The Internal Revenue Service has released procedures for issuing determination letters and rulings on the tax-exempt status of nonprofit health insurance providers that want to participate in the CO-OP program included in the health care reform law.
In Revenue Procedure 2012-11, the IRS noted Tuesday that Section 1322 of the Affordable Care Act directs the Centers for Medicare and Medicaid Services to establish the Consumer Operated and Oriented Plan program. The purpose of the CO-OP program is to foster the creation of member-governed qualified nonprofit health insurance issuers, or QNHIIs, that will operate with a strong consumer focus and offer qualified health plans in the individual and small group markets.
CMS will provide loans and repayable grants to organizations applying to become QNHIIs to help cover their start-up costs and meet any solvency requirements in states in which the organization is licensed to issue qualified health plans.
A QNHII seeking recognition of tax exemption under Section 501(c)(29) of the Tax Code must submit a letter application, rather than a form, with Form 8718, User Fee for Exempt Organization Determination Letter Request, and include the appropriate user fee. The request should be mailed to IRS-TEGE, P.O. Box 2508, Cincinnati, OH 45201.
The letter must be signed by an authorized individual and must be accompanied by the following declaration: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete.”
A substantially completed letter application also must include:
(1) the QNHII’s Employer Identification Number (EIN);
(2) a statement of receipts and expenditures and a balance sheet for the current year and the three preceding years (or the years the QNHII was in existence, if less than four years). If the QNHII has not yet commenced operations, or has not completed one accounting period, a substantially completed application generally must include a proposed budget for two full accounting periods and a current statement of assets and liabilities;
(3) a detailed narrative statement of the QNHII’s past and proposed activities and a narrative description of the QNHII’s actual and anticipated receipts and contemplated expenditures;
(4) a copy of the QNHII’s organizing or enabling document that has been filed with and certified by an appropriate official of a state authority (e.g., stamped “Filed” and dated by the Secretary of State). Alternatively, if the QNHII is not required to file its organizing or enabling documents with a state authority, the organization may submit a copy of the organizing or enabling document that meets the requirements of a “conformed copy” as outlined in Rev. Proc. 68-14, 1968-1 C.B. 768.
(5) a current copy of the QNHII’s by-laws, if applicable, or any similar governing documents;
(6) a copy of both the Notice of Award issued by CMS and the fully executed Loan Agreement with CMS;
(7) the following representations regarding the QNHII:
• Except to the extent allowed by Section 1322(c)(4) of the Patient Protection and Affordable Care Act, no part of its net earnings inures to the benefit of any private shareholder or individual, or has so inured since the later of the date of formation or March 23, 2010;
• No substantial part of its activities constitutes, or has constituted since the later of the date of formation or March 23, 2010, carrying on propaganda, or otherwise attempting, to influence legislation; and
• It does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office, nor has it so participated or intervened since the later of the date of formation or March 23, 2010;
(8) a subject line or other indicator on the first page of the request in bold, underlined, and/or all capitals font indicating “SECTION 501(c)(29) CO-OP HEALTH INSURANCE ISSUER.”
(9) the correct user fee and Form 8718.
A determination letter or ruling recognizing exemption under Section 501(c)(29) is usually effective as of the later of the date of the QNHII’s formation or March 23, 2010 (the date of enactment of the Affordable Care Act) if:
• The QNHII’s purposes and activities prior to the date of issuance of the determination letter or ruling were consistent with the requirements for exemption; and
• The QNHII submits a substantially completed letter application within 15 months of the date of its fully executed loan agreement with CMS.
The IRS also issued TD 9574, which contains temporary regulations authorizing the IRS to prescribe the procedures by which certain entities may apply to the IRS for recognition of exemption from Federal income tax.
In addition, the IRS released REG-135071-11, which provides temporary regulations authorizing the IRS to prescribe the procedures by which a qualified nonprofit health insurance issuer participating in the Consumer Operated and Oriented Plan program, established by the Centers for Medicare and Medicaid Services, may apply for recognition as a tax-exempt organization under theTax Code.
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