holds as the IRA owner.If, on or before the date of a premiumpayment, an individual has paid other pre-miums for the same contract or for anyother contract that is intended to be aQLAC and that is held or purchased forthe individual under his or her IRAs, thepremium payment cannot exceed theamount determined to be 25 percent of theindividual’s IRA account balances, re-duced by the amount of those other pre-miums.

Like the proposed regulations, the finalregulations provide that for purposes ofboth the dollar and percentage limitations,unless the trustee, custodian, or issuer of

an IRA has actual knowledge to the con-trary, the trustee, custodian, or issuer mayrely on the IRA owner’s representationsof the amount of the premiums (other thanthe premiums paid under the IRA) and, forpurposes of applying the percentage lim-itation, the amount of the individual’s IRAaccount balances (other than the accountbalance under the IRA).

In light of the fact that Roth IRAs arenot subject to the required minimum dis-tribution rules prior to the death of theowner, the proposed regulations providedthat an annuity purchased under a RothIRA would not be treated as a QLAC. Inaddition, the dollar and percentage limita-tions on premiums that apply to a QLACwould not take into account premiumspaid for a contract that is purchased orheld under a Roth IRA, even if the con-tract satisfies the requirements to be aQLAC. If a QLAC is purchased or heldunder a plan, annuity, contract, or tradi-tional IRA that is later rolled over or con-verted to a Roth IRA, the QLAC wouldcease to be a QLAC (and would cease tobe treated as intended to be a QLAC) afterthe date of the rollover or conversion. Inthat case, the premiums would then bedisregarded in applying the dollar and per-centage limitations to premiums paid forother contracts after the date of the roll-over or conversion.6 The final regulationsretain the proposed rules on Roth IRAs.

III. Section 403(b) plans

As under the proposed regulations, thefinal regulations apply the tax-qualifiedplan rules, instead of the IRA rules, to thepurchase of a QLAC under a section403(b) plan. For example, the 25-percentlimitation on premiums is separately de-termined for each section 403(b) plan inwhich an employee participates. The finalregulations also provide that the tax-qualified plan rules relating to reliance onrepresentations, rather than the IRA rules,apply to the purchase of a QLAC under asection 403(b) plan.

The final regulations also provide that,if the sole beneficiary of an employeeunder a contract is the employee’s surviv-ing spouse and the employee dies before

6See A–14 of § 1.408A–4 for a description of the amount includible in gross income when part or all of a traditional IRA that is an individual retirement annuity described in section 408(b)is converted to a Roth IRA, or when a traditional IRA that is an individual retirement account described in section 408(a) holds an annuity contract as an account asset and the traditionalIRA is converted to a Roth IRA. Those rules would also apply when a contract is rolled over from a plan into a Roth IRA.

Bulletin No. 2014–30 July 21, 2014217

the annuity starting date under the con-tract, a life annuity that is payable to thesurviving spouse after the employee’sdeath is permitted to exceed the annuitythat would have been payable to the em-ployee to the extent necessary to satisfythe requirement to provide a qualified pre-retirement survivor annuity (as discussedfor qualified plans under subheading I.C.“Benefits payable after death of the em-ployee”). A section 403(b) plan may besubject to this requirement under ERISA,whereas IRAs are not subject to this re-quirement. See A–3(d) of § 1.401(a)–20and § 1.403(b)–5(e).

IV. Section 457(b) plans

Section 1.457–6(d) provides that an el-igible section 457(b) plan must meet therequirements of section 401(a)(9) and theregulations under section 401(a)(9). Thus,these regulations relating to the purchaseof a QLAC under a tax-qualified definedcontribution plan automatically apply toan eligible section 457(b) plan. However,the rule relating to QLACs is limited toeligible governmental plans under section457(b). This is because section 457(b)(6)requires that an eligible section 457(b)plan that is not an eligible governmentalplan be unfunded, and the purchase of anannuity contract under such a plan wouldbe inconsistent with the requirement thatsuch a plan be unfunded.

V. Defined benefit plans

A number of commenters favored al-lowing defined benefit plans to offer aQLAC. For example, several commentersstated that not permitting a QLAC to beoffered under a defined benefit plan willencourage employees to roll over lump-sum distributions from defined benefitplans to defined contribution plans orIRAs, where they can buy a QLAC. Theyargued that it would be preferable for theannuities to be provided directly from adefined benefit plan.

Defined benefit plans generally are re-quired to offer annuities, which provide

longevity protection. Because longevityprotection is already available in theseplans, the final regulations do not apply todefined benefit plans. However, the Trea-sury Department and the IRS requestcomments regarding the desirability ofmaking a form of benefit that replicatesthe QLAC structure available in definedbenefit plans. In particular the TreasuryDepartment and the IRS request com-ments regarding the advantages to an em-ployee of being able to elect a QLACstructure under a defined benefit plan, in-stead of electing a lump sum distributionfrom a defined benefit plan and rolling itover to a defined contribution plan or to anIRA in order to purchase a QLAC.

VI. Initial disclosure and annualreporting requirements

Under the proposed regulations, in ad-dition to requiring the contract to state thatit is intended to be a QLAC, the issuer ofa QLAC would have been required toissue a disclosure containing certain infor-mation about the QLAC at the time ofpurchase. To avoid duplicating state lawdisclosure requirements, this initial dis-closure would not have been required toinclude information that the issuer alreadyprovided to the employee in order to sat-isfy any applicable state disclosure law.

The final regulations do not require aninitial disclosure to be issued to the em-ployee in light of the existing disclosurepractices that take into account disclosurerequirements under state law and underTitle I of ERISA.7 If the Treasury Depart-ment and the IRS determine that employ-ees are not receiving sufficient informa-tion before a QLAC is purchased, thisissue may be reexamined.

As under the proposed regulations, thefinal regulations prescribe annual report-ing requirements under section 6047(d)which require any person issuing any con-tract that is intended to be a QLAC to fileannual calendar-year reports with the IRSand to provide a statement to the em-ployee regarding the status of the contract.This reporting is necessary to inform both

plan administrators and employees thatthe contract is intended to be a QLAC, sothat the dollar and percentage limitationsapplicable to QLACs can be applied, andto assist the IRS with the administration ofthe QLAC exception to the required min-imum distribution rules. The report will berequired to identify that the contract isintended to be a QLAC and to include, ata minimum, the following items of infor-mation:

• The name, address, and identifyingnumber of the issuer of the contract,along with information on how to con-tact the issuer for more informationabout the contract;

• The name, address, and identifyingnumber of the individual in whosename the contract has been purchased;

• If the contract was purchased under aplan, the name of the plan, the plannumber, and the Employer Identifica-tion Number (EIN) of the plan spon-sor;

• If payments have not yet commenced,the annuity starting date on which theannuity is scheduled to commence, theamount of the periodic annuity pay-able on that date, and whether that datemay be accelerated;

• For the calendar year, the amount ofeach premium paid for the contractand the date of the premium payment;

• The total amount of all premiums paidfor the contract through the end of thecalendar year; and

• The fair market value of the QLAC asof the close of the calendar year.

The annual reporting requirement willbe similar to the annual requirement toprovide a Form 5498, “IRA ContributionInformation,” in the case of an IRA.8 TheCommissioner will prescribe a form andinstructions for this purpose, which willcontain the filing deadline and other infor-mation.

Each issuer required to file the reportwith respect to a contract will also berequired to provide to the employee astatement containing the information thatis required to be furnished in the report.

7See, for example, the Annuity Model Disclosure Regulation issued by the National Association of Insurance Commissioners and the disclosure for annuity contracts that are designatedinvestment alternatives under 29 C.F.R. 2550.404a–5(i)(2).

8For an IRA, the fair market value of the account on December 31 must be provided to the IRA owner generally by January 31 of the following year, and to the IRS by a later date. Trustees,custodians, and issuers are responsible for ensuring that the fair market value of all IRA assets (including those not traded on an established securities market or with otherwise readilydeterminable value) is determined annually. This includes the fair market value of a contract that is intended to be a QLAC.

July 21, 2014 Bulletin No. 2014–30218

This requirement may be satisfied by pro-viding the employee with a copy of therequired form, or by providing the em-ployee with the information in anotherdocument that contains the following lan-guage: “This information is being fur-nished to the Internal Revenue Service.”The statement is required to be furnishedto the employee on or before January 31following the calendar year for which thereport is required.

An issuer that is subject to these annualreporting requirements must comply withthe requirements for each calendar yearbeginning with the year in which premi-ums are first paid and ending with theearlier of the year in which the employeeattains age 85 (as adjusted in calendaryears beginning after 2014) or dies. How-ever, if the employee dies and the solebeneficiary under the contract is the em-ployee’s spouse (so that the spouse’s an-nuity might not commence until the em-ployee would have commenced benefitsunder the contract had the employee sur-vived), the annual reporting requirementcontinues until the year in which the dis-tributions to the spouse commence, or ifearlier, the year in which the spouse dies.During this period, the annual statementmust be provided to the surviving spouse.

Effective/Applicability Dates

These regulations apply to contractspurchased on or after July 2, 2014. Onecommenter requested that the regulationsallow for annuities purchased before theregulations become final to convert to aQLAC in order to avoid surrender chargesfor contract reissuances, and prevent theabsence of disclosure forms from delayingthe benefit of these rules. If on or afterJuly 2, 2014, an existing contract is ex-changed for a contract that satisfies therequirements to be a QLAC, the new con-tract will be treated as purchased on thedate of the exchange and therefore mayqualify as a QLAC. In such a case the fairmarket value of the contract that is ex-changed for a QLAC is treated as a pre-mium that counts toward the QLAC limit.

Availability of IRS Documents

For copies of recently issued revenueprocedures, revenue rulings, notices andother guidance published in the InternalRevenue Bulletin, please visit the IRS

Web site at http://www.irs.gov or contactthe Superintendent of Documents, U.S.Government Printing Office, Washington,DC 20402.

Special Analyses

It has been determined that these finalregulations are not a significant regulatoryaction as defined in Executive Order12866, as supplemented by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. It also has beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regula-tions. It is hereby certified that the collectionof information in these regulations will nothave a significant economic impact on asubstantial number of small entities. Thiscertification is based upon the fact that thecollection of information in these final reg-ulations is in A–17(a)(6) of § 1.401(a)(9)–6(disclosure that a contract is intended to be aQLAC) and § 1.6047–2 (an annual reportmust be filed with the IRS and a statementmust be provided to QLAC owners andtheir surviving spouses). An insubstantialnumber of entities of any size will be im-pacted by the regulations, and the entitiesthat will be impacted will be insurance com-panies, very few of which are small entities.In addition, IRS and Treasury expect thatany burden on small entities will be mini-mal. Based on these facts, a regulatory flex-ibility analysis under the Regulatory Flexi-bility Act (5 U.S.C. chapter 6) is notrequired. Pursuant to section 7805(f) of theCode, the notice of the proposed rulemakingpreceding these regulations was submittedto the Chief Counsel for Advocacy of theSmall Business Administration for com-ment on its impact on small business.

Drafting Information

The principal authors of these regula-tions are Cathy Pastor and JamieDvoretzky, Office of Division Counsel/Associate Chief Counsel (Tax Exemptand Government Entities). However,other personnel from the IRS and theTreasury Department participated in thedevelopment of these regulations.

List of Subjects26 CFR Part 1

Income taxes, reporting and record-keeping requirements.

26 CFR Part 602Reporting and recordkeeping require-

ments.

Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602are amended as follows:

Part 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding entries innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.6047–2 is also issued under

26 U.S.C. 6047(d). * * *Par. 2. Section 1.401(a)(9)–5 is

amended by:1. Revising paragraph A–3(a).2. Redesignating paragraph A–3(d) as

new paragraph A–3(e) and revising newlydesignated paragraph A–3(e).

3. Adding new paragraph A–3(d).The revisions and addition read as fol-

lows:

§ 1.401(a)(9)–5 Required minimumdistributions from defined contributionplans.

* * * * *A–3. (a) In the case of an individual

account, the benefit used in determiningthe required minimum distribution for adistribution calendar year is the accountbalance as of the last valuation date in thecalendar year immediately preceding thatdistribution calendar year (valuation cal-endar year) adjusted in accordance withparagraphs (b), (c), and (d) of this A–3.

* * * * *(d) The account balance does not include

the value of any qualifying longevity annu-ity contract (QLAC), defined in A–17 of§ 1.401(a)(9)–6, that is held under the plan.This paragraph (d) applies only to contractspurchased on or after July 2, 2014.

(e) If an amount is distributed from aplan and rolled over to another plan (re-ceiving plan), A–2 of § 1.401(a)(9)–7 pro-vides additional rules for determining thebenefit and required minimum distributionunder the receiving plan. If an amount istransferred from one plan (transferor plan)to another plan (transferee plan) in a trans-fer to which section 414(l) applies, A–3and A–4 of § 1.401(a)(9)–7 provide addi-

Bulletin No. 2014–30 July 21, 2014219

tional rules for determining the amount ofthe required minimum distribution and thebenefit under both the transferor andtransferee plans.

* * * * *Par. 3. Section 1.401(a)(9)–6 is

amended by revising the last sentence inA–12(a) and adding Q&A–17 to read asfollows:

§ 1.401(a)(9)–6 Required minimumdistributions for defined benefit plansand annuity contracts.

* * * * *A–12. (a) * * * See A–1(e) of

§ 1.401(a)(9)–5 for rules relating to thesatisfaction of section 401(a)(9) in theyear that annuity payments commence,A–3(d) of § 1.401(a)(9)–5 for rules relat-ing to qualifying longevity annuity con-tracts (QLACs), defined in A–17 of thissection, and A–2(a)(3) of § 1.401(a)(9)–8for rules relating to the purchase of anannuity contract with a portion of an em-ployee’s account balance.

