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

T.D. 9630, page 199.

Thesefinalregulationsaddressconcernsthattaxpayersare

taking unreasonable positions with respect to the determina-

tion of discount rates in applying the income method to deter-

mine taxable income in connection with cost sharing arrange-

ments. The final regulations provide guidance on a 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 per-

centages and domestic investment yields needed by foreign

life insurance companies and foreign property and liability in-

surance companies to compute their minimum effectively con-

nected net investment income under section 842(b) of 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,

enacted by the Patient Protection and Affordable Care Act.

Comments requested by November 25, 2013.

ADMINISTRATIVE

Rev. Rul. 2013–17, page 201.

This revenue ruling amplifies and clarifies Revenue Ruling

58–66. In Revenue Ruling 58–66, 1958–1 C.B. 60, the Inter-

nal 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 Bu-

reau of the Census for the purposes of, but only to the extent

necessary in, the structuring of censuses and conducting re-

lated statistical activities authorized by law.

Notice 2013–55, page 207.

This notice updates the appendix to Notice 2013–1, which 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 su-

perseded 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 No-

tice 2013–1 is updated and Notice 2013–36 is superseded.

(Continued on the next page)

Finding Lists begin on page ii.

Rev. Proc. 2013–31, page 208.

This procedure publishes the amounts of unused 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 Conven-

tions, 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 sub-

stantive rulings necessary to promote a uniform application of

the tax laws, including all rulings that supersede, revoke, mod-

ify, or amend any of those previously published in the Bulletin.

All published rulings apply retroactively unless otherwise indi-

cated. Procedures relating solely to matters of internal man-

agement are not published; however, statements of 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, Leg-

islation 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 Rul-

ings. Bank Secrecy Act Administrative Rulings are issued by

the Department of the Treasury’s Office of the Assistant Secre-

tary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbar-

ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative 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 hous-

ing 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

theIncomeMethodandasa

ConsiderationinAssessing

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 considera-

tion in assessing the best method in con-

nection with a cost sharing arrangement

and as a specified application of the in-

come method.

DATES: Effective Date: These regulations

are effective on August 27, 2013.

Applicability Dates: For dates of appli-

cability, see §1.482–7(l).

FOR FURTHER INFORMATION

CONTACT: Mumal R. Hemrajani, (202)

622–3800 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

Finalcostsha

ring 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 FederalRegister(77 FR 3606, 77

FR 8143, and 77 FR 8144) on January

25, 2012, and February 14, 2012. Cer-

tain guidance regarding application of the

differential income stream approach was

reserved in the final cost sharing regula-

tions 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 ap-

plication of the differential income stream

approach were published in the Federal

(REG–145474–11) (TD 9569) on Decem-

ber 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 with-

out change.

Explanation of Provisions

The Treasury Department and the IRS

were aware that some taxpayers were tak-

ing 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 accor-

dance with the arm’s length standard. To

address these problems, the temporary

and proposed regulations provided addi-

tional guidance on evaluating the results

of an application of the income method

(§1.482–7T(g)(2)(v)(B)(2) (Implied dis-

count rates) and (g)(4)(vi)(F)(2)(Useof

differential income stream as a consid-

eration in assessing the best method)),

and provided a new specified application

of the income method for directly deter-

mining the arm’s length charge for PCT

Payments (§1.482–7(g)(4)(v) (Applica-

tion of income method using differential

income stream)).

Comments noted that

§1.482–7T(g)(4)(vi)(F)(2) explicitly pro-

vides that the implied discount rate may

be used to evaluate the reliability of the

corresponding actual discount rates asso-

ciated with the licensing and cost sharing

alternatives, but no similar explicit pro-

vision 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 circum-

stances, 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

aproff

ered 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 Trea-

sury decision is not a significant regula-

tory 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 Pro-

cedure 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 Regula-

tory Flexibility Act (5 U.S.C. chapter 6)

does not apply. Pursuant to section 7805(f)

2013–38 I.R.B. 199 September 16, 2013

of the Internal Revenue Code, these reg-

ulations have been submitted to the Chief

Counsel for Advocacy of the Small Busi-

ness Administration (CCASBA) for com-

ment on their impact on small business.

CCASBAhadnocomments.

Drafting Information

The principal author of these regula-

tions 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.Insomecir-

cumstances, the particular discount rate or

rates used for certain activities or transac-

tions logically imply that certain other ac-

tivities 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 cir-

cumstances, 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

(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 Ac-

tivity that would result (before PCT Pay-

ments) from undertaking the cost sharing

alternative rather than the licensing alter-

native (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 gener-

ate 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

Ex-

ample 1

, except that the taxpayer determines that the

appropriate discount rate for the cost sharing alterna-

tive is 20%. In addition, the taxpayer determines that

the appropriate discount rate for the licensing alter-

native 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

Example 2

, the Commissioner determines that

the taxpayer’s calculation of the present value of the

PCT Payments is outside of the interquartile range

(asshowninthesixthcolumnof

Example 2

), and

thus warrants an adjustment. Furthermore, in eval-

uating 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

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 antici-

pated incremental undiscounted profits to FS from

the incremental activity of undertaking the risk of de-

veloping 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 develop-

ment 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 Com-

missioner 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 Pay-

ments, from switching from the licensing alternative

to the cost sharing alternative) is 16%, which is sig-

nificantly less than 34.4%. This conclusion further

suggests that Taxpayer’s analysis is unreliable. See

paragraphs (g)(2)(v)(B)(

) and (g)(4)(vi)(F)(

)and

(

)ofthissection.

(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

shownincolumn6of

Example 2

Example 9

. The facts are the same as in

Exam-

ple 1

, except that additional data on discount rates are

availablethatwerenotavailablein

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 pri-

marily of resources, capabilities, and rights similar to

those contributed by USP in the PCT, the Commis-

sioner 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

September 16, 2013 200 2013–38 I.R.B.

determined by the Commissioner, no adjustments are

warranted. See paragraphs (g)(2)(v)(B)(

), (g)(4)(v),

and (g)(4)(vi)(F)(

) of this section.

*****

(l) Effective/applicability dates.Ex-

cept as otherwise provided in this para-

graph (l), this section applies on Decem-

ber 16, 2011. Paragraphs (g)(2)(v)(B)(2),

(g)(4)(vi)(F)(2), and (g)(4)(viii), Example

8of this section apply to taxable years be-

ginning on or after December 19, 2011.

Paragraphs (g)(4)(v) and (g)(4)(viii), Ex-

ample 9 apply to taxable years 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

oftheTreasury(TaxPolicy).

(Filed by the Office of the Federal Register on August 26,

2013, 8:45 a.m., and published in the issue of the Federal

Section 6013.—Joint

Returns of Income by

Husband and Wife

This revenue ruling amplifies and clar-

ifies Revenue Ruling 58–66. In Revenue

Ruling 58–66, 1958–1 C.B. 60, the Inter-

nal Revenue Service determined the sta-

tus 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,”

“husband,” and “wife” include an indi-

vidual married to a person of the same

sex, if the individuals are lawfully married

under state

law, and whether, for those

same purposes, the term “marriage” in-

cludes such a marriage between individu-

als of the same sex.

2. Whether, for Federal tax purposes,

the Internal Revenue Service (Service)

recognizes a marriage of same-sex in-

dividuals validly entered into in a 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 mar-

riages.

3. Whether, for Federal tax purposes,

the terms “spouse,” “husband and wife,”

“husband,” and “wife” include individuals

(whether of the opposite sex or same sex)

who have entered into a registered domes-

tic partnership, civil union, or other 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 “mar-

riage” includes such relationships.

LAW AND ANALYSIS

1. Background

In Revenue Ruling 58–66, 1958–1 C.B.

60, the Service determined the marital sta-

tus for Federal income tax purposes of in-

dividuals who have entered into a com-

mon-law marriage in a state that recog-

nizes common-law marriages.

The Ser-

vice 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 Rul-

ing 58–66, the Service stated that a couple

would be treated as married for purposes

of Federal income tax filing status and per-

sonal exemptions if the couple entered into

a common-law marriage in a state that rec-

ognizes that relationship as a valid mar-

riage.

The Service further concluded in Rev-

enue Ruling 58–66 that its position with

respect to a common-law marriage also

applies to a couple who entered into a

common-law marriage in a state that rec-

ognized such relationships and who later

moved to a state in which a ceremony is

required to establish the marital relation-

ship. The Service therefore held that a tax-

payer who enters into a common-law mar-

riage in a state that recognizes such mar-

riages shall, for purposes of Federal in-

come tax filing status and personal exemp-

tions, be considered married notwithstand-

ing that the taxpayer and the taxpayer’s

spouse are currently domiciled in a state

that requires a ceremony to establish the

marital relationship. Accordingly, the Ser-

vice 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 cou-

ple’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 ref-

erence 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 Ser-

vice 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, regu-

lation, 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.

1U.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.

