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

REG–109086–15, page 171.These proposed regulations (REG–109086–15) primarily ad-dress issues under section 36B of the Internal Revenue Coderelating to the health insurance premium tax credit. The pro-posed regulations amend the computation of the premium taxcredit for families with children who enroll in health coveragethrough Exchanges offering qualified health plans that do notprovide pediatric dental benefits, and address information re-porting by Exchanges and other issues. These proposed reg-ulations also address the effect of employer opt-out arrange-ments on the affordability of employer-provided healthcoverage for purposes of the premium tax credit and thesection 5000A individual shared responsibility provision.

Rev. Proc. 2016–39, page 164.This revenue procedure provides the procedures by which ataxpayer may obtain the automatic consent of the Commis-sioner to change to or from the net asset value method ofaccounting provided in section 1.446–7 for gain or loss onshares in a money market fund.

T.D. 9774, page 151.These final regulations provide a permissible and simplifiedmethod of accounting for gains and losses on shares in moneymarket funds. The final regulations also clarify that an excep-tion to certain information reporting requirements applies toshares in all money market funds.

EXEMPT ORGANIZATIONS

REG–101689–16, page 170.Final and temporary regulations published in the Rules andRegs section of this issue of the Internal Revenue Bulletinprescribe the manner in which an organization must notify the

Internal Revenue Service of intent to operate under section501(c)(4) of the Internal Revenue Code (Code), as required bysection 506, added to the Code by the Protecting Americansfrom Tax Hikes Act of 2015. The text of the temporary regu-lations also serves as the text of these proposed regulations..

Rev. Proc. 2016–41, page 165.Rev. Proc. 2016–41 sets forth the procedure for an organi-zation to notify the Internal Revenue Service, consistent withsection 506 of the Internal Revenue Code (Code), that it isoperating as an organization described in section 501(c)(4) ofthe Code.

T.D. 9775, page 159.The regulations prescribe the manner in which an organizationmust notify the Internal Revenue Service of intent to operateunder section 501(c)(4) of the Internal Revenue Code (Code),as required by section 506, added to the Code by the Protect-ing Americans from Tax Hikes Act of 2015. Specifically, theregulations provide that the notification must be submitted onForm 8976, “Notice of Intent to Operate Under Section501(c)(4),” or its successor.

ADMINISTRATIVE

Announcement 2016–24, page 170.This document contains corrections to Revenue Procedure2016–34, as published on Monday, June 27, 2016 (I.R.B.2016 –26, 1072 In particular, this announcement corrects oneadministrative item.

Finding Lists begin on page ii.

Bulletin No. 2016–30July 25, 2016

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly.

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

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

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

against reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

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

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

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

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

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

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

July 25, 2016 Bulletin No. 2016–30

Part I. Rulings and Decisions Under the Internal Revenue Codeof 198626 CFR 1.446–7: Net asset value method for certainmoney market funds; 26 CFR 1.6045–1: Returns ofinformation of brokers and barter exchanges

T.D. 9774

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Method of Accounting forGains and Losses onShares in Money MarketFunds; Broker Returns withRespect to Sales of Sharesin Money Market Funds

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final regulations.

SUMMARY: This document contains finalregulations that provide a simplified methodof accounting for gains and losses on sharesin money market funds (MMFs). The finalregulations also provide guidance regardinginformation reporting requirements forshares in MMFs. The final regulations re-spond to Securities and Exchange Commis-sion (SEC) rules that change the amount forwhich certain MMF shares are distributed,redeemed, and repurchased. The final regu-lations affect MMFs and their shareholders.

DATES: Effective Date: These regula-tions are effective on July 8, 2016.

Applicability Dates: For the dates ofapplicability, see §§ 1.446–7(e) and1.6045–1(c)(3)(vi)(B).

FOR FURTHER INFORMATIONCONTACT: Grace Cho at (202) 317-6895(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendmentsto 26 CFR part 1 (Income Tax Regula-tions) under sections 446 and 6045 of the

Internal Revenue Code (Code). The regu-lations provide a method of accounting forgain or loss on shares in MMFs and areintended to simplify tax compliance forholders of shares in MMFs affected bySEC regulations that impose liquidity feesor change how certain MMF shares arepriced. See Money Market Fund Reform;Amendments to Form PF, Securities ActRelease No. 33–9616, Investment Ad-visers Act Release No. IA–3879, Invest-ment Company Act Release No. IC–31166, Financial Reporting CodificationNo. FR– 84 (August 14, 2014) (SECMMF Reform Rules). The regulationsalso provide guidance regarding infor-mation reporting requirements forshares in MMFs.

An MMF is a type of investment com-pany registered under the InvestmentCompany Act of 1940 (1940 Act) andregulated as an MMF under Rule 2a–7under the 1940 Act (17 CFR 270.2a–7).MMFs have historically sought to keepstable the prices at which their shares aredistributed, redeemed, and repurchased.The securities that Rule 2a–7 permits anMMF to hold generally result in no morethan minimal fluctuations in the MMF’snet asset value per share (NAV).1

MMFs meeting the requirements ofRule 2a–7 have been permitted to valuetheir assets based on the assets’ cost, withcertain adjustments (amortized costmethod), and to price their shares byrounding the resulting NAV to the nearest1 percent (penny rounding). These meth-ods have enabled MMFs to maintain con-stant share prices in almost all circum-stances. Because most MMFs target a$1.00 share price, an MMF that fails tomaintain a constant share price is said to“break the buck.”

The SEC MMF Reform Rules gener-ally bar the use of the amortized costmethod and penny rounding for certainMMFs (floating-NAV MMFs) and requirea floating-NAV MMF to value its assetsusing market factors and to round its priceper share to the nearest basis point (thefourth decimal place, in the case of a fund

with a $1.0000 share price). Certaingovernment-security-focused MMFs (gov-ernment MMFs) and certain MMFs the ben-eficial owners of which are limited to natu-ral persons (retail MMFs) may continue touse the amortized cost method and pennyrounding. (A government MMF or retailMMF that continues to use the amortizedcost method and penny rounding is called astable-NAV MMF.)

The SEC MMF Reform Rules also es-tablish circumstances under which anMMF is permitted or required to imposea liquidity fee or is permitted to impose aredemption gate. When an MMF has aliquidity fee in effect, the liquidity feereduces the proceeds received by all re-deeming shareholders. A redemption gateis the temporary suspension of redemp-tions of shares in the MMF. Liquidity feesand redemption gates may be imposed byboth floating-NAV MMFs and stable-NAV MMFs. An MMF other than a gov-ernment MMF is required to impose aliquidity fee in certain circumstances, un-less the fund’s board of directors deter-mines that such a fee is not in the bestinterests of the fund.

The Treasury Department and the IRSpublished a notice of proposed rulemak-ing and notice of public hearing (REG–107012–14) in the Federal Register onJuly 28, 2014 (79 FR 43694). The pro-posed regulations described a simplifiedmethod of accounting for gain or loss onshares in a floating-NAV MMF (the netasset value method, or NAV method). Un-der the NAV method, a taxpayer’s gain orloss on shares in an MMF is based on thechange in the aggregate value of the tax-payer’s shares during a computation pe-riod selected by the taxpayer and on thenet amount of the purchases and redemp-tions during the computation period. Theproposed regulations also provided guid-ance regarding information reporting re-quirements for shares in MMFs.

A request for a public hearing was re-ceived, and the hearing was held on No-vember 19, 2014. The IRS received writ-ten comments responding to the proposed

1Note that the term “NAV” is used throughout this document to indicate the per-share amount that may be described elsewhere as “NAV per share.”

Bulletin No. 2016–30 July 25, 2016151

regulations regarding the method of ac-counting for gains and losses on shares inMMFs. The written comments are avail-able for public inspection at http://www.regulations.gov or upon request. Afterconsidering the comments, the TreasuryDepartment and the IRS adopt the pro-posed regulations regarding the method ofaccounting as final regulations with themodifications described in this Treasurydecision. No comments were received onthe portion of the proposed regulationsthat would revise § 1.6045–1(c)(3)(vi) toclarify that the exceptions under sections6045, 6045A, and 6045B continue to ap-ply to all MMFs, including floating-NAVMMFs. The Treasury Department and theIRS adopt the proposed regulations revis-ing § 1.6045–1(c)(3)(vi) as final regula-tions without substantive change.

Summary of Comments andExplanation of Revisions

1. Application of the NAV Method toStable-NAV MMFs

Under the proposed regulations, theNAV method would apply only tofloating-NAV MMF shares. In the pream-ble to the proposed regulations, the Trea-sury Department and the IRS requestedcomments regarding whether the NAVmethod should be a permissible method ofaccounting for stable-NAV MMF shares.

Although stable-NAV MMFs seek tomaintain constant share prices, there arecircumstances in which shares in a stable-NAV MMF will give rise to gain or loss.On rare occasions, shares in a stable-NAVMMF may be redeemed at a price otherthan the target price, such as when theMMF breaks the buck. In addition, astable-NAV MMF may impose liquidityfees, which will generally result in therealization of a loss by a redeeming share-holder. If the acquisition of other sharescauses such a redemption to be a washsale under section 1091, section 1091(d)will generally cause the basis of the ac-quired shares to exceed the cost of theshares. Because the price of a stable-NAVMMF share rarely changes, any disposi-tion of those acquired, higher-basis shareswill likely result in another loss, whichalso may be deferred by the wash salerules. Therefore, even if a liquidity fee isin effect for only one redemption by a

shareholder and the share price of theMMF remains constant, that fee maycause a difference between the basis andvalue of the shareholder’s MMF sharesthat persists indefinitely. Determininggain or loss and basis on each transactionin a stable-NAV MMF, taking into ac-count the wash sale rules, would imposesignificant burdens on shareholders underthese circumstances. To eliminate thoseburdens, a shareholder might need to ter-minate the shareholder’s entire interest inthe affected MMF (and not initiate a newposition until after the end of the perioddescribed in section 1091(a)).

Commenters recommended that theNAV method be applicable not only toshares in floating-NAV MMFs but also toshares in stable-NAV MMFs. The com-menters added that many shareholders ofstable-NAV MMFs may be retail share-holders (generally, individuals) who arelikely to rely upon the cost basis reportingprovided by funds or brokers for theirother mutual funds. Those individuals areunlikely to have the systems necessary torecord gains and losses and to track washsales and the resulting basis adjustments.

The NAV method would reduce thecomplexity, and any tax-based motivationto terminate investments in MMFs, thatwould result from the imposition of a li-quidity fee by a stable-NAV MMF. Underthe NAV method, any loss that resultedfrom the imposition of a liquidity fee byan MMF would be determined for a share-holder’s entire interest in the MMF (or inan account) for the appropriate taxableyear (or computation period) rather thanfor a single transaction. Therefore, thewash sale rules would not defer the loss.The NAV method also requires fewer andsimpler computations than traditional ac-counting, even if there are no wash sales.For the years after an MMF breaks thebuck or imposes a liquidity fee, the NAVmethod simplifies recordkeeping, becausethe gain or loss for each year is based onchanges in the NAV during that year.Therefore, the final regulations permit tax-payers to apply the NAV method to sharesin stable-NAV MMFs.

2. Consistency Requirement

The proposed regulations would pro-vide that if a taxpayer applies the NAV

method to shares in any MMF for a tax-able year, the taxpayer must apply theNAV method to its shares in all MMFs forwhich that method is permissible.

Commenters requested that the finalregulations permit taxpayers to apply dif-ferent methods to shares in differentMMFs or to shares in a single MMF heldin different accounts. Commenters saidthat some taxpayers may receive sufficientinformation about their shares in certainMMFs to compute gain or loss realized oneach transaction and that those taxpayersshould be permitted to compute gain orloss realized on each transaction for thoseMMFs.

Commenters also noted that taxpayersmay hold shares in a single MMF throughdifferent kinds of accounts (for example,an account with a broker and an accountwith the MMF itself) and may receivedifferent information for the different ac-counts. The commenters recommendedthat, because of that possibility, taxpayersshould be permitted to use different ac-counting methods for shares held in dif-ferent accounts. Commenters also notedthat many MMF shareholders will belarge institutional investors, which mighthold shares in the same MMF throughseparate accounts controlled by differentdivisions.

In response to these comments, the fi-nal regulations permit MMF shareholdersto use different methods of accounting forshares in different MMFs or for shares ina single MMF held in different accounts.

3. Choosing NAV Method ComputationPeriods for RIC Excise Tax Purposes

Under the NAV method, computationperiods are the periods that a taxpayerselects for computing gain and loss for anMMF. The proposed regulations wouldprovide that computation periods may bethe taxpayer’s taxable year or a shorterperiod, provided that (i) computation pe-riods are of approximately equal duration,(ii) every day during the taxable year fallswithin one, and only one, computationperiod, and (iii) each computation periodcontains days from only one taxable year.

Most regulated investment companies(RICs) must pay an excise tax under sec-tion 4982 if they do not make the requireddistribution described in section 4982(b)

July 25, 2016 Bulletin No. 2016–30152

for a calendar year. The required distribu-tion is generally 98 percent of the RIC’sordinary income for the calendar year,plus 98.2 percent of the RIC’s capital gainnet income for the one-year period endingon October 31 of the calendar year. Acommenter requested clarification that aRIC that holds MMF shares may use theNAV method for excise tax computations.That commenter also requested that theTreasury Department and the IRS confirmthat a RIC that uses the NAV method ispermitted to use the one-year period fromNovember 1 to October 31 as its compu-tation period for excise tax purposes. Thecommenter explained that RICs generallyaccount for items that are marked to mar-ket using two different one-year periodsfor income tax and excise tax purposes.The commenter explained that, under sec-tion 4982(e)(2)(A), the term “capital gainnet income” when used in section 4982 isdetermined by treating the one-year pe-riod ending on October 31 of any calendaryear as the company’s taxable year.

The Treasury Department and the IRSagree that the NAV method should beapplicable for purposes of the computa-tions required by section 4982 and that thetaxable year for purposes of those compu-tations should be the relevant period undersection 4982(e). The final regulationsadopt this change.

The final regulations, however, requirea RIC to be consistent in applying theNAV method to MMF shares for incometax and excise tax purposes. For eachMMF in each account, the final regula-tions generally require a RIC to use theNAV method either for both income taxand excise tax computations or for neithercomputation. The final regulations alsoclarify how a RIC may change to or fromthe NAV method.

The final regulations require a RIC touse the same computation periods for pur-poses of both excise tax and income taxcomputations. Therefore, under the finalregulations, a RIC using the NAV methodfor its shares in an MMF generally treatsthe one-year period for which gain or lossfrom the MMF would be included in

the amount determined under section4982(e)(2) or (e)(6) (the section 4982 pe-riod) like a taxable year in applying theNAV method to determine the RIC’s re-quired distribution under section 4982(b).2

The RIC, however, may not use the sec-tion 4982 period as a computation periodfor excise tax purposes if the section 4982period contains days from more than oneincome tax year.3 Instead, in this situation,the RIC must divide the section 4982 pe-riod into at least two computation periodsso that each computation period containsdays from only one income tax year. Sim-ilarly, the RIC may not use its full incometax year as a computation period for in-come tax purposes if the year containsdays from more than one section 4982period. These consistency requirementssimplify and clarify the interaction of sec-tions 852(b) and 4982.

The final regulations eliminate the re-quirement that computation periods be ofapproximately equal duration. The Trea-sury Department and the IRS do not be-lieve that this requirement is essential tothe operation of the NAV method, andeliminating the requirement will allowtaxpayers more flexibility. In particular,permitting computation periods of un-equal duration will reduce the burden onRICs of complying with the requirementof consistent computation periods for in-come and excise tax purposes. For exam-ple, a RIC that applies the NAV method toits shares in an MMF (held as a capitalasset) and that has an income tax yearending on January 31 may meet the con-sistency requirements with two computa-tion periods of unequal duration—oneending on January 31 and the other onOctober 31. The RIC also may use addi-tional computation periods ending onother dates, such as December 31.

4. Clarification of Certain Amounts

A. Fair market value of MMF shares

Under the proposed regulations, gainand loss under the NAV method would bedetermined by reference to the fair market

value of MMF shares. Commenters re-quested that the Treasury Department andthe IRS clarify that the fair market valueof an MMF share for this purpose is theNAV reported by the MMF. One com-menter suggested that the fair marketvalue of a share in an MMF should be thepublished NAV as of the end of the rele-vant day (or the next trading day, if theday in question is not a trading day). Asecond commenter suggested that, be-cause MMFs may strike several NAVsthroughout the day, the fair market valueshould be the next published NAV after atransaction.

In response to these comments, the fi-nal regulations clarify that the fair marketvalue of a share in an MMF at the time ofa transaction is presumed to be the pub-lished NAV (or other published amountfor which the MMF would redeem theshare, determined without regard to anyliquidity fees (other redemption amount)).For purposes of computing the endingvalue for a computation period, the pre-sumption applies to the last publishedNAV (or other redemption amount) in thatcomputation period. For purposes of de-termining the fair market value of MMFshares surrendered or received in a re-demption or exchange, the presumptiongenerally applies to the NAV (or otherredemption amount) used to determine theconsideration received in the transaction,or if the consideration is not based on apublished NAV (or other redemptionamount), the first NAV (or other redemp-tion amount) published for the MMFshares after the transaction. If no NAV (orother redemption amount) is published, orif facts and circumstances indicate that theNAV (or other redemption amount) doesnot represent the fair market value of ashare in the MMF, the fair market value isdetermined on the basis of all the facts andcircumstances.

B. Aggregate amount received

Under the proposed regulations, a tax-payer’s net investment in an MMF for acomputation period would equal the ag-

2If a RIC has not made an election under section 4982(e)(4), the RIC’s section 4982 period is the one-year period ending on October 31, because that is the period for determining capitalgain net income under section 4982(e)(2) and (because the final regulations concerning the NAV method constitute a specified mark to market provision for purposes of section 4982(e)(6)(B))ordinary income under 4982(e)(6)(A).

3The section 4982 period will contain days from only one income tax year if (i) the RIC has in effect a valid election under section 4982(e)(4) or (ii) the RIC’s income tax year ends onOctober 31.

Bulletin No. 2016–30 July 25, 2016153

gregate cost of shares in the MMF pur-chased during the computation period, mi-nus the aggregate amount received duringthe computation period in redemption ofshares in the MMF, subject to certain ad-justments. A commenter suggested thatthe final regulations clarify that the aggre-gate amount received is based on: (i) ifcash is received, the cash proceeds, (ii) ifshares in another MMF are received, thepublished NAV of the shares received asof the end of the day on which the re-demption or exchange occurs (or the nexttrading day, if the day in question is not atrading day), or (iii) if other non-cashproperty is received, the NAV of the re-deemed or exchanged shares as of the endof the day on which the redemption orexchange occurs (or the next trading dayif the day in question is not a trading dayor, if the fund will not publish a NAV onor after the end of the day on which theredemption or exchange occurs, the fund’slast published NAV).

The final regulations include provi-sions for determining the amount receivedfor purposes of computing a taxpayer’snet investment in an MMF for a compu-tation period. If the consideration receivedin exchange for an MMF share consistsonly of cash, other MMF shares, or both,the amount received is the amount of anycash plus the fair market value of anyMMF shares received. If the considerationincludes any property other than cash orMMF shares, the amount received is de-termined by reference to the fair marketvalue of the surrendered MMF shares.

The same commenter recommendedthat a phrase in § 1.446–7(b)(5)(i)(B) ofthe proposed regulations, “if the transac-tion is one in which gain or loss would berecognized,” be clarified to indicate that itrefers to recognition of gain or loss otherthan pursuant to the NAV method. Thefinal regulations make this clarification.

C. Substituted basis

Under the proposed regulations, a tax-payer’s net investment would increase if,during the computation period, the tax-payer acquired any shares in an MMFother than by purchase. In such cases, thenet investment increases by the adjustedbasis (for purposes of determining loss) ofeach such share immediately after its ac-

quisition. The proposed regulations wouldalso provide that if that adjusted basiswould be determined by reference to thebasis of one or more shares in an MMFthat are being disposed of by the taxpayerin a transaction in which gain or loss is notrecognized (exchanged basis), then the ba-sis of each such disposed share is treatedas being the fair market value of that shareat the time of its disposition. A commenternoted that the proposed regulations do notaddress a situation in which the share-holder receives a transferred basis inMMF shares acquired from another per-son. The commenter suggested that, inthat situation, if the person from whom theshareholder acquired the shares used theNAV method, then the adjusted basis ofthe acquired shares should be treated asthe published NAV applicable to the ac-quisition date.

The final regulations clarify the effecton net investment of a share acquiredfrom another person with a transferredbasis. Similar to the commenter’s sugges-tion, the final regulations provide that, if ashareholder receives a transferred basis inone or more acquired MMF shares and theperson from whom the shareholder ac-quired the shares used the NAV method,then the adjusted basis of the acquiredshares will be their fair market value at thetime of the acquisition, which value ispresumed to be the next NAV (or otherredemption amount) published by theMMF.

5. MMF Accounts with Shares of MixedCharacter

The proposed regulations would pro-vide that if a taxpayer uses the NAVmethod for shares in an MMF and each ofthose shares otherwise would give rise tocapital gain or loss if sold or exchanged ina computation period, then the gain or lossfrom the shares in the MMF is treated ascapital gain or loss under the NAVmethod. Likewise, if each of the sharesotherwise would give rise to ordinary gainor loss if sold or exchanged in a compu-tation period, then the gain or loss istreated as ordinary gain or loss. If, how-ever, the sale of all of the shares in theMMF would give rise to a combination ofordinary gain or loss and capital gain orloss if sold or exchanged in a computation

period, then all gain or loss from theshares in the MMF is treated as capitalgain or loss.

A commenter noted that the proposedregulations do not explain why all gain orloss should be treated as capital in the caseof an account containing MMF shares ofmixed character. The commenter recom-mended that the character of gain or losswith respect to a mixed character accountbe bifurcated based on the portion of theshares that would generate gain or loss ofeach character.

The Treasury Department and the IRSbelieve that it is rare for a shareholder tohold shares of a single MMF the disposi-tion of which would produce a mix ofordinary income and capital gain. Underthat circumstance, a taxpayer may use dif-ferent accounts to preserve the characterof the shares that would produce ordinaryincome and capital gain. The purpose ofthe NAV method is to provide an alterna-tive to traditional accounting for taxpayersseeking simplicity. The rationale for of-fering a method solely for MMFs is thatthe value of MMFs fluctuates so little thatsimplicity is more important than trackingeach individual gain or loss. A rule thatbifurcates gain or loss based on the valueof the shares in a single account, whenthose values may change during a compu-tation period, would make the NAVmethod more complex. That additionalcomplexity is not warranted in light of therarity of the circumstance the proposedbifurcation would address and the abilityof shareholders to prevent the treatment ofall gain or loss as capital by using separateaccounts. Therefore, the final regulationsretain the simplifying rule for mixed-character accounts.

6. Other Requests and Comments

A. Wash sale rules exemption forstable-NAV MMFs

Concurrently with the release of theproposed regulations, the Treasury De-partment and the IRS released Rev. Proc.2014–45 (2014–34 IRB 388), which pro-vides that the wash sale rules in section1091 will not be applied to redemptions ofshares in floating-NAV MMFs. Com-menters requested that the wash sale ex-emption, which is limited to floating-

July 25, 2016 Bulletin No. 2016–30154

NAV MMFs, be extended to stable-NAVMMFs that impose liquidity fees.

The final regulations permit sharehold-ers of stable-NAV MMFs to use the NAVmethod. A shareholder who uses the NAVmethod would not require an exemptionfrom the wash sale rules because underthe NAV method, net gain or loss is de-termined for each computation period, andno gain or loss is determined for any par-ticular redemption of a taxpayer’s sharesin an MMF. Without a determination ofloss for a particular redemption, that re-demption does not implicate the wash salerules. Because taxpayers may use theNAV method to prevent wash sales, theTreasury Department and IRS are not ex-tending the exemption in Rev. Proc.2014–45 to stable-NAV MMFs.

B. Other requests

A commenter requested that the Trea-sury Department and the IRS issue guid-ance regarding the tax treatment of anMMF’s receipt of financial support froman investment adviser to raise the NAV ofthe MMF (determined without the amor-tized cost method or penny rounding) to$1.0000. In addition, the commenter re-quested guidance regarding the diversifi-cation requirements of section 817(h) fora segregated asset account that qualifiesas, or invests in, a government MMF. OnMay 5, 2016, the Treasury Departmentand the IRS released guidance related toboth of these requests. See Rev. Proc.2016–31 (2016–21 IRB 988); Notice2016–32 (2016–21 IRB 878).

The commenter also requested (andlater withdrew its request) that the Trea-sury Department and the IRS issue guid-ance providing tax-free treatment for cer-tain divisions of MMFs into retail andinstitutional MMFs. The Treasury Depart-ment and the IRS have determined thatthis guidance does not appear essential toan orderly separation of different types ofshareholders into different MMFs.

The commenter also requested that theTreasury Department and the IRS issueguidance setting forth the proper tax treat-ment by an MMF of liquidity fees that theMMF imposes. In addition, the com-menter requested guidance providing that,if an MMF imposes liquidity fees andsubsequently distributes to shareholders

amounts that correspond to amounts thatthe MMF retained as liquidity fees, theMMF will be deemed to have sufficientearnings and profits to treat the distribu-tion as a dividend. These requests do notrelate directly to the NAV method or tothe information reporting provision in theproposed regulations and so are not ad-dressed in these final regulations. TheTreasury Department and the IRS mayconsider guidance on these questions inthe future.

7. Accounting Method Changes

As under the proposed regulations, ataxpayer may adopt the NAV method forshares in a floating-NAV MMF by use ofthe method in the Federal income tax re-turn for the first taxable year in whichboth (1) the taxpayer holds shares in thatMMF and (2) that MMF is a floating-NAV MMF.

The final regulations provide that a tax-payer seeking to change to or from theNAV method must secure the consent ofthe Commissioner in accordance with§ 1.446–1(e). Simultaneously with thepublication of these regulations, the Trea-sury Department and the IRS are issuingRev. Proc. 2016–39 (2016–30 IRB 164),which provides the procedures by which ataxpayer may obtain automatic consent tochange to or from the NAV method forshares in an MMF.

In certain circumstances, Rev. Proc.2016–39 permits taxpayers to change tothe NAV method on a federal tax returnwithout filing a Form 3115, “Applicationfor Change in Accounting Method.” Thissimplified procedure applies to a taxpayerthat holds shares in a stable-NAV MMFand wants to change to the NAV methodfor a taxable year if (1) the taxpayer hasnot used the NAV method for shares inthe MMF for any taxable year prior to theyear of change, and (2) prior to the begin-ning of the year of change, either (a) thetaxpayer’s basis in each share of the MMFhas been at all times equal to the MMF’starget share price, or (b) the taxpayer hasnot realized any gain or loss with respectto shares in the MMF.

For certain other changes, Rev. Proc.2016–39 provides automatic consent pro-cedures that require a short Form 3115.For example, these automatic consent pro-

cedures apply to a taxpayer that (1) hasadopted a realization method for shares ina floating-NAV MMF and wants tochange to the NAV method for shares inthat MMF, or (2) has adopted the NAVmethod for shares in a floating-NAVMMF and wants to change to a permissi-ble realization method for shares in thatMMF.

Effective/Applicability Dates

The final regulations concerning theNAV method apply to taxable years end-ing on or after July 8, 2016. For taxableyears ending on or after July 28, 2014, andbeginning before July 8, 2016, however,shareholders of MMFs may rely either onthe rules concerning the NAV method inthe proposed regulations or on the finalregulations.

The final regulations concerning infor-mation reporting apply to sales of sharesin calendar years beginning on or afterJuly 8, 2016. Taxpayers and brokers (asdefined in § 1.6045–1(a)(1)), however,may rely on the rules in the regulationsconcerning information reporting for salesof shares in calendar years beginning be-fore July 8, 2016.

Statement of Availability for IRSDocuments

IRS Revenue Procedures cited in thispreamble are published in the InternalRevenue Bulletin and are available fromthe Superintendent of Documents, U.S.Government Printing Office, Washington,DC 20402, or by visiting the IRS websiteat http://www.irs.gov.

Special Analyses

Certain IRS regulations, including thisone, are exempt from the requirements ofExecutive Order 12866, as supplementedand reaffirmed by Executive Order 13563.Therefore, a regulatory impact assessmentis not required. It has also been deter-mined that section 553(b) of the Admin-istrative Procedure Act (5 U.S.C. chapter5) does not apply to these regulations, andbecause the regulations do not impose acollection of information on small entities,the Regulatory Flexibility Act (5 U.S.C.chapter 6) does not apply. Pursuant tosection 7805(f) of the Code, the proposedregulations preceding these final regula-

Bulletin No. 2016–30 July 25, 2016155

tions were submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on their impacton small businesses. No comments werereceived.