* * * * *Q–17. What is a qualifying longevity

annuity contract?A–17. (a) Definition of qualifying lon-

gevity annuity contract. A qualifying lon-gevity annuity contract (QLAC) is an an-nuity contract that is purchased from aninsurance company for an employee andthat, in accordance with the rules of ap-plication of paragraph (d) of this A–17,satisfies each of the following require-ments—

(1) Premiums for the contract satisfythe requirements of paragraph (b) of thisA–17;

(2) The contract provides that distribu-tions under the contract must commencenot later than a specified annuity startingdate that is no later than the first day of themonth next following the 85th anniversaryof the employee’s birth;

(3) The contract provides that, afterdistributions under the contract com-mence, those distributions must satisfy therequirements of this section (other thanthe requirement in A–1(c) of this sectionthat annuity payments commence on orbefore the required beginning date);

(4) The contract does not make avail-able any commutation benefit, cash sur-render right, or other similar feature;

(5) No benefits are provided under thecontract after the death of the employeeother than the benefits described in para-graph (c) of this A–17;

(6) When the contract is issued, thecontract (or a rider or endorsement withrespect to that contract) states that thecontract is intended to be a QLAC; and

(7) The contract is not a variable con-tract under section 817, an indexed con-tract, or a similar contract, except to theextent provided by the Commissioner inrevenue rulings, notices, or other guidancepublished in the Internal Revenue Bulletinand made available by the Superintendentof Documents, U.S. Government PrintingOffice, Washington, DC 20402 and on theIRS Web site at http://www.irs.gov.

(b) Limitations on premiums—(1) Ingeneral. The premiums paid with respectto the contract on a date satisfy the re-quirements of this paragraph (b) if they donot exceed the lesser of the dollar limita-tion in paragraph (b)(2) of this A–17 orthe percentage limitation in paragraph(b)(3) of this A–17.

(2) Dollar limitation. The dollar limi-tation is an amount equal to the excessof—

(i) $125,000 (as adjusted under para-graph (d)(2) of this A–17), over

(ii) The sum of—(A) The premiums paid before that

date with respect to the contract, and(B) The premiums paid on or before

that date with respect to any other contractthat is intended to be a QLAC and that ispurchased for the employee under theplan, or any other plan, annuity, or ac-count described in section 401(a), 403(a),403(b), or 408 or eligible governmentalplan under section 457(b).

(3) Percentage limitation. The percent-age limitation is an amount equal to theexcess of—

(i) 25 percent of the employee’s ac-count balance under the plan (includingthe value of any QLAC held under theplan for the employee) as of that date,determined in accordance with paragraph(d)(1)(iii) of this A–17, over

(ii) The sum of—(A) The premiums paid before that

date with respect to the contract, and(B) The premiums paid on or before

that date with respect to any other contractthat is intended to be a QLAC and that is

held or was purchased for the employeeunder the plan.

(c) Payments after death of the employ-ee—(1) Surviving spouse is sole benefi-ciary—(i) Death on or after annuity start-ing date. If the employee dies on or afterthe annuity starting date for the contractand the employee’s surviving spouse isthe sole beneficiary under the contractthen, except as provided in paragraph(c)(4) of this A–17, the only benefit per-mitted to be paid after the employee’sdeath is a life annuity payable to the sur-viving spouse where the periodic annuitypayment is not in excess of 100 percent ofthe periodic annuity payment that is pay-able to the employee.

(ii) Death before annuity startingdate—(A) Amount of annuity. If the em-ployee dies before the annuity startingdate and the employee’s surviving spouseis the sole beneficiary under the contractthen, except as provided in paragraph(c)(4) of this A–17, the only benefit per-mitted to be paid after the employee’sdeath is a life annuity payable to the sur-viving spouse where the periodic annuitypayment is not in excess of 100 percent ofthe periodic annuity payment that wouldhave been payable to the employee as ofthe date that benefits to the survivingspouse commence. However, the annuityis permitted to exceed 100 percent of theperiodic annuity payment that would havebeen payable to the employee to the extentnecessary to satisfy the requirement toprovide a qualified preretirement survivorannuity (as defined under section417(c)(2) or ERISA section 205(e)(2))pursuant to section 401(a)(11)(A)(ii) orERISA section 205(a)(2).

(B) Commencement date for annuity.Any life annuity payable to the survivingspouse under paragraph (c)(1)(ii)(A) ofthis A–17 must commence no later thanthe date on which the annuity payable tothe employee would have commenced un-der the contract if the employee had notdied.

(2) Surviving spouse is not sole bene-ficiary—(i) Death on or after annuitystarting date. If the employee dies on orafter the annuity starting date for the con-tract and the employee’s surviving spouseis not the sole beneficiary under the con-tract then, except as provided in paragraph(c)(4) of this A–17, the only benefit per-

July 21, 2014 Bulletin No. 2014–30220

mitted to be paid after the employee’sdeath is a life annuity payable to the des-ignated beneficiary where the periodic an-nuity payment is not in excess of the ap-plicable percentage (determined underparagraph (c)(2)(iii) of this A–17) of theperiodic annuity payment that is payableto the employee.

(ii) Death before annuity startingdate—(A) Amount of annuity. If the em-ployee dies before the annuity startingdate and the employee’s surviving spouseis not the sole beneficiary under the con-tract then, except as provided in paragraph(c)(4) of this A–17, the only benefit per-mitted to be paid after the employee’sdeath is a life annuity payable to the des-ignated beneficiary where the periodic an-nuity payment is not in excess of the ap-plicable percentage (determined underparagraph (c)(2)(iii) of this A–17) of theperiodic annuity payment that would havebeen payable to the employee as of thedate that benefits to the designated bene-ficiary commence under this paragraph(c)(2)(ii).

(B) Commencement date for annuity.In any case in which the employee diesbefore the annuity starting date, any lifeannuity payable to a designated benefi-ciary under this paragraph (c)(2)(ii) mustcommence by the last day of the calendaryear immediately following the calendaryear of the employee’s death.

(iii) Applicable percentage—(A) Con-tracts without pre-annuity starting datedeath benefits. If, as described in para-graph (c)(2)(iv) of this A–17, the contractdoes not provide for a pre-annuity startingdate non-spousal death benefit, the appli-cable percentage is the percentage de-scribed in the table in A–2(c) of this sec-tion.

(B) Contracts with set beneficiary des-ignation. If the contract provides for a setnon-spousal beneficiary designation as de-scribed in paragraph (c)(2)(v) (and is not acontract described in paragraph (c)(2)(iv))of this A–17, the applicable percentage isthe percentage described in the table setforth in paragraph (c)(2)(iii)(D) of thisA–17. A contract is still considered toprovide for a set beneficiary designationeven if the surviving spouse becomes thesole beneficiary before the annuity start-ing date. In such a case, the requirementsof paragraph (c)(1) of this A–17 apply and

not the requirements of this paragraph(c)(2).

(C) Contracts providing for return ofpremium. If the contract provides for areturn of premium as described in para-graph (c)(4) of this A–17, the applicablepercentage is 0.

(D) Applicable percentage table. Theapplicable percentage is based on the ad-justed employee/beneficiary age differ-ence, determined in the same manner as inA–2(c) of this section.

Adjustedemployee/beneficiary

age differenceApplicablepercentage

2 years or less 100%

3 88%

4 78%

5 70%

6 63%

7 57%

8 52%

9 48%

10 44%

11 41%

12 38%

13 36%

14 34%

15 32%

16 30%

17 28%

18 27%

19 26%

20 25%

21 24%

22 23%

23 22%

24 21%

25 and greater 20%

(iv) No pre-annuity starting date non-spousal death benefit. A contract is de-scribed in this paragraph (c)(2)(iv) if thecontract provides that no benefit is permit-ted to be paid to a beneficiary other thanthe employee’s surviving spouse after theemployee’s death—

(A) In any case in which the employeedies before the annuity starting date underthe contract; and

(B) In any case in which the employeeselects an annuity starting date that is ear-

lier than the specified annuity starting dateunder the contract and the employee diesless than 90 days after making that elec-tion.

(v) Contracts permitting set non-spousal beneficiary designation. A con-tract is described in this paragraph(c)(2)(v) if the contract provides that if thebeneficiary under the contract is not theemployee’s surviving spouse, benefits arepayable to the beneficiary only if the ben-eficiary was irrevocably designated on orbefore the later of the date of purchase orthe employee’s required beginning date.

(3) Calculation of early annuity pay-ments. For purposes of paragraphs(c)(1)(ii) and (c)(2)(ii) of this A–17, to theextent the contract does not provide anoption for the employee to select an an-nuity starting date that is earlier than thedate on which the annuity payable to theemployee would have commenced underthe contract if the employee had not died,the contract must provide a way to deter-mine the periodic annuity payment thatwould have been payable if the employeewere to have an option to accelerate thepayments and the payments had com-menced to the employee immediatelyprior to the date that benefit payments tothe surviving spouse or designated bene-ficiary commence.

(4) Return of premiums—(i) In gen-eral. In lieu of a life annuity payable to adesignated beneficiary under paragraph(c)(1) or (c)(2) of this A–17, a QLAC ispermitted to provide for a benefit paid to abeneficiary after the death of the em-ployee in an amount equal to the excessof—

(A) The premium payments made withrespect to the QLAC over

(B) The payments already made underthe QLAC.

(ii) Payments after death of survivingspouse. If a QLAC is providing a lifeannuity to a surviving spouse (or will pro-vide a life annuity to a surviving spouse)under paragraph (c)(1) of this A–17, it isalso permitted to provide for a benefit paidto a beneficiary after the death of both theemployee and the spouse in an amountequal to the excess of—

(A) The premium payments made withrespect to the QLAC over

(B) The payments already made underthe QLAC.

Bulletin No. 2014–30 July 21, 2014221

(iii) Other rules—(A) Timing of returnof premium payment following death ofemployee. A return of premium paymentunder this paragraph (c)(4) must be paidno later than the end of the calendar yearfollowing the calendar year in which theemployee dies. If the employee’s death isafter the required beginning date, the re-turn of premium payment is treated as arequired minimum distribution for theyear in which it is paid and is not eligiblefor rollover.

(B) Timing of return of premium pay-ment following death of surviving spousereceiving life annuity. If the return of pre-mium payment is paid after the death of asurviving spouse who is receiving a lifeannuity (or after the death of a survivingspouse who has not yet commenced re-ceiving a life annuity after the death of theemployee), the return of premium pay-ment under this paragraph (c)(4) must bemade no later than the end of the calendaryear following the calendar year in whichthe surviving spouse dies. If the survivingspouse’s death is after the required begin-ning date for the surviving spouse, thenthe return of premium payment is treatedas a required minimum distribution for theyear in which it is paid and is not eligiblefor rollover.

(5) Multiple beneficiaries. If an em-ployee has more than one designated ben-eficiary under a QLAC, the rules inA–2(a) of § 1.401(a)(9)–8 apply for pur-poses of paragraphs (c)(1) and (c)(2) ofthis A–17.

(d) Rules of application—(1) Rules re-lating to premiums—(i) Reliance on rep-resentations. For purposes of the limita-tion on premiums described in paragraphs(b)(2) and (b)(3) of this A–17, unless theplan administrator has actual knowledgeto the contrary, the plan administrator mayrely on an employee’s representation(made in writing or such other form asmay be prescribed by the Commissioner)of the amount of the premiums describedin paragraphs (b)(2)(ii)(B) and(b)(3)(ii)(B) of this A–17, but only withrespect to premiums that are not paid un-der a plan, annuity, or contract that ismaintained by the employer or an entitythat is treated as a single employer withthe employer under section 414(b), (c),(m), or (o).

(ii) Consequences of excess premi-ums—(A) General Rule. If an annuitycontract fails to be a QLAC solely be-cause a premium for the contract exceedsthe limits under paragraph (b) of thisA–17, then the contract is not a QLACbeginning on the date that premium pay-ment is made unless the excess premiumis returned to the non-QLAC portion ofthe employee’s account in accordancewith paragraph (d)(1)(ii)(B) of this A–17.If the contract fails to be a QLAC, then thevalue of the contract may not be disre-garded under A–3(d) of § 1.401(a)(9)–5 asof the date on which the contract ceases tobe a QLAC.

(B) Correction in year following yearof excess. If the excess premium is re-turned (either in cash or in the form of acontract that is not intended to be aQLAC) to the non-QLAC portion of theemployee’s account by the end of the cal-endar year following the calendar year inwhich the excess premium was originallypaid, then the contract will not be treatedas exceeding the limits under paragraph(b) of this A–17 at any time, and the valueof the contract will not be included in theemployee’s account balance under A–3(d)of § 1.401(a)(9)–5. If the excess premium(including the fair market value of an an-nuity contract that is not intended to be aQLAC, if applicable) is returned to thenon-QLAC portion of the employee’s ac-count after the last valuation date for thecalendar year in which the excess pre-mium was originally paid, then the em-ployee’s account balance for that calendaryear must be increased to reflect that ex-cess premium in the same manner as anemployee’s account balance is increasedunder section 1.401(a)(9)–7, A–2 to re-flect a rollover received after the last val-uation date.

(C) Return of excess premium not acommutation benefit. If the excess pre-mium is returned to the non-QLAC por-tion of the employee’s account as de-scribed in paragraph (d)(1)(ii)(B) of thisA–17, it will not be treated as a violationof the requirement in paragraph (a)(4) ofthis A–17 that the contract not provide acommutation benefit.

(iii) Application of 25-percent limit.For purposes of the 25-percent limit underparagraph (b)(3) of this A–17, an employ-ee’s account balance on the date on which

premiums for a contract are paid is theaccount balance as of the last valuationdate preceding the date of the premiumpayment, adjusted as follows. The accountbalance is increased for contributions al-located to the account during the periodthat begins after the valuation date andends before the date the premium is paidand decreased for distributions made fromthe account during that period.

(2) Dollar and age limitations subjectto adjustments—(i) Dollar limitation. Inthe case of calendar years beginning on orafter January 1, 2015, the $125,000amount under paragraph (b)(2)(i) of thisA–17 will be adjusted at the same timeand in the same manner as the limits areadjusted under section 415(d), except thatthe base period shall be the calendar quar-ter beginning July 1, 2013, and any in-crease under this paragraph (d)(2)(i) thatis not a multiple of $10,000 will berounded to the next lowest multiple of$10,000.

(ii) Age limitation. The maximum ageset forth in paragraph (a)(2) of this A–17may be adjusted to reflect changes in mor-tality, with any such adjusted age to beprescribed by the Commissioner in reve-nue rulings, notices, or other guidancepublished in the Internal Revenue Bulletinand made available by the Superintendentof Documents, U.S. Government PrintingOffice, Washington, DC 20402 and on theIRS Web site at http://www.irs.gov.