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 re-

lating to the internal revenue laws that

includetheterms“spouse,”“marriage”

(and derivatives thereof, such as “marries”

and “married”), “husband and wife,” “hus-

band,” 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,inwhichthe

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 Ser-

vice also concludes that the terms “hus-

band 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 par-

ticular case at hand concerns the estate tax,

but DOMA is more than simply a determi-

nation of what should or should not be al-

lowed as an estate tax refund. Among the

over 1,000 statutes and numerous Federal

regulations that DOMA controls are laws

pertaining to . . . taxes.”). The Court

observed in particular that section 3 bur-

dened 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 gen-

der-specific terms in the Code to exclude

same-sex spouses would raise serious con-

stitutional questions. A well-established

principle of statutory interpretation holds

that, “where an otherwise acceptable con-

struction of a statute would raise serious

constitutional problems,” a court should

“construe the statute to avoid such prob-

lems unless such construction is plainly

contrary to the intent of Congress.” Ed-

ward 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. Sul-

livan, 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 Wind-

sor raises serious doubts about the con-

stitutionality of Federal laws that confer

marriage benefits and burdens only on op-

posite-sex married couples. In Windsor,

the Court stated that, “[b]y creating two

contradictory marriage regimes within the

same State, DOMA forces same-sex cou-

ples to live as married for the purpose

of state law but unmarried for the pur-

pose of Federal law, thus diminishing the

stability and predictability of basic per-

sonal 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 same-

sex marriages. Thus, the canon of consti-

tutional avoidance counsels in favor of in-

terpreting the gender-specific terms in the

Code to refer to same-sex spouses and cou-

ples.

Third, the text of the Code permits a

gender-neutral construction of the gender-

specific terms. Section 7701 of the Code

provides definitions of certain terms gen-

erally applicable for purposes of the Code

when the terms are not defined otherwise

in a specific Code provision and the def-

inition in section 7701 is not manifestly

incompatible with the intent of the spe-

cific 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 in-

clude a former husband or a former wife,

respectively, and that “husband” shall be

read as “wife” and “wife” as “husband”

in certain circumstances. Although Con-

gress’s specific instruction to read “hus-

band” and “wife” interchangeably in those

specific provisions could be taken as an in-

dication 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 indi-

cates otherwise, . . . words importing the

masculine gender include the feminine as

well.” The purpose of this provision was

to avoid having to “specify males and fe-

males 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. Trum-

bull, sponsor of Dictionary Act). This

provision has been read to require con-

struction 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 “un-

less the context indicates otherwise.” 1

U.S.C. § 1. “‘Context’” for purposes of the

September 16, 2013 202 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.” Rowlandv.Cal.Men’sColony,

Unit II Men’s Advisory Council,506U.S.

194, 199 (1993). Here, nothing in the

surrounding text forecloses a gender-neu-

tral 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,” indi-

cating 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 in-

come. 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 legisla-

tive history of section 6013, for example,

uses the term “married taxpayers” inter-

changeably with the terms “husband” and

“wife” to describe those individuals 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 “hus-

band 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 ex-

clude 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 in-

formation on the gender of taxpayers and

would have great difficulty administer-

ing a scheme that differentiated between

same-sex and opposite-sex married cou-

ples.

Therefore, consistent with the statutory

context, the Supreme Court’s decision in

Windsor, Revenue Ruling 58–66, and ef-

fective tax administration generally, the

Service concludes that, for Federal tax pur-

poses, the terms “husband and wife,” “hus-

band,” 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 individ-

uals of the same sex, and the term “mar-

riage” includes such marriages of individ-

uals of the same sex.

3. Marital Status Based on the Laws of

the State Where a Marriage Is Initially

Established

Consistent with the longstanding posi-

tion expressed in Revenue Ruling 58–66,

the Service has determinedtointerpretthe

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 ad-

ditional guidance on this subject and on

the application of Windsor with respect to

Federal tax administration. Other agen-

cies may provide guidance on other Fed-

eral programs that they administer that are

affected by the Code.

Under this rule, individuals of the same

sex will be considered to be lawfully mar-

ried 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 cen-

tury, 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 sub-

sequent changes in domicile, to achieve

uniformity, stability, and efficiency in

the application and administration of the

Code. Given our increasingly mobile so-

ciety, 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

generally apply with equal force in the

context of same-sex marriages.

In most Federal tax contexts, a

state-of-domicile rule would present seri-

ous 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, en-

tity, 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 em-

ployers that operate in more than one state,

or that have employees (or former em-

ployees) who live in more than one state,

or move between states with different mar-

riage recognition rules. Substantial finan-

cial and administrative burdens would 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, for-

mer 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 em-

ployee. 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 admin-

istered by employers and plan administra-

tors 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 oppo-

site-sex couples). For all of these reasons,

plan administration would grow increas-

ingly complex and certain rules, such as

those governing required distributions

2013–38 I.R.B. 203 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 com-

ply 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, Rev-

enue Ruling 58–66 is amplified to adopt a

general rule, for Federal tax purposes, that

recognizes the validity of a same-sex mar-

riage 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 do-

mestic 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 individ-

uals are lawfully married under state law,

and the term “marriage” includes such a

marriage between individuals of the same

sex.

2. For Federal tax purposes, the Ser-

vice 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 recog-

nize the validity of same-sex marriages.

3. For Federal tax purposes, the terms

“spouse,” “husband and wife,” “husband,”

and “wife” do not include individuals

(whether of the opposite sex or the same

sex) who have entered into a registered

domestic partnership, civil union, or other

similar formal relationship recognized un-

der state law that is not denominated as a

marriage under the laws of that state, and

theterm“marriage”doesnotincludesuch

formal relationships.

EFFECT ON OTHER REVENUE

RULINGS

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

ified.

PROSPECTIVE APPLICATION

The holdings of this ruling will be ap-

plied prospectively as of September 16,

2013.

Except as provided below, affected tax-

payers also may rely on this revenue rul-

ing for the purpose of filing original re-

turns, amended returns, adjusted returns,

or claims for credit or refund for any over-

payment of tax resulting from these hold-

ings, provided the applicable limitations

period for filing such claim under section

6511 has not expired. If an affected tax-

payer files an original return, amended re-

turn, adjusted return, or claim for credit or

refund in reliance on this revenue ruling,

allitemsrequiredtobereportedonthere-

turn or claim that are affected by the mari-

tal status of the taxpayer must be adjusted

to be consistent with the marital status re-

ported on the return or claim.

Taxpayers may rely (subject to the con-

ditions in the preceding paragraph regard-

ing the applicable limitations period and

consistency within the return or claim) on

this revenue ruling retroactively with re-

spect to any employee benefit plan or ar-

rangement or any benefit provided there-

under only for purposes of filing original

returns, amended returns, adjusted returns,

or claims for credit or refund of an over-

payment of tax concerning employment

tax and income tax with respect to em-

ployer-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-re-

duction 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 poten-

tial consequences of retroactive applica-

tion to all taxpayers involved, including

the plan sponsor, the plan or arrangement,

employers, affected employees and ben-

eficiaries. The Service anticipates that

the future guidance will provide sufficient

time for plan amendments and any nec-

essary corrections so that the plan and

benefits will retain favorable tax treatment

for which they otherwise qualify.

DRAFTING INFORMATION

The principal authors of this rev-

enue 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).

September 16, 2013 204 2013–38 I.R.B.

Section 6103.—Confi-

dentiality 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

ReturnstoOfficersand

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 confor-

mance with section 6103(j)(1) of the Inter-

nal Revenue Code (Code). The final regu-

lations 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 tax-

payers will not be identified, and, there-

fore, no taxpayers are affected by the dis-

closures authorized by this guidance.

DATES: Effective Date: These regulations

are effective on August 27, 2013.

Applicability Date: For dates of appli-

cability, 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 fur-

nish, upon written request by the Secre-

tary of Commerce, such return or return

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 ex-

isting regulations further defines such pur-

poses by reference to 13 U.S.C. chapter

5 and provides an itemized description of

the return information authorized to be dis-

closed for such purposes.

By letter dated July 24, 2009, the Sec-

retary of Commerce requested that addi-

tional items of return information be dis-

closed to the Bureau for purposes of al-

lowing the Bureau to study a developing

trend of increased use of contract workers.

Specifically, the Secretary of Commerce

requested disclosure of the following ad-

ditional items: (1) total number of docu-

ments 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 reg-

ulations formerly permitted disclosure

of the total number of documents re-

ported on Form 1096 transmitting Forms

1099–MISC and the total amount re-

ported on Form 1096 transmitting Forms

1099–MISC. At the request of the Secre-

tary of Commerce, the Treasury Depart-

ment 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 de-

termined that these items of return infor-

mation were needed again to provide crit-

ical data about contract labor necessary to

estimate total employment and payroll in

the United States. The employment and

compensation data compiledbytheBu-

reau are important to analysts and policy

makers in both the public and private sec-

tors. Thus, the Secretary of Commerce as-

serted that good cause existed to amend

§301.6103(j)(1)–1 of the regulations to re-

store these items to the list of items of re-

turn information that may be disclosed to

the Bureau. The Treasury Department and

the IRS agree that amending existing reg-

ulations to permit disclosure of these items

to the Bureau is appropriate to meet the an-

alytical needs of the Bureau.

Explanation of Provisions

On August 26, 2010, the IRS and the

Treasury Department published tempo-

rary regulations under §6103(j)(1) and

issued a notice of proposed rulemaking

cross-referencing those temporary reg-

ulations. 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 substan-

tive change.