Drafting Information

The principal author of the final regu-lations is Grace Cho, IRS Office of theAssociate Chief Counsel (Financial Insti-tutions and Products). However, otherpersonnel from the Treasury Departmentand the IRS participated in their develop-ment.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as follows:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *Section 1.446–7 also issued under 26

U.S.C. 446.Par. 2. Section 1.446–7 is added to

read as follows:

§ 1.446–7 Net asset value method forcertain money market fund shares.

(a) In general. This section provides apermissible method of accounting (the netasset value method, or NAV method) forgain or loss on shares in a money marketfund (or MMF).

(b) Definitions. For purposes of thissection—

(1) Computation period. Computationperiods are the periods (of either equal orvarying length) that a taxpayer selects forcomputing gain and loss under the NAVmethod for shares in an MMF. Computa-tion periods must possess all of the fol-lowing attributes:

(i) Every day during the taxable yearfalls within one, and only one, computa-tion period;

(ii) Each computation period containsdays from only one taxable year; and

(iii) If the taxpayer is a regulated in-vestment company (RIC) that is not de-scribed in section 4982(f)—

(A) The same computation periods areused for purposes of both income tax ac-counting under chapter 1 and excise taxcomputations under section 4982; and

(B) The requirements in paragraphs(b)(1)(i) and (ii) of this section are alsosatisfied if applied by substituting theRIC’s section 4982 period for the RIC’staxable year.

(2) Ending value. The ending value ofa taxpayer’s shares in an MMF for a com-putation period is the aggregate fair mar-ket value of the taxpayer’s shares at theend of that computation period.

(3) Fair market value. The fair marketvalue of a share in an MMF is determinedas follows:

(i) Presumption based on applicablepublished redemption amount. For pur-poses of this section, the fair market valueof a share in an MMF is presumed to bethe applicable published redemptionamount for the share.

(ii) Published redemption amount. Thepublished redemption amount for a sharein an MMF is the published amount forwhich the MMF would redeem the share(usually, the net asset value per share(NAV)), taking into account any correc-tions and not taking into account any li-quidity fee described in Rule 2a–7(c)(2)under the Investment Company Act of1940 (17 CFR 270.2a–7(c)(2)).

(iii) Applicable published redemptionamount. The applicable published re-demption amount is—

(A) For purposes of determining theending value of a taxpayer’s shares in anMMF for a computation period underparagraph (b)(2) of this section, the lastpublished redemption amount on the lastday of that computation period;

(B) For purposes of determining thevalue of MMF shares received in a re-demption or exchange described in para-graph (b)(5)(ii)(A) of this section, thepublished redemption amount for suchMMF shares used to determine the con-sideration received in the redemption orexchange, or if the consideration receivedis not based on a published redemptionamount, the first published redemptionamount for such MMF shares after theredemption or exchange;

(C) For purposes of determining theamount received in a redemption or ex-change described in paragraph (b)(5)(ii)(B)

of this section in which the considerationreceived is based on a published redemptionamount for the redeemed shares, that pub-lished redemption amount; and

(D) For purposes of determining theamount received in an exchange describedin paragraph (b)(5)(ii)(B) of this sectionthat is not described in paragraph(b)(3)(iii)(C) of this section, or the amountof any adjustment resulting from a dispo-sition transaction described in paragraph(b)(5)(iii) of this section, the first pub-lished redemption amount for the ex-changed or disposed of MMF shares afterthe exchange or other transaction.

(iv) Facts and circumstances determi-nation. If there is no applicable publishedredemption amount or if circumstancesindicate that the amount does not repre-sent the fair market value of a share in theMMF, the fair market value is determinedon the basis of all of the facts and circum-stances.

(4) Money market fund (or MMF). AnMMF is a regulated investment companythat is permitted to hold itself out to in-vestors as a money market fund underRule 2a–7 under the Investment CompanyAct of 1940 (17 CFR 270.2a–7). See para-graph (c)(5) of this section for the treat-ment of shares in a single MMF held inmore than one account.

(5) Net investment—(i) In general. Thenet investment in an MMF for a compu-tation period may be a positive amount, anegative amount, or zero. Except as pro-vided in paragraph (b)(5)(iii) of this sec-tion, the net investment is equal to—

(A) The aggregate cost of shares in theMMF purchased during the computationperiod (including purchases through rein-vestment of dividends); minus

(B) The aggregate amount receivedduring the computation period in redemp-tion of (or otherwise in exchange for)shares in the MMF in transactions inwhich gain or loss would be recognized ifthe taxpayer did not apply the NAVmethod to the shares.

(ii) Aggregate amount received. Forpurposes of paragraph (b)(5)(i)(B) of thissection, the amount received in a redemp-tion or exchange of an MMF share is—

(A) If no property other than cash andshares in one or more other MMFs isreceived, the amount of any cash plus the

July 25, 2016 Bulletin No. 2016–30156

fair market value of any MMF shares re-ceived; or

(B) If any property other than cash orshares in one or more other MMFs isreceived, the fair market value of the re-deemed MMF share.

(iii) Adjustments—(A) Dispositions inwhich gain or loss is not recognized. If,during the computation period, any sharesin an MMF are disposed of in transactionsin which gain or loss would not be recog-nized if the taxpayer did not apply theNAV method to the shares, the net invest-ment in the MMF for the computationperiod is decreased by the fair marketvalue of each such share at the time of itsdisposition.

(B) Acquisitions other than by pur-chase. If, during the computation period,any shares in an MMF are acquired otherthan by purchase, the net investment in theMMF for the computation period is in-creased by the adjusted basis (for pur-poses of determining loss) of each suchshare immediately after its acquisition. Ifthe adjusted basis of an acquired sharewould be determined by reference to thebasis of a share or shares in an MMF thatare being disposed of by the taxpayer in atransaction that is governed by paragraph(b)(5)(iii)(A) of this section, then the ad-justed basis of each such disposed share istreated for purposes of this section as be-ing the fair market value of that share atthe time of its disposition. If the adjustedbasis of an acquired share would be de-termined by reference to the basis of thatshare in the hands of the person fromwhom the share is acquired and that per-son was applying the NAV method to theshare at the time of the transaction, thenthe adjusted basis of the share in the handsof the person from whom the share isacquired is treated for purposes of thissection as being the fair market value ofthat share at the time of the transaction.

(6) Section 4982 period. If a taxpayerusing the NAV method is a RIC to whichsection 4982 applies, the section 4982 pe-riod is the one-year period with respect towhich gain or loss is determined for pur-poses of section 4982(e)(2) and (e)(6).The preceding sentence is applied takinginto account the application of section4982(e)(4). See paragraph (c)(8) of thissection regarding the application of sec-tion 4982(e)(6).

(7) Starting basis. The starting basis ofa taxpayer’s shares in an MMF for a com-putation period is—

(i) Except as provided in paragraph(b)(7)(ii) of this section, the ending valueof the taxpayer’s shares in the MMF forthe immediately preceding computationperiod; or

(ii) For the first computation period ina taxable year, if the taxpayer did not usethe NAV method for shares in the MMFfor the immediately preceding taxableyear, the aggregate adjusted basis of thetaxpayer’s shares in the MMF at the endof the immediately preceding taxableyear.

(c) NAV method—(1) Scope. A tax-payer may use the NAV method describedin this section to determine the gain orloss for a taxable year on the taxpayer’sshares in an MMF. A taxpayer may havedifferent methods of accounting, differentcomputation periods, and gains or lossesof differing character, for its shares indifferent MMFs. See paragraph (c)(5) ofthis section for the treatment of shares in asingle MMF held in more than one ac-count. See paragraph (c)(6) of this sectionfor rules applicable to RICs to which sec-tion 4982 applies. See paragraph (c)(8) ofthis section for rules applicable to ac-counting method changes.

(2) Net gain or loss for a taxableyear—(i) Determination for each compu-tation period. Subject to any adjustmentunder paragraph (c)(2)(ii) of this section,the net gain or loss for each computationperiod with respect to the shares in anMMF to which the NAV method appliesequals the ending value, minus the startingbasis, minus the net investment in theMMF for the computation period. If thecomputation produces a result that isgreater than zero, the taxpayer has a gainfor the computation period with respect tothe shares in the MMF; if the computationproduces a result that is less than zero, thetaxpayer has a loss for the computationperiod with respect to the shares in theMMF; and if the computation produces aresult that is equal to zero, the taxpayerhas no gain or loss for the computationperiod with respect to the shares in theMMF.

(ii) Adjustment of gain or loss to reflectany basis adjustments. If, during a com-putation period, there is any downward (or

upward) adjustment to the taxpayer’s ba-sis in the shares in the MMF under anyprovision of internal revenue law, then thenet gain or loss for the computation periodon shares in the MMF determined underparagraph (c)(2)(i) of this section is in-creased (or decreased) by the amount ofthe adjustment.

(iii) Timing of gains and losses. Gainor loss determined under the NAV methodwith respect to a taxpayer’s shares in anMMF during a computation period istreated as arising on the last day of thecomputation period.

(iv) Determination of net gain or lossfor each taxable year. The taxpayer’s netgain or loss for a taxable year on shares inan MMF is the sum of the net gains orlosses on shares in the MMF for the com-putation period (or computation periods)that comprise the taxable year.

(3) Character—(i) In the case of a tax-payer that applies the NAV method toshares in an MMF, the gain or loss withrespect to those shares for a computationperiod is treated as gain or loss from a saleor exchange of a capital asset provided thesale or exchange of one or more of thoseshares during the computation periodwould give rise to capital gain or loss ifthe taxpayer did not apply the NAVmethod to the shares.

(ii) In the case of a taxpayer that ap-plies the NAV method to shares in anMMF, the gain or loss with respect tothose shares for a computation period istreated as ordinary gain or loss providedthe sale or exchange of every one of thoseshares during the computation periodwould give rise to ordinary gain or loss ifthe taxpayer did not apply the NAVmethod to the shares.

(iii) See paragraph (c)(5) of this sectionfor the treatment of shares in a singleMMF held in more than one account.

(4) Holding period. Capital gains andlosses determined under the NAV methodare treated as short-term capital gains andlosses.

(5) More than one account. If a tax-payer holds shares in an MMF throughmore than one account, the taxpayer musttreat its holdings in each account as aseparate MMF for purposes of this sec-tion. A taxpayer therefore may have dif-ferent methods of accounting, differentcomputation periods, and gains or losses

Bulletin No. 2016–30 July 25, 2016157

of differing character, for its shares of asingle MMF held in different accounts.

(6) Consistency requirement for MMFshareholders that are RICs. If the tax-payer is a RIC that is not described insection 4982(f) (and therefore is subject tothe section 4982 excise tax), then, for eachMMF, the taxpayer must use the NAVmethod for both income tax and excise taxcomputations or for neither computation.See paragraph (c)(5) of this section for thetreatment of shares in a single MMF heldin more than one account. See paragraph(c)(8)(ii) of this section for changes to orfrom the NAV method by a RIC.

(7) Treatment of ordinary gains andlosses under section 4982(e)(6). Undersection 4982(e)(6)(B), this section is aspecified mark to market provision, andtherefore any ordinary gains and lossesdetermined under the NAV method aregoverned by section 4982(e)(6)(A).

(8) Accounting method changes—(i) Ingeneral. A change to or from the NAVmethod is a change in method of account-ing to which the provisions of section 446and the accompanying regulations apply.A taxpayer seeking to change to or fromthe NAV method must secure the consentof the Commissioner in accordance with§ 1.446–1(e) and follow the administra-tive procedures issued under § 1.446–1(e)(3)(ii) for obtaining the Commission-er’s consent to change the taxpayer’saccounting method. Any such change willbe made on a cut-off basis. Because therewill be no duplication or omission ofamounts as a result of such a change to orfrom the NAV method, no adjustment un-der section 481(a) will be required or per-mitted.

(ii) RICs—(A) In general. A RIC thatis subject to the excise tax under section4982 and that changes to or from the NAVmethod for its shares in an MMF for in-come tax purposes must apply the newmethod for excise tax purposes startingwith the first day of the RIC’s income taxyear of change. If that first day is not thefirst day of the RIC’s section 4982 periodthat ends in or with the RIC’s income taxyear, then solely for purposes of applyingthe NAV method to compute the RIC’srequired distribution for the calendar yearthat ends with or within the RIC’s incometax year of change, the section 4982 pe-riod is bifurcated into two portions, each

of which is treated as a separate taxableyear. The first portion begins on the firstday of the section 4982 period and endson the last day of the RIC’s income taxyear that precedes the year of change. Thesecond portion begins on the first day ofthe income tax year of change and ends onthe last day of the section 4982 period.

(B) Example. If a RIC that holds MMFshares as capital assets changes from arealization method to the NAV method forits income tax year ending January 31,2019, the section 4982 period is bifurcatedinto two portions that are treated as sepa-rate taxable years solely for purposes ofapplying this section. For the portion start-ing on November 1, 2017, and ending onJanuary 31, 2018, the RIC applies its re-alization method for excise tax purposes.For the portion starting on February 1,2018, and ending on October 31, 2018, theRIC applies the NAV method for excisetax purposes, treating February 1, 2018, asthe first day of the RIC’s tax year forpurposes of paragraphs (b)(1) and (6) ofthis section. The RIC’s net gain or loss forthis later portion is determined underparagraph (c)(2)(iii) of this section. Thisnet gain or loss and any gains and lossesfor the earlier portion determined underthe realization method are taken into ac-count in determining the RIC’s capitalgain net income for the full one-year pe-riod described in section 4982(b)(1)(B).

(d) Example. The provisions of thissection may be illustrated by the follow-ing example:

Example. (i) Fund is an MMF. Shareholder is aperson whose taxable year is the calendar year. OnJanuary 1 of Year 1, Shareholder owns 5,000,000shares in Fund with an adjusted basis of$5,000,000.00. The price of Fund shares has notvaried from $1.00 from the date Shareholder ac-quired the shares through January 1 of Year 1. Dur-ing that period, Shareholder has engaged in multiplepurchases and redemptions of Fund shares, butShareholder has reported no gains or losses withrespect to the shares because Shareholder realized anamount in each redemption equal to Shareholder’sbasis in the redeemed shares. During Year 1, theprice of Fund shares begins to float. During Year 1,Shareholder receives $32,158.23 in taxable divi-dends from Fund and makes 120 purchases of addi-tional shares in Fund (including purchases throughthe reinvestment of those dividends) totaling$1,253,256.37 and 28 redemptions totaling$1,124,591.71. The fair market value of Sharehold-er’s shares in Fund at the end of Year 1 is$5,129,750.00. All of Shareholder’s shares in Fundare held in a single account and as capital assets.There is no adjustment to the basis in Shareholder’s

shares in Fund under any provision of internal rev-enue law during Year 1.

(ii) Prior to Year 1, Shareholder has had no gainsor losses to report with respect to the Fund sharesunder a realization method and no changes in fairmarket value that would have been reported underthe NAV method. Therefore, Shareholder may usethe NAV method for the shares in Fund for Year 1.Shareholder uses the NAV method for the shareswith its taxable year as the computation period.Shareholder’s net investment in Fund for Year 1equals $128,664.66 (the $1,253,256.37 in purchases,minus the $1,124,591.71 in redemptions). Share-holder’s Year 1 gain therefore is $1,085.34, which isthe ending value of Shareholder’s shares($5,129,750.00), minus the starting basis of Share-holder’s shares ($5,000,000.00), minus Sharehold-er’s net investment in the fund for the taxable year($128,664.66). The gain of $1,085.34 is treated asshort-term capital gain. Shareholder’s starting basisfor Year 2 is $5,129,750.00. Shareholder also mustinclude the $32,158.23 in dividends in its income forYear 1 in the same manner as if Shareholder did notuse the NAV method.

(iii) If Shareholder had instead adopted the cal-endar month as its computation period, it would haveused the NAV method for every month of Year 1,even though prices of Fund shares may have beenfixed for some months.

(e) Effective/applicability date. Exceptas provided in the following sentence, thissection applies to taxable years ending onor after July 8, 2016. For taxable yearsending on or after July 28, 2014, andbeginning before July 8, 2016, however,shareholders of MMFs may rely either onthis section or on § 1.446–7 of the 2014proposed regulations REG–107012–14(79 FR 43694).

Par. 3. Section 1.6045–1 is amended byrevising paragraph (c)(3)(vi) to read asfollows:

§ 1.6045–1 Returns of information ofbrokers and barter exchanges.

* * * * *(c) * * *(3) * * *(vi) Money market funds—(A) In gen-

eral. No return of information is requiredwith respect to a sale of shares in a regu-lated investment company that is permit-ted to hold itself out to investors as amoney market fund under Rule 2a–7 un-der the Investment Company Act of 1940(17 CFR 270.2a–7).

(B) Effective/applicability date. Para-graph (c)(3)(vi)(A) of this section appliesto sales of shares in calendar years begin-ning on or after July 8, 2016. Taxpayersand brokers (as defined in § 1.6045–

July 25, 2016 Bulletin No. 2016–30158

1(a)(1)), however, may rely on paragraph(c)(3)(vi)(A) of this section for sales ofshares in calendar years beginning beforeJuly 8, 2016.

* * * * *

John DalrympleDeputy Commissioner for

Services and Enforcement.

Approved: June 15, 2016

Mark J. MazurAssistant Secretary of the

Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 7, 2016,8:45 a.m., and published in the issue of the Federal Registerfor July 8, 2016, 81 F.R. 44508)

26 CFR 1.506–1: Requirement to Notify the IRS ofIntent to Operate as a Section 501(c)(4) Organization

T.D. 9775

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Parts 1 and 602

Requirement to Notify theIRS of Intent to Operate asa Section 501(c)(4)Organization; Final andTemporary Regulations

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains fi-nal and temporary regulations relating tothe requirement, added by the ProtectingAmericans from Tax Hikes Act of 2015,that organizations must notify the IRS oftheir intent to operate under section501(c)(4) of the Internal Revenue Code(Code). The regulations affect organiza-tions described in section 501(c)(4) (sec-tion 501(c)(4) organizations) that are or-ganized after December 18, 2015, andcertain section 501(c)(4) organizations ex-isting on that date. The text of the tempo-rary regulations serves as the text of theproposed regulations set forth in the re-lated notice of proposed rulemaking

(REG–101689–16) published in the Pro-posed Rules section in this issue of theInternal Revenue Bulletin.

DATES: Effective Date: These regula-tions are effective on July 8, 2016.

Applicability Date: For date of appli-cability, see § 1.506–1T(f).

FOR FURTHER INFORMATION CON-TACT: Chelsea Rubin at (202) 317-5800(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in these final and temporary regu-lations will be reviewed and, pending re-ceipt and evaluation of public comments,approved by the Office of Managementand Budget under control number 1545-2268.

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

For further information concerning thiscollection of information, please refer tothe preamble to the cross-referencing no-tice of proposed rulemaking publishedin the Proposed Rules section of this issueof the Internal Revenue Bulletin.

Books and records relating to a collec-tion of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by 26 U.S.C. 6103.

Background

This Treasury decision contains tem-porary regulations under section 506 ofthe Code. Section 405 of the ProtectingAmericans from Tax Hikes Act of 2015(Pub. L. No. 114–113, div. Q) (the PATHAct), enacted on December 18, 2015,added section 506 to the Code andamended sections 6033 and 6652. Be-cause the statutory provisions were effec-tive upon enactment and certain section501(c)(4) organizations must notify theIRS within 60 days of formation, thesetemporary regulations are necessary toprovide prompt guidance to enable section

501(c)(4) organizations to satisfy the newstatutory notification requirement and pro-vide appropriate transition relief.

1. Section 501(c)(4) Organizations

Section 501(a) of the Code generallyprovides that an organization described insection 501(c) is exempt from federal in-come tax. Section 501(c)(4) describes cer-tain civic leagues or organizations oper-ated exclusively for the promotion ofsocial welfare and certain local associa-tions of employees. An organization isdescribed in section 501(c)(4) and exemptfrom tax under section 501(a) if it satisfiesthe requirements applicable to such status.Subject to certain exceptions, section6033, in part, requires organizations ex-empt from taxation under section 501(a)to file annual information returns or no-tices, as applicable.

Although an organization may apply tothe IRS for recognition that the organiza-tion qualifies for tax-exempt status undersection 501(c)(4), there is no requirementto do so (except as provided in section6033(j)(2), which requires organizationsthat lose tax-exempt status for failure tofile required annual information returns ornotices and want to regain tax-exempt sta-tus to apply to obtain reinstatement ofsuch status). Accordingly, a section501(c)(4) organization that files annual in-formation returns or notices, as requiredunder section 6033, need not seek an IRSdetermination of its qualification for tax-exempt status in order to be described inand operate as a section 501(c)(4) organi-zation.

2. The PATH Act

Section 405(a) of the PATH Act addedsection 506 to the Code, requiring an or-ganization to notify the IRS of its intent tooperate as a section 501(c)(4) organiza-tion. In addition, section 405(b) and (c) ofthe PATH Act amended sections 6033(f)and 6652(c), relating to information thatsection 501(c)(4) organizations may berequired to include on their annual infor-mation returns and penalties for certainfailures by tax-exempt organizations tocomply with filing or disclosure require-ments, respectively.

Bulletin No. 2016–30 July 25, 2016159

Section 506(a) requires a section501(c)(4) organization, no later than 60days after the organization is established,to notify the Secretary of the Departmentof the Treasury (Secretary) that it is oper-ating as a section 501(c)(4) organization(the notification). Section 506(b) providesthat the notification must include: (1) thename, address, and taxpayer identificationnumber of the organization; (2) the dateon which, and the state under the laws ofwhich, the organization was organized;and (3) a statement of the purpose of theorganization. Section 506(c) requires theSecretary to send the organization an ac-knowledgment of the receipt of its notifi-cation within 60 days. Section 506(d) per-mits the Secretary to extend the 60-daynotification period for reasonable cause.Section 506(e) provides that the Secretaryshall impose a reasonable user fee forsubmission of the notification. Section506(f) provides that, upon request by anorganization, the Secretary may issue adetermination with respect to the organi-zation’s treatment as a section 501(c)(4)organization and that the organization’srequest will be treated as an applicationfor exemption from taxation under section501(a) subject to public inspection undersection 6104.1

In addition, the PATH Act amendedsection 6033(f) to require a section501(c)(4) organization submitting the no-tification to include with its first annualinformation return after submitting the no-tification any additional information pre-scribed by regulation that supports theorganization’s treatment as a section501(c)(4) organization.

The PATH Act also amended section6652(c) to impose penalties for failure tosubmit the notification by the date and inthe manner prescribed in regulations. Inparticular, section 6652(c)(4)(A) imposesa penalty on an organization that fails tosubmit the notification equal to $20 perday for each day such failure continues,up to a maximum of $5,000. Additionally,section 6652(c)(4)(B) imposes a similarpenalty on persons who fail to timely sub-mit the notification in response to a writ-ten request by the Secretary.

Section 405(f) of the PATH Act pro-vides that, in general, the requirement to

submit the notification and the relatedamendments to sections 6033 and 6652apply to section 501(c)(4) organizationsthat are established after December 18,2015, the date of enactment of the PATHAct. Section 405(f)(2) of the PATH Actprovides that these provisions also applyto any other section 501(c)(4) organiza-tions that had not, on or before the date ofenactment of the PATH Act: (1) appliedfor a written determination of recognitionas a section 501(c)(4) organization (usingForm 1024, “Application for Recognitionof Exemption Under Section 501(a)”); or(2) filed at least one annual informationreturn or notice required under section6033(a)(1) or (i) (that is, a Form 990,“Return of Organization Exempt From In-come Tax,” or, if eligible, Form 990–EZ,“Short Form Return of Organization Ex-empt From Income Tax,” or Form 990–N(e-Postcard)). Organizations described insection 405(f)(2) of the PATH Act mustsubmit the notification within 180 daysafter the date of enactment of the PATHAct.

3. Notice 2016–09

The Treasury Department and the IRSissued Notice 2016–09 (2016–6 IRB 306(February 8, 2016)) to provide interimguidance regarding section 405 of thePATH Act. Specifically, Notice 2016–09extended the due date for submitting thenotification until at least 60 days from thedate that implementing regulations are is-sued in order to provide adequate transi-tion time for organizations to comply withthe new requirement to submit the notifi-cation. Notice 2016–09 further stated thatno penalties under section 6652(c)(4)would apply to a section 501(c)(4) orga-nization that submits the notification bythe due date provided in the regulations.

With respect to the separate procedureby which an organization may request adetermination from the IRS that it quali-fies for tax-exempt status under section501(c)(4), Notice 2016–09 stated that or-ganizations seeking IRS recognition ofsection 501(c)(4) status should continueusing Form 1024 until further guidance isissued. Notice 2016–09 also clarified thatthe filing of Form 1024 does not relieve an

organization of the requirement to submitthe notification. The Treasury Departmentand the IRS received a public comment inresponse to Notice 2016–09, which wasconsidered in drafting these temporaryregulations.

Explanation of Provisions

1. Overview of Temporary Regulations

The temporary regulations prescribethe manner in which an organization mustnotify the IRS, consistent with section506, that it is operating as a section501(c)(4) organization. In addition, thetemporary regulations clarify that the sub-mission of the notification does not con-stitute a request by an organization for adetermination from the IRS that it quali-fies for tax-exempt status.

2. The Notification

The IRS has developed a new elec-tronic form, Form 8976, “Notice of Intentto Operate Under Section 501(c)(4),” foruse by organizations submitting the noti-fication. In accordance with section506(a), the temporary regulations gener-ally require a section 501(c)(4) organiza-tion to submit the notification to the IRSon Form 8976 (or its successor) no laterthan 60 days after the date the organiza-tion is organized. The Form 8976 must besubmitted in accordance with the formand its instructions.

Consistent with section 506(b), thetemporary regulations specify that the no-tification must include: (1) the name, ad-dress, and taxpayer identification numberof the organization; (2) the date on which,and the state or other jurisdiction underthe laws of which, the organization wasorganized; and (3) a statement of the pur-pose of the organization. In addition, thetemporary regulations provide that the no-tification must include such additional in-formation as may be specified in pub-lished guidance in the Internal RevenueBulletin or in other guidance, such asforms or instructions, issued with respectto the notification. To ensure that the stat-utorily required items of information inthe notification are correlated accuratelywithin existing IRS systems, Form 8976

1The separate procedure by which an organization may request a determination of tax-exempt status is prescribed in Rev. Proc. 2016–5, 2016–1 IRB 188, or its successor.

July 25, 2016 Bulletin No. 2016–30160

requires organizations to provide their an-nual accounting period.

The temporary regulations also providethat the notification must be accompaniedby payment of the reasonable user feeauthorized by section 506(e), which willbe set forth by published guidance in theInternal Revenue Bulletin or in otherguidance, such as forms or instructions,issued with respect to the notification.Consistent with section 506(d), the tem-porary regulations state that the 60-dayperiod for submitting the notification maybe extended for reasonable cause.

Further, the temporary regulations pro-vide that, within 60 days after receipt ofthe notification, the IRS will send the or-ganization an acknowledgment of such re-ceipt. The temporary regulations clarifythat this acknowledgment is not a deter-mination with respect to tax-exempt sta-tus. Thus, it is not a determination onwhich an organization may rely or a de-termination or a failure to make a deter-mination with respect to which the orga-nization may seek declaratory judgmentunder section 7428. For further informa-tion regarding the interaction of the sec-tion 506 notification requirement with theseparate procedure by which an organiza-tion may request an IRS determinationthat it qualifies for tax-exempt status un-der section 501(c)(4), see section 5 of thisExplanation of Provisions.

Finally, the temporary regulations pro-vide that additional guidance on the pro-cedures for submitting the notificationmay be provided in published guidance inthe Internal Revenue Bulletin or in otherguidance, such as forms or instructions,issued with respect to the notification. OnJuly 8, 2016, the IRS released Rev. Proc.2016–41, 2016–30 IRB 165, which pro-vides additional information on the proce-dure for submitting the Form 8976.

A public comment submitted in re-sponse to Notice 2016–09 suggested thatsection 506(a) should not apply to foreignorganizations that do not conduct signifi-cant activities (other than investment ac-tivities) in the United States, even if theorganizations may be required to submit aForm 990 to the IRS. As the commenternotes, foreign section 501(c)(4) organiza-tions generally are required to file an an-nual information return or notice with theIRS under section 6033. See Rev. Proc.

