Bulletin No. 2013-38September 16, 2013

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. 9630, page 199.These final regulations address concerns that taxpayers aretaking unreasonable positions with respect to the determina-tion of discount rates in applying the income method to deter-mine taxable income in connection with cost sharing arrange-ments. The final regulations provide guidance on a discountrate-related specified application of the income method and adiscount rate-related best method consideration for evaluatingan application of the income method.

REG–113792–13, page 211.These proposed regulations provide guidance on the tax creditavailable to certain small employers that offer health insurancecoverage to their employees under section 45R of the Code,enacted by the Patient Protection and Affordable Care Act.Comments requested by November 25, 2013.

Rev. Proc. 2013–33, page 209.This revenue procedure provides domestic asset/liability per-centages and domestic investment yields needed by foreignlife insurance companies and foreign property and liability in-surance companies to compute their minimum effectively con-nected net investment income under section 842(b) of theCode for taxable years beginning after December 31, 2011.

EMPLOYEE PLANS

REG–113792–13, page 211.These proposed regulations provide guidance on the tax creditavailable to certain small employers that offer health insurancecoverage to their employees under section 45R of the Code,

enacted by the Patient Protection and Affordable Care Act.Comments requested by November 25, 2013.

ADMINISTRATIVE

Rev. Rul. 2013–17, page 201.This revenue ruling amplifies and clarifies Revenue Ruling58–66. In Revenue Ruling 58–66, 1958–1 C.B. 60, the Inter-nal Revenue Service determined the status of individuals livingin a common-law marriage for Federal income tax purposes.This revenue ruling determines the status of individuals of thesame-sex who are lawfully married under the laws of a statethat recognizes such marriages for Federal tax purposes.

T.D. 9631, page 205.These final regulations authorize the Secretary of the Treasuryto furnish, upon written request by the Secretary of Commerce,additional return information as the Secretary of Treasury mayprescribe by regulation to officers and employees of the Bu-reau of the Census for the purposes of, but only to the extentnecessary in, the structuring of censuses and conducting re-lated statistical activities authorized by law.

Notice 2013–55, page 207.This notice updates the appendix to Notice 2013–1, which liststhe Indian tribes who have settled tribal trust cases againstthe United States. Notice 2012–60 originally was published inI.R.B. 2012–41 (October 9, 2012). Notice 2012–60 was su-perseded by Notice 2013–1 I.R.B. 2013–3, and the appendixto Notice 2013–1 was superseded by Notice 2013–16 (I.R.B.2013–14), which was superseded by Notice 2013–36. Fouradditional tribes have settled cases against the United Statessince the publication of Notice 2013–36 so the appendix to No-tice 2013–1 is updated and Notice 2013–36 is superseded.

(Continued on the next page)

Finding Lists begin on page ii.

Rev. Proc. 2013–31, page 208.This procedure publishes the amounts of unused housingcredit carryovers allocated to qualified states under section42(h)(3)(D) of the Code for calendar year 2013.

Announcement 2013–40, page 226.This announcement contains information about how to obtainPublications 1220, 1187, 1239, 4810 and 1516, updates theelectronic filing (FIRE) testing date, and advises customers ofthe redesigned website.

September 16, 2013 2013–38 I.R.B.

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 all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

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

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

and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

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

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

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

2013–38 I.R.B. September 16, 2013

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

Allocation rules for post-1989 state housing creditceiling amounts. Guidance is provided to state hous-ing credit agencies of qualified states that request anallocation of unused housing credit carryover undersection 42(h)(3)(D) of the Code. See Rev. Proc.2013-31, page 208.

Section 482.—Allocationof Income and DeductionsAmong Taxpayers

T.D. 9630

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Use of Differential IncomeStream as an Application ofthe Income Method and as aConsideration in Assessingthe Best Method

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations and removalof temporary regulations.

SUMMARY: This document contains finalregulations that implement the use of thedifferential income stream as a considera-tion in assessing the best method in con-nection with a cost sharing arrangementand as a specified application of the in-come method.

DATES: Effective Date: These regulationsare effective on August 27, 2013.

Applicability Dates: For dates of appli-cability, see §1.482–7(l).

FOR FURTHER INFORMATIONCONTACT: Mumal R. Hemrajani, (202)622–3800 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

Final cost sharing regulations werepublished in the Federal Register (76 FR80082) (REG–144615–02) (TD 9568) onDecember 22, 2011 (“final cost sharingregulations”). Corrections to the finalcost sharing regulations were publishedin the Federal Register (77 FR 3606, 77FR 8143, and 77 FR 8144) on January25, 2012, and February 14, 2012. Cer-tain guidance regarding application of thedifferential income stream approach wasreserved in the final cost sharing regula-tions because the Treasury Departmentand the IRS believed it was appropriateto solicit public comments on that subjectmatter.

Temporary cost sharing regulations anda notice of proposed rule making on ap-plication of the differential income streamapproach were published in the FederalRegister (76 FR 80249 and 76 FR 80309)(REG–145474–11) (TD 9569) on Decem-ber 23, 2011 (“temporary and proposedregulations”). Comments were submitted,which we address in this Preamble. Norequest for a public hearing was received.The Treasury Department and the IRS arefinalizing the proposed regulations with-out change.

Explanation of Provisions

The Treasury Department and the IRSwere aware that some taxpayers were tak-ing unreasonable positions in applying theincome method by using relatively lowlicensing discount rates, and relativelyhigh cost sharing discount rates, withoutsufficiently considering the appropriateinterrelationship of the discount ratesand financial projections. This practicegave rise to material distortions and thepotential for PCT Payments not in accor-dance with the arm’s length standard. Toaddress these problems, the temporaryand proposed regulations provided addi-tional guidance on evaluating the resultsof an application of the income method(§1.482–7T(g)(2)(v)(B)(2) (Implied dis-count rates) and (g)(4)(vi)(F)(2) (Use of

differential income stream as a consid-eration in assessing the best method)),and provided a new specified applicationof the income method for directly deter-mining the arm’s length charge for PCTPayments (§1.482–7(g)(4)(v) (Applica-tion of income method using differentialincome stream)).

Comments noted that§1.482–7T(g)(4)(vi)(F)(2) explicitly pro-vides that the implied discount rate maybe used to evaluate the reliability of thecorresponding actual discount rates asso-ciated with the licensing and cost sharingalternatives, but no similar explicit pro-vision is contained in §1.482–7(g)(4)(v)regarding the use of actual discountrates to evaluate the reliability of thecorresponding implied discount rate.Thus, the comments suggested that suchan explicit provision be adopted. TheTreasury Department and the IRS agreethat, depending on facts and circum-stances, separately derived discount ratespursuant to a general application of theincome method may yield a more reliablemeasure of an arm’s length result thana proffered discount rate pursuant to adifferential income stream application ofthe income method in a particular case. Insuch a case, however, the best method rulealready would require a determination ofPCT Payments under the method, and theapplication of such method, that, underthe facts and circumstances, provides themost reliable measure of an arm’s lengthresult. See, for example, §§1.482–1(c)(1)and 1.482–7(g)(4)(vi)(A). Accordingly,the suggested change was not adopted.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It has been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to this regulation, and because theregulation does not impose a collection ofinformation on small entities, the Regula-tory Flexibility Act (5 U.S.C. chapter 6)does not apply. Pursuant to section 7805(f)

2013–38 I.R.B. 199 September 16, 2013

of the Internal Revenue Code, these reg-ulations have been submitted to the ChiefCounsel for Advocacy of the Small Busi-ness Administration (CCASBA) for com-ment on their impact on small business.CCASBA had no comments.

Drafting Information

The principal author of these regula-tions is Mumal R. Hemrajani, Office of theAssociate Chief Counsel (International).However, other personnel from theInternal Revenue Service and theTreasury Department participated in thedevelopment of the regulations.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amendedas 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 1.482–7 is amended by

revising paragraph (g)(2)(v)(B)(2), addingparagraph (g)(4)(v), revising paragraphs(g)(4)(vi)(F)(2), (g)(4)(viii) Example 8,adding Example 9, and revising paragraph(l).

§1.482–7 Methods to determine taxableincome in connection with a cost sharingarrangement.

* * * * *(g)* * *(2)* * *(v)* * *(B)* * *(2) Implied discount rates. In some cir-

cumstances, the particular discount rate orrates used for certain activities or transac-tions logically imply that certain other ac-tivities will have a particular discount rateor set of rates (implied discount rates). Tothe extent that an implied discount rate isinappropriate in light of the facts and cir-cumstances, which may include reliabledirect evidence of the appropriate discountrate applicable for such other activities, thereliability of any method is reduced wheresuch method is based on the discount ratesfrom which such an inappropriate implieddiscount rate is derived. See paragraphs

(g)(4)(vi)(F)(2) and (g)(4)(viii), Example 8of this section.

* * * * *(4) * * *(v) Application of income method using

differential income stream. In some cases,the present value of an arm’s length PCTPayment may be determined as the presentvalue, discounted at the appropriate rate,of the PCT Payor’s reasonably anticipatedstream of additional positive or negativeincome over the duration of the CSA Ac-tivity that would result (before PCT Pay-ments) from undertaking the cost sharingalternative rather than the licensing alter-native (differential income stream). SeeExample 9 of paragraph (g)(4)(viii) of thissection.

* * * * *(vi) * * *(F) * * *(2) Use of differential income stream

as a consideration in assessing the bestmethod. An analysis under the incomemethod that uses a different discount ratefor the cost sharing alternative than for thelicensing alternative will be more reliablethe greater the extent to which the implieddiscount rate for the projected presentvalue of the differential income stream isconsistent with reliable direct evidence ofthe appropriate discount rate applicable foractivities reasonably anticipated to gener-ate an income stream with a similar riskprofile to the differential income stream.Such differential income stream is definedas the stream of the reasonably anticipatedresiduals of the PCT Payor’s licensingpayments to be made under the licensingalternative, minus the PCT Payor’s costcontributions to be made under the costsharing alternative. See Example 8 ofparagraph (g)(4)(viii) of this section.

* * * * *(viii) * * *Example 8. (i) The facts are the same as in Ex-

ample 1, except that the taxpayer determines that theappropriate discount rate for the cost sharing alterna-tive is 20%. In addition, the taxpayer determines thatthe appropriate discount rate for the licensing alter-native is 10%. Accordingly, the taxpayer determinesthat the appropriate present value of the PCT Paymentis $146 million.

(ii) Based on the best method analysis describedin Example 2, the Commissioner determines thatthe taxpayer’s calculation of the present value of thePCT Payments is outside of the interquartile range(as shown in the sixth column of Example 2), and

thus warrants an adjustment. Furthermore, in eval-uating the taxpayer’s analysis, the Commissionerundertakes an analysis based on the difference inthe financial projections between the cost sharingand licensing alternatives (as shown in column 11of Example 1). This column shows the anticipateddifferential income stream of additional positiveor negative income for FS over the duration of theCSA Activity that would result from undertaking thecost sharing alternative (before any PCT Payments)rather than the licensing alternative. This anticipateddifferential income stream thus reflects the antici-pated incremental undiscounted profits to FS fromthe incremental activity of undertaking the risk of de-veloping the cost shared intangibles and enjoying thevalue of its divisional interests. Taxpayer’s analysislogically implies that the present value of this streammust be $146 million, since only then would FS havethe same anticipated value in both the cost sharingand licensing alternatives. A present value of $146million implies that the discount rate applicable tothis stream is 34.4%. Based on a reliable calculationof discount rates applicable to the anticipated incomestreams of uncontrolled companies whose resources,capabilities, and rights consist primarily of softwareapplications intangibles and research and develop-ment teams similar to USP’s platform contributionsto the CSA, and which income streams, accordingly,may be reasonably anticipated to reflect a similar riskprofile to the differential income stream, the Com-missioner concludes that an appropriate discount ratefor the anticipated income stream associated withUSP’s platform contributions (that is, the additionalpositive or negative income over the duration of theCSA Activity that would result, before PCT Pay-ments, from switching from the licensing alternativeto the cost sharing alternative) is 16%, which is sig-nificantly less than 34.4%. This conclusion furthersuggests that Taxpayer’s analysis is unreliable. Seeparagraphs (g)(2)(v)(B)(2) and (g)(4)(vi)(F)(1) and(2) of this section.

(iii) The Commissioner makes an adjustment of$296 million, so that the present value of the PCTPayments is $442 million (the median results asshown in column 6 of Example 2).

Example 9. The facts are the same as in Exam-ple 1, except that additional data on discount rates areavailable that were not available in Example 1. TheCommissioner determines the arm’s length charge forthe PCT Payment by discounting at an appropriaterate the differential income stream associated withthe rights contributed by USP in the PCT (that is,the stream of income in column (11) of Example 1).Based on an analysis of a set of public companieswhose resources, capabilities, and rights consist pri-marily of resources, capabilities, and rights similar tothose contributed by USP in the PCT, the Commis-sioner determines that 15% to 17% is an appropriaterange of discount rates to use to assess the value of thedifferential income stream associated with the rightscontributed by USP in the PCT. The Commissionerdetermines that applying a discount rate of 17% to thedifferential income stream associated with the rightscontributed by USP in the PCT yields a present valueof $446 million, while applying a discount rate of15% to the differential income stream associated withthe rights contributed by USP in the PCT yields apresent value of $510 million. Because the taxpayer’sresult, $464 million, is within the interquartile range

September 16, 2013 200 2013–38 I.R.B.

determined by the Commissioner, no adjustments arewarranted. See paragraphs (g)(2)(v)(B)(2), (g)(4)(v),and (g)(4)(vi)(F)(1) of this section.

* * * * *(l) Effective/applicability dates. Ex-

cept as otherwise provided in this para-graph (l), this section applies on Decem-ber 16, 2011. Paragraphs (g)(2)(v)(B)(2),(g)(4)(vi)(F)(2), and (g)(4)(viii), Example8 of this section apply to taxable years be-ginning on or after December 19, 2011.Paragraphs (g)(4)(v) and (g)(4)(viii), Ex-ample 9 apply to taxable years beginningon or after August 27, 2013.

* * * * *

§1.482–7T [Removed].

Par. 3. Section 1.482–7T is removed.

Beth Tucker,Deputy Commissioner for

Operations Support.

Approved August 15, 2013.

Mark J. Mazur,Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on August 26,2013, 8:45 a.m., and published in the issue of the FederalRegister for August 27, 2013, 78 F.R. 52854)

Section 6013.—JointReturns of Income byHusband and Wife

This revenue ruling amplifies and clar-ifies Revenue Ruling 58–66. In RevenueRuling 58–66, 1958–1 C.B. 60, the Inter-nal Revenue Service determined the sta-tus of individuals living in a common-lawmarriage for Federal income tax purposes.This revenue ruling determines the statusof individuals of the same-sex who arelawfully married under the laws of a statethat recognizes such marriages for Federaltax purposes.

Rev. Rul. 2013–17

ISSUES

1. Whether, for Federal tax purposes,the terms “spouse,” “husband and wife,”

“husband,” and “wife” include an indi-vidual married to a person of the samesex, if the individuals are lawfully marriedunder state1 law, and whether, for thosesame purposes, the term “marriage” in-cludes such a marriage between individu-als of the same sex.

2. Whether, for Federal tax purposes,the Internal Revenue Service (Service)recognizes a marriage of same-sex in-dividuals validly entered into in a statewhose laws authorize the marriage of twoindividuals of the same sex even if thestate in which they are domiciled does notrecognize the validity of same-sex mar-riages.

3. Whether, for Federal tax purposes,the terms “spouse,” “husband and wife,”“husband,” and “wife” include individuals(whether of the opposite sex or same sex)who have entered into a registered domes-tic partnership, civil union, or other similarformal relationship recognized under statelaw that is not denominated as a marriageunder the laws of that state, and whether,for those same purposes, the term “mar-riage” includes such relationships.