Section 301.6103(j)(1)–1T authorizes

disclosure of three items of return infor-

mation. Upon publication, these final

regulations remove §301.6103(j)(1)–1T

because all three items of return infor-

mation listed in §301.6103(j)(1)–1T will

now be contained in §301.6103(j)(1)–1.

On December 31, 2007, temporary regu-

lations 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 fi-

nalized, but §301.6103(j)(1)(xxv)–1T was

inadvertently not removed. Accordingly,

these final regulations remove those tem-

porary 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 trans-

mitting Forms 1099–MISC and the total

amount reported on Form 1096 transmit-

ting Forms 1099–MISC (subsections xxix

and xxx of section 6103(j)(1)–1T).

Special Analyses

It has been determined that these fi-

nal regulations are not a significant regu-

latory action as defined in Executive Order

12866, as supplemented by Executive Or-

der 13563. Therefore, a regulatory assess-

ment is not required. It also has been de-

termined that section 553(b) of the Admin-

istrative Procedures Act (5 U.S.C. chapter

5) does not apply to these regulations, and

because the regulation does not impose a

collection of information on small entities,

2013–38 I.R.B. 205 September 16, 2013

the Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to sec-

tion 7805(f) of the Code, the notice of pro-

posed rulemaking preceding these regula-

tions was submitted to the Chief Counsel

for Advocacy of the Small Business Ad-

ministration for comment on its impact on

small business, and no comments were re-

ceived.

Drafting Information

The principal author of these regula-

tionsisMelissaAvrutine,Officeofthe

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 fol-

lows:

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

Par. 2. Section 301.6103(j)(1)–1 is

amended by:

1. Adding paragraphs (b)(3)(xxix) and

(b)(3)(xxx).

2. Revising paragraph (e),

The additions and revision read as fol-

lows:

§301.6103(j)(1)–1 Disclosure of return

information reflected on returns to officers

and employees of the Department of

Commerce for certain statistical purposes

and related activities.

*****

(b) * * *

(3) * * *

(xxix) Total number of documents re-

ported on Form 1096 transmitting Forms

1099–MISC.

(xxx) Total amount reported on Form

1096 transmitting Forms 1099–MISC.

*****

(e) Effective/applicability date. Para-

graphs (b)(3)(xxv), (b)(3)(xxix), and

(b)(3)(xxx) of this section apply to disclo-

sures to the Bureau of the Census made

on or after August 27, 2013. For rules

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)–1T [Removed]

Par. 3. Section 301.6103(j)(1)–1T is

removed.

Heather C. Maloy,

Acting Deputy Commissioner for

Services and Enforcement.

Approved August 19, 2013.

Mark J. Mazur,

Assistant Secretary

oftheTreasury(TaxPolicy).

(Filed by the Office of the Federal Register on August 26,

2013, 8:45 a.m., and published in the issue of the Federal

September 16, 2013 206 2013–38 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous

PerCapitaPaymentsfrom

Proceeds of Settlements of

Indian Tribal Trust Cases

Notice 2013–55

BACKGROUND

Notice 2013–1, 2013–3 IRB 281, pro-

vides guidance on the federal tax treatment

of per capita payments that members of In-

dian tribes receive from proceeds of cer-

tain settlements of tribal trust cases be-

tween the United States and those 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. Assiniboine and Sioux Tribes of the Fort Peck Reservation

2. Bad River Band of Lake Superior Chippewa Indians

3. Blackfeet Tribe of the Blackfeet Indian Reservation

4. Bois Forte Band of Chippewa

5. Cachil Dehe Band of Wintun Indians of the Colusa Rancheria

6. Chippewa Cree Tribe of the Rocky Boy’s Reservation

7. Coeur d’Alene Tribe

8. Confederated Salish and Kootenai Tribes

9. Confederated Tribes of Siletz Indians

10. Confederated Tribes of the Colville Reservation

11. Confederated Tribes of the Goshute Reservation

12. Crow Creek Sioux Tribe

13. Eastern Shawnee Tribe of Oklahoma

14. Hualapai Indian Tribe

15. Iowa Tribe of Kansas and Nebraska

16. Kaibab Band of Paiute Indians of Arizona

17. Kickapoo Tribe of Kansas

18. Lac Courte Oreilles Band of Lake Superior Chippewa Indians

19. Lac du Flambeau Band of Lake Superior Chippewa Indians

20. Leech Lake Band of Ojibwe

21. Lower Brule Sioux Tribe

22. Makah Indian Tribe of the Makah Reservation

23. Mescalero Apache Tribe

24. Minnesota Chippewa Tribe

25. Nez Perce Tribe

26. Nooksack Indian Tribe

27. Northern Cheyenne Tribe of Indians

28. Omaha Tribe of Nebraska

29. Passamaquoddy Tribe of Maine

30. Pawnee Nation

31. Prairie Band of Potawatomi Nation

32. Pueblo of Zia

33. Quechan Tribe of the Fort Yuma Reservation

34. Red Cliff Band of Lake Superior Chippewa Indians

35. Rincon Luiseño Band of Indians

36. Rosebud Sioux Tribe

37. Round Valley Indian Tribes

38. Salt River Pima-Maricopa Indian Community

39. Santee Sioux Tribe of Nebraska

40. Sault Ste. Marie Tribe

41. Shoshone-Bannock Tribes of the Fort Hall Reservation

42. Soboba Band of Luiseño Indians

43. Spirit Lake Dakotah Nation

44. Spokane Tribe of Indians

45. 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. Stillaguamish Tribe of Indians

47. Summit Lake Paiute Tribe

48. Swinomish Indian Tribal Community

49. Te-Moak Tribe of Western Shoshone Indians

50. Tohono O’odham Nation

51. Tulalip Tribes

52. Tule River Indian Tribe

53. Ute Indian Tribe of the Uintah and Ouray Reservation

54. Ute Mountain Ute Tribe

55. Winnebago Tribe of Nebraska

56. Qawalangin Tribe of Unalaska

57. Tlingit & Haida Tribes of Alaska

58. Northwestern Band of Shoshone Indians

59. Hoopa Valley Tribe

60. Ak-Chin Indian Community

61. Oglala Sioux Tribe

62. Yoruk Tribe

63. Cheyenne River Sioux Tribe

64. Paiute-Shoshone Indians of the Bishop Community of the Bishop Colony

65. Seminole Nation of Oklahoma

66. Otoe-Missouria Tribe of Oklahoma

67. Samish Indian Nation

68. Tonkawa Tribe of Indians of Oklahoma

69. Yakama Nation

70. 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 carry-

overs 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 pro-

cedure 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 Rev-

enue Service will publish in the Internal

Revenue Bulletin the amount of unused

housing credit carryovers allocated to

qualified states for a calendar year from

a national pool of unused credit authority

(the National Pool). This revenue proce-

dure publishes these amounts for calendar

year 2013.

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:

Qualified State Amount Allocated

Alabama 46,914

Arizona 63,757

California 370,106

Connecticut 34,930

Delaware 8,922

Florida 187,941

Georgia 96,511

Idaho 15,525

Illinois 125,264

Kansas 28,077

Louisiana 44,772

Maryland 57,251

Massachusetts 64,661

Michigan 96,155

Minnesota 52,334

September 16, 2013 208 2013–38 I.R.B.

Qualified State Amount Allocated

Mississippi 29,040

Nebraska 18,052

New Jersey 86,244

New Mexico 20,290

New York 190,400

North Carolina 94,878

North Dakota 6,807

Ohio 112,314

Oregon 37,937

Pennsylvania 124,177

Rhode Island 10,218

South Dakota 8,108

Texas 253,531

Verm on t 6 ,09 0

Virginia 79,641

Washington 67,101

West Virginia 18,051

EFFECTIVE DATE

Thisrevenueprocedureiseffective

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 rev-

enue 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 re-

fund, credit, or abatement; determination of tax lia-

bility

(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 for-

eign life insurance companies and foreign

property and liability insurance compa-

nies 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 pro-

vided for computing foreign insurance

companies’ liabilities for the estimated tax

and installment payments of estimated tax

for taxable years beginning after Decem-

ber 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. in-

come 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 for-

eign 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 Secre-

tary determines the domestic asset/liability

percentage separately for life insurance

companies and property and liability in-

surance companies. For the first taxable

year beginning after December 31, 2011,

the relevant domestic asset/liability per-

centages are:

[163.8] percent for foreign life insur-

ance companies, and

[186.5] percent for foreign property and

liability insurance companies.

.02 DOMESTIC INVESTMENT

YIELDS FOR 2012. The Secretary is

required to prescribe separate domestic in-

vestment yields for foreign life insurance

companies and for foreign property and

liability insurance companies. For the first

taxable year beginning after December 31,

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 re-

turn data following the same methodology

used for the 2011 year.

SECTION 3.

