IRB 2013 38 (Rev. September 16, 2013) B 201 Irb13

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Bulletin No. 2013-38
September 16, 2013

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX

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

T.D. 9630, page 199.
These final regulations address concerns that taxpayers are
taking unreasonable positions with respect to the determination of discount rates in applying the income method to determine taxable income in connection with cost sharing arrangements. The final regulations provide guidance on a discount
rate-related specified application of the income method and a
discount rate-related best method consideration for evaluating
an application of the income method.

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

Rev. Proc. 2013–33, page 209.
This revenue procedure provides domestic asset/liability percentages and domestic investment yields needed by foreign
life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under section 842(b) of the
Code for taxable years beginning after December 31, 2011.

EMPLOYEE PLANS
REG–113792–13, page 211.
These proposed regulations provide guidance on the tax credit
available to certain small employers that offer health insurance
coverage to their employees under section 45R of the Code,

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

T.D. 9631, page 205.
These final regulations authorize the Secretary of the Treasury
to furnish, upon written request by the Secretary of Commerce,
additional return information as the Secretary of Treasury may
prescribe by regulation to officers and employees of the Bureau of the Census for the purposes of, but only to the extent
necessary in, the structuring of censuses and conducting related statistical activities authorized by law.

Notice 2013–55, page 207.
This notice updates the appendix to Notice 2013–1, which lists
the Indian tribes who have settled tribal trust cases against
the United States. Notice 2012–60 originally was published in
I.R.B. 2012–41 (October 9, 2012). Notice 2012–60 was superseded by Notice 2013–1 I.R.B. 2013–3, and the appendix
to Notice 2013–1 was superseded by Notice 2013–16 (I.R.B.
2013–14), which was superseded by Notice 2013–36. Four
additional tribes have settled cases against the United States
since the publication of Notice 2013–36 so the appendix to Notice 2013–1 is updated and Notice 2013–36 is superseded.

(Continued on the next page)

Finding Lists begin on page ii.

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

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

September 16, 2013

2013–38 I.R.B.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-

force the law with integrity and fairness to all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general
interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, 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 unless
the 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 of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

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

2013–38 I.R.B.

September 16, 2013

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income
Housing Credit
Allocation rules for post-1989 state housing credit
ceiling amounts. Guidance is provided to state housing credit agencies of qualified states that request an
allocation of unused housing credit carryover under
section 42(h)(3)(D) of the Code. See Rev. Proc.
2013-31, page 208.

Section 482.—Allocation
of Income and Deductions
Among Taxpayers
T.D. 9630
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Use of Differential Income
Stream as an Application of
the Income Method and as a
Consideration in Assessing
the Best Method
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains final
regulations that implement the use of the
differential income stream as a consideration in assessing the best method in connection with a cost sharing arrangement
and as a specified application of the income method.
DATES: Effective Date: These regulations
are effective on August 27, 2013.
Applicability Dates: For dates of applicability, see §1.482–7(l).
FOR
FURTHER
INFORMATION
CONTACT: Mumal R. Hemrajani, (202)
622–3800 (not a toll-free call).

2013–38 I.R.B.

SUPPLEMENTARY INFORMATION:
Background
Final cost sharing regulations were
published in the Federal Register (76 FR
80082) (REG–144615–02) (TD 9568) on
December 22, 2011 (“final cost sharing
regulations”). Corrections to the final
cost sharing regulations were published
in the Federal Register (77 FR 3606, 77
FR 8143, and 77 FR 8144) on January
25, 2012, and February 14, 2012. Certain guidance regarding application of the
differential income stream approach was
reserved in the final cost sharing regulations because the Treasury Department
and the IRS believed it was appropriate
to solicit public comments on that subject
matter.
Temporary cost sharing regulations and
a notice of proposed rule making on application of the differential income stream
approach were published in the Federal
Register (76 FR 80249 and 76 FR 80309)
(REG–145474–11) (TD 9569) on December 23, 2011 (“temporary and proposed
regulations”). Comments were submitted,
which we address in this Preamble. No
request for a public hearing was received.
The Treasury Department and the IRS are
finalizing the proposed regulations without change.
Explanation of Provisions
The Treasury Department and the IRS
were aware that some taxpayers were taking unreasonable positions in applying the
income method by using relatively low
licensing discount rates, and relatively
high cost sharing discount rates, without
sufficiently considering the appropriate
interrelationship of the discount rates
and financial projections. This practice
gave rise to material distortions and the
potential for PCT Payments not in accordance with the arm’s length standard. To
address these problems, the temporary
and proposed regulations provided additional guidance on evaluating the results
of an application of the income method
(§1.482–7T(g)(2)(v)(B)(2) (Implied discount rates) and (g)(4)(vi)(F)(2) (Use of

199

differential income stream as a consideration in assessing the best method)),
and provided a new specified application
of the income method for directly determining the arm’s length charge for PCT
Payments (§1.482–7(g)(4)(v) (Application of income method using differential
income stream)).
that
Comments
noted
§1.482–7T(g)(4)(vi)(F)(2) explicitly provides that the implied discount rate may
be used to evaluate the reliability of the
corresponding actual discount rates associated with the licensing and cost sharing
alternatives, but no similar explicit provision is contained in §1.482–7(g)(4)(v)
regarding the use of actual discount
rates to evaluate the reliability of the
corresponding implied discount rate.
Thus, the comments suggested that such
an explicit provision be adopted. The
Treasury Department and the IRS agree
that, depending on facts and circumstances, separately derived discount rates
pursuant to a general application of the
income method may yield a more reliable
measure of an arm’s length result than
a proffered discount rate pursuant to a
differential income stream application of
the income method in a particular case. In
such a case, however, the best method rule
already would require a determination of
PCT Payments under the method, and the
application of such method, that, under
the facts and circumstances, provides the
most reliable measure of an arm’s length
result. See, for example, §§1.482–1(c)(1)
and 1.482–7(g)(4)(vi)(A). Accordingly,
the suggested change was not adopted.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to this regulation, and because the
regulation does not impose a collection of
information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f)

September 16, 2013

of the Internal Revenue Code, these regulations have been submitted to the Chief
Counsel for Advocacy of the Small Business Administration (CCASBA) for comment on their impact on small business.
CCASBA had no comments.
Drafting Information
The principal author of these regulations is Mumal R. Hemrajani, Office of the
Associate Chief Counsel (International).
However, other personnel from the
Internal Revenue Service and the
Treasury Department participated in the
development of the regulations.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.482–7 is amended by
revising paragraph (g)(2)(v)(B)(2), adding
paragraph (g)(4)(v), revising paragraphs
(g)(4)(vi)(F)(2), (g)(4)(viii) Example 8,
adding Example 9, and revising paragraph
(l).
§1.482–7 Methods to determine taxable
income in connection with a cost sharing
arrangement.
*****
(g)* * *
(2)* * *
(v)* * *
(B)* * *
(2) Implied discount rates. In some circumstances, the particular discount rate or
rates used for certain activities or transactions logically imply that certain other activities will have a particular discount rate
or set of rates (implied discount rates). To
the extent that an implied discount rate is
inappropriate in light of the facts and circumstances, which may include reliable
direct evidence of the appropriate discount
rate applicable for such other activities, the
reliability of any method is reduced where
such method is based on the discount rates
from which such an inappropriate implied
discount rate is derived. See paragraphs

September 16, 2013

(g)(4)(vi)(F)(2) and (g)(4)(viii), Example 8
of this section.
*****
(4) * * *
(v) Application of income method using
differential income stream. In some cases,
the present value of an arm’s length PCT
Payment may be determined as the present
value, discounted at the appropriate rate,
of the PCT Payor’s reasonably anticipated
stream of additional positive or negative
income over the duration of the CSA Activity that would result (before PCT Payments) from undertaking the cost sharing
alternative rather than the licensing alternative (differential income stream). See
Example 9 of paragraph (g)(4)(viii) of this
section.
*****
(vi) * * *
(F) * * *
(2) Use of differential income stream
as a consideration in assessing the best
method. An analysis under the income
method that uses a different discount rate
for the cost sharing alternative than for the
licensing alternative will be more reliable
the greater the extent to which the implied
discount rate for the projected present
value of the differential income stream is
consistent with reliable direct evidence of
the appropriate discount rate applicable for
activities reasonably anticipated to generate an income stream with a similar risk
profile to the differential income stream.
Such differential income stream is defined
as the stream of the reasonably anticipated
residuals of the PCT Payor’s licensing
payments to be made under the licensing
alternative, minus the PCT Payor’s cost
contributions to be made under the cost
sharing alternative. See Example 8 of
paragraph (g)(4)(viii) of this section.
*****
(viii) * * *
Example 8. (i) The facts are the same as in Example 1, except that the taxpayer determines that the
appropriate discount rate for the cost sharing alternative is 20%. In addition, the taxpayer determines that
the appropriate discount rate for the licensing alternative is 10%. Accordingly, the taxpayer determines
that the appropriate present value of the PCT Payment
is $146 million.
(ii) Based on the best method analysis described
in Example 2, the Commissioner determines that
the taxpayer’s calculation of the present value of the
PCT Payments is outside of the interquartile range
(as shown in the sixth column of Example 2), and

200

thus warrants an adjustment. Furthermore, in evaluating the taxpayer’s analysis, the Commissioner
undertakes an analysis based on the difference in
the financial projections between the cost sharing
and licensing alternatives (as shown in column 11
of Example 1). This column shows the anticipated
differential income stream of additional positive
or negative income for FS over the duration of the
CSA Activity that would result from undertaking the
cost sharing alternative (before any PCT Payments)
rather than the licensing alternative. This anticipated
differential income stream thus reflects the anticipated incremental undiscounted profits to FS from
the incremental activity of undertaking the risk of developing the cost shared intangibles and enjoying the
value of its divisional interests. Taxpayer’s analysis
logically implies that the present value of this stream
must be $146 million, since only then would FS have
the same anticipated value in both the cost sharing
and licensing alternatives. A present value of $146
million implies that the discount rate applicable to
this stream is 34.4%. Based on a reliable calculation
of discount rates applicable to the anticipated income
streams of uncontrolled companies whose resources,
capabilities, and rights consist primarily of software
applications intangibles and research and development teams similar to USP’s platform contributions
to the CSA, and which income streams, accordingly,
may be reasonably anticipated to reflect a similar risk
profile to the differential income stream, the Commissioner concludes that an appropriate discount rate
for the anticipated income stream associated with
USP’s platform contributions (that is, the additional
positive or negative income over the duration of the
CSA Activity that would result, before PCT Payments, from switching from the licensing alternative
to the cost sharing alternative) is 16%, which is significantly less than 34.4%. This conclusion further
suggests that Taxpayer’s analysis is unreliable. See
paragraphs (g)(2)(v)(B)(2) and (g)(4)(vi)(F)(1) and
(2) of this section.
(iii) The Commissioner makes an adjustment of
$296 million, so that the present value of the PCT
Payments is $442 million (the median results as
shown in column 6 of Example 2).
Example 9. The facts are the same as in Example 1, except that additional data on discount rates are
available that were not available in Example 1. The
Commissioner determines the arm’s length charge for
the PCT Payment by discounting at an appropriate
rate the differential income stream associated with
the rights contributed by USP in the PCT (that is,
the stream of income in column (11) of Example 1).
Based on an analysis of a set of public companies
whose resources, capabilities, and rights consist primarily of resources, capabilities, and rights similar to
those contributed by USP in the PCT, the Commissioner determines that 15% to 17% is an appropriate
range of discount rates to use to assess the value of the
differential income stream associated with the rights
contributed by USP in the PCT. The Commissioner
determines that applying a discount rate of 17% to the
differential income stream associated with the rights
contributed by USP in the PCT yields a present value
of $446 million, while applying a discount rate of
15% to the differential income stream associated with
the rights contributed by USP in the PCT yields a
present value of $510 million. Because the taxpayer’s
result, $464 million, is within the interquartile range

2013–38 I.R.B.

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

*****
(l) Effective/applicability dates. Except as otherwise provided in this paragraph (l), this section applies on December 16, 2011. Paragraphs (g)(2)(v)(B)(2),
(g)(4)(vi)(F)(2), and (g)(4)(viii), Example
8 of this section apply to taxable years beginning on or after December 19, 2011.
Paragraphs (g)(4)(v) and (g)(4)(viii), Example 9 apply to taxable years beginning
on or after August 27, 2013.
*****
§1.482–7T [Removed].
Par. 3. Section 1.482–7T is removed.
Beth Tucker,
Deputy Commissioner for
Operations Support.
Approved August 15, 2013.
Mark J. Mazur,
Assistant Secretary
of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on August 26,
2013, 8:45 a.m., and published in the issue of the Federal
Register for August 27, 2013, 78 F.R. 52854)

Section 6013.—Joint
Returns of Income by
Husband and Wife
This revenue ruling amplifies and clarifies Revenue Ruling 58–66. In Revenue
Ruling 58–66, 1958–1 C.B. 60, the Internal Revenue Service determined the status of individuals living in a common-law
marriage for Federal income tax purposes.
This revenue ruling determines the status
of individuals of the same-sex who are
lawfully married under the laws of a state
that recognizes such marriages for Federal
tax purposes.

Rev. Rul. 2013–17
ISSUES
1. Whether, for Federal tax purposes,
the terms “spouse,” “husband and wife,”
1

“husband,” and “wife” include an individual married to a person of the same
sex, if the individuals are lawfully married
under state1 law, and whether, for those
same purposes, the term “marriage” includes such a marriage between individuals of the same sex.
2. Whether, for Federal tax purposes,
the Internal Revenue Service (Service)
recognizes a marriage of same-sex individuals validly entered into in a state
whose laws authorize the marriage of two
individuals of the same sex even if the
state in which they are domiciled does not
recognize the validity of same-sex marriages.
3. Whether, for Federal tax purposes,
the terms “spouse,” “husband and wife,”
“husband,” and “wife” include individuals
(whether of the opposite sex or same sex)
who have entered into a registered domestic partnership, civil union, or other similar
formal relationship recognized under state
law that is not denominated as a marriage
under the laws of that state, and whether,
for those same purposes, the term “marriage” includes such relationships.
LAW AND ANALYSIS
1. Background
In Revenue Ruling 58–66, 1958–1 C.B.
60, the Service determined the marital status for Federal income tax purposes of individuals who have entered into a common-law marriage in a state that recognizes common-law marriages.2 The Service acknowledged that it recognizes the
marital status of individuals as determined
under state law in the administration of the
Federal income tax laws. In Revenue Ruling 58–66, the Service stated that a couple
would be treated as married for purposes
of Federal income tax filing status and personal exemptions if the couple entered into
a common-law marriage in a state that recognizes that relationship as a valid marriage.
The Service further concluded in Revenue Ruling 58–66 that its position with
respect to a common-law marriage also
applies to a couple who entered into a
common-law marriage in a state that recognized such relationships and who later

moved to a state in which a ceremony is
required to establish the marital relationship. The Service therefore held that a taxpayer who enters into a common-law marriage in a state that recognizes such marriages shall, for purposes of Federal income tax filing status and personal exemptions, be considered married notwithstanding that the taxpayer and the taxpayer’s
spouse are currently domiciled in a state
that requires a ceremony to establish the
marital relationship. Accordingly, the Service held in Revenue Ruling 58–66 that
such individuals can file joint income tax
returns under section 6013 of the Internal
Revenue Code (Code).
The Service has applied this rule with
respect to common-law marriages for over
50 years, despite the refusal of some states
to give full faith and credit to common-law
marriages established in other states.
Although states have different rules of
marriage recognition, uniform nationwide
rules are essential for efficient and fair tax
administration. A rule under which a couple’s marital status could change simply
by moving from one state to another state
would be prohibitively difficult and costly
for the Service to administer, and for many
taxpayers to apply.
Many provisions of the Code make reference to the marital status of taxpayers.
Until the recent decision of the Supreme
Court in United States v. Windsor, 570
U.S. ___, 133 S. Ct. 2675 (2013), the Service interpreted section 3 of the Defense
of Marriage Act (DOMA) as prohibiting it
from recognizing same-sex marriages for
purposes of these provisions. Section 3 of
DOMA provided that:
In determining the meaning of any Act
of Congress, or of any ruling, regulation, or interpretation of the various
administrative bureaus and agencies of
the United States, the word ‘marriage’
means only a legal union between one
man and one woman as husband and
wife, and the word ‘spouse’ refers only
to a person of the opposite sex who is a
husband or a wife.
1 U.S.C. § 7.
In Windsor, the Supreme Court held
that section 3 of DOMA is unconstitutional
because it violates the principles of equal

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

2

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

2013–38 I.R.B.