2011–15, § 3 (2011–3 IRB 322). Section506(a) does not include an exception fromthe requirement to submit the notificationfor foreign section 501(c)(4) organiza-tions. The Treasury Department and theIRS have determined that the regulationsshould not create such an exception be-cause the requirement to submit the noti-fication is intended to replace the formerpractice under which section 501(c)(4) or-ganizations (both domestic and foreign)might not notify the IRS that they claimsection 501(c)(4) status until they file aForm 990 return or notice. Accordingly,the temporary regulations clarify that asection 501(c)(4) organization must sub-mit the notification whether it is organizedin the United States or outside the UnitedStates. However, a foreign organizationmay be eligible for relief from penaltiesunder section 6652 if it submits the noti-fication promptly after first commencingactivities or receiving income that wouldcause it to have a filing requirement undersection 6033. Rev. Proc. 2016–41 in-cludes an example to illustrate the avail-ability of this relief.

3. Special Rules for OrganizationsOrganized on or Before July 8, 2016

Under section 405(f)(2) of the PATHAct, the requirement to submit the notifi-cation does not apply to certain organiza-tions that notified the IRS of their exis-tence on or before December 18, 2015.The Treasury Department and the IRSrecognize that, since the enactment of thePATH Act but before the availability ofthe new electronic Form 8976 for submit-ting the notification, additional section501(c)(4) organizations may have notifiedthe IRS of their existence by applying fora written determination of tax-exempt sta-tus or filing a required annual informationreturn or notice. Accordingly, to reducethe burden on these organizations and theIRS, the temporary regulations provide re-lief from the requirement to submit thenotification for any section 501(c)(4) or-ganization that, on or before July 8, 2016,either: (1) applied for a written determi-nation of recognition as a section501(c)(4) organization (using Form1024); or (2) filed at least one annualreturn or notice required under section

6033(a)(1) or (i) (that is, a Form 990 or, ifeligible, Form 990–EZ or Form 990–N).

In order to allow adequate transitiontime for organizations that do not qualifyfor this transition relief to submit the no-tification in the manner prescribed bythese regulations, the temporary regula-tions provide that an organization that wasorganized on or before July 8, 2016, willhave until September 6, 2016, which is 60days from the date that the regulations arefiled with the Federal Register, to submitthe notification.

4. Failure to Submit the Notification

For information on the applicable pen-alties for failure to submit the notification,the temporary regulations refer to section6652(c)(4), which imposes penalties onthe organization and on persons who failto timely submit the notification in re-sponse to a written request by the Secre-tary, as well as section 6652(c)(5), whichprovides a reasonable cause exception,and section 6652(c)(6), which providesother special rules that generally apply forpurposes of section 6652(c) penalties.

Under section 6652(c)(5), no penaltywill be imposed with respect to a failure tosubmit the notification if it is shown thatsuch failure is due to reasonable cause.Rev. Proc. 2016–41 addresses reasonablecause for abating a section 6652(c)(4)penalty.

Under section 6652(c)(6), the section6652(c)(4)(B) penalty imposed on “per-sons” who fail to timely submit the noti-fication in response to a written request bythe Secretary applies to any officer, direc-tor, trustee, employee, or other individualwho is under a duty to submit the notifica-tion. In addition, under section 6652(c)(6), ifmore than one person is liable for the sec-tion 6652(c)(4)(B) penalty, all such personswill be jointly and severally liable with re-spect to the failure to submit the notification.

5. Separate Procedure by Which anOrganization May Request an IRSDetermination That It Qualifies forSection 501(c)(4) Exempt Status

Section 506(f) provides that an organi-zation subject to the section 506 notifica-tion requirement may request a determi-nation to be treated as an organization

Bulletin No. 2016–30 July 25, 2016161

described in section 501(c)(4). This indi-cates that the procedure by which an or-ganization may request a determinationthat it is described in section 501(c)(4) isseparate from the procedure for submit-ting the notification. Accordingly, thetemporary regulations provide that sub-mission of the notification does not con-stitute a request for an IRS determinationthat the organization qualifies for tax-exempt status under section 501(c)(4).Rather, an organization that seeks IRSrecognition of tax-exempt status undersection 501(c)(4) must separately requesta determination in the manner prescribedin Rev. Proc. 2016–5, or its successor.

If an organization receives a determi-nation from the IRS recognizing tax-exempt status, the organization’s appli-cation, supporting papers, and finaldetermination letter are open to publicinspection under section 6104(a)(1) and(d). The notification, by contrast, is notopen for public inspection because it isnot an application within the meaning ofsection 6104.

6. No Additional Information Requiredon Form 990 or 990–EZ at this Time

Section 6033(f)(2), as amended by thePATH Act, provides that the IRS mayrequire an organization that submits thenotification to include additional informa-tion in support of the organization’s treat-ment as an organization described in sec-tion 501(c)(4) on the first Form 990 or990–EZ, as applicable, filed by the orga-nization after submitting the notification.The temporary regulations do not pre-scribe any additional information to bereported on Form 990 or 990–EZ at thistime. The IRS will monitor the notifica-tion process to determine whether addi-tional information is needed.

Statement of Availability of IRSDocuments

For copies of recently issued revenueprocedures, revenue rulings, notices, andother guidance published in the InternalRevenue Bulletin, please visit the IRSwebsite at http://www.irs.gov.

Special Analyses

Certain IRS regulations, including thisone, are exempt from the requirements ofExecutive Order 12866, as supplementedand reaffirmed by Executive Order 13563.Therefore, a regulatory assessment is notrequired. It has been determined that sec-tion 553(b) of the Administrative Proce-dure Act (5 U.S.C. chapter 5) does notapply to these regulations. For applicabil-ity of the Regulatory Flexibility Act,please refer to the cross-referencing noticeof proposed rulemaking published in theProposed Rules section of this issue of theInternal Revenue Bulletin. Pursuant tosection 7805(f) of the Code, these regula-tions have been submitted to the ChiefCounsel for Advocacy of the Small Busi-ness Administration for comment on itsimpact on small business.

Drafting Information

The principal author of these regula-tions is Chelsea R. Rubin, Office of As-sociate Chief Counsel (Tax Exempt andGovernment Entities). However, otherpersonnel from the Treasury Departmentand the IRS participated in their develop-ment.

* * * * *

Adoption of Amendments to theRegulations

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

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *Par 2. Section 1.506–1T is added to

read as follows:

§ 1.506–1T Organizations required tonotify Commissioner of intent to operateunder section 501(c)(4) (temporary).

(a) Notification requirement—(1) Ingeneral. Except as provided in paragraph(b) of this section, an organization(whether domestic or foreign) describedin section 501(c)(4) must, no later than 60days after the date the organization is or-ganized, notify the Commissioner that it isoperating as an organization described in

section 501(c)(4) by submitting a com-pleted Form 8976, “Notice of Intent toOperate Under Section 501(c)(4),” or itssuccessor (the notification). The notifica-tion must be submitted in accordance withthe form and its instructions. The notifi-cation must include the information spec-ified in paragraph (a)(2) of this sectionand be accompanied by payment of theuser fee described in paragraph (a)(3) ofthis section. Additional guidance on theprocedure for submitting the notificationmay be provided in published guidance inthe Internal Revenue Bulletin (see§ 601.601(d)(2) of this chapter) or in otherguidance, such as forms or instructions,issued with respect to the notification.

(2) Contents of the notification. Thenotification must include the following in-formation:

(i) The name, address, and taxpayeridentification number of the organization.

(ii) The date on which, and the state orother jurisdiction under the laws of which,the organization was organized (that is,formed as a legal entity). For an organi-zation formed outside the United States,the jurisdiction is the foreign country un-der the laws of which it is organized.

(iii) A statement of the purpose of theorganization.

(iv) Such additional information as maybe specified in published guidance in the In-ternal Revenue Bulletin (see § 601.601(d)(2)of this chapter) or in other guidance, suchas forms or instructions, issued with re-spect to the notification.

(3) User fee. The notification must beaccompanied by payment of the user fee setforth by published guidance in the InternalRevenue Bulletin (see § 601.601(d)(2) ofthis chapter) or in other guidance, such asforms or instructions, issued with respect tothe notification.

(4) Extension for reasonable cause.The Commissioner may, for reasonablecause, extend the 60-day period for sub-mitting the notification.

(b) Special rules for organizations thatwere organized on or before July 8,2016—(1) Notification requirement doesnot apply to organizations that filed withthe IRS on or before December 18, 2015.The requirement to submit the notificationdoes not apply to any organization de-scribed in section 501(c)(4) that, on orbefore December 18, 2015, either—

July 25, 2016 Bulletin No. 2016–30162

(i) Applied for a written determinationof recognition as an organization de-scribed in section 501(c)(4) in accordancewith § 1.501(a)–1 and all applicable guid-ance published in the Internal RevenueBulletin (see § 601.601(d)(2) of this chap-ter), forms, and instructions; or

(ii) Filed at least one annual informa-tion return or annual electronic notifica-tion required under section 6033(a)(1) or(i).

(2) Transition relief available for or-ganizations that filed with the IRS on orbefore July 8, 2016. An organization de-scribed in section 501(c)(4) is not requiredto submit the notification if, on or beforeJuly 8, 2016, the organization either—

(i) Applied for a written determinationof recognition as an organization de-scribed in section 501(c)(4) in accordancewith § 1.501(a)–1 and all applicable guid-ance published in the Internal RevenueBulletin (see § 601.601(d)(2) of this chap-ter), forms, and instructions; or

(ii) Filed at least one annual informa-tion return or annual electronic notifica-tion required under section 6033(a)(1) or(i).

(3) Extended due date. An organizationthat was organized on or before July 8,2016, and is not described in paragraph(b)(1) or (2) of this section, will satisfy therequirement to submit the notification ifthe notification is submitted on or beforeSeptember 6, 2016.

(c) Failure to submit the notification.For information on the penalties for fail-ure to submit the notification, the applica-ble reasonable cause exception, and appli-

cable special rules, see section 6652(c)(4)through (6).

(d) Acknowledgment of receipt. Within60 days after receipt of the notification,the Commissioner will send the organiza-tion an acknowledgment of such receipt.This acknowledgment is not a determina-tion by the Commissioner that the organi-zation qualifies for exemption under sec-tion 501(a) as an organization described insection 501(c)(4). See paragraph (e) ofthis section.

(e) Separate procedure by which anorganization may request an IRS determi-nation that it qualifies for section501(c)(4) tax-exempt status. Submissionof the notification does not constitute arequest by an organization for a determi-nation by the Commissioner that the or-ganization qualifies for exemption undersection 501(a) as an organization de-scribed in section 501(c)(4). An organiza-tion seeking IRS recognition of its tax-exempt status must separately requestsuch a determination in accordance with§ 1.501(a)–1 and all applicable guidancepublished in the Internal Revenue Bulletin(see § 601.601(d)(2) of this chapter),forms, and instructions.

(f) Effective/applicability date. Thissection applies on and after July 8, 2016.

(g) Expiration date. The applicabilityof this section expires on or before July 8,2019.

PART 602—OMB CONTROLNUMBERS UNDER THEPAPERWORK REDUCTION ACT

Par. 3. The authority for part 602 con-tinues to read as follows:

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

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

§ 602.101 OMB Control numbers.

* * * * *(b) * * *

CFR part orsection whereIdentified anddescribed

Current OMBcontrol no.

* * * * *

1.506–1T ............... 1545-2268

* * * * *

John Dalrymple,Deputy Commissioner for

Services and Enforcement.

Approved: June 24, 2016.

Mark J. Mazur,Assistant Secretary of the

Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 8, 2016,11:15 a.m., and published in the issue of the Federal Reg-ister for July 12, 2016, 81 F.R. 45008)

Bulletin No. 2016–30 July 25, 2016163

Part III. Administrative, Procedural, and Miscellaneous26 CFR 601.201: Changes in accounting periodsand in methods of accounting.(Also: Part I, § 446; 1.446–1 1.446–7)

Rev. Proc. 2016–39SECTION 1. PURPOSE

This revenue procedure provides theprocedures by which a taxpayer may ob-tain the automatic consent of the Commis-sioner of Internal Revenue (Commis-sioner) to change to or from the net assetvalue (NAV) method of accounting pro-vided in § 1.446–7 of the Income TaxRegulations for gain or loss on shares in amoney market fund (MMF). This revenueprocedure modifies Rev. Proc. 2016–29,2016–21 I.R.B. 1.

SECTION 2. BACKGROUND

.01 Concurrently with the release ofthis revenue procedure, the Department ofthe Treasury (Treasury Department) andthe Internal Revenue Service are issuingfinal regulations under § 446 (T.D. 9774)(the final regulations). The final regula-tions respond to the adoption by the Se-curities and Exchange Commission of cer-tain amendments to Rule 2a–7 (17 CFR270.2a–7) under the Investment CompanyAct of 1940. See 79 FR 47736 (August 14,2014). The amendments establish circum-stances in which MMFs may impose li-quidity fees and change how certain MMFshares are priced. The final regulations areintended to simplify tax compliance forholders of shares in MMFs affected by theamendments. Specifically, § 1.446–7 pro-vides a permissible method of accounting(the NAV method) for gain or loss onshares in an MMF. Under the NAVmethod, a taxpayer’s gain or loss onshares in an MMF is based on the changein the aggregate value of the taxpayer’sshares during a computation period se-lected by the taxpayer and on the netamount of the purchases and redemptionsduring the computation period. The finalregulations generally apply to taxableyears ending on or after July 8, 2016.

.02 Except as otherwise expressly pro-vided by the Internal Revenue Code or theregulations thereunder, § 446(e) and§ 1.446–1(e)(2) require a taxpayer to se-cure the consent of the Commissioner be-

fore changing a method of accounting forfederal income tax purposes. Section1.446–1(e)(3)(ii) authorizes the Commis-sioner to prescribe administrative proce-dures setting forth the terms and condi-tions necessary for a taxpayer to obtainconsent to a change in method of account-ing. Rev. Proc. 2015–13, 2015–5 I.R.B.419, as clarified and modified by Rev.Proc. 2015–33, 2015–24 I.R.B. 1067, andas modified by Rev. Proc. 2016–1,2016–1 I.R.B. 1, provides the general pro-cedures by which a taxpayer may obtainautomatic consent of the Commissioner toa change in method of accounting de-scribed in Rev. Proc. 2016–29.

.03 Section 1.446–7(c)(8) providesthat a change to or from the NAV methodis a change in method of accounting towhich the provisions of § 446 and theregulations thereunder apply and that anysuch change will be made on a cut-offbasis. This revenue procedure providesthat, under certain circumstances, such achange must be made under the automaticchange procedures in Rev. Proc. 2015–13.

SECTION 3. CHANGE IN METHODOF ACCOUNTING

.01 In general. A taxpayer that wants tochange to or from the NAV method ofaccounting described in § 1.446–7 mustuse the automatic change procedures inRev. Proc. 2015–13, or its successor, andRev. Proc. 2016–29, or its successor, asmodified by section 3.02 of this revenueprocedure.

.02 Automatic change. Rev. Proc.2016–29 is modified to add new section15.17 to read as follows:

.17 Change to or from the net assetvalue (NAV) method.

(1) Description of change. This changeapplies to a taxpayer that holds shares in amoney market fund (MMF) as defined in§ 1.446–7(b)(4) (giving effect to § 1.446–7(c)(5), under which MMF holdings indifferent accounts are treated as differentMMFs) and that wants to change itsmethod of accounting for gain or loss onthe shares from a realization method to theNAV method described in § 1.446–7 orfrom the NAV method to a realizationmethod.

(2) Certain eligibility requirements in-applicable. The eligibility rules in sec-tions 5.01(1)(c), (d), and (f) of Rev. Proc.2015–13 do not apply to this change.

(3) Definitions.(a) “Rule 2a–7” means Rule 2a–7 (17

CFR 270.2a–7) under the InvestmentCompany Act of 1940.

(b) “Floating-NAV MMF” means anMMF that is required to value its assetsusing market factors and to round its priceper share to the nearest basis point (thefourth decimal place, in the case of a fundwith a $1.0000 share price) under Rule2a–7.

(c) “Stable-NAV MMF” means anMMF that is not a floating-NAV MMF.

(4) Manner of making change.(a) A change to or from the NAV

method is made on a cut-off basis. See§ 1.446–7(c)(8). Accordingly, a § 481(a)adjustment is neither permitted nor re-quired. A taxpayer making a change to orfrom the NAV method for shares in anMMF applies the new method only to thecomputation of gain or loss on the sharesbeginning with the year of change. Under§ 1.446–7(b)(7)(ii), a taxpayer changingto the NAV method takes a starting basis(as defined in § 1.446–7(b)(7)) in thoseshares for the year of change equal to theaggregate adjusted basis of the taxpayer’sshares in the MMF at the end of the im-mediately preceding taxable year. A tax-payer changing from the NAV method toa realization method for shares in anMMF must adjust the basis in the sharesbeginning on the first day of the year ofchange to account for gain or loss previ-ously recognized under the NAV method.Accordingly, the taxpayer generally takesa basis in each MMF share at the begin-ning of the year of change equal to the fairmarket value of that share under § 1.446–7(b)(3) used in computing the endingvalue (as defined in § 1.446–7(b)(2)) ofthe shares in that MMF for the final com-putation period (as defined in § 1.446–7(b)(1)) of the taxable year prior to theyear of change.

(b) Short Form 3115 in lieu of a Form3115. In accordance with § 1.446–1(e)(3)(ii), the requirement of § 1.446–1(e)(3)(i) to file a Form 3115 is waivedand, pursuant to section 6.02(2) of Rev.

July 25, 2016 Bulletin No. 2016–30164

Proc. 2015–13, a short Form 3115 is au-thorized for a taxpayer changing from arealization method to the NAV method, orchanging from the NAV method to a re-alization method, for shares in an MMF.Unless the change meets the requirementsof section 15.17(4)(c) of this revenue pro-cedure, the taxpayer must file a shortForm 3115 that includes the followinginformation:

(i) the identification section of page 1(above Part I);

(ii) the signature section at the bottomof page 1;

(iii) Part I, line 1(a);(iv) a statement specifying whether the

taxpayer is changing from a realizationmethod to the NAV method or from theNAV method to a realization method; and

(v) a statement specifying the MMF orMMFs to which the change applies, if thechange does not apply to all MMFs inwhich the taxpayer holds shares (and, tothe extent applicable, whether the changeapplies only to shares of the MMF orMMFs held in a particular account).

(c) No Form 3115 Required. In accor-dance with § 1.446–1(e)(3)(ii), a taxpayerchanging to the NAV method for shares ina stable-NAV MMF may change to theNAV method on a federal tax return with-out filing a Form 3115 if the followingrequirements are satisfied:

(i) the taxpayer has not used the NAVmethod for shares in the MMF for anytaxable year prior to the year of change;and

(ii) prior to the year of change, either(A) the taxpayer’s basis in each share

of the MMF has been at all times equal tothe MMF’s target share price, or

(B) the taxpayer has not realized anygain or loss with respect to shares in theMMF.

(5) Multiple changes. A taxpayer mak-ing multiple changes under this section15.17 for the same year of change on ashort Form 3115 should file a single shortForm 3115. The short Form 3115 willbe treated as applying to all shares thatthe taxpayer holds in any MMF unless thetaxpayer specifies the MMFs to which thechange applies. If the taxpayer specifiesan MMF, the short Form 3115 will betreated as applying to all shares in thatMMF held in any account by the taxpayer,

unless the short Form 3115 specifies theaccounts to which the change applies.

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under this section15.17 is “227.”

(7) Contact Information. For furtherinformation regarding a change under thissection 15.17, contact Jason Kurth at(202) 317-6842 (not a toll-free number).

SECTION 4. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2016 –29 is modified toinclude a new section 15.17 that setsforth the accounting method change pro-vided in section 3.02 of this revenueprocedure.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective fortaxable years ending on or after July 8,2016.

SECTION 6. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Jason Kurth of the Office ofAssociate Chief Counsel (Financial Insti-tutions & Products). For further informa-tion regarding this revenue procedure con-tact Mr. Kurth at (202) 317-6842 (not atoll free number).

26 CFR 1.506. Requirement to notify the IRS ofintent to operate as a section 501(c)(4) organization.

Rev. Proc. 2016–41

SECTION 1. PURPOSE

This revenue procedure sets forth theprocedure for an organization to notify theInternal Revenue Service (IRS), consis-tent with section 506 of the Internal Rev-enue Code (Code), that it is operating asan organization described in section501(c)(4) of the Code (a section 501(c)(4)organization).

.01 In general. Section 506, added tothe Code on December 18, 2015, by theProtecting Americans from Tax Hikes Actof 2015 (Pub. L. No. 114–113, div. Q)(the PATH Act), requires a section501(c)(4) organization, no later than 60

days after the organization is established,to notify the Secretary of the Treasury (theSecretary) that it is operating as a section501(c)(4) organization. The requirementto submit this notification applies to sec-tion 501(c)(4) organizations organized af-ter December 18, 2015, and to certainsection 501(c)(4) organizations existingon that date.

.02 Terms used in this revenue proce-dure. For purposes of this revenue proce-dure—

(1) “Form 8976” means the Form8976, Notice of Intent to Operate UnderSection 501(c)(4), which is used by anorganization to notify the IRS that it isoperating as a section 501(c)(4) organiza-tion, as required by section 506 of theCode.

(2) “Date of Organization” means thedate on which the organization wasformed as a legal entity. Generally, forcorporations formed in the United States,the date of organization refers to the datethat the charter or articles of incorporationwere approved by the appropriate stateofficial. For unincorporated organizations,the date of organization refers to the datethat the constitution or articles of associ-ation were adopted.

(3) “State or other jurisdiction of orga-nization” means the jurisdiction, foreignor domestic, under the laws of which theorganization was organized.

(4) “Determination Letter” means awritten statement issued in response to anapplication for recognition of exemptionfrom federal income tax under sections501 or 521 by EO Rulings and Agree-ments (the office in IRS Exempt Organi-zations (EO) that is primarily responsiblefor determinations of exempt status, tax-payer assistance, and assistance to otherEO offices) or an Appeals Office (anyoffice under the direction and control ofthe Chief, Appeals).

(5) “Form 1024” means the Form1024, Application for Recognition of Ex-emption Under Section 501(a), which isthe form submitted by an organizationseeking a Determination Letter recogniz-ing exemption under section 501(a) asan organization described in section501(c)(2), (4), (5), (6), (7), (8), (9), (10),(12), (13), (15), (17), (19), or (25).

Bulletin No. 2016–30 July 25, 2016165

SECTION 2. BACKGROUND

.01 Section 405 of the PATH Actadded section 506 to the Code, requiringan organization to notify the IRS that it isoperating as a section 501(c)(4) organiza-tion. In addition, section 405(b) and (c) ofthe PATH Act amended sections 6033(f)(relating to information that section501(c)(4) organizations may be requiredto include on their annual information re-turns) and 6652(c) of the Code (relating topenalties for certain failures by tax-exempt organizations to comply with fil-ing or disclosure requirements). See§§ 6033(f)(2), 6652(c)(4).

.02 Under section 405(f) of the PATHAct, section 506 and the related amend-ments to sections 6033 and 6652 of theCode apply to section 501(c)(4) organiza-tions except for any organization that had,on or before December 18, 2015—

(1) Applied for a Determination Letterthat recognizes the organization as a sec-tion 501(c)(4) organization (using Form1024); or

(2) Filed at least one annual informa-tion return or notice required under sec-tion 6033(a)(1) or (i) (a Form 990, Returnof Organization Exempt From IncomeTax, or, if eligible, Form 990–EZ, ShortForm Return of Organization ExemptFrom Income Tax, or Form 990–N (e-Postcard)).

.03 Section 506(a) provides that thenotification is due no later than 60 daysafter the organization is established. Sec-tion 405(f)(2) of the PATH Act provides,for organizations in existence on Decem-ber 18, 2015, that must submit the notifi-cation, that the notification is due no laterthan June 15, 2016, 180 days after the dateof enactment of the PATH Act.

.04 Section 6033(f)(2) requires a sec-tion 501(c)(4) organization submitting thenotification under section 506(a) to in-clude with its first annual information re-turn after submitting the notification anyadditional information prescribed by reg-ulation that supports the organization’streatment as an organization described insection 501(c)(4). As amended, section6652(c)(4) imposes penalties for failure tosubmit the notification under section506(a) by the date and in the mannerprescribed in regulations.

.05 The Treasury Department and theIRS issued Notice 2016–09, 2016–6I.R.B. 306, to provide interim guidanceregarding section 405 of the PATH Act.Specifically, Notice 2016–09 extendedthe due date for submitting the notificationunder section 506 until at least 60 daysfrom the date that implementing regula-tions are issued in order to provide ade-quate transition time for organizations tocomply with the new requirement. Notice2016–09 further stated that no penaltiesunder section 6652(c)(4) would apply to asection 501(c)(4) organization that sub-mits the notification by the due date pro-vided in the regulations.

.06 On July 12, 2016, the TreasuryDepartment and the IRS published TD9775 (81 FR 45008) containing temporaryregulations that prescribe the manner inwhich a section 501(c)(4) organizationmust submit the notification under section506. The temporary regulations providethat the notification must be submitted onForm 8976, or its successor. In addition,the temporary regulations clarify that sub-mission of the notification does not con-stitute a request by an organization for aDetermination Letter from the IRS that itqualifies for tax-exempt status.

.07 As noted in section 2.02 of thisrevenue procedure, any section 501(c)(4)organization that had applied for a Deter-mination Letter that recognizes the orga-nization as described in section 501(c)(4)or filed a Form 990 (or, if eligible, Form990–EZ, or Form 990–N) on or beforeDecember 18, 2015, is excepted undersection 405 of the PATH Act from therequirement to submit the notification un-der section 506. Since the enactment ofthe PATH Act but prior to the availabilityof the new electronic Form 8976 for sub-mitting the notification, additional section501(c)(4) organizations may have filedwith the IRS in the same manner. Toreduce the burden on these section501(c)(4) organizations and the IRS, thetemporary regulations relieve these orga-nizations from the requirement to submitthe notification. Specifically, the tempo-rary regulations provide that an organiza-tion is not required to submit the notifica-tion if it applied for a DeterminationLetter that recognizes the organization asdescribed in section 501(c)(4) (usingForm 1024) or filed a Form 990 (or, if

eligible, Form 990–EZ or Form 990–N)after December 18, 2015, but on or beforeJuly 8, 2016. For organizations that do notqualify for this relief, the temporary reg-ulations also provide a transition rule thatextends the due date of the notificationuntil September 6, 2016.

SECTION 3. APPLICABILITY ANDTIMING OF REQUIREMENT TOSUBMIT NOTIFICATION ONFORM 8976

.01 General rule. Except as provided inparagraph 3.02 of this revenue procedure,a section 501(c)(4) organization must sub-mit a completed Form 8976 to the IRSwithin 60 days after its Date of Organiza-tion.

.02 Special rules for organizations thatwere organized on or before July 8, 2016.

(1) A section 501(c)(4) organization isnot required to submit the Form 8976 if,on or before July 8, 2016, the organizationeither—

(a) Applied on Form 1024 for a Deter-mination Letter that recognizes the orga-nization as a section 501(c)(4) organiza-tion; or

(b) Filed at least one annual informa-tion return or notice required under sec-tion 6033(a)(1) or (i) (a Form 990, or, ifeligible, Form 990–EZ or Form 990–N).

(2) An organization that has a Date ofOrganization on or before July 8, 2016,and is not described in section 3.02(1) ofthis revenue procedure must submit acompleted Form 8976 to the IRS on orbefore September 6, 2016.

SECTION 4. PROCEDURE FORSUBMITTING FORM 8976

.01 Method of Submission.(1) Form 8976 must be submitted on-

line at https://services.irs.gov/registration/.Paper submissions will not be acceptedand will be treated as incomplete Forms8976 as described in section 4.05(4) ofthis revenue procedure. Only Forms 8976that are complete and properly submittedwithin the meaning of this revenue proce-dure will be accepted for processing bythe IRS. See section 4.04 of this revenueprocedure for the requirements for a com-pleted Form 8976. As described in section5.01 of this revenue procedure, an incom-plete Form 8976 will not be accepted for

July 25, 2016 Bulletin No. 2016–30166

23processing by the IRS even if it hasbeen successfully submitted throughhttps://services.irs.gov/registration/.

(2) The individual submitting Form8976 on behalf of a section 501(c)(4) or-ganization must establish an account athttps://services.irs.gov/registration/ tosubmit Form 8976 electronically. The IRSmay send electronically to the account ofthe individual submitting Form 8976 onbehalf of the organization the confirma-tion of transmittal of Form 8976 describedin section 6.02 of this revenue procedure,the notice of non-acceptance for process-ing of Form 8976 described in section 5 ofthis revenue procedure, and/or the ac-knowledgement of receipt of Form 8976described in section 6.01 of this revenueprocedure. Accordingly, the organizationshould ensure that the individual is autho-rized not only to submit the Form 8976but also to receive these communicationsrelating to the organization’s submission.