APPLICATION—ESTIMATED TAXES

To compute estimated tax and the in-

stallment payments of estimated tax due

for taxable years beginning after Decem-

ber 31, 2011, a foreign insurance com-

pany must compute its estimated tax pay-

ments by adding to its income other than

net investment income the greater of (i) its

net investment income as determined un-

der section 842(b)(5), that is actually ef-

fectively connected with the conduct of a

trade or business within the United States

for the relevant period, or (ii) the mini-

mum effectively connected net investment

income under section 842(b) that would re-

sult from using the most recently available

domestic asset/liability percentage and do-

mestic investment yield. Thus, for install-

ment payments due after the publication of

this revenue procedure, the domestic as-

set/liability percentages and the domestic

investment yields provided in this revenue

procedure must be used to compute the

minimum effectively connected net invest-

ment income. However, if the due date of

an installment is less than 20 days after the

2013–38 I.R.B. 209 September 16, 2013

date this revenue procedure is published

in the Internal Revenue Bulletin, the as-

set/liability percentages and domestic in-

vestment yields provided in Rev. Proc.

2012–40 may be used to compute the mini-

mum effectively connected net investment

income for such installment. For further

guidance in computing estimated tax, see

Notice 89–96.

SECTION 4. EFFECTIVE DATE

This revenue procedure is effective for

taxable years beginning after December

31, 2011.

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).

September 16, 2013 210 2013–38 I.R.B.

Part IV. Items ofGeneralInterest

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 pro-

posed regulations that provide guidance on

the tax credit available to certain small em-

ployers that offer health insurance cover-

age to their employees under section 45R

of the Internal Revenue Code (Code), en-

acted by the Patient Protection and Afford-

able Care Act. These proposed regulations

affect certain taxable employers and cer-

tain tax-exempt employers.

DATES: Comments and request for a pub-

lic hearing must be received by November

25, 2013.

ADDRESSES: Send submissions to:

CC:PA:LPD:PR (REG–113792–13), In-

ternal Revenue Service, room 5205, PO

Box 7604, Ben Franklin Station, Washing-

ton, 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),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue, NW,

Washington, DC, or sent electronically

via the Federal eRulemaking Portal

at http:www.regulations.gov (IRS

113792–13).

FOR FURTHER INFORMATION

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:

Background

Section 45R of the Internal Revenue

Code (Code) offers a tax credit to cer-

tain small employers that provide insured

health coverage to their employees. Sec-

tion 45R was addedtotheCodebysection

1421 of the Patient Protection and Afford-

able Care Act, enacted March 23, 2010,

Public Law No. 111–148 (as amended

by section 10105(e) of the Patient Protec-

tion and Affordable Care Act, which was

amended by the Health Care and Educa-

tion Reconciliation Act of 2010, Public

Law 111–152 (124 Stat. 1029)) (collec-

tively, the “Affordable Care Act”).

I. Section 45R

Section 45R(a) provides for a health in-

surance tax credit in the case of an eligi-

ble small employer for any taxable year in

the credit period. Section 45R(d) provides

that in order to be an eligible small em-

ployer with respect to any taxable year, an

employer must have in effect a contribu-

tion arrangement that qualifies under sec-

tion 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 sec-

tion 45R(d)(3)(B). The amount determined

under section 45R(d)(3)(B) is $25,000 (as

adjusted for inflation for taxable years be-

ginning after December 31, 2013).

Section 45R(d)(4) states that a contri-

bution arrangement qualifies if it requires

an eligible small employer to make a non-

elective 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 ar-

rangement that meets these requirements is

referred to as a “qualifying arrangement.”

See also the section of this preamble enti-

tled “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

atax-exempte

ligible 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 ar-

rangement 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 cover-

age. 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 tax-

able years beginning after December 31,

2013 pursuant to section 45R(d)(3)(B)).

Specifically, section 45R(c) provides that

the credit amount determined under sec-

tion 45R(b) is reduced (but not below

zero) by the sum of: (1) the credit amount

determined under section 45R(b) mul-

tiplied by a fraction, the numerator of

which is the total number of FTEs of the

employer in excess of 10 and the denom-

inator 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.

2013–38 I.R.B. 211 September 16, 2013

Section 45R(e)(2) provides that for tax-

able years beginning in or after 2014, the

credit period means the two-consecutive-

taxable 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) pro-

vides 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 nonelec-

tive contributions for premiums paid for

health insurance coverage (within the

meaning of section 9832(b)(1)) of an em-

ployee. 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 (De-

cember 20, 2010)). Notice 2010–44 also

provided transition relief for taxable years

beginningin2010withrespecttothere-

quirements for a qualifying arrangement

under section 45R.

II. Notice 2010–44

Notice 2010–44 addresses the eligibil-

ity requirements for employers to claim the

credit, provides guidance on how to calcu-

late and claim the credit, and explains the

effect on estimated tax, alternative min-

imum tax, and deductions. The notice

specifically describes the rules for how

employees are taken into account in de-

termining an employer’s FTEs, average

wages, and premiums paid, with certain in-

dividuals excluded and with employees of

certain related employers included.

III. Notice 2010–82

Notice 2010–82 expands on the guid-

ance provided in Notice 2010–44 and

provides additional guidance on determin-

ing whether to take into account spouses

and leased employees (as defined in sec-

tion 414(n)) in computing an employer’s

FTEs, average annual wages, and pre-

miums paid. The notice provides that

employer contributions to health reim-

bursement 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 eligi-

ble 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 re-

quirement 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 sat-

isfy the uniform percentage requirement

either by meeting the requirements pro-

vided 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 em-

ployees in multiple States, the application

of the average premium cap, and taxpayers

with fiscal taxable years.

Explanation of Provisions

These proposed regulations gener-

ally incorporate the provisions of Notice

2010–44 and Notice 2010–82 as modi-

fied 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 de-

scribe an arrangement under which an

eligible small employer pays premiums

for each employee enrolled in health insur-

ance 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

aQHPofferedbyanemployertoitsem-

ployees through a SHOP Exchange (but

see section II.I of this preamble for a de-

scription of certain transition guidance for

2014).

I. Eligibility for the Credit

A. Eligible small employer defined

Section 45R and these proposed reg-

ulations 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 an-

nual wages of less than $50,000 per FTE

(as adjusted for inflation for years after

December 31, 2013), and that has a qual-

ifying 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 em-

ployer). 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 or-

der 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 per-

forming services in a trade or business. For

example, a household employer that other-

wise satisfies the requirements of section

45R is an eligible small employer for pur-

poses 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.

September 16, 2013 212 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 un-

der section 414(b), (c), (m), or (o) are

treated as a single employer for purposes

of section 45R. Thus, for example, all em-

ployees of the employers treated as a sin-

gle employer are counted in computing the

single employer’s FTEs and average an-

nual wages. This applies to employers that

are corporations in a controlled group of

corporations, employers that are members

of an affiliated service group, and employ-

ers that are partnerships, sole proprietor-

ships, 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 em-

ployees taken into account are the same

as those in the previous notices. In gen-

eral, all employees (determined under the

common law standard) who perform ser-

vices for the employer during the taxable

year are taken into account in determin-

ing FTEs and average annual wages, in-

cluding those who are not performing ser-

vices in the employer’s trade or business.

(But see special rules for seasonal employ-

ees described in this section of the pre-

amble.) However, section 45R and 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 eligibil-

ity for the credit. The following individu-

als are not employees or are otherwise ex-

cluded for this purpose: independent con-

tractors (including sole proprietors); part-

ners in a partnership; shareholders owning

more than two percent of an S corporation;

owners of more than five percent of other

businesses; family members of these own-

ers and partners, including a child (or de-

scendant of a child), a sibling or step-sib-

ling, a parent (or ancestor of a parent), a

step-parent, a niece or nephew, an aunt or

uncle, or a son-in-law, daughter-in-law, fa-

ther-in-law, mother-in-law, brother-in-law,

or a sister-in-law. A spouse is also consid-

ered a family member for this purpose, as

is a member of the household who is not

a family member but qualifies as a depen-

dent on the individual income tax return of

an excluded individual.

Section 45R(d)(5) and these proposed

regulations provide that seasonal employ-

ees who work for 120 or fewer days dur-

ing the taxable year are not considered em-

ployees when determining FTEs and aver-

age annual wages, but premiums paid on

behalf of seasonal workers may be counted

in determining the amount of the credit.

Seasonal workers include retail workers

employed exclusively during holiday sea-

sons and workers employed exclusively

during the summer.

Compensation paid to a minister per-

forming 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 em-

ployee is determined under the common

law standard for determining worker sta-

tus. 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 minis-

ter is an employee, the minister is taken

into account in determining an employer’s

FTEs. However, because a minister per-

forming services in the exercise of his or

her ministry is treated as not engaged in

employment for purposes of FICA, com-

pensation 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

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 em-

ployee for the taxable year: actual hours

worked; days-worked equivalency; and

weeks-worked equivalency. Employers

need not use the same method for all em-

ployees and may apply different methods

for different classifications of employees

if the classifications are reasonable and

consistently applied. For example, an em-

ployer 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 de-

fined under section 3121(a) for purposes of

FICA, determined without considering the

social security wage base limitation. To

calculate average annual FTE wages, an

2013–38 I.R.B. 213 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 multi-

ple 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 Ex-

change. 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 em-

ployees ($3,500), but the average premium

for family coverage in the small group

market in the rating area in which the em-

ployees enroll is $6,000, for purposes of

calculating the credit the employer’s pre-

mium 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 eligi-

ble 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 af-

ter 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 nonre-

fundable credits. In addition, some States

offer premium subsidy programs for cer-

tain 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 pur-

poses of calculating the section 45R credit,

but the amount of the credit cannot ex-

ceed 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 pre-

mium 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 ar-

rangement” 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 pur-

poses 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 regu-

lations define the term “payroll taxes” as

(1) amounts required to be withheld un-

der section 3402

and (2) the employee’s

and employer’s shares of Medicare tax re-

quired to be withheld and paid under sec-

tions 3101(b) and 3111(b) on employees’

wages for the year. For a tax-exempt el-

igible small employer, the amount of the

credit cannot exceed the amount of the

payroll taxes of the employer during the

calendar year in which the taxable year be-

gins.