LAW AND ANALYSIS

1. Background

In Revenue Ruling 58–66, 1958–1 C.B.60, the Service determined the marital sta-tus for Federal income tax purposes of in-dividuals who have entered into a com-mon-law marriage in a state that recog-nizes common-law marriages.2 The Ser-vice acknowledged that it recognizes themarital status of individuals as determinedunder state law in the administration of theFederal income tax laws. In Revenue Rul-ing 58–66, the Service stated that a couplewould be treated as married for purposesof Federal income tax filing status and per-sonal exemptions if the couple entered intoa common-law marriage in a state that rec-ognizes that relationship as a valid mar-riage.

The Service further concluded in Rev-enue Ruling 58–66 that its position withrespect to a common-law marriage alsoapplies to a couple who entered into acommon-law marriage in a state that rec-ognized such relationships and who later

moved to a state in which a ceremony isrequired to establish the marital relation-ship. The Service therefore held that a tax-payer who enters into a common-law mar-riage in a state that recognizes such mar-riages shall, for purposes of Federal in-come tax filing status and personal exemp-tions, be considered married notwithstand-ing that the taxpayer and the taxpayer’sspouse are currently domiciled in a statethat requires a ceremony to establish themarital relationship. Accordingly, the Ser-vice held in Revenue Ruling 58–66 thatsuch individuals can file joint income taxreturns under section 6013 of the InternalRevenue Code (Code).

The Service has applied this rule withrespect to common-law marriages for over50 years, despite the refusal of some statesto give full faith and credit to common-lawmarriages established in other states.Although states have different rules ofmarriage recognition, uniform nationwiderules are essential for efficient and fair taxadministration. A rule under which a cou-ple’s marital status could change simplyby moving from one state to another statewould be prohibitively difficult and costlyfor the Service to administer, and for manytaxpayers to apply.

Many provisions of the Code make ref-erence to the marital status of taxpayers.Until the recent decision of the SupremeCourt in United States v. Windsor, 570U.S. ___, 133 S. Ct. 2675 (2013), the Ser-vice interpreted section 3 of the Defenseof Marriage Act (DOMA) as prohibiting itfrom recognizing same-sex marriages forpurposes of these provisions. Section 3 ofDOMA provided that:

In determining the meaning of any Actof Congress, or of any ruling, regu-lation, or interpretation of the variousadministrative bureaus and agencies ofthe United States, the word ‘marriage’means only a legal union between oneman and one woman as husband andwife, and the word ‘spouse’ refers onlyto a person of the opposite sex who is ahusband or a wife.

1 U.S.C. § 7.In Windsor, the Supreme Court held

that section 3 of DOMA is unconstitutionalbecause it violates the principles of equal

1 For purposes of this ruling, the term “state” means any domestic or foreign jurisdiction having the legal authority to sanction marriages.

2 A common-law marriage is a union of two people created by agreement followed by cohabitation that is legally recognized by a state. Common-law marriages have three basic features:(1) A present agreement to be married, (2) cohabitation, and (3) public representations of marriage.

2013–38 I.R.B. 201 September 16, 2013

protection. It concluded that this section“undermines both the public and privatesignificance of state-sanctioned same-sexmarriages” and found that “no legitimatepurpose” overcomes section 3’s “purposeand effect to disparage and to injure thosewhom the State, by its marriage laws,sought to protect[.]” Windsor, 133 S. Ct.at 2694–95. This ruling provides guidanceon the effect of the Windsor decision onthe Service’s interpretation of the sectionsof the Code that refer to taxpayers’ maritalstatus.

2. Recognition of Same-Sex Marriages

There are more than two hundred Codeprovisions and Treasury regulations re-lating to the internal revenue laws thatinclude the terms “spouse,” “marriage”(and derivatives thereof, such as “marries”and “married”), “husband and wife,” “hus-band,” and “wife.” The Service concludesthat gender-neutral terms in the Code thatrefer to marital status, such as “spouse”and “marriage,” include, respectively,(1) an individual married to a person of thesame sex if the couple is lawfully marriedunder state law, and (2) such a marriagebetween individuals of the same sex. Thisis the most natural reading of those terms;it is consistent with Windsor, in which theplaintiff was seeking tax benefits under astatute that used the term “spouse,” 133 S.Ct. at 2683; and a narrower interpretationwould not further the purposes of efficienttax administration.

In light of the Windsor decision andfor the reasons discussed below, the Ser-vice also concludes that the terms “hus-band and wife,” “husband,” and “wife”should be interpreted to include same-sexspouses. This interpretation is consistentwith the Supreme Court’s statements aboutthe Code in Windsor, avoids the seriousconstitutional questions that an alternatereading would create, and is permitted bythe text and purposes of the Code.

First, the Supreme Court’s opinion inWindsor suggests that it understood that itsdecision striking down section 3 of DOMAwould affect tax administration in waysthat extended beyond the estate tax refundat issue. See 133 S. Ct. at 2694 (“The par-ticular case at hand concerns the estate tax,but DOMA is more than simply a determi-nation of what should or should not be al-lowed as an estate tax refund. Among the

over 1,000 statutes and numerous Federalregulations that DOMA controls are lawspertaining to . . . taxes.”). The Courtobserved in particular that section 3 bur-dened same-sex couples by forcing “themto follow a complicated procedure to filetheir Federal and state taxes jointly” andthat section 3 “raise[d] the cost of healthcare for families by taxing health benefitsprovided by employers to their workers’same-sex spouses.” Id. at 2694–2695.

Second, an interpretation of the gen-der-specific terms in the Code to excludesame-sex spouses would raise serious con-stitutional questions. A well-establishedprinciple of statutory interpretation holdsthat, “where an otherwise acceptable con-struction of a statute would raise seriousconstitutional problems,” a court should“construe the statute to avoid such prob-lems unless such construction is plainlycontrary to the intent of Congress.” Ed-ward J. DeBartolo Corp. v. Fla. GulfCoast Bldg. & Constr. Trades Council,485 U.S. 568, 575 (1988). “This canonis followed out of respect for Congress,which [presumably] legislates in light ofconstitutional limitations,” Rust v. Sul-livan, 500 U.S. 173, 191 (1991), andinstructs courts, where possible, to avoidinterpretations that “would raise seriousconstitutional doubts,” United States v.X-Citement Video, Inc., 513 U.S. 64, 78(1994).

The Fifth Amendment analysis in Wind-sor raises serious doubts about the con-stitutionality of Federal laws that confermarriage benefits and burdens only on op-posite-sex married couples. In Windsor,the Court stated that, “[b]y creating twocontradictory marriage regimes within thesame State, DOMA forces same-sex cou-ples to live as married for the purposeof state law but unmarried for the pur-pose of Federal law, thus diminishing thestability and predictability of basic per-sonal relations the State has found it properto acknowledge and protect.” 133 S. Ct.at 2694. Interpreting the gender-specificterms in the Code to categorically excludesame-sex couples arguably would have thesame effect of diminishing the stability andpredictability of legally recognized same-sex marriages. Thus, the canon of consti-tutional avoidance counsels in favor of in-terpreting the gender-specific terms in theCode to refer to same-sex spouses and cou-ples.

Third, the text of the Code permits agender-neutral construction of the gender-specific terms. Section 7701 of the Codeprovides definitions of certain terms gen-erally applicable for purposes of the Codewhen the terms are not defined otherwisein a specific Code provision and the def-inition in section 7701 is not manifestlyincompatible with the intent of the spe-cific Code provision. The terms “husbandand wife,” “husband,” and “wife” are notspecifically defined other than in section7701(a)(17), which provides, for purposesof sections 682 and 2516, that the terms“husband” and “wife” shall be read to in-clude a former husband or a former wife,respectively, and that “husband” shall beread as “wife” and “wife” as “husband”in certain circumstances. Although Con-gress’s specific instruction to read “hus-band” and “wife” interchangeably in thosespecific provisions could be taken as an in-dication that Congress did not intend theterms to be read interchangeably in otherprovisions, the Service believes that thebetter understanding is that the interpretiverule set forth in section 7701(a)(17) makesit reasonable to adopt, in the circumstancespresented here and in light of Windsor andthe principle of constitutional avoidance, amore general rule that does not foreclose agender-neutral reading of gender-specificterms elsewhere in the Code.

Section 7701(p) provides a specificcross-reference to the Dictionary Act, 1U.S.C. § 1, which provides, in part, thatwhen “determining the meaning of anyAct of Congress, unless the context indi-cates otherwise, . . . words importing themasculine gender include the feminine aswell.” The purpose of this provision wasto avoid having to “specify males and fe-males by using a great deal of unnecessarylanguage when one word would expressthe whole.” Cong. Globe, 41st Cong., 3dSess. 777 (1871) (statement of Sen. Trum-bull, sponsor of Dictionary Act). Thisprovision has been read to require con-struction of the phrase “husband and wife”to include same-sex married couples. SeePedersen v. Office of Personnel Mgmt.,881 F. Supp. 2d 294, 306–07 (D. Conn.2012) (construing section 6013 of theCode). The Dictionary Act thus supportsinterpreting the gender-specific terms inthe Code in a gender-neutral manner “un-less the context indicates otherwise.” 1U.S.C. § 1. “‘Context’” for purposes of the

September 16, 2013 202 2013–38 I.R.B.

Dictionary Act “means the text of the Actof Congress surrounding the word at issue,or the texts of other related congressionalActs.” Rowland v. Cal. Men’s Colony,Unit II Men’s Advisory Council, 506 U.S.194, 199 (1993). Here, nothing in thesurrounding text forecloses a gender-neu-tral reading of the gender-specific terms.Rather, the provisions of the Code that usethe terms “husband and wife,” “husband,”and “wife” are inextricably interwovenwith provisions that use gender-neutralterms like “spouse” and “marriage,” indi-cating that Congress viewed them to beequivalent. For example, section 1(a) setsforth the tax imposed on “every marriedindividual (as defined in section 7703)who makes a single return jointly with hisspouse under section 6013,” even thoughsection 6013 provides that a “husband andwife” make a single return jointly of in-come. Similarly, section 2513 of the Codeis entitled “Gifts by Husband or Wife toThird Party,” but uses no gender-specificterms in its text. See also, e.g., §§ 62(b)(3),1361(c)(1).

This interpretation is also consistentwith the legislative history. The legisla-tive history of section 6013, for example,uses the term “married taxpayers” inter-changeably with the terms “husband” and“wife” to describe those individuals whomay elect to file a joint return, and thereis no indication that Congress intendedthose terms to refer only to a subset ofindividuals who are legally married. See,e.g., S. Rep. No. 82–781, Finance, Part 1,p. 48 (Sept. 18, 1951). Accordingly, themost logical reading is that the terms “hus-band and wife” were used because theywere viewed, at the time of enactment, asequivalent to the term “persons married toeach other.” There is nothing in the Codeto suggest that Congress intended to ex-clude from the meaning of these terms anycouple otherwise legally married understate law.

Fourth, other considerations alsostrongly support this interpretation. Agender-neutral reading of the Code fostersfairness by ensuring that the Service treatssame-sex couples in the same manner assimilarly situated opposite-sex couples. Agender-neutral reading of the Code alsofosters administrative efficiency becausethe Service does not collect or maintain in-formation on the gender of taxpayers andwould have great difficulty administer-

ing a scheme that differentiated betweensame-sex and opposite-sex married cou-ples.

Therefore, consistent with the statutorycontext, the Supreme Court’s decision inWindsor, Revenue Ruling 58–66, and ef-fective tax administration generally, theService concludes that, for Federal tax pur-poses, the terms “husband and wife,” “hus-band,” and “wife” include an individualmarried to a person of the same sex if theywere lawfully married in a state whoselaws authorize the marriage of two individ-uals of the same sex, and the term “mar-riage” includes such marriages of individ-uals of the same sex.

3. Marital Status Based on the Laws ofthe State Where a Marriage Is InitiallyEstablished

Consistent with the longstanding posi-tion expressed in Revenue Ruling 58–66,the Service has determined to interpret theCode as incorporating a general rule, forFederal tax purposes, that recognizes thevalidity of a same-sex marriage that wasvalid in the state where it was entered into,regardless of the married couple’s place ofdomicile. The Service may provide ad-ditional guidance on this subject and onthe application of Windsor with respect toFederal tax administration. Other agen-cies may provide guidance on other Fed-eral programs that they administer that areaffected by the Code.

Under this rule, individuals of the samesex will be considered to be lawfully mar-ried under the Code as long as they weremarried in a state whose laws authorizethe marriage of two individuals of thesame sex, even if they are domiciled in astate that does not recognize the validity ofsame-sex marriages. For over half a cen-tury, for Federal income tax purposes, theService has recognized marriages basedon the laws of the state in which theywere entered into, without regard to sub-sequent changes in domicile, to achieveuniformity, stability, and efficiency inthe application and administration of theCode. Given our increasingly mobile so-ciety, it is important to have a uniform ruleof recognition that can be applied withcertainty by the Service and taxpayersalike for all Federal tax purposes. Thoseoverriding tax administration policy goals

generally apply with equal force in thecontext of same-sex marriages.

In most Federal tax contexts, astate-of-domicile rule would present seri-ous administrative concerns. For example,spouses are generally treated as relatedparties for Federal tax purposes, and onespouse’s ownership interest in propertymay be attributed to the other spouse forpurposes of numerous Code provisions. Ifthe Service did not adopt a uniform ruleof recognition, the attribution of propertyinterests could change when a same-sexcouple moves from one state to anotherwith different marriage recognition rules.The potential adverse consequences couldimpact not only the married couple butalso others involved in a transaction, en-tity, or arrangement. This would lead touncertainty for both taxpayers and theService.

A rule of recognition based on the stateof a taxpayer’s current domicile wouldalso raise significant challenges for em-ployers that operate in more than one state,or that have employees (or former em-ployees) who live in more than one state,or move between states with different mar-riage recognition rules. Substantial finan-cial and administrative burdens would beplaced on those employers, as well as theadministrators of employee benefit plans.For example, the need for and validity ofspousal elections, consents, and noticescould change each time an employee, for-mer employee, or spouse moved to a statewith different marriage recognition rules.To administer employee benefit plans,employers (or plan administrators) wouldneed to inquire whether each employeereceiving plan benefits was married and,if so, whether the employee’s spouse wasthe same sex or opposite sex from the em-ployee. In addition, the employers or planadministrators would need to continuallytrack the state of domicile of all same-sexmarried employees and former employeesand their spouses. Rules would also needto be developed by the Service and admin-istered by employers and plan administra-tors to address the treatment of same-sexmarried couples comprised of individualswho reside in different states (a situationthat is not relevant with respect to oppo-site-sex couples). For all of these reasons,plan administration would grow increas-ingly complex and certain rules, such asthose governing required distributions

2013–38 I.R.B. 203 September 16, 2013

under section 401(a)(9), would becomeespecially challenging. Administrators ofemployee benefit plans would have to beretrained, and systems reworked, to com-ply with an unprecedented and complexsystem that divides married employeesaccording to their sexual orientation. Inmany cases, the tracking of employeeand spouse domiciles would be less thanperfectly accurate or timely and wouldresult in errors or delays. These errorsand delays would be costly to employers,and could require some plans to enter theService’s voluntary compliance programsor put benefits of all employees at risk.All of these problems are avoided by theadoption of the rule set forth herein, andthe Service therefore has chosen to avoidthe imposition of the additional burdens onitself, employers, plan administrators, andindividual taxpayers. Accordingly, Rev-enue Ruling 58–66 is amplified to adopt ageneral rule, for Federal tax purposes, thatrecognizes the validity of a same-sex mar-riage that was valid in the state where itwas entered into, regardless of the marriedcouple’s place of domicile.

4. Registered Domestic Partnerships,Civil Unions, or Other Similar FormalRelationships Not Denominated asMarriage

For Federal tax purposes, the term“marriage” does not include registered do-mestic partnerships, civil unions, or othersimilar formal relationships recognizedunder state law that are not denominatedas a marriage under that state’s law, andthe terms “spouse,” “husband and wife,”“husband,” and “wife” do not includeindividuals who have entered into sucha formal relationship. This conclusionapplies regardless of whether individualswho have entered into such relationshipsare of the opposite sex or the same sex.