201

September 16, 2013

protection. It concluded that this section
“undermines both the public and private
significance of state-sanctioned same-sex
marriages” and found that “no legitimate
purpose” overcomes section 3’s “purpose
and effect to disparage and to injure those
whom the State, by its marriage laws,
sought to protect[.]” Windsor, 133 S. Ct.
at 2694–95. This ruling provides guidance
on the effect of the Windsor decision on
the Service’s interpretation of the sections
of the Code that refer to taxpayers’ marital
status.
2. Recognition of Same-Sex Marriages
There are more than two hundred Code
provisions and Treasury regulations relating to the internal revenue laws that
include the terms “spouse,” “marriage”
(and derivatives thereof, such as “marries”
and “married”), “husband and wife,” “husband,” and “wife.” The Service concludes
that gender-neutral terms in the Code that
refer to marital status, such as “spouse”
and “marriage,” include, respectively,
(1) an individual married to a person of the
same sex if the couple is lawfully married
under state law, and (2) such a marriage
between individuals of the same sex. This
is the most natural reading of those terms;
it is consistent with Windsor, in which the
plaintiff was seeking tax benefits under a
statute that used the term “spouse,” 133 S.
Ct. at 2683; and a narrower interpretation
would not further the purposes of efficient
tax administration.
In light of the Windsor decision and
for the reasons discussed below, the Service also concludes that the terms “husband and wife,” “husband,” and “wife”
should be interpreted to include same-sex
spouses. This interpretation is consistent
with the Supreme Court’s statements about
the Code in Windsor, avoids the serious
constitutional questions that an alternate
reading would create, and is permitted by
the text and purposes of the Code.
First, the Supreme Court’s opinion in
Windsor suggests that it understood that its
decision striking down section 3 of DOMA
would affect tax administration in ways
that extended beyond the estate tax refund
at issue. See 133 S. Ct. at 2694 (“The particular case at hand concerns the estate tax,
but DOMA is more than simply a determination of what should or should not be allowed as an estate tax refund. Among the

September 16, 2013

over 1,000 statutes and numerous Federal
regulations that DOMA controls are laws
pertaining to . . . taxes.”). The Court
observed in particular that section 3 burdened same-sex couples by forcing “them
to follow a complicated procedure to file
their Federal and state taxes jointly” and
that section 3 “raise[d] the cost of health
care for families by taxing health benefits
provided by employers to their workers’
same-sex spouses.” Id. at 2694–2695.
Second, an interpretation of the gender-specific terms in the Code to exclude
same-sex spouses would raise serious constitutional questions. A well-established
principle of statutory interpretation holds
that, “where an otherwise acceptable construction of a statute would raise serious
constitutional problems,” a court should
“construe the statute to avoid such problems unless such construction is plainly
contrary to the intent of Congress.” Edward J. DeBartolo Corp. v. Fla. Gulf
Coast Bldg. & Constr. Trades Council,
485 U.S. 568, 575 (1988). “This canon
is followed out of respect for Congress,
which [presumably] legislates in light of
constitutional limitations,” Rust v. Sullivan, 500 U.S. 173, 191 (1991), and
instructs courts, where possible, to avoid
interpretations that “would raise serious
constitutional doubts,” United States v.
X-Citement Video, Inc., 513 U.S. 64, 78
(1994).
The Fifth Amendment analysis in Windsor raises serious doubts about the constitutionality of Federal laws that confer
marriage benefits and burdens only on opposite-sex married couples. In Windsor,
the Court stated that, “[b]y creating two
contradictory marriage regimes within the
same State, DOMA forces same-sex couples to live as married for the purpose
of state law but unmarried for the purpose of Federal law, thus diminishing the
stability and predictability of basic personal relations the State has found it proper
to acknowledge and protect.” 133 S. Ct.
at 2694. Interpreting the gender-specific
terms in the Code to categorically exclude
same-sex couples arguably would have the
same effect of diminishing the stability and
predictability of legally recognized samesex marriages. Thus, the canon of constitutional avoidance counsels in favor of interpreting the gender-specific terms in the
Code to refer to same-sex spouses and couples.

202

Third, the text of the Code permits a
gender-neutral construction of the genderspecific terms. Section 7701 of the Code
provides definitions of certain terms generally applicable for purposes of the Code
when the terms are not defined otherwise
in a specific Code provision and the definition in section 7701 is not manifestly
incompatible with the intent of the specific Code provision. The terms “husband
and wife,” “husband,” and “wife” are not
specifically defined other than in section
7701(a)(17), which provides, for purposes
of sections 682 and 2516, that the terms
“husband” and “wife” shall be read to include a former husband or a former wife,
respectively, and that “husband” shall be
read as “wife” and “wife” as “husband”
in certain circumstances. Although Congress’s specific instruction to read “husband” and “wife” interchangeably in those
specific provisions could be taken as an indication that Congress did not intend the
terms to be read interchangeably in other
provisions, the Service believes that the
better understanding is that the interpretive
rule set forth in section 7701(a)(17) makes
it reasonable to adopt, in the circumstances
presented here and in light of Windsor and
the principle of constitutional avoidance, a
more general rule that does not foreclose a
gender-neutral reading of gender-specific
terms elsewhere in the Code.
Section 7701(p) provides a specific
cross-reference to the Dictionary Act, 1
U.S.C. § 1, which provides, in part, that
when “determining the meaning of any
Act of Congress, unless the context indicates otherwise, . . . words importing the
masculine gender include the feminine as
well.” The purpose of this provision was
to avoid having to “specify males and females by using a great deal of unnecessary
language when one word would express
the whole.” Cong. Globe, 41st Cong., 3d
Sess. 777 (1871) (statement of Sen. Trumbull, sponsor of Dictionary Act). This
provision has been read to require construction of the phrase “husband and wife”
to include same-sex married couples. See
Pedersen v. Office of Personnel Mgmt.,
881 F. Supp. 2d 294, 306–07 (D. Conn.
2012) (construing section 6013 of the
Code). The Dictionary Act thus supports
interpreting the gender-specific terms in
the Code in a gender-neutral manner “unless the context indicates otherwise.” 1
U.S.C. § 1. “‘Context’” for purposes of the

2013–38 I.R.B.

Dictionary Act “means the text of the Act
of Congress surrounding the word at issue,
or the texts of other related congressional
Acts.” Rowland v. Cal. Men’s Colony,
Unit II Men’s Advisory Council, 506 U.S.
194, 199 (1993). Here, nothing in the
surrounding text forecloses a gender-neutral reading of the gender-specific terms.
Rather, the provisions of the Code that use
the terms “husband and wife,” “husband,”
and “wife” are inextricably interwoven
with provisions that use gender-neutral
terms like “spouse” and “marriage,” indicating that Congress viewed them to be
equivalent. For example, section 1(a) sets
forth the tax imposed on “every married
individual (as defined in section 7703)
who makes a single return jointly with his
spouse under section 6013,” even though
section 6013 provides that a “husband and
wife” make a single return jointly of income. Similarly, section 2513 of the Code
is entitled “Gifts by Husband or Wife to
Third Party,” but uses no gender-specific
terms in its text. See also, e.g., §§ 62(b)(3),
1361(c)(1).
This interpretation is also consistent
with the legislative history. The legislative history of section 6013, for example,
uses the term “married taxpayers” interchangeably with the terms “husband” and
“wife” to describe those individuals who
may elect to file a joint return, and there
is no indication that Congress intended
those terms to refer only to a subset of
individuals who are legally married. See,
e.g., S. Rep. No. 82–781, Finance, Part 1,
p. 48 (Sept. 18, 1951). Accordingly, the
most logical reading is that the terms “husband and wife” were used because they
were viewed, at the time of enactment, as
equivalent to the term “persons married to
each other.” There is nothing in the Code
to suggest that Congress intended to exclude from the meaning of these terms any
couple otherwise legally married under
state law.
Fourth, other considerations also
strongly support this interpretation. A
gender-neutral reading of the Code fosters
fairness by ensuring that the Service treats
same-sex couples in the same manner as
similarly situated opposite-sex couples. A
gender-neutral reading of the Code also
fosters administrative efficiency because
the Service does not collect or maintain information on the gender of taxpayers and
would have great difficulty administer-

2013–38 I.R.B.

ing a scheme that differentiated between
same-sex and opposite-sex married couples.
Therefore, consistent with the statutory
context, the Supreme Court’s decision in
Windsor, Revenue Ruling 58–66, and effective tax administration generally, the
Service concludes that, for Federal tax purposes, the terms “husband and wife,” “husband,” and “wife” include an individual
married to a person of the same sex if they
were lawfully married in a state whose
laws authorize the marriage of two individuals of the same sex, and the term “marriage” includes such marriages of individuals of the same sex.
3. Marital Status Based on the Laws of
the State Where a Marriage Is Initially
Established
Consistent with the longstanding position expressed in Revenue Ruling 58–66,
the Service has determined to interpret the
Code as incorporating a general rule, for
Federal tax purposes, that recognizes the
validity of a same-sex marriage that was
valid in the state where it was entered into,
regardless of the married couple’s place of
domicile. The Service may provide additional guidance on this subject and on
the application of Windsor with respect to
Federal tax administration. Other agencies may provide guidance on other Federal programs that they administer that are
affected by the Code.
Under this rule, individuals of the same
sex will be considered to be lawfully married under the Code as long as they were
married in a state whose laws authorize
the marriage of two individuals of the
same sex, even if they are domiciled in a
state that does not recognize the validity of
same-sex marriages. For over half a century, for Federal income tax purposes, the
Service has recognized marriages based
on the laws of the state in which they
were entered into, without regard to subsequent changes in domicile, to achieve
uniformity, stability, and efficiency in
the application and administration of the
Code. Given our increasingly mobile society, it is important to have a uniform rule
of recognition that can be applied with
certainty by the Service and taxpayers
alike for all Federal tax purposes. Those
overriding tax administration policy goals

203

generally apply with equal force in the
context of same-sex marriages.
In most Federal tax contexts, a
state-of-domicile rule would present serious administrative concerns. For example,
spouses are generally treated as related
parties for Federal tax purposes, and one
spouse’s ownership interest in property
may be attributed to the other spouse for
purposes of numerous Code provisions. If
the Service did not adopt a uniform rule
of recognition, the attribution of property
interests could change when a same-sex
couple moves from one state to another
with different marriage recognition rules.
The potential adverse consequences could
impact not only the married couple but
also others involved in a transaction, entity, or arrangement. This would lead to
uncertainty for both taxpayers and the
Service.
A rule of recognition based on the state
of a taxpayer’s current domicile would
also raise significant challenges for employers that operate in more than one state,
or that have employees (or former employees) who live in more than one state,
or move between states with different marriage recognition rules. Substantial financial and administrative burdens would be
placed on those employers, as well as the
administrators of employee benefit plans.
For example, the need for and validity of
spousal elections, consents, and notices
could change each time an employee, former employee, or spouse moved to a state
with different marriage recognition rules.
To administer employee benefit plans,
employers (or plan administrators) would
need to inquire whether each employee
receiving plan benefits was married and,
if so, whether the employee’s spouse was
the same sex or opposite sex from the employee. In addition, the employers or plan
administrators would need to continually
track the state of domicile of all same-sex
married employees and former employees
and their spouses. Rules would also need
to be developed by the Service and administered by employers and plan administrators to address the treatment of same-sex
married couples comprised of individuals
who reside in different states (a situation
that is not relevant with respect to opposite-sex couples). For all of these reasons,
plan administration would grow increasingly complex and certain rules, such as
those governing required distributions

September 16, 2013

under section 401(a)(9), would become
especially challenging. Administrators of
employee benefit plans would have to be
retrained, and systems reworked, to comply with an unprecedented and complex
system that divides married employees
according to their sexual orientation. In
many cases, the tracking of employee
and spouse domiciles would be less than
perfectly accurate or timely and would
result in errors or delays. These errors
and delays would be costly to employers,
and could require some plans to enter the
Service’s voluntary compliance programs
or put benefits of all employees at risk.
All of these problems are avoided by the
adoption of the rule set forth herein, and
the Service therefore has chosen to avoid
the imposition of the additional burdens on
itself, employers, plan administrators, and
individual taxpayers. Accordingly, Revenue Ruling 58–66 is amplified to adopt a
general rule, for Federal tax purposes, that
recognizes the validity of a same-sex marriage that was valid in the state where it
was entered into, regardless of the married
couple’s place of domicile.
4. Registered Domestic Partnerships,
Civil Unions, or Other Similar Formal
Relationships Not Denominated as
Marriage
For Federal tax purposes, the term
“marriage” does not include registered domestic partnerships, civil unions, or other
similar formal relationships recognized
under state law that are not denominated
as a marriage under that state’s law, and
the terms “spouse,” “husband and wife,”
“husband,” and “wife” do not include
individuals who have entered into such
a formal relationship. This conclusion
applies regardless of whether individuals
who have entered into such relationships
are of the opposite sex or the same sex.
HOLDINGS
1. For Federal tax purposes, the terms
“spouse,” “husband and wife,” “husband,”
and “wife” include an individual married
to a person of the same sex if the individuals are lawfully married under state law,

September 16, 2013

and the term “marriage” includes such a
marriage between individuals of the same
sex.
2. For Federal tax purposes, the Service adopts a general rule recognizing a
marriage of same-sex individuals that was
validly entered into in a state whose laws
authorize the marriage of two individuals
of the same sex even if the married couple
is domiciled in a state that does not recognize the validity of same-sex marriages.
3. For Federal tax purposes, the terms
“spouse,” “husband and wife,” “husband,”
and “wife” do not include individuals
(whether of the opposite sex or the same
sex) who have entered into a registered
domestic partnership, civil union, or other
similar formal relationship recognized under state law that is not denominated as a
marriage under the laws of that state, and
the term “marriage” does not include such
formal relationships.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 58–66 is amplified and clarified.
PROSPECTIVE APPLICATION
The holdings of this ruling will be applied prospectively as of September 16,
2013.
Except as provided below, affected taxpayers also may rely on this revenue ruling for the purpose of filing original returns, amended returns, adjusted returns,
or claims for credit or refund for any overpayment of tax resulting from these holdings, provided the applicable limitations
period for filing such claim under section
6511 has not expired. If an affected taxpayer files an original return, amended return, adjusted return, or claim for credit or
refund in reliance on this revenue ruling,
all items required to be reported on the return or claim that are affected by the marital status of the taxpayer must be adjusted
to be consistent with the marital status reported on the return or claim.
Taxpayers may rely (subject to the conditions in the preceding paragraph regarding the applicable limitations period and

204

consistency within the return or claim) on
this revenue ruling retroactively with respect to any employee benefit plan or arrangement or any benefit provided thereunder only for purposes of filing original
returns, amended returns, adjusted returns,
or claims for credit or refund of an overpayment of tax concerning employment
tax and income tax with respect to employer-provided health coverage benefits
or fringe benefits that were provided by the
employer and are excludable from income
under sections 106, 117(d), 119, 129, or
132 based on an individual’s marital status.
For purposes of the preceding sentence,
if an employee made a pre-tax salary-reduction election for health coverage under
a section 125 cafeteria plan sponsored by
an employer and also elected to provide
health coverage for a same-sex spouse on
an after-tax basis under a group health plan
sponsored by that employer, an affected
taxpayer may treat the amounts that were
paid by the employee for the coverage of
the same-sex spouse on an after-tax basis
as pre-tax salary reduction amounts.
The Service intends to issue further
guidance on the retroactive application of
the Supreme Court’s opinion in Windsor
to other employee benefits and employee
benefit plans and arrangements. Such
guidance will take into account the potential consequences of retroactive application to all taxpayers involved, including
the plan sponsor, the plan or arrangement,
employers, affected employees and beneficiaries. The Service anticipates that
the future guidance will provide sufficient
time for plan amendments and any necessary corrections so that the plan and
benefits will retain favorable tax treatment
for which they otherwise qualify.
DRAFTING INFORMATION
The principal authors of this revenue ruling are Richard S. Goldstein
and Matthew S. Cooper of the Office of
Associate Chief Counsel (Procedure &
Administration). For further information
regarding this revenue ruling, contact
Mr.
Goldstein and Mr.
Cooper at
202–622–3400 (not a toll-free call).

2013–38 I.R.B.

Section 6103.—Confidentiality and Disclosure
of Returns and Return
Information
T.D. 9631
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Disclosures of Return
Information Reflected on
Returns to Officers and
Employees of the Department
of Commerce for Certain
Statistical Purposes and
Related Activities
AGENCY: Internal Revenue Service
(IRS), Treasury
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains final
regulations that authorize the disclosure of
certain items of return information to the
Bureau of the Census (Bureau) in conformance with section 6103(j)(1) of the Internal Revenue Code (Code). The final regulations are made pursuant to a request from
the Secretary of Commerce. Because the
return information will be disclosed to the
Bureau in statistical format, specific taxpayers will not be identified, and, therefore, no taxpayers are affected by the disclosures authorized by this guidance.
DATES: Effective Date: These regulations
are effective on August 27, 2013.
Applicability Date: For dates of applicability, see §301.6103(j)(1)–1(e).
FOR
FURTHER
INFORMATION
CONTACT: Melissa Avrutine, (202)
622–7950 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
26 CFR part 301. Section 6103(j)(1)(A)
authorizes the Secretary of Treasury to furnish, upon written request by the Secretary of Commerce, such return or return

2013–38 I.R.B.

information as the Secretary of Treasury
may prescribe by regulation to officers and
employees of the Bureau for the purpose
of, but only to the extent necessary in,
the structuring of censuses and conducting
related statistical activities authorized by
law. Section 301.6103(j)(1)–1 of the existing regulations further defines such purposes by reference to 13 U.S.C. chapter
5 and provides an itemized description of
the return information authorized to be disclosed for such purposes.
By letter dated July 24, 2009, the Secretary of Commerce requested that additional items of return information be disclosed to the Bureau for purposes of allowing the Bureau to study a developing
trend of increased use of contract workers.
Specifically, the Secretary of Commerce
requested disclosure of the following additional items: (1) total number of documents reported on Form 1096 transmitting
Forms 1099–MISC and (2) total amount
reported on Form 1096 transmitting Forms
1099–MISC.
Section 301.6103(j)(1)–1 of the regulations formerly permitted disclosure
of the total number of documents reported on Form 1096 transmitting Forms
1099–MISC and the total amount reported on Form 1096 transmitting Forms
1099–MISC. At the request of the Secretary of Commerce, the Treasury Department removed these items from the list of
items of return information authorized to
be disclosed, as disclosure of this return
information was no longer necessary (See
TD 9372, 72 FR 73262 [Dec. 27, 2007]).
In 2009, the Secretary of Commerce determined that these items of return information were needed again to provide critical data about contract labor necessary to
estimate total employment and payroll in
the United States. The employment and
compensation data compiled by the Bureau are important to analysts and policy
makers in both the public and private sectors. Thus, the Secretary of Commerce asserted that good cause existed to amend
§301.6103(j)(1)–1 of the regulations to restore these items to the list of items of return information that may be disclosed to
the Bureau. The Treasury Department and
the IRS agree that amending existing regulations to permit disclosure of these items
to the Bureau is appropriate to meet the analytical needs of the Bureau.