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 Pre-

miums, claiming the credit, or files Form

990–T, Exempt Organization Business In-

come Tax Return, with an attached Form

8941, is the first year of the two-consec-

utive-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-consec-

utive-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 pre-

vent the avoidance of the two-year limit on

the credit period through the use of suc-

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 iden-

tifying successor entities, these proposed

regulations generally apply the rules for

identifying successor employers applica-

ble under the employment tax provisions

for determining when wages paid by a pre-

decessor may be attributed to a succes-

sor employer (see §31.3121(a)(1)–1(b)).

Accordingly, under the proposed regula-

tions, an entity that would be treated as

a successor employer for employment tax

purposes will also be treated as a succes-

sor employer for purposes of the two-con-

secutive-taxable year credit period under

section 45R. Therefore, if the predeces-

sor 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.

If the employer pays a portion of the pre-

miums 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 re-

duction arrangement under a section 125

cafeteria plan is not treated as an em-

ployer-paid premium. Premiums paid with

employer-provided flex credits that em-

ployees 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 cal-

culating the credit.

A leased employee is defined in sec-

tion 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 per-

formed services for the service recipient on

a substantially full-time basis for a period

of at least one year under the primary di-

rection and control of the service recipient.

Leased employees are counted in comput-

ing a service recipient’s FTEs and average

annual wages. See section 45R(e)(1)(B).

See section II.I of this preamble for spe-

cial rules related to taxable years begin-

ning in 2014.

H. Trusts, estates, regulated 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-ex-

empt eligible small employer may be

eligible for the credit, these proposed reg-

ulations 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 com-

panies, 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 em-

ployer 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 eligibil-

ity 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 regu-

lations 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 Ex-

change. 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 uni-

form 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 sys-

tem of billing under which a health in-

surer 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 pre-

mium. In contrast, the term “list billing” is

defined as a billing system under which a

health insurer lists a separate premium for

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 em-

ployee or other factors.

C. Employers offering one QHP

For an employer offering one QHP un-

der a composite billing system with one

level of self-only coverage, these proposed

regulations provide that the uniform per-

centage 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 com-

posite billing system with different tiers of

coverage (for example, self-only, self plus

one, and family coverage) for which dif-

ferent 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 cov-

erage).

ForanemployerofferingoneQHP

under a list billing system that offers only

self-only coverage, the uniform percent-

age 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 re-

quired, each enrolled employee pays a

uniform amount toward the self-only pre-

mium 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 deter-

mined by adding the premiums for that

tier of coverage for all employees eligible

to participate in the employer’s health in-

surance plan (whether or not the eligible

employee enrolls in coverage under the

plan or in that tier of coverage under the

plan) and dividing by the total number of

such eligible employees.

For eligible small employers offering

one QHP under list billing with differ-

ent tiers of coverage for which different

premiums are charged, the uniform per-

centage 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 em-

ployee 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 cover-

age, or based on the employer-computed

composite rate for self-only coverage,

and the employer premium payments

within the same tier are uniform in per-

centage or amount. Alternatively, the

eligible small employer may satisfy the

uniform percentage requirement by meet-

ing the uniform percentage requirement

separately for each tier of coverage and

substituting the employer-computed com-

posite rate for that tier of coverage for the

employer-computed composite rate for

self-only coverage.

The proposed regulations provide ex-

amples of how the uniform percentage re-

quirement is applied in all of these situa-

tions.

D. Employers offering more than one plan

As set forth in these proposed regula-

tions, if an employer offers more than one

QHP through a SHOP Exchange, the uni-

form percentage requirement may be sat-

isfied in one of two ways. The first is on

a plan-by-plan basis, meaning that the em-

ployer’s premium payments for each plan

must individually satisfy the uniform per-

centage 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 uni-

form 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 ei-

ther determines a level of employer con-

tributions for each employee such that, if

all eligible employees enrolled in the ref-

erence plan, the contributions would sat-

isfy the uniform percentage requirement as

applied to that reference plan, or the em-

ployer allows each employee to apply the

minimum amount of employer contribu-

tion determined necessary to meet the uni-

form 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 percent-

age (50%) to an employee’s premium cost,

but also requires that the employee’s con-

tribution not exceed a certain percentage

of monthly gross earnings so that, in some

instances, the employer’s required contri-

bution for a particular employee may ex-

ceed 50 percent of the premium.

To sat-

isfy the uniform percentage requirement

under section 45R, that employer generally

would be required to increase the employer

contribution to all its employees’ premi-

ums to match the increase for that one em-

ployee, 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 require-

ment 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 Insur-

ance 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 Or-

ganization 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 es-

timated tax rules. The credit can also be

used to offset an eligible small employer’s

AMT liability for the year, subject to cer-

tain 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 ef-

fective the date the final regulations are

published in the Federal Register,andap-

ply to taxable years beginning after De-

cember 31, 2013. To assist with any prepa-

ration needed for transition to the require-

ments applicable to taxable years begin-

ning after December 31, 2014, employ-

ers may also rely on these proposed reg-

ulations for guidance for taxable years be-

ginning after December 31, 2013, and be-

fore December 31, 2014. If and to the

extent future guidance is more restrictive

than the guidance in these proposed regu-

lations, 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 Jan-

uary 1, 2015).

Availability of IRS Documents

IRS notices cited in this preamble are

made available by the Superintendent of

Documents, U.S. Government Printing Of-

fice, Washington, DC 20402.

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 Execu-

tive Order 13563. Therefore, a regulatory

assessment is not required. It has also been

determined that section 553(b) of the Ad-

ministrative Procedure Act (5 U.S.C. chap-

ter 5) does not apply to these regulations.

It is hereby certified that this regulation

will not have a significant economic im-

pact on a substantial number of small en-

tities. Accordingly, a regulatory flexibility

analysis is not required. While the num-

ber 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 applica-

ble credit, generally consisting of the an-

nual hours worked by its employees, the

annual wages paid to its employees, the

cost of the employees’ premiums for qual-

ified health plans and the employer’s con-

tribution towards those premiums, is in-

formation that the small employer gener-

ally will retain for business purposes and

be readily available to accumulate for pur-

poses of completing the necessary form

for claiming the credit. In addition, this

credit is available to any eligible small em-

ployer 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 em-

ployer first claims the credit). Accord-

ingly, 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 Flex-

ibility Analysis under the Regulatory Flex-

ibility Act (5 U.S.C. chapter 6) is not re-

quired.

Pursuant to section 7805(f) of the Code,

this notice of proposed rulemaking has

been submitted to the Chief Counsel for

Advocacy of the Small Business Adminis-

tration for comment on its impact on small

business.

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 De-

partment 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 elec-

tronic 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 par-

ticipated 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.

2013–38 I.R.B. 217 September 16, 2013

(7) Exchange.

(8) Family member.

(9) Full-time equivalent employee

(FTE).

(10) List billing.

(11) Net premium payments.

(12) Nonelective contribution.

(13) Payroll taxes.

(14) Qualified health plan (QHP).

(15) Qualifying arrangement.

(16) Seasonal worker.

(17) Small Business Health Options

Program (SHOP).

(18) State.

(19) Tax-exempt eligible small em-

ployer.

(20) Tier.

(21) United States.

(22) Wages.

(b) Effective/applicability date.

§1.45R–2 Eligibility for the credit.

(a) Eligible small employer.

(b) Application of section 414 employer

aggregation rules.

(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.

(1) In general.

(2) $25,000 dollar amount adjusted for

inflation.

(3) Examples

(d) State credits and subsidies for health

insurance.

(1) Payments to employer.

(2) Payments to issuer.

(3) Credits may not exceed net premium

payment.

(4) Examples.

(e) Payroll tax limitation for tax-exempt

eligible small employers.

(1) In general.

(2) Example.

(f) Two-consecutive-taxable year credit

period limitation.

(g) Premium payments by the employer

for a taxable year.

(1) In general.

(2) Excluded amounts.

(h) Rules applicable to trusts, estates,

regulated investment companies, real es-

tate investment trusts and cooperative or-

ganizations.

(i) Transition rule for 2014.

(1) In general.

(2) Example.

(j) Effective/applicability date.

§1.45R–4 Uniform percentage of premium

paid.

(a) In general.

(b) Employers offering one QHP.

(1) Employers offering one QHP, self-

only coverage, composite billing.

(2) Employers offering one QHP, other

tiers of coverage, composite billing.

(3) Employers offering one QHP, self-

only coverage, list billing.

(4) Employers offering one QHP, other

tiers of coverage, list billing.

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 alterna-

tive minimum tax (AMT) liability.

(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

thissectionapplytothissectionand

§§1.45R–2, 1.45R–3, 1.45R–4, and

1.45R–5.