HOLDINGS

1. For Federal tax purposes, the terms“spouse,” “husband and wife,” “husband,”and “wife” include an individual marriedto a person of the same sex if the individ-uals are lawfully married under state law,

and the term “marriage” includes such amarriage between individuals of the samesex.

2. For Federal tax purposes, the Ser-vice adopts a general rule recognizing amarriage of same-sex individuals that wasvalidly entered into in a state whose lawsauthorize the marriage of two individualsof the same sex even if the married coupleis domiciled in a state that does not recog-nize the validity of same-sex marriages.

3. For Federal tax purposes, the terms“spouse,” “husband and wife,” “husband,”and “wife” do not include individuals(whether of the opposite sex or the samesex) who have entered into a registereddomestic partnership, civil union, or othersimilar formal relationship recognized un-der state law that is not denominated as amarriage under the laws of that state, andthe term “marriage” does not include suchformal relationships.

EFFECT ON OTHER REVENUERULINGS

Rev. Rul. 58–66 is amplified and clar-ified.

PROSPECTIVE APPLICATION

The holdings of this ruling will be ap-plied prospectively as of September 16,2013.

Except as provided below, affected tax-payers also may rely on this revenue rul-ing for the purpose of filing original re-turns, amended returns, adjusted returns,or claims for credit or refund for any over-payment of tax resulting from these hold-ings, provided the applicable limitationsperiod for filing such claim under section6511 has not expired. If an affected tax-payer files an original return, amended re-turn, adjusted return, or claim for credit orrefund in reliance on this revenue ruling,all items required to be reported on the re-turn or claim that are affected by the mari-tal status of the taxpayer must be adjustedto be consistent with the marital status re-ported on the return or claim.

Taxpayers may rely (subject to the con-ditions in the preceding paragraph regard-ing the applicable limitations period and

consistency within the return or claim) onthis revenue ruling retroactively with re-spect to any employee benefit plan or ar-rangement or any benefit provided there-under only for purposes of filing originalreturns, amended returns, adjusted returns,or claims for credit or refund of an over-payment of tax concerning employmenttax and income tax with respect to em-ployer-provided health coverage benefitsor fringe benefits that were provided by theemployer and are excludable from incomeunder sections 106, 117(d), 119, 129, or132 based on an individual’s marital status.For purposes of the preceding sentence,if an employee made a pre-tax salary-re-duction election for health coverage undera section 125 cafeteria plan sponsored byan employer and also elected to providehealth coverage for a same-sex spouse onan after-tax basis under a group health plansponsored by that employer, an affectedtaxpayer may treat the amounts that werepaid by the employee for the coverage ofthe same-sex spouse on an after-tax basisas pre-tax salary reduction amounts.

The Service intends to issue furtherguidance on the retroactive application ofthe Supreme Court’s opinion in Windsorto other employee benefits and employeebenefit plans and arrangements. Suchguidance will take into account the poten-tial consequences of retroactive applica-tion to all taxpayers involved, includingthe plan sponsor, the plan or arrangement,employers, affected employees and ben-eficiaries. The Service anticipates thatthe future guidance will provide sufficienttime for plan amendments and any nec-essary corrections so that the plan andbenefits will retain favorable tax treatmentfor which they otherwise qualify.

DRAFTING INFORMATION

The principal authors of this rev-enue ruling are Richard S. Goldsteinand Matthew S. Cooper of the Office ofAssociate Chief Counsel (Procedure &Administration). For further informationregarding this revenue ruling, contactMr. Goldstein and Mr. Cooper at202–622–3400 (not a toll-free call).

September 16, 2013 204 2013–38 I.R.B.

Section 6103.—Confi-dentiality and Disclosureof Returns and ReturnInformation

T.D. 9631

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 301

Disclosures of ReturnInformation Reflected onReturns to Officers andEmployees of the Departmentof Commerce for CertainStatistical Purposes andRelated Activities

AGENCY: Internal Revenue Service(IRS), Treasury

ACTION: Final regulations and removalof temporary regulations.

SUMMARY: This document contains finalregulations that authorize the disclosure ofcertain items of return information to theBureau of the Census (Bureau) in confor-mance with section 6103(j)(1) of the Inter-nal Revenue Code (Code). The final regu-lations are made pursuant to a request fromthe Secretary of Commerce. Because thereturn information will be disclosed to theBureau in statistical format, specific tax-payers will not be identified, and, there-fore, no taxpayers are affected by the dis-closures authorized by this guidance.

DATES: Effective Date: These regulationsare effective on August 27, 2013.

Applicability Date: For dates of appli-cability, see §301.6103(j)(1)–1(e).

FOR FURTHER INFORMATIONCONTACT: Melissa Avrutine, (202)622–7950 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to26 CFR part 301. Section 6103(j)(1)(A)authorizes the Secretary of Treasury to fur-nish, upon written request by the Secre-tary of Commerce, such return or return

information as the Secretary of Treasurymay prescribe by regulation to officers andemployees of the Bureau for the purposeof, but only to the extent necessary in,the structuring of censuses and conductingrelated statistical activities authorized bylaw. Section 301.6103(j)(1)–1 of the ex-isting regulations further defines such pur-poses by reference to 13 U.S.C. chapter5 and provides an itemized description ofthe return information authorized to be dis-closed for such purposes.

By letter dated July 24, 2009, the Sec-retary of Commerce requested that addi-tional items of return information be dis-closed to the Bureau for purposes of al-lowing the Bureau to study a developingtrend of increased use of contract workers.Specifically, the Secretary of Commercerequested disclosure of the following ad-ditional items: (1) total number of docu-ments reported on Form 1096 transmittingForms 1099–MISC and (2) total amountreported on Form 1096 transmitting Forms1099–MISC.

Section 301.6103(j)(1)–1 of the reg-ulations formerly permitted disclosureof the total number of documents re-ported on Form 1096 transmitting Forms1099–MISC and the total amount re-ported on Form 1096 transmitting Forms1099–MISC. At the request of the Secre-tary of Commerce, the Treasury Depart-ment removed these items from the list ofitems of return information authorized tobe disclosed, as disclosure of this returninformation was no longer necessary (SeeTD 9372, 72 FR 73262 [Dec. 27, 2007]).

In 2009, the Secretary of Commerce de-termined that these items of return infor-mation were needed again to provide crit-ical data about contract labor necessary toestimate total employment and payroll inthe United States. The employment andcompensation data compiled by the Bu-reau are important to analysts and policymakers in both the public and private sec-tors. Thus, the Secretary of Commerce as-serted that good cause existed to amend§301.6103(j)(1)–1 of the regulations to re-store these items to the list of items of re-turn information that may be disclosed tothe Bureau. The Treasury Department andthe IRS agree that amending existing reg-ulations to permit disclosure of these itemsto the Bureau is appropriate to meet the an-alytical needs of the Bureau.

Explanation of Provisions

On August 26, 2010, the IRS and theTreasury Department published tempo-rary regulations under §6103(j)(1) andissued a notice of proposed rulemakingcross-referencing those temporary reg-ulations. See TD 9500 (75 FR 52458),REG–137486–09 (75 FR 52486), and 26CFR §301.6103(j)(1)–1T. No commentswere received, and no public hearing wasrequested or held. These final regulationsadopt the proposed rules with no substan-tive change.

Section 301.6103(j)(1)–1T authorizesdisclosure of three items of return infor-mation. Upon publication, these finalregulations remove §301.6103(j)(1)–1Tbecause all three items of return infor-mation listed in §301.6103(j)(1)–1T willnow be contained in §301.6103(j)(1)–1.On December 31, 2007, temporary regu-lations were published authorizing one ofthe items of return information containedin §301.6103(j)(1)–1T: the disclosure ofcategorical information on total qualifiedresearch expenses in three ranges (greaterthan zero, but less than $1 million; greaterthan or equal to $1 million, but less than$3 million; and greater than or equal to $3million) (§301.6103(j)(1)(xxv)–1T). SeeTD 9500 (75 FR 52458). On August 26,2010, those temporary regulations were fi-nalized, but §301.6103(j)(1)(xxv)–1T wasinadvertently not removed. Accordingly,these final regulations remove those tem-porary regulations as well as the remainingtwo items of return information containedin §301.6103(j)(1)–1T: total number ofdocuments reported on Form 1096 trans-mitting Forms 1099–MISC and the totalamount reported on Form 1096 transmit-ting Forms 1099–MISC (subsections xxixand xxx of section 6103(j)(1)–1T).

Special Analyses

It has been determined that these fi-nal regulations are not a significant regu-latory action as defined in Executive Order12866, as supplemented by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. It also has been de-termined that section 553(b) of the Admin-istrative Procedures Act (5 U.S.C. chapter5) does not apply to these regulations, andbecause the regulation does not impose acollection of information on small entities,

2013–38 I.R.B. 205 September 16, 2013

the Regulatory Flexibility Act (5 U.S.C.chapter 6) does not apply. Pursuant to sec-tion 7805(f) of the Code, the notice of pro-posed rulemaking preceding these regula-tions was submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on its impact onsmall business, and no comments were re-ceived.

Drafting Information

The principal author of these regula-tions is Melissa Avrutine, Office of theAssociate Chief Counsel (Procedure &Administration).

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 301 isamended as follows:

PART 301—PROCEDURE ANDADMINISITRATION

Paragraph 1. The authority citation forpart 301 continues to read in part as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.6103(j)(1)–1 is

amended by:1. Adding paragraphs (b)(3)(xxix) and

(b)(3)(xxx).2. Revising paragraph (e),The additions and revision read as fol-

lows:

§301.6103(j)(1)–1 Disclosure of returninformation reflected on returns to officersand employees of the Department ofCommerce for certain statistical purposesand related activities.

* * * * *(b) * * *(3) * * *(xxix) Total number of documents re-

ported on Form 1096 transmitting Forms1099–MISC.

(xxx) Total amount reported on Form1096 transmitting Forms 1099–MISC.

* * * * *(e) Effective/applicability date. Para-

graphs (b)(3)(xxv), (b)(3)(xxix), and(b)(3)(xxx) of this section apply to disclo-sures to the Bureau of the Census madeon or after August 27, 2013. For rules

that apply to disclosures to the Bureau ofthe Census before that date, see 26 CFR301.6103(j)(1)–1 (revised as of April 1,2013).

§301.6103(j)(1)–1T [Removed]

Par. 3. Section 301.6103(j)(1)–1T isremoved.

Heather C. Maloy,Acting Deputy Commissioner for

Services and Enforcement.

Approved August 19, 2013.

Mark J. Mazur,Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on August 26,2013, 8:45 a.m., and published in the issue of the FederalRegister for August 27, 2013, 78 F.R. 52856)

September 16, 2013 206 2013–38 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousPer Capita Payments fromProceeds of Settlements ofIndian Tribal Trust Cases

Notice 2013–55

BACKGROUND

Notice 2013–1, 2013–3 IRB 281, pro-vides guidance on the federal tax treatment

of per capita payments that members of In-dian tribes receive from proceeds of cer-tain settlements of tribal trust cases be-tween the United States and those Indiantribes. Additional tribes have settled tribaltrust cases against the United States sincepublication of Notice 2013–1. This noticeprovides an updated Appendix that reflectsthe additional settlement agreements.

EFFECT ON OTHER DOCUMENTS

Notice 2013–1 Appendix is modifiedand superseded.

FURTHER INFORMATION

For further information regarding thisnotice, please contact Telly Meier at phonenumber (202) 317–8494 (not a toll-freecall).

AppendixTribes That Have Entered into Settlement Agreements of Tribal Trust Cases

1. Assiniboine and Sioux Tribes of the Fort Peck Reservation2. Bad River Band of Lake Superior Chippewa Indians3. Blackfeet Tribe of the Blackfeet Indian Reservation4. Bois Forte Band of Chippewa5. Cachil Dehe Band of Wintun Indians of the Colusa Rancheria6. Chippewa Cree Tribe of the Rocky Boy’s Reservation7. Coeur d’Alene Tribe8. Confederated Salish and Kootenai Tribes9. Confederated Tribes of Siletz Indians10. Confederated Tribes of the Colville Reservation11. Confederated Tribes of the Goshute Reservation12. Crow Creek Sioux Tribe13. Eastern Shawnee Tribe of Oklahoma14. Hualapai Indian Tribe15. Iowa Tribe of Kansas and Nebraska16. Kaibab Band of Paiute Indians of Arizona17. Kickapoo Tribe of Kansas18. Lac Courte Oreilles Band of Lake Superior Chippewa Indians19. Lac du Flambeau Band of Lake Superior Chippewa Indians20. Leech Lake Band of Ojibwe21. Lower Brule Sioux Tribe22. Makah Indian Tribe of the Makah Reservation23. Mescalero Apache Tribe24. Minnesota Chippewa Tribe25. Nez Perce Tribe26. Nooksack Indian Tribe27. Northern Cheyenne Tribe of Indians28. Omaha Tribe of Nebraska29. Passamaquoddy Tribe of Maine30. Pawnee Nation31. Prairie Band of Potawatomi Nation32. Pueblo of Zia33. Quechan Tribe of the Fort Yuma Reservation34. Red Cliff Band of Lake Superior Chippewa Indians35. Rincon Luiseño Band of Indians36. Rosebud Sioux Tribe37. Round Valley Indian Tribes38. Salt River Pima-Maricopa Indian Community39. Santee Sioux Tribe of Nebraska40. Sault Ste. Marie Tribe41. Shoshone-Bannock Tribes of the Fort Hall Reservation42. Soboba Band of Luiseño Indians43. Spirit Lake Dakotah Nation44. Spokane Tribe of Indians45. Standing Rock Sioux Tribe

2013–38 I.R.B. 207 September 16, 2013

AppendixTribes That Have Entered into Settlement Agreements of Tribal Trust Cases

46. Stillaguamish Tribe of Indians47. Summit Lake Paiute Tribe48. Swinomish Indian Tribal Community49. Te-Moak Tribe of Western Shoshone Indians50. Tohono O’odham Nation51. Tulalip Tribes52. Tule River Indian Tribe53. Ute Indian Tribe of the Uintah and Ouray Reservation54. Ute Mountain Ute Tribe55. Winnebago Tribe of Nebraska56. Qawalangin Tribe of Unalaska57. Tlingit & Haida Tribes of Alaska58. Northwestern Band of Shoshone Indians59. Hoopa Valley Tribe60. Ak-Chin Indian Community61. Oglala Sioux Tribe62. Yoruk Tribe63. Cheyenne River Sioux Tribe64. Paiute-Shoshone Indians of the Bishop Community of the Bishop Colony65. Seminole Nation of Oklahoma66. Otoe-Missouria Tribe of Oklahoma67. Samish Indian Nation68. Tonkawa Tribe of Indians of Oklahoma69. Yakama Nation70. Miami Tribe of Oklahoma

26 CFR 601.105: Examination of returns and claimsfor refund, credit, or abatement; determination ofcorrect tax liability.(Also Part I, § 42; 1.42–14.)

Rev. Proc. 2013–31

SECTION 1. PURPOSE

This revenue procedure publishes theamounts of unused housing credit carry-overs allocated to qualified states under

§ 42(h)(3)(D) of the Internal RevenueCode for calendar year 2013.

SECTION 2. BACKGROUND

Rev. Proc. 92–31, 1992–1 C.B. 775,provides guidance to state housing creditagencies of qualified states on the pro-cedure for requesting an allocation ofunused housing credit carryovers under§ 42(h)(3)(D). Section 4.06 of Rev. Proc.92–31 provides that the Internal Rev-enue Service will publish in the InternalRevenue Bulletin the amount of unused

housing credit carryovers allocated toqualified states for a calendar year froma national pool of unused credit authority(the National Pool). This revenue proce-dure publishes these amounts for calendaryear 2013.

SECTION 3. PROCEDURE

The unused housing credit carryoveramount allocated from the National Poolby the Secretary to each qualified state forcalendar year 2013 is as follows:

Qualified State Amount Allocated

Alabama 46,914Arizona 63,757California 370,106Connecticut 34,930Delaware 8,922Florida 187,941Georgia 96,511Idaho 15,525Illinois 125,264Kansas 28,077Louisiana 44,772Maryland 57,251Massachusetts 64,661Michigan 96,155Minnesota 52,334

September 16, 2013 208 2013–38 I.R.B.