.02 User fee. Consistent with section506(e), a Form 8976 must be accompa-nied by payment of the correct user fee onwww.pay.gov. The correct user fee for2016 is $50. In future years, the user feewill be set forth in the instructions orpublications with respect to the Form8976. Payment confirmations are pro-vided through the www.pay.gov portal.Additional information about paymentsubmission can be found under FrequentlyAsked Questions at www.pay.gov.

.03 Penalty for late submission. Anorganization that submits a completedForm 8976 after the due date specified insections 3.01 or 3.02(2) of this revenueprocedure may be subject to penalties pro-vided in section 6652(c)(4), as describedin section 8 of this revenue procedure.

.04 Requirements for completed Form8976. For purposes of this revenue proce-dure, a Form 8976 submitted by an orga-nization is complete if it:

(1) Provides accurate responses foreach required line item of the form, con-sistent with the form instructions, includ-ing—

(a) Name of the organization;(b) Address of the organization;(c) Employer Identification Number

(EIN) of the organization;(d) Date of Organization;(e) State or other jurisdiction of orga-

nization;

(f) Statement that the purpose of theorganization is to operate as either a (i)social welfare organization/civic league,or (ii) local association of employees; and

(g) Month the organization’s annualaccounting period ends.

(2) Includes an attestation that the in-formation provided is correct and the in-dividual submitting the Form 8976 is au-thorized to submit the Form 8976 onbehalf of the organization; and

(3) Is accompanied by the correct userfee, as described in section 4.02 of thisrevenue procedure.

.05 Incomplete Forms 8976. A Form8976 submitted by an organization willnot be considered complete if—

(1) Any required line item of the elec-tronic form is incomplete or unintelligi-ble;

(2) The organization’s name or EIN donot match the records in the IRS BusinessMaster File;

(3) The organization fails to includepayment of the correct user fee; or

(4) The required information is submit-ted on an improper form or in any otherimproper format.

SECTION 5. NON-ACCEPTANCEFOR PROCESSING

.01 Incomplete Form 8976. A submit-ted Form 8976 that is not a completedForm 8976 within the meaning of section4.04 of this revenue procedure will not beaccepted for processing by the IRS. Theorganization will be notified of the non-acceptance of its form and any user feethat was paid will be returned or refunded.The organization may then submit a com-pleted Form 8976 with a new user fee.

.02 Submission of Form 8976 by ex-cepted organizations. If an organization’sForm 8976 is not accepted for processingbecause the organization is excepted fromsection 506 under section 405(f) of thePATH Act (an organization that, on orbefore December 18, 2015, had appliedfor a Determination Letter that recognizesit as described in section 501(c)(4) of theCode (using Form 1024) or filed a Form990 (or, if eligible, a Form 990–EZ or990–N)), the organization will be notifiedof the non-acceptance of its form and anyuser fee that was paid will be returned orrefunded.

.03 Submission of multiple Forms8976. An organization should not submitmore than one Form 8976. If an organi-zation attempts to submit more than oneForm 8976, only the first Form 8976 willbe accepted for processing. The organiza-tion will be notified of the non-acceptanceof any subsequent form and any user feethat was paid in connection with a subse-quent form will be returned or refunded.

SECTION 6. ACKNOWLEDGMENTOF RECEIPT UNDER SECTION 506

.01 In general. Within 60 days of re-ceiving an organization’s completed andproperly submitted Form 8976, the IRSwill send the organization an acknowledg-ment of its receipt as required by section506(c) of the Code. The acknowledgmentwill be sent electronically to the accountthrough which the organization’s Form8976 was submitted. The acknowledg-ment is not a determination of tax-exemptstatus. See section 7.02 of this revenueprocedure.

.02 Confirmation of transmittal is notacknowledgment. The electronic platformfor submitting the Form 8976 will auto-matically supply a confirmation when anorganization submits a Form 8976. How-ever, that confirmation is not the acknowl-edgment required by section 506(c) of theCode. The IRS will send an acknowledg-ment electronically as provided in section6.01 of this revenue procedure after pro-cessing of the Form 8976 is complete.

SECTION 7. EFFECT OFSUBMISSION OF FORM 8976

.01 Form 8976 is not a request for adetermination. Submission of the Form8976 does not constitute a request for aDetermination Letter that recognizes theorganization as a section 501(c)(4) orga-nization. See section 7.05 of this revenueprocedure. An organization’s submittedForm 8976 is not open to public inspec-tion under section 6104(a)(1) and (d) be-cause it is not an application within themeaning of section 6104.

.02 Acknowledgment required by sec-tion 506(c) is not a determination of ex-empt status by the IRS. Acknowledgmentof receipt of an organization’s Form 8976is not a determination of tax-exempt statusby the IRS.

Bulletin No. 2016–30 July 25, 2016167

.03 Declaratory judgment provisions ofsection 7428 do not apply. Because Form8976 is not a request for a DeterminationLetter and the acknowledgment of receiptof Form 8976 is not a determination bythe IRS, the declaratory judgment provi-sions of section 7428 do not apply.

.04 Requirement to file annual infor-mation returns. A section 501(c)(4) orga-nization must file applicable annual infor-mation returns or notices, as required bysection 6033(a) or (i), separate from andwithout regard to its submission of Form8976.

.05 Separate procedure by which anorganization may request a Determina-tion Letter. This revenue procedure doesnot address the separate procedure bywhich an organization may request a De-termination Letter recognizing the organi-zation as a section 501(c)(4) organization.An organization wishing to submit a re-quest for a Determination Letter from theIRS that it qualifies for tax-exempt statusshould do so in the manner prescribed inRev. Proc. 2016–5, 2016–1 I.R.B. 188, ora successor revenue procedure.

SECTION 8. PENALTIES FORFAILURE TO TIMELY SUBMIT AFORM 8976

.01 Failure to submit a timely Form8976 as required under section 506. Anorganization that fails to submit a com-pleted Form 8976 by the due date de-scribed in section 3.01 or 3.02(2) of thisrevenue procedure, as applicable, will besubject to the penalties provided in section6652(c)(4), unless it is shown that thefailure was due to reasonable cause.

(1) Penalty on organization. An orga-nization that fails to submit a completedForm 8976 by the due date must pay apenalty of $20 for each day during whichsuch failure continues. However, the totalimposed on the organization for failure tosubmit Form 8976 shall not exceed$5,000.

(2) Penalty on managers. If an organi-zation fails to submit a completed Form8976 by the due date, the IRS may send awritten demand, requesting that the orga-nization submit the Form 8976 by a spec-ified future date that the IRS determines isreasonable under the circumstances. If theorganization fails to submit the Form8976 on or before the date specified in the

demand, the person or persons respon-sible for such failure must pay a penaltyof $20 for each day after the date spec-ified in the demand during which suchfailure continues. For these purposes,the term “person” means any officer,director, trustee, employee, member, orother individual whose duty it is to sub-mit the Form 8976. If more than oneperson is responsible for a failure tosubmit the Form 8976, all such personsshall be jointly and severally liable withrespect to the penalty for such failure.However, the total amount imposed onall persons responsible for such failureshall not exceed $5,000.

.02 Requesting relief from a section6652(c)(4) penalty. Under section 6652(c)(5)and the regulations thereunder, relief froma penalty imposed by section 6652(c)(4)may be obtained if it is established to thesatisfaction of the IRS that the failure totimely submit the Form 8976 was due toreasonable cause. The correspondencefrom the IRS regarding the penalty willprovide instructions on how to submit arequest for penalty relief.

.03 Example of a situation in whichreasonable cause relief from the penaltyon the organization would be appropriate.Organization O is formed under the lawsof a foreign country and operates for anumber of years during which it conductsno activities in the United States and hasno income from U.S. sources. In October2016, O commences operations in theUnited States from which it anticipatesincome that will be reported on a Form990 (or require the filing of a Form990–N) and promptly notifies the IRS ofits intent to operate as a section 501(c)(4)organization by submitting Form 8976.Because the date of submission of Form8976 is more than 60 days after its Date ofOrganization, O receives a penalty letterfrom the IRS. Based on these facts, O’sfailure is due to reasonable cause, and Omay obtain relief from the penalty de-scribed in section 8.01(1) of this revenueprocedure by submitting a request in ac-cordance with the instructions in the cor-respondence from the IRS regarding thepenalty.

SECTION 9. EFFECTIVE DATE

This revenue procedure is effectiveJuly 8, 2016.

SECTION 10. PAPERWORKREDUCTION ACT

The collection of information containedin this revenue procedure will be reviewedand, pending receipt and evaluation of pub-lic comments, approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act (44 USC3507) under control number 1545-2268.

The collection of information in sec-tion 4 of this revenue procedure is re-quired to satisfy the requirement imposedby section 506 of the Code to notify theSecretary of an organization’s intent tooperate under section 501(c)(4). This in-formation will be used by the IRS to pro-cess the Form 8976 for completeness insatisfaction of the statutory requirementand to determine applicability of the pen-alties imposed by section 6652(c)(4) ofthe Code. The burden for the collection ofinformation contained in section 4 of thisrevenue procedure will be reflected in theburden estimate for Form 8976.

An agency may not conduct or spon-sor, and person is not required to respondto, a collection of information unless thecollection of information displays a validOMB number.

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

SECTION 11. REQUEST FORCOMMENTS

The Treasury Department and the IRSrequest comments on this revenue proce-dure, which will be considered in makingany future update to these procedures.

Comments should refer to Rev. Proc.2016–41, and should be submitted to:

Internal Revenue ServiceAttn: CC:PA:LPD:PR(Rev. Proc. 2016–41) Room 5203P.O. Box 7604Ben Franklin StationWashington, DC 20044

Submissions also may be hand deliv-ered Monday through Friday between thehours of 8 am and 4 pm to CC:PA:LP-D:PR (Rev. Proc. 2016–41), Courier’sDesk, Internal Revenue Service, 1111

July 25, 2016 Bulletin No. 2016–30168

Constitution Avenue, N.W., Washington,DC. Alternatively, comments may be sub-mitted electronically via the following emailaddress: Notice.Comments@irscounsel.treas.gov. Please include “Rev. Proc.2016–41” in the subject line of any elec-tronic communication. All comments will

be available for public inspection andcopying.

SECTION 10. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Chelsea Rubin of the Office

of Associate Chief Counsel (Tax Exemptand Government Entities). For additionalinformation, please contact Ms. Rubin at202-317-5800 (not a toll-free number).

Bulletin No. 2016–30 July 25, 2016169

Part IV. Items of General InterestCorrection to RevenueProcedure 2016–34, I.R.B.2016–26

Announcement 2016–24

This document contains corrections toRevenue Procedure 2016–34, as pub-lished on Monday, June 27, 2016 (I.R.B.2016–26, 1072). In particular, this an-nouncement corrects the following admin-istrative item.

Correction 1:In Section 2.3.9 How to Get Ap-

proval, the date incorrectly appears asDecember 9, 2017. The correct date isDecember 9, 2016.

Notice of proposedrulemaking by cross-reference to temporaryregulations.Requirement to Notify theIRS of Intent to Operate asa Section 501(c)(4)Organization

REG–101689–16

AGENCY: Internal Revenue Service (IRS),Treasury.

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

SUMMARY: In the Rules and Regula-tions section of this issue of the InternalRevenue Bulletin, the IRS is issuing tem-porary regulations relating to the require-ment, added by the Protecting Americansfrom Tax Hikes Act of 2015, that organi-zations must notify the IRS of their intentto operate under section 501(c)(4) of theInternal Revenue Code (Code). The textof those temporary regulations also servesas the text of these proposed regulations.

DATES: Comments and requests for apublic hearing must be received by Octo-ber 11, 2016.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–101689–16), room

5205, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand-delivered Monday through Friday betweenthe hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–101689–16), Courier’sDesk, Internal Revenue Service, 1111 Con-stitution Avenue N.W., Washington, DC, orsent electronically via the Federal eRulemak-ing Portal at http://www.regulations.gov (IRSREG–101689–16).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposedregulations, Chelsea Rubin at (202) 317-5800; concerning submission of com-ments and request for hearing, ReginaJohnson at (202) 317-6901 (not toll-freenumbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in this notice of proposed rulemak-ing will be reviewed and, pending receiptand evaluation of public comments, ap-proved by the Office of Management andBudget under control number 1545-2268in accordance with the Paperwork Reduc-tion Act of 1995 (44 U.S.C. 3507(d)). Com-ments on the collection of informationshould be sent to the Office of Managementand Budget, Attn: Desk Officer for the De-partment of the Treasury, Office of Informa-tion and Regulatory Affairs, Washington,DC 20503, with copies to the Internal Rev-enue Service, Attn: IRS Reports ClearanceOfficer, SE:W:CAR:MP:T:T:SP, Wash-ington, DC 20224. Comments on thecollection of information should be re-ceived by September 12, 2016.

The collection of information is in§ 1.506–1T(a)(2). The likely respondentsare organizations described in section501(c)(4) of the Code (section 501(c)(4)organizations). The collection of informa-tion in § 1.506–1T(a)(2) flows from sec-tion 506(b) of the Code, which requires asection 501(c)(4) organization to submit anotification including the following items ofinformation: (1) the name, address, and tax-payer identification number of the organiza-tion; (2) the date on which, and the stateunder the laws of which, the organization

was organized; and (3) a statement of thepurpose of the organization. The temporaryregulations provide that the notificationmust be submitted on Form 8976, “Noticeof Intent to Operate Under Section501(c)(4),” or its successor. In addition tothe specific information required by statute,the temporary regulations require that anorganization provide any additional infor-mation that may be specified in publishedguidance in the Internal Revenue Bulletin orin other guidance, such as forms or instruc-tions, issued with respect to the notification.Form 8976 requires an organization to pro-vide its annual accounting period to ensurethat the statutorily-required items of infor-mation in the notification are correlated ac-curately within existing IRS systems. Theburden for the collection of information in§ 1.506–1T(a)(2)(i) through (iv) associatedwith the one-time submission of the notifi-cation will be reflected in the burden esti-mate for Form 8976.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displays avalid control number assigned by the Officeof Management and Budget.

Books or records relating to a collectionof information must be retained as long astheir contents may become material in theadministration of any internal revenue law.Generally, tax returns and return informa-tion are confidential, as required by 26U.S.C. 6103.

Background and Explanation ofProvisions

Temporary regulations in the Rulesand Regulations section of this issue ofthe Internal Revenue Bulletin containamendments to the Income Tax Regula-tions (26 CFR part 1) that provide guid-ance relating to section 405 of the Protect-ing Americans from Tax Hikes Act of2015 (Pub. L. No. 114–113, div. Q), re-garding the new requirement that organi-zations must notify the IRS of their intentto operate under section 501(c)(4) of theCode. The text of those temporary regu-lations also serves as the text of theseproposed regulations and the preamble tothe temporary regulations explains the rel-evant provisions.

July 25, 2016 Bulletin No. 2016–30170

Statement of Availability of IRSDocuments

For copies of recently issued revenueprocedures, revenue rulings, notices, andother guidance published in the InternalRevenue Bulletin, please visit the IRSwebsite at http://www.irs.gov.

Special Analyses

Certain IRS regulations, including thisone, are exempt from the requirements ofExecutive Order 12866, as supplementedand reaffirmed by Executive Order 13563.Therefore, a regulatory assessment is notrequired. It also has been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations. It is herebycertified that the collection of informationin these regulations will not have a signif-icant impact on a substantial number ofsmall entities. The collection of informa-tion is in § 1.506–1T(a)(2). The certifica-tion is based on the following:

Section 1.506–1T(a)(2) requires thenotification to include only a few pieces ofbasic information: (1) the name, address,and taxpayer identification number of theorganization; (2) the date on which, andthe state or other jurisdiction under thelaws of which, the organization was orga-nized; (3) a statement of the purpose ofthe organization; and (4) such additionalinformation as may be prescribed by pub-lished guidance in the Internal RevenueBulletin or in other guidance, such asforms or instructions, issued with respectto the notification.

These requirements will have a mini-mal burden on section 501(c)(4) organiza-tions submitting the notification, includ-ing small section 501(c)(4) organizations.The notification requires only basic infor-mation regarding the organization and, assuch, will require little time to submit.Moreover, the burden on small organizationsis further minimized because the informationis only required to be submitted once.

For these reasons, a Regulatory Flexi-bility Analysis under the Regulatory Flex-ibility Act (5 U.S.C. chapter 6) is notrequired. Pursuant to section 7805(f) ofthe Code, these regulations have been sub-mitted to the Chief Counsel for Advocacyof the Small Business Administration forcomment on its impact on small business.

Comments and Requests for PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any comments that aresubmitted timely to the IRS as prescribed inthis preamble under the “Addresses” head-ing. The Treasury Department and the IRSrequest comments on all aspects of the pro-posed rules. All comments will be availableat www.regulations.gov or upon request.

A public hearing will be scheduled ifrequested in writing by any person thattimely submits written comments. If apublic hearing is scheduled, notice of thedate, time, and place for the public hear-ing will be published in the Internal Rev-enue Bulletin.

Drafting Information

The principal author of these regula-tions is Chelsea R. Rubin, Office of Asso-ciate Chief Counsel (Tax Exempt and Gov-ernment Entities). However, other personnelfrom the Treasury Department and the IRSparticipated in their development.

* * * * *

Proposed Amendments to theRegulations

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

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.506–1 is added to

read as follows:

§ 1.506–1 Organizations required tonotify Commissioner of intent to operateunder section 501(c)(4).

[The text of proposed § 1.506–1 is thesame as the text for § 1.506–1T publishedelsewhere in this issue of the InternalRevenue Bulletin].

John Dalrymple,Deputy Commissioner for

Services and Enforcement.

(Filed by the Office of the Federal Register on July 8, 2016,11:15 a.m., and published in the issue of the Federal Reg-ister for July 12, 2016, 81 F.R. 45088)

Notice of proposedrulemakingPremium Tax Credit NPRM VI

REG–109086–15

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document containsproposed regulations relating to the healthinsurance premium tax credit (premiumtax credit) and the individual shared re-sponsibility provision. These proposedregulations affect individuals who enrollin qualified health plans through HealthInsurance Exchanges (Exchanges, alsocalled Marketplaces) and claim the pre-mium tax credit, and Exchanges that makequalified health plans available to individ-uals and employers. These proposed reg-ulations also affect individuals who areeligible for employer-sponsored healthcoverage and individuals who seek toclaim an exemption from the individualshared responsibility provision because ofunaffordable coverage. Although employ-ers are not directly affected by rules gov-erning the premium tax credit, these pro-posed regulations may indirectly affectemployers through the employer sharedresponsibility provisions and the relatedinformation reporting provisions.

DATES: Written (including electronic)comments and requests for a public hearingmust be received by September 6, 2016.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–109086–15), Room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand-delivered Monday through Friday be-tween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–109086–15),Courier’s Desk, Internal Revenue Service,1111 Constitution Avenue, NW, Wash-ington, DC, or sent electronically via theFederal eRulemaking Portal at http://www.regulations.gov (REG–109086–15).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposedregulations, Shareen Pflanz, (202) 317-4727; concerning the submission of com-

Bulletin No. 2016–30 July 25, 2016171

ments and/or requests for a public hearing,Oluwafunmilayo Taylor, (202) 317-6901(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in this notice of proposed rulemak-ing has been submitted to the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of1995 (44 U.S.C. 3507(d)). Comments onthe collection of information should besent to the Office of Management andBudget, Attn: Desk Officer for the De-partment of the Treasury, Office of Infor-mation and Regulatory Affairs, Washing-ton, DC 20503, with copies to theInternal Revenue Service, Attn: IRS Re-ports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Com-ments on the collection of informationshould be received September 6, 2016. Com-ments are specifically requested concerning:

Whether the proposed collection of in-formation is necessary for the proper per-formance of the functions of the IRS, in-cluding whether the information will havepractical utility;

How the quality, utility, and clarity ofthe information to be collected may beenhanced;

How the burden of complying with theproposed collection of information may beminimized, including through the applica-tion of automated collection techniques orother forms of information technology; and

Estimates of capital or start-up costs andcosts of operation, maintenance, and pur-chase of services to provide information.

The collection of information in theseproposed regulations is in § 1.36B–5. Thecollection of information is necessary toreconcile advance payments of the pre-mium tax credit and determine the allow-able premium tax credit. The collection ofinformation is required to comply with theprovisions of section 36B of the InternalRevenue Code (Code). The likely respon-dents are Marketplaces that enroll individ-uals in qualified health plans.

The burden for the collection of infor-mation contained in these proposed regu-lations will be reflected in the burden onForm 1095–A, Health Insurance Market-place Statement, which is the form that

will request the information from the Mar-ketplaces in the proposed regulations.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displays avalid control number assigned by the Officeof Management and Budget.

Background

Beginning in 2014, under the PatientProtection and Affordable Care Act, Pub-lic Law 111–148 (124 Stat. 119 (2010)),and the Health Care and Education Rec-onciliation Act of 2010, Public Law 111–152 (124 Stat. 1029 (2010)) (collectively,the Affordable Care Act), eligible individ-uals who purchase coverage under a qual-ified health plan through an Exchangemay claim a premium tax credit undersection 36B of the Code. Section 36B wassubsequently amended by the Medicare andMedicaid Extenders Act of 2010, PublicLaw 111–309 (124 Stat. 3285 (2010)); theComprehensive 1099 Taxpayer Protectionand Repayment of Exchange Subsidy Over-payments Act of 2011, Public Law 112–9(125 Stat. 36 (2011)); and the Department ofDefense and Full-Year Continuing Appro-priations Act, 2011, Public Law 112–10(125 Stat. 38 (2011)).

The Affordable Care Act also addedsection 5000A to the Code. Section5000A was subsequently amended by theTRICARE Affirmation Act of 2010, Pub-lic Law 111–159 (124 Stat. 1123 (2010))and Public Law 111–173 (124 Stat. 1215(2010)). Section 5000A provides that, formonths beginning after December 31,2013, a nonexempt individual must havequalifying healthcare coverage (calledminimum essential coverage) or make anindividual shared responsibility payment.

Applicable Taxpayers

To be eligible for a premium tax credit,an individual must be an applicable tax-payer. Among other requirements, undersection 36B(c)(1) an applicable taxpayeris a taxpayer whose household income forthe taxable year is between 100 percentand 400 percent of the Federal povertyline (FPL) for the taxpayer’s family size(or is a lawfully present non-citizen whohas income below 100 percent of the FPLand is ineligible for Medicaid). A taxpay-er’s family size is equal to the number of

individuals in the taxpayer’s family. Un-der section 36B(d)(1), a taxpayer’s familyconsists of the individuals for whom thetaxpayer claims a personal exemption de-duction under section 151 for the taxableyear. Taxpayers may claim a personal ex-emption deduction for themselves, aspouse, and each of their dependents.

Under section 1412 of the AffordableCare Act, advance payments of the pre-mium tax credit (advance credit pay-ments) may be made directly to insurerson behalf of eligible individuals. Theamount of advance credit payments madeon behalf of a taxpayer in a taxable year isdetermined by a number of factors includ-ing projections of the taxpayer’s house-hold income and family size for the tax-able year. Taxpayers who receive thebenefit of advance credit payments arerequired to file an income tax return toreconcile the amount of advance creditpayments made during the year with theamount of the credit allowable for thetaxable year.

Under § 1.36B–2(b)(6), in general, ataxpayer whose household income for ataxable year is less than 100 percent of theapplicable FPL is nonetheless treated as anapplicable taxpayer if (1) the taxpayer or afamily member enrolls in a qualified healthplan, (2) an Exchange estimates at the timeof enrollment that the taxpayer’s householdincome for the taxable year will be between100 and 400 percent of the applicable FPL,(3) advance credit payments are authorizedand paid for one or more months during thetaxable year, and (4) the taxpayer would bean applicable taxpayer but for the fact thatthe taxpayer’s household income for the tax-able year is below 100 percent of the appli-cable FPL.

Premium Assistance Credit Amount

Under section 36B(a), a taxpayer’s pre-mium tax credit is equal to the premiumassistance credit amount for the taxableyear. Section 36B(b)(1) and § 1.36B–3(d)generally provide that the premium assis-tance credit amount is the sum of thepremium assistance amounts for all cov-erage months in the taxable year for indi-viduals in the taxpayer’s family. The pre-mium assistance amount for a coveragemonth is the lesser of (1) the premiums forthe month for one or more qualified health

July 25, 2016 Bulletin No. 2016–30172

plans that cover a taxpayer or familymember (enrollment premium), or (2) theexcess of the adjusted monthly premiumfor the second lowest cost silver plan (asdescribed in section 1302(d)(1)(B) ofthe Affordable Care Act (42 U.S.C.18022(d)(1)(B)) offered through the Ex-change for the rating area where the tax-payer resides that would provide coverageto the taxpayer’s coverage family (thebenchmark plan), over 1/12 of the productof the taxpayer’s household income andthe applicable percentage for the taxableyear (the contribution amount). In general,the benchmark plan’s adjusted monthlypremium is the premium an insurer wouldcharge for the plan adjusted only for theages of the covered individuals. The ap-plicable percentage is provided in a tablethat is updated annually and represents theportion of a taxpayer’s household incomethat the taxpayer is expected to pay if thetaxpayer’s coverage family enrolls in thebenchmark plan. See, for example, Rev.Proc. 2014–62, 2014–2 C.B. 948 (pro-viding the applicable percentage table fortaxable years beginning in 2016) and Rev.Proc. 2014–37, 2014–2 C.B. 363 (provid-ing the applicable percentage table fortaxable years beginning in 2015). A tax-payer’s coverage family refers to all mem-bers of the taxpayer’s family who enroll ina qualified health plan in a month and arenot eligible for minimum essential cover-age as defined in section 5000A(f) (otherthan coverage in the individual market)for that month.

Under section 1301(a)(1)(B) of the Af-fordable Care Act, a qualified health planmust offer the essential health benefitspackage described in section 1302(a). Un-der section 1302(b)(1)(J) of the Afford-able Care Act, the essential health benefitspackage includes pediatric services, in-cluding oral and vision care. Section1302(b)(4)(F) of the Affordable Care Actprovides that, if an Exchange offers a plandescribed in section 1311(d)(2)(B)(ii)(I)of the Affordable Care Act (42 U.S.C.13031(d)(2)(B)(ii)(I)) (a stand-alone den-tal plan), other health plans offeredthrough the Exchange will not fail to bequalified health plans solely becausethe plans do not offer pediatric dentalbenefits.

For purposes of calculating the pre-mium assistance amount for a taxpayer

who enrolls in both a qualified health planand a stand-alone dental plan, section36B(b)(3)(E) provides that the enrollmentpremium includes the portion of the pre-mium for the stand-alone dental planproperly allocable to pediatric dental ben-efits that are included in the essentialhealth benefits required to be provided bya qualified health plan.

Section 36B(b)(3)(B) provides that thebenchmark plan with respect to an appli-cable taxpayer is the second lowest costsilver plan offered by the Marketplacethrough which the applicable taxpayer (ora family member) enrolled and which pro-vides (1) self-only coverage, in the case ofunmarried individuals (other than a sur-viving spouse or head of household) whodo not claim any dependents, or any otherindividual who enrolls in self-only cover-age, and (2) family coverage, in the caseof any other applicable taxpayer. Section1.36B–1(l) provides that self-only cover-age means health insurance that coversone individual. Section 1.36B–1(m) pro-vides that family coverage means healthinsurance that covers more than one indi-vidual.

Under § 1.36B–3(f)(3), if there are oneor more silver-level plans offered throughthe Exchange for the rating area where thetaxpayer resides that do not cover allmembers of a taxpayer’s coverage familyunder one policy (for example, because ofthe relationships within the family), thebenchmark plan premium is the secondlowest-cost option for covering all mem-bers of the taxpayer’s family, which maybe either a single silver-level policy ormore than one silver-level policy.

Section 1.36B–3(d)(2) provides that, ifa qualified health plan is terminated be-fore the last day of a month or an individ-ual is enrolled in coverage effective on thedate of the individual’s birth, adoption, orplacement for adoption or in foster care,or on the effective date of a court order,the premium assistance amount for themonth is the lesser of the enrollment pre-miums for the month (reduced by anyamounts that were refunded) or the excessof the benchmark plan premium for a fullmonth of coverage over the full contribu-tion amount for the month.