(iii) Prospective application of adjust-ments. If a contract fails to be a QLACbecause it does not satisfy the dollar lim-itation in paragraph (b)(2) of this A–17 orthe age limitation in paragraph (a)(2) ofthis A–17, any subsequent adjustment thatis made pursuant to paragraph (d)(2)(i) orparagraph (d)(2)(ii) of this A–17 will notcause the contract to become a QLAC.

(3) Determination of whether contractis intended to be a QLAC—(i) Structuraldeficiency. If a contract fails to be aQLAC at any time for a reason other thanan excess premium described in paragraph(d)(1)(ii) of this A–17, then as of the dateof purchase the contract will not be treatedas a QLAC (for purposes of A–3(d) of§ 1.401(a)(9)–5) or as a contract that isintended to be a QLAC (for purposes ofparagraph (b) of this A–17) as of the dateof purchase.

July 21, 2014 Bulletin No. 2014–30222

(ii) Roth IRAs. A contract that is pur-chased under a Roth IRA is not treated asa contract that is intended to be a QLACfor purposes of applying the dollar andpercentage limitation rules in paragraphs(b)(2)(ii)(B) and (b)(3)(ii)(B) of thisA–17. See A–14(d) of § 1.408A–6. If aQLAC is purchased or held under a plan,annuity, account, or traditional IRA, andthat contract is later rolled over or con-verted to a Roth IRA, the contract is nottreated as a contract that is intended to bea QLAC after the date of the rollover orconversion. Thus, premiums paid with re-spect to the contract will not be taken intoaccount under paragraph (b)(2)(ii)(B) orparagraph (b)(3)(ii)(B) of this A–17 afterthe date of the rollover or conversion.

(4) Certain contracts not treated assimilar contracts—(i) Participating annu-ity contract. An annuity contract is nottreated as a contract described in para-graph (a)(7) of this A–17 merely becauseit provides for the payment of dividendsdescribed in A–14(c)(3) of§ 1.401(a)(9)–6.

(ii) Contracts with cost-of-living ad-justments. An annuity contract is nottreated as a contract described in para-graph (a)(7) of this A–17 merely becauseit provides for a cost-of-living adjustmentas described in A–14(b) of§ 1.401(a)(9)–6.

(5) Group annuity contract certificates.The requirement under paragraph (a)(6) ofthis A–17 that the contract state that it isintended to be a QLAC when issued issatisfied if a certificate is issued under agroup annuity contract and the certificate,when issued, states that the employee’sinterest under the group annuity contractis intended to be a QLAC.

(e) Effective/applicability date—(1)General applicability date. This A–17 and§ 1.403(b)–6(e)(9) apply to contracts pur-chased on or after July 2, 2014. If on orafter July 2, 2014, an existing contract isexchanged for a contract that satisfies therequirements of this A–17, the new con-tract will be treated as purchased on thedate of the exchange and the fair marketvalue of the contract that is exchanged fora QLAC will be treated as a premium paidwith respect to the QLAC.

(2) Delayed applicability date for re-quirement that contract state that it isintended to be QLAC. An annuity contract

purchased before January 1, 2016, will notfail to be a QLAC merely because thecontract does not satisfy the requirementof paragraph (a)(6) of this A–17, providedthat—

(i) When the contract (or a certificateunder a group annuity contract) is issued,the employee is notified that the annuitycontract is intended to be a QLAC; and

(ii) The contract is amended (or a rider,endorsement or amendment to the certifi-cate is issued) no later than December 31,2016, to state that the annuity contract isintended to be a QLAC.

Par. 4. Section 1.403(b)–6 is amendedby adding paragraph (e)(9) to read as fol-lows:

§ 1.403(b)–6 Timing of distributions andbenefits.

* * * * *(e) * * *(9) Special rule for qualifying longev-

ity annuity contracts. The rules inA–17(b) of § 1.401(a)(9)–6 (relating tolimitations on premiums for a qualifyinglongevity annuity contract (QLAC), de-fined in A–17 of § 1.401(a)(9)–6) andA–17(d)(1) of § 1.401(a)(9)–6 (relating toreliance on representations with respect toa QLAC) apply to the purchase of aQLAC under a section 403(b) plan (ratherthan the rules in A–12(b) and (c) of§ 1.408–8).

* * * * *Par. 5. Section 1.408–8, Q&A–12, is

added to read as follows:

§ 1.408–8 Distribution requirements forindividual retirement plans.

* * * * *Q–12. How does the special rule in

A–3(d) of § 1.401(a)(9)–5 for a qualifyinglongevity annuity contract (QLAC) applyto an IRA?

A–12. (a) General rule. The specialrule in A–3(d) of § 1.401(a)(9)–5 for aQLAC, defined in A–17 of§ 1.401(a)(9)–6, applies to an IRA, sub-ject to the exceptions set forth in thisA–12. See A–14(d) of § 1.408A–6 forspecial rules relating to Roth IRAs.

(b) Limitations on premiums—(1) Ingeneral. In lieu of the limitations de-scribed in A–17(b) of § 1.401(a)(9)–6, the

premiums paid with respect to the contracton a date are not permitted to exceed thelesser of the dollar limitation in paragraph(b)(2) of this A–12 or the percentage lim-itation in paragraph (b)(3) of this A–12.

(2) Dollar limitation. The dollar limi-tation is an amount equal to the excessof—

(i) $125,000 (as adjusted underA–17(d)(2) of § 1.401(a)(9)–6), over

(ii) The sum of—(A) The premiums paid before that

date with respect to the contract, and(B) The premiums paid on or before

that date with respect to any other contractthat is intended to be a QLAC and that ispurchased for the IRA owner under theIRA, or any other plan, annuity, or ac-count described in section 401(a), 403(a),403(b), or 408 or eligible governmentalplan under section 457(b).

(3) Percentage limitation. The percent-age limitation is an amount equal to theexcess of—

(i) 25 percent of the total account bal-ances of the IRAs (other than Roth IRAs)that an individual holds as the IRA owner(including the value of any QLAC heldunder those IRAs) as of December 31 ofthe calendar year immediately precedingthe calendar year in which a premium ispaid, over

(ii) The sum of—(A) The premiums paid before that

date with respect to the contract, and(B) The premiums paid on or before

that date with respect to any other contractthat is intended to be a QLAC and that isheld or was purchased for the individualunder those IRAs.

(c) Reliance on representations. Forpurposes of the limitations described inparagraphs (b)(2) and (b)(3) of this A–12,unless the trustee, custodian, or issuer ofan IRA has actual knowledge to the con-trary, the trustee, custodian, or issuer mayrely on the IRA owner’s representation(made in writing or such other form asmay be prescribed by the Commissioner)of—

(1) The amount of the premiums de-scribed in paragraphs (b)(2)(ii)(B) and(b)(3)(ii)(B) of this A–12 that are not paidunder the IRA, and

(2) The amount of the account balancesdescribed in paragraph (b)(3)(i) of this

Bulletin No. 2014–30 July 21, 2014223

A–12 (other than the account balance un-der the IRA).

(d) Permitted delay in setting benefi-ciary designation. In case of a contractthat is rolled over from a plan to an IRAbefore the required beginning date underthe plan, the contract will not violate therule in A–17(c)(2)(v) of § 1.401(a)(9)–6that a non-spouse beneficiary must be ir-revocably selected on or before the laterof the date of purchase or the requiredbeginning date under the IRA, providedthat the contract requires a beneficiary tobe irrevocably selected by the end of theyear following the year of the rollover.

(e) Roth IRAs. A contract that is pur-chased under a Roth IRA is not treated asa contract that is intended to be a QLACfor purposes of applying the dollar andpercentage limitation rules in paragraphs(b)(2)(ii)(B) and (b)(3)(ii)(B) of thisA–12. See A–14(d) of § 1.408A–6. If aQLAC is purchased or held under a plan,annuity, account, or traditional IRA, andthat contract is later rolled over or con-verted to a Roth IRA, the contract is nottreated as a contract that is intended to bea QLAC after the date of the rollover orconversion. Thus, premiums paid with re-spect to the contract will not be taken intoaccount under paragraph (b)(2)(ii)(B) orparagraph (b)(3)(ii)(B) of this A–12 afterthe date of the rollover or conversion.

(f) Effective/applicability date. ThisA–12 applies to contracts purchased on orafter July 2, 2014.

Par. 6. Section 1.408A–6 is amendedby adding paragraph A–14(d) to read asfollows:

§ 1.408A–6 Distributions.

* * * * *A–14. * * *(d) The special rules in A–3 of

§ 1.401(a)(9)–5 and A–12 of § 1.408–8for a qualifying longevity annuity contract(QLAC), defined in A–17 of§ 1.401(a)(9)–6, do not apply to a RothIRA.

* * * * *Par. 7. Section 1.6047–2 is added to

read as follows:

§ 1.6047–2 Information relating toqualifying longevity annuity contracts.

(a) Requirement and form of report—(1) In general. Any person issuing anycontract that is intended to be a qualifyinglongevity annuity contract (QLAC), de-fined in A–17 of § 1.401(a)(9)–6, shallmake the report required by this section.This requirement applies only to contractspurchased or held under any plan, annuity,or account described in section 401(a),403(a), 403(b), or 408 (other than a RothIRA) or eligible governmental plan undersection 457(b).

(2) Annual report. The issuer shallmake annual calendar-year reports on theapplicable form prescribed by the Com-missioner for this purpose concerning thestatus of the contract. The report shallidentify that the contract is intended to bea QLAC and shall contain the followinginformation—

(i) The name, address, and identifyingnumber of the issuer of the contract, alongwith information on how to contact theissuer for more information about the con-tract;

(ii) The name, address, and identifyingnumber of the individual in whose namethe contract has been purchased;

(iii) If the contract was purchased un-der a plan, the name of the plan, the plannumber, and the Employer IdentificationNumber (EIN) of the plan sponsor;

(iv) If payments have not yet com-menced, the annuity starting date onwhich the annuity is scheduled to com-mence, the amount of the periodic annuitypayable on that date, and whether that datemay be accelerated;

(v) For the calendar year, the amountof each premium paid for the contract andthe date of the premium payment;

(vi) The total amount of all premiumspaid for the contract through the end ofthe calendar year;

(vii) The fair market value of theQLAC as of the close of the calendar year;and

(viii) Such other information as theCommissioner may require.

(b) Manner and time for filing—(1)Timing. The report required by paragraph(a)(2) of this section shall be filed in ac-cordance with the forms and instructionsprescribed by the Commissioner. Such a

report must be filed for each calendar yearbeginning with the year in which premi-ums for a contract are first paid and end-ing with the earlier of the year in whichthe individual in whose name the contracthas been purchased attains age 85 (as ad-justed pursuant to A–17(d)(2)(ii) of§ 1.401(a)(9)–6) or dies.

(2) Surviving spouse. If the individualdies and the sole beneficiary under thecontract is the individual’s spouse (inwhich case the spouse’s annuity wouldnot be required to commence until theindividual would have commenced bene-fits under the contract had the individualsurvived), the report must continue to befiled for each calendar year until the cal-endar year in which the distributions tothe spouse commence or in which thespouse dies, if earlier.

(c) Issuer statements. Each issuer re-quired to file the annual report required byparagraph (a)(2) of this section shall fur-nish to the individual in whose name thecontract has been purchased a statementcontaining the information required to beincluded in the report, except that suchstatement shall be furnished to a survivingspouse to the extent that the report isrequired to be filed under paragraph (b)(2)of this section. A copy of the requiredform may be used to satisfy the statementrequirement of this paragraph (c). If acopy of the required form is not used tosatisfy the statement requirement of thisparagraph (c), the statement shall containthe following language: “This informationis being furnished to the Internal RevenueService.” The statement required by thisparagraph (c) shall be furnished on orbefore January 31 following the calendaryear for which the report required by para-graph (a)(2) of this section is required.

(d) Penalty for failure to file report.Section 6652(e) prescribes a penalty forfailure to file the report required by para-graph (a)(2) of this section.

(e) Effective/applicability date. Thissection applies to contracts purchased onor after July 2, 2014.

PART 602—OMB CONTROLNUMBERS UNDER THEPAPERWORK REDUCTION ACT

Par. 8. The authority citation for part602 continues to read as follows:

Authority: 26 U.S.C. 7805 * * *

July 21, 2014 Bulletin No. 2014–30224

Par. 9. In § 602.101, paragraph (b) isamended as follows:

1. The following entries are added innumerical order to the table to read asfollows:

§ 602.101 OMB Control numbers.

* * * * *(b) * * *

CFR part or sectionwhere identifiedand described

CurrentOMB

control no.

* * * * *

1.401(a)(9)–6............ .......1545-2234

* * * * *

1.6047–2................... .......1545-2234

John DalrympleDeputy Commissioner for Services and

Enforcement.

Approved June 27, 2014.

Mark J. MazurAssistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on July 1, 2014,8:45 a.m., and published in the issue of the Federal Registerfor July 2, 2014, 79 F.R. 37633)

Section 501.—Exemptionfrom tax on corporations,certain trusts, etc.1.501(a)–1: Exemption from Taxation.

TD 9674

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Guidelines for theStreamlined Process ofApplying for Recognition ofSection 501(c)(3) Status

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains fi-nal and temporary regulations that provideguidance to eligible organizations seekingrecognition of tax-exempt status undersection 501(c)(3) of the Internal RevenueCode (Code). The final and temporaryregulations amend current regulations toallow the Commissioner of Internal Rev-enue to adopt a streamlined applicationprocess that eligible organizations mayuse to apply for recognition of tax-exemptstatus under section 501(c)(3). The text ofthe temporary regulations also serves asthe text of the proposed regulations(REG–110948–14) set forth in the noticeof proposed rulemaking on this subject inthe Proposed Rules section in this issue ofthe Bulletin.

DATES: Effective Date: These regula-tions are effective on July 1, 2014.

Applicability Date: For dates of appli-cability, see §§ 1.501(a)–1T(f)(1),1.501(c)(3)–1T(h)(1), 1.508–1T(c)(1).