Qualified State Amount Allocated

Mississippi 29,040Nebraska 18,052New Jersey 86,244New Mexico 20,290New York 190,400North Carolina 94,878North Dakota 6,807Ohio 112,314Oregon 37,937Pennsylvania 124,177Rhode Island 10,218South Dakota 8,108Texas 253,531Vermont 6,090Virginia 79,641Washington 67,101West Virginia 18,051

EFFECTIVE DATE

This revenue procedure is effectivefor allocations of housing credit dollaramounts attributable to the National Poolcomponent of a qualified state’s housingcredit ceiling for calendar year 2013.

DRAFTING INFORMATION

The principal author of this rev-enue procedure is Jian H. Grant ofthe Office of Associate Chief Counsel(Passthroughs and Special Industries). Forfurther information regarding this revenueprocedure contact Ms. Grant on (202)622–3040 (not a toll-free call).

601.105: Examination of returns and claims for re-fund, credit, or abatement; determination of tax lia-bility(Also: 842(b))

Rev. Proc. 2013–33

SECTION 1. PURPOSE

This revenue procedure provides thedomestic asset/liability percentages anddomestic investment yields needed by for-eign life insurance companies and foreignproperty and liability insurance compa-nies to compute their minimum effectivelyconnected net investment income undersection 842(b) of the Internal RevenueCode for taxable years beginning afterDecember 31, 2011. Instructions are pro-vided for computing foreign insurance

companies’ liabilities for the estimated taxand installment payments of estimated taxfor taxable years beginning after Decem-ber 31, 2011. For more specific guidanceregarding the computation of the amountof net investment income to be included bya foreign insurance company on its U.S. in-come tax return, see Notice 89–96, 1989–2C.B. 417. For the domestic asset/liabilitypercentage and domestic investment yield,as well as instructions for computing for-eign insurance companies’ liabilities forestimated tax and installment payments ofestimated tax for taxable years beginningafter December 31, 2010, see Rev. Proc.2012–40, 2012–40 I.R.B. 424.

SECTION 2. CHANGES

DOMESTIC ASSET/LIABILITYPERCENTAGES FOR 2012. The Secre-tary determines the domestic asset/liabilitypercentage separately for life insurancecompanies and property and liability in-surance companies. For the first taxableyear beginning after December 31, 2011,the relevant domestic asset/liability per-centages are:

[163.8] percent for foreign life insur-ance companies, and

[186.5] percent for foreign property andliability insurance companies.

.02 DOMESTIC INVESTMENTYIELDS FOR 2012. The Secretary isrequired to prescribe separate domestic in-vestment yields for foreign life insurancecompanies and for foreign property andliability insurance companies. For the firsttaxable year beginning after December 31,

2011, the relevant domestic investmentyields are:

[3.5] percent for foreign life insurancecompanies, and

[3.7] percent for foreign property andliability insurance companies.

.03 SOURCE OF DATA FOR 2012.The section 842(b) percentages to be usedfor the 2012 tax year are based on tax re-turn data following the same methodologyused for the 2011 year.

SECTION 3.APPLICATION—ESTIMATED TAXES

To compute estimated tax and the in-stallment payments of estimated tax duefor taxable years beginning after Decem-ber 31, 2011, a foreign insurance com-pany must compute its estimated tax pay-ments by adding to its income other thannet investment income the greater of (i) itsnet investment income as determined un-der section 842(b)(5), that is actually ef-fectively connected with the conduct of atrade or business within the United Statesfor the relevant period, or (ii) the mini-mum effectively connected net investmentincome under section 842(b) that would re-sult from using the most recently availabledomestic asset/liability percentage and do-mestic investment yield. Thus, for install-ment payments due after the publication ofthis revenue procedure, the domestic as-set/liability percentages and the domesticinvestment yields provided in this revenueprocedure must be used to compute theminimum effectively connected net invest-ment income. However, if the due date ofan installment is less than 20 days after the

2013–38 I.R.B. 209 September 16, 2013

date this revenue procedure is publishedin the Internal Revenue Bulletin, the as-set/liability percentages and domestic in-vestment yields provided in Rev. Proc.2012–40 may be used to compute the mini-mum effectively connected net investmentincome for such installment. For furtherguidance in computing estimated tax, seeNotice 89–96.

SECTION 4. EFFECTIVE DATE

This revenue procedure is effective fortaxable years beginning after December31, 2011.

SECTION 5. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Sheila Ramaswamy ofthe Office of Associate Chief Counsel(International). For further informationregarding this revenue procedure contactSheila Ramaswamy at (202) 622–3870(not a toll-free call).

September 16, 2013 210 2013–38 I.R.B.

Part IV. Items of General InterestNotice of ProposedRulemaking

Tax Credit for EmployeeHealth Insurance Expenses ofSmall Employers

REG–113792–13

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains pro-posed regulations that provide guidance onthe tax credit available to certain small em-ployers that offer health insurance cover-age to their employees under section 45Rof the Internal Revenue Code (Code), en-acted by the Patient Protection and Afford-able Care Act. These proposed regulationsaffect certain taxable employers and cer-tain tax-exempt employers.

DATES: Comments and request for a pub-lic hearing must be received by November25, 2013.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–113792–13), In-ternal Revenue Service, room 5205, POBox 7604, Ben Franklin Station, Washing-ton, DC 20044. Submissions may be handdelivered Monday through Friday betweenthe hours of 8:00 a.m. and 4:00 p.m.to CC:PA:LPD:PR (REG–113792–13),Courier’s Desk, Internal RevenueService, 1111 Constitution Avenue, NW,Washington, DC, or sent electronicallyvia the Federal eRulemaking Portalat http:www.regulations.gov (IRS113792–13).

FOR FURTHER INFORMATIONCONTACT: Concerning these proposedregulations, call Stephanie Caden at(202) 927–9639; concerning submissionof comments, and/or to request ahearing, Oluwafunmilayo Taylor at (202)622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 45R of the Internal RevenueCode (Code) offers a tax credit to cer-tain small employers that provide insuredhealth coverage to their employees. Sec-tion 45R was added to the Code by section1421 of the Patient Protection and Afford-able Care Act, enacted March 23, 2010,Public Law No. 111–148 (as amendedby section 10105(e) of the Patient Protec-tion and Affordable Care Act, which wasamended by the Health Care and Educa-tion Reconciliation Act of 2010, PublicLaw 111–152 (124 Stat. 1029)) (collec-tively, the “Affordable Care Act”).

I. Section 45R

Section 45R(a) provides for a health in-surance tax credit in the case of an eligi-ble small employer for any taxable year inthe credit period. Section 45R(d) providesthat in order to be an eligible small em-ployer with respect to any taxable year, anemployer must have in effect a contribu-tion arrangement that qualifies under sec-tion 45R(d)(4) and must have no more than25 full-time equivalent employees (FTEs),and the average annual wages of its FTEsmust not exceed an amount equal to twicethe dollar amount determined under sec-tion 45R(d)(3)(B). The amount determinedunder section 45R(d)(3)(B) is $25,000 (asadjusted for inflation for taxable years be-ginning after December 31, 2013).

Section 45R(d)(4) states that a contri-bution arrangement qualifies if it requiresan eligible small employer to make a non-elective contribution on behalf of eachemployee who enrolls in a qualified healthplan (QHP) offered to employees by theemployer through an Exchange in anamount equal to a uniform percentage (notless than 50 percent) of the premium costof the QHP (referred to in this preambleas the uniform percentage requirement).For purposes of section 45R, an Exchangerefers to a Small Business Health OptionsProgram (SHOP) Exchange, establishedpursuant to section 1311 of the AffordableCare Act and defined in 45 CFR 155.20.For purposes of this preamble and theproposed regulations, a contribution ar-rangement that meets these requirements isreferred to as a “qualifying arrangement.”

See also the section of this preamble enti-tled “Explanation of Provisions.”

Section 45R(b) provides that, subjectto the reductions described in section45R(c), the amount of the credit is equalto 50 percent (35 percent in the case ofa tax-exempt eligible small employer) ofthe lesser of: (1) the aggregate amountof nonelective contributions the employermade on behalf of its employees duringthe taxable year under the qualifying ar-rangement for premiums for QHPs offeredby the employer to its employees througha SHOP Exchange, or (2) the aggregateamount of nonelective contributions theemployer would have made during thetaxable year under the arrangement if eachemployee taken into account under: (1)of this sentence had enrolled in a QHPwhich had a premium equal to the averagepremium (as determined by the Secretaryof Health and Human Services) for thesmall group market in the rating area inwhich the employee enrolls for cover-age. 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 (as adjusted for inflation for tax-able years beginning after December 31,2013 pursuant to section 45R(d)(3)(B)).Specifically, section 45R(c) provides thatthe credit amount determined under sec-tion 45R(b) is reduced (but not belowzero) by the sum of: (1) the credit amountdetermined under section 45R(b) mul-tiplied 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 amountin effect under section 45R(d)(3)(B) andthe denominator of which is such dollaramount. Section 45R(d)(3) provides thatthe average annual wages of an eligiblesmall employer for any taxable year isthe amount determined by dividing theaggregate amount of wages that were paidby the employer to employees during thetaxable year by the number of FTEs of theemployer and rounding such amount tothe next lowest multiple of $1,000.

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Section 45R(e)(2) provides that for tax-able years beginning in or after 2014, thecredit period means the two-consecutive-taxable year period beginning with the firsttaxable year in which the employer (or anypredecessor) offers one or more QHPs toits employees through a SHOP 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 ina credit period, and no credit period istreated as beginning with a taxable yearbeginning before 2014. The amount of thecredit is 35 percent (25 percent in the caseof a tax-exempt eligible small employer)of an eligible small employer’s nonelec-tive contributions for premiums paid forhealth insurance coverage (within themeaning of section 9832(b)(1)) of an em-ployee. Section 45R(g)(3) provides thatan employer does not become ineligiblefor the tax credit solely because it arrangesfor the offering of insurance outside of aSHOP Exchange.

The Treasury Department and the IRShave published two notices addressing theapplication of section 45R. Each noticeprovides guidance that taxpayers may relyupon for taxable years beginning beforeJanuary 1, 2014. See Notice 2010–44(2010–22 I.R.B. 717 (June 1, 2010)) andNotice 2010–82 (2010–51 I.R.B. 857 (De-cember 20, 2010)). Notice 2010–44 alsoprovided transition relief for taxable yearsbeginning in 2010 with respect to the re-quirements for a qualifying arrangementunder section 45R.

II. Notice 2010–44

Notice 2010–44 addresses the eligibil-ity requirements for employers to claim thecredit, provides guidance on how to calcu-late and claim the credit, and explains theeffect on estimated tax, alternative min-imum tax, and deductions. The noticespecifically describes the rules for howemployees are taken into account in de-termining an employer’s FTEs, averagewages, and premiums paid, with certain in-dividuals excluded and with employees ofcertain related employers included.

III. Notice 2010–82

Notice 2010–82 expands on the guid-ance provided in Notice 2010–44 and

provides additional guidance on determin-ing whether to take into account spousesand leased employees (as defined in sec-tion 414(n)) in computing an employer’sFTEs, average annual wages, and pre-miums paid. The notice provides thatemployer contributions to health reim-bursement arrangements (HRAs), healthflexible spending arrangements (FSAs),and health savings accounts (HSAs) arenot taken into account for purposes ofthe section 45R credit. The notice furtherexplains the requirement that an eligi-ble small employer must pay a uniformpercentage (not less than 50 percent) ofthe premium for each employee enrolledin health insurance coverage offered bythe employer. The notice provides rulesfor applying the uniform percentage re-quirement in taxable years beginning afterDecember 31, 2009 and prior to 2014,and further provides that for taxable yearsbeginning in 2010, an employer may sat-isfy the uniform percentage requirementeither by meeting the requirements pro-vided in Notice 2010–82 or by meeting thetransition relief rules provided in Notice2010–44. With respect to calculating thecredit, the notice provides guidance onsmall group markets, taxpayers with em-ployees in multiple States, the applicationof the average premium cap, and taxpayerswith fiscal taxable years.

Explanation of Provisions

These proposed regulations gener-ally incorporate the provisions of Notice2010–44 and Notice 2010–82 as modi-fied to reflect the differences between thestatutory provisions applicable to yearsbefore 2014 and those applicable to yearsafter 2013. As in Notices 2010–44 and2010–82, these proposed regulations usethe term “qualifying arrangement” to de-scribe an arrangement under which aneligible small employer pays premiumsfor each employee enrolled in health insur-ance coverage offered by the employer inan amount equal to a uniform percentage(not less than 50 percent) of the premiumcost of the coverage. Section 45R(d)(4)and these proposed regulations requirethat, for tax years beginning during orafter 2014, the health insurance coveragedescribed in a qualifying arrangement bea QHP offered by an employer to its em-ployees through a SHOP Exchange (but

see section II.I of this preamble for a de-scription of certain transition guidance for2014).

I. Eligibility for the Credit

A. Eligible small employer defined

Section 45R and these proposed reg-ulations provide that an eligible smallemployer is defined as an employer thathas no more than 25 FTEs for the taxableyear, whose employees have average an-nual wages of less than $50,000 per FTE(as adjusted for inflation for years afterDecember 31, 2013), and that has a qual-ifying arrangement in effect that requiresthe employer to pay a uniform percentage(not less than 50 percent) of the premiumcost of a QHP offered by the employer toits employees through a SHOP Exchange.A tax-exempt eligible small employer is aneligible small employer that is describedin section 501(c) and that is exempt fromtax under section 501(a). An employerthat is an agency or instrumentality of theFederal government, or of a State, local orIndian tribal government, is not an eligiblesmall employer for purposes of section45R unless it is an organization describedin section 501(a) (and otherwise meetsthe requirements for an eligible small em-ployer). However, a farmers’ cooperativedescribed in section 521 that is subject totax pursuant to section 1381 and otherwisemeets the requirements of this section isan eligible small employer.

Section 45R does not require that, in or-der for an employer to be an eligible smallemployer, the employees perform servicesin a trade or business. Thus, an employerthat otherwise meets the requirements forthe section 45R credit does not fail to bean eligible small employer merely becausethe employees of the employer are not per-forming services in a trade or business. Forexample, a household employer that other-wise satisfies the requirements of section45R is an eligible small employer for pur-poses of the credit.

An employer located outside the UnitedStates (including a U.S. Territory) may bean eligible small employer if the employerhas income effectively connected with theconduct of a trade or business in the UnitedStates, otherwise meets the requirementsof this section and is able to offer a QHP toits employees through a SHOP Exchange.

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B. Application of section 414 aggregationrules

In accordance with section 45R(e)(5),these proposed regulations provide that allemployers treated as a single employer un-der section 414(b), (c), (m), or (o) aretreated as a single employer for purposesof section 45R. Thus, for example, all em-ployees of the employers treated as a sin-gle employer are counted in computing thesingle employer’s FTEs and average an-nual wages. This applies to employers thatare corporations in a controlled group ofcorporations, employers that are membersof an affiliated service group, and employ-ers that are partnerships, sole proprietor-ships, etc. under common control undersection 414(c). Section 414 also applies totax-exempt eligible small employers undercommon control. See §1.414(c)–5.

C. Determining employees taken intoaccount

The proposed rules for determining em-ployees taken into account are the sameas those in the previous notices. In gen-eral, all employees (determined under thecommon law standard) who perform ser-vices for the employer during the taxableyear are taken into account in determin-ing FTEs and average annual wages, in-cluding those who are not performing ser-vices in the employer’s trade or business.(But see special rules for seasonal employ-ees described in this section of the pre-amble.) However, section 45R and theseproposed regulations provide that certainindividuals are not considered employeeswhen calculating the credit, and hours andwages of these individuals are not countedwhen determining an employer’s eligibil-ity for the credit. The following individu-als are not employees or are otherwise ex-cluded for this purpose: independent con-tractors (including sole proprietors); part-ners in a partnership; shareholders owningmore than two percent of an S corporation;owners of more than five percent of otherbusinesses; family members of these own-ers and partners, including a child (or de-scendant of a child), a sibling or step-sib-ling, a parent (or ancestor of a parent), astep-parent, a niece or nephew, an aunt oruncle, or a son-in-law, daughter-in-law, fa-ther-in-law, mother-in-law, brother-in-law,or a sister-in-law. A spouse is also consid-

ered a family member for this purpose, asis a member of the household who is nota family member but qualifies as a depen-dent on the individual income tax return ofan excluded individual.