(1) Average premium.Thetermaver-

age premium means an average premium

for the small group market in the rating

area in which the employee enrolls for cov-

erage. The average premium for the small

group market in a rating area is determined

by the Secretary of Health and Human Ser-

vices.

(2) Composite billing.Thetermcom-

posite billing means a system of billing un-

der which a health insurer charges a uni-

form premium for each of the employer’s

employees or charges a single aggregate

premium for the group of covered employ-

ees that the employer then divides by the

number of covered employees to deter-

mine 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-consec-

utive-taxable year period beginning with

the first taxable year beginning after De-

cember 31, 2013, for which the eligible

small employer files an income tax return

with an attached Form 8941, Credit for

Small Employer Health Insurance Pre-

miums (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 exam-

ples 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 Em-

ployer 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

September 16, 2013 218 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 pur-

suant to section 1381, and otherwise meets

the requirements of this paragraph (a)(4)

and §1.45R–2, is an eligible small em-

ployer.

(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 de-

finedinsection414(n)).

(iii) Certain individuals excluded.The

term employee does not include indepen-

dent contractors (including sole propri-

etors), partners in a partnership, share-

holders 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 part-

ners including the employee-spouse of a

shareholder owning more than two per-

cent of the stock of an S corporation, the

employee-spouse of an owner of more

than five percent of a business, the em-

ployee-spouse of a partner owning more

than a five percent interest in a partner-

ship, and the employee-spouse of a sole

proprietor.

(iv) Seasonal employees.Thetermem-

ployee does not include seasonal workers

unless the seasonal worker provides ser-

vices to the employer on more than 120

days during the taxable year.

(v) Dependents.Thetermemployee

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 com-

mon law standard for determining worker

status. If, under the common law stan-

dard, a minister is not an employee, the

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 min-

ister’s health insurance coverage are not

taken into account in computing the credit.

If, under the common law standard, a min-

ister is an employee, the minister is an

employee for purposes of this paragraph

(a)(5), and is taken into account in deter-

mining an employer’s FTEs, and premi-

ums paid by the employer for the min-

ister’s health insurance coverage can be

taken into account in computing the credit.

Because the performance of services by a

minister in the exercise of his or her min-

istry is not treated as employment for pur-

poses of the Federal Insurance Contribu-

tions Act (FICA), compensation paid to the

minister is not wages as defined under sec-

tion 3121(a), and is not counted as wages

for purposes of computing an employer’s

average annual wages.

(6) Employer-computed composite

rate.Thetermemployer-computed com-

posite rate referstoarateforatierof

coverage (such as self-only or family)

of a QHP that is the average rate deter-

mined by adding the premiums for that

tier of coverage for all employees eligi-

ble to participate in the QHP (whether or

not they actually receive coverage under

the plan or under that tier of coverage)

anddividingbythetotalnumberofsuch

eligible employees. The employer-com-

puted 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.ThetermExchange

means an exchange as defined in 45 CFR

155.20.

(8) Family member.Thetermfam-

ily member is defined with respect to a

taxpayer as a child (or descendant of a

child); a sibling or step-sibling; a par-

ent (or ancestor of a parent); a step-par-

ent; a niece or nephew; an aunt or un-

cle; or a son-in-law, daughter-in-law, fa-

ther-in-law, mother-in-law, brother-in-law

or sister-in-law. A spouse of any of these

family members is also considered a fam-

ily member.

(9) Full-time equivalent employee

(FTE). The number of full-time equiva-

lent employees (FTEs) is determined by

dividing the total number of hours of ser-

vice for which wages were paid by the

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.Thetermlist 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.Theterm

net premium payments means, in the case

of an employer receiving a State tax credit

or State subsidy for providing health in-

surance 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 insur-

ance company (or another entity licensed

under State law to engage in the busi-

ness of insurance), the employer’s net pre-

mium payments are the employer’s actual

premium payments. If a State-adminis-

tered program (such as Medicaid or an-

other program that makes payments di-

rectly to a health care provider or insur-

ance company on behalf of individuals and

their families who meet certain eligibility

guidelines) makes payments that are not

contingent on the maintenance of an em-

ployer-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 con-

tribution 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 eli-

gible 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 Af-

fordable 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)).

2013–38 I.R.B. 219 September 16, 2013

(15) Qualifying arrangement.Theterm

qualifying arrangement means an arrange-

ment that requires an eligible small em-

ployer to make a nonelective contribution

on behalf of each employee who enrolls in

a QHP offered to employees by the em-

ployer 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.Thetermsea-

sonal worker means a worker who per-

forms labor or services on a seasonal basis

as defined by the Secretary of Labor, in-

cluding (but not limited to) workers cov-

ered by 29 CFR 500.20(s)(1), and retail

workers employed exclusively during hol-

iday seasons.

(17) Small Business Health Options

Program (SHOP).ThetermSmall Busi-

ness 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.ThetermState means a State

as defined in section 7701(a)(10), includ-

ing the District of Columbia.

(19) Tax-exempt eligible small em-

ployer.Thetermtax-exempt eligible small

employer means an eligible small em-

ployer that is exempt from federal income

tax under section 501(a) as an organization

described in section 501(c).

(20) Tier.Thetermtier refers to a cat-

egory of coverage under a benefits pack-

age that varies only by the number of in-

dividuals covered. For example, self-only

coverage, self plus one coverage, and fam-

ily coverage would constitute three sepa-

rate tiers of coverage.

(21) United States.ThetermUnited

States means United States as defined in

section 7701(a)(9).

(22) Wages.Thetermwages for pur-

poses of section 45R means wages as de-

fined 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 De-

cember 31, 2013.

§1.45R–2 Eligibility for the credit.

(a) Eligible small employer.Tobeel-

igible for the credit, an employer must be

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 em-

ployees (FTEs), must have in effect a qual-

ifying arrangement, and the average an-

nual 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 be-

half of each employee who enrolls in a

qualified health plan (QHP) offered to em-

ployees 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 forego-

ing, an employer that is an agency or in-

strumentality of the federal government, or

of a State, local or Indian tribal govern-

ment, is not an eligible small employer un-

less it is an organization described in sec-

tion 501(c) that is exempt from tax 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 em-

ployer. 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 eli-

gible small employer. For eligibility stan-

dards for SHOP related to foreign employ-

ers, see 45 CFR 155.710. Paragraphs (b)

through (f) of this section provide the rules

for determining whether the requirements

to be an eligible small employer are met,

includingrulesrelatedtoidentifyingand

counting the employer’s number of the em-

ployer’s FTEs, counting the employees’

hours of service, and determining the em-

ployer’s average annual FTE wages for the

taxable year. For rules on determining

whether the uniform percentage require-

ment 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 em-

ployer 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

taken into account in determining whether

any member of the controlled group or af-

filiated 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 affil-

iated service group are taken into account

when determining the amount of the credit

for a group treated as a single employer un-

der these rules.

To be eligible for the credit, an em-

ployer must have employees as defined in

§1.45R–1(a)(5) during the taxable year.

All employees of the eligible small em-

ployer are taken into account for 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 per-

formance of duties for the employer dur-

ing the employer’s taxable year. It also in-

cludes each hour for which an employee

is paid, or entitled to payment, by the em-

ployer on account of a period of time dur-

ing which no duties are performed due to

vacation, holiday, illness, incapacity (in-

cluding disability), layoff, jury duty, mil-

itary duty or leave of absence (except that

no more than 160 hours of service are re-

quired to be counted for an employee on

account of any single continuous period

during which the employee performs no

duties).

(2) Permissible methods. In calculat-

ing the total number of hours of service

that must be taken into account for an

employee during the taxable year, eligi-

ble small employers need not use the same

method for all employees, and may apply

different methods for different classifica-

tions of employees if the classifications are

reasonable and consistently applied. El-

igible small employers may change the

method for calculating employees’ hours

of service for each taxable year. An eli-

gible small employer may use any of the

following three methods.

September 16, 2013 220 2013–38 I.R.B.

(i) Actual hours worked.Anem-

ployer 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 equiv-

alency 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 ser-

vice under paragraph (d)(1) of this section.

(iii) Weeks-worked equivalency.An

employer may use a weeks-worked equiv-

alency 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 ser-

vice 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 sec-

tion.

(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 Em-

ployee C would otherwise be credited with at least 1

hourofservicex51weeks).

Example 4

Excluded employees

.(i)

Facts

.Em-

ployee 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

the actual hours worked method described in para-

graph (d)(2)(i) of this section.

(ii)

Conclusion

. Employee D is a seasonal em-

ployee who worked for 120 days or less for 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 de-

termined by dividing the total hours of ser-

vice, determined in accordance with para-

graph (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 num-

ber, is then rounded to the next lowest

whole number. If, however, after divid-

ing the total hours of service by 2,080, the

resulting number is less than one, the em-

ployer 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 aver-

age 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 aver-

age 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 un-

der 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 mul-

tiple of $1,000). For purposes of determin-

ing the employer’s average annual wages

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 de-

termining whether the employer is an eligible small

employer for purposes of the credit. Because the em-

ployer does not have fewer than 25 FTEs for the tax-

able year, the employer is not an eligible small em-

ployer for purposes of this section, even if less than

25 employees (or FTEs) enroll for coverage through

the SHOP Exchange.