FOR FURTHER INFORMATIONCONTACT: James R. Martin or RobinEhrenberg at (202) 317-5800 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 508 requires an organizationseeking tax-exempt status under section501(c)(3), as a condition of its exemption,to notify the Secretary of the Treasury (orhis delegate) that it is applying for recog-nition of exempt status in the manner pre-scribed in the Treasury Regulations, un-less it is specifically excepted from therequirement. Section 1.508–1(a) de-scribes the process for giving notice, andrequires that an organization “submit[ ] aproperly completed and executed Form1023, exemption application.” Section1.501(c)(3)–1(b)(1)(v) states that an orga-nization must, to establish its exemption,submit a detailed statement of its pro-posed activities with and as a part of itsapplication for exemption. Similarly,§ 1.501(a)–1(b)(1)(iii) provides that an or-ganization described in section 501(c)(3)shall submit with, and as part of, an ap-plication, a detailed statement of its pro-posed activities. Section 1.501(a)–1(b)(2)

states that the Commissioner may requireany additional information deemed neces-sary for a proper determination of whethera particular organization is exempt, andwhen deemed advisable in the interest ofan efficient administration of the internalrevenue laws, the Commissioner may, inthe cases of particular types of organiza-tions, prescribe the form in which theproof of exemption shall be furnished.

Detailed procedures for applying forrecognition of exemption are set out inRev. Proc. 2014–9, 2014–2 IRB 281, andin the instructions to Form 1023, “Appli-cation for Recognition of Exemption Un-der Section 501(c)(3) of the Internal Rev-enue Code.” See § 601.601(d)(2)(ii)(b) ofthis chapter.

Explanation of Provisions

The Treasury Department and the IRShave considered how the process of meet-ing the notice requirement of section 508can be made more efficient for certainsmaller organizations. The IRS is devel-oping a streamlined form and process forthese organizations. Accordingly, thisTreasury decision amends §§ 1.501(a)–1,1.501(c)(3)–1, and 1.508–1 to permit eli-gible organizations to use a streamlinedprocess, described in guidance publishedin the Internal Revenue Bulletin, to meetthe notice requirements of section 508.

Specifically, this Treasury decisionamends §§ 1.501(a)–1 and 1.501(c)(3)–1to authorize the Treasury Department andthe IRS to prescribe, in applicable regula-tions or other guidance published in theInternal Revenue Bulletin, an exception tothe requirement that an organization ap-plying for tax-exempt status provide a de-tailed statement of its proposed activities.This document also amends the§ 1.501(a)–1 provisions relating to theCommissioner’s ability to revoke a deter-mination because of a change in the law orregulations, or for other good cause, toreference the Commissioner’s authority toretroactively revoke a determination un-der section 7805(b). No substantivechange is intended by this amendment.This Treasury decision also amends therequirement in § 1.501(a)–1(b)(3) that anorganization claiming to be exemptedfrom filing annual returns file a statementsupporting its claim with and as a part ofits application. This amendment would

Bulletin No. 2014–30 July 21, 2014225

provide flexibility for the Treasury De-partment and the IRS to prescribe in pub-lished guidance other methods of notify-ing the IRS that the organization isclaiming an annual filing exemption.

In addition, this document amends§ 1.508–1 to provide that eligible organi-zations may use Form 1023–EZ, “Stream-lined Application for Recognition of Ex-emption Under Section 501(c)(3) of theInternal Revenue Code,” to notify theCommissioner of their applications fortax-exempt status under section 501(c)(3).This Treasury decision also amends§§ 1.501(a)–1 and 1.508–1 to state thatthe office to which applications should besubmitted will be published in the InternalRevenue Bulletin or instructions to theForm 1023 or Form 1023–EZ.

Finally, this Treasury decision makescertain technical revisions to the regula-tions. In § 1.501(a)–1, the reference to“internal revenue district” is removed be-cause such reference has been made ob-solete by the enactment of the InternalRevenue Service Restructuring and Re-form Act of 1998, Public Law 105–206,112 Stat. 685. References to a district di-rector in §§ 1.501(a)–1, 1.501(c)(3)–1,and 1.508–1 are also modified, as thosepositions no longer exist within the IRS.Proposed regulations in the Rules andRegulations section of this issue of theBulletin use the text of these temporaryregulations as the text of the proposedregulations. Treasury and the IRS seekcomments on all aspects of the proposedrules, including whether additional tech-nical revisions are necessary. Simultane-ously with the publication of this Treasurydecision, the Treasury Department and theIRS will release for publication a RevenueProcedure that provides procedures forapplying for recognition of exemption us-ing Form 1023–EZ.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866, as supplemented by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. It also has beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regula-tions. For the applicability of the Regula-

tory Flexibility Act (5 U.S.C. chapter 6),refer to the Special Analyses section ofthe preamble to the cross-reference noticeof proposed rulemaking published in theProposed Rules section in this issue of theBulletin. Pursuant to section 7805(f),these regulations have been submitted tothe Chief Counsel for Advocacy of theSmall Business Administration for com-ment on their impact on small business.

Drafting Information

The principal authors of these regula-tions are James R. Martin and Robin Eh-renberg of the Office of Associate ChiefCounsel (Tax Exempt and GovernmentEntities). However, other personnel fromthe IRS and the Treasury Department par-ticipated in their development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as follows:

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 1.501(a)–1 is amended

by:1. Revising paragraphs (a)(2), (b)(1),

and (b)(3).2. Adding paragraph (f).The revisions and addition read as fol-

lows:

§ 1.501(a)–1 Exemption from taxation.

(a) * * *(2) [Reserved]. For further guidance,

see § 1.501(a)–1T(a)(2).* * * * *(b)(1) [Reserved]. For further guid-

ance, see § 1.501(a)–1T(b)(1).* * * * *(3) [Reserved]. For further guidance,

see § 1.501(a)–1T(b)(3).* * * * *(f) [Reserved]. For further guidance,

see § 1.501(a)–1T(f).Par. 3. Section 1.501(a)–1T is added to

read as follows:

§ 1.501(a)–1T Exemption from taxation(temporary).

(a)(1) [Reserved]. For further guidancesee § 1.501(a)–1(a)(1).

(2) An organization, other than an em-ployees’ trust described in section 401(a),is not exempt from tax merely because itis not organized and operated for profit. Inorder to establish its exemption, it is nec-essary that every such organization claim-ing exemption file an application form asset forth below with the appropriate officeas designated by the Commissioner inguidance published in the Internal Reve-nue Bulletin, forms or instructions to theapplicable forms. Subject only to theCommissioner’s inherent power to revokerulings, including with retroactive effectas permitted under section 7805(b), be-cause of a change in the law or regulationsor for other good cause, an organizationthat has been determined by the Commis-sioner (or previously by a district director)to be exempt under section 501(a) or thecorresponding provision of prior law mayrely upon such determination so long asthere are no substantial changes in theorganization’s character, purposes, ormethods of operation. An organizationthat has been determined to be exemptunder the provisions of the Internal Rev-enue Code of 1939 or prior law is notrequired to secure a new determination ofexemption merely because of the enact-ment of the Internal Revenue Code of1954 unless affected by substantivechanges in law made by such Code.

(3) [Reserved]. For further guidance,see § 1.501(a)–1(a)(3).

(b) Additional proof by particularclasses of organizations. (1) Unless oth-erwise prescribed by applicable regula-tions or other guidance published in theInternal Revenue Bulletin, organizationsmentioned below shall submit with and asa part of their applications the followinginformation:

(i) Mutual insurance companies shallsubmit copies of the policies or certifi-cates of membership issued by them.

(ii) In the case of title holding compa-nies described in section 501(c)(2), if theorganization for which title is held has notbeen specifically notified in writing by theInternal Revenue Service that it is held tobe exempt under section 501(a), the title

July 21, 2014 Bulletin No. 2014–30226

holding company shall submit the infor-mation indicated herein as necessary for adetermination of the status of the organi-zation for which title is held.

(iii) An organization described in sec-tion 501(c)(3) shall submit with, and as apart of, an application filed after July 26,1959, a detailed statement of its proposedactivities.

(2) [Reserved]. For further guidance,see § 1.501(a)–1(b)(2).

(3) An organization claiming to be spe-cifically exempted by section 6033(a)from filing annual returns shall submitwith and as a part of its application (or insuch other manner as is prescribed inguidance published in the Internal Reve-nue Bulletin) a statement of all the factson which it bases its claim.

(c) through (e) [Reserved]. For furtherguidance, see § 1.501(a)–1(c) through (e).

(f) Effective/applicability date. (1)Paragraphs (a)(2), (b)(1), and (b)(3) ofthis section apply on and after July 1,2014.

(2) Expiration date. Paragraphs (a)(2),(b)(1), and (b)(3) of this section expire onor before June 30, 2017.

Par. 4. Section 1.501(c)(3)–1 isamended by:

1. Revising paragraphs (b)(1)(v) and(b)(6).

2. Adding paragraph (h).The revisions and addition read as fol-

lows:

§ 1.501(c)(3)–1 Organizations organizedand operated for religious, charitable,scientific, testing for public safety,literary, or educational purposes, or forthe prevention of cruelty to children oranimals.

* * * * *(b) * * * (1) * * *(v) [Reserved]. For further guidance

see § 1.501(c)(3)–1T(b)(1)(v).* * * * *(6) [Reserved]. For further guidance

see § 1.501(c)(3)–1T(b)(6).* * * * *(h) [Reserved]. For further guidance

see § 1.501(c)(3)–1T(h).Par. 5. Section 1.501(c)(3)–1T is added

to read as follows:

§ 1.501(c)(3)–1T Organizationsorganized and operated for religious,charitable, scientific, testing for publicsafety, literary, or educational purposes,or for the prevention of cruelty tochildren or animals (temporary).

(a) through (b)(1)(iv) [Reserved]. Forfurther guidance see § 1.501(c)(3)–1(a)through (b)(1)(iv).

(v) Unless otherwise prescribed by ap-plicable regulations or other guidancepublished in the Internal Revenue Bulle-tin, an organization must, in order to es-tablish its exemption, submit a detailedstatement of its proposed activities withand as a part of its application for exemp-tion (see paragraph (b) of § 1.501(a)–1).

(b)(2) through (b)(5) [Reserved]. Forfurther guidance see § 1.501(c)(3)–1(b)(2)through (b)(5).

(6) Applicability of the organizationaltest. A determination by the Commis-sioner that an organization is described insection 501(c)(3) and exempt under sec-tion 501(a) will not be granted after July26, 1959, regardless of when the applica-tion is filed, unless such organizationmeets the organizational test prescribedby this paragraph (b)(6). If, before July27, 1959, an organization has been deter-mined by the Commissioner or districtdirector to be exempt as an organizationdescribed in section 501(c)(3) or in a cor-responding provision of prior law andsuch determination has not been revokedbefore such date, the fact that such orga-nization does not meet the organizationaltest prescribed by this paragraph (b)(6)shall not be a basis for revoking suchdetermination. Accordingly, an organiza-tion that has been determined to be ex-empt before July 27, 1959, and whichdoes not seek a new determination of ex-emption is not required to amend its arti-cles of organization to conform to therules of this paragraph (b)(6), but anyorganization that seeks a determination ofexemption after July 26, 1959, must havearticles of organization that meet the rulesof this paragraph (b)(6). For the rules re-lating to whether an organization deter-mined to be exempt before July 27, 1959,is organized exclusively for one or moreexempt purposes, see 26 CFR (1939)39.101(6)–1 (Regulations 118) as madeapplicable to the Code by Treasury Deci-

sion 6091, approved August 16, 1954 (19FR 5167; CB 1954–2, 47).

(c) through (g) [Reserved]. For furtherguidance, see § 1.501(c)(3)–1(c) through(g).

(h) Effective/applicability date. (1)Paragraphs (b)(1)(v) and (b)(6) of thissection apply on and after July 1, 2014.

(2) Expiration date. Paragraphs(b)(1)(v) and (b)(6) of this section expireon or before June 30, 2017.

Par. 6. Section 1.508–1 is amended by:1. Revising paragraphs (a)(2)(i) and

(a)(2)(ii).2. Revising paragraphs (b)(2)(iv) and

(b)(2)(v).3. Adding paragraph (c).The revisions and addition read as fol-

lows:

§ 1.508–1 Notices.

(a) * * *(2)(i) [Reserved]. For further guidance,

see § 1.508–1T(a)(2)(i).(ii) [Reserved]. For further guidance,

see § 1.508–1T(a)(2)(ii).* * * * *(b) * * *(2) * * *(iv) [Reserved]. For further guidance,

see § 1.508–1T(b)(2)(iv).(v) [Reserved]. For further guidance,

see § 1.508–1T(b)(2)(v).* * * * *(c) [Reserved]. For further guidance,

see § 1.508–1T(c).Par. 7. Section 1.508–1T is revised to

read as follows:

§ 1.508–1T Notices (temporary).

(a)(1) [Reserved]. For further guid-ance, see § 1.508–1(a)(1).

(2) Filing of notice. (i) For purposes ofparagraph (a)(1) of this section, except asprovided in paragraph (a)(3) of this sec-tion, an organization seeking exemptionunder section 501(c)(3) must file the no-tice described in section 508(a) within 15months from the end of the month inwhich the organization was organized, orbefore March 22, 1973, whichever comeslater. Such notice is filed by submitting aproperly completed and executed Form1023 (or if applicable, Form 1023–EZ),exemption application. Notice should be

Bulletin No. 2014–30 July 21, 2014227

filed with the appropriate office as desig-nated by the Commissioner in guidancepublished in the Internal Revenue Bulle-tin, forms or instructions to the applicableforms. A request for extension of time forthe filing of such notice should be submit-ted to such appropriate office. Such re-quest may be granted if it demonstratesthat additional time is required.

(ii) Although the information requiredby either Form 1023 or Form 1023–EZmust be submitted to satisfy the noticerequired by this section, the failure to sup-ply, within the required time, all of theinformation required to complete suchform is not alone sufficient to deny ex-emption from the date of organization tothe date such complete information forsuch form is submitted by the organiza-tion. If the information that is submittedwithin the required time is incomplete,and the organization supplies the neces-sary additional information at the requestof the Commissioner within the additionaltime period allowed by him, the originalnotice will be considered timely.