Section 45R(d)(5) and these proposedregulations provide that seasonal employ-ees who work for 120 or fewer days dur-ing the taxable year are not considered em-ployees when determining FTEs and aver-age annual wages, but premiums paid onbehalf of seasonal workers may be countedin determining the amount of the credit.Seasonal workers include retail workersemployed exclusively during holiday sea-sons and workers employed exclusivelyduring the summer.

Compensation paid to a minister per-forming services in the exercise of his orher ministry generally is subject to taxunder the Self-Employment ContributionsAct (SECA) and not under the FederalInsurance Contributions Act (FICA),whether the minister is an employee orself-employed under the common law. Seesections 1402(c)(2)(d), 1402(c)(4), and3121(b)(8)(A). For purposes of incometaxes generally, including the credit undersection 45R, whether a minister is an em-ployee is determined under the commonlaw standard for determining worker sta-tus. If under the common law a minister isnot an employee, the minister is not takeninto account in determining an employer’sFTEs. If under the common law a minis-ter is an employee, the minister is takeninto account in determining an employer’sFTEs. However, because a minister per-forming services in the exercise of his orher ministry is treated as not engaged inemployment for purposes of FICA, com-pensation paid to a minister is not wagesas defined under section 3121(a), and so isnot included for purposes of computing anemployer’s average annual wages.

D. Determining hours of service

These proposed regulations providethat an employee’s hours of service for ayear include hours for which the employeeis paid, or entitled to payment, for theperformance of duties for the employerduring the employer’s taxable year. Hoursof service also include hours for whichthe employee is paid for vacation, holiday,illness, incapacity (including disability),layoff, jury duty, military duty, or leave of

absence. Hours of service do not includethe hours of seasonal employees who workfor 120 or fewer days during the taxableyear, nor do they include hours workedfor a year in excess of 2,080 for a singleemployee.

These proposed regulations describethree methods for calculating the totalnumber of hours of service for a single em-ployee for the taxable year: actual hoursworked; days-worked equivalency; andweeks-worked equivalency. Employersneed not use the same method for all em-ployees and may apply different methodsfor different classifications of employeesif the classifications are reasonable andconsistently applied. For example, an em-ployer may use the actual hours workedmethod for all hourly employees and theweeks-worked equivalency method forall salaried employees. These proposedrules are the same as those in the previousnotices.

E. Determining FTEs

In accordance with section 45R(d)(2),these proposed regulations provide thatFTEs are calculated by computing thetotal hours of service for the taxable yearusing a method described in section 1.Dof this preamble, and dividing the totalhours of service by 2,080. If the resultis not a whole number (0, 1, 2, etc.), theresult is rounded down to the next lowestwhole number. The only exception to thisrule is when the result is less than one; inthis case, the employer rounds up to oneFTE. In some circumstances, an employerwith 25 or more employees may qualifyfor the credit if some of its employeeswork less than full-time. For example, anemployer with 46 employees that each arepaid wages for 1,040 hours per year has 23FTEs and, therefore, may qualify for thecredit. These proposed rules are the sameas those in the previous notices.

F. Determining average annual FTEwages

In accordance with section 45R(e)(4),these proposed regulations define wages,for purposes of the credit, as wages de-fined under section 3121(a) for purposes ofFICA, determined without considering thesocial security wage base limitation. Tocalculate average annual FTE wages, an

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employer must figure the total wages paidduring the taxable year to all employees,divide the total wages paid by the numberof FTEs, and if the result is not a multi-ple of $1,000, round the result to the nextlowest multiple of $1,000. For example,$30,699 is rounded down to $30,000. Butsee special rules for seasonal employeesdescribed in section I.C of this preamble.These proposed rules are the same as thosein the previous notices.

II. Calculating the Credit

A. Maximum credit

Under section 45R and these proposedregulations, for taxable years beginningduring or after 2014, the maximum creditfor an eligible small employer other than atax-exempt eligible small employer is 50percent of the eligible small employer’spremium payments made on behalf of itsemployees under a qualifying arrangementfor QHPs offered through a SHOP Ex-change. For a tax-exempt eligible smallemployer for those years, the maximumcredit is 35 percent. The employer’s taxcredit is subject to several adjustments andlimitations as set forth in this preamble.

B. Average premium limitation

Under section 45R and these proposedregulations, for purposes of calculatingthe credit for taxable years beginning after2013, the employer’s premium paymentsare limited by the average premium in thesmall group market in the rating area inwhich the employee enrolls for coveragethrough a SHOP Exchange. The creditwill be reduced by the excess of the creditcalculated using the employer’s premiumpayments over the credit calculated usingthe average premium. For example, if anemployer pays 50 percent of the $7,000premium for family coverage for its em-ployees ($3,500), but the average premiumfor family coverage in the small groupmarket in the rating area in which the em-ployees enroll is $6,000, for purposes ofcalculating the credit the employer’s pre-mium payments are limited to 50 percentof $6,000 ($3,000).

C. Credit phaseout

Under section 45R and these proposedregulations, the credit phases out for eligi-ble small employers if the number of FTEsexceeds 10, or if the average annual wagesfor FTEs exceed $25,000 (as adjusted forinflation for taxable years beginning af-ter December 31, 2013). For an employerwith both more than 10 FTEs and averageannual FTE wages exceeding $25,000, thecredit will be reduced based on the sumof the two reductions. This may reducethe credit to zero for some employers withfewer than 25 FTEs and average annualFTE wages of less than double the $25,000dollar amount (as adjusted for inflation).

D. State subsidy and tax credit limitation

Some States offer tax credits to a smallemployer that provides health insurance toits employees. Some of these credits arerefundable credits and others are nonre-fundable credits. In addition, some Statesoffer premium subsidy programs for cer-tain small employers under which the Statemakes a payment equal to a portion of theemployees’ health insurance premiums.Generally, the State pays this premiumsubsidy either directly to the employer orto the employer’s insurance company (oranother entity licensed under State law toengage in the business of insurance).

Under these proposed regulations, andconsistent with previous notices, if theemployer is entitled to a State tax creditor premium subsidy that is paid directlyto the employer, the amount of employerpremiums paid is not reduced for pur-poses of calculating the section 45R credit,but the amount of the credit cannot ex-ceed the net premiums paid, which arethe employer premiums paid minus theamount of any State tax credits or premiumsubsidies received. If a State makes pre-mium payments directly to the insurancecompany, the State is treated as makingthese payments on behalf of the employerfor purposes of determining whether theemployer has satisfied the “qualifying ar-rangement” requirement to pay an amountequal to a uniform percentage (not lessthan 50 percent) of the premium cost ofcoverage. Also, these premium paymentsby the State are treated as an employer

contribution under section 45R for pur-poses of calculating the credit, but theamount of the credit cannot exceed thepremiums actually paid by the employer.Finally, if a State-administered program,such as Medicaid, makes payments onbehalf of individuals and their familieswho meet certain eligibility requirements,these payments do not reduce the amountof employer premiums paid for purposesof calculating the credit.

E. Payroll tax limitation for tax-exemptemployers

Section 45R and these proposed regu-lations define the term “payroll taxes” as(1) amounts required to be withheld un-der section 34021 and (2) the employee’sand employer’s shares of Medicare tax re-quired to be withheld and paid under sec-tions 3101(b) and 3111(b) on employees’wages for the year. For a tax-exempt el-igible small employer, the amount of thecredit cannot exceed the amount of thepayroll taxes of the employer during thecalendar year in which the taxable year be-gins.

F. Two-consecutive-taxable year creditperiod limitation

These proposed regulations providethat the first year for which an eligiblesmall employer files Form 8941, Creditfor Small Employer Health Insurance Pre-miums, claiming the credit, or files Form990–T, Exempt Organization Business In-come Tax Return, with an attached Form8941, is the first year of the two-consec-utive-taxable year credit period. Evenif the employer is only eligible to claimthe credit for part of the first year, thefiling of Form 8941 begins the first yearof the two-consecutive-taxable year creditperiod. For application of the two-consec-utive-taxable year credit period under thetransition relief related to taxable yearsbeginning in 2014, see §1.45R–3(i) ofthese proposed regulations and section II.Iof the Explanation of Provisions sectionof this preamble.

Section 45R(i) provides that regulationsshall be prescribed as necessary to pre-vent the avoidance of the two-year limit onthe credit period through the use of suc-

1 Although 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 regulation.

September 16, 2013 214 2013–38 I.R.B.

cessor entities and the avoidance of thecredit phaseout limitations through the useof multiple entities. For purposes of iden-tifying successor entities, these proposedregulations generally apply the rules foridentifying successor employers applica-ble under the employment tax provisionsfor determining when wages paid by a pre-decessor may be attributed to a succes-sor employer (see §31.3121(a)(1)–1(b)).Accordingly, under the proposed regula-tions, an entity that would be treated asa successor employer for employment taxpurposes will also be treated as a succes-sor employer for purposes of the two-con-secutive-taxable year credit period undersection 45R. Therefore, if the predeces-sor employer had previously claimed thecredit under section 45R for a period, thatperiod will count towards the successoremployer’s two-consecutive-taxable yearcredit period.

G. Premium payments by the employer

In general, only premiums paid bythe employer for employees enrolled in aQHP offered through a SHOP Exchangeare counted when calculating the credit.2

If the employer pays a portion of the pre-miums and the employees pay the rest,only the portion paid by the employeris taken into account. For this purpose,any premium paid through a salary re-duction arrangement under a section 125cafeteria plan is not treated as an em-ployer-paid premium. Premiums paid withemployer-provided flex credits that em-ployees may elect to receive as cash or as ataxable benefit are treated as paid pursuantto a salary reduction arrangement undera section 125 cafeteria plan. See Notice2012–40 (2012–26 I.R.B. 1046 (June 25,2012)). The proposed regulations furtherprovide that amounts made available byan employer under or contributed by anemployer to HRAs, FSAs and HSAs arenot taken into account for purposes ofdetermining premium payments by theemployer.

The proposed regulations provide thatif a minister is a common law employeeand is taken into account in an employer’sFTEs, the premiums paid by the employerfor health insurance may be counted in cal-culating the credit.

A leased employee is defined in sec-tion 414(n)(2) as a person who is not anemployee of the service recipient and whoprovides services to the service recipientpursuant to an agreement with the leasingorganization. The person must have per-formed services for the service recipient ona substantially full-time basis for a periodof at least one year under the primary di-rection and control of the service recipient.Leased employees are counted in comput-ing a service recipient’s FTEs and averageannual wages. See section 45R(e)(1)(B).

See section II.I of this preamble for spe-cial rules related to taxable years begin-ning in 2014.

H. Trusts, estates, regulated investmentcompanies, real estate investment trustsand cooperative organizations

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-ex-empt eligible small employer may beeligible for the credit, these proposed reg-ulations do not adopt a rule similar tosection 52(c). However, these proposedregulations provide that rules similar tothe rules of section 52(d) and (e) and theregulations thereunder apply in calculatingand apportioning the credit with respect totrusts, estates, regulated investment com-panies, real estate investment trusts, andcooperative organizations.

I. Transition rules

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 througha SHOP Exchange at the beginning ofits first taxable year beginning in 2014.These proposed regulations provide thatif: (1) as of August 26, 2013, a small em-ployer offers coverage in a plan year thatbegins on a date other than the first dayof its taxable year, (2) the employer offerscoverage during the period before the firstday of the 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,then it 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.

III. Application of Uniform PercentageRequirement

A. Uniform premium

Section 45R and these proposed regu-lations require that to be eligible for thecredit, an eligible small employer mustgenerally pay a uniform percentage (notless than 50 percent) of the premium foreach employee enrolled in a QHP offeredto its employees through a SHOP Ex-change. These proposed regulations setforth rules 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 self-only coverage, orother coverage (such as family coverage)for which a higher premium is charged,and (3) whether the employer offers oneQHP or more than one QHP. The uni-form percentage rule applies only to theemployees offered coverage and does notimpose a coverage requirement.

B. Composite billing and list billing

These proposed regulations define theterm “composite billing” to mean a sys-tem of billing under which a health in-surer charges a uniform premium for eachof the employer’s employees or chargesa single aggregate premium for the groupof covered employees that the employermay then divide by the number of coveredemployees to determine the uniform pre-mium. In contrast, the term “list billing” isdefined as a billing system under which ahealth insurer lists a separate premium for

2 In general a stand-alone dental health plan will be considered a qualifed health plan. Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans;Exchange Standards for Employers, 77 Fed. Reg. 18310, 18315 (March 27, 2012).

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each employee based on the age of the em-ployee or other factors.

C. Employers offering one QHP

For an employer offering one QHP un-der a composite billing system with onelevel of self-only coverage, these proposedregulations provide that the uniform per-centage requirement is met if an eligiblesmall employer pays the same amount foreach employee enrolled in coverage andthat amount is equal to at least 50 percentof the premium for self-only coverage. Foremployers offering one QHP under a com-posite billing system with different tiers ofcoverage (for example, self-only, self plusone, and family coverage) for which dif-ferent premiums are charged, the uniformpercentage requirement is satisfied if theeligible small employer either: (1) pays thesame amount for each employee enrolledin that tier of coverage and that amount isequal to at least 50 percent of the premiumfor that tier of coverage, or (2) pays anamount for each employee enrolled in themore expensive tiers of coverage that is thesame for all employees and is no less thanthe amount that the employer would havecontributed toward self-only coverage forthat employee (and is equal to at least 50percent of the premium for self-only cov-erage).

For an employer offering one QHPunder a list billing system that offers onlyself-only coverage, the uniform percent-age requirement is satisfied if the eligiblesmall employer either: (1) pays an amountequal to a uniform percentage (not lessthan 50 percent) of the premium chargedfor each employee, or (2) determinesan “employer-computed composite rate”and, if any employee contribution is re-quired, each enrolled employee pays auniform amount toward the self-only pre-mium that is no more than 50 percent ofthe employer-computed composite ratefor self-only coverage. The proposedregulations define “employer-computedcomposite rate” as the average rate deter-mined by adding the premiums for thattier of coverage for all employees eligibleto participate in the employer’s health in-surance plan (whether or not the eligibleemployee enrolls in coverage under theplan or in that tier of coverage under the

plan) and dividing by the total number ofsuch eligible employees.

For eligible small employers offeringone QHP under list billing with differ-ent tiers of coverage for which differentpremiums are charged, the uniform per-centage requirement is satisfied if theeligible small employer pays toward thepremium for each employee covered undereach tier of coverage an amount equal to orexceeding the amount the employer wouldhave contributed with respect to that em-ployee for self-only coverage, calculatedeither based on the actual premium thatwould have been charged by the insurerfor that employee for self-only cover-age, or based on the employer-computedcomposite rate for self-only coverage,and the employer premium paymentswithin the same tier are uniform in per-centage or amount. Alternatively, theeligible small employer may satisfy theuniform percentage requirement by meet-ing the uniform percentage requirementseparately for each tier of coverage andsubstituting the employer-computed com-posite rate for that tier of coverage for theemployer-computed composite rate forself-only coverage.

The proposed regulations provide ex-amples of how the uniform percentage re-quirement is applied in all of these situa-tions.

D. Employers offering more than one plan

As set forth in these proposed regula-tions, if an employer offers more than oneQHP through a SHOP Exchange, the uni-form percentage requirement may be sat-isfied in one of two ways. The first is ona plan-by-plan basis, meaning that the em-ployer’s premium payments for each planmust individually satisfy the uniform per-centage 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 employer ei-ther determines a level of employer con-

tributions for each employee such that, ifall eligible employees enrolled in the ref-erence plan, the contributions would sat-isfy the uniform percentage requirement asapplied to that reference plan, or the em-ployer allows each employee to apply theminimum amount of employer contribu-tion determined necessary to meet the uni-form percentage requirement toward thereference plan or toward coverage underany other available QHP.