205

Explanation of Provisions
On August 26, 2010, the IRS and the
Treasury Department published temporary regulations under §6103(j)(1) and
issued a notice of proposed rulemaking
cross-referencing those temporary regulations. See TD 9500 (75 FR 52458),
REG–137486–09 (75 FR 52486), and 26
CFR §301.6103(j)(1)–1T. No comments
were received, and no public hearing was
requested or held. These final regulations
adopt the proposed rules with no substantive change.
Section 301.6103(j)(1)–1T authorizes
disclosure of three items of return information. Upon publication, these final
regulations remove §301.6103(j)(1)–1T
because all three items of return information listed in §301.6103(j)(1)–1T will
now be contained in §301.6103(j)(1)–1.
On December 31, 2007, temporary regulations were published authorizing one of
the items of return information contained
in §301.6103(j)(1)–1T: the disclosure of
categorical information on total qualified
research expenses in three ranges (greater
than zero, but less than $1 million; greater
than or equal to $1 million, but less than
$3 million; and greater than or equal to $3
million) (§301.6103(j)(1)(xxv)–1T). See
TD 9500 (75 FR 52458). On August 26,
2010, those temporary regulations were finalized, but §301.6103(j)(1)(xxv)–1T was
inadvertently not removed. Accordingly,
these final regulations remove those temporary regulations as well as the remaining
two items of return information contained
in §301.6103(j)(1)–1T: total number of
documents reported on Form 1096 transmitting Forms 1099–MISC and the total
amount reported on Form 1096 transmitting Forms 1099–MISC (subsections xxix
and xxx of section 6103(j)(1)–1T).
Special Analyses
It has been determined that these final regulations are not a significant regulatory action as defined in Executive Order
12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedures Act (5 U.S.C. chapter
5) does not apply to these regulations, and
because the regulation does not impose a
collection of information on small entities,

September 16, 2013

the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its impact on
small business, and no comments were received.
Drafting Information
The principal author of these regulations is Melissa Avrutine, Office of the
Associate Chief Counsel (Procedure &
Administration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISITRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as follows:

September 16, 2013

Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6103(j)(1)–1 is
amended by:
1. Adding paragraphs (b)(3)(xxix) and
(b)(3)(xxx).
2. Revising paragraph (e),
The additions and revision read as follows:

that apply to disclosures to the Bureau of
the Census before that date, see 26 CFR
301.6103(j)(1)–1 (revised as of April 1,
2013).

§301.6103(j)(1)–1 Disclosure of return
information reflected on returns to officers
and employees of the Department of
Commerce for certain statistical purposes
and related activities.

Heather C. Maloy,
Acting Deputy Commissioner for
Services and Enforcement.

*****
(b) * * *
(3) * * *
(xxix) Total number of documents reported on Form 1096 transmitting Forms
1099–MISC.
(xxx) Total amount reported on Form
1096 transmitting Forms 1099–MISC.

§301.6103(j)(1)–1T [Removed]
Par. 3. Section 301.6103(j)(1)–1T is
removed.

Approved August 19, 2013.
Mark J. Mazur,
Assistant Secretary
of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on August 26,
2013, 8:45 a.m., and published in the issue of the Federal
Register for August 27, 2013, 78 F.R. 52856)

*****
(e) Effective/applicability date. Paragraphs (b)(3)(xxv), (b)(3)(xxix), and
(b)(3)(xxx) of this section apply to disclosures to the Bureau of the Census made
on or after August 27, 2013. For rules

206

2013–38 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Per Capita Payments from
Proceeds of Settlements of
Indian Tribal Trust Cases
Notice 2013–55
BACKGROUND
Notice 2013–1, 2013–3 IRB 281, provides guidance on the federal tax treatment

of per capita payments that members of Indian tribes receive from proceeds of certain settlements of tribal trust cases between the United States and those Indian
tribes. Additional tribes have settled tribal
trust cases against the United States since
publication of Notice 2013–1. This notice
provides an updated Appendix that reflects
the additional settlement agreements.

EFFECT ON OTHER DOCUMENTS
Notice 2013–1 Appendix is modified
and superseded.
FURTHER INFORMATION
For further information regarding this
notice, please contact Telly Meier at phone
number (202) 317–8494 (not a toll-free
call).

Appendix
Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.

Assiniboine and Sioux Tribes of the Fort Peck Reservation
Bad River Band of Lake Superior Chippewa Indians
Blackfeet Tribe of the Blackfeet Indian Reservation
Bois Forte Band of Chippewa
Cachil Dehe Band of Wintun Indians of the Colusa Rancheria
Chippewa Cree Tribe of the Rocky Boy’s Reservation
Coeur d’Alene Tribe
Confederated Salish and Kootenai Tribes
Confederated Tribes of Siletz Indians
Confederated Tribes of the Colville Reservation
Confederated Tribes of the Goshute Reservation
Crow Creek Sioux Tribe
Eastern Shawnee Tribe of Oklahoma
Hualapai Indian Tribe
Iowa Tribe of Kansas and Nebraska
Kaibab Band of Paiute Indians of Arizona
Kickapoo Tribe of Kansas
Lac Courte Oreilles Band of Lake Superior Chippewa Indians
Lac du Flambeau Band of Lake Superior Chippewa Indians
Leech Lake Band of Ojibwe
Lower Brule Sioux Tribe
Makah Indian Tribe of the Makah Reservation
Mescalero Apache Tribe
Minnesota Chippewa Tribe
Nez Perce Tribe
Nooksack Indian Tribe
Northern Cheyenne Tribe of Indians
Omaha Tribe of Nebraska
Passamaquoddy Tribe of Maine
Pawnee Nation
Prairie Band of Potawatomi Nation
Pueblo of Zia
Quechan Tribe of the Fort Yuma Reservation
Red Cliff Band of Lake Superior Chippewa Indians
Rincon Luiseño Band of Indians
Rosebud Sioux Tribe
Round Valley Indian Tribes
Salt River Pima-Maricopa Indian Community
Santee Sioux Tribe of Nebraska
Sault Ste. Marie Tribe
Shoshone-Bannock Tribes of the Fort Hall Reservation
Soboba Band of Luiseño Indians
Spirit Lake Dakotah Nation
Spokane Tribe of Indians
Standing Rock Sioux Tribe

2013–38 I.R.B.

207

September 16, 2013

Appendix
Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.

Stillaguamish Tribe of Indians
Summit Lake Paiute Tribe
Swinomish Indian Tribal Community
Te-Moak Tribe of Western Shoshone Indians
Tohono O’odham Nation
Tulalip Tribes
Tule River Indian Tribe
Ute Indian Tribe of the Uintah and Ouray Reservation
Ute Mountain Ute Tribe
Winnebago Tribe of Nebraska
Qawalangin Tribe of Unalaska
Tlingit & Haida Tribes of Alaska
Northwestern Band of Shoshone Indians
Hoopa Valley Tribe
Ak-Chin Indian Community
Oglala Sioux Tribe
Yoruk Tribe
Cheyenne River Sioux Tribe
Paiute-Shoshone Indians of the Bishop Community of the Bishop Colony
Seminole Nation of Oklahoma
Otoe-Missouria Tribe of Oklahoma
Samish Indian Nation
Tonkawa Tribe of Indians of Oklahoma
Yakama Nation
Miami Tribe of Oklahoma

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

Rev. Proc. 2013–31
SECTION 1. PURPOSE
This revenue procedure publishes the
amounts of unused housing credit carryovers allocated to qualified states under

§ 42(h)(3)(D) of the Internal Revenue
Code for calendar year 2013.
SECTION 2. BACKGROUND
Rev. Proc. 92–31, 1992–1 C.B. 775,
provides guidance to state housing credit
agencies of qualified states on the procedure for requesting an allocation of
unused housing credit carryovers under
§ 42(h)(3)(D). Section 4.06 of Rev. Proc.
92–31 provides that the Internal Revenue Service will publish in the Internal
Revenue Bulletin the amount of unused

Qualified State

SECTION 3. PROCEDURE
The unused housing credit carryover
amount allocated from the National Pool
by the Secretary to each qualified state for
calendar year 2013 is as follows:

Amount Allocated

Alabama
Arizona
California
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Kansas
Louisiana
Maryland
Massachusetts
Michigan
Minnesota

September 16, 2013

housing credit carryovers allocated to
qualified states for a calendar year from
a national pool of unused credit authority
(the National Pool). This revenue procedure publishes these amounts for calendar
year 2013.

46,914
63,757
370,106
34,930
8,922
187,941
96,511
15,525
125,264
28,077
44,772
57,251
64,661
96,155
52,334

208

2013–38 I.R.B.

Qualified State

Amount Allocated

Mississippi
Nebraska
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oregon
Pennsylvania
Rhode Island
South Dakota
Texas
Vermont
Virginia
Washington
West Virginia
EFFECTIVE DATE
This revenue procedure is effective
for allocations of housing credit dollar
amounts attributable to the National Pool
component of a qualified state’s housing
credit ceiling for calendar year 2013.
DRAFTING INFORMATION
The principal author of this revenue procedure is Jian H. Grant of
the Office of Associate Chief Counsel
(Passthroughs and Special Industries). For
further information regarding this revenue
procedure contact Ms. Grant on (202)
622–3040 (not a toll-free call).

601.105: Examination of returns and claims for refund, credit, or abatement; determination of tax liability
(Also: 842(b))

Rev. Proc. 2013–33
SECTION 1. PURPOSE
This revenue procedure provides the
domestic asset/liability percentages and
domestic investment yields needed by foreign life insurance companies and foreign
property and liability insurance companies to compute their minimum effectively
connected net investment income under
section 842(b) of the Internal Revenue
Code for taxable years beginning after
December 31, 2011. Instructions are provided for computing foreign insurance

2013–38 I.R.B.

29,040
18,052
86,244
20,290
190,400
94,878
6,807
112,314
37,937
124,177
10,218
8,108
253,531
6,090
79,641
67,101
18,051
companies’ liabilities for the estimated tax
and installment payments of estimated tax
for taxable years beginning after December 31, 2011. For more specific guidance
regarding the computation of the amount
of net investment income to be included by
a foreign insurance company on its U.S. income tax return, see Notice 89–96, 1989–2
C.B. 417. For the domestic asset/liability
percentage and domestic investment yield,
as well as instructions for computing foreign insurance companies’ liabilities for
estimated tax and installment payments of
estimated tax for taxable years beginning
after December 31, 2010, see Rev. Proc.
2012–40, 2012–40 I.R.B. 424.
SECTION 2. CHANGES
DOMESTIC
ASSET/LIABILITY
PERCENTAGES FOR 2012. The Secretary determines the domestic asset/liability
percentage separately for life insurance
companies and property and liability insurance companies. For the first taxable
year beginning after December 31, 2011,
the relevant domestic asset/liability percentages are:
[163.8] percent for foreign life insurance companies, and
[186.5] percent for foreign property and
liability insurance companies.
.02 DOMESTIC INVESTMENT
YIELDS FOR 2012. The Secretary is
required to prescribe separate domestic investment yields for foreign life insurance
companies and for foreign property and
liability insurance companies. For the first
taxable year beginning after December 31,

209

2011, the relevant domestic investment
yields are:
[3.5] percent for foreign life insurance
companies, and
[3.7] percent for foreign property and
liability insurance companies.
.03 SOURCE OF DATA FOR 2012.
The section 842(b) percentages to be used
for the 2012 tax year are based on tax return data following the same methodology
used for the 2011 year.
SECTION 3.
APPLICATION—ESTIMATED TAXES
To compute estimated tax and the installment payments of estimated tax due
for taxable years beginning after December 31, 2011, a foreign insurance company must compute its estimated tax payments by adding to its income other than
net investment income the greater of (i) its
net investment income as determined under section 842(b)(5), that is actually effectively connected with the conduct of a
trade or business within the United States
for the relevant period, or (ii) the minimum effectively connected net investment
income under section 842(b) that would result from using the most recently available
domestic asset/liability percentage and domestic investment yield. Thus, for installment payments due after the publication of
this revenue procedure, the domestic asset/liability percentages and the domestic
investment yields provided in this revenue
procedure must be used to compute the
minimum effectively connected net investment income. However, if the due date of
an installment is less than 20 days after the

September 16, 2013

date this revenue procedure is published
in the Internal Revenue Bulletin, the asset/liability percentages and domestic investment yields provided in Rev. Proc.
2012–40 may be used to compute the minimum effectively connected net investment
income for such installment. For further
guidance in computing estimated tax, see
Notice 89–96.

September 16, 2013

SECTION 4. EFFECTIVE DATE
This revenue procedure is effective for
taxable years beginning after December
31, 2011.

210

SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Sheila Ramaswamy of
the Office of Associate Chief Counsel
(International). For further information
regarding this revenue procedure contact
Sheila Ramaswamy at (202) 622–3870
(not a toll-free call).

2013–38 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking
Tax Credit for Employee
Health Insurance Expenses of
Small Employers
REG–113792–13
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations that provide guidance on
the tax credit available to certain small employers that offer health insurance coverage to their employees under section 45R
of the Internal Revenue Code (Code), enacted by the Patient Protection and Affordable Care Act. These proposed regulations
affect certain taxable employers and certain tax-exempt employers.
DATES: Comments and request for a public hearing must be received by November
25, 2013.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–113792–13), Internal Revenue Service, room 5205, PO
Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand
delivered Monday through Friday between
the hours of 8:00 a.m. and 4:00 p.m.
to CC:PA:LPD:PR (REG–113792–13),
Internal Revenue
Courier’s Desk,
Service, 1111 Constitution Avenue, NW,
Washington, DC, or sent electronically
via the Federal eRulemaking Portal
(IRS
at
http:www.regulations.gov
113792–13).
INFORMATION
FOR
FURTHER
CONTACT: Concerning these proposed
regulations, call Stephanie Caden at
(202) 927–9639; concerning submission
of comments, and/or to request a
hearing, Oluwafunmilayo Taylor at (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:

2013–38 I.R.B.

Background
Section 45R of the Internal Revenue
Code (Code) offers a tax credit to certain small employers that provide insured
health coverage to their employees. Section 45R was added to the Code by section
1421 of the Patient Protection and Affordable Care Act, enacted March 23, 2010,
Public Law No. 111–148 (as amended
by section 10105(e) of the Patient Protection and Affordable Care Act, which was
amended by the Health Care and Education Reconciliation Act of 2010, Public
Law 111–152 (124 Stat. 1029)) (collectively, the “Affordable Care Act”).
I. Section 45R
Section 45R(a) provides for a health insurance tax credit in the case of an eligible small employer for any taxable year in
the credit period. Section 45R(d) provides
that in order to be an eligible small employer with respect to any taxable year, an
employer must have in effect a contribution arrangement that qualifies under section 45R(d)(4) and must have no more than
25 full-time equivalent employees (FTEs),
and the average annual wages of its FTEs
must not exceed an amount equal to twice
the dollar amount determined under section 45R(d)(3)(B). The amount determined
under section 45R(d)(3)(B) is $25,000 (as
adjusted for inflation for taxable years beginning after December 31, 2013).
Section 45R(d)(4) states that a contribution arrangement qualifies if it requires
an eligible small employer to make a nonelective contribution on behalf of each
employee who enrolls in a qualified health
plan (QHP) offered to employees by the
employer through an Exchange in an
amount equal to a uniform percentage (not
less than 50 percent) of the premium cost
of the QHP (referred to in this preamble
as the uniform percentage requirement).
For purposes of section 45R, an Exchange
refers to a Small Business Health Options
Program (SHOP) Exchange, established
pursuant to section 1311 of the Affordable
Care Act and defined in 45 CFR 155.20.
For purposes of this preamble and the
proposed regulations, a contribution arrangement that meets these requirements is
referred to as a “qualifying arrangement.”