(iii) through (b)(2)(iii) [Reserved]. Forfurther guidance, see § 1.508–1(a)(2)(iii)through (b)(2)(iii).

(iv) Any organization filing notice un-der this paragraph (b)(2)(iv) that has notreceived a ruling or determination letterfrom the Internal Revenue Service datedon or before July 13, 1970, recognizing itsexemption from taxation under section

501(c)(3) (or the corresponding provi-sions of prior law), shall file its notice bysubmitting a properly completed and exe-cuted Form 1023 (or if applicable, Form1023–EZ) and providing information thatit is not a private foundation. The organi-zation shall also submit all informationrequired by the regulations under section170 or 509 (whichever is applicable) nec-essary to establish recognition of its clas-sification as an organization described insection 509(a)(1), (2), (3), or (4). A Form1023 submitted prior to July 14, 1970,will satisfy this requirement if the organi-zation submits an additional statementthat it is not a private foundation togetherwith all pertinent additional informationrequired. Any statement filed under thisparagraph (b)(2)(iv) shall be accompaniedby a written declaration by the principalofficer, manager or authorized trustee thatthere is a reasonable basis in law and infact for the statement that the organizationso filing is not a private foundation, andthat to the best of the knowledge andbelief of such officer, manager or trustee,the information submitted is complete andcorrect.

(v) The notice filed under paragraph(b)(2)(ii) of this section should be filed inaccordance with the instructions applica-ble to Form 4653. The notice required byparagraph (b)(2)(iv) of this section shouldbe filed with the appropriate office as des-ignated by the Commissioner in guidance

published in the Internal Revenue Bulle-tin, forms, or instructions to the applicableforms. An extension of time for the filingof such notice may be granted by suchoffice upon timely request by the organi-zation, if the organization demonstratesthat additional time is required.

(b)(3) through (b)(8) [Reserved]. Forfurther guidance, see § 1.508–1(b)(3)through (b)(8).

(c) Effective/applicability date. (1)Paragraphs (a)(2)(i), (a)(2)(ii), (b)(2)(iv),and (b)(2)(v) of this section apply on andafter July 1, 2014.

(2) Expiration date. Paragraphs(a)(2)(i), (a)(2)(ii), (b)(2)(iv), and (b)(2)(v)of this section expire on or before June 30,2017.

John Dalrymple,Deputy Commissioner for

Services and Enforcement.

Approved June 27, 2014.

Mark J. Mazur,Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on July 1, 2014,8:45 a.m., and published in the issue of the Federal Registerfor July 2, 2014, 79 F.R. 37630)

July 21, 2014 Bulletin No. 2014–30228

Part III. Administrative, Procedural, and Miscellaneous26 CFR 1.501(a)–1 Exemption from Taxation

26 CFR 1.508–1 Notices

Rev. Proc. 2014–40TABLE OF CONTENTS

SECTION 1. PURPOSE...............................................................................................................................................................230.01 Description of terms used in this revenue procedure..........................................................................................................230

SECTION 2. ELIGIBILITY ........................................................................................................................................................230.01 Organizations not eligible to submit Form 1023–EZ..........................................................................................................230.02 Terrorist organizations..........................................................................................................................................................231

SECTION 3. RELATED REVENUE PROCEDURES AND EFFECT ON OTHER REVENUE PROCEDURES................231.01 Revenue Procedure 2014–9 .................................................................................................................................................231.02 Revenue Procedure 2014–10 ...............................................................................................................................................231.03 Revenue Procedure 2014–8.................................................................................................................................................232.04 Revenue Procedure 2014–4.................................................................................................................................................232.05 Revenue Procedure 2014–5 .................................................................................................................................................232.06 Revenue Procedure 2014–11 ...............................................................................................................................................232.07 References inclusive of annual successor revenue procedures ...........................................................................................232

SECTION 4. PROCEDURES FOR REQUESTING RECOGNITION OF EXEMPT STATUS UNDER § 501(c)(3).....................232.01 In general ..............................................................................................................................................................................232.02 Application............................................................................................................................................................................232.03 User fee .................................................................................................................................................................................232.04 Method of submission ..........................................................................................................................................................232.05 Requirements for a completed Form 1023–EZ ...................................................................................................................232.06 Form 1023–EZ from an organization with a pending Form 1023 .....................................................................................233.07 No expedited handling..........................................................................................................................................................233

SECTION 5. STANDARDS FOR ISSUING A DETERMINATION LETTER ON EXEMPTSTATUS UNDER § 501(c)(3)...............................................................................................................................233

.01 In general ..............................................................................................................................................................................233

.02 Non-acceptance of Forms 1023–EZ.....................................................................................................................................233

.03 Additional information may be required .............................................................................................................................233

.04 Issuance of determination letter ...........................................................................................................................................234

.05 Proposed adverse determination letters and appeal procedure ...........................................................................................234

.06 Requests for technical advice...............................................................................................................................................234

.07 Withdrawal of a Form 1023–EZ..........................................................................................................................................234

SECTION 6. DECLARATORY JUDGMENT PROVISIONS OF § 7428 ............................................................................234.01 General description ...............................................................................................................................................................234.02 Exhaustion of administrative remedies ................................................................................................................................234.03 Service must have reasonable time to act on an appeal .....................................................................................................235.04 Exhaustion of administrative remedies no earlier than 270 days after seeking determination and

taking all reasonable steps to secure a determination letter ...............................................................................................235.05 Final determination to which § 7428 applies ......................................................................................................................235.06 Treatment of withdrawals and non-accepted applications ..................................................................................................235

SECTION 7. DISCLOSURE OF APPLICATIONS AND DETERMINATION LETTERS...............................................235.01 Disclosure of favorable determinations ...............................................................................................................................235.02 Disclosure of adverse determinations ..................................................................................................................................236.03 Disclosure to state officials ..................................................................................................................................................236

SECTION 8. EFFECT OF DETERMINATION LETTER RECOGNIZING EXEMPTION ............................................236.01 Effective date of exemption .................................................................................................................................................236.02 Reliance on determination letter ..........................................................................................................................................236

Bulletin No. 2014–30 July 21, 2014229

.03 Automatic revocation............................................................................................................................................................237

.04 Filing requirement.................................................................................................................................................................237

SECTION 9. REVOCATION OR MODIFICATION OF DETERMINATION LETTERRECOGNIZING EXEMPTION ..........................................................................................................................237

.01 In general ..............................................................................................................................................................................237

.02 Retroactive revocation or modification................................................................................................................................237

.03 Appeal and conference procedures ......................................................................................................................................237

SECTION 10. EFFECTIVE DATE ............................................................................................................................................238

SECTION 11. DRAFTING INFORMATION ...........................................................................................................................238

SECTION 12. PAPERWORK REDUCTION ACT .................................................................................................................238

SECTION 13. REQUEST FOR COMMENTS .........................................................................................................................238

SECTION 1. PURPOSE This revenue procedure sets forth procedures for applying for and for issuing determination letterson the exempt status under § 501(c)(3) of the Internal Revenue Code (Code) using Form1023–EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of theInternal Revenue Code. This revenue procedure is generally available for certain U.S. organiza-tions with assets of $250,000 or less and annual gross receipts of $50,000 or less.

.01 For purposes of this revenue procedure –

(1) The “Service” means the Internal Revenue Service.(2) An “eligible organization” is an organization that is eligible to submit Form 1023–EZ. U.S.

organizations with both assets valued at $250,000 or less and annual gross receipts of $50,000or less may submit Form 1023–EZ unless the organization is designated in section 2 as anorganization that is not eligible to submit Form 1023–EZ.

(3) “EO Determinations” means the office of the Service that is primarily responsible forprocessing applications for tax-exempt status. It includes the main EO Determinations officelocated in Cincinnati, Ohio, and other field offices that are under the direction and control ofthe Director, EO Rulings and Agreements. Applications are generally processed in thecentralized EO Determinations office in Cincinnati, Ohio. However, some applications maybe processed in other EO Determinations offices.

(4) “Appeals Office” means any office under the direction and control of the Chief, Appeals. Thepurpose of the Appeals Office is to resolve tax controversies, without litigation, on a fair andimpartial basis. The Appeals office is independent of EO Determinations.

(5) A “determination letter” means a written statement issued by EO Determinations or anAppeals Office in response to an application for recognition of exemption from Federalincome tax under § 501. This includes a written statement issued by EO Determinations oran Appeals Office on the basis of technical advice pursuant to the procedures prescribed inRev. Proc. 2014–5, 2014–1 I.R.B. 169.

(6) “Form 1023–EZ” means the Form 1023–EZ, Streamlined Application for Recognition ofExemption Under Section 501(c)(3) of the Internal Revenue Code, which is the applicationused by eligible organizations to apply for recognition of exemption under § 501(c)(3)pursuant to this revenue procedure.

(7) “Form 1023” means the Form 1023, Application for Recognition of Exemption Under Section501(c)(3) of the Internal Revenue Code, which is the application used to apply for recognitionof exemption under § 501(c)(3) pursuant to Rev. Proc. 2014–9, 2014–2 I.R.B. 281.

SECTION 2. ELIGIBILITY .01 The following organizations are not eligible organizations and must use Form 1023 to apply forrecognition of exemption under § 501(c)(3):

(1) Organizations with projected annual gross receipts of more than $50,000 in either the currenttaxable year or the next 2 years.

(2) Organizations with annual gross receipts that have exceeded $50,000 in any of the past 3 years.(3) Organizations with total assets the fair market value of which is in excess of $250,000. For

purposes of this eligibility requirement, a good faith estimate of the fair market value of theorganization’s assets is sufficient.

July 21, 2014 Bulletin No. 2014–30230

(4) Organizations formed under the laws of a foreign country (United States territories and posses-sions are not considered foreign countries).

(5) Organizations that do not have a mailing address in the United States (territories and possessionsare considered the United States for this purpose).

(6) Organizations that are successors to, or controlled by, an entity suspended under § 501(p)(suspension of tax-exempt status of terrorist organizations).

(7) Organizations that are not corporations, unincorporated associations, or trusts.(8) Organizations that are successors to a for-profit entity.(9) Organizations that were previously revoked or that are successors to a previously revoked

organization (other than an organization the tax-exempt status of which was automatically revokedfor failure to file a Form 990 series return or notice for three consecutive years).

(10) Churches or conventions or associations of churches described in § 170(b)(1)(A)(i).(11) Schools, colleges, or universities described in § 170(b)(1)(A)(ii).(12) Hospitals or medical research organizations described in § 170(b)(1)(A)(iii) or § 501(r)(2)(A)(i).

Cooperative hospital service organizations described in § 501(e).(13) Cooperative service organizations of operating educational organizations described in § 501(f).(14) Qualified charitable risk pools described in § 501(n).(15) Supporting organizations described in § 509(a)(3).(16) Organizations that have as a substantial purpose providing assistance to individuals through credit

counseling activities such as budgeting, personal finance, financial literacy, mortgage foreclosureassistance, or other consumer credit areas.

(17) Organizations that invest, or intend to invest, 5 percent or more of their total assets in securitiesor funds that are not publicly traded.

(18) Organizations that participate, or intend to participate, in partnerships (including entities orarrangements treated as partnerships for Federal tax purposes) in which they share profits andlosses with partners other than § 501(c)(3) organizations.

(19) Organizations that sell, or intend to sell, carbon credits or carbon offsets.(20) Health Maintenance Organizations (HMOs).(21) Accountable Care Organizations (ACOs), or organizations that engage in, or intend to engage in,

ACO activities (such as participation in the Medicare Shared Savings Program (MSSP) or inactivities unrelated to the MSSP described in Notice 2011–20, 2011–16 I.R.B. 652).

(22) Organizations that maintain, or intend to maintain, one or more donor advised funds.(23) Organizations that are organized and operated exclusively for testing for public safety and that are

requesting a foundation classification under § 509(a)(4).(24) Private operating foundations.(25) Organizations that are applying for retroactive reinstatement of exemption under sections 5 or 6

of Rev. Proc. 2014–11, 2014–3 I.R.B. 411, after being automatically revoked.

Further information regarding these eligibility requirements may be provided in the Instructions forForm 1023–EZ.

.02 Terrorist organizations. An organization that is identified or designated as a terrorist organizationwithin the meaning of § 501(p)(2) is not eligible to apply for recognition of exemption.

SECTION 3. RELATEDREVENUE PROCEDURESAND EFFECT ON OTHERREVENUE PROCEDURES

.01 Rev. Proc. 2014–9, 2014–2 I.R.B. 281, sets forth procedures for issuing determination letters andrulings on the exempt status of organizations under §§ 501 and 521. Those procedures do not applyto determination letters issued under this revenue procedure except to the extent specifically notedherein. This revenue procedure amplifies Rev. Proc. 2014–9 by providing alternative application andprocessing procedures for Form 1023–EZ, which may be used by eligible organizations seekingrecognition of exemption under § 501(c)(3).

.02 Rev. Proc. 2014–10, 2014–2 I.R.B. 293, sets forth procedures for issuing rulings and determi-nation letters on private foundation status under § 509(a). This revenue procedure amplifies Rev. Proc.2014–10 by providing that the private foundation status of an organization may be determined whenan eligible organization submits a Form 1023–EZ.

Bulletin No. 2014–30 July 21, 2014231

.03 Rev. Proc. 2014–8, 2014–1 I.R.B. 242, sets forth user fees for requests for a determination letter.This revenue procedure supplements Rev. Proc. 2014–8 by establishing the user fee for submitting aForm 1023–EZ pursuant to this revenue procedure.

.04 Rev. Proc. 2014–4, 2014–1 I.R.B. 125, sets forth procedures regarding the Service’s provision ofguidance to taxpayers on issues under the jurisdiction of the Commissioner, Tax Exempt andGovernment Entities Division. This revenue procedure amplifies Rev. Proc. 2014–4 by providing thatEO Determinations may also issue determination letters on initial qualification for exempt status oforganizations described in § 501(c)(3) that applied using Form 1023–EZ, in accordance with thisrevenue procedure.

.05 Rev. Proc. 2014–5, 2014–1 I.R.B. 169, sets forth procedures regarding the issuance of technicaladvice in exempt organizations matters. This revenue procedure amplifies Rev. Proc. 2014–5 byproviding that technical advice may also be sought and issued in the circumstances described in thisrevenue procedure.