Coverage Month

Under section 36B(c)(2)(A) and§ 1.36B–3(c)(1), a coverage month is gen-erally any month for which the taxpayeror a family member is covered by a qual-ified health plan enrolled in through anExchange on the first day of the monthand the premium is paid by the taxpayeror through an advance credit payment.However, section 36B(c)(2) provides thata month is not a coverage month for anindividual who is eligible for minimumessential coverage other than coverage inthe individual market. Under section36B(c)(2)(B)(ii), minimum essential cov-erage is defined by reference to section5000A(f). Minimum essential coverageincludes government-sponsored programssuch as most Medicaid coverage, Medi-care part A, the Children’s Health Insur-ance Program (CHIP), most TRICAREprograms, most coverage provided to vet-erans under title 38 of the United StatesCode, and the Nonappropriated FundHealth Benefits Program of the Depart-ment of Defense. See section 5000A(f)(1)and § 1.5000A–2(b). Section 1.36B–2(c)(3)(i) provides that, for purposes of sec-tion 36B, the government-sponsored pro-grams described in section 5000A(f)(1)(A)are not considered eligible employer-sponsored plans.

Under § 1.36B–2(c)(2)(i), an individ-ual generally is treated as eligible forgovernment-sponsored minimum essen-tial coverage as of the first day of the firstfull month that the individual meets thecriteria for coverage and is eligible to re-ceive benefits under the government pro-gram. However, under § 1.36B–2(c)(2)(v)an individual is treated as not eligible forMedicaid, CHIP, or a similar program fora period of coverage under a qualifiedhealth plan if, when the individual enrollsin the qualified health plan, an Exchangedetermines or considers (within the mean-ing of 45 CFR 155.302(b)) the individualto be ineligible for such program. In ad-dition, § 1.36B–2(c)(2)(iv) provides that ifan individual receiving the benefit of ad-vance credit payments is determined to beeligible for a government-sponsored pro-gram, and that eligibility is effective ret-roactively, then, for purposes of the pre-mium tax credit, the individual is treatedas eligible for the program no earlier than

Bulletin No. 2016–30 July 25, 2016173

the first day of the first calendar monthbeginning after the approval.

Coverage under an eligible employer-sponsored plan is minimum essential cov-erage. In general, an eligible employer-sponsored plan is coverage provided by anemployer to its employees (and their de-pendents) under a group health plan main-tained by the employer. See section5000A(f)(2) and § 1.5000A–2(c). Undersection 5000A(f)(3) and § 1.5000A–2(g),minimum essential coverage does not in-clude any coverage that consists solely ofexcepted benefits described in section2791(c)(1), (c)(2), (c)(3), or (c)(4) of thePublic Health Service Act (PHS Act) (42U.S.C. 300gg–91(c)), or regulations issuedunder those provisions (45 CFR 148.220).In general, excepted benefits are benefitsthat are limited in scope or are conditional.

Under section 36B(c)(2)(C) and§ 1.36B–2(c)(3)(i), except as provided inthe next paragraph of this preamble, anindividual is treated as eligible for cover-age under an eligible employer-sponsoredplan only if the employee’s share of thepremium is affordable and the coverageprovides minimum value. Under section36B(c)(2)(C), an eligible employer-sponsored plan is treated as affordable foran employee if the amount of the employ-ee’s required contribution (within themeaning of section 5000A(e)(1)(B)) forself-only coverage does not exceed aspecified percentage of the employee’shousehold income. The affordability ofcoverage for individuals related to an em-ployee is determined in the same manner.Thus, under section 36B(c)(2)(C)(i) and§ 1.36B–2(c)(3)(v)(A)(2), an eligibleemployer-sponsored plan is treated as af-fordable for an individual eligible for theplan because of a relationship to an em-ployee if the amount of the employee’srequired contribution for self-only cover-age does not exceed a specified percent-age of the employee’s household income.

Under § 1.36B–2(c)(3)(v)(A)(3), an el-igible employer-sponsored plan is notconsidered affordable if, when an individualenrolls in a qualified health plan, the Mar-

ketplace determines that the eligibleemployer-sponsored plan is not affordable.However, that rule does not apply for anindividual who, with reckless disregard forthe facts, provides incorrect information to aMarketplace concerning the employee’sportion of the annual premium for coverageunder the eligible employer-sponsored plan.In addition, under section 36B(c)(2)(C)(iii)and § 1.36B–2(c)(3)(vii)(A), an individualis treated as eligible for employer-sponsoredcoverage if the individual actually enrolls inan eligible employer-sponsored plan, even ifthe coverage is not affordable or does notprovide minimum value.

Section 1.36B–2(c)(3)(iii)(A) providesthat, subject to the rules described above,an employee or related individual may beconsidered eligible for coverage under aneligible employer-sponsored plan for amonth during a plan year if the employeeor related individual could have enrolledin the plan for that month during an openor special enrollment period. Under§ 1.36B–2(c)(3)(ii), plan year means aneligible employer-sponsored plan’s regu-lar 12-month coverage period (or the re-mainder of a 12-month coverage period fora new employee or an individual who en-rolls during a special enrollment period).

Although coverage in the individualmarket is minimum essential coverage un-der section 5000A(f)(1)(C), under section36B(c)(2)(B)(i), an individual who is eli-gible for or enrolled in coverage in theindividual market (whether or not ob-tained through the Marketplace) neverthe-less may have a coverage month for pur-poses of the premium tax credit.

Required Contribution for Employer-Sponsored Coverage

Under section 36B(c)(2)(C) and§ 1.36B–2(c)(3)(v)(A)(1) and (2), an eli-gible employer-sponsored plan is treatedas affordable for an employee or a relatedindividual if the amount the employeemust pay for self-only coverage whetherby salary reduction or otherwise (the em-ployee’s required contribution) does not

exceed a specified percentage of the em-ployee’s household income. Under sec-tion 36B(c)(2)(C)(i)(II), an employee’s re-quired contribution has the same meaningfor purposes of the premium tax credit asin section 5000A(e)(1)(B).

Section 5000A provides that, for eachmonth, taxpayers must have minimum es-sential coverage, qualify for a health cov-erage exemption, or make an individualshared responsibility payment when theyfile a Federal income tax return. Section5000A(e)(1) and § 1.5000A–3(e)(1) pro-vide that an individual is exempt for amonth when the individual cannot affordminimum essential coverage. For this pur-pose, an individual cannot afford coverageif the individual’s required contribution (de-termined on an annual basis) for minimumessential coverage exceeds a specified per-centage of the individual’s household in-come. Under section 5000A(e)(1)(B)(i) and§ 1.5000A–3(e)(3)(ii)(A), for employees el-igible for coverage under an eligibleemployer-sponsored plan, the employee’srequired contribution is the amount an em-ployee would have to pay for self-only cov-erage (whether paid through salary reduc-tion or otherwise) under the plan. Forindividuals eligible to enroll in employer-sponsored coverage because of a relation-ship to an employee (related individual),under section 5000A(e)(1)(C) and§ 1.5000A–3(e)(3)(ii)(B), the required con-tribution is the portion of the annual pre-mium that the employee would pay(whether through salary reduction or oth-erwise) for the lowest cost family cover-age that would cover the employee and allrelated individuals who are included in theemployee’s family and are not otherwiseexempt under § 1.5000A–3.

Notice 2015–87, 2015–52 I.R.B. 889,provides guidance on determining the af-fordability of an employer’s offer of eli-gible employer-sponsored coverage forpurposes of sections 36B, 5000A, and4980H (and the related information re-porting under section 6056).1 In relevantpart, Notice 2015–87 addresses how todetermine the affordability of an employ-

1An assessable payment under section 4980H(b) may arise if at least one full-time employee (as defined in § 54.4980H–1(a)(21)) of the applicable large employer (as defined in§ 54.4980H–1(a)(4)) receives the premium tax credit. A full-time employee generally is ineligible for the premium tax credit if the employee is offered minimum essential coverage underan eligible employer-sponsored plan that is affordable and provides minimum value. The determination of whether an applicable large employer has made an offer of affordable coverageunder an eligible employer-sponsored plan for purposes of section 4980H(b) generally is based on the standard set forth in section 36B, which provides that an offer is affordable if theemployee’s required contribution is at or below 9.5 percent (as indexed) of the employee’s household income. However, because an employer generally will not know the taxpayeremployee’s household income, § 54.4980H–5(e)(2) sets forth three safe harbors under which an employer may determine affordability (solely for purposes of section 4980H) based oninformation that is readily available to the employer (that is, Form W–2 wages, the rate of pay, or the Federal poverty line).

July 25, 2016 Bulletin No. 2016–30174

er’s offer of eligible employer-sponsoredcoverage if an employer also makes avail-able an opt-out payment, which is a pay-ment that (1) is available only if the em-ployee declines coverage (which includeswaiving coverage in which the employeewould otherwise be enrolled) under theemployer-sponsored plan, and (2) cannotbe used to pay for coverage under theemployer-sponsored plan. The arrange-ment under which the opt-out payment ismade available is an opt-out arrangement.

As Notice 2015–87 explains, the Trea-sury Department and the IRS have deter-mined that it is generally appropriate totreat an opt-out payment that is madeavailable under an unconditional opt-outarrangement in the same manner as a sal-ary reduction contribution for purposes ofdetermining an employee’s required con-tribution under sections 36B and 5000Aand any related consequences under sec-tions 4980H(b) and 6056. Accordingly,Notice 2015–87 provides that the Trea-sury Department and the IRS intend topropose regulations reflecting this ruleand to request comments on those regula-tions. For this purpose, an unconditionalopt-out arrangement refers to an arrange-ment providing payments conditionedsolely on an employee declining coverageunder employer-sponsored coverage andnot on an employee satisfying any othermeaningful requirement related to the pro-vision of health care to employees, such asa requirement to provide proof of cover-age through a plan of a spouse’s em-ployer.

Notice 2015–87 also provides that theTreasury Department and the IRS antici-pate requesting comments on the treat-ment of conditional opt-out arrangements,meaning opt-out arrangements underwhich payments are conditioned not onlyon the employee declining employer-sponsored coverage but also on satisfac-tion of one or more additional meaningfulconditions (such as the employee provid-ing proof of enrollment in coverage pro-vided by a spouse’s employer or othercoverage).

Notice 2015–87 provides that, until theapplicability date of any final regulations(and in any event for plan years beginningbefore 2017), individuals may treat opt-out payments made available underunconditional opt-out arrangements asincreasing the employee’s required con-tribution for purposes of sections 36Band 5000A.2 In addition, for the sameperiod, an individual who can demon-strate that he or she meets the condi-tion(s) (in addition to declining the em-ployer’s health coverage) that must besatisfied to receive an opt-out payment(such as demonstrating that the em-ployee has coverage under a spouse’sgroup health plan) may treat the amountof the conditional opt-out payment asincreasing the employee’s required con-tribution for purposes of sections 36Band 5000A. See the section of this pre-amble entitled “Effective/ApplicabilityDate” for additional related discussion.

Notice 2015–87 included a request forcomments on opt-out arrangements. TheTreasury Department and the IRS re-ceived a number of comments, and thecomments are discussed in section 2.f. ofthis preamble entitled “Opt-out arrange-ments and an employee’s required contri-bution.”

Information Reporting

Section 36B(f)(3) provides that Ex-changes must report to the IRS and totaxpayers certain information required toadminister the premium tax credit. Section1.36B–5(c)(1) provides that the informa-tion required to be reported annually in-cludes (1) identifying information foreach enrollee, (2) identifying informationfor the coverage, (3) the amount of enroll-ment premiums and advance credit pay-ments for the coverage, (4) the premiumfor the benchmark plan used to calculatethe amount of the advance credit pay-ments made on behalf of the taxpayer orother enrollee, if advance credit paymentswere made, and the benchmark plan pre-mium that would apply to all individualsenrolled in the coverage if advance credit

payments were not made, and (5) the datesthe coverage started and ended. Section1.36B–5(c)(3)(i) provides that an Ex-change must report this information foreach family enrolled in the coverage.

Explanation of Provisions

1. Effective/Applicability Date

Except as otherwise provided in thissection, these regulations are proposed toapply for taxable years beginning afterDecember 31, 2016. As indicated in thissection, taxpayers may rely on certain pro-visions of the proposed regulations fortaxable years ending after December 31,2013. In addition, several rules are pro-posed to apply for taxable years beginningafter December 31, 2018. See the latersection of this preamble entitled “Effec-tive/Applicability Date” for informationon the applicability date for the regula-tions on opt-out arrangements.

2. Eligibility

a. Applicable taxpayers

To avoid repayments of advance creditpayments for taxpayers who experiencean unforeseen decline in income, the ex-isting regulations provide that if an Ex-change determines at enrollment that thetaxpayer’s household income will be atleast 100 percent but will not exceed 400percent of the applicable FPL, the tax-payer will not lose his or her status as anapplicable taxpayer solely because house-hold income for the year turns out to bebelow 100 percent of the applicable FPL.To reduce the likelihood that individualswho recklessly or intentionally provideinaccurate information to an Exchangewill benefit from an Exchange determina-tion, the proposed regulations provide thata taxpayer whose household income isbelow 100 percent of the FPL for thetaxpayer’s family size is not treated as anapplicable taxpayer if, with intentional orreckless disregard for the facts, the tax-

2Notice 2015–87 also provides that the Treasury Department and the IRS anticipate that the regulations generally will apply only for periods after the issuance of final regulations and thatfor the period prior to the applicability date of the final regulations, employers are not required to increase the amount of an employee’s required contribution by the amount of an opt-outpayment made available under an opt-out arrangement (other than a payment made available under a non-relief-eligible opt-out arrangement) for purposes of section 6056 (Form 1095–C),and an opt-out payment made available under an opt-out arrangement (other than a payment made available under a non-relief-eligible opt-out arrangement) will not be treated as increasingan employee’s required contribution for purposes of any potential consequences under section 4980H(b). For a discussion of non-relief-eligible opt-out arrangements see Notice 2015–87,Q&A–9.

Bulletin No. 2016–30 July 25, 2016175

payer provided incorrect information to anExchange for the year of coverage.

b. Exchange determination ofineligibility for Medicaid or CHIP

Similar to the rule for taxpayers whoreceived the benefit of advance credit pay-ments but ended the taxable year withhousehold income below 100 percent ofthe applicable FPL, the existing regula-tions do not require a repayment of ad-vance credit payments for taxpayers withhousehold income within the range for eli-gibility for certain government-sponsoredprograms if an Exchange determined orconsidered (within the meaning of 45 CFR155.302(b)) the taxpayer or a member of thetaxpayer’s family to be ineligible for theprogram. To reduce the likelihood that indi-viduals who recklessly or intentionally pro-vide inaccurate information to an Exchangewill benefit from an Exchange determina-tion, the proposed regulations provide thatan individual who was determined or con-sidered by an Exchange to be ineligible forMedicaid, CHIP, or a similar program (suchas a Basic Health Program) may be treatedas eligible for coverage under the programif, with intentional or reckless disregardfor the facts, the individual (or a personclaiming a personal exemption for the in-dividual) provided incorrect informationto the Exchange.

c. Nonappropriated Fund HealthBenefits Program

The existing regulations under section36B provide that government-sponsored pro-grams described in section 5000A(f)(1)(A),which include the Nonappropriated FundHealth Benefits Program of the Depart-ment of Defense, established under sec-tion 349 of the National Defense Autho-rization Act for Fiscal Year 1995 (PublicLaw 103–337; 10 U.S.C. 1587 note), arenot eligible employer-sponsored plans.However, § 1.5000A–2(c)(2) providesthat, because the Nonappropriated Fund

Health Benefits Program (Program) is of-fered by an instrumentality of the Depart-ment of Defense to its employees, the Pro-gram is an eligible employer-sponsoredplan. The proposed regulations conform thesection 36B regulations to the section5000A regulations and provide that the Pro-gram is treated as an eligible employer-sponsored plan for purposes of determin-ing if an individual is eligible forminimum essential coverage under sec-tion 36B. Thus, if coverage under the Pro-gram does not provide minimum value(under § 1.36B–2(c)(3)(vi)) or is not af-fordable (under § 36B–2(c)(3)(v)) for anindividual who does not enroll in the cov-erage, he or she is not treated as eligiblefor minimum essential coverage under theProgram for purposes of premium taxcredit eligibility.

d. Eligibility for employer-sponsoredcoverage for months during a plan year

The existing regulations under section36B provide that an individual is eligiblefor minimum essential coverage throughan eligible employer-sponsored plan if theindividual had the opportunity to enroll inthe plan and the plan is affordable andprovides minimum value. The TreasuryDepartment and the IRS are aware that insome instances individuals may not beallowed an annual opportunity to decidewhether to enroll in eligible employer-sponsored coverage. This lack of an an-nual opportunity to enroll in employer-sponsored coverage should not limit anindividual’s annual choice from availablecoverage options through the Marketplacewith the possibility of benefitting from thepremium tax credit. Thus, the proposedregulations clarify that if an individualdeclines to enroll in employer-sponsoredcoverage for a plan year and does not havethe opportunity to enroll in that coveragefor one or more succeeding plan years, forpurposes of section 36B, the individual istreated as ineligible for that coverage for

the succeeding plan year or years forwhich there is no enrollment opportunity.3

e. Excepted benefits

Under section 36B and § 1.36B–2(c)(3)(vii)(A), an individual is treated aseligible for minimum essential coveragethrough an eligible employer-sponsoredplan if the individual actually enrolls inthe coverage, even if the coverage is notaffordable or does not provide minimumvalue. Although health coverage that con-sists solely of excepted benefits may be agroup health plan and, therefore, is aneligible employer-sponsored plan undersection 5000A(f)(2) and § 1.5000A–2(c)(1), section 5000A(f)(3) provides thathealth coverage that consists solely of ex-cepted benefits is not minimum essentialcoverage. Therefore, individuals enrolledin a plan consisting solely of exceptedbenefits still must obtain minimum essen-tial coverage to satisfy the individualshared responsibility provision. The pro-posed regulations clarify that for purposesof section 36B an individual is consideredeligible for coverage under an eligibleemployer-sponsored plan only if that planis minimum essential coverage. Accord-ingly, an individual enrolled in or offereda plan consisting solely of excepted ben-efits is not denied the premium tax creditby virtue of that excepted benefits offer orcoverage. Taxpayers may rely on this rulefor all taxable years beginning after De-cember 31, 2013.

f. Opt-out arrangements and anemployee’s required contribution

Sections 1.36B–2(c)(3)(v) and1.5000A–3(e)(3)(ii)(A) provide that, indetermining whether employer-sponsoredcoverage is affordable to an employee, anemployee’s required contribution for thecoverage includes the amount by whichthe employee’s salary would be reducedto enroll in the coverage.4 If an employermakes an opt-out payment available to an

3Note that for purposes of section 4980H, in general, an applicable large employer will not be treated as having made an offer of coverage to a full-time employee for a plan year if theemployee does not have an effective opportunity to elect to enroll in the coverage at least once with respect to the plan year. For this purpose, a plan year must be twelve consecutive months,unless a short plan year of less than twelve consecutive months is permitted for a valid business purpose. For additional rules on the definition of “offer” and “plan year” under section 4980H,see §§ 54.4980H–1(a)(35), 54.4980H–4(b), and 54.4980H–5(b).

4Section 5000A(e)(1)(C) and § 1.5000A–3(e)(3)(ii)(B) provide that, for purposes of the individual shared responsibility provision, the required contribution for individuals eligible to enrollin employer coverage because of a relationship to an employee (related individual) is the portion of the annual premium that the employee would pay (whether through salary reduction orotherwise) for the lowest cost family coverage that would cover the employee and all related individuals who are included in the employee’s family and are not otherwise exempt under§ 1.5000A–3.

July 25, 2016 Bulletin No. 2016–30176

employee, the choice between cash andhealth coverage presented by the opt-outarrangement is analogous to the cash-or-coverage choice presented by the optionto pay for coverage by salary reduction. Inboth cases, the employee may purchasethe employer-sponsored coverage only atthe price of forgoing a specified amount ofcash compensation that the employeewould otherwise receive – salary, in thecase of a salary reduction, or an equalamount of other compensation, in the caseof an opt-out payment. Therefore, the eco-nomic cost to the employee of theemployer-sponsored coverage is the sameunder both arrangements. Accordingly,the employee’s required contribution gen-erally should be determined similarly re-gardless of the type of payment that anemployee must forgo.

Notice 2015– 87 requested commentson the proposed treatment of opt-outarrangements outlined in Q&A–9 of thatnotice. Several commenters objected tothe proposal that the amount of an avail-able unconditional opt-out payment in-creases the employee’s required contri-bution on the basis that forgoing opt-outpayments as part of enrolling in cover-age has not traditionally been viewed byemployers or employees as economi-cally equivalent to making a salary re-duction election and that such a rulewould discourage employers from mak-ing opt-out payments available. None ofthe commenters, however, offered a per-suasive economic basis for distinguish-ing unconditional opt-out paymentsfrom other compensation that an em-ployee must forgo to enroll in employer-sponsored coverage, such as a salaryreduction. Because forgoing an uncon-ditional opt-out payment is economi-cally equivalent to forgoing salary pur-suant to a salary reduction election,and because §§ 1.36B–2(c)(3)(v) and1.5000A–3(e)(3)(ii)(A) provide that theemployee’s required contribution in-cludes the amount of any salary reduc-tion, the proposed regulations adopt theapproach described in Notice 2015– 87for opt-out payments made available un-der unconditional opt-out arrangements

and provide that the amount of an opt-out payment made available to the em-ployee under an unconditional opt-outarrangement increases the employee’srequired contribution.5

Notice 2015–87 provides that, for pe-riods prior to the applicability date of anyfinal regulations, employers are not re-quired to increase the amount of an em-ployee’s required contribution by amountsmade available under an opt-out arrange-ment for purposes of section 4980H(b) orsection 6056 (in particular Form 1095–C,Employer-Provided Health Insurance Of-fer and Coverage), except that, for periodsafter December 16, 2015, the employee’srequired contribution must includeamounts made available under an uncon-ditional opt-out arrangement that is ad-opted after December 16, 2015. However,Notice 2015–87 provided that, for thispurpose, an opt-out arrangement will notbe treated as adopted after December 16,2015, under limited circumstances, in-cluding in cases in which a board, com-mittee, or similar body or an authorizedofficer of the employer specifically ad-opted the opt-out arrangement before De-cember 16, 2015.

Some commenters requested clarifi-cation that an unconditional opt-out ar-rangement that is required under theterms of a collective bargaining agree-ment in effect before December 16,2015, should be treated as having beenadopted prior to December 16, 2015,and that amounts made available undersuch an opt-out arrangement should notbe included in an employee’s requiredcontribution for purposes of sections4980H(b) or 6056 through the expira-tion of the collective bargaining agree-ment that provides for the opt-out ar-rangement. The Treasury Departmentand the IRS now clarify that, under No-tice 2015– 87, for purposes of sections4980H(b) and 6056, an unconditionalopt-out arrangement that is required un-der the terms of a collective bargainingagreement in effect before December16, 2015, will be treated as having beenadopted prior to December 16, 2015. Inaddition, until the later of (1) the begin-

ning of the first plan year that beginsfollowing the expiration of the collec-tive bargaining agreement in effect be-fore December 16, 2015 (disregardingany extensions on or after December 16,2015), or (2) the applicability date ofthese regulations with respect to sec-tions 4980H and 6056, employers par-ticipating in the collective bargainingagreement are not required to increasethe amount of an employee’s requiredcontribution by amounts made availableunder such an opt-out arrangement forpurposes of sections 4980H(b) or 6056(Form 1095–C). The Treasury Depart-ment and the IRS further adopt thesecommenters’ request that this treatmentapply to any successor employer adopt-ing the opt-out arrangement before theexpiration of the collective bargainingagreement in effect before December16, 2015 (disregarding any extensionson or after December 16, 2015). Com-menters raised the issue of whetherother types of agreements covering em-ployees may need a similar extension ofthe relief through the end of the agree-ment’s term. The Treasury Departmentand the IRS request comments identify-ing the types of agreements raising thisissue due to their similarity to collectivebargaining agreements because, for ex-ample, the agreement is similar in scopeto a collective bargaining agreement,binding on the parties involved for amulti-year period, and subject to a stat-utory or regulatory regime.

Several commenters suggested that,notwithstanding the proposal on uncondi-tional opt-out arrangements, the amountof an opt-out payment made availableshould not increase an employee’s re-quired contribution if the opt-out paymentis conditioned on the employee havingminimum essential coverage through an-other source, such as a spouse’s employer-sponsored plan. These commenters ar-gued that the amount of such a conditionalopt-out payment should not affect the af-fordability of an employer’s offer ofemployer-sponsored coverage for an em-ployee who does not satisfy the applicablecondition because that employee is ineli-

5To distinguish between opt-out payments and employer contributions to a section 125 cafeteria plan (which in some cases could be paid in cash to an employee who declines coveragein the health plan or other available benefits), the proposed regulations further clarify that an amount provided as an employer contribution to a cafeteria plan and that may be used by theemployee to purchase minimum essential coverage is not an opt-out payment, whether or not the employee may receive the amount as a taxable benefit. This provision clarifies that the effecton an employee’s required contribution of employer contributions to a cafeteria plan is determined under § 1.36B–2(c)(3)(v)(A)(6) rather than § 1.36B–2(c)(3)(v)(A)(7).

Bulletin No. 2016–30 July 25, 2016177

gible to receive the opt-out payment.Moreover, commenters argued that an em-ployee who satisfies the condition (that is,who has alternative minimum essentialcoverage) is ineligible for the premiumtax credit and does not need to determinethe affordability of the employer’s cover-age offer. Thus, the commenters asserted,an amount made available under such anarrangement should be excluded from therequired contribution.

While it is clear that the availabilityof an unconditional opt-out payment in-creases an individual’s required contri-bution, the effect of the availability of aconditional opt-out payment is less ob-vious. In particular, under an uncondi-tional opt-out arrangement, an individ-ual who enrolls in the employercoverage loses the opt-out payment as adirect result of enrolling in the employercoverage. By contrast, in the case of aconditional opt-out arrangement, theavailability of the opt-out payment maydepend on information that is not gen-erally available to the employer (who, ifit is an applicable large employer, mustreport the required contribution undersection 6056 and whose potential liabil-ity under section 4980H may be af-fected). Because of this difficulty of as-certaining which individuals could havemet the condition and, therefore, wouldactually forgo the opt-out payment whenenrolling in employer-sponsored cover-age, it generally is not feasible to have arule under which the required contribu-tion perfectly captures the cost of cov-erage for each specific individual of-fered a conditional opt-out payment.

Similarly, another way to view opt-outpayments that are conditioned on alter-native coverage is that, rather than rais-ing the cost to the employee of the em-ployer’s coverage, they reduce the costto the employee of the alternative cov-erage. However, because employersgenerally do not have information aboutthe existence and cost of other optionsavailable to the individual, it is not prac-tical to take into account any offer ofcoverage other than the offer made bythe employer in determining the re-

quired contribution with respect to theemployer coverage (that is, the coveragethat the employee must decline to re-ceive the opt-out payment).

While commenters indicated that therequired contribution with respect to theemployer coverage does not matter for anindividual enrolled in any other minimumessential coverage because the individualwould be ineligible for the premium taxcredit, this statement is not true if theother coverage is individual market cov-erage. In particular, while enrollment inmost types of minimum essential cover-age results in an individual being ineligi-ble for a premium tax credit, that is not thecase for coverage in the individual market.Moreover, for individual market coverageoffered through a Marketplace, the re-quired contribution with respect to theemployer coverage frequently will be rel-evant in determining whether the individ-ual is eligible for a premium tax credit. Insuch cases, as in the case of an uncondi-tional opt-out payment, the availability ofa conditional opt-out payment effectivelyincreases the cost to the individual of en-rolling in the employer coverage (at leastrelative to Marketplace coverage).

Further, an opt-out arrangement that isconditioned on an employee’s ability toobtain other coverage (if that coveragecan be coverage in the individual market,whether inside or outside the Market-place) does not generally raise the issuesdescribed earlier in this section of the pre-amble regarding the difficulty of ascer-taining which individuals could meet thecondition under a conditional opt-out ar-rangement. This is because generally allindividuals are able to obtain coverage inthe individual market, pursuant to theguaranteed issue requirements in section2702 of the PHS Act. Thus, in the sensethat all individuals can satisfy the appli-cable condition, such an opt-out arrange-ment is similar to an unconditional opt-outarrangement.

