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IRS Issues First Guidance on Nonprofit CO-OP Health Insurers - Emil Estafanous, CPA : Emil Estafanous, CPA

IRS Issues First Guidance on Nonprofit CO-OP Health Insurers

The IRS released a initial superintendence on a mandate for new competent nonprofit health word issuers underneath Sec. 501(c)(29) and has requested comments on specific issues (Notice 2011-23). The notice clarifies that a IRS is not nonetheless usurpation applications for approval of tax-exempt standing underneath Sec. 501(c)(29) and will not accept applications until it has released serve guidance. In addition, competent nonprofit health word issuers can't offer a health devise in a state until that state has in outcome certain health word marketplace reforms mandated by final year’s health caring legislation.

The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148) determined a new difficulty of tax-exempt organization, a competent nonprofit health word issuer, and compulsory a Department of Health and Human Services to set adult a Consumer Operated and Oriented Plan (CO-OP) module to encourage a origination of competent nonprofit health word issuers to offer competent health skeleton in sold and tiny organisation markets. The CO-OP module will make grants or loans to competent nonprofit health word issuers.

Under PPACA, a competent nonprofit health word issuer is tangible as an organization:

A competent nonprofit health word issuer that receives a loan or extend underneath a CO-OP module might request to a IRS to be famous as an classification described in Sec. 501(c)(29) and free from taxation underneath Sec. 501(a). An issuer will validate for a taxation extend underneath Sec. 501(c)(29) usually as prolonged as it complies with a mandate of PPACA and a terms of a loan or extend underneath a CO-OP program. An issuer that loses a free standing (or does not request for free status) will be theme to sovereign income taxation, including (if it qualifies as an word company) a special word association taxation manners in subchapter L of a Internal Revenue Code.

Qualification Conditions

Notice 2011-23 lists a array of specific conditions issuers contingency accommodate to validate for a taxation extend underneath Sec. 501(c)(29):

  • The classification contingency have perceived a extend or loan underneath a CO-OP module and be in correspondence with a mandate of PPACA §1322 and a terms of a loan or extend underneath a CO-OP program.
  • The classification contingency have given notice to a secretary of a Treasury in a demeanour prescribed by (not nonetheless issued) regulations that it is requesting for approval of a free standing as an classification described in Sec. 501(c)(29);
  • No partial of a organization’s net gain can habituate to a advantage of any private shareholder or individual, solely as supposing in slight exceptions listed in PPACA §1322(c)(4) (which requires a issuer’s increase to be used to reduce premiums, urge benefits, or for other programs dictated to urge a peculiarity of health caring delivered to a organization’s members).
  • No estimable partial of a organization’s activities can include of attempting to change legislation, and a classification can't attend in, or meddle in, any domestic campaign.

Qualified nonprofit health word issuers will be compulsory to record an annual information lapse and yield certain specified information, including a volume of pot compulsory by any state in that a classification is protected to emanate competent health skeleton and a volume of pot on hand.

The notice clarifies that competent nonprofit health word issuers are theme to the Sec. 4958 dig taxation on additional advantages exchange between an germane tax-exempt classification and a unfit person.

Application Process

The notice says a IRS intends to emanate serve superintendence describing how an classification might request for approval of free standing as an classification described in Sec. 501(c)(29). Until that superintendence is published, a IRS will not accept applications.

The notice also states that a IRS intends to commend a competent nonprofit health word issuer that has perceived a loan or extend underneath a CO-OP module as free effective from a after of a date of a arrangement or Mar 23, 2010, supposing that a issuer’s functions and activities have been unchanging with a mandate for extend given that date.

The notice requires competent nonprofit health word issuers claiming free standing underneath Sec. 501(c)(29) that have filed or intend to record an focus for extend to record Form 990, Return of Organization Exempt from Income Tax, for taxation years that finish before it receives a integrity letter. The issuer contingency prove on a lapse that it is filing a lapse in a faith that it is free underneath Sec. 501(a), though a IRS has not nonetheless famous a exemption.

Request for Comments

The IRS is requesting comments on a supplies of Notice 2011-23 and in sold on a need, if any, for serve superintendence per a provisions.

The IRS is privately requesting comments regarding:

  • Any special factors a IRS should cruise when substantiating a procedures for requesting for approval of tax-exempt standing underneath Sec. 501(c)(29);
  • The due effective date of a competent nonprofit health word issuer’s taxation exemption; and
  • Any special considerations per a breach on private inurement in Sec. 501(c)(29)(B)(ii); a reduction on lobbying activities in Sec. 501(c)(29)(B)(iii); a breach on domestic activities in Sec. 501(c)(29)(B)(iv); a taxation of additional advantage exchange underneath Sec. 4958; and a taxation of separate business taxable income underneath Sec. 511.

Comments should be submitted on or before May 27, 2011, to Notice.Comments@irscounsel.treas.gov, with “Notice 2011-23” in a theme line.

About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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