(g) Effective/applicability date.This

section is applicable for periods after De-

cember 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 arrange-

ment, or in the case of a tax-exempt eligi-

ble small employer, equals 35 percent of

the employer’s premium payments made

on behalf of its employees under a qual-

ifying arrangement. The employer’s tax

credit is subject to the following adjust-

ments 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 limita-

tion in the case of State credits or subsidies

described in paragraph (d) of this section;

(4) The payroll tax limitation for a tax-

exempt eligible small employer described

in paragraph (e) of this section;

(5) The two-consecutive-taxable year

credit period limitation, described in para-

graph (f) of this section;

(6) The rules with respect to the pre-

mium payments taken into account, de-

scribed in paragraph (g) of this section;

(7) The rules with respect to credits

applicable to trusts, estates, regulated

investment companies, real estate invest-

2013–38 I.R.B. 221 September 16, 2013

ment trusts and cooperatives described in

paragraph (h) of this section; and

(8) The transition relief for 2014 de-

scribed in paragraph (i) of this section.

(b) Average premium limitation—(1)

In general. The amount of an 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 exam-

ples illustrate the provisions of paragraph

(b)(1) of this section:

Example 1

Comparing premium payments to av-

erage premium for small group market

.(i)

Facts

.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 premi-

ums 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 Em-

ployer’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 aver-

age 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 pre-

mium for the small group market in Employer’s rat-

ing 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)).

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

of FTEs exceeds 10, the reduction is de-

termined 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 other-

wise 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 ex-

ceeding $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 sec-

tion is replaced with a dollar amount equal

to $25,000 multiplied by the cost-of-liv-

ing 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 exam-

ples, no employer is a tax-exempt organi-

zation and no other adjustments or limita-

tions 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 em-

ployer (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.

(ii)

Conclusion

. Employer’s credit equals

$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 employ-

ees (which does not exceed the average premium for

the small group market in the rating area) and other-

wise meets the requirements for the credit.

(ii)

Conclusion

. The initial amount of the credit is

determined before any reduction (50% x $96,000) =

$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 em-

ployer. If the employer is entitled to a

State tax credit or a premium subsidy that

is paid directly to the employer, the pre-

mium payment made by the employer is

not reduced by the credit or subsidy for

purposes of determining whether the em-

ployer 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 para-

graph (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 com-

pany (or another entity licensed under

State law to engage in the business of in-

surance) 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 be-

low 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 em-

ployer’s net premium payments as defined

in §1.45R–1(a)(11).

(4) Examples. The following exam-

ples 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 ap-

ply other than those adjustments and limi-

tations explicitly set forth in the example.

September 16, 2013 222 2013–38 I.R.B.

Example 1

State premium subsidy paid directly

to employer

.(i)

Facts

. The State in which an eligi-

ble small employer (Employer) operates provides a

health insurance premium subsidy of up to 40% of

the health insurance premiums for each eligible em-

ployee. The State pays the subsidy directly to Em-

ployer. Employer has one employee, Employee D.

Employee D’s health insurance premiums are $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 insur-

ance 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 Em-

ployerwithoutregardtothesubsidyfromtheState).

The maximum credit is $40 ($80 x 50%).

Example 2

State premium subsidy paid directly

to insurance company

.(i)

Facts

.TheStateinwhich

Employer operates provides a health insurance pre-

mium subsidy of up to 30% for each eligible em-

ployee. Employer has one employee, Employee E.

Employee E is enrolled in self-only coverage through

a qualified health plan (QHP) offered by Employer

through a SHOP Exchange. Employee E’s health in-

surance 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 em-

ployee’s share, which equal $70 per month. Em-

ployer 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 pre-

mium payment

.(i)

Facts

. Employer is an eligible

small employer that is not a tax-exempt organiza-

tion. 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 cov-

erage under the QHP offered to Employee F by Em-

ployer 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 pre-

mium payment. The amount of the premium for cal-

culating the credit is also $70 per month.

(ii)

Conclusion

. The maximum credit without ad-

justments or limitations is $35 ($70 x 50%). Em-

ployer’s net premium payment is $20 (the amount ac-

tually paid by Employer excluding the State subsidy).

Because the credit may not exceed Employer’s net

premium payment, the credit is $20 (the lesser of $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 ex-

ceed the total amount of payroll taxes (as

defined in §1.45R–1(a)(13)) of the em-

ployer during the calendar year in which

the taxable year begins.

(2) Example. The following example il-

lustrates the provisions of paragraph (e)(1)

of this section. For purposes of this exam-

ple, the eligible small employer’s taxable

year and plan year begin during or after

2014. No other adjustments or limitations

on the credit apply other than those adjust-

ments and limitations explicitly set forth in

the example.

Example

Calculating the maximum credit for a

tax-exempt eligible small employer

.(i)

Facts

.Em-

ployer 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 aver-

age 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 avail-

able to an eligible small employer, includ-

ing 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 avoid-

ance of the two-year limit on the credit pe-

riod 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 succes-

sor entities under §31.3121(a)(1)–1(b) ap-

ply. Accordingly, for example, if an eligi-

ble small employer claims the credit for 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 em-

ployer or tax-exempt eligible small em-

ployer on behalf of each employee en-

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 providedtoemployees(with

employees paying the rest), only the por-

tion paid by the employer is taken into ac-

count. Premiums paid on behalf of sea-

sonal workers may be counted in determin-

ing the amount of the credit (even though

seasonal worker wages and hours of ser-

vice are not included in the FTE and av-

erage annual FTE wage calculation un-

less the seasonal worker works for the em-

ployer on more than 120 days during the

taxable year).

(2) Excluded amounts—(i) Salary re-

duction amounts. Any premium paid pur-

suant to a salary reduction arrangement

under a section 125 cafeteria plan is not

treated as paid by the employer for pur-

poses of section 45R and these regulations.

For this purpose, premiums paid with em-

ployer-provided flex credits that employ-

ees may elect to receive as cash or 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 avail-

able under, health savings accounts, reim-

bursement arrangements, and health flex-

ible 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 es-

tate investment trusts and cooperative or-

ganizations. Rules similar to the rules of

section 52(d) and (e) and the regulations

thereunder apply in calculating and appor-

tioning 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 em-

ployer 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 eligi-

ble 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 tax-

able year beginning after January 1, 2014

2013–38 I.R.B. 223 September 16, 2013

(2014 taxable year), and the employer of-

fers one or more QHPs to its employees

through a SHOP Exchange as of the first

day of its 2014 health plan year, then the el-

igible 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 tax-

able year through the day immediately pre-

ceding the first day of the 2014 health plan

year would have qualified for a credit un-

der 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 lim-

itations 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 Jan-

uary 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 Jan-

uary 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, Em-

ployer 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 De-

cember 31, 2013.

§1.45R–4 Uniform percentage of premium

paid.

(a) In general. An eligible small em-

ployer 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.

(b) Employers offering one QHP.An

employer that offers a single QHP through

a SHOP Exchange must satisfy the re-

quirements of this paragraph (b).

(1) Employers offering one QHP, self-

only coverage, composite billing.Foran

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 to-

ward the premium for each employee re-

ceiving self-only coverage under the QHP,

and that amount is equal to at least 50 per-

cent of the premium for self-only cover-

age.

(2) Employers offering one QHP, other

tiers of coverage, composite billing.Foran

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 cov-

erage 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 para-

graph (b)(1) of this section for each tier of

coverage that if offers.

(3) Employers offering one QHP, self-

only coverage, list billing. For an eligible

small employer offering one QHP provid-

ing only self-only coverage and using list

billing, the employer satisfies the require-

ments of this paragraph (b)(3) if either—

(i) The employer pays toward the pre-

mium an amount equal to a uniform per-

centage (not less than 50 percent) of the

premium charged for each employee, or

(ii) The employer converts the indi-

vidual 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

theQHPpaysauniformamounttoward

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 eligi-

ble small employer offering one QHP pro-

viding at least one tier of coverage with

a higher premium than self-only coverage

and using list billing, the employer sat-

isfies the requirements of this paragraph

(b)(4) if it either—

(i) Pays toward the premium for each

employee covered under each tier of cov-

erage 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 para-

graph (b)(3) of this section for each tier of

coverage that it offers substituting the em-

ployer-computed composite rate for each

tier of coverage for the employer-com-

puted composite rate for self-only cover-

age.

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 require-

mentsofthisparagraph(c)ineitherofthe

following two ways:

(1) QHP-by-QHP method. The em-

ployer makes payments toward the pre-

mium with respect to each QHP for which

the employer is claiming the credit that sat-

isfy 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 em-

ployer for each QHP need not be identical,

but the payments with respect to each QHP

must satisfy paragraph (b) of this section);

(2) Reference QHP method. The em-

ployer designates a reference QHP and

makes employer contributions in accor-

dance 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 re-

quirement under paragraph (b) of this sec-

tion, or

(ii) The employer allows each em-

ployee to apply the minimum amount of

employer contribution determined nec-

essary 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.

September 16, 2013 224 2013–38 I.R.B.