211

See also the section of this preamble entitled “Explanation of Provisions.”
Section 45R(b) provides that, subject
to the reductions described in section
45R(c), the amount of the credit is equal
to 50 percent (35 percent in the case of
a tax-exempt eligible small employer) of
the lesser of: (1) the aggregate amount
of nonelective contributions the employer
made on behalf of its employees during
the taxable year under the qualifying arrangement for premiums for QHPs offered
by the employer to its employees through
a SHOP Exchange, or (2) the aggregate
amount of nonelective contributions the
employer would have made during the
taxable year under the arrangement if each
employee taken into account under: (1)
of this sentence had enrolled in a QHP
which had a premium equal to the average
premium (as determined by the Secretary
of Health and Human Services) for the
small group market in the rating area in
which the employee enrolls for coverage. Section 45R(c) phases out the credit
based upon the number of the employer’s
FTEs in excess of 10 and the amount by
which the average annual wages exceeds
$25,000 (as adjusted for inflation for taxable years beginning after December 31,
2013 pursuant to section 45R(d)(3)(B)).
Specifically, section 45R(c) provides that
the credit amount determined under section 45R(b) is reduced (but not below
zero) by the sum of: (1) the credit amount
determined under section 45R(b) multiplied by a fraction, the numerator of
which is the total number of FTEs of the
employer in excess of 10 and the denominator of which is 15, and (2) the credit
amount determined under section 45R(b)
multiplied by a fraction, the numerator of
which is the average annual wages of the
employer in excess of the dollar amount
in effect under section 45R(d)(3)(B) and
the denominator of which is such dollar
amount. Section 45R(d)(3) provides that
the average annual wages of an eligible
small employer for any taxable year is
the amount determined by dividing the
aggregate amount of wages that were paid
by the employer to employees during the
taxable year by the number of FTEs of the
employer and rounding such amount to
the next lowest multiple of $1,000.

September 16, 2013

Section 45R(e)(2) provides that for taxable years beginning in or after 2014, the
credit period means the two-consecutivetaxable year period beginning with the first
taxable year in which the employer (or any
predecessor) offers one or more QHPs to
its employees through a SHOP Exchange.
For taxable years beginning in 2010,
2011, 2012, and 2013, section 45R(g) provides that the credit is determined without
regard to whether the taxable year is in
a credit period, and no credit period is
treated as beginning with a taxable year
beginning before 2014. The amount of the
credit is 35 percent (25 percent in the case
of a tax-exempt eligible small employer)
of an eligible small employer’s nonelective contributions for premiums paid for
health insurance coverage (within the
meaning of section 9832(b)(1)) of an employee. Section 45R(g)(3) provides that
an employer does not become ineligible
for the tax credit solely because it arranges
for the offering of insurance outside of a
SHOP Exchange.
The Treasury Department and the IRS
have published two notices addressing the
application of section 45R. Each notice
provides guidance that taxpayers may rely
upon for taxable years beginning before
January 1, 2014. See Notice 2010–44
(2010–22 I.R.B. 717 (June 1, 2010)) and
Notice 2010–82 (2010–51 I.R.B. 857 (December 20, 2010)). Notice 2010–44 also
provided transition relief for taxable years
beginning in 2010 with respect to the requirements for a qualifying arrangement
under section 45R.
II. Notice 2010–44
Notice 2010–44 addresses the eligibility requirements for employers to claim the
credit, provides guidance on how to calculate and claim the credit, and explains the
effect on estimated tax, alternative minimum tax, and deductions. The notice
specifically describes the rules for how
employees are taken into account in determining an employer’s FTEs, average
wages, and premiums paid, with certain individuals excluded and with employees of
certain related employers included.
III. Notice 2010–82
Notice 2010–82 expands on the guidance provided in Notice 2010–44 and

September 16, 2013

provides additional guidance on determining whether to take into account spouses
and leased employees (as defined in section 414(n)) in computing an employer’s
FTEs, average annual wages, and premiums paid. The notice provides that
employer contributions to health reimbursement arrangements (HRAs), health
flexible spending arrangements (FSAs),
and health savings accounts (HSAs) are
not taken into account for purposes of
the section 45R credit. The notice further
explains the requirement that an eligible small employer must pay a uniform
percentage (not less than 50 percent) of
the premium for each employee enrolled
in health insurance coverage offered by
the employer. The notice provides rules
for applying the uniform percentage requirement in taxable years beginning after
December 31, 2009 and prior to 2014,
and further provides that for taxable years
beginning in 2010, an employer may satisfy the uniform percentage requirement
either by meeting the requirements provided in Notice 2010–82 or by meeting the
transition relief rules provided in Notice
2010–44. With respect to calculating the
credit, the notice provides guidance on
small group markets, taxpayers with employees in multiple States, the application
of the average premium cap, and taxpayers
with fiscal taxable years.
Explanation of Provisions
These proposed regulations generally incorporate the provisions of Notice
2010–44 and Notice 2010–82 as modified to reflect the differences between the
statutory provisions applicable to years
before 2014 and those applicable to years
after 2013. As in Notices 2010–44 and
2010–82, these proposed regulations use
the term “qualifying arrangement” to describe an arrangement under which an
eligible small employer pays premiums
for each employee enrolled in health insurance coverage offered by the employer in
an amount equal to a uniform percentage
(not less than 50 percent) of the premium
cost of the coverage. Section 45R(d)(4)
and these proposed regulations require
that, for tax years beginning during or
after 2014, the health insurance coverage
described in a qualifying arrangement be
a QHP offered by an employer to its employees through a SHOP Exchange (but

212

see section II.I of this preamble for a description of certain transition guidance for
2014).
I. Eligibility for the Credit
A. Eligible small employer defined
Section 45R and these proposed regulations provide that an eligible small
employer is defined as an employer that
has no more than 25 FTEs for the taxable
year, whose employees have average annual wages of less than $50,000 per FTE
(as adjusted for inflation for years after
December 31, 2013), and that has a qualifying arrangement in effect that requires
the employer to pay a uniform percentage
(not less than 50 percent) of the premium
cost of a QHP offered by the employer to
its employees through a SHOP Exchange.
A tax-exempt eligible small employer is an
eligible small employer that is described
in section 501(c) and that is exempt from
tax under section 501(a). An employer
that is an agency or instrumentality of the
Federal government, or of a State, local or
Indian tribal government, is not an eligible
small employer for purposes of section
45R unless it is an organization described
in section 501(a) (and otherwise meets
the requirements for an eligible small employer). However, a farmers’ cooperative
described in section 521 that is subject to
tax pursuant to section 1381 and otherwise
meets the requirements of this section is
an eligible small employer.
Section 45R does not require that, in order for an employer to be an eligible small
employer, the employees perform services
in a trade or business. Thus, an employer
that otherwise meets the requirements for
the section 45R credit does not fail to be
an eligible small employer merely because
the employees of the employer are not performing services in a trade or business. For
example, a household employer that otherwise satisfies the requirements of section
45R is an eligible small employer for purposes of the credit.
An employer located outside the United
States (including a U.S. Territory) may be
an eligible small employer if the employer
has income effectively connected with the
conduct of a trade or business in the United
States, otherwise meets the requirements
of this section and is able to offer a QHP to
its employees through a SHOP Exchange.

2013–38 I.R.B.

B. Application of section 414 aggregation
rules
In accordance with section 45R(e)(5),
these proposed regulations provide that all
employers treated as a single employer under section 414(b), (c), (m), or (o) are
treated as a single employer for purposes
of section 45R. Thus, for example, all employees of the employers treated as a single employer are counted in computing the
single employer’s FTEs and average annual wages. This applies to employers that
are corporations in a controlled group of
corporations, employers that are members
of an affiliated service group, and employers that are partnerships, sole proprietorships, etc. under common control under
section 414(c). Section 414 also applies to
tax-exempt eligible small employers under
common control. See §1.414(c)–5.
C. Determining employees taken into
account
The proposed rules for determining employees taken into account are the same
as those in the previous notices. In general, all employees (determined under the
common law standard) who perform services for the employer during the taxable
year are taken into account in determining FTEs and average annual wages, including those who are not performing services in the employer’s trade or business.
(But see special rules for seasonal employees described in this section of the preamble.) However, section 45R and these
proposed regulations provide that certain
individuals are not considered employees
when calculating the credit, and hours and
wages of these individuals are not counted
when determining an employer’s eligibility for the credit. The following individuals are not employees or are otherwise excluded for this purpose: independent contractors (including sole proprietors); partners in a partnership; shareholders owning
more than two percent of an S corporation;
owners of more than five percent of other
businesses; family members of these owners and partners, including a child (or descendant of a child), a sibling or step-sibling, a parent (or ancestor of a parent), a
step-parent, a niece or nephew, an aunt or
uncle, or a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law,
or a sister-in-law. A spouse is also consid-

2013–38 I.R.B.

ered a family member for this purpose, as
is a member of the household who is not
a family member but qualifies as a dependent on the individual income tax return of
an excluded individual.
Section 45R(d)(5) and these proposed
regulations provide that seasonal employees who work for 120 or fewer days during the taxable year are not considered employees when determining FTEs and average annual wages, but premiums paid on
behalf of seasonal workers may be counted
in determining the amount of the credit.
Seasonal workers include retail workers
employed exclusively during holiday seasons and workers employed exclusively
during the summer.
Compensation paid to a minister performing services in the exercise of his or
her ministry generally is subject to tax
under the Self-Employment Contributions
Act (SECA) and not under the Federal
Insurance Contributions Act (FICA),
whether the minister is an employee or
self-employed under the common law. See
sections 1402(c)(2)(d), 1402(c)(4), and
3121(b)(8)(A). For purposes of income
taxes generally, including the credit under
section 45R, whether a minister is an employee is determined under the common
law standard for determining worker status. If under the common law a minister is
not an employee, the minister is not taken
into account in determining an employer’s
FTEs. If under the common law a minister is an employee, the minister is taken
into account in determining an employer’s
FTEs. However, because a minister performing services in the exercise of his or
her ministry is treated as not engaged in
employment for purposes of FICA, compensation paid to a minister is not wages
as defined under section 3121(a), and so is
not included for purposes of computing an
employer’s average annual wages.
D. Determining hours of service
These proposed regulations provide
that an employee’s hours of service for a
year include hours for which the employee
is paid, or entitled to payment, for the
performance of duties for the employer
during the employer’s taxable year. Hours
of service also include hours for which
the employee is paid for vacation, holiday,
illness, incapacity (including disability),
layoff, jury duty, military duty, or leave of

213

absence. Hours of service do not include
the hours of seasonal employees who work
for 120 or fewer days during the taxable
year, nor do they include hours worked
for a year in excess of 2,080 for a single
employee.
These proposed regulations describe
three methods for calculating the total
number of hours of service for a single employee for the taxable year: actual hours
worked; days-worked equivalency; and
weeks-worked equivalency. Employers
need not use the same method for all employees and may apply different methods
for different classifications of employees
if the classifications are reasonable and
consistently applied. For example, an employer may use the actual hours worked
method for all hourly employees and the
weeks-worked equivalency method for
all salaried employees. These proposed
rules are the same as those in the previous
notices.
E. Determining FTEs
In accordance with section 45R(d)(2),
these proposed regulations provide that
FTEs are calculated by computing the
total hours of service for the taxable year
using a method described in section 1.D
of this preamble, and dividing the total
hours of service by 2,080. If the result
is not a whole number (0, 1, 2, etc.), the
result is rounded down to the next lowest
whole number. The only exception to this
rule is when the result is less than one; in
this case, the employer rounds up to one
FTE. In some circumstances, an employer
with 25 or more employees may qualify
for the credit if some of its employees
work less than full-time. For example, an
employer with 46 employees that each are
paid wages for 1,040 hours per year has 23
FTEs and, therefore, may qualify for the
credit. These proposed rules are the same
as those in the previous notices.
F. Determining average annual FTE
wages
In accordance with section 45R(e)(4),
these proposed regulations define wages,
for purposes of the credit, as wages defined under section 3121(a) for purposes of
FICA, determined without considering the
social security wage base limitation. To
calculate average annual FTE wages, an

September 16, 2013

employer must figure the total wages paid
during the taxable year to all employees,
divide the total wages paid by the number
of FTEs, and if the result is not a multiple of $1,000, round the result to the next
lowest multiple of $1,000. For example,
$30,699 is rounded down to $30,000. But
see special rules for seasonal employees
described in section I.C of this preamble.
These proposed rules are the same as those
in the previous notices.
II. Calculating the Credit
A. Maximum credit
Under section 45R and these proposed
regulations, for taxable years beginning
during or after 2014, the maximum credit
for an eligible small employer other than a
tax-exempt eligible small employer is 50
percent of the eligible small employer’s
premium payments made on behalf of its
employees under a qualifying arrangement
for QHPs offered through a SHOP Exchange. For a tax-exempt eligible small
employer for those years, the maximum
credit is 35 percent. The employer’s tax
credit is subject to several adjustments and
limitations as set forth in this preamble.
B. Average premium limitation
Under section 45R and these proposed
regulations, for purposes of calculating
the credit for taxable years beginning after
2013, the employer’s premium payments
are limited by the average premium in the
small group market in the rating area in
which the employee enrolls for coverage
through a SHOP Exchange. The credit
will be reduced by the excess of the credit
calculated using the employer’s premium
payments over the credit calculated using
the average premium. For example, if an
employer pays 50 percent of the $7,000
premium for family coverage for its employees ($3,500), but the average premium
for family coverage in the small group
market in the rating area in which the employees enroll is $6,000, for purposes of
calculating the credit the employer’s premium payments are limited to 50 percent
of $6,000 ($3,000).

C. Credit phaseout
Under section 45R and these proposed
regulations, the credit phases out for eligible small employers if the number of FTEs
exceeds 10, or if the average annual wages
for FTEs exceed $25,000 (as adjusted for
inflation for taxable years beginning after December 31, 2013). For an employer
with both more than 10 FTEs and average
annual FTE wages exceeding $25,000, the
credit will be reduced based on the sum
of the two reductions. This may reduce
the credit to zero for some employers with
fewer than 25 FTEs and average annual
FTE wages of less than double the $25,000
dollar amount (as adjusted for inflation).
D. State subsidy and tax credit limitation
Some States offer tax credits to a small
employer that provides health insurance to
its employees. Some of these credits are
refundable credits and others are nonrefundable credits. In addition, some States
offer premium subsidy programs for certain small employers under which the State
makes a payment equal to a portion of the
employees’ health insurance premiums.
Generally, the State pays this premium
subsidy either directly to the employer or
to the employer’s insurance company (or
another entity licensed under State law to
engage in the business of insurance).
Under these proposed regulations, and
consistent with previous notices, if the
employer is entitled to a State tax credit
or premium subsidy that is paid directly
to the employer, the amount of employer
premiums paid is not reduced for purposes of calculating the section 45R credit,
but the amount of the credit cannot exceed the net premiums paid, which are
the employer premiums paid minus the
amount of any State tax credits or premium
subsidies received. If a State makes premium payments directly to the insurance
company, the State is treated as making
these payments on behalf of the employer
for purposes of determining whether the
employer has satisfied the “qualifying arrangement” requirement to pay an amount
equal to a uniform percentage (not less
than 50 percent) of the premium cost of
coverage. Also, these premium payments
by the State are treated as an employer

contribution under section 45R for purposes of calculating the credit, but the
amount of the credit cannot exceed the
premiums actually paid by the employer.
Finally, if a State-administered program,
such as Medicaid, makes payments on
behalf of individuals and their families
who meet certain eligibility requirements,
these payments do not reduce the amount
of employer premiums paid for purposes
of calculating the credit.
E. Payroll tax limitation for tax-exempt
employers
Section 45R and these proposed regulations define the term “payroll taxes” as
(1) amounts required to be withheld under section 34021 and (2) the employee’s
and employer’s shares of Medicare tax required to be withheld and paid under sections 3101(b) and 3111(b) on employees’
wages for the year. For a tax-exempt eligible small employer, the amount of the
credit cannot exceed the amount of the
payroll taxes of the employer during the
calendar year in which the taxable year begins.
F. Two-consecutive-taxable year credit
period limitation
These proposed regulations provide
that the first year for which an eligible
small employer files Form 8941, Credit
for Small Employer Health Insurance Premiums, claiming the credit, or files Form
990–T, Exempt Organization Business Income Tax Return, with an attached Form
8941, is the first year of the two-consecutive-taxable year credit period. Even
if the employer is only eligible to claim
the credit for part of the first year, the
filing of Form 8941 begins the first year
of the two-consecutive-taxable year credit
period. For application of the two-consecutive-taxable year credit period under the
transition relief related to taxable years
beginning in 2014, see §1.45R–3(i) of
these proposed regulations and section II.I
of the Explanation of Provisions section
of this preamble.
Section 45R(i) provides that regulations
shall be prescribed as necessary to prevent the avoidance of the two-year limit on
the credit period through the use of suc-

1

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

September 16, 2013

214

2013–38 I.R.B.

cessor entities and the avoidance of the
credit phaseout limitations through the use
of multiple entities. For purposes of identifying successor entities, these proposed
regulations generally apply the rules for
identifying successor employers applicable under the employment tax provisions
for determining when wages paid by a predecessor may be attributed to a successor employer (see §31.3121(a)(1)–1(b)).
Accordingly, under the proposed regulations, an entity that would be treated as
a successor employer for employment tax
purposes will also be treated as a successor employer for purposes of the two-consecutive-taxable year credit period under
section 45R. Therefore, if the predecessor employer had previously claimed the
credit under section 45R for a period, that
period will count towards the successor
employer’s two-consecutive-taxable year
credit period.
G. Premium payments by the employer
In general, only premiums paid by
the employer for employees enrolled in a
QHP offered through a SHOP Exchange
are counted when calculating the credit.2
If the employer pays a portion of the premiums and the employees pay the rest,
only the portion paid by the employer
is taken into account. For this purpose,
any premium paid through a salary reduction arrangement under a section 125
cafeteria plan is not treated as an employer-paid premium. Premiums paid with
employer-provided flex credits that employees may elect to receive as cash or as a
taxable benefit are treated as paid pursuant
to a salary reduction arrangement under
a section 125 cafeteria plan. See Notice
2012–40 (2012–26 I.R.B. 1046 (June 25,
2012)). The proposed regulations further
provide that amounts made available by
an employer under or contributed by an
employer to HRAs, FSAs and HSAs are
not taken into account for purposes of
determining premium payments by the
employer.
The proposed regulations provide that
if a minister is a common law employee
and is taken into account in an employer’s
FTEs, the premiums paid by the employer
for health insurance may be counted in calculating the credit.