In an effort to provide a workable rulethat balances these competing concerns,the proposed regulations provide thatamounts made available under conditionalopt-out arrangements are disregarded in

determining the required contribution ifthe arrangement satisfies certain condi-tions (an “eligible opt-out arrangement”),but otherwise the amounts are taken intoaccount. The proposed regulations definean “eligible opt-out arrangement” as anarrangement under which the employee’sright to receive the opt-out payment isconditioned on (1) the employee decliningto enroll in the employer-sponsored cov-erage and (2) the employee providing rea-sonable evidence that the employee andall other individuals for whom the em-ployee reasonably expects to claim a per-sonal exemption deduction for the taxableyear or years that begin or end in or withthe employer’s plan year to which theopt-out arrangement applies (employ-ee’s expected tax family) have or willhave minimum essential coverage (otherthan coverage in the individual market,whether or not obtained through theMarketplace) during the period of cov-erage to which the opt-out arrangementapplies. For example, if an employee’sexpected tax family consists of the em-ployee, the employee’s spouse, and twochildren, the employee would meet thisrequirement by providing reasonable ev-idence that the employee, the employ-ee’s spouse, and the two children, willhave coverage under the group healthplan of the spouse’ s employer for theperiod to which the opt-out arrangementapplies.6

The Treasury Department and the IRSinvite comments on this proposed rule,including suggestions for other work-able rules that result in the required con-tribution more accurately reflecting theindividual’s cost of coverage while min-imizing undesirable consequences andincentives.

For purposes of the proposed eligibleopt-out arrangement rule, reasonable evi-dence of alternative coverage includes theemployee’s attestation that the employeeand all other members of the employee’sexpected tax family, if any, have or willhave minimum essential coverage (otherthan coverage in the individual market,whether or not obtained through the Mar-ketplace) or other reasonable evidence.

6The Treasury Department and the IRS note that if an opt-out payment is conditioned on an employee obtaining individual market coverage, that opt-out arrangement could act as areimbursement arrangement for some or all of the employee’s premium for that individual market coverage; therefore, the opt-out arrangement could operate as an employer payment planas discussed in Notice 2015–87, Notice 2015–17, 2015–14 I.R.B. 845, and Notice 2013–54, 2013–40 I.R.B. 287. Nothing in these proposed regulations is intended to affect the prior guidanceon employer payment plans.

July 25, 2016 Bulletin No. 2016–30178

Notwithstanding the evidence of alterna-tive coverage required under the arrange-ment, to qualify as an eligible opt-outarrangement, the arrangement must alsoprovide that any opt-out payment will notbe made (and the payment must not in factbe made) if the employer knows or hasreason to know that the employee or anyother member of the employee’s expectedtax family does not have (or will not have)the required alternative coverage. An eli-gible opt-out arrangement must also re-quire that the evidence of coverage beprovided no less frequently than everyplan year to which the eligible opt-outarrangement applies, and that the evidencebe provided no earlier than a reasonableperiod before the commencement of theperiod of coverage to which the eligibleopt-out arrangement applies. Obtainingthe reasonable evidence (such as an attes-tation) as part of the regular annual openenrollment period that occurs within a fewmonths before the commencement of thenext plan year of employer-sponsoredcoverage meets this reasonable period re-quirement. Alternatively, the eligible opt-out arrangement would be permitted torequire evidence of alternative coverageto be provided later, such as after the planyear starts, which would enable theemployer to require evidence that the em-ployee and other members of the employ-ee’s expected tax family have alreadyobtained the alternative coverage.

Commenters on Notice 2015–87 gen-erally stated that typical conditions underan opt-out arrangement include a require-ment that the employee have alternativecoverage through employer-sponsoredcoverage of a spouse or another relative,such as a parent. Provided that, as re-quired under the opt-out arrangement, theemployee provided reasonable evidenceof this alternative coverage for the em-ployee and the other members of the em-ployee’s expected tax family, and met therelated conditions described in this pream-ble, these types of opt-out arrangementswould be eligible opt-out arrangements,and opt-out payments made available un-der such arrangements would not increasethe employee’s required contribution.

The Treasury Department and the IRSdid not receive comments on opt-out ar-rangements indicating that the meaningfulconditions imposed include any require-ment other than one relating to alternativecoverage. Therefore, the proposed rulesdo not address other opt-out conditionsand would not treat an opt-out arrange-ment based on other conditions as an eli-gible opt-out arrangement. However, theTreasury Department and the IRS invitecomments on whether opt-out paymentsare made subject to additional types ofconditions in some cases, whether thosetypes of conditions should be addressed infurther guidance, and, if so, how.

One commenter suggested that, if opt-out payments conditioned on alternativecoverage are not included in an employ-ee’s required contribution, rules will beneeded for cases in which an employeereceives an opt-out payment and that em-ployee’s alternative coverage subse-quently terminates. The commenter sug-gested that, in that case, the termination ofthe alternative coverage should have noimpact on the determination of the em-ployee’s required contribution for theemployer-sponsored coverage from whichthe employee opted out. In response, un-der the proposed regulations, providedthat the reasonable evidence requirementis met, the amount of an opt-out paymentmade available under an eligible opt-outarrangement may continue to be excludedfrom the employee’s required contributionfor the remainder of the period of cover-age to which the opt-out payment origi-nally applied. The opt-out payment maybe excluded for this period even if thealternative coverage subsequently termi-nates for the employee or any other mem-ber of the employee’s expected tax family,regardless of whether the opt-out paymentis required to be adjusted or terminateddue to the loss of alternative coverage, andregardless of whether the employee is re-quired to provide notice of the loss ofalternative coverage to the employer.

The Treasury Department and the IRSare aware that the way in which opt-outarrangements affect the calculation of af-fordability is important not only to anemployee and the other members of the

employee’s expected tax family in deter-mining whether they may be eligible for apremium tax credit or whether an individ-ual may be exempt under the individualshared responsibility provisions, but alsoto an employer subject to the employershared responsibility provisions undersection 4980H in determining whether theemployer may be subject to an assessablepayment under section 4980H(b). An em-ployer subject to the employer shared re-sponsibility provisions will be subject to apayment under section 4980H(b) onlywith respect to a full-time employee whoreceives a premium tax credit, and an em-ployee will not be eligible for the pre-mium tax credit if the employer’s offer ofcoverage was affordable and providedminimum value.7 Commenters expressedconcern that if the rule adopted for condi-tional opt-outs required an employee toprovide reasonable evidence that the em-ployee has or will have minimum essen-tial coverage, the employer may not knowwhether the employee is being truthfuland has obtained (or will obtain) suchcoverage, or how long such coverage willcontinue. Under these proposed regula-tions, however, the employee’s requiredcontribution will not be increased by anopt-out payment made available under aneligible opt-out arrangement, providedthat the arrangement provides that the em-ployer makes the payment only if the em-ployee provides reasonable evidence ofalternative coverage and the employerdoes not know or have reason to knowthat the employee or any other member ofthe employee’s expected tax family failsor will fail to meet the requirement tohave alternative coverage (other than in-dividual market coverage, whether or notobtained through the Marketplace).

Some commenters requested excep-tions for special circumstances from thegeneral rule that the employee’s requiredcontribution is increased by the amount ofan opt-out payment made available. Thesecircumstances include (1) conditional opt-out payments that are required under theterms of a collective bargaining agree-ment and (2) opt-out payments that arebelow a de minimis amount. Regardingopt-out arrangements contained in collec-

7The affordability rules under section 36B, including rules regarding opt-out payments, may also affect the application of section 4980H(a) because one element that is required for anapplicable large employer to be subject to an assessable payment under section 4980H(a) is that at least one full-time employee must receive the premium tax credit.

Bulletin No. 2016–30 July 25, 2016179

tive bargaining agreements, the TreasuryDepartment and the IRS anticipate that theproposed treatment of eligible opt-out ar-rangements, generally, will address theconcerns raised in the comments. Accord-ingly, the Treasury Department and theIRS do not propose to provide a perma-nent exception for opt-out arrangementsprovided under collective bargainingagreements. Earlier in this section of thepreamble, however, the Treasury Depart-ment and the IRS clarify and expand thetransition relief provided under Notice2015–87 for opt-out arrangements pro-vided under collective bargaining agree-ments in effect before December 16,2015. As for an exception for de minimisamounts, the Treasury Department and theIRS decline to adopt such an exceptionbecause there is neither a statutory nor aneconomic basis for establishing a de mi-nimis threshold under which an uncondi-tional opt-out payment would be excludedfrom the employee’s required contribu-tion.

g. Effective date of eligibility forminimum essential coverage whenadvance credit payments discontinuanceis delayed

Section 36B and the regulations undersection 36B provide that an individualwho may enroll in minimum essentialcoverage outside the Marketplace (otherthan individual market coverage) for amonth is generally not allowed a premiumtax credit for that month. Consequently,individuals enrolled in a qualified healthplan with advance credit payments mustreturn to the Exchange to report eligibilityfor other minimum essential coverage sothe Exchange can discontinue the advancecredit payments for Marketplace cover-age. Similarly, individuals enrolled in aqualified health plan with advance creditpayments may be determined eligible forcoverage under a government-sponsoredprogram, such as Medicaid. In somecases, individuals may inform the Ex-change of their opportunity to enroll inother minimum essential coverage or re-ceive approval for coverage under agovernment-sponsored program after thetime for which the Exchange can discon-tinue advance credit payments for the nextmonth. Because taxpayers should gener-

ally not have to repay the advance creditpayments for that next month in thesecircumstances, the proposed regulationsprovide a rule for situations in which anExchange’s discontinuance of advancecredit payments is delayed. Under the pro-posed regulations, if an individual who isenrolled in a qualified health plan forwhich advance credit payments are madeinforms the Exchange that the individualis or will soon be eligible for other mini-mum essential coverage and that advancecredit payments should be discontinued,but the Exchange does not discontinueadvance credit payments for the first cal-endar month beginning after the monththe individual notifies the Exchange, theindividual is treated as eligible for theother minimum essential coverage no ear-lier than the first day of the second calen-dar month beginning after the first monththe individual may enroll in the other min-imum essential coverage. Similarly, if adetermination is made that an individual iseligible for Medicaid or CHIP but ad-vance credit payments are not discontin-ued for the first calendar month beginningafter the eligibility determination, the in-dividual is treated as eligible for Medicaidor CHIP no earlier than the first day of thesecond calendar month beginning after thedetermination. Taxpayers may rely on thisrule for all taxable years beginning afterDecember 31, 2013.

3. Premium Assistance Amount

a. Payment of taxpayer’s share ofpremiums for advance credit paymentsfollowing appeal determinations

Under § 1.36B–3(c)(1)(ii), a month inwhich an individual who is enrolled in aqualified health plan is a coverage monthfor the individual only if the taxpayer’sshare of the premium for the individual’scoverage for the month is paid by theunextended due date of the taxpayer’s in-come tax return for the year of coverage,or the premium is fully paid by advancecredit payments.

One of the functions of an Exchange isto make determinations as to whether anindividual who enrolls in a qualifiedhealth plan is eligible for advance creditpayments for the coverage. If an Ex-change determines that the individual is

not eligible for advance credit payments,the individual may appeal that decision.An individual who is initially determinedineligible for advance credit payments,does not enroll in a qualified health planunder the contested determination, and islater determined to be eligible for advancecredit payments through the appeals pro-cess, may elect to be retroactively enrolledin a health plan through the Exchange. Inthat case, the individual is treated as hav-ing been enrolled in the qualified healthplan from the date on which the individualwould have enrolled had he or she initiallybeen determined eligible for advancecredit payments. If retroactively enrolled,the deadline for paying premiums for theretroactive coverage may be after the un-extended due date for filing an income taxreturn for the year of coverage. Conse-quently, the proposed regulations providethat a taxpayer who is eligible for advancecredit payments pursuant to an eligibilityappeal for a member of the taxpayer’scoverage family who, based on the ap-peals decision, retroactively enrolls in aqualified health plan, is considered to havemet the requirement in § 1.36B–3(c)(1)(ii)for a month if the taxpayer pays the tax-payer’s share of the premium for coverageunder the plan for the month on or beforethe 120th day following the date of theappeals decision. Taxpayers may rely onthis rule for all taxable years beginningafter December 31, 2013.

b. Month that coverage is terminated

Section 1.36B–3(d)(2) provides that ifa qualified health plan is terminated be-fore the last day of a month, the premiumassistance amount for the month is thelesser of the enrollment premiums for themonth (reduced by any amounts that wererefunded), or the excess of the benchmarkplan premium for a full month of coverageover the full contribution amount for themonth. Section 1.36B–3(c)(2) providesthat an individual whose enrollment in aqualified health plan is effective on thedate of the individual’s birth or adoption,or placement for foster care, or upon theeffective date of a court order, is treated asenrolled as of the first day of the monthand, therefore, the month of enrollmentmay be a coverage month. The regula-tions, however, do not expressly address

July 25, 2016 Bulletin No. 2016–30180

how the premium assistance amount iscomputed when a covered individual dis-enrolls before the last day of a month butthe plan is not terminated because otherindividuals remain enrolled. For purposesof the premium tax credit, the premiumassistance amount for an individual who isnot enrolled for an entire month should bethe same regardless of the circumstancescausing the partial-month coverage, pro-vided that the individual was enrolled, oris treated as enrolled, as of the first day ofthe month (that is, so long as the month isa coverage month). Accordingly, to pro-vide consistency for all individuals whohave a coverage month that is less than afull calendar month, the proposed regula-tions provide that the premium assistanceamount for a month is the lesser of theenrollment premiums for the month (re-duced by any amounts that were re-funded), or the excess of the benchmarkplan premium over the contributionamount for the month. Taxpayers mayrely on this rule for all taxable years be-ginning after December 31, 2013.

4. Benchmark Plan Premium

a. Effective/applicability date ofbenchmark plan rules

The rules relating to the benchmarkplan in this section are proposed to applyfor taxable years beginning after Decem-ber 31, 2018.

b. Pediatric dental benefits

Under section 1311(d)(2)(B) of the Af-fordable Care Act, only qualified healthplans, including stand-alone dental plansoffering pediatric dental benefits, may beoffered through a Marketplace. In general,a qualified health plan is required to pro-vide coverage for all ten essential healthbenefits described in section 1302(b) ofthe Affordable Care Act, including pedi-atric dental coverage. However, undersection 1302(b)(4)(F), a plan that does notprovide pediatric dental benefits maynonetheless be a qualified health plan if itcovers each essential health benefit de-scribed in section 1302(b) other than pe-diatric dental benefits and if it is offeredthrough a Marketplace in which a stand-

alone dental plan offering pediatric dentalbenefits is offered as well.

Section 36B(b)(3)(E) and § 1.36B–3(k)provide that if an individual enrolls inboth a qualified health plan and a stand-alone dental plan, the portion of the pre-mium for the stand-alone dental planproperly allocable to pediatric dental ben-efits is treated as a premium payable forthe individual’s qualified health plan.Thus, in determining a taxpayer’s pre-mium assistance amount for a month inwhich a member of the taxpayer’s cover-age family is enrolled in a stand-alonedental plan, the taxpayer’s enrollment pre-mium includes the portion of the premiumfor the stand-alone dental plan allocable topediatric dental benefits. The existing reg-ulations do not provide a similar adjust-ment for the taxpayer’s applicable bench-mark plan premium to reflect the cost ofpediatric dental benefits in cases wherethe second-lowest cost silver plan doesnot provide pediatric dental benefits.

Section 36B(b)(3)(B) provides that theapplicable benchmark plan with respect toa taxpayer is the second lowest cost silverplan available through the applicable Mar-ketplace that provides “self-only cover-age” or “family coverage,” dependinggenerally on whether the coverage familyincludes one or more individuals. Neitherthe Code nor the Affordable Care Actdefines the terms “self-only coverage” or“family coverage” for this purpose.

Under the existing regulations, the refer-ences in section 36B(b)(3)(B) to plans thatprovide self-only coverage and family cov-erage are interpreted to refer to all qualifiedhealth plans offered through the applicableMarketplace, regardless of whether the cov-erage offered by those plans includes all tenessential health benefits. Because qualifiedhealth plans that do not offer pediatric dentalbenefits tend to be cheaper than qualifiedhealth plans that cover all ten essentialhealth benefits, the second lowest-cost silverplan (and therefore the premium tax credit)for taxpayers purchasing coverage through aMarketplace in which stand-alone dentalplans are offered is likely to not account forthe cost of obtaining pediatric dental cover-age.

The Treasury Department and the IRSbelieve that the current rule frustrates thestatute’s goal of making coverage thatprovides the essential health benefits af-

fordable to individuals eligible for the pre-mium tax credit. Accordingly, the pro-posed regulations reflect a modification inthe interpretation of the terms “self-onlycoverage” and “family coverage” in sec-tion 36B(b)(3)(B) to refer to coverage thatprovides each of the essential health ben-efits described in section 1302(b) of theAffordable Care Act. This coverage maybe obtained from either a qualified healthplan alone or from a qualified health planin combination with a stand-alone dentalplan. In particular, self-only coverage re-fers to coverage obtained from such planswhere the coverage family is a single in-dividual. Similarly, family coverage refersto coverage obtained from such planswhere the coverage family includes morethan one individual.

Consistent with this interpretation, theproposed regulations provide that for tax-able years beginning after December 31,2018, if an Exchange offers one or moresilver-level qualified health plans that donot cover pediatric dental benefits, the ap-plicable benchmark plan is determined byranking (1) the premiums for the silver-level qualified health plans that includepediatric dental benefits offered by theExchange and (2) the aggregate of thepremiums for the silver-level qualifiedhealth plans offered by the Exchange thatdo not include pediatric dental benefitsplus the portion of the premium allocableto pediatric dental benefits for stand-alonedental plans offered by the Exchange. Inconstructing this ranking, the premium forthe lowest-cost silver plan that does notinclude pediatric dental benefits is addedto the lowest-cost portion of the premiumfor a stand-alone dental plan that is allo-cable to pediatric dental benefits, and sim-ilarly, the premium for the second lowest-cost silver plan that does not includepediatric dental benefits is added to thesecond-lowest-cost portion of the pre-mium for a stand-alone dental plan that isassocable to pediatric dental benefits. Thesecond lowest-cost amount from this com-bined ranking is the taxpayer’s applicablebenchmark plan premium.

c. Coverage family members residing indifferent locations

Under § 1.36B–3(f), a taxpayer’s ap-plicable benchmark plan is the second

Bulletin No. 2016–30 July 25, 2016181

lowest cost silver plan offered at the timea taxpayer or family member enrolls in aqualified health plan through the Ex-change for the rating area where the tax-payer resides. Under § 1.36B–3(f)(4), ifmembers of a taxpayer’s family reside indifferent states and enroll in separate qual-ified health plans, the premium for thetaxpayer’s applicable benchmark plan isthe sum of the premiums for the applica-ble benchmark plans for each group offamily members living in the same state.

Referring to the residence of the tax-payer to establish the cost for a benchmarkhealth plan is appropriate when the taxpayerand all members of the taxpayer’s coveragefamily live in the same location because itreflects the cost of available coverage for thetaxpayer’s coverage family. However, be-cause premiums and plan availability mayvary based on location, the existing rule fora taxpayer whose family members reside indifferent locations in the same state may notaccurately reflect the cost of available cov-erage. In addition, the rules for calculatingthe premium tax credit should operate thesame for families residing in multiple loca-tions within a state and families residing inmultiple states. Accordingly, § 1.36B–3(f)(4) of the proposed regulations providesthat if a taxpayer’s coverage family mem-bers reside in multiple locations, whetherwithin the same state or in different states,the taxpayer’s benchmark plan is deter-mined based on the cost of available cover-age in the locations where members of thetaxpayer’s coverage family reside. In partic-ular, if members of a taxpayer’s coveragefamily reside in different locations, the tax-payer’s benchmark plan premium is the sumof the premiums for the applicable bench-mark plans for each group of coverage fam-ily members residing in different locations,based on the plans offered to the groupthrough the Exchange for the rating areawhere the group resides. If all members of ataxpayer’s coverage family reside in a singlelocation that is different from where thetaxpayer resides, the taxpayer’s benchmarkplan premium is the premium for the appli-cable benchmark plan for the coverage fam-ily, based on the plans offered to the taxpay-er’s coverage family through the Exchangefor the rating area where the coverage fam-ily resides.

d. Aggregation of silver-level policies

Section 1.36B–3(f)(3) provides that ifone or more silver-level plans offeredthrough an Exchange do not cover allmembers of a taxpayer’s coverage familyunder one policy (for example, because anissuer will not cover a taxpayer’s depen-dent parent on the same policy the tax-payer enrolls in), the premium for theapplicable benchmark plan may be thepremium for a single policy or for morethan one policy, whichever is the secondlowest-cost silver option. This rule doesnot specify which combinations of poli-cies must be taken into account for thispurpose, suggesting that all such combi-nations must be considered, which is un-duly complex for taxpayers, difficult forExchanges to implement, and difficult forthe IRS to administer. Accordingly, toclarify and simplify the benchmark pre-mium determination for situations inwhich a silver-level plan does not coverall the members of a taxpayer’s coveragefamily under one policy, the proposed reg-ulations delete the existing rule and pro-vide a new rule in its place.

Under the proposed regulations, if asilver-level plan offers coverage to allmembers of a taxpayer’s coverage familywho reside in the same location under asingle policy, the plan premium taken intoaccount for purposes of determining theapplicable benchmark plan is the premiumfor that policy. In contrast, if a silver-levelplan would require multiple policies tocover all members of a taxpayer’s cover-age family who reside in the same loca-tion, the plan premium taken into accountfor purposes of determining the applicablebenchmark plan is the sum of the premi-ums for self-only policies under the planfor each member of the coverage familywho resides in the same location. Underthe proposed regulations, similar ruleswould apply to the portion of premiumsfor stand-alone dental plans allocable topediatric dental coverage taken into ac-count for purposes of determining the pre-mium for a taxpayer’s applicable bench-mark plan.

Comments are requested on the rulecontained in the proposed regulations, aswell as on an alternative rule under whichthe plan premium taken into account forpurposes of determining a taxpayer’s ap-

plicable benchmark plan would be equalto the sum of the self-only policies undera plan for each member of the taxpayer’scoverage family, regardless of whether allmembers of the taxpayer’s coverage fam-ily could be covered under a single policyunder the plan.

e. Silver-level plan not available forenrollment

Section 1.36B–3(f)(5) provides that if aqualified health plan is closed to enroll-ment for a taxpayer or a member of thetaxpayer’s coverage family, that plan isdisregarded in determining the taxpayer’sapplicable benchmark plan. Similarly,§ 1.36B–3(f)(6) provides that a plan that isthe applicable benchmark plan for a tax-payer does not cease to be the applicablebenchmark plan solely because the plan ora lower cost plan terminates or closes toenrollment during the taxable year. Be-cause stand-alone dental plans are consid-ered in determining a taxpayer’s applica-ble benchmark plan under the proposedregulations, the proposed regulations pro-vide consistency in the treatment of qual-ified health plans and stand-alone dentalplans that are closed to enrollment or thatterminate during the taxable year.

f. Only one silver-level plan offered tothe coverage family

In general, § 1.36B–3(f)(1) providesthat a taxpayer’s applicable benchmarkplan is the second lowest-cost silver-levelplan available to the taxpayer for self-onlyor family coverage. However, for taxpay-ers who reside in certain locations, onlyone silver-level plan providing such cov-erage may be available. Section § 1.36B–3(f)(8) of the proposed regulations clari-fies that if there is only one silver-levelqualified health plan offered through theExchange that would cover all membersof the taxpayer’s coverage family(whether under one policy or multiple pol-icies), that silver-level plan is used forpurposes of the taxpayer’s applicablebenchmark plan. Similarly, if there is onlyone stand-alone dental plan offeredthrough the Exchange that would cover allmembers of the taxpayer’s coverage fam-ily (whether under one policy or multiplepolicies), the portion of the premium of

July 25, 2016 Bulletin No. 2016–30182

that plan that is allocable to pediatric den-tal benefits is used for purposes of deter-mining the taxpayer’s applicable bench-mark plan.

5. Reconciliation of Advance CreditPayments

Section 301.6011–8 provides that ataxpayer who receives the benefit of ad-vance credit payments must file an incometax return for that taxable year on or be-fore the due date for the return (includingextensions of time for filing) and reconcilethe advance credit payments. In addition,the regulations under section 36B providethat if advance credit payments are madefor coverage of an individual for whom notaxpayer claims a personal exemption de-duction, the taxpayer who attests to theExchange to the intention to claim a per-sonal exemption deduction for the indi-vidual as part of the determination that thetaxpayer is eligible for advance creditpayments for coverage of the individualmust reconcile the advance credit pay-ments.

Questions have been raised concern-ing how these two rules apply, and con-sequently which individual must recon-cile advance credit payments, when ataxpayer (a parent, for example) atteststhat he or she will claim a personalexemption deduction for an individual,the advance payments are made withrespect to coverage for the individual,the taxpayer does not claim a personalexemption deduction for the individual,and the individual does not file a taxreturn for the year. The intent of theexisting regulation is that the taxpayer,not the individual for whose coverageadvance credit payments were made,must reconcile the advance credit pay-ments in situations in which a taxpayerattests to the intention to claim a per-sonal exemption for the individual andno one claims a personal exemption de-duction for the individual. Conse-quently, the proposed regulations clarifythat if advance credit payments aremade for coverage of an individual forwhom no taxpayer claims a personalexemption deduction, the taxpayer whoattests to the Exchange to the intentionto claim a personal exemption deductionfor the individual, not the individual for

whose coverage the advance credit pay-ments were made, must file a tax returnand reconcile the advance credit pay-ments.

6. Information Reporting

a. Two or more families enrolled insingle qualified health plan

Section 1.36B–3(h) provides that if aqualified health plan covers more than onefamily under a single policy (for example,a plan covers a taxpayer and the taxpay-er’s child who is 25 and not a dependentof the taxpayer), the premium tax credit iscomputed for each applicable taxpayercovered by the plan. In addition, in com-puting the tax credit for each taxpayer,premiums for the qualified health plan thetaxpayers purchase (the enrollment premi-ums) are allocated to each taxpayer inproportion to the premiums for each tax-payer’s applicable benchmark plan.

The existing regulations provide thatthe Exchange must report the enrollmentpremiums for each family, but do notspecify the manner in which the Exchangemust divide the enrollment premiumsamong the families enrolled in the policy.Consequently, the proposed regulationsclarify that when multiple families enrollin a single qualified health plan and ad-vance credit payments are made for thecoverage, the enrollment premiums re-ported by the Exchange for each family isthe family’s allocable share of the enroll-ment premiums, which is based on theproportion of each family’s applicablebenchmark plan premium.

b. Partial months of enrollment

The existing regulations do not specifyhow the enrollment premiums and bench-mark plan premiums are reported in casesin which one or more individuals is en-rolled or disenrolled in coverage mid-month. To ensure that this reporting isconsistent with the rules for calculatingthe premium assistance amounts for par-tial months of coverage, the proposed reg-ulations provide that, if an individual isenrolled in a qualified health plan after thefirst day of a month, generally no valueshould be reported for the individual’senrollment premium or benchmark plan

premium for that month. However, if anindividual’s coverage in a qualified healthplan is terminated before the last day of amonth, or an individual is enrolled in cov-erage after the first day of a month and thecoverage is effective on the date of theindividual’s birth, adoption, or placementfor adoption or in foster care, or on theeffective date of a court order, an Ex-change must report the premium for theapplicable benchmark plan for a fullmonth of coverage (excluding the pre-mium allocated to benefits in excess ofessential health benefits). In addition, theproposed regulations provide that the Ex-change must report the enrollment premi-ums for the month (excluding the pre-mium allocated to benefits in excess ofessential health benefits), reduced by anyamount that was refunded due to theplan’s termination.

c. Use of electronic media

Section 301.6011–2(b) provides that ifthe use of certain forms, including theForm 1095 series, is required by the ap-plicable regulations or revenue proceduresfor the purpose of making an informationreturn, the information required by theform must be submitted on magnetic me-dia. Form 1095–A should not have beenincluded in § 301.6011–2 because Form1095–A is not an information return. Con-sequently, the proposed regulations re-place the general reference in § 301.6011–2(b) to the forms in the 1095 series withspecific references to Forms 1095–B and1095–C, but not Form 1095–A.

Effective/Applicability Date

Except as otherwise provided, theseregulations are proposed to apply for tax-able years beginning after December 31,2016. In addition, taxpayers may rely oncertain provisions of the proposed regula-tions for taxable years ending after De-cember 31, 2013, as indicated earlier inthis preamble. In addition, rules relating tothe benchmark plan described in section 4of this preamble are proposed to apply fortaxable years beginning after December31, 2018.