.06 Rev. Proc. 2014–11, 2014–3 I.R.B. 411, sets forth procedures for reinstating the tax-exempt statusof organizations that have had their tax-exempt status automatically revoked under § 6033(j)(1). Thisrevenue procedure amplifies Rev. Proc. 2014–11 by providing that eligible organizations may applyfor reinstatement under Rev. Proc. 2014–11 by submitting a Form 1023–EZ instead of a Form 1023.Form 1023–EZ is considered to be an “Application” within the meaning of section 2.01(1) of Rev.Proc. 2014–11.

.07 Any reference herein to an annual revenue procedure listed in sections 3.01 through 3.05 alsorefers to any successor to that revenue procedure.

SECTION 4.PROCEDURES FORREQUESTINGRECOGNITION OFEXEMPT STATUS UNDER§ 501(c)(3)

.01 In general. Unless subject to a specific exception, all organizations seeking tax-exempt status under§ 501(c)(3) must, as a condition of exemption, apply for recognition of exempt status with the Service.An eligible organization may, but is not required to, seek recognition of tax-exempt status under§ 501(c)(3) by submitting a Form 1023–EZ in accordance with this revenue procedure. Alternatively,an eligible organization may follow the procedures in Rev. Proc. 2014–9, to seek recognition ofexemption under § 501(c)(3) by submitting a Form 1023.

.02 Application. An eligible organization seeking recognition of exempt status under § 501(c)(3) usingthis revenue procedure must submit a completed Form 1023–EZ. See section 4.05 for a definition ofcompleted Form 1023–EZ. An incomplete Form 1023–EZ will not be accepted for processing by theService even if it has been successfully submitted through www.pay.gov. See section 5.02(1).

.03 User fee. An application submitted under this revenue procedure must include the correct user fee,which is $400. In future years, the user fee shall be set forth in a successor revenue procedure to Rev.Proc. 2014–8.

.04 Method of submission. An eligible organization seeking recognition of tax exempt status under§ 501(c)(3) using this revenue procedure must submit the Form 1023–EZ and user fee online atwww.pay.gov. Paper submissions will not be accepted and will be treated as incomplete Forms1023–EZ as described in section 5.02(1).

.05 Requirements for a completed Form 1023–EZ. For purposes of this revenue procedure, a Form1023–EZ submitted by an eligible organization is completed if it:

(1) includes responses for each required line item of the form, including an accurate date oforganization and an attestation that the organization has completed the Form 1023–EZ eligibilityworksheet, as in effect on the date of submission, is eligible to apply for exemption using Form1023–EZ, and has read the Instructions for Form 1023–EZ and understands the requirements to beexempt under § 501(c)(3) as expressed therein;

(2) includes the organization’s correct Employer Identification Number (EIN);(3) is electronically signed, under penalties of perjury, by an individual authorized to sign for the

organization (as specified in the Instructions for Form 1023–EZ); and(4) is accompanied by the correct user fee specified in Section 4.03.

July 21, 2014 Bulletin No. 2014–30232

A Form 1023–EZ will not be considered completed if the organization’s name and EIN do not matchthe records in the Service’s Business Master File. Furthermore, a Form 1023–EZ submitted by anorganization that is not an eligible organization will not be considered completed.

.06 Form 1023–EZ from an organization with a pending Form 1023.

(1) The Service will accept for processing a completed Form 1023–EZ from an eligible organizationthat has a Form 1023 pending with the Service, provided that the Form 1023 has not yet beenassigned for review. The Form 1023–EZ will be treated as a written request for withdrawal of thepending Form 1023, and the Form 1023 will be treated as withdrawn as described in section 6 ofRev. Proc. 2014–9. The user fee paid for the Form 1023 will generally not be refunded. See section6 of Rev. Proc. 2014–9. In addition, the filing date of the Form 1023–EZ (not the withdrawn Form1023) will be treated as the date that the organization provided the notice required under § 508 tothe Service. If the filing date of the Form 1023–EZ is within 27 months from the end of the monthin which it was organized, the organization may be recognized as exempt from the date it wasorganized. If it is not, then the organization’s exemption, if granted, will generally be effectivefrom the date the Form 1023–EZ was filed. See section 8 below.

(2) The Service will not accept for processing a completed Form 1023–EZ from an eligible organi-zation that has a Form 1023 pending with the Service if the Form 1023 has already been assignedfor review. If this section 4.06(2) applies, an organization will be notified of the non-acceptanceof the Form 1023–EZ and any user fee that was paid with the Form 1023–EZ will be refunded,as described in section 5.02(3).

.07 No expedited handling. An organization may not request expedited handling of a Form 1023–EZsubmitted under this revenue procedure.

SECTION 5. STANDARDSFOR ISSUING ADETERMINATIONLETTER ON EXEMPTSTATUS UNDER § 501(c)(3)

.01 In general. This section sets forth procedures that the Service will use to process a Form 1023–EZ.

.02 Non-acceptance for processing of Forms 1023–EZ.

(1) A submitted Form 1023–EZ that is not completed within the meaning of section 4.05 will not beaccepted for processing by the Service. The Service may, but is not required to, request additionalinformation under section 5.03 to verify that a Form 1023–EZ is completed. If an organization’sForm 1023–EZ is not accepted for processing, it will be notified of the non-acceptance of itsapplication and any user fee that was paid will be refunded. An eligible organization may thensubmit a properly completed Form 1023–EZ with a new user fee online at www.pay.gov.Alternatively, an eligible organization may apply on a Form 1023 under the procedures describedin Rev. Proc. 2014–9.

(2) The Service will not accept for processing a Form 1023–EZ from an organization if the organi-zation has an application for recognition of tax-exempt status other than a Form 1023 (e.g., Form1024, Application for Recognition of Exemption under Section 501(a)) pending with the Service.An organization will be notified of the non-acceptance of the Form 1023–EZ, and any user fee thatwas paid with the Form 1023–EZ will be refunded.

(3) The Service will not accept for processing a Form 1023–EZ from an eligible organization if theorganization has a Form 1023 pending with the Service that has been assigned for review. Seesection 4.06. An organization will be notified of the non-acceptance of the Form 1023–EZ, and anyuser fee that was paid with the Form 1023–EZ will be refunded.

.03 Additional information may be required. The Service may request additional information from anyorganization before accepting a Form 1023–EZ for processing or making a determination of exemptstatus. Additionally, the Service will select a statistically valid random sample of Forms 1023–EZ forpre-determination reviews, which may also result in requests for additional information. If the Servicerequests information prior to accepting a Form 1023–EZ for processing and the organization fails torespond to a request for additional information, the application will not be accepted for processing. Inthe case of a Form 1023–EZ that has been accepted for processing by the Service, a failure to respondto a request for additional information will result in the closure of the application without a determi-nation letter being issued and without a refund of the user fee.

Bulletin No. 2014–30 July 21, 2014233

.04 Issuance of determination letter. A favorable determination letter will be issued to an organizationonly if the attestations contained in the organization’s completed and accepted Form 1023–EZ (alongwith any additional information requested by the Service and provided by the organization) areconsistent with requirements for exemption under section 501(c)(3). Exempt status may be recognizedin advance of the organization’s operations. The determination letter will also classify the organizationas either a “public charity” or a “private foundation,” consistent with the attestations made and anyadditional information provided by the organization upon request by the Service.

.05 Adverse determination letters and appeal procedure. If the Service concludes, including based onadditional information provided under section 5.03, that the organization does not satisfy the require-ments for exemption under § 501(c)(3), the Service generally will issue a proposed adverse determi-nation letter, which will:

(1) include the Service’s rationale for the proposed denial of tax-exempt status; and(2) advise the organization of its opportunity to appeal the decision and request a conference.

An organization receiving a proposed adverse determination letter will be subject to the proceduresdescribed in section 7 of Rev. Proc. 2014–9. Upon issuance of a final adverse determination letter, anorganization’s proposed adverse and final adverse determination letters are subject to disclosure to thepublic and state officials as described below in sections 7.02 and 7.03. An adverse determination letterissued under this section 5.05 is a final determination to which § 7428 applies. See section 6. Note,however, that the non-acceptance of a Form 1023–EZ under section 5.02 is not a proposed or finaladverse determination.

.06 Requests for technical advice. EO Determinations is responsible for the issuance of determinationletters to eligible organizations seeking recognition of exempt status under § 501(c)(3) pursuant to thisrevenue procedure. See Rev. Proc. 2014–4. However, technical advice on a Form 1023–EZ submittedand accepted for processing pursuant to this revenue procedure may be requested by EO Determina-tions or by an organization pursuant to the procedures described in section 5 of Rev. Proc. 2014–9 andsections 4.04 and 4.05 of Rev. Proc. 2014–5.

.07 Withdrawal of a Form 1023–EZ. A Form 1023–EZ may only be withdrawn upon the writtenrequest of an authorized individual prior to the issuance of a determination letter (including a proposedadverse determination letter).

(1) When a Form 1023–EZ is withdrawn, the Service will retain the application. The Service mayconsider the information submitted in connection with the withdrawn request in a subsequentexamination of the organization.

(2) Generally, the user fee will not be refunded if an application is withdrawn. See Rev. Proc. 2014–8,section 10.

SECTION 6.DECLARATORYJUDGMENT PROVISIONSOF § 7428

.01 General description. Generally, a declaratory judgment proceeding under § 7428 can be filed inthe United States Tax Court, the United States Court of Federal Claims, or the district court of theUnited States for the District of Columbia with respect to an actual controversy involving a determi-nation by the Service or a failure of the Service to make a determination with respect to the initial orcontinuing qualification or classification of an organization under § 501(c)(3) (charitable, educational,etc.); § 170(c)(2) (deductibility of contributions); § 509(a) (private foundation status); § 4942(j)(3)(operating foundation status); or § 521 (farmers’ cooperative).

.02 Exhaustion of administrative remedies. Before filing a declaratory judgment action, an organiza-tion must exhaust its administrative remedies by taking, in a timely manner, all reasonable steps tosecure a determination from the Service. For purposes of this revenue procedure, these reasonablesteps include:

(1) the filing by an organization of a completed Form 1023–EZ (within the meaning of section 4.05);(2) in appropriate cases (i.e., where the organization did not submit Form 1023–EZ within 27 months

after the end of the month in which it was organized and seeks an effective date earlier than itssubmission date), requesting relief pursuant to Treas. Reg. § 301.9100–1 of the Procedure and

July 21, 2014 Bulletin No. 2014–30234

Administration Regulations regarding the extension of time for making an election or applicationfor relief from tax;

(3) the timely submission of all additional information requested by the Service in accordance withsection 5.03; and

(4) the exhaustion of all administrative appeals available within the Service pursuant to section 7 ofRev. Proc. 2014–9.

.03 Service must have reasonable time to act on an appeal. The steps described in section 6.02 willnot be considered completed until the Service has had a reasonable time to act upon an appeal.

.04 Exhaustion of administrative remedies no earlier than 270 days after seeking determination andtaking all reasonable steps to secure a determination letter. An eligible organization that has submittedForm 1023–EZ will in no event be deemed to have exhausted its administrative remedies prior to theearlier of:

(1) the completion of the steps in section 6.02 and the sending by the Service by certified or registeredmail of a final determination letter; or

(2) the expiration of the 270-day period described in § 7428(b)(2) in a case in which the Service hasnot issued a final determination letter, and the eligible organization has taken, in a timely manner,all reasonable steps to secure a determination letter.

.05 Final determination to which § 7428 applies. Section 7428 only applies to final determinations.The final determinations to which § 7428 applies are described in section 10.05 of Rev. Proc. 2014–9.The non-acceptance of a Form 1023–EZ under section 5.02 is not a final determination to which§ 7428 applies. In addition, an organization will not be considered to have exhausted its administrativeremedies by completing the steps in section 6.02 if the organization was not eligible to submit Form1023–EZ, as described in section 2.01.

.06 Treatment of withdrawals and non-accepted applications. The Service does not consider thewithdrawal of an application pursuant to section 5.07 or the non-acceptance of an application pursuantto section 5.02 as a failure to make a determination within the meaning of § 7428(a)(2), or anexhaustion of administrative remedies within the meaning of § 7428(b)(2). The 270-day periodreferred to in § 7428(b)(2) will not be considered to have started prior to the date a completed Form1023–EZ is submitted to the Service. If the Service requests additional information from an organi-zation pursuant to section 5.03, the period of time beginning on the date the Service requests additionalinformation until the date the information is submitted to the Service will not be counted for purposesof the 270-day period referred to in § 7428(b)(2).

SECTION 7. DISCLOSUREOF APPLICATIONS ANDDETERMINATIONLETTERS

Sections 6104 and 6110 provide rules for the disclosure of applications, including any additionalinformation received by the Service from the organization pursuant to section 5.03, and determinationletters.

.01 Disclosure of favorable determinations. The favorable determination letters issued by the Serviceand the associated Forms 1023–EZ (including any additional information received by the Service fromthe organization) are available for public inspection under § 6104(a)(1). However, there are certainlimited disclosure exceptions for a trade secret, patent, process, style of work, or apparatus, if theService determines that the disclosure of the information would adversely affect the organization.

(1) The Service is required to make favorable determination letters and the associated applicationsavailable upon request. The public can request this information by submitting Form 4506–A,Request for Public Inspection or Copy of Exempt or Political Organization IRS Form. Organiza-tions applying for exemption should ensure that their applications do not include unnecessarypersonal identifying information (such as bank account numbers or social security numbers) thatcould result in identity theft or other adverse consequences if publicly disclosed.

(2) The exempt organization is required to make its exemption application and determination letteravailable for public inspection without charge. For more information about the exempt organiza-tion’s disclosure obligations, see Publication 557, Tax-Exempt Status for Your Organization.

Bulletin No. 2014–30 July 21, 2014235

.02 Disclosure of adverse determinations. The Service is required to make adverse determinationletters available for public inspection under § 6110 after the deletion of names, addresses, and otheridentifying information. Upon issuance of a final adverse determination letter to an eligible organi-zation pursuant to section 5.05, both the proposed adverse determination letter and the final adversedetermination letter will be available for public inspection in accordance with section 8.02 of Rev.Proc. 2014–9.

.03 Disclosure to state officials.