A leased employee is defined in section 414(n)(2) as a person who is not an
employee of the service recipient and who
provides services to the service recipient
pursuant to an agreement with the leasing
organization. The person must have performed services for the service recipient on
a substantially full-time basis for a period
of at least one year under the primary direction and control of the service recipient.
Leased employees are counted in computing a service recipient’s FTEs and average
annual wages. See section 45R(e)(1)(B).
See section II.I of this preamble for special rules related to taxable years beginning in 2014.
H. Trusts, estates, regulated investment
companies, real estate investment trusts
and cooperative organizations
Section 45R(e)(5)(B) provides that
rules similar to the rules of section 52(c),
(d) and (e) will apply. Because section
45R(f) explicitly provides that a tax-exempt eligible small employer may be
eligible for the credit, these proposed regulations do not adopt a rule similar to
section 52(c). However, these proposed
regulations provide that rules similar to
the rules of section 52(d) and (e) and the
regulations thereunder apply in calculating
and apportioning the credit with respect to
trusts, estates, regulated investment companies, real estate investment trusts, and
cooperative organizations.
I. Transition rules
If an eligible small employer’s plan
year begins on a date other than the first
day of its taxable year, it may not be
practical or possible for the employer to
offer insurance to its employees through
a SHOP Exchange at the beginning of
its first taxable year beginning in 2014.
These proposed regulations provide that
if: (1) as of August 26, 2013, a small employer offers coverage in a plan year that
begins on a date other than the first day
of its taxable year, (2) the employer offers
coverage during the period before the first
day of the plan year beginning in 2014 that
would have qualified the employer for the
credit under the rules otherwise applicable
to the period before January 1, 2014, and

(3) the employer begins offering coverage
through a SHOP Exchange as of the first
day of its plan year that begins in 2014,
then it will be treated as offering coverage
through a SHOP Exchange for its entire
2014 taxable year for purposes of eligibility for, and calculation of, a credit under
section 45R. Thus, for an employer that
meets these requirements, the credit will
be calculated at the 50 percent rate (35
percent rate for tax-exempt eligible small
employers) for the entire 2014 taxable
year and the 2014 taxable year will be the
start of the two-consecutive-taxable year
credit period.
III. Application of Uniform Percentage
Requirement
A. Uniform premium
Section 45R and these proposed regulations require that to be eligible for the
credit, an eligible small employer must
generally pay a uniform percentage (not
less than 50 percent) of the premium for
each employee enrolled in a QHP offered
to its employees through a SHOP Exchange. These proposed regulations set
forth rules for applying this requirement
in separate situations depending upon (1)
whether the premium established for the
QHP is based upon list billing or is based
upon composite billing, (2) whether the
QHP offers only self-only coverage, or
other coverage (such as family coverage)
for which a higher premium is charged,
and (3) whether the employer offers one
QHP or more than one QHP. The uniform percentage rule applies only to the
employees offered coverage and does not
impose a coverage requirement.
B. Composite billing and list billing
These proposed regulations define the
term “composite billing” to mean a system of billing under which a health insurer charges a uniform premium for each
of the employer’s employees or charges
a single aggregate premium for the group
of covered employees that the employer
may then divide by the number of covered
employees to determine the uniform premium. In contrast, the term “list billing” is
defined as a billing system under which a
health insurer lists a separate premium for

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

2013–38 I.R.B.

215

September 16, 2013

each employee based on the age of the employee or other factors.
C. Employers offering one QHP
For an employer offering one QHP under a composite billing system with one
level of self-only coverage, these proposed
regulations provide that the uniform percentage requirement is met if an eligible
small employer pays the same amount for
each employee enrolled in coverage and
that amount is equal to at least 50 percent
of the premium for self-only coverage. For
employers offering one QHP under a composite billing system with different tiers of
coverage (for example, self-only, self plus
one, and family coverage) for which different premiums are charged, the uniform
percentage requirement is satisfied if the
eligible small employer either: (1) pays the
same amount for each employee enrolled
in that tier of coverage and that amount is
equal to at least 50 percent of the premium
for that tier of coverage, or (2) pays an
amount for each employee enrolled in the
more expensive tiers of coverage that is the
same for all employees and is no less than
the amount that the employer would have
contributed toward self-only coverage for
that employee (and is equal to at least 50
percent of the premium for self-only coverage).
For an employer offering one QHP
under a list billing system that offers only
self-only coverage, the uniform percentage requirement is satisfied if the eligible
small employer either: (1) pays an amount
equal to a uniform percentage (not less
than 50 percent) of the premium charged
for each employee, or (2) determines
an “employer-computed composite rate”
and, if any employee contribution is required, each enrolled employee pays a
uniform amount toward the self-only premium that is no more than 50 percent of
the employer-computed composite rate
for self-only coverage. The proposed
regulations define “employer-computed
composite rate” as the average rate determined by adding the premiums for that
tier of coverage for all employees eligible
to participate in the employer’s health insurance plan (whether or not the eligible
employee enrolls in coverage under the
plan or in that tier of coverage under the
3

plan) and dividing by the total number of
such eligible employees.
For eligible small employers offering
one QHP under list billing with different tiers of coverage for which different
premiums are charged, the uniform percentage requirement is satisfied if the
eligible small employer pays toward the
premium for each employee covered under
each tier of coverage an amount equal to or
exceeding the amount the employer would
have contributed with respect to that employee for self-only coverage, calculated
either based on the actual premium that
would have been charged by the insurer
for that employee for self-only coverage, or based on the employer-computed
composite rate for self-only coverage,
and the employer premium payments
within the same tier are uniform in percentage or amount. Alternatively, the
eligible small employer may satisfy the
uniform percentage requirement by meeting the uniform percentage requirement
separately for each tier of coverage and
substituting the employer-computed composite rate for that tier of coverage for the
employer-computed composite rate for
self-only coverage.
The proposed regulations provide examples of how the uniform percentage requirement is applied in all of these situations.
D. Employers offering more than one plan
As set forth in these proposed regulations, if an employer offers more than one
QHP through a SHOP Exchange, the uniform percentage requirement may be satisfied in one of two ways. The first is on
a plan-by-plan basis, meaning that the employer’s premium payments for each plan
must individually satisfy the uniform percentage requirement stated above. The
amounts or percentages of premiums paid
toward each QHP do not have to be the
same, but they must each satisfy the uniform percentage requirement if each QHP
is tested separately. The other permissible
method to satisfy the uniform percentage
requirement is through the reference plan
method. Under the reference plan method,
the employer designates one of its QHPs
as a reference plan. Then the employer either determines a level of employer con-

tributions for each employee such that, if
all eligible employees enrolled in the reference plan, the contributions would satisfy the uniform percentage requirement as
applied to that reference plan, or the employer allows each employee to apply the
minimum amount of employer contribution determined necessary to meet the uniform percentage requirement toward the
reference plan or toward coverage under
any other available QHP.
E. Employers complying with State law
The Treasury Department and the IRS
understand that at least one State requires
employers to contribute a certain percentage (50%) to an employee’s premium cost,
but also requires that the employee’s contribution not exceed a certain percentage
of monthly gross earnings so that, in some
instances, the employer’s required contribution for a particular employee may exceed 50 percent of the premium.3 To satisfy the uniform percentage requirement
under section 45R, that employer generally
would be required to increase the employer
contribution to all its employees’ premiums to match the increase for that one employee, which may be difficult especially
if the percentage increase is substantial.
Accordingly, for taxable years beginning
in 2014, an employer will be treated as
meeting the uniform percentage requirement if the failure to satisfy the uniform
percentage requirement is attributable to
additional employer contributions made to
certain employees solely to comply with
an applicable State or local law.
IV. Claiming the Credit
A. Form 8941, Credit for Small Employer
Health Insurance Premiums
For an eligible small employer that is
not a tax-exempt eligible small employer,
the credit is calculated on Form 8941,
Credit for Small Employer Health Insurance Premiums, and can be applied against
both regular and alternative minimum tax.
For tax-exempt eligible small employers,
the credit is also calculated on Form 8941
and attached to Form 990–T, Exempt Organization Business Income Tax Return.
Filing Form 990–T with an attached Form
8941 is required for a tax-exempt eligible

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

September 16, 2013

216

2013–38 I.R.B.

small employer to claim the credit, even
if it is not otherwise required to file Form
990–T.
B. Estimated tax payments and alternative
minimum tax (AMT) liability
These proposed regulations provide
that the section 45R credit may be reflected
in an eligible small employer’s estimated
tax payments in accordance with the estimated tax rules. The credit can also be
used to offset an eligible small employer’s
AMT liability for the year, subject to certain limitations based on the amount of
an employer’s regular tax liability, AMT
liability and other allowable credits. See
section 38(c)(1), as modified by section
38(c)(4)(B)(vi), for these limitations.
C. Reduced section 162 deduction
No deduction is allowed under section
162 for that portion of the premiums paid
equal to the amount of the credit claimed
under section 45R. See section 280C(h).
Proposed Effective/Applicability Dates
These regulations are proposed to be effective the date the final regulations are
published in the Federal Register, and apply to taxable years beginning after December 31, 2013. To assist with any preparation needed for transition to the requirements applicable to taxable years beginning after December 31, 2014, employers may also rely on these proposed regulations for guidance for taxable years beginning after December 31, 2013, and before December 31, 2014. If and to the
extent future guidance is more restrictive
than the guidance in these proposed regulations, the future guidance will be applied
without retroactive effect and employers
will be provided with time to come into
compliance with the final regulations (and
will in any case not be required to comply
for taxable years beginning prior to January 1, 2015).
Availability of IRS Documents
IRS notices cited in this preamble are
made available by the Superintendent of
Documents, U.S. Government Printing Office, Washington, DC 20402.

2013–38 I.R.B.

Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory
assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.
It is hereby certified that this regulation
will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility
analysis is not required. While the number of small entities affected is substantial,
the economic impact on the affected small
entities is not significant. The information
required to determine a small employer’s
eligibility for, and amount of, an applicable credit, generally consisting of the annual hours worked by its employees, the
annual wages paid to its employees, the
cost of the employees’ premiums for qualified health plans and the employer’s contribution towards those premiums, is information that the small employer generally will retain for business purposes and
be readily available to accumulate for purposes of completing the necessary form
for claiming the credit. In addition, this
credit is available to any eligible small employer only twice (because the credit can
be claimed by a small employer only for
two consecutive taxable years beginning
after December 31, 2013, beginning with
the taxable year for which the small employer first claims the credit). Accordingly, no small employer will calculate the
credit amount or complete the process for
claiming the credit under this regulation
more than two times.
Based on these facts, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Code,
this notice of proposed rulemaking has
been submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact on small
business.

217

Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
timely submitted to the IRS as prescribed
in this preamble under the “Addresses”
heading. The IRS and the Treasury Department request comments on all aspects
of the proposed rules. All comments will
be available at www.regulations.gov or
upon request. A public hearing will be
scheduled if requested in writing by any
person that timely submits written or electronic comments. If a public hearing is
scheduled, notice of the date, time, and
place for the hearing will be published in
the Federal Register.
Drafting Information
The principal author of these proposed
regulations is Stephanie Caden, Office
of the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel from
the IRS and the Treasury Department participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART I—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.45R–0 is added to
read as follows:
§1.45R–0 Table of contents
This section lists the table of contents
for §§1.45R–1 through 1.45R–5.
§1.45R–1 Definitions
(a) Definitions.
(1) Average premium.
(2) Composite billing.
(3) Credit period.
(4) Eligible small employer.
(5) Employee.
(6) Employer-computed composite
rate.

September 16, 2013

(7) Exchange.
(8) Family member.
(9) Full-time equivalent employee
(FTE).
(10) List billing.
(11) Net premium payments.
(12) Nonelective contribution.
(13) Payroll taxes.
(14) Qualified health plan (QHP).
(15) Qualifying arrangement.
(16) Seasonal worker.
(17) Small Business Health Options
Program (SHOP).
(18) State.
(19) Tax-exempt eligible small employer.
(20) Tier.
(21) United States.
(22) Wages.
(b) Effective/applicability date.
§1.45R–2 Eligibility for the credit.
(a) Eligible small employer.
(b) Application of section 414 employer
aggregation rules.
(c) Employees taken into account.
(d) Determining the hours of service
performed by employees.
(1) In general.
(2) Permissible methods.
(3) Examples.
(e) FTE calculation.
(1) In general.
(2) Example.
(f) Determining the employer’s average
annual wages.
(1) In general.
(2) Example.
(g) Effective/applicability date.
§1.45R–3 Calculating the credit.
(a) In general.
(b) Average premium limitation.
(1) In general.
(2) Examples.
(c) Credit phaseout.
(1) In general.
(2) $25,000 dollar amount adjusted for
inflation.
(3) Examples
(d) State credits and subsidies for health
insurance.
(1) Payments to employer.
(2) Payments to issuer.
(3) Credits may not exceed net premium
payment.

September 16, 2013

(4) Examples.
(e) Payroll tax limitation for tax-exempt
eligible small employers.
(1) In general.
(2) Example.
(f) Two-consecutive-taxable year credit
period limitation.
(g) Premium payments by the employer
for a taxable year.
(1) In general.
(2) Excluded amounts.
(h) Rules applicable to trusts, estates,
regulated investment companies, real estate investment trusts and cooperative organizations.
(i) Transition rule for 2014.
(1) In general.
(2) Example.
(j) Effective/applicability date.
§1.45R–4 Uniform percentage of premium
paid.
(a) In general.
(b) Employers offering one QHP.
(1) Employers offering one QHP, selfonly coverage, composite billing.
(2) Employers offering one QHP, other
tiers of coverage, composite billing.
(3) Employers offering one QHP, selfonly coverage, list billing.
(4) Employers offering one QHP, other
tiers of coverage, list billing.
(c) Employers offering more than one
QHP.
(1) QHP-by-QHP method.
(2) Reference QHP method.
(d) Special rules regarding employer
compliance with applicable State and local
law.
(e) Examples.
(f) Effective/applicability date.
§1.45R–5 Claiming the credit.
(a) Claiming the credit.
(b) Estimated tax payments and alternative minimum tax (AMT) liability.
(c) Reduction of section 162 deduction.
(d) Effective/applicability date.
Par. 2 Sections 1.45R–1, 1.45R–2,
1.45R–3, 1.45R–4 and 1.45R–5 are added
to read as follows:
§1.45R–1 Definitions.
(a) Definitions. The definitions in
this section apply to this section and

218

§§1.45R–2, 1.45R–3, 1.45R–4, and
1.45R–5.
(1) Average premium. The term average premium means an average premium
for the small group market in the rating
area in which the employee enrolls for coverage. The average premium for the small
group market in a rating area is determined
by the Secretary of Health and Human Services.
(2) Composite billing. The term composite billing means a system of billing under which a health insurer charges a uniform premium for each of the employer’s
employees or charges a single aggregate
premium for the group of covered employees that the employer then divides by the
number of covered employees to determine the uniform premium.
(3) Credit period—(i) In general. The
term credit period means, with respect
to any eligible small employer (or any
predecessor employer), the two-consecutive-taxable year period beginning with
the first taxable year beginning after December 31, 2013, for which the eligible
small employer files an income tax return
with an attached Form 8941, Credit for
Small Employer Health Insurance Premiums (or files a Form 990–T, Exempt
Organization Business Income Tax Return,
with an attached Form 8941 in the case
of a tax-exempt eligible employer). For a
transition rule for 2014, see §1.45R–3(i).
(ii) Examples. The following examples illustrate the provisions of paragraph
(a)(3)(i) of this section:
Example 1. (i) Facts. In 2014, an eligible small
employer (Employer) that uses a calendar year as
its taxable year begins to offer insurance through a
SHOP Exchange. Employer has 4 employees and
otherwise qualifies for the credit, but none of the
employees enroll in the coverage offered by Employer through the SHOP Exchange. In mid–2015,
the 4 employees enroll for coverage through the
SHOP Exchange but Employer does not file Form
8941 or claim the credit. In 2016, Employer has 20
employees and all are enrolled in coverage offered
through the SHOP Exchange. Employer files Form
8941 with Employer’s 2016 tax return to claim the
credit.
(ii) Conclusion. Employer’s taxable year 2016
is the first year of the credit period. Accordingly,
Employer’s two-year credit period is 2016 and 2017.
Example 2. (i) Facts. Same facts as Example 1,
but Employer files Form 8941 with Employer’s 2015
tax return.
(ii) Conclusion. Employer’s taxable year 2015
is the first year of the credit period. Accordingly,
Employer’s two-year credit period is 2015 and 2016
(and does not include 2017). Employer is entitled to

2013–38 I.R.B.

a credit based on a partial year of SHOP Exchange
coverage for Employer’s taxable year 2015.