Notwithstanding the proposed applica-bility date, nothing in the proposed regu-lations is intended to limit any relief foropt-out arrangements provided in Notice

Bulletin No. 2016–30 July 25, 2016183

2015–87, Q&A 9, or in section 2.f of thepreamble to these proposed regulations(regarding opt-out arrangements providedfor in collective bargaining agreements).For purposes of sections 36B and 5000A,although under the proposed regulationsamounts made available under an eligibleopt-out arrangement are not added to anemployee’s required contribution, for pe-riods before the final regulations are ap-plicable and, if later, through the end ofthe most recent plan year beginning be-fore January 1, 2017, an individual whocan demonstrate that he or she meets thecondition for an opt-out payment under aneligible opt-out arrangement is permittedto treat the opt-out payment as increasingthe employee’s required contribution.8

For purposes of the consequences ofthese regulations under sections 4980Hand 6056 (and in particular Form 1095–C), the regulations regarding opt-out ar-rangements are proposed to be first appli-cable for plan years beginning on or afterJanuary 1, 2017,9 and for the period priorto this applicability date employers are notrequired to increase the amount of an em-ployee’s required contribution by theamount of an opt-out payment made avail-able under an opt-out arrangement (otherthan a payment made available under anon-relief-eligible opt-out arrange-ment10). See also section 2.f of this pre-amble for transition relief provided underNotice 2015–87 as clarified and expandedfor opt-out arrangements contained in col-lective bargaining agreements in effectbefore December 16, 2015. See§ 601.601(d)(2)(ii)(b).

Special Analyses

Certain IRS regulations, including thisone, are exempt from the requirements ofExecutive Order 12866, as supplementedand reaffirmed by Executive Order 13563.Therefore, a regulatory assessment is notrequired. It has also been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations.

It is hereby certified that these regula-tions will not have a significant economicimpact on a substantial number of smallentities. This certification is based on thefact that the information collection re-quired under these regulations is imposedunder section 36B. Consistent with thestatute, the proposed regulations require aperson that provides minimum essentialcoverage to an individual to file a returnwith the IRS reporting certain informationand to furnish a statement to the respon-sible individual who enrolled an individ-ual or family in the coverage. These reg-ulations merely provide the method offiling and furnishing returns and state-ments under section 36B. Moreover, theproposed regulations attempt to minimizethe burden associated with this collectionof information by limiting reporting to theinformation that the IRS requires to verifyminimum essential coverage and adminis-ter tax credits.

Based on these facts, a RegulatoryFlexibility Analysis under the RegulatoryFlexibility Act (5 U.S.C. chapter 6) is notrequired.

Pursuant to section 7805(f) of theCode, this notice of proposed rulemakinghas been submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on its impact onsmall business.

Comments and Requests for PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any comments that aresubmitted timely to the IRS as prescribedin this preamble under the “Addresses”heading. Treasury and the IRS requestcomments on all aspects of the proposedrules. All comments will be available atwww.regulations.gov or upon request. Apublic hearing will be scheduled if re-quested in writing by any person whotimely submits written comments. If apublic hearing is scheduled, notice of thedate, time, and place for the hearing willbe published in the Federal Register.

Drafting Information

The principal authors of these pro-posed regulations are Shareen S. Pflanzand Stephen J. Toomey of the Office ofAssociate Chief Counsel (Income Tax andAccounting). However, other personnelfrom the IRS and the Treasury Depart-ment participated in the development ofthe regulations.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR parts 1 and 301are proposed to be amended as follows:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805***Par. 2. Section 1.36B–0 is amended

by:1. Adding the entries for §§ 1.36B–

2(b)(6)(i) and (ii).2. Adding entries for §§ 1.36B–

2(c)(3)(v)(A)(7), (v)(A)(7)(i), (ii), (iii),(iii)(A), (iii)(B), (iii)(C), and (iv).

3. Redesignating entry for § 1.36B–2(c)(4) as (c)(5) and adding new entriesfor § 1.36B–2(c)(4), (c)(4)(i), (ii), (ii)(A),and (ii)(B).

4. Redesignating entry for § 1.36B–3(c)(4) as (c)(5) and adding a new entryfor § 1.36B–3(c)(4).

5. Revising entries for §§ 1.36B–3(d)(1) and (d)(2).

6. Revising entries for §§ 1.36B–3(f)(3), (4), (5), (6), and (7).

7. Adding entries for §§ 1.36B–3(f)(8),(9), and (10).

8. Adding entries for §§ 1.36B–5(c)(3)(iii).

The revisions and additions read as fol-lows:

§ 1.36B–0 Table of contents.

* * * * *

8For periods prior to the applicability date, an individual who cannot demonstrate that he or she meets the condition for an opt-out payment under an eligible opt-out arrangement is notpermitted to treat the opt-out payment as increasing the employee’s required contribution.

9Notice 2015–87, Q&A 9 provides that the Treasury Department and the IRS anticipate that the regulations on opt-out arrangements generally will apply only for periods after the issuanceof final regulations. The Treasury Department and the IRS anticipate finalizing these regulations prior to the end of 2016.

10For a discussion of non-relief-eligible opt-out arrangements see Notice 2015–87, Q&A–9.

July 25, 2016 Bulletin No. 2016–30184

§ 1.36B–2 Eligibility for premium taxcredit.

* * * * *(b) * * *(6) * * *(i) In general.(ii) Exceptions.*****(c) * * *(3) * * *(v) * * *(A) * * *(7) Opt-out arrangements.(i) In general.(ii) Eligible opt-out arrangements.(iii) Definitions.(A) Opt-out payment.(B) Opt-out arrangement.(C) Eligible opt-out arrangement.(iv) Examples.*****(4) Special eligibility rules.(i) Related individuals not claimed as a

personal exemption deduction.(ii) Exchange unable to discontinue ad-

vance credit payments.(A) In general.(B) Medicaid or CHIP.* * * * *

§ 1.36B–3 Computing the premiumassistance credit amount.

* * * * *(c) * * *(4) Appeals of coverage eligibility.(d) * * *(1) Premium assistance amount.(2) Examples.* * * * *(f) * * *(3) Silver-level plan not covering pedi-

atric dental benefits.(4) Family members residing in differ-

ent locations.(5) Single or multiple policies needed

to cover the family.(i) Policy covering a taxpayer’s family.(ii) Policy not covering a taxpayer’s

family.(6) Plan not available for enrollment.(7) Benchmark plan terminates or

closes to enrollment during the year.(8) Only one silver-level plan offered

to the coverage family.(9) Examples.

* * * * *(n) Effective/applicability date.* * * * *

§ 1.36B–5 Information reporting byExchanges.

* * * * *(c) * * *(3) * * *(iii) Partial month of coverage.(A) In general.(B) Certain mid-month enrollments.* * * * *Par. 3. Section 1.36B–1 is amended by

revising paragraphs (l), (m), and (o) toread as follows:

§ 1.36B–1 Premium tax creditdefinitions.

* * * * *(l) Self-only coverage. Self-only cover-

age means health insurance that coversone individual and provides coverage forthe essential health benefits as defined insection 1302(b)(1) of the Affordable CareAct (42 U.S.C. 18022).

(m) Family coverage. Family coveragemeans health insurance that covers morethan one individual and provides coveragefor the essential health benefits as definedin section 1302(b)(1) of the AffordableCare Act (42 U.S.C. 18022).

* * * * *(o) Effective/applicability date. Except

for paragraphs (l) and (m), this sectionapplies to taxable years ending after De-cember 31, 2013. Paragraphs (l) and (m)of this section apply to taxable years be-ginning after December 31, 2018. Para-graphs (l) and (m) of § 1.36B–1 as con-tained in 26 CFR part I edition revised asof April 1, 2016, apply to taxable yearsending after December 31, 2013, and be-ginning before January 1, 2019.

Par. 4. Section 1.36B–2 is amended by:1. Revise paragraph (b)(6) introductory

text, (b)(6)(i) and (ii).2. Adding three new sentences to the

end of paragraph (c)(2)(v).3. Revising paragraph (c)(3)(i).4. Revising paragraph (c)(3)(iii)(A).5. Adding three new sentences to the

end of paragraph (c)(3)(v)(A)(3).6. Adding new paragraphs (c)(3)(v)(A)(7)7. Revising paragraph (c)(4).

8. Adding a new paragraph (e).

§ 1.36B–2 Eligibility for premium taxcredit.

* * * * *(b) * * *(6) Special rule for taxpayers with

household income below 100 percent ofthe Federal poverty line for the taxableyear—(i) In general. A taxpayer (otherthan a taxpayer described in paragraph(b)(5) of this section) whose householdincome for a taxable year is less than 100percent of the Federal poverty line for thetaxpayer’s family size is treated as an ap-plicable taxpayer for the taxable year if—

(A) The taxpayer or a family memberenrolls in a qualified health plan throughan Exchange for one or more months dur-ing the taxable year;

(B) An Exchange estimates at the timeof enrollment that the taxpayer’s house-hold income will be at least 100 percentbut not more than 400 percent of the Fed-eral poverty line for the taxable year;

(C) Advance credit payments are au-thorized and paid for one or more monthsduring the taxable year; and

(D) The taxpayer would be an applicabletaxpayer if the taxpayer’s household incomefor the taxable year was at least 100 but notmore than 400 percent of the Federal pov-erty line for the taxpayer’s family size.

(ii) Exceptions. This paragraph (b)(6)does not apply for an individual who, withintentional or reckless disregard for thefacts, provides incorrect information to anExchange for the year of coverage. Areckless disregard of the facts occurs if thetaxpayer makes little or no effort to deter-mine whether the information provided tothe Exchange is accurate under circum-stances that demonstrate a substantial de-viation from the standard of conduct areasonable person would observe. A dis-regard of the facts is intentional if thetaxpayer knows the information providedto the Exchange is inaccurate.

* * * * *(c) * * *(2) * * *(v) * * * This paragraph (c)(2)(v) does

not apply for an individual who, with in-tentional or reckless disregard for thefacts, provides incorrect information to anExchange for the year of coverage. A

Bulletin No. 2016–30 July 25, 2016185

reckless disregard of the facts occurs if thetaxpayer makes little or no effort to deter-mine whether the information provided tothe Exchange is accurate under circum-stances that demonstrate a substantial de-viation from the standard of conduct areasonable person would observe. A dis-regard of the facts is intentional if thetaxpayer knows that information providedto the Exchange is inaccurate.

* * * * *(3) * * *(i) In general. For purposes of section

36B, an employee who may enroll in aneligible employer-sponsored plan (as de-fined in section 5000A(f)(2) and the reg-ulations under that section) that is mini-mum essential coverage, and an individualwho may enroll in the plan because of arelationship to the employee (a relatedindividual), are eligible for minimum es-sential coverage under the plan for anymonth only if the plan is affordable andprovides minimum value. Except for theNonappropriated Fund Health BenefitsProgram of the Department of Defense,established under section 349 of the Na-tional Defense Authorization Act for Fis-cal Year 1995 (Public Law 103–337; 10U.S.C. 1587 note), government-sponsoredminimum essential coverage is not an el-igible employer-sponsored plan. TheNonappropriated Fund Health BenefitsProgram of the Department of Defense isconsidered eligible employer-sponsoredcoverage, but not government-sponsoredcoverage, for purposes of determining ifan individual is eligible for minimum es-sential coverage under this section.

* * * * *(iii) ***(A) Failure to enroll in plan. An em-

ployee or related individual may be eligi-ble for minimum essential coverage underan eligible employer-sponsored plan for amonth during a plan year if the employeeor related individual could have enrolledin the plan for that month during an openor special enrollment period for the planyear. If an enrollment period relates tocoverage for not only the upcoming planyear (or the current plan year in the caseof an enrollment period other than an openenrollment period), but also coverage inone or more succeeding plan years, thisparagraph (c)(3)(iii)(A) applies only to el-igibility for the coverage in the upcoming

plan year (or the current plan year in thecase of an enrollment period other than anopen enrollment period).

* * * * *(v) * * *(A) * * *(3) * * * This paragraph (c)(3)(v)(A)(3)

does not apply for an individual who, withintentional or reckless disregard for thefacts, provides incorrect information to anExchange concerning the portion of theannual premium for coverage for the em-ployee or related individual under theplan. A reckless disregard of the factsoccurs if the taxpayer makes little or noeffort to determine whether the informa-tion provided to the Exchange is accurateunder circumstances that demonstrate asubstantial deviation from the standard ofconduct a reasonable person would observe.A disregard of the facts is intentional if thetaxpayer knows that the information pro-vided to the Exchange is inaccurate.

* * * * *(7) Opt-out arrangements—(i) In gen-

eral. Except as otherwise provided in thisparagraph (c)(3)(v)(A)(7), the amount ofan opt-out payment made available to anemployee under an opt-out arrangementincreases the employee’s required contri-bution for purposes of determining theaffordability of the eligible employer-sponsored plan to which the opt-out ar-rangement relates, regardless of whetherthe employee enrolls in the eligibleemployer-sponsored plan or declines toenroll in that coverage and is paid theopt-out payment.

(ii) Eligible opt-out arrangements. Theamount of an opt-out payment made avail-able to an employee under an eligible opt-out arrangement does not increase theemployee’s required contribution for pur-poses of determining the affordability ofthe eligible employer-sponsored plan towhich the eligible opt-out arrangement re-lates, regardless of whether the employeeenrolls in the eligible employer-sponsoredplan or is paid the opt-out payment.

(iii) Definitions. The following defini-tions apply for purposes of this paragraph(c)(3)(v)(A)(7):

(A) Opt-out payment. The term opt-outpayment means a payment that is avail-able only if an employee declines cover-age, including waiving coverage in whichthe employee would otherwise be enrolled,

under an eligible employer-sponsored planand that is not permitted to be used to payfor coverage under the eligible employer-sponsored plan. An amount provided as anemployer contribution to a cafeteria planthat is permitted to be used by the em-ployee to purchase minimum essentialcoverage is not an opt-out payment,whether or not the employee may receivethe amount as a taxable benefit. See para-graph (c)(3)(v)(A)(6) of this section forthe treatment of employer contributions toa cafeteria plan.

(B) Opt-out arrangement. The termopt-out arrangement means the arrange-ment under which an opt-out payment ismade available.

(C) Eligible opt-out arrangement. Theterm eligible opt-out arrangement meansan arrangement under which an employ-ee’s right to receive an opt-out payment isconditioned on the employee providingreasonable evidence that the employeeand all other individuals for whom theemployee reasonably expects to claim apersonal exemption deduction for the tax-able year or years that begin or end in orwith the employer’s plan year to whichthe opt-out arrangement applies (employ-ee’s expected tax family) have or willhave minimum essential coverage (otherthan coverage in the individual market,whether or not obtained through the Mar-ketplace) during the period of coverage towhich the opt-out arrangement applies.For this purpose, reasonable evidence ofalternative coverage may include the em-ployee’s attestation that the employee andall other members of the employee’s ex-pected tax family have or will have min-imum essential coverage (other than cov-erage in the individual market, whether ornot obtained through the Marketplace) forthe relevant period. Regardless of the ev-idence of alternative coverage requiredunder the arrangement, to be an eligibleopt-out arrangement, the arrangementmust provide that the opt-out paymentwill not be made, and the employer in factmust not make the payment, if the em-ployer knows or has reason to know thatthe employee or any other member of theemployee’s expected tax family does nothave or will not have the alternative cov-erage. The arrangement must also requirethat the evidence of the alternative cover-age be provided no less frequently than

July 25, 2016 Bulletin No. 2016–30186

every plan year to which the eligible opt-out arrangement applies, and that it mustbe provided no earlier than a reasonableperiod of time before the commencementof the period of coverage to which theeligible opt-out arrangement applies. Ifthe reasonable evidence (such as an attes-tation) is obtained as part of the regularannual open enrollment period that occurswithin a few months before the com-mencement of the next plan year ofemployer-sponsored coverage, it willqualify as being provided no earlier than areasonable period of time before com-mencement of the applicable period ofcoverage. An eligible opt-out arrangementis also permitted to require evidence ofalternative coverage to be provided at alater date, such as after the plan yearstarts, which would enable the employerto require evidence that the employee andall other members of the employee’s ex-pected tax family have already obtainedthe alternative coverage. Nothing in thisrule prohibits an employer from requiringreasonable evidence of alternative cover-age other than an attestation in order foran employee to qualify for an opt-out pay-ment under an eligible opt-out arrange-ment. Further, provided that the reason-able evidence requirement is met, theamount of an opt-out payment made avail-able under an eligible opt-out arrangementcontinues to be excluded from the em-ployee’s required contribution for the re-mainder of the period of coverage towhich the opt-out payment originally ap-plied even if the alternative coverage sub-sequently terminates for the employee orfor any other member of the employee’sexpected tax family, regardless of whetherthe opt-out payment is required to be ad-justed or terminated due to the loss ofalternative coverage, and regardless ofwhether the employee is required to pro-vide notice of the loss of alternative cov-erage to the employer.

(iv) Examples. The following examplesillustrate the provisions of this paragraph(c)(3)(v)(A)(7). In each example, the eli-gible employer-sponsored plan’s planyear is the calendar year.

Example 1. Taxpayer B is an employee of Em-ployer X, which offers its employees coverage underan eligible employer-sponsored plan that requires Bto contribute $3,000 for self-only coverage. X alsomakes available to B a payment of $500 if B declinesto enroll in the eligible employer-sponsored plan.

Therefore, the $500 opt-out payment made availableto B under the opt-out arrangement increases B’srequired contribution under X’s eligible employer-sponsored plan from $3,000 to $3,500, regardless ofwhether B enrolls in the eligible employer-sponsoredplan or declines to enroll and is paid the opt-outpayment.

Example 2. The facts are the same as in Example1, except that availability of the $500 opt-out pay-ment is conditioned not only on B declining to enrollin X’s eligible employer-sponsored plan but also onB providing reasonable evidence no earlier than theregular annual open enrollment period for the nextplan year that B and all other members of B’s ex-pected tax family are or will be enrolled in minimumessential coverage through another source (otherthan coverage in the individual market, whether ornot obtained through the Marketplace). B’s expectedtax family consists of B and B’s spouse, C, who is anemployee of Employer Y. During the regular annualopen enrollment period for the upcoming plan year,B declines coverage under X’s eligible employer-sponsored plan and provides X with reasonable ev-idence that B and C will be enrolled in Y’semployer-sponsored plan, which is minimum essen-tial coverage. The opt-out arrangement provided byX is an eligible opt-out arrangement, and, therefore,the $500 opt-out payment made available to B doesnot increase B’s required contribution under X’seligible employer-sponsored plan. B’s required con-tribution for self-only coverage under X’s eligibleemployer-sponsored plan is $3,000.

Example 3. The facts are the same as in Example2, except that B and C have two children that Bexpects to claim as dependents for the taxable yearthat coincides with the upcoming plan year. Duringthe regular annual open enrollment period for theupcoming plan year, B declines coverage under X’seligible employer-sponsored plan and provides Xwith reasonable evidence that B and C will be en-rolled in Y’s employer-sponsored plan, which isminimum essential coverage. However, B does notprovide reasonable evidence that B’s children will beenrolled in minimum essential coverage (other thancoverage in the individual market, whether or notobtained through the Marketplace); therefore, X de-termines B is not eligible for the opt-out payment,and B does not receive it. The $500 opt-out paymentmade available under the opt-out arrangement doesnot increase B’s required contribution under X’seligible employer-sponsored plan because the opt-out arrangement provided by X is an eligible opt-outarrangement. B’s required contribution for self-onlycoverage under X’s eligible employer-sponsoredplan is $3,000.

Example 4. Taxpayer D is married and is em-ployed by Employer Z, which offers its employeescoverage under an eligible employer-sponsored planthat requires D to contribute $2,000 for self-onlycoverage. Z also makes available to D a payment of$300 if D declines to enroll in the eligible employer-sponsored plan and provides reasonable evidence noearlier than the regular annual open enrollment pe-riod for the next plan year that D is or will beenrolled in minimum essential coverage through an-other source (other than coverage in the individualmarket, whether or not obtained through the Market-place); the opt-out arrangement is not conditioned on

whether the other members of D’s expected taxfamily have other coverage. This opt-out arrange-ment is not an eligible opt-out arrangement becauseit does not condition the right to receive the opt-outpayment on D providing reasonable evidence that Dand the other members of D’s expected tax familyhave (or will have) minimum essential coverage(other than coverage in the individual market,whether or not obtained through the Marketplace).Therefore, the $300 opt-out payment made availableto D under the opt-out arrangement increases D’srequired contribution under Z’s eligible employer-sponsored plan. D’s required contribution for self-only coverage under Z’s eligible employer-sponsored plan is $2,300.

* * * * *(4) Special eligibility rules—(i) Re-

lated individual not claimed as a personalexemption deduction. An individual

who may enroll in minimum essentialcoverage because of a relationship to an-other person eligible for the coverage, butfor whom the other eligible person doesnot claim a personal exemption deductionunder section 151, is treated as eligible forminimum essential coverage under thecoverage only for months that the relatedindividual is enrolled in the coverage.

(ii) Exchange unable to discontinueadvance credit payments— (A) In gen-eral. If an individual who is enrolled in aqualified health plan for which advancecredit payments are made informs the Ex-change that the individual is or will soonbe eligible for other minimum essentialcoverage and that advance credit pay-ments should be discontinued, but the Ex-change does not discontinue advancecredit payments for the first calendarmonth beginning after the month the indi-vidual informs the Exchange, the individ-ual is treated as eligible for the other min-imum essential coverage no earlier thanthe first day of the second calendar monthbeginning after the first month the indi-vidual may enroll in the other minimumessential coverage.

(B) Medicaid or CHIP. If a determina-tion is made that an individual who isenrolled in a qualified health plan forwhich advance credit payments are madeis eligible for Medicaid or CHIP but theadvance credit payments are not discon-tinued for the first calendar month begin-ning after the eligibility determination, theindividual is treated as eligible for theMedicaid or CHIP no earlier than the firstday of the second calendar month begin-ning after the eligibility determination.

* * * * *

Bulletin No. 2016–30 July 25, 2016187

(e) Effective/applicability date. (1) Ex-cept as provided in paragraph (e)(2) ofthis section, this section applies to taxableyears ending after December 31, 2013.

(2) Paragraph (b)(6)(ii), the last threesentences of paragraph (c)(2)(v), paragraph(c)(3)(i), paragraph (c)(3)(iii)(A), the last threesentences of paragraph (c)(3)(v)(A)(3), para-graph (c)(3)(v)(A)(7), and paragraph (c)( 4)of this section apply to taxable years begin-ning after December 31, 2016. Paragraphs(b)(6), (c)(3)(i), (c)(3)(iii)(A), and (c)(4) of§ 1.36B–2 as contained in 26 CFR part Iedition revised as of April 1, 2016, apply totaxable years ending after December 31,2013, and beginning before January 1, 2017.

Par. 5. Section 1.36B–3 is amended by:1. Redesignating paragraph (c)(4) as

paragraph (c)(5) and adding a new para-graph (c)(4).

2. Revising paragraph (d)(1).3. Revising paragraph (d)(2).4. Revising paragraph (f)11. Adding paragraph (n).

§ 1.36B–3 Computing the premium taxcredit amount.

* * * * *(c) * * *(4) Appeals of coverage eligibility. A

taxpayer who is eligible for advance creditpayments pursuant to an eligibility appealdecision implemented under 45 CFR§ 155.545(c)(1)(ii) for coverage of amember of the taxpayer’s coverage familywho, based on the appeal decision, retro-actively enrolls in a qualified health planis considered to have met the requirementin paragraph (c)(1)(ii) of this section for amonth if the taxpayer pays the taxpayer’sshare of the premiums for coverage underthe plan for the month on or before the120th day following the date of the ap-peals decision.

* * * * *(d) * * *(1) Premium assistance amount. The

premium assistance amount for a cover-age month is the lesser of—

(i) The premiums for the month, re-duced by any amounts that were refunded,for one or more qualified health plans inwhich a taxpayer or a member of thetaxpayer’s family enrolls (enrollment pre-miums); or

(ii) The excess of the adjusted monthlypremium for the applicable benchmarkplan (benchmark plan premium) over 1/12of the product of a taxpayer’s householdincome and the applicable percentage forthe taxable year (the taxpayer’s contribu-tion amount).

(2) Examples. The following examplesillustrate the rules of paragraph (d)(1) ofthis section.

Example 1. Taxpayer Q is single and has nodependents. Q enrolls in a qualified health plan witha monthly premium of $400. Q’s monthly bench-mark plan premium is $500, and his monthly con-tribution amount is $80. Q’s premium assistanceamount for a coverage month is $400 (the lesser of$400, Q’s monthly enrollment premium, and $420,the difference between Q’s monthly benchmark planpremium and Q’s contribution amount).

Example 2. (i) Taxpayer R is single and has nodependents. R enrolls in a qualified health plan witha monthly premium of $450. The difference betweenR’s benchmark plan premium and contributionamount for the month is $420. R’s premium assis-tance amount for a coverage month is $420 (thelesser of $450 and $420).

(ii) The issuer of R’s qualified health plan isnotified that R died on September 20. The issuerterminates coverage as of that date and refunds theremaining portion of the September enrollment pre-miums ($150) for R’s coverage.

(iii) Under paragraph (d)(1) of this section, R’spremium assistance amount for September is thelesser of the enrollment premiums for the month,reduced by any amounts that were refunded ($300($450 – $150)) or the difference between the bench-mark plan premium and the contribution amount forthe month ($420). R’s premium assistance amountfor September is $300, the lesser of $420 and $300.

Example 3. The facts are the same as in Example2 of this paragraph (d)(2), except that the qualifiedhealth plan issuer does not refund any enrollmentpremiums for September. Under paragraph (d)(1) ofthis section, R’s premium assistance amount for Sep-tember is $420, the lesser of $450 and $420.

* * * * *(f) Applicable benchmark plan —(1) In

general. Except as otherwise provided inthis paragraph (f), the applicable bench-mark plan for each coverage month is thesecond- lowest-cost silver plan (as describedin section 1302(d)(1)(B) of the AffordableCare Act (42 U.S.C. 18022(d)(1)(B))) of-fered to the taxpayer’s coverage familythrough the Exchange for the rating areawhere the taxpayer resides for—

(i) Self-only coverage for a taxpayer—(A) Who computes tax under section

1(c) (unmarried individuals other thansurviving spouses and heads of house-hold) and is not allowed a deduction undersection 151 for a dependent for the taxableyear;

(B) Who purchases only self-only cov-erage for one individual; or

(C) Whose coverage family includesonly one individual; and

(ii) Family coverage for all other tax-payers.

(2) Family coverage. The applicablebenchmark plan for family coverage is thesecond lowest-cost silver plan that wouldcover the members of the taxpayer’s cov-erage family (such as a plan covering twoadults if the members of a taxpayer’s cov-erage family are two adults).

(3) Silver-level plan not covering pedi-atric dental benefits. If one or more silver-level qualified health plans offeredthrough an Exchange do not cover pedi-atric dental benefits, the premium for theapplicable benchmark plan is determinedbased on the second lowest-cost optionamong—

(i) The silver-level qualified healthplans that provide pediatric dental benefitsoffered by the Exchange to the membersof the coverage family;

(ii) The lowest-cost silver-level quali-fied health plan that does not provide pe-diatric dental benefits offered by the Ex-change to the members of the coveragefamily in conjunction with the lowest-costportion of the premium for a stand-alonedental plan (within the meaning of section1311(d)(2)(B)(ii) of the Affordable CareAct (42 U.S.C. 13031(d)(2)(B)(ii)) of-fered through the Exchange to the mem-bers of the coverage family that is prop-erly allocable to pediatric dental benefitsdetermined under guidance issued by theSecretary of Health and Human Services;and

(iii) The second-lowest-cost silver-levelqualified health plan that does not providepediatric dental benefits offered by the Ex-change to the members of the coverage fam-ily in conjunction with the second-lowest-cost portion of the premium for a stand-alone dental plan (within the meaning ofsection 1311(d)(2)(B)(ii) of the AffordableCare Act (42 U.S.C. 13031(d)(2)(B)(ii)) of-fered through the Exchange to the mem-bers of the coverage family that is prop-erly allocable to pediatric dental benefitsdetermined under guidance issued by theSecretary of Health and Human Services.

(4) Family members residing in differ-ent locations. If members of a taxpayer’scoverage family reside in different loca-

July 25, 2016 Bulletin No. 2016–30188

tions, the taxpayer’s benchmark plan pre-mium is the sum of the premiums for theapplicable benchmark plans for eachgroup of coverage family members resid-ing in different locations, based on theplans offered to the group through theExchange where the group resides. If allmembers of a taxpayer’s coverage familyreside in a single location that is differentfrom where the taxpayer resides, the tax-payer’s benchmark plan premium is thepremium for the applicable benchmarkplan for the coverage family, based on theplans offered through the Exchange to thetaxpayer’s coverage family for the ratingarea where the coverage family resides.

(5) Single or multiple policies neededto cover the family—(i) Policy covering ataxpayer’s family. If a silver-level plan ora stand-alone dental plan offers coverageto all members of a taxpayer’s coveragefamily who reside in the same locationunder a single policy, the premium (orallocable portion thereof, in the case of astand-alone dental plan) taken into ac-count for the plan for purposes of deter-mining the applicable benchmark plan un-der paragraphs (f)(1), (f)(2), and (f)(3) ofthis section is the premium for this singlepolicy.