(1) The Service may disclose to State officials the name, address, and EIN of any organization that hasapplied for recognition of exemption under § 501(c)(3), including an organization that appliesusing Form 1023–EZ under this revenue procedure.

(2) The Service may notify the appropriate State officials of a refusal to recognize an organization astax-exempt under § 501(c)(3). See § 6104(c). The Service does not consider the non-acceptanceof an application under section 5.02 to be a refusal. See section 8.03 of Rev. Proc. 2014–9, formore information about disclosure in cases where the Service refuses to recognize an organizationas exempt under § 501(c)(3).

SECTION 8. EFFECT OFDETERMINATIONLETTER RECOGNIZINGEXEMPTION

.01 Effective date of exemption. A determination letter recognizing exemption of an organizationdescribed in § 501(c)(3) is usually effective as of the date of formation of an organization if: (1) itspurposes and activities prior to the date of the determination letter have been consistent with therequirements for exemption; (2) it has not failed to file required Form 990 series returns or notices forthree consecutive years; and (3) it has submitted an application for recognition of exemption within 27months from the end of the month in which it was organized. Special rules may apply to certainorganizations applying for exemption under § 501(c)(3). See § 508, and Treas. Reg. §§ 1.508–1(a)(2),1.508–1(b)(7), and 301.9100–2(a)(2)(iv).

(1) If the Service requires the organization to alter its activities or make substantive amendments to itsenabling instrument, the exemption will be effective as of the date specified in the determinationletter.

(2) If an eligible organization has submitted a Form 1023–EZ within 27 months from the end of themonth in which it was organized and the Service requires the organization to make a nonsubstan-tive amendment, exemption will ordinarily be recognized as of the date of formation. Examples ofnonsubstantive amendments include correction of a clerical error in the enabling instrument or theaddition of a dissolution clause where the activities of the organization prior to the determinationletter are consistent with the requirements for exemption.

(3) An eligible organization applying under this revenue procedure that does not submit Form1023–EZ within 27 months from the end of the month in which it was organized will generally berecognized as exempt from the submission date of its Form 1023–EZ. For this purpose, thesubmission date of Form 1023–EZ is determined without regard to the submission date of anypreviously submitted application for recognition of tax-exemption (including a Form 1023–EZ,Form 1023, or Form 1024) that has been withdrawn by the organization or not accepted forprocessing by the Service. Thus, if an eligible organization that has a Form 1023 pending with theService files a Form 1023–EZ in accordance with section 4.06 outside the 27-month window, itwill generally be recognized as exempt from the submission date of its Form 1023–EZ, not fromthe date it submitted its Form 1023. An organization that believes it qualifies for an earlier effectivedate may request the earlier date by sending correspondence to the address listed in the Instructionsfor Form 1023–EZ. The correspondence should include the organization’s name, EIN, the effec-tive date the organization is requesting, an explanation of why the earlier date is warranted, and anysupporting documents. This correspondence should be sent after the organization receives itsdetermination letter. Alternatively, the organization may complete Form 1023 instead of complet-ing Form 1023–EZ.

.02 Reliance on determination letter. A determination letter recognizing exemption may not be reliedupon if there is a material change, inconsistent with exemption, in the character, the purpose, or themethod of operation of the organization, or a change in the applicable law. Also, a determination letterissued to an organization that submitted a Form 1023–EZ in accordance with this revenue proceduremay not be relied upon if it was based on any inaccurate material information submitted by the

July 21, 2014 Bulletin No. 2014–30236

organization. Inaccurate material information includes an incorrect attestation as to the organization’sorganizational documents, the organization’s exempt purposes, the organization’s conduct of prohib-ited and restricted activities, or the organization’s eligibility to file Form 1023–EZ. See also section 9.

.03 Automatic revocation. Organizations that claim exempt status under § 501(c) generally must fileannual Form 990 series returns or notices, even if they have not yet received their determination letterrecognizing exemption. If an organization fails to file required Form 990 series returns or notices forthree consecutive years, its exemption will be automatically revoked by operation of § 6033(j). Suchan organization may apply for reinstatement of its exempt status, and such recognition may be grantedretroactively, as provided in Rev. Proc. 2014–11. Consistent with the eligibility requirements for usingForm 1023–EZ that are set forth in section 2.01, only an organization requesting reinstatement of§ 501(c)(3) status under section 4 (streamlined retroactive reinstatement of tax-exempt status for smallorganizations within 15 months of revocation) or section 7 (reinstatement of tax-exempt status frompostmark date) of Rev. Proc. 2014–11 may apply using Form 1023–EZ. An organization requestingreinstatement of § 501(c)(3) status under section 5 (retroactive reinstatement of tax-exempt statuswithin 15 months of revocation) or section 6 (retroactive reinstatement more than 15 months afterrevocation) of Rev. Proc. 2014–11 must apply using Form 1023 under Rev. Proc. 2014–9.

.04 Filing requirement. Generally, an organization that qualifies for exemption under § 501(c)(3) isrequired to file an annual return in accordance with § 6033(a). However, an eligible organization, otherthan a private foundation, that normally has gross receipts of $50,000 or less is not required to file anannual return, but must furnish notice on Form 990–N providing the information required by§ 6033(i). See Rev. Proc. 2011–15, 2011–3 I.R.B. 322. An eligible organization (other than a privatefoundation) that applies for recognition of exempt status under this revenue procedure is not requiredto separately notify the Service that it is excepted from the annual filing requirement under § 6033(a)if it is claiming a filing exemption solely on the basis that its gross receipts are normally $50,000 orless. However, if such an organization claims an exception from filing an annual return under§ 6033(a) on a basis other than it being an organization (other than a private foundation) that normallyhas gross receipts of $50,000 or less, it must file a Form 8940, Request for Miscellaneous Determi-nation, with the Service and provide a statement of all of the facts on which its claim is based. Aseparate user fee will be required when filing the Form 8940.

SECTION 9.REVOCATION ORMODIFICATION OFDETERMINATIONLETTER RECOGNIZINGEXEMPTION

.01 In general. A determination letter recognizing exemption may be revoked or modified: (1) by anotice to the taxpayer to whom the determination letter was issued; (2) by enactment of legislation orratification of a tax treaty; (3) by a decision of the Supreme Court of the United States; (4) by theissuance of temporary or final regulations; (5) by the issuance of a revenue ruling, revenue procedure,or other statement published in the Internal Revenue Bulletin; or (6) automatically, pursuant to§ 6033(j), for failure to file a required annual return or notice for three consecutive years.

.02 Retroactive revocation or modification. The revocation or modification of a determination letterrecognizing the exemption of an organization that submitted a Form 1023–EZ in accordance with thisrevenue procedure may be retroactive if there has been a change in the applicable law, if theorganization operated in a manner materially different from that represented on its completed Form1023–EZ (including any additional information provided), or if the organization misstated or omittedany material information on its completed Form 1023–EZ (including any additional informationprovided). A misstatement of material information includes an incorrect attestation as to the organi-zation’s organizational documents, the organization’s exempt purposes, the organization’s conduct ofprohibited and restricted activities, or the organization’s eligibility to file Form 1023–EZ. Informationprovided on an application for recognition of exemption (e.g., Form 1023–EZ, Form 1023, or Form1024) that has been withdrawn will not be considered for purposes of limiting the retroactive effect ofa revocation or modification of a determination letter. In certain cases an organization may seek relieffrom retroactive revocation or modification of a determination letter under § 7805(b). Requests for§ 7805(b) relief may be made as described in section 12 of Rev. Proc. 2014–9 and Rev. Proc. 2014–4.

.03 Appeal and conference procedures. In the case of a revocation or modification of a determinationletter, the appeal and conference procedures are the same as those set out in section 12 of Rev. Proc.2014–9.

Bulletin No. 2014–30 July 21, 2014237

SECTION 10. EFFECTIVEDATE

This revenue procedure is effective July 1, 2014.

SECTION 11. DRAFTINGINFORMATION

The principal authors of this Revenue Procedure are Timothy Berger and Melinda Williams of theExempt Organizations, Tax Exempt and Government Entities Division, and James Martin of theOffice of Associate Chief Counsel (Tax Exempt and Government Entities). For additional information,please contact Mr. Berger at 202-317-8533, Ms. Williams at 202-317-8532, or Mr. Martin at202-317-5800 (these are not toll-free numbers).

SECTION 12.PAPERWORKREDUCTION ACT

Any collection of information under this revenue procedure will be reported and approved throughForm 1023–EZ (OMB approval number 1545-0056).

An agency may not conduct or sponsor, and a person is not required to respond to, a collection ofinformation unless it displays a valid control number assigned by the Office of Management andBudget.

SECTION 13. REQUESTFOR COMMENTS

The Service and the Treasury Department request comments on this revenue procedure, which will beconsidered in making any future update to these procedures.

Comments should refer to Rev. Proc. 2014–40, and should be submitted to:

Internal Revenue ServiceAttn: CC:PA:LPD:PR(Rev. Proc. 2014–40) Room 5203P. O. Box 7604Ben Franklin StationWashington, DC 20044

Submissions also may be hand delivered Monday through Friday between the hours of 8 am and 4 pmto CC:PA:LPD:PR (Rev. Proc. 2014–40) Courier’s Desk, Internal Revenue Service, 1111 Constitu-tion Avenue, N.W. Washington, D.C. Alternatively, comments may be submitted electronically via thefollowing e-mail address: Notice.Comments@irscounsel.treas.gov. Please include “Rev. Proc. 2014–40” in the subject line of any electronic communication. All comments will be available for publicinspection and copying.

July 21, 2014 Bulletin No. 2014–30238

Part IV. Items of General InterestNotice of proposedrulemaking by cross-reference to temporaryregulations

Guidelines for theStreamlined Process ofApplying for Recognition ofSection 501(c)(3) Status

REG–110948–14

AGENCY: Internal Revenue Service(IRS), Treasury.

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

SUMMARY: In the Rules and Regula-tions section of this issue of the Bulletin,the IRS is issuing regulations that provideguidance to organizations that seek recog-nition of tax-exempt status under section501(c)(3) of the Internal Revenue Code.The final and temporary regulationsamend current regulations to allow theCommissioner of Internal Revenue toadopt a streamlined application processthat certain organizations may use to ap-ply for recognition of tax-exempt statusunder section 501(c)(3). The text of thosetemporary regulations also serves as thetext of these proposed regulations.

DATES: Comments and requests for apublic hearing must be received by Sep-tember 30, 2014.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–110948–14), room5205, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand-delivered Monday through Friday be-tween the hours of 8 a.m. and 4 p.m. toCC:PA:LPD:PR (REG–110948–14),Courier’s Desk, Internal Revenue Service,1111 Constitution Avenue NW, Washing-ton, DC, or sent electronically via the Fed-eral eRulemaking Portal at http://www.regulations.gov (IRS REG–110948–14).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposedregulations, James R. Martin or Robin Eh-

renberg at (202) 317-5800; concerningsubmission of comments and request forhearing, Oluwafunmilayo Taylor at (202)317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation ofProvisions

Temporary regulations in the Rulesand Regulations section of this issue ofthe Bulletin amend the existing regula-tions under sections 501 and 508 to allowfor an additional form of application to beused to satisfy the notice requirement un-der section 508(a). The text of those tem-porary regulations also serves as the textof these proposed regulations. The pream-ble to the temporary regulations explainsthe amendments.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866, as supplemented byExecutive Order 13563. Therefore, a reg-ulatory assessment is not required. It alsohas been determined that section 553(b) ofthe Administrative Procedure Act (5U.S.C. chapter 5) does not apply to theseregulations. It is hereby certified that thisrule will not have a significant economicimpact on a substantial number of smallentities. Although this rule may affect asubstantial number of small entities thatchoose to use the new form that stream-lines the application process that eligibleorganizations may use to apply for recog-nition of tax-exempt status under section501(c)(3), we intend for this rule to reducethe economic impact on small entities.This rule merely provides guidance aboutthe streamlined form of application avail-able to satisfy the notice requirement un-der Section 508(a). Therefore, a Regula-tory Flexibility Analysis under theRegulatory Flexibility Act (5 U.S.C.Chapter 6) is not required.

Comments and Requests for PublicHearing

Before these proposed regulations areadopted as final regulations, consideration

will be given to any comments that aresubmitted timely to the IRS as prescribedin this preamble under the “Addresses”heading. The Treasury Department andthe IRS request comments on all aspectsof the proposed rules. All comments willbe available at www.regulations.gov orupon request.

A public hearing will be scheduled ifrequested in writing by any person thattimely submits written comments. If apublic hearing is scheduled, notice ofthe date, time, and place for the publichearing will be published in the FederalRegister.

Drafting Information

The principal authors of these regula-tions are James R. Martin and Robin Eh-renberg, Office of Associate Chief Coun-sel (Tax Exempt and GovernmentEntities). However, other personnel fromthe IRS and the Treasury Department par-ticipated in their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is pro-posed to be amended as follows:

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 1.501(a)–1 is amended

by:1. Revising paragraph (a)(2).2. Revising paragraph (b)(1) and

(b)(3).3. Adding paragraph (f).The revisions and addition read as fol-

lows:

§ 1.501(a)–1 Exemption from taxation.

(a) * * *(2) [The text of the proposed amend-

ment to § 1.501(a)–1(a)(2) is the same asthe text for § 1.501(a)–1T(a)(2) publishedelsewhere in this issue of the Bulletin].

* * * * *

Bulletin No. 2014–30 July 21, 2014239

(b)(1) [The text of the proposedamendment to § 1.501(a)–1(b)(1) is thesame as the text for § 1.501(a)–1T(b)(1)published elsewhere in this issue of theBulletin].

* * * * *(3) [The text of the proposed amend-

ment to § 1.501(a)–1(b)(3) is the same asthe text for § 1.501(a)–1T(b)(3) publishedelsewhere in this issue of the Bulletin].

* * * * *(f) [The text of the proposed amend-

ment to § 1.501(a)–1(f) is the same as thetext for § 1.501(a)–1T(f) published else-where in this issue of the Bulletin].

Par. 3. Section 1.501(c)(3)–1 isamended by:

1. Revising paragraphs (b)(1)(v) and(b)(6).

2. Adding paragraph (h).The revisions and addition read as fol-

lows:

§ 1.501(c)(3)–1 Organizations organizedand operated for religious, charitable,scientific, testing for public safety,literary, or educational purposes, or forthe prevention of cruelty to children oranimals.