(4) Eligible small employer. (i) The
term eligible small employer means an
employer that meets the requirements set
forth in §1.45R–2.
(ii) For the definition of tax-exempt
eligible small employer, see paragraph
(a)(19) of this section.
(iii) A farmers’ cooperative described
under section 521 that is subject to tax pursuant to section 1381, and otherwise meets
the requirements of this paragraph (a)(4)
and §1.45R–2, is an eligible small employer.
(5) Employee—(i) In general. Except
as otherwise specifically provided in this
paragraph (a)(5), the term employee means
an individual who is an employee of the
eligible small employer under the common
law standard. See §31.3121(d)–1(c).
(ii) Leased employees. For purposes of
this paragraph (a)(5), the term employee
also includes a leased employee (as defined in section 414(n)).
(iii) Certain individuals excluded. The
term employee does not include independent contractors (including sole proprietors), partners in a partnership, shareholders owning more than two percent
of an S corporation, and any owners of
more than five percent of other businesses.
The term employee also does not include
family members of these owners and partners including the employee-spouse of a
shareholder owning more than two percent of the stock of an S corporation, the
employee-spouse of an owner of more
than five percent of a business, the employee-spouse of a partner owning more
than a five percent interest in a partnership, and the employee-spouse of a sole
proprietor.
(iv) Seasonal employees. The term employee does not include seasonal workers
unless the seasonal worker provides services to the employer on more than 120
days during the taxable year.
(v) Dependents. The term employee
does not include any other member of the
household of owners and partners who
qualifies as a dependent under section
152(d)(2)(H).
(vi) Ministers. Whether a minister is
an employee is determined under the common law standard for determining worker
status. If, under the common law standard, a minister is not an employee, the

2013–38 I.R.B.

minister is not an employee for purposes
of this paragraph (a)(5) and is not taken
into account in determining an employer’s
FTEs, and premiums paid for the minister’s health insurance coverage are not
taken into account in computing the credit.
If, under the common law standard, a minister is an employee, the minister is an
employee for purposes of this paragraph
(a)(5), and is taken into account in determining an employer’s FTEs, and premiums paid by the employer for the minister’s health insurance coverage can be
taken into account in computing the credit.
Because the performance of services by a
minister in the exercise of his or her ministry is not treated as employment for purposes of the Federal Insurance Contributions Act (FICA), compensation paid to the
minister is not wages as defined under section 3121(a), and is not counted as wages
for purposes of computing an employer’s
average annual wages.
(6) Employer-computed composite
rate. The term employer-computed composite rate refers to a rate for a tier of
coverage (such as self-only or family)
of a QHP that is the average rate determined by adding the premiums for that
tier of coverage for all employees eligible to participate in the QHP (whether or
not they actually receive coverage under
the plan or under that tier of coverage)
and dividing by the total number of such
eligible employees. The employer-computed composite rate is used in list billing
to convert individual premiums for a tier
of coverage into an employer-computed
composite rate for that tier of coverage.
(7) Exchange. The term Exchange
means an exchange as defined in 45 CFR
155.20.
(8) Family member. The term family member is defined with respect to a
taxpayer as a child (or descendant of a
child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law
or sister-in-law. A spouse of any of these
family members is also considered a family member.
(9) Full-time equivalent employee
(FTE). The number of full-time equivalent employees (FTEs) is determined by
dividing the total number of hours of service for which wages were paid by the

219

employer to employees during the taxable
year by 2,080. See §1.45–2(d) and (e) for
permissible methods of calculating hours
of service and the method for calculating
the number of an employer’s FTEs.
(10) List billing. The term list billing
refers to a system of billing under which
a health insurer lists a separate premium
for each employee based on the age of the
employee or other factors.
(11) Net premium payments. The term
net premium payments means, in the case
of an employer receiving a State tax credit
or State subsidy for providing health insurance to its employees, the excess of
the employer’s actual premium payments
over the State tax credit or State subsidy
received by the employer. In the case
of a State payment directly to an insurance company (or another entity licensed
under State law to engage in the business of insurance), the employer’s net premium payments are the employer’s actual
premium payments. If a State-administered program (such as Medicaid or another program that makes payments directly to a health care provider or insurance company on behalf of individuals and
their families who meet certain eligibility
guidelines) makes payments that are not
contingent on the maintenance of an employer-provided group health plan, those
payments are not taken into account in
determining the employer’s net premium
payments.
(12) Nonelective contribution. The
term nonelective contribution means an
employer contribution other than a contribution pursuant to a salary reduction
arrangement under section 125.
(13) Payroll taxes. For purposes of
section 45R, the term payroll taxes means
amounts required to be withheld as tax
from the employees of a tax-exempt eligible small employer under section 3402,
amounts required to be withheld from such
employees under section 3101(b), and
amounts of tax imposed on the tax-exempt
eligible small employer under section
3111(b).
(14) Qualified health plan (QHP). The
term qualified health plan (QHP) means
a qualified health plan as defined in Affordable Care Act section 1301(a) (see 42
U.S.C. 18021(a)), but does not include a
catastrophic plan described in Affordable
Care Act section 1302(e) (See 42 U.S.C.
18022(e)).

September 16, 2013

(15) Qualifying arrangement. The term
qualifying arrangement means an arrangement that requires an eligible small employer to make a nonelective contribution
on behalf of each employee who enrolls in
a QHP offered to employees by the employer through a SHOP Exchange in an
amount equal to a uniform percentage (not
less than 50 percent) of the premium cost
of the QHP.
(16) Seasonal worker. The term seasonal worker means a worker who performs labor or services on a seasonal basis
as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1), and retail
workers employed exclusively during holiday seasons.
(17) Small Business Health Options
Program (SHOP). The term Small Business Health Options Program (SHOP)
means an Exchange established pursuant
to section 1311 of the Affordable Care Act
and defined in 45 CFR 155.20.
(18) State. The term State means a State
as defined in section 7701(a)(10), including the District of Columbia.
(19) Tax-exempt eligible small employer. The term tax-exempt eligible small
employer means an eligible small employer that is exempt from federal income
tax under section 501(a) as an organization
described in section 501(c).
(20) Tier. The term tier refers to a category of coverage under a benefits package that varies only by the number of individuals covered. For example, self-only
coverage, self plus one coverage, and family coverage would constitute three separate tiers of coverage.
(21) United States. The term United
States means United States as defined in
section 7701(a)(9).
(22) Wages. The term wages for purposes of section 45R means wages as defined under section 3121(a) for purposes
of the Federal Insurance Contributions Act
(FICA), determined without regard to the
social security wage base limitation under
section 3121(a)(1).
(b) Effective/applicability date. This
section is applicable for periods after December 31, 2013.
§1.45R–2 Eligibility for the credit.
(a) Eligible small employer. To be eligible for the credit, an employer must be

September 16, 2013

an eligible small employer. In order to be
an eligible small employer, with respect to
any taxable year, an employer must have
no more than 25 full-time equivalent employees (FTEs), must have in effect a qualifying arrangement, and the average annual wages of its FTEs must not exceed an
amount equal to twice the dollar amount
in effect under §1.45R–3(c)(2). To claim
the credit for taxable years beginning in or
after 2014, the qualifying arrangement is
an arrangement that requires an employer
to make a nonelective contribution on behalf of each employee who enrolls in a
qualified health plan (QHP) offered to employees through a small business health
options program (SHOP) Exchange in an
amount equal to a uniform percentage (not
less than 50 percent) of the premium cost
of the QHP. Notwithstanding the foregoing, an employer that is an agency or instrumentality of the federal government, or
of a State, local or Indian tribal government, is not an eligible small employer unless it is an organization described in section 501(c) that is exempt from tax under
section 501(a). An employer does not fail
to be an eligible small employer merely
because its employees are not performing
services in a trade or business of the employer. An employer located outside the
United States (including a U.S. Territory)
must have income effectively connected
with the conduct of a trade or business in
the United States, and otherwise meet the
requirements of this section, to be an eligible small employer. For eligibility standards for SHOP related to foreign employers, see 45 CFR 155.710. Paragraphs (b)
through (f) of this section provide the rules
for determining whether the requirements
to be an eligible small employer are met,
including rules related to identifying and
counting the employer’s number of the employer’s FTEs, counting the employees’
hours of service, and determining the employer’s average annual FTE wages for the
taxable year. For rules on determining
whether the uniform percentage requirement is met, see §1.45R–4.
(b) Application of section 414 employer
aggregation rules. All employers treated
as a single employer under section 414(b),
(c), (m) or (o) are treated as a single employer for purposes of this section. Thus,
all employees of a controlled group under
section 414(b), (c) or (o), or an affiliated
service group under section 414(m), are

220

taken into account in determining whether
any member of the controlled group or affiliated service group is an eligible small
employer. Similarly, all wages paid to,
and premiums paid for, employees by the
members of the controlled group or affiliated service group are taken into account
when determining the amount of the credit
for a group treated as a single employer under these rules.
(c) Employees taken into account.
To be eligible for the credit, an employer must have employees as defined in
§1.45R–1(a)(5) during the taxable year.
All employees of the eligible small employer are taken into account for purposes
of determining the employer’s FTEs and
average annual FTE wages. Employees
include former employees who terminated
employment during the year for which
the credit is being claimed, employees
covered under a collective bargaining
agreement, and employees who do not
enroll in a QHP offered by the employer
through a SHOP Exchange.
(d) Determining the hours of service
performed by employees—(1) In general.
An employee’s hours of service for a year
include each hour for which an employee
is paid, or entitled to payment, for the performance of duties for the employer during the employer’s taxable year. It also includes each hour for which an employee
is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed due to
vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence (except that
no more than 160 hours of service are required to be counted for an employee on
account of any single continuous period
during which the employee performs no
duties).
(2) Permissible methods. In calculating the total number of hours of service
that must be taken into account for an
employee during the taxable year, eligible small employers need not use the same
method for all employees, and may apply
different methods for different classifications of employees if the classifications are
reasonable and consistently applied. Eligible small employers may change the
method for calculating employees’ hours
of service for each taxable year. An eligible small employer may use any of the
following three methods.

2013–38 I.R.B.

(i) Actual hours worked. An employer may use the actual hours of service
provided by employees including hours
worked and any other hours for which
payment is made or due (as described in
paragraph (d)(1) of this section).
(ii) Days-worked equivalency.
An
employer may use a days-worked equivalency whereby the employee is credited
with 8 hours of service for each day for
which the employee would be required to
be credited with at least one hour of service under paragraph (d)(1) of this section.
(iii) Weeks-worked equivalency. An
employer may use a weeks-worked equivalency whereby the employee is credited
with 40 hours of service for each week for
which the employee would be required to
be credited with at least one hour of service under paragraph (d)(1) of this section.
(3) Examples. The following examples
illustrate the rules of paragraph (d) of this
section:
Example 1. Counting hours of service by hours
actually worked or for which payment is made or due.
(i) Facts. An eligible small employer (Employer) has
payroll records that indicate that Employee A worked
2,000 hours and that Employer paid Employee A
for an additional 80 hours on account of vacation,
holiday and illness. Employer uses the actual hours
worked method described in paragraph (d)(2)(i) of
this section.
(ii) Conclusion. Under this method of counting
hours, Employee A must be credited with 2,080
hours of service (2,000 hours worked and 80 hours
for which payment was made or due).
Example 2. Counting hours of service under
days-worked equivalency. (i) Facts. Employee B
worked from 8 a.m. to 12 p.m. every day for 200
days. Employer uses the days-worked equivalency
method described in paragraph (d)(2)(ii) of this section.
(ii) Conclusion. Under this method of counting
hours, Employee B must be credited with 1,600 hours
of service (8 hours for each day Employee B would
otherwise be credited with at least 1 hour of service x
200 days).
Example 3. Counting hours of service under
weeks-worked equivalency. (i) Facts. Employee C
worked 49 weeks, took 2 weeks of vacation with pay,
and took 1 week of leave without pay. Employer uses
the weeks-worked equivalency method described in
paragraph (d)(2)(iii) of this section.
(ii) Conclusion. Under this method of counting
hours, Employee C must be credited with 2,040 hours
of service (40 hours for each week during which Employee C would otherwise be credited with at least 1
hour of service x 51 weeks).
Example 4. Excluded employees. (i) Facts. Employee D worked 3 consecutive weeks at 32 hours per
week during the holiday season. Employee D did not
work during the remainder of the year. Employee E
worked limited hours after school from time to time
through the year for a total of 350 hours. Employee
E does not work through the summer. Employer uses

2013–38 I.R.B.

the actual hours worked method described in paragraph (d)(2)(i) of this section.
(ii) Conclusion. Employee D is a seasonal employee who worked for 120 days or less for Employer
during the year. Employee D’s hours are not counted
when determining the hours of service of Employer’s
employees. Employee E works throughout most of
the year and is not a seasonal employee. Employer
counts Employee E’s 350 hours of service during the
year.

(e) FTE Calculation—(1) In general.
The number of an employer’s FTEs is determined by dividing the total hours of service, determined in accordance with paragraph (d) of this section, credited during
the year to employees taken into account
under paragraph (c) of this section (but not
more than 2,080 hours for any employee)
by 2,080. The result, if not a whole number, is then rounded to the next lowest
whole number. If, however, after dividing the total hours of service by 2,080, the
resulting number is less than one, the employer rounds up to one FTE.
(2) Example. The following example
illustrates the provisions of paragraph (e)
of this section:
Example. Determining the number of FTEs. (i)
Facts. A sole proprietor pays 5 employees wages for
2,080 hours each, pays 3 employees wages for 1,040
hours each, and pays 1 employee wages for 2,300
hours. One of the employees working 2,080 hours
is the sole proprietor’s nephew. The sole proprietor’s
FTEs would be calculated as follows: 8,320 hours of
service for the 4 employees paid for 2,080 hours each
(4 x 2,080); the sole proprietor’s nephew is excluded
from the FTE calculation; 3,120 hours of service for
the 3 employees paid for 1,040 hours each (3 x 1,040);
and 2,080 hours of service for the 1 employee paid for
2,300 hours (lesser of 2,300 and 2,080). The sum of
the included hours of service equals 13,520 hours of
service.
(ii) Conclusion. The sole proprietor’s FTEs equal
6 (13,520 divided by 2,080 = 6.5, rounded to the next
lowest whole number).

(f) Determining the employer’s average annual FTE wages—(1) In general.
All wages paid to employees (including
overtime pay) are taken into account in
computing an eligible small employer’s
average annual FTE wages. The average annual wages paid by an employer for
a taxable year is determined by dividing
the total wages paid by the eligible small
employer during the employer’s taxable
year to employees taken into account under paragraph (c) of this section by the
number of the employer’s FTEs for the
year. The result is then rounded down to
the nearest $1,000 (if not otherwise a multiple of $1,000). For purposes of determining the employer’s average annual wages

221

for the taxable year, only wages that are
paid for hours of service determined under
paragraph (d) of this section are taken into
account.
(2) Example. The following example
illustrates the provision of paragraphs (e)
and (f) of this section:
Example. (i) Facts. An employer has 26 FTEs
with average annual wages of $23,000. Only 22 of
the employer’s employees enroll for coverage offered
by the employer through a SHOP Exchange.
(ii) Conclusion. The hours of service and wages
of all employees are taken into consideration in determining whether the employer is an eligible small
employer for purposes of the credit. Because the employer does not have fewer than 25 FTEs for the taxable year, the employer is not an eligible small employer for purposes of this section, even if less than
25 employees (or FTEs) enroll for coverage through
the SHOP Exchange.