E. Employers complying with State law

The Treasury Department and the IRSunderstand that at least one State requiresemployers to contribute a certain percent-age (50%) to an employee’s premium cost,but also requires that the employee’s con-tribution not exceed a certain percentageof monthly gross earnings so that, in someinstances, the employer’s required contri-bution for a particular employee may ex-ceed 50 percent of the premium.3 To sat-isfy the uniform percentage requirementunder section 45R, that employer generallywould be required to increase the employercontribution to all its employees’ premi-ums to match the increase for that one em-ployee, which may be difficult especiallyif the percentage increase is substantial.Accordingly, for taxable years beginningin 2014, an employer will be treated asmeeting the uniform percentage require-ment if the failure to satisfy the uniformpercentage requirement is attributable toadditional employer contributions made tocertain employees solely to comply withan applicable State or local law.

IV. Claiming the Credit

A. Form 8941, Credit for Small EmployerHealth Insurance Premiums

For an eligible small employer that isnot a tax-exempt eligible small employer,the credit is calculated on Form 8941,Credit for Small Employer Health Insur-ance Premiums, and can be applied againstboth regular and alternative minimum tax.For tax-exempt eligible small employers,the credit is also calculated on Form 8941and attached to Form 990–T, Exempt Or-ganization Business Income Tax Return.Filing Form 990–T with an attached Form8941 is required for a tax-exempt eligible

3 See Hawaii Prepaid Health Care Act, Hawaii Revised Statutes Chapter 393 (1974).

September 16, 2013 216 2013–38 I.R.B.

small employer to claim the credit, evenif it is not otherwise required to file Form990–T.

B. Estimated tax payments and alternativeminimum tax (AMT) liability

These proposed regulations providethat the section 45R credit may be reflectedin an eligible small employer’s estimatedtax payments in accordance with the es-timated tax rules. The credit can also beused to offset an eligible small employer’sAMT liability for the year, subject to cer-tain limitations based on the amount ofan employer’s regular tax liability, AMTliability and other allowable credits. Seesection 38(c)(1), as modified by section38(c)(4)(B)(vi), for these limitations.

C. Reduced section 162 deduction

No deduction is allowed under section162 for that portion of the premiums paidequal to the amount of the credit claimedunder section 45R. See section 280C(h).

Proposed Effective/Applicability Dates

These regulations are proposed to be ef-fective the date the final regulations arepublished in the Federal Register, and ap-ply to taxable years beginning after De-cember 31, 2013. To assist with any prepa-ration needed for transition to the require-ments applicable to taxable years begin-ning after December 31, 2014, employ-ers may also rely on these proposed reg-ulations for guidance for taxable years be-ginning after December 31, 2013, and be-fore December 31, 2014. If and to theextent future guidance is more restrictivethan the guidance in these proposed regu-lations, the future guidance will be appliedwithout retroactive effect and employerswill be provided with time to come intocompliance with the final regulations (andwill in any case not be required to complyfor taxable years beginning prior to Jan-uary 1, 2015).

Availability of IRS Documents

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

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866, as supplemented by Execu-tive Order 13563. Therefore, a regulatoryassessment is not required. It has also beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to these regulations.

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 num-ber of small entities affected is substantial,the economic 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 employer gener-ally will retain for business purposes andbe readily available to accumulate for pur-poses of completing the necessary formfor claiming the credit. In addition, thiscredit is available to any eligible small em-ployer only twice (because the credit canbe claimed by a small employer only fortwo consecutive taxable years beginningafter December 31, 2013, beginning withthe taxable year for which the small em-ployer first claims the credit). Accord-ingly, no small employer will calculate thecredit amount or complete the process forclaiming the credit under this regulationmore than two times.

Based on these facts, a Regulatory Flex-ibility Analysis under the Regulatory Flex-ibility Act (5 U.S.C. chapter 6) is not re-quired.

Pursuant to section 7805(f) of the Code,this notice of proposed rulemaking hasbeen submitted to the Chief Counsel forAdvocacy of the Small Business Adminis-tration for comment on its impact on smallbusiness.

Comments and Requests for PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any comments that aretimely submitted to the IRS as prescribedin this preamble under the “Addresses”heading. The IRS and the Treasury De-partment request comments on all aspectsof the proposed rules. All comments willbe available at www.regulations.gov orupon request. A public hearing will bescheduled if requested in writing by anyperson that timely submits written or elec-tronic comments. If a public hearing isscheduled, notice of the date, time, andplace for the hearing will be published inthe Federal Register.

Drafting Information

The principal author of these proposedregulations is Stephanie Caden, Officeof the Division Counsel/Associate ChiefCounsel (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 proposedto be amended as follows:

PART I—INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read 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.

2013–38 I.R.B. 217 September 16, 2013

(7) Exchange.(8) Family member.(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) Small Business Health Options

Program (SHOP).(18) State.(19) Tax-exempt eligible small em-

ployer.(20) Tier.(21) United States.(22) Wages.(b) Effective/applicability date.

§1.45R–2 Eligibility for the credit.

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

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 average

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 premium

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 employer

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 of premiumpaid.

(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.(c) Employers offering more than one

QHP.(1) QHP-by-QHP method.(2) Reference QHP method.(d) Special rules regarding employer

compliance with applicable State and locallaw.

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

§1.45R–5 Claiming the credit.

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

tive 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 inthis section 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 for cov-erage. The average premium for the smallgroup market in a rating area is determinedby the Secretary of Health and Human Ser-vices.

(2) Composite billing. The term com-posite billing means a system of billing un-der which a health insurer charges a uni-form premium for each of the employer’semployees or charges a single aggregatepremium for the group of covered employ-ees that the employer then divides by thenumber of covered employees to deter-mine the uniform premium.

(3) Credit period—(i) In general. Theterm credit period means, with respectto any eligible small employer (or anypredecessor employer), the two-consec-utive-taxable year period beginning withthe first taxable year beginning after De-cember 31, 2013, for which the eligiblesmall employer files an income tax returnwith an attached Form 8941, Credit forSmall Employer Health Insurance Pre-miums (or files a Form 990–T, ExemptOrganization Business Income Tax Return,with an attached Form 8941 in the caseof a tax-exempt eligible employer). For atransition rule for 2014, see §1.45R–3(i).

(ii) Examples. The following exam-ples illustrate 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 asits taxable 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 Form8941 with Employer’s 2016 tax return to claim thecredit.

(ii) Conclusion. Employer’s taxable year 2016is the first year of the credit period. Accordingly,Employer’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 2015is the first year of the credit period. Accordingly,Employer’s two-year credit period is 2015 and 2016(and does not include 2017). Employer is entitled to

September 16, 2013 218 2013–38 I.R.B.

a 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)(19) of this section.

(iii) A farmers’ cooperative describedunder section 521 that is subject to tax pur-suant to section 1381, and otherwise meetsthe requirements of this paragraph (a)(4)and §1.45R–2, is an eligible small em-ployer.

(5) Employee—(i) In general. Exceptas otherwise specifically provided in thisparagraph (a)(5), the term employee meansan individual who is an employee of theeligible small employer under the commonlaw 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 percentof an S corporation, and any owners ofmore than five percent of other businesses.The term employee also does not includefamily members of these owners and part-ners including the employee-spouse of ashareholder owning more than two per-cent of the stock of an S corporation, theemployee-spouse of an owner of morethan five percent of a business, the em-ployee-spouse of a partner owning morethan a five percent interest in a partner-ship, and the employee-spouse of a soleproprietor.

(iv) Seasonal employees. 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) Dependents. The term employeedoes not include any other member of thehousehold of owners and partners whoqualifies as a dependent under section152(d)(2)(H).

(vi) Ministers. Whether a minister isan employee is determined under the com-mon law standard for determining workerstatus. If, under the common law stan-dard, a minister is not an employee, the

minister is not an employee for purposesof this paragraph (a)(5) and is not takeninto account in determining an employer’sFTEs, and premiums paid for the min-ister’s health insurance coverage are nottaken into account in computing the credit.If, under the common law standard, a min-ister is an employee, the minister is anemployee 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 min-ister’s health insurance coverage can betaken into account in computing the credit.Because the performance of services by aminister in the exercise of his or her min-istry is not treated as employment for pur-poses of the Federal Insurance Contribu-tions Act (FICA), compensation paid to theminister is not wages as defined under sec-tion 3121(a), and is not counted as wagesfor purposes of computing an employer’saverage annual wages.

(6) Employer-computed compositerate. The term employer-computed com-posite rate refers to a rate for a tier ofcoverage (such as self-only or family)of a QHP that is the average rate deter-mined by adding the premiums for thattier of coverage for all employees eligi-ble to participate in the QHP (whether ornot they actually receive coverage underthe plan or under that tier of coverage)and dividing by the total number of sucheligible employees. The employer-com-puted composite rate is used in list billingto convert individual premiums for a tierof coverage into an employer-computedcomposite rate for that tier of coverage.

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

(8) Family member. The term fam-ily member is defined with respect to ataxpayer as a child (or descendant of achild); a sibling or step-sibling; a par-ent (or ancestor of a parent); a step-par-ent; a niece or nephew; an aunt or un-cle; or a son-in-law, daughter-in-law, fa-ther-in-law, mother-in-law, brother-in-lawor sister-in-law. A spouse of any of thesefamily members is also considered a fam-ily member.

(9) Full-time equivalent employee(FTE). The number of full-time equiva-lent employees (FTEs) is determined bydividing the total number of hours of ser-vice for which wages were paid by the

employer to employees during the taxableyear by 2,080. See §1.45–2(d) and (e) forpermissible methods of calculating hoursof service and the method for calculatingthe number of an employer’s FTEs.

(10) List billing. The term list billingrefers to a system of billing under whicha health insurer lists a separate premiumfor each 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 ofthe employer’s actual premium paymentsover the State tax credit or State subsidyreceived by the employer. In the caseof a State payment directly to an insur-ance company (or another entity licensedunder State law to engage in the busi-ness of insurance), the employer’s net pre-mium payments are the employer’s actualpremium payments. If a State-adminis-tered program (such as Medicaid or an-other program that makes payments di-rectly to a health care provider or insur-ance company on behalf of individuals andtheir families who meet certain eligibilityguidelines) makes payments that are notcontingent on the maintenance of an em-ployer-provided group health plan, thosepayments are not taken into account indetermining the employer’s net premiumpayments.

(12) Nonelective contribution. Theterm nonelective contribution means anemployer contribution other than a con-tribution pursuant to a salary reductionarrangement under section 125.

(13) Payroll taxes. For purposes ofsection 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 from suchemployees under section 3101(b), andamounts of tax imposed on the tax-exempteligible small employer under section3111(b).

(14) Qualified health plan (QHP). Theterm qualified health plan (QHP) meansa qualified health plan as defined in Af-fordable Care Act section 1301(a) (see 42U.S.C. 18021(a)), but does not include acatastrophic plan described in AffordableCare Act section 1302(e) (See 42 U.S.C.18022(e)).

2013–38 I.R.B. 219 September 16, 2013

(15) Qualifying arrangement. The termqualifying arrangement means an arrange-ment that requires an eligible small em-ployer to make a nonelective contributionon behalf of each employee who enrolls ina QHP offered to employees by the em-ployer through a SHOP Exchange in anamount equal to a uniform percentage (notless than 50 percent) of the premium costof 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.

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

(18) State. The term State means a Stateas defined in section 7701(a)(10), includ-ing the District of Columbia.

(19) 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 organizationdescribed in section 501(c).

(20) Tier. The term tier refers to a cat-egory of coverage under a benefits pack-age that varies only by the number of in-dividuals covered. For example, self-onlycoverage, self plus one coverage, and fam-ily coverage would constitute three sepa-rate tiers of coverage.

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

(22) Wages. The term wages for pur-poses of section 45R means wages as de-fined under section 3121(a) for purposesof the Federal Insurance Contributions Act(FICA), determined without regard to thesocial security wage base limitation undersection 3121(a)(1).

(b) Effective/applicability date. Thissection is applicable for periods after De-cember 31, 2013.

§1.45R–2 Eligibility for the credit.

(a) Eligible small employer. To be el-igible for the credit, an employer must be

an eligible small employer. In order to bean eligible small employer, with respect toany taxable year, an employer must haveno more than 25 full-time equivalent em-ployees (FTEs), must have in effect a qual-ifying arrangement, and the average an-nual wages of its FTEs must not exceed anamount equal to twice the dollar amountin effect under §1.45R–3(c)(2). To claimthe credit for taxable years beginning in orafter 2014, the qualifying arrangement isan arrangement that requires an employerto make a nonelective contribution on be-half of each employee who enrolls in aqualified health plan (QHP) offered to em-ployees through a small business healthoptions 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 or in-strumentality of the federal government, orof a State, local or Indian tribal govern-ment, is not an eligible small employer un-less it is an organization described in sec-tion 501(c) that is exempt from tax undersection 501(a). An employer does not failto be an eligible small employer merelybecause its employees are not performingservices in a trade or business of the em-ployer. An employer located outside theUnited States (including a U.S. Territory)must have income effectively connectedwith the conduct of a trade or business inthe United States, and otherwise meet therequirements of this section, to be an eli-gible small employer. For eligibility stan-dards for SHOP related to foreign employ-ers, see 45 CFR 155.710. Paragraphs (b)through (f) of this section provide the rulesfor determining whether the requirementsto be an eligible small employer are met,including rules related to identifying andcounting the employer’s number of the em-ployer’s FTEs, counting the employees’hours of service, and determining the em-ployer’s average annual FTE wages for thetaxable year. For rules on determiningwhether the uniform percentage require-ment is met, see §1.45R–4.

(b) Application of section 414 employeraggregation rules. All employers treatedas a single employer under section 414(b),(c), (m) or (o) are treated as a single em-ployer for purposes of this section. Thus,all employees of a controlled group undersection 414(b), (c) or (o), or an affiliatedservice group under section 414(m), are

taken into account in determining whetherany member of the controlled group or af-filiated service group is an eligible smallemployer. Similarly, all wages paid to,and premiums paid for, employees by themembers of the controlled group or affil-iated service group are taken into accountwhen determining the amount of the creditfor a group treated as a single employer un-der these rules.

(c) Employees taken into account.To be eligible for the credit, an em-ployer must have employees as defined in§1.45R–1(a)(5) during the taxable year.All employees of the eligible small em-ployer are taken into account for purposesof determining the employer’s FTEs andaverage annual FTE wages. Employeesinclude former employees who terminatedemployment during the year for whichthe credit is being claimed, employeescovered under a collective bargainingagreement, and employees who do notenroll in a QHP offered by the employerthrough a SHOP 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 the per-formance of duties for the employer dur-ing the employer’s taxable year. It also in-cludes each hour for which an employeeis paid, or entitled to payment, by the em-ployer on account of a period of time dur-ing which no duties are performed due tovacation, holiday, illness, incapacity (in-cluding disability), layoff, jury duty, mil-itary duty or leave of absence (except thatno more than 160 hours of service are re-quired to be counted for an employee onaccount of any single continuous periodduring which the employee performs noduties).

(2) Permissible methods. In calculat-ing the total number of hours of servicethat must be taken into account for anemployee during the taxable year, eligi-ble small employers need not use the samemethod for all employees, and may applydifferent methods for different classifica-tions of employees if the classifications arereasonable and consistently applied. El-igible small employers may change themethod for calculating employees’ hoursof service for each taxable year. An eli-gible small employer may use any of thefollowing three methods.

September 16, 2013 220 2013–38 I.R.B.

(i) Actual hours worked. An em-ployer may use the actual hours of serviceprovided 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. Anemployer may use a days-worked equiv-alency 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 section.

(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 section.

(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 or due.(i) Facts. An eligible small employer (Employer) haspayroll records that indicate that Employee A worked2,000 hours and that Employer paid Employee Afor an additional 80 hours on account of vacation,holiday and illness. Employer uses the actual hoursworked method described in paragraph (d)(2)(i) ofthis 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 a.m. to 12 p.m. 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 1,600 hoursof service (8 hours for each day Employee B wouldotherwise be credited with at least 1 hour of service x200 days).