(d) Special rules regarding employer

compliance with applicable State or local

law. An employer will be treated as satis-

fying the uniform percentage requirement

if the failure to otherwise satisfy the uni-

form percentage requirement is attribut-

able solely to additional employer contri-

butions made to certain employees to com-

ply with an applicable State or local law.

(e) Examples. The following 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 pre-

mium)towardfamilycoverageunderPlanA.

(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 pre-

mium) for each employee electing self-only cover-

age under Plan A and pays $3,000 (30% of the pre-

mium) for each employee electing family 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 cover-

age. 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 cov-

erage 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 fam-

ily coverage under Plan B, satisfy the uniform per-

centage requirement on a QHP-by-QHP basis; there-

fore the employer’s contributions to both plans satisfy

the uniform percentage requirement.

Example 4

.(i)

Facts

. Same facts as

Example 3

except that Employer designates Plan A as the ref-

erence QHP. Employer pays $2,500 (50% of the pre-

mium) for each employee electing self-only coverage

under Plan A and pays $2,500 of the premium for

each employee electing family coverage under Plan

A or either self-only or family coverage under Plan

(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

offeredbyEmployeronaSHOPExchangeforhealth

insurance coverage for each of Employer’s four em-

ployees. For Employee L, age 20, the self-only pre-

mium is $3,000 per year, and the family premium is

$8,000. For Employees M, N and O, each age 40, the

self-only premium is $5,000 per year and the fam-

ily 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). Em-

ployer offers to make contributions such that each

employee would need to pay $2,000 of the premium

for self-only coverage. Under this arrangement, Em-

ployer would contribute $1,000 toward self-only cov-

erage for L and $3,000 toward self-only coverage for

M, N, and O. In the event an employee elects family

coverage, Employer would make the same contribu-

tion($1,000forLor$3,000forM,N,orO)toward

the family premium.

(ii)

Conclusion

. Employer satisfies the uniform

percentage requirement because it offers and makes

contributions based on an employer-calculated com-

posite 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 contri-

butions toward family coverage.

Example 6

.(i)

Facts

. Same facts as

Example 5

except that Employer calculates an employer-com-

puted composite family rate of $9,500 (($8,000 + 3 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

, except that Employer also receives a list billing

premiumquotefromPlanYwithrespecttoasec-

ond 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 self-

only coverage or $12,000 per year for family cover-

age. 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 des-

ignates Plan X as the reference plan. Employer of-

fers to make contributions based on the employer-cal-

culated composite premium for the reference QHP

(Plan X) such that each employee has to contribute

$2,000 to receive self-only coverage through Plan X.

Under this arrangement, Employer would contribute

$1,000 toward self-only coverage for L and $3,000

toward self-only coverage for M, N, and O. In the

event an employee elects family coverage through

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 com-

posite 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 pre-

mium 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 employ-

ees. Employer is located in a State that requires em-

ployers to pay 50% of employees’ premium costs, but

also requires that an employee’s contribution not ex-

ceed 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 employ-

ees, and to comply with the State law, Employer con-

tributes more than 50% of the premium costs for two

of its employees.

(ii)

Conclusion

. Employer satisfies the uniform

percentage requirement because its failure to other-

wise 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 De-

cember 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 in-

come 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 Pre-

miums, to the eligible small employer’s in-

come tax return or, in the case of a tax-ex-

empt eligible small employer, by 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 al-

ternative 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-

2013–38 I.R.B. 225 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 li-

ability 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 secu-

rity and Medicare tax under sections 3101

and 3111, and federal unemployment tax

under section 3301) during the year in

anticipation of the credit.

No deduction under section 162 is allowed

for the eligible small employer for that por-

tion 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 De-

cember 31, 2013.

Heather C. Maloy,

Acting Deputy Commissioner for

Services and Enforcement.

(Filed in the Office of the Federal Register on August 23,

2013, 8:45 a.m., and published in the issue of the Federal

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

•

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 Informa-

tion Returns Electronically (FIRE) will

be available beginning on November 12,

2013.

September 16, 2013 226 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 ef-

fect:

Amplified describes a situation where

no change is being made in a prior pub-

lished position, but the prior position is be-

ingextendedtoapplytoavariationofthe

fact situation set forth therein. Thus, if

an earlier ruling held that a principle ap-

plied to A, and the new ruling holds that the

same principle also applies to B, the earlier

ruling is amplified. (Compare with modi-

fied,below).

Clarified is used in those instances

where the language in a prior ruling is be-

ing 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 pub-

lished 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 pub-

lished ruling that is not considered deter-

minative with respect to future transac-

tions. This term is most commonly used in

a ruling that lists previously published rul-

ings 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

beingstatedinanewruling.

Superseded describes a situation where

the new ruling does nothing more than re-

state the substance and situation of a previ-

ously published ruling (or rulings). Thus,

the term is used to republish under the

1986 Code and regulations the same po-

sition published under the 1939 Code and

regulations. The term is also used when

it is desired to republish in a single rul-

ing a series of situations, names, etc., that

were previously published over a period of

time in separate rulings. If the new rul-

ing does more than restate the substance

of a prior ruling, a combination of terms

is used. For example, modified and su-

perseded 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 pub-

lished 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 rul-

ing has been supplemented several times, a

new ruling may be published that includes

the list in the original ruling and the ad-

ditions, 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.

Abbreviations

The following abbreviations in current use

and formerly used will appear in material

publishedintheBulletin.

—Individual.

Acq.

—Acquiescence.

—Individual.

—Beneficiary.

—Bank.

B.T.A.

—Board of Tax Appeals.

—Individual.

C.B.

—Cumulative Bulletin.

CFR

—Code of Federal Regulations.

—City.

COOP

—Cooperative.

Ct.D.

—Court Decision.

—County.

—Decedent.

—Dummy Corporation.

—Donee.

Del. Order

—Delegation Order.

DISC

—Domestic International Sales Corporation.

—Donor.

—Estate.

—Employee.

E.O.

—Executive Order.

—Employer.

ERISA

—Employee Retirement Income Security Act.

—Executor.

—Fiduciary.

—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.

—Foreign corporation.

G.C.M.

—Chief Counsel’s Memorandum.

—Grantee.

—General Partner.

—Grantor.

—Insurance Company.

I.R.B.

—Internal Revenue Bulletin.

—Lessee.

—Limited Partner.

—Lessor.

—Minor.

Nonacq.

—Nonacquiescence.

—Organization.

—Parent Corporation.

PHC

—Personal Holding Company.

—Possession of the U.S.

—Partner.

PRS

—Partnership.

PTE

—Prohibited Transaction Exemption.

Pub. L.

—Public Law.

REIT

—Real Estate Investment Trust.

Rev. Proc.

—Revenue Procedure.

Rev. Rul.

—Revenue Ruling.

—Subsidiary.

S.P.R.

—Statement of Procedural Rules.

Stat.

—Statutes at Large.

—Target Corporation.

T.C.

—Tax Court.

T.D.

—Treasury Decision.

TFE

—Transferee.

TFR

—Transferor.

T.I.R.

—Technical Information Release.

—Taxpayer.

—Trust.

—Trustee.

U.S.C.

—United States Code.

—Corporation.

2013–38 I.R.B. i September 16, 2013

Numerical Finding List

Bulletins 2013–27 through 2013–38

Announcements:

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

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

142

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

155

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

185

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

167

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

226

Notices:

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

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

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

113

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

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.

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.

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.

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

201

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

186

Treasury Decisions:

9620, 2013-27 I.R.B.

9621, 2013-28 I.R.B.

9622, 2013-30 I.R.B.

9623, 2013-30 I.R.B.

9624, 2013-31 I.R.B.

Treasury Decisions— Continued:

9625, 2013-34 I.R.B.

147

9626, 2013-34 I.R.B.

149

9627, 2013-35 I.R.B.

156

9628, 2013-36 I.R.B.

169

9629, 2013-37 I.R.B.

188

9630, 2013-38 I.R.B.

199

9631, 2013-38 I.R.B.

205

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 Items

Bulletins 2013–27 through 2013–38

Notices:

2012-74

Obsoleted by

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

153

2013-16

Superseded by

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

207

2013-36

Appendix updated by

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

207

Superseded by

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

207

2013-39

Amplified by

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

120

2013-40

Amplified by

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

120

Revenue Procedures:

81-60

Modified by

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

83-59

Modified by

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

86-42

Modified by

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

90-52

Modified by

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

96-30

Modified by

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

97-48

Situation 1 superseded, Situation 2 obsoleted by

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

173

2003-43

Modified and superseded by

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

173

2003-48

Obsoleted in part and superseded in part by

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

2004-34

Modified and clarified by

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

141

Revenue Procedures— Continued:

2004-48

Modified and superseded by

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

173

2004-49

Sections 4.01 & 4.02 modified and superseded,

Section 4.03 obsoleted by

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

173

2007-44

Modified by

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

155

2007-62

Modified and superseded by

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

173

2009-25

Pilot program discontinued by

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

2011-18

Modified and clarified by

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

141

2011-49

Modified by

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

155

2012-25

Obsoleted in part by

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

2013-1

Amplified and modified by

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

2013-3

Amplified and modified by

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

Revenue Rulings:

58-66

Amplified and clarified by

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

201

Treasury Decisions:

9612

Corrected by

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

9622

Corrected by

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

167

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

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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)

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

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