(g) Effective/applicability date. This
section is applicable for periods after December 31, 2013.
§1.45R–3 Calculating the credit.
(a) In general. The tax credit available
to an eligible small employer equals 50
percent of the eligible small employer’s
premium payments made on behalf of its
employees under a qualifying arrangement, or in the case of a tax-exempt eligible small employer, equals 35 percent of
the employer’s premium payments made
on behalf of its employees under a qualifying arrangement. The employer’s tax
credit is subject to the following adjustments and limitations:
(1) The average premium limitation for
the small group market in the rating area in
which the employee enrolls for coverage,
described in paragraph (b) of this section;
(2) The credit phaseout described in
paragraph (c) of this section;
(3) The net premium payment limitation in the case of State credits or subsidies
described in paragraph (d) of this section;
(4) The payroll tax limitation for a taxexempt eligible small employer described
in paragraph (e) of this section;
(5) The two-consecutive-taxable year
credit period limitation, described in paragraph (f) of this section;
(6) The rules with respect to the premium payments taken into account, described in paragraph (g) of this section;
(7) The rules with respect to credits
applicable to trusts, estates, regulated
investment companies, real estate invest-

September 16, 2013

ment trusts and cooperatives described in
paragraph (h) of this section; and
(8) The transition relief for 2014 described in paragraph (i) of this section.
(b) Average premium limitation—(1)
In general. The amount of an eligible
small employer’s premium payments that
are taken into account in calculating the
credit is limited to the premium payments
the employer would have made under the
same arrangement if the average premium
for the small group market in the rating
area in which the employee enrolls for
coverage were substituted for the actual
premium.
(2) Examples. The following examples illustrate the provisions of paragraph
(b)(1) of this section:
Example 1. Comparing premium payments to average premium for small group market. (i) Facts. An
eligible small employer (Employer) offers a health
insurance plan with self-only and family coverage
through a small business options program (SHOP)
Exchange. Employer has 9 full-time equivalent
employees (FTEs) with average annual wages of
$23,000 per FTE. All 9 employees are employees as
defined under §1.45R–1(a)(5). Four employees are
enrolled in self-only coverage and 5 are enrolled in
family coverage. Employer pays 50% of the premiums for all employees enrolled in self-only coverage
and 50% of the premiums for all employees enrolled
in family coverage (and the employee is responsible
for the remainder in each case). The premiums are
$4,000 a year for self-only coverage and $10,000 a
year for family coverage. The average premium for
the small group market in Employer’s rating area is
$5,000 for self-only coverage and $12,000 for family
coverage. Employer’s premium payments for each
FTE ($2,000 for self-only coverage and $5,000 for
family coverage) do not exceed 50 percent of the
average premium for the small group market in Employer’s rating area ($2,500 for self-only coverage
and $6,000 for family coverage).
(ii) Conclusion. The amount of premiums paid by
Employer for purposes of computing the credit equals
$33,000 ((4 x $2,000) plus (5 x $5,000)).
Example 2. Premium payments exceeding average premium for small group market. (i) Facts. Same
facts as Example 1, except that the premiums are
$6,000 for self-only coverage and $14,000 for family
coverage. Employer’s premium payments for each
employee ($3,000 for self-only coverage and $7,000
for family coverage) exceed 50% of the average premium for the small group market in Employer’s rating area ($2,500 for self-only coverage and $6,000
for family coverage).
(ii) Conclusion. The amount of premiums paid by
Employer for purposes of computing the credit equals
$40,000 ((4 x $2,500) plus (5 x $6,000)).

(c) Credit phaseout—(1) In general.
The tax credit is subject to a reduction (but
not reduced below zero) if the employer’s
FTEs exceed 10 or average annual FTE
wages exceed $25,000. If the number

September 16, 2013

of FTEs exceeds 10, the reduction is determined by multiplying the otherwise
applicable credit amount by a fraction,
the numerator of which is the number of
FTEs in excess of 10 and the denominator
of which is 15. If average annual FTE
wages exceed $25,000, the reduction is
determined by multiplying the otherwise
applicable credit amount by a fraction,
the numerator of which is the amount by
which average annual FTE wages exceed
$25,000 and the denominator of which is
$25,000. In both cases, the result of the
calculation is subtracted from the otherwise applicable credit to determine the
credit to which the employer is entitled.
For an employer with both more than 10
FTEs and average annual FTE wages exceeding $25,000, the total reduction is the
sum of the two reductions.
(2) $25,000 dollar amount adjusted for
inflation. For taxable years beginning in a
calendar year after 2013, each reference to
“$25,000” in paragraph (c)(1) of this section is replaced with a dollar amount equal
to $25,000 multiplied by the cost-of-living adjustment under section 1(f)(3) for the
calendar year, determined by substituting
“calendar year 2012” for “calendar year
1992” in section 1(f)(3)(B).
(3) Examples. The following examples
illustrate the provisions of paragraph (c)
this section. For purposes of these examples, no employer is a tax-exempt organization and no other adjustments or limitations on the credit apply other than those
adjustments and limitations explicitly set
forth in the example.
Example 1. Calculating the maximum credit for
an eligible small employer without an applicable
credit phaseout. (i) Facts. An eligible small employer (Employer) has 9 FTEs with average annual
wages of $23,000. Employer pays $72,000 in health
insurance premiums for those employees (which
does not exceed the total average premium for the
small group market in the rating area), and otherwise
meets the requirements for the credit.
Employer’s credit equals
(ii) Conclusion.
$36,000 (50% x $72,000).
Example 2. Calculating the credit phaseout if the
number of FTEs exceeds 10 or average annual wages
exceed $25,000, as adjusted for inflation. (i) Facts.
An eligible small employer (Employer) has 12 FTEs
and average annual FTE wages of $30,000 in a year
when the amount in paragraph (c)(1) of this section,
as adjusted for inflation, is $25,000. Employer pays
$96,000 in health insurance premiums for its employees (which does not exceed the average premium for
the small group market in the rating area) and otherwise meets the requirements for the credit.
(ii) Conclusion. The initial amount of the credit is
determined before any reduction (50% x $96,000) =

222

$48,000. The credit reduction for FTEs in excess of
10 is $6,400 ($48,000 x 2/15). The credit reduction
for average annual FTE wages in excess of $25,000
is $9,600 ($48,000 x $5,000/$25,000), resulting in a
total credit reduction of $16,000 ($6,400 + $9,600).
Employer’s total tax credit equals $32,000 ($48,000
- $16,000).

(d) State credits and subsidies for
health insurance—(1) Payments to employer. If the employer is entitled to a
State tax credit or a premium subsidy that
is paid directly to the employer, the premium payment made by the employer is
not reduced by the credit or subsidy for
purposes of determining whether the employer has satisfied the requirement to pay
an amount equal to a uniform percentage
(not less than 50 percent) of the premium
cost. Also, except as described in paragraph (d)(3) of this section, the maximum
amount of the credit is not reduced by
reason of a State tax credit or subsidy or
by reason of payments by a State directly
to an employer.
(2) Payments to issuer. If a State makes
payments directly to an insurance company (or another entity licensed under
State law to engage in the business of insurance) to pay a portion of the premium
for coverage of an employee enrolled for
coverage through a SHOP Exchange, the
State is treated as making these payments
on behalf of the employer for purposes
of determining whether the employer has
satisfied the requirement to pay an amount
equal to a uniform percentage (not less
than 50 percent) of the premium cost of
coverage. Also, except as described below in paragraph (d)(3) of this section,
these premium payments by the State are
treated as an employer contribution under
this section for purposes of calculating the
credit.
(3) Credits may not exceed net premium
payment. Regardless of the application
of paragraphs (d)(1) and (d)(2) of this
section, in no event may the amount of
the credit exceed the amount of the employer’s net premium payments as defined
in §1.45R–1(a)(11).
(4) Examples. The following examples illustrate the provisions of paragraphs
(d)(1) through (d)(3) of this section. For
purposes of these examples, the eligible
small employer’s taxable year and plan
year begin during or after 2014. No other
adjustments or limitations on the credit apply other than those adjustments and limitations explicitly set forth in the example.

2013–38 I.R.B.

Example 1. State premium subsidy paid directly
to employer. (i) Facts. The State in which an eligible small employer (Employer) operates provides a
health insurance premium subsidy of up to 40% of
the health insurance premiums for each eligible employee. The State pays the subsidy directly to Employer. Employer has one employee, Employee D.
Employee D’s health insurance premiums are $100
per month and are paid as follows: $80 by Employer
and $20 by Employee D through salary reductions to
a cafeteria plan. The State pays Employer $40 per
month as a subsidy for Employer’s payment of insurance premiums on behalf of Employee D. Employer
is otherwise an eligible small employer that meets the
requirements for the credit.
(ii) Conclusion. For purposes of calculating the
credit, the amount of premiums paid by the employer
is $80 per month (the premium payment by the Employer without regard to the subsidy from the State).
The maximum credit is $40 ($80 x 50%).
Example 2. State premium subsidy paid directly
to insurance company. (i) Facts. The State in which
Employer operates provides a health insurance premium subsidy of up to 30% for each eligible employee. Employer has one employee, Employee E.
Employee E is enrolled in self-only coverage through
a qualified health plan (QHP) offered by Employer
through a SHOP Exchange. Employee E’s health insurance premiums are $100 per month and are paid as
follows: $50 by Employer; $30 by the State and $20
by the employee. The State pays the $30 per month
directly to the insurance company and the insurance
company bills Employer for the employer and employee’s share, which equal $70 per month. Employer is otherwise an eligible small employer that
meets the requirements for the credit.
(ii) Conclusion. For purposes of calculating the
amount of the credit, the amount of premiums paid by
Employer is $80 per month (the sum of Employer’s
payment and the State’s payment). The maximum
credit is $40 ($80 x 50%).
Example 3. Credit limited by employer’s net premium payment. (i) Facts. Employer is an eligible
small employer that is not a tax-exempt organization. The State in which Employer operates provides
a health insurance premium subsidy of up to 50% for
each eligible employee. Employer has one employee,
Employee F. Employee F is enrolled in self-only coverage under the QHP offered to Employee F by Employer through a SHOP Exchange. Employee F’s
health insurance premiums are $100 per month and
are paid as follows: $20 by Employer; $50 by the
State and $30 by Employee F. The State pays the $50
per month directly to the insurance company and the
insurance company bills Employer for the employer’s
and employee’s shares, which total $50 per month.
Employer is otherwise an eligible small employer that
meets the requirements for the credit. The amount of
premiums paid by Employer (the sum of Employer’s
payment and the State’s payment) is $70 per month,
which is more than 50% of the $100 monthly premium payment. The amount of the premium for calculating the credit is also $70 per month.
(ii) Conclusion. The maximum credit without adjustments or limitations is $35 ($70 x 50%). Employer’s net premium payment is $20 (the amount actually paid by Employer excluding the State subsidy).
Because the credit may not exceed Employer’s net

2013–38 I.R.B.

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

(e) Payroll tax limitation for tax-exempt
eligible small employers—(1) In general.
For a tax-exempt eligible employer, the
amount of the credit claimed cannot exceed the total amount of payroll taxes (as
defined in §1.45R–1(a)(13)) of the employer during the calendar year in which
the taxable year begins.
(2) Example. The following example illustrates the provisions of paragraph (e)(1)
of this section. For purposes of this example, the eligible small employer’s taxable
year and plan year begin during or after
2014. No other adjustments or limitations
on the credit apply other than those adjustments and limitations explicitly set forth in
the example.
Example. Calculating the maximum credit for a
tax-exempt eligible small employer. (i) Facts. Employer is a tax-exempt eligible small employer that
has 10 FTEs with average annual wages of $21,000.
Employer pays $80,000 in health insurance premiums
for its employees (which does not exceed the average premium for the small group market in the rating
area) and otherwise meets the requirements for the
credit. The total amount of Employer’s payroll taxes
equals $30,000.
(ii) Conclusion. The initial amount of the credit is
determined before any reduction: (35% x $80,000) =
$28,000, and Employer’s payroll taxes are $30,000.
The total tax credit equals $28,000 (the lesser of
$28,000 and $30,000).

(f) Two-consecutive-taxable year credit
period limitation. The credit is only available to an eligible small employer, including a tax-exempt eligible small employer,
during that employer’s credit period. For
a transition rule for 2014, see paragraph
(i) of this section. To prevent the avoidance of the two-year limit on the credit period through the use of successor entities,
a successor entity and a predecessor entity
are treated as the same employer. For this
purpose, the rules for identifying successor entities under §31.3121(a)(1)–1(b) apply. Accordingly, for example, if an eligible small employer claims the credit for the
2014 and 2015 taxable years, that eligible
small employer’s credit period will have
expired so that any successor employer to
that eligible small employer will not be
able to claim the credit for any subsequent
taxable years.
(g) Premium payments by the employer
for a taxable year—(1) In general. Only
premiums paid by an eligible small employer or tax-exempt eligible small employer on behalf of each employee en-

223

rolled in a QHP or payments paid to the
issuer in accordance with paragraph (d)(2)
of this section are counted in calculating
the credit. If an eligible small employer
pays only a portion of the premiums for
the coverage provided to employees (with
employees paying the rest), only the portion paid by the employer is taken into account. Premiums paid on behalf of seasonal workers may be counted in determining the amount of the credit (even though
seasonal worker wages and hours of service are not included in the FTE and average annual FTE wage calculation unless the seasonal worker works for the employer on more than 120 days during the
taxable year).
(2) Excluded amounts—(i) Salary reduction amounts. Any premium paid pursuant to a salary reduction arrangement
under a section 125 cafeteria plan is not
treated as paid by the employer for purposes of section 45R and these regulations.
For this purpose, premiums paid with employer-provided flex credits that employees may elect to receive as cash or other
taxable benefit are treated as paid pursuant
to a salary reduction arrangement under a
section 125 cafeteria plan.
(ii) HSAs, HRAs, and FSAs. Employer
contributions to, or amounts made available under, health savings accounts, reimbursement arrangements, and health flexible spending arrangements are not taken
into account in determining the premium
payments by the employer for a taxable
year.
(h) Rules applicable to trusts, estates,
regulated investment companies, real estate investment trusts and cooperative organizations. Rules similar to the rules of
section 52(d) and (e) and the regulations
thereunder apply in calculating and apportioning the credit with respect to a trust,
estate, a regulated investment company or
real estate investment trusts or cooperative
organization.
(i) Transition rule for 2014— (1) In
general. This paragraph (i) applies if as
of August 26, 2013, an eligible small employer offers coverage on a plan year that
begins on a date other than the first day of
its taxable year. In such a case, if an eligible small employer has a health plan year
beginning after January 1, 2014 but before
January 1, 2015 (2014 health plan year)
that begins after the start of its first taxable year beginning after January 1, 2014

September 16, 2013

(2014 taxable year), and the employer offers one or more QHPs to its employees
through a SHOP Exchange as of the first
day of its 2014 health plan year, then the eligible small employer is treated as offering
coverage through a SHOP Exchange for
its entire 2014 taxable year for purposes
of section 45R if the health care coverage
provided from the first day of the 2014 taxable year through the day immediately preceding the first day of the 2014 health plan
year would have qualified for a credit under section 45R using the rules applicable
to taxable years beginning before January
1, 2014. If the eligible small employer
claims the section 45R credit in the 2014
taxable year, the 2014 taxable year begins
the first year of the credit period.
(2) Example. The following example
illustrates the rule of paragraph (i) of this
section. For purposes of this example, the
eligible small employer is not a tax-exempt
organization. No other adjustments or limitations on the credit apply other than those
adjustments and limitations explicitly set
forth in the example.
Example. (i) Facts. An eligible small employer
(Employer) has a 2014 taxable year that begins January 1, 2014 and ends on December 31, 2014, and
a 2014 health plan year that begins July 1, 2014 and
ends June 30, 2015. Employer offers a QHP through
a SHOP Exchange the coverage under which begins
July 1, 2014. Employer provides coverage from January 1, 2014 through June 30, 2014 that would have
qualified for a credit under section 45R using the rules
applicable to taxable years beginning before January
1, 2014.
(ii) Conclusion. Employer may claim the credit
at the 50% rate under section 45R for the entire 2014
taxable year using the rules under paragraph (i) of this
section. Accordingly, in calculating the credit, Employer may count premiums paid for coverage from
January 1, 2014 through June 30, 2014, as well as
premiums paid from July 1, 2014 through December
31, 2014. If Employer claims the credit for the 2014
taxable year, that taxable year is the first year of the
credit period.

(j) Effective/applicability date. This
section is applicable for periods after December 31, 2013.
§1.45R–4 Uniform percentage of premium
paid.
(a) In general. An eligible small employer must pay a uniform percentage
(not less than 50 percent) of the premium
for each employee enrolled in a qualified
health plan (QHP) offered to employees
by the employer through a small business
health options program (SHOP) Exchange.