Example 3. Counting hours of service underweeks-worked equivalency. (i) Facts. Employee Cworked 49 weeks, took 2 weeks of vacation with pay,and took 1 week of leave without pay. Employer usesthe weeks-worked equivalency method described inparagraph (d)(2)(iii) of this section.

(ii) Conclusion. Under this method of countinghours, Employee C must be credited with 2,040 hoursof service (40 hours for each week during which Em-ployee C would otherwise be credited with at least 1hour of service x 51 weeks).

Example 4. Excluded employees. (i) Facts. Em-ployee D worked 3 consecutive weeks at 32 hours perweek during the holiday season. Employee D did notwork during the remainder of the year. Employee Eworked limited hours after school from time to timethrough the year for a total of 350 hours. EmployeeE does not work through the summer. Employer uses

the actual hours worked method described in para-graph (d)(2)(i) of this section.

(ii) Conclusion. Employee D is a seasonal em-ployee who worked for 120 days or less for Employerduring the year. Employee D’s hours are not countedwhen determining the hours of service of Employer’semployees. Employee E works throughout most ofthe year and is not a seasonal employee. Employercounts Employee E’s 350 hours of service during theyear.

(e) FTE Calculation—(1) In general.The number of an employer’s FTEs is de-termined by dividing the total hours of ser-vice, determined in accordance with para-graph (d) of this section, credited duringthe year to employees taken into accountunder paragraph (c) of this section (but notmore than 2,080 hours for any employee)by 2,080. The result, if not a whole num-ber, is then rounded to the next lowestwhole number. If, however, after divid-ing the total hours of service by 2,080, theresulting number is less than one, the em-ployer 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 hoursis the 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 hours each(4 x 2,080); the sole proprietor’s nephew is excludedfrom the FTE calculation; 3,120 hours of service forthe 3 employees paid for 1,040 hours each (3 x 1,040);and 2,080 hours of service for the 1 employee paid for2,300 hours (lesser of 2,300 and 2,080). The sum ofthe included hours of service equals 13,520 hours ofservice.

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

(f) Determining the employer’s aver-age annual FTE wages—(1) In general.All wages paid to employees (includingovertime pay) are taken into account incomputing an eligible small employer’saverage annual FTE wages. The aver-age annual wages paid by an employer fora taxable year is determined by dividingthe total wages paid by the eligible smallemployer during the employer’s taxableyear to employees taken into account un-der paragraph (c) of this section by thenumber of the employer’s FTEs for theyear. The result is then rounded down tothe nearest $1,000 (if not otherwise a mul-tiple of $1,000). For purposes of determin-ing the employer’s average annual wages

for the taxable year, only wages that arepaid for 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 offeredby the employer through a SHOP Exchange.

(ii) Conclusion. The hours of service and wagesof all employees are taken into consideration in de-termining whether the employer is an eligible smallemployer for purposes of the credit. Because the em-ployer does not have fewer than 25 FTEs for the tax-able year, the employer is not an eligible small em-ployer for purposes of this section, even if less than25 employees (or FTEs) enroll for coverage throughthe SHOP Exchange.

(g) Effective/applicability date. Thissection is applicable for periods after De-cember 31, 2013.

§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 eligi-ble small employer, equals 35 percent ofthe employer’s premium payments madeon behalf of its employees under a qual-ifying arrangement. The employer’s taxcredit is subject to the following adjust-ments and limitations:

(1) The average premium limitation forthe small group market in the rating area inwhich the employee enrolls for coverage,described in paragraph (b) of this section;

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

(3) The net premium payment limita-tion in the case of State credits or subsidiesdescribed in paragraph (d) of this section;

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

(5) The two-consecutive-taxable yearcredit 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, regulatedinvestment companies, real estate invest-

2013–38 I.R.B. 221 September 16, 2013

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 thatare 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 exam-ples illustrate the provisions of paragraph(b)(1) of this section:

Example 1. Comparing premium payments to av-erage premium for small group market. (i) Facts. Aneligible small employer (Employer) offers a healthinsurance plan with self-only and family coveragethrough a small business options program (SHOP)Exchange. Employer has 9 full-time equivalentemployees (FTEs) with average annual wages of$23,000 per FTE. All 9 employees are employees asdefined under §1.45R–1(a)(5). Four employees areenrolled in self-only coverage and 5 are enrolled infamily coverage. Employer pays 50% of the premi-ums for all employees enrolled in self-only coverageand 50% of the premiums for all employees enrolledin family coverage (and the employee is responsiblefor the remainder in each case). The premiums are$4,000 a year for self-only coverage and $10,000 ayear for family coverage. The average premium forthe small group market in Employer’s rating area is$5,000 for self-only coverage and $12,000 for familycoverage. Employer’s premium payments for eachFTE ($2,000 for self-only coverage and $5,000 forfamily coverage) do not exceed 50 percent of theaverage premium for the small group market in Em-ployer’s rating area ($2,500 for self-only coverageand $6,000 for family coverage).

(ii) Conclusion. The amount of premiums paid byEmployer for purposes of computing the credit equals$33,000 ((4 x $2,000) plus (5 x $5,000)).

Example 2. Premium payments exceeding aver-age premium for small group market. (i) Facts. Samefacts as Example 1, except that the premiums are$6,000 for self-only coverage and $14,000 for familycoverage. Employer’s premium payments for eachemployee ($3,000 for self-only coverage and $7,000for family coverage) exceed 50% of the average pre-mium for the small group market in Employer’s rat-ing area ($2,500 for self-only coverage and $6,000for family coverage).

(ii) Conclusion. The amount of premiums paid byEmployer for purposes of computing the credit equals$40,000 ((4 x $2,500) plus (5 x $6,000)).

(c) Credit phaseout—(1) In general.The tax credit is subject to a reduction (butnot reduced below zero) if the employer’sFTEs exceed 10 or average annual FTEwages exceed $25,000. If the number

of FTEs exceeds 10, the reduction is de-termined by multiplying the otherwiseapplicable credit amount by a fraction,the numerator of which is the number ofFTEs in excess of 10 and the denominatorof which is 15. If average annual FTEwages exceed $25,000, the reduction isdetermined by multiplying the otherwiseapplicable credit amount by a fraction,the numerator of which is the amount bywhich average annual FTE wages exceed$25,000 and the denominator of which is$25,000. In both cases, the result of thecalculation is subtracted from the other-wise applicable credit to determine thecredit to which the employer is entitled.For an employer with both more than 10FTEs and average annual FTE wages ex-ceeding $25,000, the total reduction is thesum 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-liv-ing adjustment under section 1(f)(3) for thecalendar year, determined by substituting“calendar year 2012” for “calendar year1992” in section 1(f)(3)(B).

(3) Examples. The following examplesillustrate the provisions of paragraph (c)this section. For purposes of these exam-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 annual wagesexceed $25,000, as adjusted for inflation. (i) Facts.An eligible small employer (Employer) has 12 FTEsand average annual FTE wages of $30,000 in a yearwhen the amount in paragraph (c)(1) of this section,as adjusted for inflation, is $25,000. Employer pays$96,000 in health insurance premiums for its employ-ees (which does not exceed the average premium forthe small group market in the rating area) and other-wise meets the requirements for the credit.

(ii) Conclusion. The initial amount of the credit isdetermined before any reduction (50% x $96,000) =

$48,000. The credit reduction for FTEs in excess of10 is $6,400 ($48,000 x 2/15). The credit reductionfor average annual FTE wages in excess of $25,000is $9,600 ($48,000 x $5,000/$25,000), resulting in atotal 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 of in-surance) to pay a portion of the premiumfor coverage of an employee enrolled forcoverage through a SHOP Exchange, theState is treated as making these paymentson behalf of the employer for purposesof determining whether the employer hassatisfied the requirement to pay an amountequal to a uniform percentage (not lessthan 50 percent) of the premium cost ofcoverage. Also, except as described be-low in paragraph (d)(3) of this section,these premium payments by the State aretreated as an employer contribution underthis section for purposes of calculating thecredit.

(3) Credits may not exceed net premiumpayment. Regardless of the applicationof paragraphs (d)(1) and (d)(2) of thissection, in no event may the amount ofthe credit exceed the amount of the em-ployer’s net premium payments as definedin §1.45R–1(a)(11).

(4) Examples. The following exam-ples illustrate the provisions of paragraphs(d)(1) through (d)(3) of this section. Forpurposes of these examples, the eligiblesmall employer’s taxable year and planyear begin during or after 2014. No otheradjustments or limitations on the credit ap-ply other than those adjustments and limi-tations explicitly set forth in the example.

September 16, 2013 222 2013–38 I.R.B.

Example 1. State premium subsidy paid directlyto employer. (i) Facts. The State in which an eligi-ble small 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 insur-ance premiums on behalf of Employee D. Employeris otherwise an eligible small employer that meets therequirements 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 the Em-ployer without regard to the subsidy from the State).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 self-only coverage througha qualified health plan (QHP) offered by Employerthrough a SHOP Exchange. Employee E’s health in-surance premiums are $100 per month and are paid asfollows: $50 by Employer; $30 by the State and $20by the employee. The State pays the $30 per monthdirectly to the insurance company and the insurancecompany bills Employer for the employer and em-ployee’s share, which equal $70 per month. Em-ployer is otherwise an eligible small employer thatmeets the requirements for the credit.

(ii) Conclusion. For purposes of calculating theamount of the credit, the amount of premiums paid byEmployer is $80 per month (the sum of Employer’spayment and the State’s payment). The maximumcredit is $40 ($80 x 50%).

Example 3. Credit limited by employer’s net pre-mium payment. (i) Facts. Employer is an eligiblesmall employer that is not a tax-exempt organiza-tion. The State in which Employer operates providesa health insurance premium subsidy of up to 50% foreach eligible employee. Employer has one employee,Employee F. Employee F is enrolled in self-only cov-erage under the QHP offered to Employee F by Em-ployer through a SHOP Exchange. Employee F’shealth insurance premiums are $100 per month andare paid as follows: $20 by Employer; $50 by theState and $30 by Employee F. The State pays the $50per month directly to the insurance company and theinsurance company bills Employer for the employer’sand employee’s shares, which total $50 per month.Employer is otherwise an eligible small employer thatmeets the requirements for the credit. The amount ofpremiums paid by Employer (the sum of Employer’spayment and the State’s payment) is $70 per month,which is more than 50% of the $100 monthly pre-mium payment. The amount of the premium for cal-culating the credit is also $70 per month.

(ii) Conclusion. The maximum credit without ad-justments or limitations is $35 ($70 x 50%). Em-ployer’s net premium payment is $20 (the amount ac-tually paid by Employer excluding the State subsidy).Because the credit may not exceed Employer’s net

premium payment, the credit is $20 (the lesser of $35or $20).

(e) Payroll tax limitation for tax-exempteligible small employers—(1) In general.For a tax-exempt eligible employer, theamount of the credit claimed cannot ex-ceed the total amount of payroll taxes (asdefined in §1.45R–1(a)(13)) of the em-ployer during the calendar year in whichthe taxable year begins.

(2) Example. The following example il-lustrates the provisions of paragraph (e)(1)of this section. For purposes of this exam-ple, the eligible small employer’s taxableyear and plan year begin during or after2014. No other adjustments or limitationson the credit apply other than those adjust-ments and limitations explicitly set forth inthe 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 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. The total amount of Employer’s payroll taxesequals $30,000.

(ii) Conclusion. The initial amount of the credit isdetermined before any reduction: (35% x $80,000) =$28,000, and Employer’s payroll taxes are $30,000.The total tax credit equals $28,000 (the lesser of$28,000 and $30,000).

(f) Two-consecutive-taxable year creditperiod limitation. The credit is only avail-able to an eligible small employer, includ-ing a tax-exempt eligible small employer,during that employer’s credit period. Fora transition rule for 2014, see paragraph(i) of this section. To prevent the avoid-ance of the two-year limit on the credit pe-riod through the use of successor entities,a successor entity and a predecessor entityare treated as the same employer. For thispurpose, the rules for identifying succes-sor entities under §31.3121(a)(1)–1(b) ap-ply. Accordingly, for example, if an eligi-ble small employer claims the credit for the2014 and 2015 taxable years, that eligiblesmall employer’s credit period will haveexpired so that any successor employer tothat eligible small employer will not beable to claim the credit for any subsequenttaxable 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 into ac-count. Premiums paid on behalf of sea-sonal workers may be counted in determin-ing the amount of the credit (even thoughseasonal worker wages and hours of ser-vice are not included in the FTE and av-erage annual FTE wage calculation un-less the seasonal worker works for the em-ployer on more than 120 days during thetaxable year).

(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 regulations.For this purpose, premiums paid with em-ployer-provided flex credits that employ-ees may elect to receive as cash or othertaxable benefit are treated as paid pursuantto a salary reduction arrangement under asection 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 cooperativeorganization.

(i) Transition rule for 2014— (1) Ingeneral. This paragraph (i) applies if asof August 26, 2013, an eligible small em-ployer offers coverage on a plan year thatbegins on a date other than the first day ofits taxable year. In such a case, if an eligi-ble small employer has a health plan yearbeginning after January 1, 2014 but beforeJanuary 1, 2015 (2014 health plan year)that begins after the start of its first tax-able year beginning after January 1, 2014

2013–38 I.R.B. 223 September 16, 2013

(2014 taxable year), and the employer of-fers one or more QHPs to its employeesthrough a SHOP Exchange as of the firstday of its 2014 health plan year, then the el-igible small employer is treated as offeringcoverage through a SHOP Exchange forits entire 2014 taxable year for purposesof section 45R if the health care coverageprovided from the first day of the 2014 tax-able year through the day immediately pre-ceding the first day of the 2014 health planyear would have qualified for a credit un-der section 45R using the rules applicableto taxable years beginning before January1, 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 paragraph (i) of thissection. For purposes of this example, theeligible small employer is not a tax-exemptorganization. No other adjustments or lim-itations 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, anda 2014 health plan year that begins July 1, 2014 andends June 30, 2015. Employer offers a QHP througha SHOP Exchange the coverage under which beginsJuly 1, 2014. Employer provides coverage from Jan-uary 1, 2014 through June 30, 2014 that would havequalified for a credit under section 45R using the rulesapplicable to taxable years beginning before January1, 2014.

(ii) Conclusion. Employer may claim the creditat the 50% rate under section 45R for the entire 2014taxable year using the rules under paragraph (i) of thissection. Accordingly, in calculating the credit, Em-ployer may count premiums paid for coverage fromJanuary 1, 2014 through June 30, 2014, as well aspremiums paid from July 1, 2014 through December31, 2014. If Employer claims the credit for the 2014taxable year, that taxable year is the first year of thecredit period.

(j) Effective/applicability date. Thissection is applicable for periods after De-cember 31, 2013.

§1.45R–4 Uniform percentage of premiumpaid.

(a) In general. An eligible small em-ployer must pay a uniform percentage(not less than 50 percent) of the premiumfor each employee enrolled in a qualifiedhealth plan (QHP) offered to employeesby the employer through a small businesshealth options program (SHOP) Exchange.

(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, self-only coverage, composite billing. For aneligible small employer offering self-onlycoverage and using composite billing, theemployer satisfies the requirements of thisparagraph if it pays the same amount to-ward the premium for each employee re-ceiving self-only coverage under the QHP,and that amount is equal to at least 50 per-cent of the premium for self-only cover-age.

(2) Employers offering one QHP, othertiers of coverage, composite billing. For aneligible small employer offering one QHPproviding at least one tier of coverage witha higher premium than self-only coverageand using composite billing, the employersatisfies the requirements of this paragraph(b)(2) if it either—

(i) Pays an amount for each employeeenrolled in that more expensive tier of cov-erage that is the same for all employeesand that is no less than the amount that theemployer would have contributed towardself-only coverage for that employee, 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, self-only coverage, list billing. For an eligiblesmall employer offering one QHP provid-ing only self-only coverage and using listbilling, the employer satisfies the require-ments of this paragraph (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 indi-vidual premiums for self-only coverageinto an employer-computed compositerate for self-only coverage, and, if anemployee contribution is required, eachemployee who receives coverage underthe QHP pays a uniform amount towardthe self-only premium that is no morethan 50 percent of the employer-computedcomposite rate for self-only coverage.