(ii) Policy not covering a taxpayer’sfamily. If a silver-level qualified healthplan or a stand-alone dental plan wouldrequire multiple policies to cover allmembers of a taxpayer’s coverage familywho reside in the same location (for ex-ample, because of the relationships withinthe family), the premium (or allocableportion thereof, in the case of a standalonedental plan) taken into account for theplan for purposes of determining the ap-plicable benchmark plan under paragraphs(f)(1), (f)(2), and (f)(3) of this section isthe sum of the premiums (or allocableportion thereof, in the case of a stand-alone dental plan) for self-only policiesunder the plan for each member of thecoverage family who resides in the samelocation.

(6) Plan not available for enrollment.A silver-level qualified health plan or astand-alone dental plan that is not open toenrollment by a taxpayer or family mem-ber at the time the taxpayer or familymember enrolls in a qualified health planis disregarded in determining the applica-ble benchmark plan.

(7) Benchmark plan terminates orcloses to enrollment during the year. Asilver-level qualified health plan or astand-alone dental plan that is used forpurposes of determining the applicablebenchmark plan under this paragraph (f)for a taxpayer does not cease to be theapplicable benchmark plan for a taxableyear solely because the plan or a lowercost plan terminates or closes to enroll-ment during the taxable year.

(8) Only one silver-level plan offeredto the coverage family. If there is only onesilver-level qualified health plan provid-ing pediatric dental benefits, one silver-level qualified health plan not providingpediatric dental benefits, or one stand-alone dental plan offered through an Ex-change that would cover all members of ataxpayer’s coverage family who reside inthe same location (whether under one pol-icy or multiple policies), that plan is usedfor purposes of determining the taxpayer’sapplicable benchmark plan.

(9) Examples. The following examplesillustrate the rules of this paragraph (f).Unless otherwise stated, in each examplethe plans are open to enrollment to a tax-payer or family member at the time ofenrollment and are offered through theExchange for the rating area where thetaxpayer resides:

Example 1. Single taxpayer enrolls in a qualifiedhealth plan. Taxpayer A is single, has no depen-dents, and enrolls in a qualified health plan. TheExchange in the rating area in which A resides offersonly silver-level qualified health plans that providepediatric dental benefits. Under paragraphs (f)(1) and(f)(2) of this section, A’s applicable benchmark planis the second lowest cost silver plan providing self-only coverage for A.

Example 2. Single taxpayer enrolls with depen-dent in a qualified health plan. Taxpayer B is singleand claims her daughter, C, as a dependent. B pur-chases family coverage for herself and C. The Ex-change in the rating area in which B and C resideoffers qualified health plans that provide pediatricdental benefits but does not offer qualified healthplans without pediatric dental benefits. Under para-graphs (f)(1) and (f)(2) of this section, B’s applicablebenchmark plan is the second lowest-cost silver planproviding family coverage to B and C.

Example 3. Benchmark plan for a coverage fam-ily with a family member eligible for pediatric dentalbenefits. (i) Taxpayer D’s coverage family consistsof D and D’s 10-year old son, E, who is a dependentof D and eligible for pediatric dental benefits. TheExchange in the rating area in which D and E resideoffers three silver-level qualified health plans, two ofwhich provide pediatric dental benefits (S1 and S2)and one of which does not (S3), in which D and Emay enroll. The Exchange also offers two stand-

alone dental plans (DP1 and DP2) available to D andE. The monthly premiums allocable to essentialhealth benefits for the silver-level plans are as fol-lows:S1 – $1,250S2 – $1,200S3 – $1,180

(ii)The monthly premiums, and the portion of thepremium allocable to pediatric dental benefits, forthe two dental plans are as follows:

DP1 – $100 ($25 allocable to pediatric dentalbenefits)

DP2 – $80 ($40 allocable to pediatric dentalbenefits).

(iii) Under paragraph (f)(3) of this section, D’sapplicable benchmark plan is the second lowest costoption among the following offered by the ratingarea in which D resides: silver-level qualified healthplans providing pediatric dental benefits ($1,250 forS1 and $1,200 for S2); the lowest-cost silver-levelqualified health plan not providing pediatric dentalbenefits, in conjunction with the lowest-cost portionof the premium for a stand-alone dental plan prop-erly allocable to pediatric dental benefits ($1,180 forS3 in conjunction with $25 for DP1 � $1,205); andthe second lowest cost silver-level qualified healthplan not providing pediatric health benefits, in con-junction with the second lowest-cost portion of thepremium for a stand-alone dental plan allocable topediatric dental benefits ($1,180 for S3 in conjunc-tion with $40 for DP2 � $1,220). Under paragraph(f)(8) of this section, S3, as the lone silver-levelqualified health plan not providing pediatric dentalbenefits offered by the Exchange, is treated as thesecond lowest-cost silver-level qualified health plannot providing pediatric dental benefits. Under para-graph (e) of this section, the adjusted monthly pre-mium for D’s applicable benchmark plan is $1,205.

Example 4. Benchmark plan for a coverage fam-ily with no family members eligible for pediatricdental coverage. (i) The facts are the same as inExample 3, except Taxpayer D’s coverage familyconsists of D and D’s 22-year old son, F, who is adependent of D and not eligible for pediatric dentalcoverage and the monthly premiums allocable toessential health benefits for the silver-level plans areas follows:S1 – $1,210S2 – $1,190S3 – $1,180

(ii) Because no one in D’s coverage family iseligible for pediatric dental benefits, $0 of the pre-mium for a stand-alone dental plan is allocable topediatric dental benefits in determining A’s applica-ble benchmark plan. Consequently, under para-graphs (f)(1), (f)(2), and (f)(3) of this section, D’sapplicable benchmark plan is the second lowest-costoption among the following options offered by therating area in which D resides: silver-level qualifiedhealth plans providing pediatric dental benefits($1,210 for S1 and $1,190 for S2), the lowest-costsilver-level qualified health plan not providing pedi-atric dental benefits, in conjunction with the lowest-cost portion of the premium for a stand-alone dentalplan properly allocable to pediatric dental benefits($1,180 for S3 in conjunction with $0 for DP1 �$1,180), and the second lowest cost silver-level qual-ified health plan not providing pediatric health ben-

Bulletin No. 2016–30 July 25, 2016189

efits, in conjunction with the second lowest-costportion of the premium for a stand-alone dental planallocable to pediatric dental benefits ($1,180 for S3in conjunction with $0 for DP2 � $1,180). Underparagraph (e) of this section, the adjusted monthlypremium for D’s applicable benchmark plan is$1,180.

Example 5. Single taxpayer enrolls with depen-dent and nondependent in a qualified health plan.Taxpayer G is single and resides with his daughter,H, and with his teenage son, I, but may only claim Ias a dependent. G, H, and I enroll in coveragethrough the Exchange in the rating area in whichthey all reside. The Exchange offers only silver-levelplans providing pediatric dental benefits. Underparagraphs (f)(1) and (f)(2) of this section, G’s ap-plicable benchmark plan is the second lowest-costsilver plan covering G and I. However, H may qual-ify for a premium tax credit if H is otherwise eligi-ble. See paragraph (h) of this section.

Example 6. Change in coverage family. Tax-payer J is single and has no dependents when sheenrolls in a qualified health plan. The Exchange inthe rating area in which she resides offers onlysilver-level plans that provide pediatric dental bene-fits. On August 1, J has a child, K, whom she claimsas a dependent. J enrolls in a qualified health plancovering J and K effective August 1. Under para-graphs (f)(1) and (f)(2) of this section, J’s applicablebenchmark plan for January through July is the sec-ond lowest-cost silver plan providing self-only cov-erage for J, and J’s applicable benchmark plan forthe months August through December is the secondlowest-cost silver plan covering J and K.

Example 7. Minimum essential coverage forsome coverage months. Taxpayer L claims hisdaughter, M, as a dependent. L and M enroll in aqualified health plan through an Exchange that offersonly silver-level plans that provide pediatric dentalbenefits. L, but not M, is eligible for government-sponsored minimum essential coverage for Septem-ber to December. Thus, under paragraph (c)(1)(iii) ofthis section, January through December are coveragemonths for M, and January through August are cov-erage months for L. Because, under paragraphs (d)and (f)(1) of this section, the premium assistanceamount for a coverage month is computed based onthe applicable benchmark plan for that coveragemonth, L’s applicable benchmark plan for Januarythrough August is the second lowest-cost optioncovering L and M. Under paragraph (f)(1)(i)(C) ofthis section, L’s applicable benchmark plan for Sep-tember through December is the second lowest-costsilver plan providing self-only coverage for M.

Example 8. Family member eligible for minimumessential coverage for the taxable year. The facts arethe same as in Example 7, except that L is noteligible for government-sponsored minimum essen-tial coverage for any months and M is eligible forgovernment sponsored minimum essential coveragefor the entire year. Under paragraph (f)(1)(i)(C) ofthis section, L’s applicable benchmark plan is thesecond lowest-cost silver plan providing self-onlycoverage for L.

Example 9. Benchmark plan premium for a cov-erage family with family members who reside indifferent locations. (i) Taxpayer N’s coverage familyconsists of N and her three dependents O, P, and Q.

N, O, and P reside together but Q resides in adifferent location. Under paragraphs (f)(1), (f)(2),and (f)(3) of this section, the monthly applicablebenchmark plan premium for N, O, and P is $1,000and the monthly applicable benchmark plan pre-mium for Q is $220.

(ii) Under paragraph (f)(4) of this section, be-cause the members of N’s coverage family reside indifferent locations, the monthly premium for N’sapplicable benchmark plan is the sum of $1,000, themonthly premiums for the applicable benchmarkplan for N, O, and P, who reside together, and $220,the monthly applicable benchmark plan premium forQ, who resides in a different location than N, O, andP. Consequently, the premium for N’s applicablebenchmark plan is $1,220.

Example 10. Aggregation of silver-level policiesfor plans not covering a family under a single policy.(i) Taxpayers R and S are married and live with S’smother, T, whom they claim as a dependent. TheExchange for their rating area offers self-only andfamily coverage at the silver level through Issuers A,B, and C, which each offer only one silver-levelplan. The silver-level plans offered by Issuers A andB do not cover R, S, and T under a single policy. Thesilver-level plan offered by Issuer A costs the fol-lowing monthly amounts for self-only coverage of R,S, and T, respectively: $400, $450, and $600. Thesilver-level plan offered by Issuer B costs the fol-lowing monthly amounts for self-only coverage of R,S, and T, respectively: $250, $300, and $450. Thesilver-level plan offered by Issuer C provides cover-age for R, S, and T under one policy for a $1,200monthly premium.

(ii) Under paragraph (f)(5) of this section, IssuerC’s silver-level plan that covers R, S, and T underone policy ($1,200 monthly premium) and Issuer A’sand Issuer B’s silver-level plans that do not cover R,S and T under one policy are considered in deter-mining R’s and S’s applicable benchmark plan. Inaddition, under paragraph (f)(5)(ii) of this section, indetermining R’s and S’s applicable benchmark plan,the premium taken into account for Issuer A’s plan is$1,450 (the aggregate premiums for self-only poli-cies covering R ($400), S ($450), and T ($600) andthe premium taken into account for Issuer B’s plan is$1,000 (the aggregate premiums for self-only poli-cies covering R ($250), S ($300), and T ($450).Consequently, R’s and S’s applicable benchmarkplan is the Issuer C silver-level plan covering R’sand S’s coverage family and the premium for theirapplicable benchmark plan is $1,200.

Example 11. Benchmark plan premium for ataxpayer with family members who cannot enroll inone policy and who reside in different locations. (i)Taxpayer U’s coverage family consists of U, U’smother, V, and U’s two daughters, W and X. U andV reside together in Location 1 and W and X residetogether in Location 2. The Exchange in the ratingarea in which U and V reside does not offer asilver-level plan that covers U and V under a singlepolicy, whereas all the silver-level plans offeredthrough the Exchange in the rating area in which Wand X reside cover W and X under a single policy.Both Exchanges offer only silver-level plans thatprovide pediatric dental benefits. The silver planoffered by the Exchange for the rating area in whichU and V reside that would cover U and V under

self-only policies with the second-lowest aggregatepremium costs $400 a month for self-only coveragefor U and $600 a month for self-only coverage for V.The monthly premium for the second-lowest costsilver plan covering W and X that is offered by theExchange for the rating area in which W and Xreside is $500.

(ii) Under paragraph (f)(5)(ii) of this section,because multiple policies are required to cover U andV, the members of U’s coverage family who residetogether in Location 1, the premium taken into ac-count in determining U’s benchmark plan is $1,000,the sum of the premiums for the second-lowest ag-gregate cost of self-only policies covering U ($400)and V ($600) offered by the Exchange to U and Vfor the rating area in which U and V reside. Underparagraph (f)(5)(i) of this section, because all silver-level plans offered by the Exchange in which W andX reside cover W and X under a single policy, thepremium for W and X’s coverage that is taken intoaccount in determining U’s benchmark plan is $500,the second-lowest cost silver policy covering W andX that is offered by the Exchange for the rating areain which W and X reside. Under paragraph (f)(4) ofthis section, because the members of U’s coveragefamily reside in different locations, U’s monthlybenchmark plan premium is $1,500, the sum of thepremiums for the applicable benchmark plans foreach group of family members residing in differentlocations ($1,000 for U and V, who reside in Loca-tion 1, plus $500 for W and X, who reside in Loca-tion 2).

Example 12. Qualified health plan closed to en-rollment. Taxpayer Y has two dependents, Z andAA. Y, Z, and AA enroll in a qualified health planthrough the Exchange for the rating area where thefamily resides. The Exchange, which offers onlyqualified health plans that include pediatric dentalbenefits, offers silver-level plans J, K, L, and M,which are, respectively, the first, second, third, andfourth lowest cost silver plans covering Y’s family.When Y’s family enrolls, Plan J is closed to enroll-ment. Under paragraph (f)(6) of this section, Plan J isdisregarded in determining Y’s applicable bench-mark plan, and Plan L is used in determining Y’sapplicable benchmark plan.

Example 13. Benchmark plan closes to new en-rollees during the year. (i) Taxpayers BB, CC, andDD each have coverage families consisting of twoadults. In that rating area, Plan 2 is the second lowestcost silver plan and Plan 3 is the third lowest costsilver plan covering the two adults in each coveragefamily offered through the Exchange. The BB andCC families each enroll in a qualified health plan thatis not the applicable benchmark plan (Plan 4) inNovember during the annual open enrollment period.Plan 2 closes to new enrollees the following June.Thus, on July 1, Plan 3 is the second lowest costsilver plan available to new enrollees through theExchange. The DD family enrolls in a qualifiedhealth plan in July.

(ii) Under paragraphs (f)(1), (f)(2), (f)(3), and(f)(7) of this section, the silver-level plan that BBand CC use to determine their applicable benchmarkplan for all coverage months during the year is Plan2. The applicable benchmark plan that DD uses todetermine DD’s applicable benchmark plan is Plan

July 25, 2016 Bulletin No. 2016–30190

3, because Plan 2 is not open to enrollment throughthe Exchange when the DD family enrolls.

Example 14. Benchmark plan terminates for allenrollees during the year. The facts are the same asin Example 13, except that Plan 2 terminates for allenrollees on June 30. Under paragraphs (f)(1), (f)(2),(f)(3), and (f)(7) of this section, Plan 2 is the silver-level plan that BB and CC use to determine theirapplicable benchmark plan for all coverage monthsduring the year, and Plan 3 is the applicable bench-mark plan that DD uses.

Example 15. Exchange offers only one silver-level plan. Taxpayer EE’s coverage family consistsof EE, his spouse FF, and their two dependent chil-dren GG and HH, who all reside together. The Ex-change for the rating area in which they reside offersonly one silver-level plan that EE’s family mayenroll in and the plan does not provide pediatricdental benefits. The Exchange also offers one stand-alone dental plan in which the family may enroll.Under paragraph (f)(8) of this section, the silver-level plan and the stand-alone dental plan offered bythe Exchange are used for purposes of determiningEE’s applicable benchmark plan under paragraph(f)(3) of this section. Moreover, the lone silver-levelplan and the lone stand-alone dental plan offered bythe Exchange are used for purposes of determiningEE’s applicable benchmark plan regardless ofwhether these plans cover EE’s family under a singlepolicy or multiples policies.

* * * * *(n) Effective/applicability date. (1) Ex-

cept as provided in paragraph (n)(2) ofthis section, this section applies to taxableyears ending after December 31, 2013.

(2) Paragraphs (c)(4) and (d)(2) applyto taxable years beginning after December31, 2016. Paragraphs (f)(1), (f)(3), (f)(4),(f)(6), (f)(7), (f)(8), and (f)(9) of this sec-tion apply to taxable years beginning afterDecember 31, 2018. Paragraphs (c)(4) and(d)(2) of § 1.36B–3 as contained in 26CFR part I edition revised as of April 1,2016, apply to taxable years ending afterDecember 31, 2013, and beginning beforeJanuary 1, 2017. Paragraphs (f)(1), (f)(3),(f)(4), (f)(6), and (f)(7) of § 1.36B–3 ascontained in 26 CFR part I edition revisedas of April 1, 2016, apply to taxable yearsending after December 31, 2013, and be-ginning before January 1, 2019.

Par. 6. Section 1.36B–5 is amended by:1. Adding a new sentence to the end ofparagraph (c)(3)(i).2. Adding paragraphs (c)(3)(iii) and (h).

§ 1.36B–5 Information reporting byExchanges.

* * * * *(c) * * *(3) —***

(i) * * * If advance credit payments aremade for coverage under the plan, theenrollment premiums reported to eachfamily under paragraph (c)(1)(viii) of thissection are the premiums allocated to thefamily under § 1.36B–3(h) (allocating en-rollment premiums to each taxpayer inproportion to the premiums for each tax-payer’s applicable benchmark plan).

* * * * *(iii) Partial month of coverage.—(A)

In general. Except as provided in para-graph (c)(iii)(B) of this section, if an in-dividual is enrolled in a qualified healthplan after the first day of a month, theamount reported for that month underparagraphs (c)(1)(iv), (c)(1)(v), and(c)(1)(viii) of this section is $0.

(B) Certain mid-month enrollments. Ifan individual’s qualified health plan is ter-minated before the last day of a month, orif an individual is enrolled in coverageafter the first day of a month and thecoverage is effective on the date of theindividual’s birth, adoption, or placementfor adoption or in foster care, or on theeffective date of a court order, the amountreported under paragraphs (c)(1)(iv) and(c)(1)(v) of this section is the premium forthe applicable benchmark plan for a fullmonth of coverage (excluding the pre-mium allocated to benefits in excess ofessential health benefits) and the amountreported under paragraph (c)(1)(viii) ofthis section is the enrollment premium forthe month, reduced by any amounts thatwere refunded.

* * * * *(h) Effective/applicability date. Except

for the last sentence of paragraph (c)(3)(i)of this section and paragraph (c)(3)(iii) ofthis section, this section applies to taxableyears ending after December 31, 2013.The last sentence of paragraph (c)(3)(i) ofthis section and paragraph (c)(3)(iii) ofthis section apply to taxable years begin-ning after December 31, 2016. Paragraph(c)(3)(iii) of § 1.36B–5 as contained in 26CFR part I edition revised as of April 1,2016, applies to taxable years ending afterDecember 31, 2013, and beginning beforeJanuary 1, 2017.

Par. 7. Section 1.5000A–3 is amendedby adding a new paragraph (e)(3)(ii)(G) toread as follows:

§ 1.5000A–3 Exempt individuals.

* * * * *(e) * * *(3) * * *(ii) * * *(G) Opt-out arrangements—(1) In

general. Except as otherwise provided inthis paragraph (e)(3)(ii)(G), the amount ofan opt-out payment made available to anemployee under an opt-out arrangementincreases the employee’s (or related indi-vidual’s) required contribution for pur-poses of determining the affordability ofthe eligible employer-sponsored plan towhich the opt-out arrangement relates, re-gardless of whether the employee (or re-lated individual) enrolls in the eligibleemployer-sponsored plan or declines toenroll in that coverage and is paid theopt-out payment.

(2) Eligible opt-out arrangements. Theamount of an opt-out payment made avail-able to an employee under an eligible opt-out arrangement does not increase the em-ployee’s (or related individual’s) requiredcontribution for purposes of determiningthe affordability of the eligible employer-sponsored plan to which the eligible opt-out arrangement relates, regardless ofwhether the employee (or related individ-ual) enrolls in the eligible employer-sponsored plan or is paid the opt-out pay-ment.

(3) Definitions. The following defini-tions apply for purposes of this paragraph(e)(3)(ii)(G):

(A) Opt-out payment. The term opt-outpayment means a payment that is avail-able only if an employee declines cover-age, including waiving coverage in whichthe employee would otherwise be en-rolled, under an eligible employer-sponsored plan and that is not permitted tobe used to pay for coverage under theeligible employer-sponsored plan. Anamount provided as an employer contri-bution to a cafeteria plan that is permittedto be used by the employee to purchaseminimum essential coverage is not an opt-out payment, whether or not the employeemay receive the amount as a taxable ben-efit. See paragraph (e)(3)(ii)(E) of thissection for the treatment of employer con-tributions to a cafeteria plan.

(B) Opt-out arrangement. The termopt-out arrangement means the arrange-

Bulletin No. 2016–30 July 25, 2016191

ment under which an opt-out payment ismade available.

(C) Eligible opt-out arrangement. Theterm eligible opt-out arrangement meansan arrangement under which an employ-ee’s right to receive an opt-out payment isconditioned on the employee providingreasonable evidence that the employeeand all other individuals for whom theemployee reasonably expects to claim apersonal exemption deduction for the tax-able year or years that begin or end in orwith the employer’s plan year to whichthe opt-out arrangement applies (employ-ee’s expected tax family) have, or willhave, minimum essential coverage (otherthan coverage in the individual market,whether or not obtained through the Mar-ketplace) during the period of coverage towhich the opt-out arrangement applies.For this purpose, reasonable evidence ofalternative coverage may include the em-ployee’s attestation that the employee andall other members of the employee’s ex-pected tax family have, or will have, min-imum essential coverage (other than cov-erage in the individual market, whether ornot obtained through the Marketplace) forthe relevant period. Regardless of the ev-idence of alternative coverage requiredunder the arrangement, to be an eligibleopt-out arrangement, the arrangementmust provide that the opt-out paymentwill not be made, and the employer in factmust not make the payment, if the em-ployer knows or has reason to know thatthe employee or any other member of theemployee’s expected tax family does nothave, or will not have, the alternative cov-erage. The arrangement must also requirethat the evidence of the alternative cover-age be provided no less frequently thanevery plan year to which the eligible opt-out arrangement applies, and that it mustbe provided no earlier than a reasonableperiod of time before the commencementof the period of coverage to which theeligible opt-out arrangement applies. Ifthe reasonable evidence (such as an attes-tation) is obtained as part of the regularannual open enrollment period that occurswithin a few months before the com-mencement of the next plan year of

employer-sponsored coverage, it willqualify as being provided no earlier than areasonable period of time before com-mencement of the applicable period ofcoverage. An eligible opt-out arrangementis also permitted to require evidence ofalternative coverage to be provided at alater date, such as after the plan yearstarts, which would enable the employerto require evidence that the employee andall other members of the employee’s ex-pected tax family have already obtainedthe alternative coverage. Nothing in thisrule prohibits an employer from requiringreasonable evidence of alternative cover-age other than an attestation in order foran employee to qualify for an opt-out pay-ment under an eligible opt-out arrange-ment. Further, provided that the reason-able evidence requirement is met, theamount of an opt-out payment made avail-able under an eligible opt-out arrangementcontinues to be excluded from the em-ployee’s required contribution for the re-mainder of the period of coverage towhich the opt-out payment originally ap-plied even if the alternative coverage sub-sequently terminates for the employee orfor any other member of the employee’sexpected tax family, regardless of whetherthe opt-out payment is required to be ad-justed or terminated due to the loss ofalternative coverage, and regardless ofwhether the employee is required to pro-vide notice of the loss of alternative cov-erage to the employer.

* * * * *Par. 8. Section 1.5000A–5 is amended

by revising paragraph (c).

§ 1.5000A–5 Administration andprocedure.

* * * * *(c) Effective/applicability date. (1) Ex-

cept as provided in paragraph (c)(2), thissection and §§ 1.5000A–1 through1.5000A–4 apply for months beginningafter December 31, 2013.

(2) Paragraph (e)(3)(ii)(G) of§ 1.5000A–3 applies to months beginningafter December 31, 2016.

Par. 9. Revise § 1.6011–8 to read asfollows:

§ 1.6011–8 Requirement of income taxreturn for taxpayers who claim thepremium tax credit under section 36B.

(a) Requirement of return. Except asotherwise provided in this paragraph (a), ataxpayer who receives the benefit of ad-vance payments of the premium tax creditunder section 36B must file an income taxreturn for that taxable year on or beforethe due date for the return (including ex-tensions of time for filing) and reconcilethe advance credit payments. However, ifadvance credit payments are made forcoverage of an individual for whom notaxpayer claims a personal exemption de-duction, the taxpayer who attests to theExchange to the intention to claim a per-sonal exemption deduction for the indi-vidual as part of the determination that thetaxpayer is eligible for advance creditpayments must file a tax return and rec-oncile the advance credit payments.

(b) Effective/applicability date. Exceptas otherwise provided, this section appliesfor taxable years beginning after Decem-ber 31, 2016. Paragraph (a) of § 1.6011–8as contained in 26 CFR part I editionrevised as of April 1, 2016, applies totaxable years ending after December 31,2013, and beginning before January 1,2017.

§ 301.6011–2 [Amended]

Par. 10. Section 301.6011–2(b)(1) isamended by adding “1095–B, 1095–C”after “1094 series”, and removing “1095series”.

John Dalrymple,Deputy Commissioner for

Services and Enforcement.

Filed by the Office of the Federal Register on July 6, 2016,11:15 a.m., and published in the issue of the Federal Reg-ister for July 8, 2016, 81 F.R. 44557)

July 25, 2016 Bulletin No. 2016–30192

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

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

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.

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

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

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

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

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

Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the newruling does more than restate the sub-

stance of a prior ruling, a combination ofterms is used. For example, modified andsuperseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that isself contained. In this case, the previouslypublished ruling is first modified and then,as modified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the series.

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

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

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

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

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

Bulletin No. 2016–30 July 25, 2016i

Numerical Finding List1

Bulletin 2016–27 through 2016–30

Action on Decision:

2016-01, 2016-16 I.R.B. 580

Announcements:

2016-21, 2016-27 I.R.B. 82016-23, 2016-27 I.R.B. 102016-24, 2016-30 I.R.B. 170

Notices:

2016-40, 2016-27 I.R.B. 42016-41, 2016-27 I.R.B. 52016-42, 2016-29 I.R.B. 672016-43, 2016-29 I.R.B. 1322016-44, 2016-29 I.R.B. 1322016-45, 2016-29 I.R.B. 035

Proposed Regulations:

REG-109086-15, 2016-30 I.R.B. 171REG-101689-16, 2016-30 I.R.B. 170REG-123854-12, 2016-28 I.R.B. 15REG-147196-07, 2016-29 I.R.B. 32

Revenue Procedures:

2016-37, 2016-29 I.R.B. 1362016-39, 2016-30 I.R.B. 1642016-41, 2016-30 I.R.B. 165

Revenue Rulings:

2016-17, 2016-27 I.R.B. 1

Treasury Decisions:

9773, 2016-29 I.R.B. 569774, 2016-30 I.R.B. 1519775, 2016-30 I.R.B. 159

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–01 through 2016–26 is in Internal Revenue Bulletin2016–26, dated June 27, 2016.

July 25, 2016 Bulletin No. 2016–30ii

Finding List of Current Actions onPreviously Published Items1

Bulletin 2016–27 through 2016–30

Notices:

2013-1Modified byNotice 2016-41, 2016-27 I.R.B. 5

2013-1Superseded byNotice 2016-41, 2016-27 I.R.B. 5

Revenue Procedures:

2007-44Clarified byRev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44Modified byRev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44Superseded byRev. Proc. 2016-37, 2016-29 I.R.B. 136

2015-36Modified byRev. Proc. 2016-37, 2016-29 I.R.B. 136

2016-29Modified byRev. Proc. 2016-39, 2016-30 I.R.B. 164

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–01 through 2016–26 is in Internal Revenue Bulletin2016–26, dated June 27, 2016.

Bulletin No. 2016–30 July 25, 2016iii

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/.

We Welcome Comments About the Internal Revenue BulletinIf you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we

would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page(www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.NW, IR-6230 Washington, DC 20224.

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