September 16, 2013

(b) Employers offering one QHP. An
employer that offers a single QHP through
a SHOP Exchange must satisfy the requirements of this paragraph (b).
(1) Employers offering one QHP, selfonly coverage, composite billing. For an
eligible small employer offering self-only
coverage and using composite billing, the
employer satisfies the requirements of this
paragraph if it pays the same amount toward the premium for each employee receiving self-only coverage under the QHP,
and that amount is equal to at least 50 percent of the premium for self-only coverage.
(2) Employers offering one QHP, other
tiers of coverage, composite billing. For an
eligible small employer offering one QHP
providing at least one tier of coverage with
a higher premium than self-only coverage
and using composite billing, the employer
satisfies the requirements of this paragraph
(b)(2) if it either—
(i) Pays an amount for each employee
enrolled in that more expensive tier of coverage that is the same for all employees
and that is no less than the amount that the
employer would have contributed toward
self-only coverage for that employee, or
(ii) Meets the requirements of paragraph (b)(1) of this section for each tier of
coverage that if offers.
(3) Employers offering one QHP, selfonly coverage, list billing. For an eligible
small employer offering one QHP providing only self-only coverage and using list
billing, the employer satisfies the requirements of this paragraph (b)(3) if either—
(i) The employer pays toward the premium an amount equal to a uniform percentage (not less than 50 percent) of the
premium charged for each employee, or
(ii) The employer converts the individual premiums for self-only coverage
into an employer-computed composite
rate for self-only coverage, and, if an
employee contribution is required, each
employee who receives coverage under
the QHP pays a uniform amount toward
the self-only premium that is no more
than 50 percent of the employer-computed
composite rate for self-only coverage.
(4) Employers offering one QHP, other
tiers of coverage, list billing. For an eligible small employer offering one QHP providing at least one tier of coverage with
a higher premium than self-only coverage
and using list billing, the employer sat-

224

isfies the requirements of this paragraph
(b)(4) if it either—
(i) Pays toward the premium for each
employee covered under each tier of coverage an amount equal to or exceeding
the amount that the employer would have
contributed with respect to that employee
for self-only coverage, calculated either
based upon the actual premium that would
have been charged by the insurer for that
employee for self-only coverage or based
upon the employer-computed composite
rate for self-only coverage, or
(ii) Meets the requirements of paragraph (b)(3) of this section for each tier of
coverage that it offers substituting the employer-computed composite rate for each
tier of coverage for the employer-computed composite rate for self-only coverage.
(c) Employers offering more than one
QHP. If an eligible small employer offers
more than one QHP, the employer must
satisfy the requirements of this paragraph
(c). The employer may satisfy the requirements of this paragraph (c) in either of the
following two ways:
(1) QHP-by-QHP method. The employer makes payments toward the premium with respect to each QHP for which
the employer is claiming the credit that satisfy the uniform percentage requirement
under paragraph (b) of this section on a
QHP-by-QHP basis (so that the amounts
or percentages of premium paid by the employer for each QHP need not be identical,
but the payments with respect to each QHP
must satisfy paragraph (b) of this section);
or
(2) Reference QHP method. The employer designates a reference QHP and
makes employer contributions in accordance with the following requirements—
(i) The employer determines a level of
employer contributions for each employee
such that, if all eligible employees enrolled
in the reference QHP, the contributions
would satisfy the uniform percentage requirement under paragraph (b) of this section, or
(ii) The employer allows each employee to apply the minimum amount of
employer contribution determined necessary to meet the uniform percentage
requirement under paragraph (b) of this
section either toward the reference QHP
or toward the cost of coverage under any
of the other available QHPs.

2013–38 I.R.B.

(d) Special rules regarding employer
compliance with applicable State or local
law. An employer will be treated as satisfying the uniform percentage requirement
if the failure to otherwise satisfy the uniform percentage requirement is attributable solely to additional employer contributions made to certain employees to comply with an applicable State or local law.
(e) Examples. The following examples
illustrate the provisions of paragraphs (a)
through (d) of this section:
Example 1. (i) Facts. An eligible small employer
(Employer) offers a QHP on a SHOP Exchange, Plan
A, which uses composite billing. The premiums for
Plan A are $5,000 per year for self-only coverage, and
$10,000 for family coverage. Employees can elect
self-only or family coverage under Plan A. Employer
pays $3,000 (60% of the premium) toward self-only
coverage under Plan A and $6,000 (60% of the premium) toward family coverage under Plan A.
(ii) Conclusion. Employer’s contributions of 60%
of the premium for each tier of coverage satisfy the
uniform percentage requirement.
Example 2. (i) Facts. Same facts as Example 1,
except that Employer pays $3,000 (60% of the premium) for each employee electing self-only coverage under Plan A and pays $3,000 (30% of the premium) for each employee electing family coverage
under Plan A.
(ii) Conclusion. Employer’s contributions of 60%
of the premium toward self-only coverage and the
same dollar amount toward the premium for family
coverage satisfy the uniform percentage requirement,
even though the percentage is not the same.
Example 3. (i) Facts. Employer offers two QHPs,
Plan A and Plan B, both of which use composite
billing. The premiums for Plan A are $5,000 per year
for self-only coverage and $10,000 for family coverage. The premiums for Plan B are $7,000 per year for
self-only coverage and $13,000 for family coverage.
Employees can elect self-only or family coverage
under either Plan A or Plan B. Employer pays $3,000
(60% of the premium) for each employee electing
self-only coverage under Plan A, $3,000 (30% of the
premium) for each employee electing family coverage under Plan A, $3,500 (50% of the premium)
for each employee electing self-only coverage under
Plan B, and $3,500 (27% of the premium) for each
employee electing family coverage under Plan B.
(ii) Conclusion. Employer’s contributions of 60%
(or $3,000) of the premiums for self-only coverage
and the same dollar amounts toward the premium
for family coverage under Plan A, and of 50% (or
$3,500) of the premium for self-only of coverage and
the same dollar amount toward the premium for family coverage under Plan B, satisfy the uniform percentage requirement on a QHP-by-QHP basis; therefore the employer’s contributions to both plans satisfy
the uniform percentage requirement.
Example 4. (i) Facts. Same facts as Example 3,
except that Employer designates Plan A as the reference QHP. Employer pays $2,500 (50% of the premium) for each employee electing self-only coverage
under Plan A and pays $2,500 of the premium for
each employee electing family coverage under Plan

2013–38 I.R.B.

A or either self-only or family coverage under Plan
B.
(ii) Conclusion. Employer’s contribution of 50%
(or $2,500) toward the premium of each employee
enrolled under Plan A or Plan B satisfies the uniform
percentage requirement.
Example 5. (i) Facts. Employer receives a list
billing premium quote with respect to Plan X, a QHP
offered by Employer on a SHOP Exchange for health
insurance coverage for each of Employer’s four employees. For Employee L, age 20, the self-only premium is $3,000 per year, and the family premium is
$8,000. For Employees M, N and O, each age 40, the
self-only premium is $5,000 per year and the family premium is $10,000. The total self-only premium
for the four employees is $18,000 ($3,000 + (3 x
5,000)). Employer calculates an employer-computed
composite self-only rate of $4,500 ($18,000 / 4). Employer offers to make contributions such that each
employee would need to pay $2,000 of the premium
for self-only coverage. Under this arrangement, Employer would contribute $1,000 toward self-only coverage for L and $3,000 toward self-only coverage for
M, N, and O. In the event an employee elects family
coverage, Employer would make the same contribution ($1,000 for L or $3,000 for M, N, or O) toward
the family premium.
(ii) Conclusion. Employer satisfies the uniform
percentage requirement because it offers and makes
contributions based on an employer-calculated composite self-only rate such that, to receive self-only
coverage, each employee must pay a uniform amount
which is not more than 50% of the composite rate, and
it allows employees to use the same employer contributions toward family coverage.
Example 6. (i) Facts. Same facts as Example 5,
except that Employer calculates an employer-computed composite family rate of $9,500 (($8,000 + 3 x
10,000) / 4) and requires each employee to pay $4,000
of the premium for family coverage.
(ii) Conclusion. Employer satisfies the uniform
percentage requirement because it offers and makes
contributions based on a calculated self-only and
family rate such that, to receive either self-only or
family coverage, each employee must pay a uniform
amount which is not more than 50% of the composite
rate for coverage of that tier.
Example 7. (i) Facts. Same facts as Example
5, except that Employer also receives a list billing
premium quote from Plan Y with respect to a second QHP offered by Employer on a SHOP Exchange
for each of Employer’s 4 employees. Plan Y’s quote
for Employee L, age 20, is $4,000 per year for selfonly coverage or $12,000 per year for family coverage. For Employees M, N and O, each age 40, the
premium is $7,000 per year for self-only coverage
or $15,000 per year for family coverage. The total
self-only premium under Plan Y is $25,000 ($4,000
+ (3 x 7,000)). The employer-computed composite
self-only rate is $6,250 ($25,000 / 4). Employer designates Plan X as the reference plan. Employer offers to make contributions based on the employer-calculated composite premium for the reference QHP
(Plan X) such that each employee has to contribute
$2,000 to receive self-only coverage through Plan X.
Under this arrangement, Employer would contribute
$1,000 toward self-only coverage for L and $3,000
toward self-only coverage for M, N, and O. In the
event an employee elects family coverage through

225

Plan X or either self-only or family coverage through
Plan Y, Employer would make the same contributions
($1,000 for L or $3,000 for M, N, or O) toward that
coverage.
(ii) Conclusion. Employer satisfies the uniform
percentage requirement because it offers and makes
contributions based on the employer-calculated composite self-only premium for the Plan X reference
QHP such that, in order to receive self-only coverage,
each employee must pay a uniform amount which is
not more than 50% of the self-only composite premium of the reference QHP; it allows employees to
use the same employer contributions toward family
coverage in the reference QHP or coverage through
another QHPs.
Example 8. (i) Facts. Employer has five employees. Employer is located in a State that requires employers to pay 50% of employees’ premium costs, but
also requires that an employee’s contribution not exceed a certain percentage of the employee’s monthly
gross earnings from that employer. Employer offers
to pay 50% of the premium costs for all its employees, and to comply with the State law, Employer contributes more than 50% of the premium costs for two
of its employees.
(ii) Conclusion. Employer satisfies the uniform
percentage requirement because its failure to otherwise satisfy the uniform percentage requirement is
attributable solely to compliance with the applicable
State or local law.

(f) Effective/applicability date. This
section is applicable for periods after December 31, 2013.
§1.45R–5 Claiming the credit.
(a) Claiming the credit. The credit is
a general business credit and is claimed
on an eligible small employer’s annual income tax return and offsets an employer’s
actual tax liability for the year. The credit
is claimed by attaching Form 8941, Credit
for Small Employer Health Insurance Premiums, to the eligible small employer’s income tax return or, in the case of a tax-exempt eligible small employer, by attaching
Form 8941 to the employer’s Form 990–T,
Exempt Organization Business Income Tax
Return. To claim the credit, a tax-exempt
eligible small employer must file a form
990–T with an attached Form 8941, even
if a Form 990–T would not otherwise be
required to be filed.
(b) Estimated tax payments and alternative minimum tax (AMT) liability.
An eligible small employer may reflect
the credit in determining estimated tax
payments for the year in which the credit
applies in accordance with the estimated
tax rules as set forth in section 6654 and
6655 and the applicable regulations. An
eligible small employer may also use the
credit to offset the employer’s alterna-

September 16, 2013

tive minimum tax (AMT) liability for the
year, if any, subject to certain limitations
based on the amount of an eligible small
employer’s regular tax liability, AMT liability and other allowable credits. See
section 38(c)(1), as modified by section
38(c)(4)(B)(vi). However, an eligible
small employer, including a tax-exempt
eligible small employer, may not reduce
its deposits and payments of employment
tax (that is, income tax required to be
withheld under section 3402, social security and Medicare tax under sections 3101
and 3111, and federal unemployment tax
under section 3301) during the year in
anticipation of the credit.
(c) Reduction of section 162 deduction.
No deduction under section 162 is allowed
for the eligible small employer for that portion of the health insurance premiums that
is equal to the amount of the credit under
§1.45R–2.
(d) Effective/applicability date. This
section is applicable for periods after December 31, 2013.

September 16, 2013

Heather C. Maloy,
Acting Deputy Commissioner for
Services and Enforcement.
(Filed in the Office of the Federal Register on August 23,
2013, 8:45 a.m., and published in the issue of the Federal
Register for August 26, 2013, 78 F.R. 52719)

•
•
•
•

Changes to Information Return
Publications and Electronic
Filing (FIRE) Testing Date
Announcement 2013–40
Beginning in 2013, the guidance for
electronic filing information returns will
cease to be issued as Revenue Procedures
and will be available as publications on
www.irs.gov:

•

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

226

Publication 1239 for Form 8027 will
be available by September 30, 2013
Publication 4810 for Form 8955–SSA
will be available by September 30,
2013
Publication 1187 for Form 1042–S will
be available by September 30, 2013
Publication 1516 for Form 8596 will
be available by September 30, 2013

The website for information returns on
www.irs.gov has been redesigned and will
be available by September 30, 2013. The
website will contain links to the above
publications, record specifications and
layouts, and other helpful information for
filing information returns. To access the
website go to www.irs.gov and search on
‘filing information returns’.
The test system for Filing Information Returns Electronically (FIRE) will
be available beginning on November 12,
2013.

2013–38 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the effect:
Amplified describes a situation where
no change is being made in a prior published position, but the prior position is being extended to apply to a variation of the
fact situation set forth therein. Thus, if
an earlier ruling held that a principle applied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare with modified, below).
Clarified is used in those instances
where the language in a prior ruling is being made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously published ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A

and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used in
a ruling that lists previously published rulings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than restate the substance and situation of a previously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same position published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single ruling a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new ruling does more than restate the substance

of a prior ruling, a combination of terms
is used. For example, modified and superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously published ruling is first modified and then, as
modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original ruling has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the additions, and supersedes all prior rulings in
the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.

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.

Abbreviations
The following abbreviations in current use
and formerly used will appear in material
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.

2013–38 I.R.B.

i

September 16, 2013

Numerical Finding List1

Treasury Decisions— Continued:

Bulletins 2013–27 through 2013–38

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

Announcements:

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

2013-35, 2013-27 I.R.B. 46
2013-36, 2013-33 I.R.B. 142
2013-37, 2013-34 I.R.B. 155
2013-38, 2013-36 I.R.B. 185

9626, 2013-34 I.R.B. 149
9628, 2013-36 I.R.B. 169
9629, 2013-37 I.R.B. 188
9630, 2013-38 I.R.B. 199
9631, 2013-38 I.R.B. 205

2013-39, 2013-35 I.R.B. 167
2013-40, 2013-38 I.R.B. 226

Notices:
2013-41, 2013-29 I.R.B. 60
2013-42, 2013-29 I.R.B. 61
2013-43, 2013-31 I.R.B. 113
2013-44, 2013-29 I.R.B. 62
2013-45, 2013-31 I.R.B. 116
2013-46, 2013-31 I.R.B. 117
2013-47, 2013-31 I.R.B. 120
2013-48, 2013-31 I.R.B. 120
2013-49, 2013-32 I.R.B. 127
2013-50, 2013-32 I.R.B. 133
2013-51, 2013-34 I.R.B. 153
2013-52, 2013-35 I.R.B. 159
2013-53, 2013-36 I.R.B. 173
2013-55, 2013-38 I.R.B. 207

Proposed Regulations:
REG-132251-11, 2013-37 I.R.B. 191
REG-112815-12, 2013-35 I.R.B. 162
REG-114122-12, 2013-35 I.R.B. 163
REG-140789-12, 2013-32 I.R.B. 136
REG-113792-13, 2013-38 I.R.B. 211
REG-115300-13, 2013-37 I.R.B. 197

Revenue Procedures:
2013-28, 2013-27 I.R.B. 28
2013-29, 2013-33 I.R.B. 141
2013-30, 2013-36 I.R.B. 173
2013-31, 2013-38 I.R.B. 208
2013-32, 2013-28 I.R.B. 55
2013-33, 2013-38 I.R.B. 209

Revenue Rulings:
2013-13, 2013-32 I.R.B. 124
2013-15, 2013-28 I.R.B. 47
2013-17, 2013-38 I.R.B. 201
2013-18, 2013-37 I.R.B. 186

Treasury Decisions:
9620, 2013-27 I.R.B. 1
9621, 2013-28 I.R.B. 49
9622, 2013-30 I.R.B. 64
9623, 2013-30 I.R.B. 73
9624, 2013-31 I.R.B. 86
1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2013–1 through 2013–26 is in Internal Revenue Bulletin
2013–26, dated June 24, 2013.

September 16, 2013

ii

2013–38 I.R.B.

Finding List of Current Actions on
Previously Published Items1

Revenue Procedures— Continued:

Bulletins 2013–27 through 2013–38

Modified and superseded by

Notices:

2004-48
Rev. Proc. 2013-30, 2013-36 I.R.B. 173
2004-49

2012-74

Sections 4.01 & 4.02 modified and superseded,

Obsoleted by

Section 4.03 obsoleted by

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

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

2013-16

2007-44

Superseded by

Modified by

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

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

2013-36

2007-62

Appendix updated by

Modified and superseded by

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

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

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

Pilot program discontinued by

2009-25

2013-39

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

Amplified by

2011-18

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

Modified and clarified by

2013-40

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

Amplified by

2011-49

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

Revenue Procedures:
81-60
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B. 55
83-59
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B. 55
86-42
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B. 55
90-52
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Modified by
Ann. 2013-37, 2013-34 I.R.B. 155
2012-25
Obsoleted in part by
Rev. Proc. 2013-28, 2013-27 I.R.B. 28
2013-1
Amplified and modified by
Rev. Proc. 2013-32, 2013-28 I.R.B. 55
2013-3
Amplified and modified by
Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Revenue Rulings:
58-66
Amplified and clarified by

96-30

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

Modified by

Treasury Decisions:

Rev. Proc. 2013-32, 2013-28 I.R.B. 55
97-48
Situation 1 superseded, Situation 2 obsoleted by

9612
Corrected by

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

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

2003-43

9622

Modified and superseded by
Rev. Proc. 2013-30, 2013-36 I.R.B. 173

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

2003-48
Obsoleted in part and superseded in part by
Rev. Proc. 2013-32, 2013-28 I.R.B. 55
2004-34
Modified and clarified by
Rev. Proc. 2013-29, 2013-33 I.R.B. 141

1

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

2013–38 I.R.B.

iii

September 16, 2013

Internal Revenue Service
Washington, DC 20224
Official Business
Penalty for Private Use, $300

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.

CUMULATIVE BULLETINS
The contents of the weekly Bulletins were consolidated semiannually into permanent, indexed, Cumulative Bulletins through the
2008–2 edition.

INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)
or write to the IRS Bulletin Unit, SE:W:CAR:MP:P:SPA, Washington, DC 20224.



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