(4) Employers offering one QHP, othertiers of coverage, list billing. For an eligi-ble small employer offering one QHP pro-viding at least one tier of coverage witha higher premium than self-only coverageand using list billing, the employer sat-

isfies the requirements of this paragraph(b)(4) if it either—

(i) Pays toward the premium for eachemployee covered under each tier of cov-erage an amount equal to or exceedingthe amount that the employer would havecontributed with respect to that employeefor self-only coverage, calculated eitherbased upon the actual premium that wouldhave been charged by the insurer for thatemployee for self-only coverage or basedupon the employer-computed compositerate for self-only coverage, or

(ii) Meets the requirements of para-graph (b)(3) of this section for each tier ofcoverage that it offers substituting the em-ployer-computed composite rate for eachtier of coverage for the employer-com-puted composite rate for self-only cover-age.

(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 that sat-isfy the uniform percentage requirementunder paragraph (b) of this section on aQHP-by-QHP basis (so that the amountsor percentages of premium paid by the em-ployer for each QHP need not be identical,but the payments with respect to each QHPmust satisfy paragraph (b) of this 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 enrolledin the reference QHP, the contributionswould satisfy the uniform percentage re-quirement under paragraph (b) of this sec-tion, or

(ii) The employer allows each em-ployee to apply the minimum amount ofemployer contribution determined nec-essary to meet the uniform percentagerequirement under paragraph (b) of thissection either toward the reference QHPor toward the cost of coverage under anyof the other available QHPs.

September 16, 2013 224 2013–38 I.R.B.

(d) 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 com-ply with an applicable State or local law.

(e) Examples. The following examplesillustrate the provisions of paragraphs (a)through (d) 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 self-only coverage, and$10,000 for family coverage. Employees can electself-only or family coverage under Plan A. Employerpays $3,000 (60% of the premium) toward self-onlycoverage under Plan A and $6,000 (60% of the pre-mium) toward family coverage under Plan A.

(ii) Conclusion. Employer’s contributions of 60%of the premium for each tier of coverage satisfy theuniform 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 self-only cover-age under Plan A and pays $3,000 (30% of the pre-mium) for each employee electing family coverageunder Plan A.

(ii) Conclusion. Employer’s contributions of 60%of the premium toward self-only coverage and thesame dollar amount toward the premium for familycoverage satisfy the uniform percentage requirement,even though the percentage is not the same.

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 self-only coverage and $10,000 for family cover-age. The premiums for Plan B are $7,000 per year forself-only coverage and $13,000 for family coverage.Employees can elect self-only or family coverageunder either Plan A or Plan B. Employer pays $3,000(60% of the premium) for each employee electingself-only coverage under Plan A, $3,000 (30% of thepremium) for each employee electing family cov-erage under Plan A, $3,500 (50% of the premium)for each employee electing self-only coverage underPlan B, and $3,500 (27% of the premium) for eachemployee electing family coverage under Plan B.

(ii) Conclusion. Employer’s contributions of 60%(or $3,000) of the premiums for self-only coverageand the same dollar amounts toward the premiumfor family coverage under Plan A, and of 50% (or$3,500) of the premium for self-only of coverage andthe same dollar amount toward the premium for fam-ily coverage under Plan B, satisfy the uniform per-centage requirement on a QHP-by-QHP basis; there-fore the employer’s contributions to both plans satisfythe uniform percentage requirement.

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 the pre-mium) for each employee electing self-only coverageunder Plan A and pays $2,500 of the premium foreach employee electing family coverage under Plan

A or either self-only or family coverage under PlanB.

(ii) Conclusion. Employer’s contribution of 50%(or $2,500) toward the premium of each employeeenrolled 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 for healthinsurance coverage for each of Employer’s four em-ployees. For Employee L, age 20, the self-only pre-mium is $3,000 per year, and the family premium is$8,000. For Employees M, N and O, each age 40, theself-only premium is $5,000 per year and the fam-ily premium is $10,000. The total self-only premiumfor the four employees is $18,000 ($3,000 + (3 x5,000)). Employer calculates an employer-computedcomposite self-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 self-only coverage. Under this arrangement, Em-ployer would contribute $1,000 toward self-only cov-erage for L and $3,000 toward self-only coverage forM, N, and O. In the event an employee elects familycoverage, Employer would make the same contribu-tion ($1,000 for L or $3,000 for M, N, or O) towardthe family premium.

(ii) Conclusion. Employer satisfies the uniformpercentage requirement because it offers and makescontributions based on an employer-calculated com-posite self-only rate such that, to receive self-onlycoverage, each employee must pay a uniform amountwhich is not more than 50% of the composite rate, andit allows employees to use the same employer contri-butions toward family coverage.

Example 6. (i) Facts. Same facts as Example 5,except that Employer calculates an employer-com-puted composite family rate of $9,500 (($8,000 + 3 x10,000) / 4) and requires each employee to pay $4,000of the premium for family coverage.

(ii) Conclusion. Employer satisfies the uniformpercentage requirement because it offers and makescontributions based on a calculated self-only andfamily rate such that, to receive either self-only orfamily coverage, each employee must pay a uniformamount which is not more than 50% of the compositerate for coverage of that tier.

Example 7. (i) Facts. Same facts as Example5, except that Employer also receives a list billingpremium quote from Plan Y with respect to a sec-ond QHP offered by Employer on a SHOP Exchangefor each of Employer’s 4 employees. Plan Y’s quotefor Employee L, age 20, is $4,000 per year for self-only coverage or $12,000 per year for family cover-age. For Employees M, N and O, each age 40, thepremium is $7,000 per year for self-only coverageor $15,000 per year for family coverage. The totalself-only premium under Plan Y is $25,000 ($4,000+ (3 x 7,000)). The employer-computed compositeself-only rate is $6,250 ($25,000 / 4). Employer des-ignates Plan X as the reference plan. Employer of-fers to make contributions based on the employer-cal-culated composite premium for the reference QHP(Plan X) such that each employee has to contribute$2,000 to receive self-only coverage through Plan X.Under this arrangement, Employer would contribute$1,000 toward self-only coverage for L and $3,000toward self-only coverage for M, N, and O. In theevent an employee elects family coverage through

Plan X or either self-only or family coverage throughPlan Y, Employer would make the same contributions($1,000 for L or $3,000 for M, N, or O) toward thatcoverage.

(ii) Conclusion. Employer satisfies the uniformpercentage requirement because it offers and makescontributions based on the employer-calculated com-posite self-only premium for the Plan X referenceQHP such that, in order to receive self-only coverage,each employee must pay a uniform amount which isnot more than 50% of the self-only composite pre-mium of the reference QHP; it allows employees touse the same employer contributions toward familycoverage in the reference QHP or coverage throughanother QHPs.

Example 8. (i) Facts. Employer has five employ-ees. Employer is located in a State that requires em-ployers to pay 50% of employees’ premium costs, butalso requires that an employee’s contribution not ex-ceed a certain percentage of the employee’s monthlygross earnings from that employer. Employer offersto pay 50% of the premium costs for all its employ-ees, and to comply with the State law, Employer con-tributes more than 50% of the premium costs for twoof 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.

(f) Effective/applicability date. Thissection is applicable for periods after De-cember 31, 2013.

§1.45R–5 Claiming the credit.

(a) Claiming the credit. The credit isa general business credit and is claimedon an eligible small employer’s annual in-come tax return and offsets an employer’sactual tax liability for the year. The creditis claimed by attaching Form 8941, Creditfor Small Employer Health Insurance Pre-miums, to the eligible small employer’s in-come tax return or, in the case of a tax-ex-empt eligible small employer, by attachingForm 8941 to the employer’s Form 990–T,Exempt Organization Business Income TaxReturn. To claim the credit, a tax-exempteligible small employer must file a form990–T with an attached Form 8941, evenif a Form 990–T would not otherwise berequired to be filed.

(b) Estimated tax payments and al-ternative minimum tax (AMT) liability.An eligible small employer may reflectthe credit in determining estimated taxpayments for the year in which the creditapplies in accordance with the estimatedtax rules as set forth in section 6654 and6655 and the applicable regulations. Aneligible small employer may also use thecredit to offset the employer’s alterna-

2013–38 I.R.B. 225 September 16, 2013

tive minimum tax (AMT) liability for theyear, if any, subject to certain limitationsbased on the amount of an eligible smallemployer’s regular tax liability, AMT li-ability and other allowable credits. Seesection 38(c)(1), as modified by section38(c)(4)(B)(vi). However, an eligiblesmall employer, including a tax-exempteligible small employer, may not reduceits deposits and payments of employmenttax (that is, income tax required to bewithheld under section 3402, social secu-rity and Medicare tax under sections 3101and 3111, and federal unemployment taxunder section 3301) during the year inanticipation of the credit.

(c) Reduction of section 162 deduction.No deduction under section 162 is allowedfor the eligible small employer for that por-tion of the health insurance premiums thatis equal to the amount of the credit under§1.45R–2.

(d) Effective/applicability date. Thissection is applicable for periods after De-cember 31, 2013.

Heather C. Maloy,Acting Deputy Commissioner for

Services and Enforcement.

(Filed in the Office of the Federal Register on August 23,2013, 8:45 a.m., and published in the issue of the FederalRegister for August 26, 2013, 78 F.R. 52719)

Changes to Information ReturnPublications and ElectronicFiling (FIRE) Testing Date

Announcement 2013–40

Beginning in 2013, the guidance forelectronic filing information returns willcease to be issued as Revenue Proceduresand will be available as publications onwww.irs.gov:

• Publication 1220 for Forms 1097,1098, 1099, 3921, 3922, 5498, 8935,and W–2G will be available by mid tolate September 2013

• Publication 1239 for Form 8027 willbe available by September 30, 2013

• Publication 4810 for Form 8955–SSAwill be available by September 30,2013

• Publication 1187 for Form 1042–S willbe available by September 30, 2013

• Publication 1516 for Form 8596 willbe available by September 30, 2013

The website for information returns onwww.irs.gov has been redesigned and willbe available by September 30, 2013. Thewebsite will contain links to the abovepublications, record specifications andlayouts, and other helpful information forfiling information returns. To access thewebsite go to www.irs.gov and search on‘filing information returns’.

The test system for Filing Informa-tion Returns Electronically (FIRE) willbe available beginning on November 12,2013.

September 16, 2013 226 2013–38 I.R.B.

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

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

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

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

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

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

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

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

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

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

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

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

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

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

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

2013–38 I.R.B. i September 16, 2013

Numerical Finding List1

Bulletins 2013–27 through 2013–38

Announcements:

2013-35, 2013-27 I.R.B. 46

2013-36, 2013-33 I.R.B. 142

2013-37, 2013-34 I.R.B. 155

2013-38, 2013-36 I.R.B. 185

2013-39, 2013-35 I.R.B. 167

2013-40, 2013-38 I.R.B. 226

Notices:

2013-41, 2013-29 I.R.B. 60

2013-42, 2013-29 I.R.B. 61

2013-43, 2013-31 I.R.B. 113

2013-44, 2013-29 I.R.B. 62

2013-45, 2013-31 I.R.B. 116

2013-46, 2013-31 I.R.B. 117

2013-47, 2013-31 I.R.B. 120

2013-48, 2013-31 I.R.B. 120

2013-49, 2013-32 I.R.B. 127

2013-50, 2013-32 I.R.B. 133

2013-51, 2013-34 I.R.B. 153

2013-52, 2013-35 I.R.B. 159

2013-53, 2013-36 I.R.B. 173

2013-55, 2013-38 I.R.B. 207

Proposed Regulations:

REG-132251-11, 2013-37 I.R.B. 191

REG-112815-12, 2013-35 I.R.B. 162

REG-114122-12, 2013-35 I.R.B. 163

REG-140789-12, 2013-32 I.R.B. 136

REG-113792-13, 2013-38 I.R.B. 211

REG-115300-13, 2013-37 I.R.B. 197

Revenue Procedures:

2013-28, 2013-27 I.R.B. 28

2013-29, 2013-33 I.R.B. 141

2013-30, 2013-36 I.R.B. 173

2013-31, 2013-38 I.R.B. 208

2013-32, 2013-28 I.R.B. 55

2013-33, 2013-38 I.R.B. 209

Revenue Rulings:

2013-13, 2013-32 I.R.B. 124

2013-15, 2013-28 I.R.B. 47

2013-17, 2013-38 I.R.B. 201

2013-18, 2013-37 I.R.B. 186

Treasury Decisions:

9620, 2013-27 I.R.B. 1

9621, 2013-28 I.R.B. 49

9622, 2013-30 I.R.B. 64

9623, 2013-30 I.R.B. 73

9624, 2013-31 I.R.B. 86

Treasury Decisions— Continued:

9625, 2013-34 I.R.B. 147

9626, 2013-34 I.R.B. 149

9627, 2013-35 I.R.B. 156

9628, 2013-36 I.R.B. 169

9629, 2013-37 I.R.B. 188

9630, 2013-38 I.R.B. 199

9631, 2013-38 I.R.B. 205

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2013–1 through 2013–26 is in Internal Revenue Bulletin2013–26, dated June 24, 2013.

September 16, 2013 ii 2013–38 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2013–27 through 2013–38

Notices:

2012-74

Obsoleted by

Notice 2013-51, 2013-34 I.R.B. 153

2013-16

Superseded by

Notice 2013-55, 2013-38 I.R.B. 207

2013-36

Appendix updated by

Notice 2013-55, 2013-38 I.R.B. 207

Superseded by

Notice 2013-55, 2013-38 I.R.B. 207

2013-39

Amplified by

Notice 2013-47, 2013-31 I.R.B. 120

2013-40

Amplified by

Notice 2013-47, 2013-31 I.R.B. 120

Revenue Procedures:

81-60

Modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

83-59

Modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

86-42

Modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

90-52

Modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

96-30

Modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

97-48

Situation 1 superseded, Situation 2 obsoleted by

Rev. Proc. 2013-30, 2013-36 I.R.B. 173

2003-43

Modified and superseded by

Rev. Proc. 2013-30, 2013-36 I.R.B. 173

2003-48

Obsoleted in part and superseded in part by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

2004-34

Modified and clarified by

Rev. Proc. 2013-29, 2013-33 I.R.B. 141

Revenue Procedures— Continued:

2004-48

Modified and superseded by

Rev. Proc. 2013-30, 2013-36 I.R.B. 173

2004-49

Sections 4.01 & 4.02 modified and superseded,

Section 4.03 obsoleted by

Rev. Proc. 2013-30, 2013-36 I.R.B. 173

2007-44

Modified by

Ann. 2013-37, 2013-34 I.R.B. 155

2007-62

Modified and superseded by

Rev. Proc. 2013-30, 2013-36 I.R.B. 173

2009-25

Pilot program discontinued by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

2011-18

Modified and clarified by

Rev. Proc. 2013-29, 2013-33 I.R.B. 141

2011-49

Modified by

Ann. 2013-37, 2013-34 I.R.B. 155

2012-25

Obsoleted in part by

Rev. Proc. 2013-28, 2013-27 I.R.B. 28

2013-1

Amplified and modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

2013-3

Amplified and modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Revenue Rulings:

58-66

Amplified and clarified by

Rev. Rul. 2013-17, 2013-38 I.R.B. 201

Treasury Decisions:

9612

Corrected by

Ann. 2013-35, 2013-27 I.R.B. 46

9622

Corrected by

Ann. 2013-39, 2013-35 I.R.B. 167

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2013–1 through 2013–26 is in Internal Revenue Bulletin 2013–26, dated June 24, 2013.

2013–38 I.R.B. iii September 16, 2013

Internal Revenue ServiceWashington, DC 20224Official BusinessPenalty for Private Use, $300

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.

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