* * * * *(b)* * * (1)* * *

(v) [The text of proposed amendmentsto § 1.501(c)(3)–1(b)(1)(v) is the same asthe text for § 1.501(c)(3)–1T(b)(1)(v)published elsewhere in this issue of theBulletin].

* * * * *(6) [The text of proposed amendments

to § 1.501(c)(3)–1(b)(6) is the same as thetext for § 1.501(c)(3)–1T(b)(6) publishedelsewhere in this issue of the Bulletin].

* * * * *(h) [The text of proposed amendments

to § 1.501(c)(3)–1(h) is the same as thetext for § 1.501(c)(3)–1T(h) publishedelsewhere in this issue of the Bulletin].

Par. 4. Section 1.508–1 is amended by:1. Revising paragraphs (a)(2)(i) and

(a)(2)(ii).2. Revising paragraphs (b)(2)(iv) and

(b)(2)(v).3. Adding paragraph (c).The revisions and addition read as fol-

lows:

§ 1.508–1 Notices.

(a) * * *(2)(i) [The text of proposed amend-

ments to § 1.508–1(a)(2)(i) is the same asthe text for § 1.508–1T(a)(2)(i) publishedelsewhere in this issue of the Bulletin].

(ii) [The text of proposed amendmentsto § 1.508–1(a)(2)(ii) is the same as thetext for § 1.508–1T(a)(2)(ii) publishedelsewhere in this issue of the Bulletin].

* * * * *(b) * * *(2) * * *(iv) [The text of proposed amendments

to § 1.508–1(b)(2)(iv) is the same as thetext for § 1.508–1T(b)(2)(iv) publishedelsewhere in this issue of the Bulletin].

(v) [The text of proposed amendmentsto § 1.508–1(b)(2)(v) is the same as thetext for § 1.508–1T(b)(2)(v) publishedelsewhere in this issue of the Bulletin].

* * * * *(c) [The text of proposed amendments

to § 1.508–1(c) is the same as the text for§ 1.508–1T(c) published elsewhere in thisissue of the Bulletin].

John Dalrymple,Deputy Commissioner for

Services and Enforcement.

(Filed by the Office of the Federal Register on July 1, 2014,8:45 a.m., and published in the issue of the Federal Registerfor July 2, 2014, 79 F.R. 37697)

July 21, 2014 Bulletin No. 2014–30240

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

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds thatthe same principle also applies to B, theearlier ruling is amplified. (Compare withmodified, below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling 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 thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the new

ruling does more than restate the sub-stance of a prior ruling, a combination ofterms is used. For example, modified andsuperseded 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 isself contained. In this case, the previouslypublished ruling is first modified and then,as modified, 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 namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the 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 ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in currentuse and formerly used will appear in ma-terial published 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.

Bulletin No. 2014–30 July 21, 2014i

Numerical Finding List1

Bulletins 2014–27 through 2014–30

Announcements:

2014-2, 2014-28 I.R.B. 120

Notices:

2014-40, 2014-27 I.R.B. 1002014-41, 2014-27 I.R.B. 97

Proposed Regulations:

REG-110948-14, 2014-30 I.R.B. 239REG-121542-14, 2014-28 I.R.B. 119

Revenue Procedures:

2014-26, 2014-27 I.R.B. 262014-27, 2014-27 I.R.B. 412014-29, 2014-28 I.R.B. 1052014-38, 2014-29 I.R.B. 1322014-39, 2014-29 I.R.B. 1512014-40, 2014-30 I.R.B. 2292014-42, 2014-29 I.R.B. 193

Revenue Rulings:

2014-14, 2014-27 I.R.B. 122014-20, 2014-28 I.R.B. 101

Treasury Decisions:

9668, 2014-27 I.R.B. 19669, 2014-28 I.R.B. 1039670, 2014-29 I.R.B. 1219671, 2014-29 I.R.B. 1249672, 2014-30 I.R.B. 1969673, 2014-30 I.R.B. 2129674, 2014-30 I.R.B. 225

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2014–01 through 2014–26 is in Internal Revenue Bulletin2014–26, dated June 30, 2014.

July 21, 2014 Bulletin No. 2014–30ii

Finding List of Current Actions onPreviously Published Items1

Bulletins 2014–27 through 2014–30

Announcements:

2012-11Supplemented byAnn. 2014-2, 2014-28 I.R.B. 120

2013-11Supplemented byAnn. 2014-2, 2014-28 I.R.B. 120

Revenue Procedures:

1981-38Superseded byRev. Proc. 2014-42, 2014-29 I.R.B. 193

1981-38Modified byRev. Proc. 2014-42, 2014-29 I.R.B. 193

2000-12Superseded byRev. Proc. 2014-39, 2014-29 I.R.B. 151

2002-55Revoked byRev. Proc. 2014-39, 2014-29 I.R.B. 151

2012-38Superseded byRev. Proc. 2014-27, 2014-27 I.R.B. 26

2012-46Superseded byRev. Proc. 2014-26, 2014-27 I.R.B. 41

2014-4Amplified byRev. Proc. 2014-40, 2014-30 I.R.B. 229

2014-5Amplified byRev. Proc. 2014-40, 2014-30 I.R.B. 229

2014-8Supplemented byRev. Proc. 2014-40, 2014-30 I.R.B. 229

2014-9Amplified byRev. Proc. 2014-40, 2014-30 I.R.B. 229

2014-10Amplified byRev. Proc. 2014-40, 2014-30 I.R.B. 229

Revenue Procedures—Continued:

2014-11Amplified byRev. Proc. 2014-40, 2014-30 I.R.B. 229

2014-13Modified byRev. Proc. 2014-38, 2014-29 I.R.B. 132

2014-13Superseded byRev. Proc. 2014-38, 2014-29 I.R.B. 132

Treasury Decision:

2005-47Obsoleted byT.D. 9668 2014-27 I.R.B. 1

1A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2014–01 through 2014–26 is in Internal Revenue Bulletin 2014–26, dated June 30, 2014.

Bulletin No. 2014–30 July 21, 2014iii

INDEXInternal Revenue Bulletins 2014–27 through2014–30

The abbreviation and number in parenthesis following the indexentry refer to the specific item; numbers in roman and italic typefollowing the parentheses refer to the Internal Revenue Bulletin inwhich the item may be found and the page number on which itappears.

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

ADMINISTRATIVEAnnual Filing Season Program (RP 42) 29, 193Regulations Governing Practice Before the Internal Revenue

Service (REG–138367–06) (TD 9668) 27, 1Regulations:

31 CFR 10.1, revised; 10.3, revised; 10.22, revised; 10.31,revised; 10.35, revised; 10.36, revised; 10.37, revised;10.52, revised; 10.81, revised; 10.82, revised; 10.91, re-vised. (TD 9668) 27, 1

Announcement to Discontinue the Internal Revenue BulletinIndex (Ann 27) 28, 120

Substitute Forms Preparation for Certain Information Returns(RP 27) 27, 41

EMPLOYEE PLANSLongevity Annuity Contracts (TD 9673) 30, 212Regulations:

26 CFR 54.9815–2708, as amended (TD 9671) 29, 12426 CFR 1.401(a)(9)–5, amended; 1.401(a)(9)–6, amended;

1.403(b)–6, amended; 1.408–8, amended; 1.408A–6,amended; 1.6047–2, added (TD 9673) 30, 212

Rules relating to 90 day waiting period limitation (TD 9671) 29,124

Weighted average interest ratesSegment rates for June 2014 (Notice 41) 27, 97

EMPLOYMENT TAXExtending religious and family member FICA and FUTA excep-

tions to disregarded entities; regulations regarding the indoortanning services excise tax and disregarded entities (TD 9670)29, 121

EMPLOYMENT TAX—Cont.Publications:

1223, General Rules and Specifications for Substitute FormsW–2c and W–3c (RP29) 28, 105

4436, General Rules and Specifications for Substitute Form941 and Schedule B (Form 941), and Schedule R (RP 26)27, 26

Summons Interview Regulations Under Section 7602 (REG–121542–14) (TD 9669) 28, 103

Regulations:26 CFR 301.7602–1 is amended to add new paragraph (b)(3)

pertaining to summons interviews. (TD 9669) 28, 10326 CFR 1.1361–4, amended; 1.1361–4T, removed;

31.3121(b)(3)–1, amended; 31.3121(b)(3)–1T, removed;31.3127–1, added; 31.3127–1T, removed;31.3306(c)(5)–1, amended; 31.3306(c)(5)–1T, removed;301.7701–2, amended; 301.7701–2T, removed; extendingreligious and family member FICA and FUTA exceptionsto disregarded entities; regulations regarding the indoortanning services excise tax and disregarded entities (TD9670) 29, 121

ESTATE TAXSummons Interview Regulations Under Section 7602 (REG–

121542–14) (TD 9669) 28, 103Regulations:

26 CFR 301.7602–1 is amended to add new paragraph (b)(3)pertaining to summons interviews. (TD 9669) 28, 103

EXCISE TAXExtending religious and family member FICA and FUTA excep-

tions to disregarded entities; regulations regarding the indoortanning services excise tax and disregarded entities (TD 9670)29, 121

Summons Interview Regulations Under Section 7602 (REG–121542–14) (TD 9669) 28, 103

Regulations:26 CFR 301.7602–1 is amended to add new paragraph (b)(3)

pertaining to summons interviews. (TD 9669) 28, 10326 CFR 1.1361–4, amended; 1.1361–4T, removed;

31.3121(b)(3)–1, amended; 31.3121(b)(3)–1T, removed;31.3127–1, added; 31.3127–1T, removed;31.3306(c)(5)–1, amended; 31.3306(c)(5)–1T, removed;301.7701–2, amended; 301.7701–2T, removed; extendingreligious and family member FICA and FUTA exceptionsto disregarded entities; regulations regarding the indoortanning services excise tax and disregarded entities (TD9670) 29, 121

26 CFR 54.9815–2708, as amended (TD 9671) 29, 124Rules relating to 90 day waiting period limitation (TD 9671) 29, 124

EXEMPT ORGANIZATIONSProcedures for Streamlined Application for Recognition of Ex-

emption Under Section 501(c)(3) (RP 40) 30, 229

July 21, 2014 Bulletin No. 2014–30iv

EXEMPT ORGANIZATIONS—Cont.Streamlined process for 501(c)(3) recognition (REG–110948–

14) 30, 239Streamlined process for 501(c)(3) recognition (TD 9674) 30, 225Regulations:

26 CFR 1.501(c)–1 amended 1. 501(a)–1T added;1.501(c)(3)–1 amended, 1.501(c)(3)–1T added; and1.508–1 amended, 1.508–1T added (REG–110948–14)(TD 9674) 30, 225

GIFT TAXSummons Interview Regulations Under Section 7602 (REG–

121542–14) (TD 9669) 28, 103Regulations:

26 CFR 301.7602–1 is amended to add new paragraph (b)(3)pertaining to summons interviews (REG–121542–14)(TD 9669) 28, 103

INCOME TAXCredit for carbon dioxide Sequestration (Notice 40) 27, 100FFI Agreement for Participating FFI and Reporting Model 2 FFI

(RP 38) 29, 132Interest:

Investment:Federal short-term, mid-term, and long-term rates for: July

2014 (RR 20) 28, 101Summons Interview Regulations Under Section 7602 (REG–

121542–14) (TD 9669) 28, 103Publications:

1223, General Rules and Specifications for Substitute FormsW–2c and W–3c (RP 29) 28, 105

4436, General Rules and Specifications for Substitute Form941 and Schedule B (Form 941), and Schedule R (RP 26)27, 26

Qualified Intermediary (QI) Agreement (RP 39) 29, 151Regulations:

31 CFR 10.1, revised; 10.3, revised; 10.22, revised; 10.31,revised; 10.35, revised; 10.36, revised; 10.37, revised;10.52, revised; 10.81, revised; 10.82, revised; 10.91, re-vised (TD 9668) 27, 1

26 CFR 301.7602–1 is amended to add new paragraph (b)(3)pertaining to summons interviews (REG–121542–14) (TD9669) 28, 103

26 CFR 1.45R–0, added; 1.45R–1, added; 1.45R–2, added;1.45R–3, added; 1.45R–4, added; 1.45R–5, added; taxcredit for employee health insurance expenses of smallemployers (TD 9672) 30, 196

Regulations Governing Practice Before the Internal RevenueService (REG–138367–06) (TD 9668) 27, 1

Tax Credit for Employee Health Insurance Expenses of SmallEmployers (TD 9672) 30, 196

Substitute Forms Preparation for Certain Information Returns(RP 27) 27, 41

Underpayment and overpayments, quarter beginning: July 1,2014 (RR 14) 27, 12

SELF-EMPLOYMENT TAXExtending religious and family member FICA and FUTA excep-

tions to disregarded entities; regulations regarding the indoortanning services excise tax and disregarded entities (TD 9670)29, 121

Regulations:26 CFR 1.1361–4, amended; 1.1361–4T, removed;

31.3121(b)(3)–1, amended; 31.3121(b)(3)–1T, removed;31.3127–1, added; 31.3127–1T, removed;31.3306(c)(5)–1, amended; 31.3306(c)(5)–1T, removed;301.7701–2, amended; 301.7701–2T, removed; extendingreligious and family member FICA and FUTA exceptionsto disregarded entities; regulations regarding the indoortanning services excise tax and disregarded entities (TD9670) 29, 121

SPECIAL ANNOUNCEMENTAnnual Filing Season Program (RP 42) 29, 193

Bulletin No. 2014–30 July 21, 2014v

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletins are available at www.irs.gov/irb/.

CUMULATIVE BULLETINSThe contents of the weekly Bulletins were consolidated semiannually into permanent, indexed, Cumulative Bulletins through the

2008–2 edition.

INTERNAL REVENUE BULLETINS ON CD-ROMInternal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be

purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)or by calling 1–877–233–6767. The first release is available in mid-December and the final release is available in late January.

We Welcome Comments About the Internal Revenue BulletinIf you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we

would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page(www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:P:SPA, Washington, DC 20224.

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